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Organizational Theories

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Everything you need to know about the organizational theories. Organizational theory is the sociological study of formal social organizations, such as businesses and bureaucracies, and their interrelationship with the environment in which they operate.

It complements the studies of organizational behavior and human resource studies.

Organisational theory means the study of the structure, functioning and performance of organisation and the behaviour of individual and groups within it.

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List of organizational theories are:-

1. Classical or Traditional Theory 2. Human Relations or Neo-Classical Theory 3. Decision-Making Theory 4. Systems Approach 5. Weber’s Ideal of Bureaucracy 6. Modern Theory

7. Hawthorne Study 8. Contingency Theory 9. Motivation Theory 10. Decision Theory 11. Scientific Management Theory and 12. Administrative Theory.


Organisational Theories: Classical, Neo-Classical, Decision-Making and Modern Theories

Organisational Theories – Classical, Neo-Classical, Decision-Making and System Approach Theories of Organisation

The theories of, or approaches to, organisation may be classified as follows:

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1. The classical or traditional theory.

2. The Human Relations or Neo-classical theory.

3. The decision-making theory.

4. The systems approach.

1. The Classical Theory:

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The classical or traditional theory concentrates on the formal structure of organisation and leaves the human aspect of organisation to personnel specialists. The earliest writers on organisation, called the classical school, and their successors to the present day have discussed how to plan the formal organisation of work.

They have been concerned with the best way of dividing up the tasks to be done, with how to group these tasks together into departments, and how to deal with the problems of coordination. They have paid particular attention to organisational relationships between line and staff. They have stressed the need for a clear definition of responsibilities and authority. They have sought to enunciate the principles, which should be used in designing this formal structure.

The chief contribution of the classical school is the definition and analysis of the tasks that have to be considered in building up an organisation. The emphasis is on structural frame work in which grouped activities are assigned to people, authority relations are established, individual efforts are properly coordinated and responsibilities fixed. The structure is built to help accomplish enterprise goals more effectively.

The theory has been criticised on many counts, especially by the behavioural scientists. The approach of the classical writers is too concerned with the formal structure, not sufficiently with the individuals who make the structure work. It is a static approach, paying too little attention to the many interactions that take place between different parts of an organisation. The principles of organisation are too broad to provide much help in the actual work of organising.

Some of the principles are contradictory. Herbert A. Simon describes some of the principles as “no more than proverbs” and being simple generalisations devoid of predictive power. Since the classical theory ignores major facts of human nature, the newer theorists have developed some new approaches to the study of organisation.

2. The Human Relations Theory:

The human relations theory, also known as neo-classical theory, states that while designing an organisation structure, the people who are employed there and their behaviour should be taken into consideration. No manager can think solely of job descriptions, he has also to think of why people behave as they do and what influences their behaviour.

The Hawthorne studies, and many subsequent ones, have shown that the way the people behave at work is affected by many other factors than monetary consideration. The organisation is composed of individuals with different needs that can be studied and of groups of people who develop their own ways of doing things and their own code of conduct.

The proponents of the human relations school are research oriented. They try to find out what happens before seeking to explain it. This approach to the study of organisations has contributed much that can be of value to the manager – If he looks at a job only from the classical point of view, he will think of the tasks that have to be done. If he adopts the human relations approach, he will appreciate what it is like for the person who has to perform the tasks.

The human relations school has also its limitations. Some of its supporters have claimed too much for what can be achieved by thinking about peoples’ needs and behaviour. Much bigger limitation is that although we have learnt a lot about people in organisations, there is still a great deal that we do not understand about human behaviour.

3. The Decision-Making Theory:

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The next approach to organisation is known as the decision-making theory. Herbert A. Simon (who was awarded in the year 1978, the Nobel Prize mainly on the basis of this theory) regards organisation as a structure of decision makers. In an organisation, decisions are made at all levels, and important decisions tend to be made at higher levels. The decision making approach to organisation accepts the hierarchical form of organisation.

Simon suggested that the organisation structure be designed through an examination of the points at which decisions must be made and the persons from whom information must be required if decisions are to be satisfactory.

4. The Systems Approach:

The systems approach looks at the organisation as a total system comprising a number of interacting variables. This approach emphasises that we should not deal with problems in isolation, but consider their interactions. In fact, the word system means a regularly interacting or interdependent group of items forming a “unified whole”.

Thus, the systems approach is concerned with the interaction between the different aspect of the organisation, people, technology, formal structure, the physical setting, and environment. The advantage of approaching any problem is that it enables us to see the critical variables and constraints and their interaction with one another. It keeps us alert and constantly aware that one single element, phenomenon, or problem should not be treated without regard to its interacting consequences with other elements.

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For example, the managerial functions of planning, organis­ing, staffing, directing, leading and controlling are all interlocked, or contained within each other. All these functions can be conceived as sub-functions of each other.

It is also important to remember that the systems approach does not view organisation as a static arrangement of jobs but calls for identifying the functions required in terms of the decision areas involved in achieving goals. It calls for developing a pattern of inputs, outputs, feed backs, delays, and flows of materials and information. Frequent internal and external changes cause disturbances in the organisation.

Conse­quently, for survival and growth of the enterprise the management must adjust different variables so that they should function in an orderly fashion and preserve organisational, integrity. Organisation should be viewed as an open system, for neither objectives nor plans can possibly be set in the vacuum of a closed company system; Markets, government regulations, competitors, technology and many other elements of an enterprise environment affect plans and objectives and cannot be over­looked.

Thus, the manager has to always bear in mind that the organisation exists within a wider system of its community, of the government and of the country, all of which may affect it. In other words, it is a part of a larger system with which it reacts.

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All the aforementioned theories or approaches, the classical, the human relations, the decision-making and the systems, can be of help to the manager. One or two of them may be the most useful at a particular time, but an awareness of all of them is desirable. The classical principles are still widely used in organising, and the findings of the behavioural scientists are applied within a largely classical or formal structure.

Similarly, the decision-making theory does not altogether reject the organisational hierarchy and the systems approach is being used in conjunction with the classical theory. In fact as pointed out by John Dearden, …. “the systems approach is precisely what every good manager has been using for centuries.”

Since most managers still think of an organisation in terms of its formal structure, and since we are discussing the managerial function, we discuss organisation as a process and a structure. This does not mean that the other approaches will be ignored, but, good managers take note of all the approaches at appropriate occasions.


Organisational Theories – Weber’s Ideal of Bureaucracy, Modernization Theory, Hawthorne Study and Contingency Theory

Organizational theory is the sociological study of formal social organizations, such as businesses and bureaucracies, and their interrelationship with the environment in which they operate. It complements the studies of organizational behavior and human resource studies.

Organizations, which are defined as “social units of people that are structured and managed to meet a need or to pursue collective goals,” are said to have risen in the United States within a variety of social and historical contexts. Several of those factors are credited with making organizations viable and necessary options for citizens, and they built on one another to bring organizations to the level of importance that they are at today.

In 1820, about 20% of the United States population was dependent on a wage income. That number increased to 90% by 1950. Generally, farmers and craftsmen were the only ones by 1950 who were not dependent on working for someone else; prior to that, most people were able to survive by hunting and farming their own food, making their own supplies, and remaining almost fully self-sufficient. As transportation became more efficient and technologies were further developed, self-sufficiency became an economically poor choice.

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As in the Lowell Textile Mills, various machines and processes were developed for each step of the production process, thus making mass production a cheaper and faster alternative to individual control. In addition, as the population grew and transportation progressed, the pre-organizational system struggled to support the needs of the market. These conditions made for a wage dependent population that sought out jobs in growing organizations, leading to a shift from individual and family production.

In addition to a shift to wage dependence, externalities from industrialization also created a perfect opportunity for the rise of organizations. Various negative effects such as pollution, workplace accidents, crowded cities, and unemployment became rising concerns. Rather than small groups such as families and churches being able to control these problems as they had in the past, new organizations and systems were required in order to keep their heightened effects down.

The smaller associations that had contained various social issues in the past were no longer viable, and instead were collapsed into larger formal organizations. These organizations were less personal, more distant, and more centralized; but, what they lacked in locality, they made up for in efficiency. Along with wage dependency and externalities, growth of industry also played a large role in the development of organizations.

Markets that were quickly growing and expanding needed employees right away – because of that, a need developed for organizational structures that would help guide and support these new employees. Some of the first New England factories relied on daughters of farmers at their onset; later, as the economy changed, they began to gain work from the farmers, and finally, European immigrants.

Many Europeans left their homes for the promises of US industry, and about 60% of those immigrants stayed in the country. They became a permanent class of workers in the economy, which allowed factories to increase production and produce more than they had before. With this large growth came the need for organizations and leadership that was not previously needed in small businesses and firms.

Overall, the historical and social context in which organizations rose in the United States allowed for not only the development of organizations, but also for their spread and growth. Wage dependency, externalities, and growth of industries all played into the change from individual, family, and small-group production and regulation to large organizations and structure.

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Even though the decline in small business might not seem to substantiate how the development in organizations leads to increased aggregate economic return, it exemplifies the cut-throat nature of capitalism. As organizations develop, they devour the smaller organizations that cannot keep up, but also allow for the evolution of innovative management and production techniques for other larger companies.

The development of organizations demands a higher level of skillset from workers as it continues to grow. It also builds precautionary measures on cutting edge technology. It amplifies the need for specialization and accounts of functionalism in various organizations and their respective societies. Through much advancement in the interaction of capitalistic bureaucracies, the development of organizations is what has driven contemporary firms to thrive in its modern day society.

As organizations are implemented over time, many people experimented as to which one was best. These theories of organizations include Bureaucracy. Rationalization (Scientific Management), and the Division of Labor. Each theory provides distinct advantages and disadvantages when implemented.

Theory # 1. Weber’s Ideal of Bureaucracy:

Official Jurisdiction on all areas are ordered by rules or laws already implemented. There is an office hierarchy; a system of super- and subordination in which there is supervision of lower office by higher ones.

The management of the modern office is based upon written rule, which are preserved in original form. Office management requires that of training or specialization. When the office is developed/established it requires the full working capacity of individuals. Rules are stable and can be learned. Knowledge of these rules can be viewed as expertise within the bureaucracy (these allow for the management of society).

When a bureaucracy is implemented, they can provide accountability, responsibility, control, and consistency. The hiring of employees will be an impersonal and equal system. Although the classical perspective encourages efficiency, it is often criticized as ignoring human needs. Also, it rarely takes into consideration human error or the variability of work performances (each worker is different).

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In the case of the Space Shuttle Challenger disaster, NASA managers overlooked the possibility of human error.

Rational System Perspective:

In a rational organization system, there are two significant parts- Specificity of Goals and Formalization. Goal specification provides guidelines for specific tasks to be completed along with a regulated way for resources to be allocated. Formalization is a way to standardize organizational behavior. As a result, there will be stable expectations, which create the rational organizational system.

Scientific Management:

Taylor analyzed how to maximize the amount of output with the least amount of input. This was Taylor’s attempt to rationalize the individual worker.

i. Divide work between managers and workers

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ii. Provide incentive system (based on performance)

iii. Scientifically trained workers

iv. Create a science for each individual’s responsibilities

v. Make sure work is done on time/efficiently

There are problems that arose out of scientific management. One is that the standardization leads workers to rebel against mundaneness. Another is that workers may reject the incentive system because they are required to constantly work at their optimum level, an expectation that may be unrealistic.

Division of Labor:

The division of labor is the specialization of individual labor roles. It is often associated with increasing output and trade. According to Adam Smith, the division of labor is efficient due to three reasons – occupational specialization, saving from not changing tasks, and machines taking the place of human labor.

Occupational specialization leads to increased productivity and distinct skill. Also, Smith argued that human and physical capital must be similar or matched; if the skill of workers were matched with technological improvements, there would be a major increase in productivity.

Although the division of labor is often viewed as inevitable in a capitalistic society, there are several specific problems that may arise. They include a lack of creativity, monotony, and lack of mobility. Creativity will naturally suffer due the monotonous atmosphere that the division of labor creates. Doing the same routines may not be for everyone. Also, employees aren’t familiar with other parts of the job. They cannot assist employers of different parts of the system.

Theory # 2. Modernization Theory:

Modernization “began when a nation’s rural population started moving from the countryside to cities”. It deals with the cessation of traditional methods in order to pursue more contemporary effective methods of organization.

Urbanization is an inevitable characteristic of society because the formation of industries and factories induces profit maximization. It is fair to assume that along with the increase in population, as a result of the subsequent urbanization, is the demand for an intelligent and educated labor force.

Following the 1950s, Western culture utilized the effects of mass media coverage to communicate their good fortune attributed to modernization. The coverage promoted “psychic mobility” among the social class and increased the aspirations of many hopefuls in developing economic countries. Under this theory, any country could modernize by using Western civilization as a template.

Although this theory of modernization seemed to pride itself on only the benefits, countries in the Middle East saw this movement in a new light. Middle Eastern countries believed that the media coverage of modernization implied that the more “traditional” societies have not “risen to a higher level of technological development”.

Consequently, they believed a movement that benefits those who have the monetary resources to modernize technological development would discriminate against the minorities and poor masses. Thus, they were reluctant to modernize because of the economic gap it would create between the rich and the poor.

The growth of modernization took place beginning in the 1950s. For the ensuing decade, people analyzed the diffusion of technological innovations within Western society and the communication that helped it disperse globally. This first “wave” as it became known had some significant ramifications.

First, economic development was enhanced from the spread of new technological techniques. And second, modernization supported a more educated and thus a more qualified labor force. The second wave took place between the years 1960 and 1970.

This period was labeled anti-modernization, because it saw the push of innovations of Western society onto developing countries as an exertion of dominance (“modernization theory”). It refuted the concept of relying heavily on mass media for the betterment of society.

The last wave of modernization theory, which took place in the 1990s, depicts impersonality. As uses of newspapers, TVs, and radios become more prevalent, the need for direct contact, a concept traditional organizations took pride in, diminishes. Thus, organizational interactions become more distant (“Modernization Theory”).

According to Frank Dobbin, the modern worldview is the idea that “modern institutions are transparently purposive and that we are in the midst an evolutionary progression towards more efficient forms”. This phrase epitomizes the goal of modern firms, bureaucracies, and organizations to maximize efficiency. The key to achieving this goal is through scientific discoveries and innovations.

Dobbin discusses the outdated role of culture in organizations. “New Institutionalists” explored the significance of culture in the modern organization. However, the rationalist worldview counters the use of cultural values in organizations, stating, “Transcendental economic laws exist, that existing organizational structures must be functional under the parameters of those laws, (and) that the environment will eliminate organizations that adopt non-efficient solutions”.

These laws govern the modern organizations and lead them in the direction that will maximize profits efficiently. Thus, the modernity of organizations is to generate maximum profit, through the uses of mass media, technological innovations, and social innovations in order to effectively allocate resources for the betterment of the global economy.

Classical Perspective:

The classical perspective emerges from the Industrial Revolution and centers on theories of efficiency.

There are two subtopics under the classical perspective –

i. The scientific management, and

ii. Bureaucracy theory.

Efficiency and Teleological Arguments in Weberian Bureaucracy:

Max Weber believed that an ideal bureaucracy consists of six specific characteristics – hierarchy of authority, impersonality, written rules of conduct, promotion based on achievement, specialized division of labor, and efficiency. This ultimate characteristic of Weberian bureaucracy, which states that bureaucracies are very efficient, is controversial and by no means accepted by all sociologists. There are certainly both positive and negative consequences to bureaucracy, and strong arguments for both the efficiency and inefficiency of bureaucracies.

While Max Weber’s work was published in the late 1800s and early 1900s, before his death in 1920, his work is still referenced today in the field of sociology. Weber’s theory of bureaucracy claims that it is extremely efficient, and even goes as far as to claim that bureaucracy is the most efficient form of organization.

Weber claimed that bureaucracies are necessary to ensure the continued functioning of society, which has become drastically more modern and complex in the past century. Furthermore, he claimed that without the structured organization of bureaucracy, our complex society would be much worse off, due to the fact that society would act in an inefficient and wasteful way.

He saw bureaucracies as organizations driven towards certain goals, which they could carry out efficiently. In addition, within an organization that operates under bureaucratic standards, the members will be better off due to the heavy regulation and detailed structure. Not only does bureaucracy make it much more difficult for arbitrary and unfair personal favors to be carried out, it also means that promotions and hiring will generally be done completely by merit.

Weber most definitely saw bureaucracies as goal-driven, efficient organizations, but one must not come to the quick and incorrect conclusion that he saw no downfalls to bureaucracy. He recognized that there are constraints within the bureaucratic system.

First of all, he realized that bureaucracies were ruled by very few people with very large amounts of unregulated power. This tends to lead to a situation of oligarchy, whereby a limited number of officials become the political and economic power. Furthermore, Weber considered further bureaucratization to be an “inescapable fate,” due to the fact that it is supposedly superior to and more efficient than other forms of organization.

Weber’s analysis of bureaucracies led him to believe that they are too inherently limiting to individual human freedom and he feared that people would begin to be too controlled by bureaucracies. His rationale comes from the knowledge that the strict methods of administration and legitimate forms of authority associated with bureaucracy act to eliminate human freedom.

Regardless of whether or not bureaucracies should be considered positively efficient or too efficient to the extent that they become negative, Weberian bureaucracy tends to offer a teleological argument. A theory, in this case bureaucracy, is considered to be teleological if it involves aiming at specific goals.

Weber claimed that bureaucracies are goal-oriented organizations, which use their efficiency and rational principles to reach their goals. A teleological analysis of businesses leads to the inclusion of all involved stakeholders in decision-making. The teleological view of Weberian bureaucracy postulates that all actors in an organization have various ends or goals, and attempt to find the most efficient way to achieve these goals.

i. Scientific Management Theory:

The scientific management theory was introduced by Frederick Winslow Taylor to encourage production efficiency and productivity. Taylor argues that inefficiencies could be controlled through managing production as a science. Taylor defines scientific management as “concerned with knowing exactly what you want men to do and then see in that they do it in the best and cheapest way.” According to Taylor, scientific management affects both workers and employers, and stresses the control of the labor force by management.

The Principles of Scientific Management:

Taylor identifies four inherent principles of the scientific management theory:

a. The creation of a scientific method of measurement that replaces the “rule- of-thumb” method

b. Emphasis placed on the training of workers by management

c. Co-operation between manager and workers to ensure the principles are being met

d. Equal Division of labor between managers and workers.

ii. Bureaucratic Theory:

The scholar most closely associated with Bureaucratic theory is Max Weber. In Economy and Society, his seminal book published in 1922, Weber articulates the necessary conditions and descriptive features of bureaucracy.

An organization governed under Weber’s conception of bureaucracy is characterized by the presence of impersonal positions that are earned and not inherited, rule-governed decision-making, professionalism, chain of command, defined responsibility, and bounded authority.

Weber begins his discussion of bureaucracy by introducing the concept of ‘jurisdictional areas’- institutions governed by a specific set of rules or laws. In a ‘jurisdictional area’ regular activities are assigned as official duties, the authority to assign these duties is distributed through a set of rules, and duties are fulfilled continuously by qualified individuals. These elements make up a bureaucratic agency in the case of the state and a bureaucratic enterprise in the private economy.

There are several additional features that comprise a Weberian bureaucracy:

a. It is possible to find the utilization of hierarchical subordination in all bureaucratic structures. This means that higher-level offices supervise lower level offices.

b. In bureaucracies, personal possessions are kept separate from the monies of the agency or the enterprise.

c. People who work within a bureaucracy are usually trained in the appropriate field of specialization.

d. Bureaucratic officials are expected to contribute their full working capacity to the organization.

e. Positions within a bureaucratic organization must follow a specific set of general rules.

Weber argued that in bureaucracy, taking on a position or office signifies an assumption of a specific duty necessary for the organization. This conception is distinct from historical working relationships in which a worker served a specific ruler, not an institution.

The hierarchical nature of bureaucracies allows employees to demonstrate achieved social status. When an office holder is elected instead of appointed, that person is no longer a purely bureaucratic figure. He derives his power ‘from below’ instead of ‘from above.’

When a high-ranking officer selects officials, they are more likely to be chosen for reasons related to the benefit of the superior than the competency of the new hire. When high-skilled employees are necessary for the bureaucracy and public opinion shapes decision-making, competent officers are more likely to be selected.

According to Weber, if ‘tenure for life’ is legally guaranteed, an office becomes perceived as less prestigious than a position that can be replaced at any time. If ‘tenure for life’ or a ‘right to the office’ develops, there is a decrease in career opportunities for ambitious new hires and overall technical efficiency becomes less guaranteed. In a bureaucracy, salaries are provided to officials.

The amount is determined on the basis of rank and helps to signify the desirability of a position. Bureaucratic positions also exist as part of stable career tracks that reward office-holders for seniority.

Weber argues that the development of a ‘money economy’ is the “normal precondition for the unchanged survival, if not the establishment, of pure bureaucratic administrations”. Since bureaucracy requires sustained revenues from taxation or private profits in order to be maintained, a money economy is the most rational way to ensure its continued existence.

Weber posits that officials in a bureaucracy have a property right to their office and attempts at exploitation by a superior means the abandonment of bureaucratic principles. He articulates that providing a status incentive to inferior officers helps them to maintain self-respect and fully participate in hierarchical frameworks.

Michel Crozier reexamined Weber’s theory in 1964. He determined that bureaucracy is flawed because hierarchy causes officers to engage in selfish power struggles that damage the efficiency of the organization.

Criticism of the Weber’s Theory of Bureaucracy:

Weber’s theories were purposed to set a stage for other organizations to follow, and the characteristics are so ideal that they may be impossible for any actual organization to succeed. He wanted to come up with a set of guidelines that would favor both efficiency and, most importantly, conditions that would make the workers top priority.

It was common for earlier theorists to distort Weber’s views, and today, people still make the same mistakes as they did when Weber’s views first came into play. He has always been critiqued for the branches of his ideas that don’t work in reality, but the point of his theory was not to actually create an organization, but to create an ideal model for other organizations to follow.

One big misconception that people have had in the past is a question of Weber’s morality due to their oversimplification of his characteristics of a pure bureaucracy. “There is dangerous risk of oversimplification in making Weber seem cold and heartless to such a degree that an efficiently-run Nazi death camp might appear admirable” (Bureaucracy Theory).

In reality, Weber believed that by using human logic in his system, we could achieve improvement of human condition in various workplaces. Complexity in an organization yields the highest success, therefore simplifying it leads to the illusions of over-authority and intense hierarchical power that are inaccurate of Weber’s beliefs.

Another critique of Weber’s theory is the argument of efficiency. Highest efficiency, in theory, can be attained through pure work with no regard for the workers (for example, long hours with little pay), which is why over simplification can be dangerous. If we were to take one characteristic focusing on efficiency, it would seem like Weber is promoting unhealthy work conditions, when in fact, he wanted the complete opposite.

Put all of them together, and we have the ideal organization, but since a pure bureaucracy is nearly impossible to obtain, efficiency takes the back seat in his beliefs. Though his theories include characteristics of a highly efficient organization, we must remember that these characteristics are only meant to set a model for other organizations to follow, and if all the other conditions are not perfect, the organization is not pure. Is it really a bad thing that Weber’s priorities were for the people rather than the company itself?

With this said, the characteristics of Weber’s theory have to all be perfect for a bureaucracy to function at its highest potential. “Think of the concept as a bureau or desk with drawers in it, which seems to call out to you, demanding that everything must fit in its place” (Bureaucracy Theory).

If one object in the drawer does not fit properly, the entire drawer becomes untidy, which is exactly the case in Weber’s theory; if one characteristic is not fulfilled the rest of them are unable to work in unison, leaving the organization performing below its full potential.

One characteristic that was meant to better workplace conditions was his rule that “Organization follows hierarchical principle — subordinates follow orders or superiors, but have right of appeal (in contrast to more diffuse structure in traditional authority)” Bureaucracy (Weber).

In other words, everyone in a company or any sort of work environment has the opportunity and right to disagree or to speak up if they are unhappy with something rather than not voice their opinion in fear of losing their job. Open communication is a very important part of Weber’s ideal bureaucracy, and is practiced today.

Because of the communication it may not be the most efficient, but Weber would argue that improved human conditions are more important than efficiency.

It is hard to critique Weber’s theories strictly because of the fact that they are theories; they are nearly impossible to perform in real life, therefore how can we know if they work or not? They are merely a set of guidelines that make up bureaucracy, which today many believe is the best way to run organizations in all aspects.

Neoclassical Perspective:

The Neoclassical perspective began with the Hawthorne studies in the 1920s. This approach gave emphasis to “affective and socio-psychological aspects of human behaviors in organizations.” The human relations movement was a movement which had the primary concerns of concentrating on topics such as morale, leadership, and mainly factors that aid in the cooperation in Organizational behavior.

Theory # 3. Hawthorne Study:

A number of sociologists and psychologists made major contributions to the study of the neoclassical perspective, which is also known as the human relations school of thought. Elton Mayo and his colleagues were the most important contributors to this study because of their famous Hawthorne study from the “Hawthorne plant of the Western Electric Company between 1927 and 1932.”

The Hawthorne study suggested that employees have social and psychological needs along with economic needs in order to be motivated to complete their assigned tasks. This theory of management was a product of the strong opposition against “the Scientific and universal management process theory of Taylor and Fayol.” This theory was a response to the way employees were treated in companies and how they were deprived of their needs and ambitions.

In November 1924, a team of researcher – professors from the renowned Harvard Business school of USA began investigating into the human aspects of work and working conditions at the Hawthorne plant of Western Electric Company, Chicago. The company was producing bells and other electric equipment’s for the telephone industry.

Prominent Professors included in the research team were Elton Mayo (Psychologist), Roethlisberger and Whilehead (Sociologist), and William Dickson (Company representative). The team conducted four separate experimental and behavioral studies over a seven-year period. These were –

i. ‘Illumination Experiments (1924-27) to find out the effect of illumination on worker’s productivity.’

ii. ‘Relay Assembly Test Room experiment (1927-28) to find out the effect of changes in number of work hour and related working condition on worker productivity.’

‘Experiment in interviewing Working – In 1928, a number of researchers went directly to workers, kept the variables of previous experiment aside, and talked about what was, in their opinion, important to them. Around 20,000 workers were interviewed over a period of two years. The interviews enabled the researchers to discover a rich and intriguing world that previously remained undiscovered and unexamined within the Hawthorne studies undertaken so far. The discovery of the informal organization and its relationship to the formal organization was the landmark of experiments in interviewing workers. These experiments led to a richer understanding of the social, interpersonal dynamics of people at work.’

Results from the Hawthorne Studies:

The Hawthorne studies helped conclude that “a human/social element operated in the workplace and that productivity increases were as much an out-growth of group dynamics as of managerial demands and physical factors.” The Hawthorne studies also concluded that although financial motives were important, social factors are just as important in defining the worker-productivity.

Hawthorne Effect was the improvement of productivity between the employees, it was characterized by:

i. The satisfactory interrelationships between the coworkers.

ii. It classifies personnel as social beings and proposes that sense of belonging in the workplace is important to increase productivity levels in the workforce.

iii. An effective management understood the way people interacted and behaved within the group.

iv. The management attempts to improve the interpersonal skills through motivations, leading, communication and counseling.

v. This study encourages managers to acquire minimal knowledge of behavioral sciences to be able to understand and improve the interactions between employees.

Criticism of the Hawthorne Study:

Critics believed that Mayo gave a lot of importance to the social side of the study rather than addressing the needs of an organization. Also, they believed that the study takes advantage of employees because it influences their emotions by making it seem as if they are satisfied and content, however it is merely a tool that is being used to further advance the productivity of the organization.

Theory # 4. Contingency Theory:

The Contingency Theory is a class of the behavioral theory that claims that there is no best way to organize a corporation, to lead a company, or to make decisions. An organizational, leadership, or decision making style that is effective in some situations, may not be successful in other situations. The optimal organization, leadership, or decision making style depends upon various internal and external constraints (factors).

Contingency Theory Factors:

Some examples of such constraints (factors) include:

(1) The size of the organization

(2) How the firm adapts itself to its environment

(3) Differences among resources and operations activities

i. Contingency on the Organization:

In the Contingency Theory on the Organization, it states that there is no universal or one best way to manage an organization. Secondly, the organizational design and its subsystems must “fit” with the environment and lastly, effective organizations must not only have a proper “fit” with the environment, but also between its subsystems.

ii. Contingency Theory of Leadership:

In the Contingency Theory of Leadership, the success of the leader is a function of various factors in the form of subordinate, task, and/or group variables. The following theories stress using different styles of leadership appropriate to the needs created by different organizational situations.

Some of these theories are:

a. The contingency theory – The contingency model theory, developed by Fred Fiedler, explains that group performance is a result of interaction between the style of the leader and the characteristics of the environment in which the leader works.

b. The Hersey-Blanchard situational theory – This theory is an extension of Blake and Mouton’s Managerial Grid and Reddin’s 3-D Management style theory. This model expanded the notion of relationship and task dimensions to leadership, and readiness dimension.

iii. Contingency Theory of Decision-Making:

The effectiveness of a decision procedure depends upon a number of aspects of the situation:

a. The importance of the decision quality and acceptance.

b. The amount of relevant information possessed by the leader and subordinates.

c. The amount of disagreement among subordinates with respect to their alternatives.

Criticism of the Contingency Theory:

It has been argued that the contingency theory implies that a leader switch is the only method to correct any problems facing leadership styles in certain organizational structures. In addition, the contingency model itself has been questioned in its credibility.


Organisational Theories  – Classical, Neo-Classical, Modern, Motivation and Decision Theories

Organisation theory means the study of the structure, functioning and performance of organisation and the behaviour of individual and groups within it.

The various theories of organisation are given below:

1. Classical theory.

2. Neo-classical theory.

3. Modern theory.

4. Motivation theory.

5. Decision theory.

The explanations of the above theories are given below:

1. Classical Theory:

The classical theory mainly deals with each and every part of a formal organisation. The classical theory was found by the father of scientific management, Frederick W. Taylor. Next, a systematic approach to the organisation was made by Monney and Reicey.

The classical theory is based on the following four principles:

i. Division of labour;

ii. Scalar and functional processes;

iii. Structure; and

iv. Span of control.

i. Division of Labour:

This theory fully depends upon the principle of division of labour. Under the division of labour, the production of a commodity is divided into the maximum number of different divisions. The work of each division is looked after by different persons. Each person is specialised in a particular work. In other words, the work is assigned to a person according to his specialisation and the interest he has in the work. The division of labour results in the maximum production or output with minimum expenses incurred and minimum capital employed.

ii. Scalar and Functional Processes:

The Scalar process deals with the growth of organisation vertically. The functional process deals with the growth of organisation horizontally. The scalar principles refer to the existence of relationship between superior and subordinate. In this way, the superior gives instructions or orders to the subordinates (various levels of management) and gets back the information from the subordinate regarding the operations carried down at different levels or stages. This information is used for the purpose of taking decision or remedial action to achieve the main objectives of the business.

The Scalar chain means the success of domination by the superior on the subordinate from the top to the bottom of organisation. The line of authority is based on the principle of unity of command which means that each subordinate does work under one superior only.

iii. Structure:

The organisational structure may be defined as the prescribed patterns of work related behaviour of workers which result in the accomplishment of organisational objectives. The organisational structure is used as a tool for creating a relationship among the various functions which make up the organisation.

Specialisation and co-ordination are the main issues in the design of an organisational structure. The term specialisation includes the division of labour and the usage of special machines, tools and equipments. Specialisation is obtained when a person is requested to do a single work and it results in the increase in productivity. The facilities or advantages of suitable training, easy allocation of work, job scheduling and effective control are also obtained from specialisation.

Co-ordination means an orderly performance in operations to achieve organisational objectives. Normally, the business units are organised on a functional basis. The functions are performed by different persons of different nature. It is also necessary to co-ordinate the various functions to achieve the main objectives and at the same time a function does not conflict with any other function.

iv. Span of Control:

Span of control means an effective supervision of maximum number of persons by a supervisor. According to Brech, “Span refers to the number of persons, themselves carrying managerial and supervisory responsibilities, for whom the senior manager retains his over-embracing responsibility of direction and planning, co-ordination, motivation and control.”

From the above discussion, we can know that the classical theory emphasised unity of command and principle of co-ordination. Most of the managers’ time is wasted in the co­ordination and control of the subordinates. In many organisations, a single supervisor supervises the work of 15-20 workers and does not follow the principle of span of control.

Some of the experts hold that a manager can supervise 4-8 members at higher levels and between 8-20 members at the lower levels of the organisation. But according to Lyndall Urwick, a maximum of 4 members at higher levels and between 8-12 members at lower levels can be supervised by the superior to constitute an ideal span of control.

Characteristics of Classical Theory:

i. It is based on division of labour.

ii. It is based on objectives and tasks of organisation.

iii. It is concerned with formal organisation.

iv. It believes in human behaviour of the employees.

v. It is based on co-ordination of efforts.

vi. Division of labour has to be balanced by unity of command.

vii. It fixes a responsibility and accountability for work completion.

viii. It is centralised.

Criticism of Classical Theory:

i. This theory is based on authoritarian approach.

ii. It does not care about the human element in an organisation.

iii. It does not give two way communications.

iv. It underestimates the influence of outside factors on individual behaviour.

v. This theory neglected the importance of informal groups.

vi. The individual is getting importance at the expense of the group.

vii. It also ignores the influence of outside factors on individual behaviour.

viii. The generalisations of the classical theories have not been tested by strict scientific methods.

ix. The motivational assumptions underlying the theories are incomplete and consequently inaccurate.

2. Neo-Classical Theory:

This theory is developed to fill up the gaps and deficiencies in the classical theory. It is concerned with human relations movement. In this way, the study of organisation is based on human behaviour such as – how people behave and why they do so in a particular situation. The neo-classical scholars used classical theory as the basis for their study and modified some of the principles for the study. The neo-classicals have only given new insights rather than new techniques.

The scholars also pointed out the practical difficulties of the working of scalar and functional processes. The main contribution of this theory highlights the importance of the committee management and better communication. Besides, this theory emphasised that the workers should be encouraged and motivated to evince active participation in the production process. The feelings and sentiments of the workers should be taken into account and respected before any change is introduced in the organisation.

The classical theory was production-oriented while neo-classical theory was people- oriented.

Contributions of Neo-Classical Theory:

i. Person should be the basis of an organisation.

ii. Organisation should be viewed as a total unity.

iii. Individual goals and organisation goals should be integrated.

iv. Communication should be moved from bottom to top and from top to bottom.

v. People should be allowed to participate in fixing work standards and decision- making.

vi. The employee should be given more power, responsibility, authority and control.

vii. Members usually belong to formal and informal groups and interact with others within each group or sub-group.

viii. The management should recognise the existence of informal organisation.

ix. The members of sub-groups are attached with common objectives.

Criticism of Neo-Classical Theory:

A survey conducted by American Management Association (AMA) indicates that most of the companies reported found little or nothing useful in behavioural theory. According to Ernest Dale, “neither classical theory nor neo-classical theory provides clear guidelines for the actual structuring of jobs and provision for co-ordination.”

3. Modern Theory:

The other name of Modern Theory is Modern Organisation Theory. According to one authority, it was organised in the early 1950s. This theory composed of the ideas of different approaches to management development. The approach is fully based on empirical research data and has an integrating nature. The approach reflects the formal and informal structures of the organisation and due weightage are given to the status and roles of personnel in an organisation.

Like the general system theory, modern organisation theory studies:

i. The parts (individual) in aggregates and the movement of individuals and out of the system.

ii. The interaction of individual with the environment found in the system.

iii. The interaction among individual in the system.

Essentials of Modern Theory:

The followings are the some of the essentials of Modern Theory:

i. It views the organisations as a whole.

ii. It is based on systems analysis.

iii. The findings of this theory are based on empirical research.

iv. It is integrating in nature.

v. It gives importance to inter-disciplinary approach to organisational analysis.

vi. It concentrates on both quantitative and behavioural sciences.

vii. It is not a unified body of knowledge.

Criticism of Modern Theory:

The Modern Theory has the following criticisms:

i. This theory puts old wine into a new pot.

ii. It does not represent a unified body of knowledge. There is nothing new in this theory because it is based on past empirical studies.

iii. This theory forms only the questions and not the answers.

iv. It is based on behavioural, social and mathematical theories. These are management theories in themselves.

4. Motivation Theory:

It is concerned with the study or work motivation of employees of the organisation. The works are performed effectively if proper motivation is given to the employees. The motivation may be in monetary and non-monetary terms. The inner talents of any person can be identified after giving adequate motivation to employees. Maslow’s hierarchy of needs theory and Honberg’s two factor theory are some of the examples of motivation theory.

5. Decision Theory:

The other name of decision theory is decision making theory. This theory was given by Herbert. A. Simon. He was awarded Nobel Prize in the year of 1978 for this theory. He regarded organisation as a structure of decision makers. The decisions were taken at all levels of the organisation and important decisions (policy decisions) are taken at the higher levels of organisation. Simon suggested that the organisational structure be designed through an examination of the points at which decisions must be made and the persons from whom information is required if decisions should be satisfactory.


Organisational Theories – Scientific Management Theory, Administrative Theory, Human Relation, Bureaucracy, System Approach and Contingency Approach

Theories in any social science are based on norms or standards unlike physical sciences. It brings out the judgement as to what is good and what is bad. Social sciences are expected to lay down standards for achieving and improving human welfare. Commerce, economics, management, etc., are social sciences.

Theories are the final outcome of thought process. Those, who think on a particular subject to find out certain standards, their intuitions and inferences backed by scientific enquiry leads to the formation of a hypothesis. This hypothesis need to be tested for its validity.

If the validity of the hypothesis is confirmed, this is a stage where a theory evolves. For example, Elton Mayo’s, Hawthorne experiment was conducted in management to find out the relationship between ‘incentive’ and ‘productivity’. In this case, experiment method was used and the results were a landmark in human relation approach in management.

Theory is a way of relating concepts, which help in understanding a particular situation. It is an aid to management to use the knowledge into practical field. Once a theory is originated, it is bound to have a hypothesis. When the hypothesis is certified through research, the validity of theory is confirmed. Theories in physical sciences are normally mathematical equations, whereas organisational theories in management are statement of assumptions.

Organisational theory is mainly concerned with how an organisation to be designed to achieve the desired goal. In this regard, Max Weber, Chester Bernard, March and Simon made their valuable contribution to the theory of management.

Max Weber’s bureaucracy was an important aspect of study on the organization theory. Weber was of the opinion that bureaucracy could influence the job behaviour of people in an organisation due to the formal rules and regulations of the bureaucracy in the day to day working of the organisation.

Chester Bernard developed the informal organisation concept in an organisational design. An informal organisation is always governed by social norms, whereas a formal organisation functions according to formal rules. This concept of Bernard was a guiding principle to organisational set up, interpersonal relations, resistance to change and conflict, etc.

Adopting the concept of Bernard, March and Simon, who integrated Psychology, Sociology and Economic theory, respectively in their book, ‘Organisation’, March and Simon brought out Bernard’s outlook of social system and its importance. They also presented a number of motivational theories of Organisational Behaviour.

1. Scientific Management Theory:

Scientific management theory of F.W. Taylor mainly gave importance to shop level employees of the organisation. Taylor developed many ideas in scientific management due to his early experience in a Steel Company. He was working as an ordinary employee at Medieval Steel Company in Philadelphia during 1878.

He later became the Chief Engineer of the company due to his sheer efforts. His scientific management theory focused attention on performance of job only. He showed how a worker can be made to work efficiently and increase the production.

The critics of Taylor argued that his specialization principle of work, as per scientific management was ineffective and also it could not make the employees achieve their maximum efficiency at work.

2. Administrative Theory:

Henry Fayol is one of the famous names to be attributed to this theory. This theory made its contribution on the managerial aspect of an organisation.

The theory is very much associated with the proper understanding of the task of management. It provides directions or principles how to activate management effectively. The guidelines enumerated by the theory on management principles, objectives and the functions of management were also under criticism.

Henry Fayol stressed effective management principles from his past experience as a businessman. He separated technical and administrative activities of management to distinguish them as two separate activities.

i. Division of work

ii. Authority and responsibility

iii. Discipline

iv. Unity of command

v. Unity of direction

vi. Subordination of individual to general interest

vii. Remuneration

viii. Centralisation

ix. Scalar chain

x. Order

xi. Equity

xii. Stability of tenure

xiii. Initiative, and

xiv. Team work.

These principles also could not make the desired effect in organisational approach.

He put forward the management principles.

In organisation theory, these principles could make a lasting impression; they are:

i. Division of work – The structure of organisation should divide and group the activities so as to enable the people specialize. The specialist people must contribute their best to the organisation.

ii. Authority – A manager must have the formal authority in the organisational structure to get the job done from subordinates for the organisational purpose.

iii. Scalar chain – The organisation must have a proper line of authority that connects top management to the shop level employees.

iv. Initiative – This is considered as the thinking and execution of a plan. This principle must be implemented by intelligent subordinates.

Many principles of Henry Fayol are still followed by management according to their suitability to particular situations. However, the critics were unable to provide better substitutes for these principles. As such these are still followed, as they have an innate capacity to solve many a problem of management.

3. Human Relation Theory:

This theory emerged after the Hawthorne experiment at Western Electric Plant during 1920. Behavioural scientists were seriously taking initiative in the work related problems such as – fatigue, disliking routine work, principles of doing a single segment of a particular work by the workers in factories etc.

In short, Hawthorne experiment of Elton Mayo did arouse new hopes and opened avenues in management principles like Role of leadership, Job satisfaction, Job rotation, Job enrichment, Work motivation etc.

The above principles of management made a significant shift from economic incentive motivation to the understanding of ‘Human factor’ at work. It is not the monetary incentive or any privilege that makes an individual work. The real factor motivating a person to work is the recognition of the management that the employee is a human being.

Organisation theory is intended to ensure how an organisation functions effectively to achieve its objectives. Organization theories are mainly meant to deal with the organisational functions, at the same time, they have particularly no role to play in tackling the individual problems in an organisation.

4. Bureaucracy:

Max Weber’s bureaucracy is one of the accepted theories of organisation. He stressed that organisation is a part of the social system. He gave due importance to bureaucracy and its usefulness for effective functioning of an organisation. He also made proper rules and procedures to regulate the behaviour of personnel in an organisation.

Weber was of the opinion that bureaucracy would show greater stability in the organisation in due course of time, as it could bring desired results in organisational behaviour. His bureaucratic model of management is well-known for its organisational structure. Weber’s contribution to management authority structure and its sound relation of hierarchy are significant aspects of his theory.

Max Weber, the German Sociologist is famous for his forms of organisational structure. The bureaucracy advocated by him is much relevant today for organisational design for the efficient functioning of an organisation. The ‘Red tape’ (formal channel of movement of files/ documents in offices leading to inordinate delay in decision making) was under severe criticism.

The main characteristics of bureaucracy are given hereunder:

i. System of rules and regulations

ii. Authority structure

iii. Impersonal relation

iv. Line of hierarchy, and

v. Rationality.

Above principles of bureaucracy may not sound appropriate for the modern approach to organisational design. However, organisational theorists are still of the opinion that many of the bureaucratic principles are useful to various situations of modern organisation. Therefore, bureaucracy is still a strong element in organisational design.

5. System Approach:

A system is a combination of several parts and each part is inter-related and dependent on each other. All the systems are working for a common goal in the organisation. When you analyse a system, the features like -interdependence of parts, several sub-systems, are revealed. Every system distinguishes itself from the other and they are open ended in nature.

If you examine the relationship of each element of the system within an organisation, it can be seen that each element, forming a complete system is interdependent. The modern organisation theory has emerged from the general system theory. It provides a wider perception from which one can visualise all types of systems.

System theory originated in 1960’s. The modern system theory can be called as fundamental because it provides a base for the management. The theory has an analytical background. Its views are based on understanding the organisation as open ended system. Organisations are organic systems because they have adaptability and flexibility to interact with environmental situations.

The system theory has given solutions to many important problems; so far not provided by classical and neo-classical systems. Such as what is the nature of interdependence, linking process between different parts of the system in respect of decision, communication, action, etc. The goal of the system is achieved through interaction, adaptability and constant growth process of organisation as a whole.

6. Contingency Approach:

It is an important theory of management developed in the recent past to evolve practical solutions to situations. This is an approach based on situation. Critics of scientific and administrative management could not give a proper guideline, how to evolve a proper management theory.

Contingency theory emphasises the structural factors of management. It makes management responsible to make appropriate decision to the need of the situation. Structure of organisation is prone to outside constraints. Therefore, it is necessary to have a formal and informal organizational system of management to tackle various problems of contingencies.

It is also an essential requirement to have a contingency plan to meet such unforeseen situations. Contingencies can be normally brought under three categories like technical, administrative and environmental. Most of the contingencies fit into above three categories. It is a prudent management that analyses the situation properly and then acts accordingly.

Even though modern theories have made great contribution, they could not stand to the expectation of management experts. They could give much support to organisational design but was unable to give a satisfactory and comprehensive explanation about organisation.

One thing can be said that its concepts are still under the process of research. These theories have so far failed to develop to the required standard so as to replace the old theories of management.


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