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Study Unit 1
The Development of Organisational Theory

Contents Page

Introduction to the Module 3

Introduction to Organisational Theory 4

A. Nature of Organisations 5
Towards a Definition of Organisation 5
Features Common to All Organisations 5

B. Classical Theory: The Search for Principles of Organisation 7


Henri Fayol 8
Lyndall Urwick 9
F W Taylor: Scientific Management 10
Relevance of Classical Organisation Theory 10

C. Human Relations School: Understanding the People Dimension 12


Elton Mayo and the Hawthorne Studies 12
Relevance of the Human Relations School 13

D. Contingency Theory 13
Joan Woodward 13
Burns and Stalker: the Influence of the Environment 15
Lawrence and Lorsch 15
Aston Group 15
Relevance of Contingency Theory 16

E. Systems Theory 17
The Systems Approach 17
The Organisation as a System 18
Sub-Systems of the Organisation 21
Boundary Management 23
Levels Within the Organisation 23

(Continued over)

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F. Contemporary Theories: The Search for Organisational Drivers 25


Excellence Theory 25
Theory Z 27
Organisational Culture 28
American and Japanese Corporate Culture Models 31

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The Development of Organisational Theory 3

INTRODUCTION TO THE MODULE


The subject of this module is the internal processes of organisations: how they are organised
and managed in order to achieve the purposes for which they exist. In this first Unit we shall
be concerned with a number of different approaches to the way in which organisation and
management may be analysed and understood. This is the realm of 'organisational theory'
and it forms an important backdrop to the whole course.
Before developing this in more detail, though, we should make an important point about the
approach adopted in this course as a whole and how you should work through it.
You should, through your previous studies, be reasonably familiar with much of the
functioning of organisations and management. To some extent this course will deepen and
widen that knowledge and understanding. However, much of this subject involves looking at
that same knowledge from different perspectives. We shall be concerned with exploring the
forces which shape organisations and the dynamics of their internal processes, rather than
with simple descriptions, and with analysing key concepts which underpin organisation and
management; and we shall be assessing the implications of these concepts.
Each Unit starts with an Introduction which sets out a clear analytical framework for the topic
under discussion. The examination of the topic which follows does not provide a complete
picture at this level; and so you do need to carry out additional reading. This is important to
enhance your understanding of the topic as well as providing you with the material to be able
to critically compare and contrast the different perspectives on the topic.
You do need to develop a broad understanding of the key principles, concepts and processes
identified in each topic area. There is a multitude of excellent books on management
theories and organisational principles. Many of these are listed in the reading section of the
syllabus but you should also carry out a Web search to identify those that are specifically
mentioned in this study manual. This is because of the up-to-date material that has been
included in this manual so that you can explore different writers' views, are able to interpret
these, and understand their applications in modern management and organisational
environments.
A vital component of your study is to constantly review and assess how the different concepts
apply to your own organisation. It is recommended that you make notes after working
through a topic area to help you to retain your learning. It would be helpful if you considered
the following questions when you are making your notes:
 How do we apply these concepts, ideas and processes?
 Why is our organisation and management the way it is?
 What benefits and problems arise from this?
 How would I apply these ideas and concepts in my organisation?
 What benefits and problems would arise?
Finally, think about your own view of management and organisation. Consider what you feel
are the key forces which do, or should, shape organisations.
Working through the course in this way should enable you to develop an appreciation of the
dynamics of organisation and management in the increasingly turbulent environments of
modern organisations. It should also give you a greater insight into the problems they face at
all levels and the wide variety of organisational forms which have resulted.

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INTRODUCTION TO ORGANISATIONAL THEORY


Organisational theory involves identifying the different approaches to understanding
organisations, which cover a wide spectrum of views over many decades.
The history of organisations really starts with armies. These were the first large-scale co-
operative groups formed specifically for a purpose and they are characterised by a hierarchy
of authority within which decisions are made at the top and passed down in the shape of
orders which must be followed. A second early development was that of public
administration whereby organisations came into being to implement the decisions of
government: initially to collect taxes, but increasingly to order and regulate society through
laws and the application of various rules. Again, these organisations were characterised by a
hierarchy of authority and a requirement to comply with its exercise.
These models for the large-scale organisation of people for a purpose were, with a few
exceptions, followed by business organisations as they developed in the Middle Ages and,
through industrialisation, came to dominate work in society.
The study of organisations emerged from what we would call today sociology. This owed its
origins to philosophers turning their attention to the way in which whole societies function
and, in due course, to the study also of the social constructions which are created in them.
The first studies of organisation sought, in the fashion of the time, to identify the essential
processes at work in all organisations and to encapsulate these in principles which could be
beneficially applied to all organisations. This was the approach of 'scientific management'
and, since the organisations at the time all mirrored the military/public administration model, it
was not surprising that the principles identified were based around the concept of the
hierarchy of authority and obedience to decisions and rules.
In the 1930s a major shift in thinking took place with the realisation that, at the operational
level in organisations, people were actually bending the rules and decisions to meet their
own needs. Increasingly, sociologists and social psychologists turned their attention to the
way in which the people who make up the organisation behave. This was the approach of
the 'human relations' school. Their contribution has been to develop an understanding of
how management works on the social level, outside of the hierarchy of authority, and how,
therefore, organisations may respond to the needs of their staff.
After 1945 two further significant approaches developed, which looked at organisation and
management in the context of the environment of the organisation, both internal and
external. These were as follows.
 Contingency theory, which states that there is no one 'best' form of organisation and
management, but that the most appropriate form will be dictated by a variety of factors
in the environment. This has given rise to a concern with those environmental factors
and how they influence the organisation (which will be the subject of the next Unit).
The key modern concept of stakeholder theory can be traced to this approach.
 Systems theory, which provides a way of analysing how organisations, and any part
of them, function by reference to their inputs, outputs and the processes which take
place in between. This is an extremely useful analytical tool which we shall use in
detail at several points in the course to explore the ways in which organisation and
management processes operate.
More recently, in the increasingly competitive and changing environment within which all
organisations exist, most attention has been devoted to what makes organisations
successful. We characterise this here as the search for organisational drivers and
consider approaches which concentrate on 'excellence' and 'organisational culture'.

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A. NATURE OF ORGANISATIONS
It is common now to define business in terms of what it does and why it exists. At its most
general, we can say that business exists to meet the needs of a society; and thus there will
be many different types of business to meet the many different needs of societies.
There are three main types of entity found in the business sector: sole traders, partnerships
and companies. However, business does not satisfy all the needs of society and there are
also a range of 'non-business' entities which exist to meet needs not catered for by profit-
seeking businesses. Thus, we must consider public-sector bodies such as government
agencies, as well as not-for-profit bodies such as charities.

Towards a Definition of Organisation


All these different types of business are often referred to as organisations. You need to
have a clear and comprehensive definition which is wide enough to encompass and embrace
all those institutions which are commonly called organisations, but which excludes other
social institutions, such as the family.
Writers attempting to put forward a definition often concentrate on specific aspects: some
stress structure, others hierarchy or authority. We will attempt to draw together these various
strands into a sound definition:
 Organisations are institutions which persist over time, possessing a recognisable
structure of work roles arranged in a hierarchy of power and authority.
 Organisations pursue specific goals, which are concerned with converting resources
into utilities which meet human needs.
 In order to optimise the factors of production, organisations must possess information
systems.

Features Common to All Organisations


With the range of organisational forms, we face some difficulty in saying just what is an
organisation. Perhaps a way to overcome this problem is to look at those features which are
common to all organisations.
(a) Providing Utilities
Organisations exist to meet the needs of people. These needs range from the
essentials of life, such as food, fuel, clothes and shelter, to desirable services, such as
entertainment or sport.
Organisations perform their tasks by taking what economists term the factors of
production and converting them into utilities. The factors of production are:
 Land, which includes all those resources provided by nature, e.g., minerals,
trees, etc., as well as the land itself.
 Labour, which includes human skills of body and brain.
 Capital, which means machinery and those goods which contribute to future
production.
When economists refer to utilities, they mean goods and services which satisfy
people's wants. For the utilities to be effective, they must be available at the place and
time that consumers want them. This involves distribution.
Distribution includes the systems of transport (road, rail, air and sea) which move
goods to the places of consumption, and also the wholesale and retail organisations

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which buy goods from manufacturers and sell to consumers. All organisations have in
some way or another to be connected with the consumers of their goods and services.
We can sum up our first common feature of organisations thus:
All organisations meet some of the needs of members of modern societies.
They all take resources (physical and human) and convert them into utilities
(the goods and services produced). All organisations have to ensure that
these utilities reach consumers as and when required.
(b) Rules and Regulations
The second feature common to all organisations is that they all have rules and
regulations which govern the running of the enterprise. These may be formal and
written; or they may be informal, generally accepted ways of doing things.
Large organisations will have a written statement which outlines the structure and
purpose of the organisation. Small organisations, such as a family shop, have an
informal but generally agreed policy on how the enterprise should be run.
Organisations combine the activities of people and the control of resources in order to
produce goods and services, and these activities have to be directed and coordinated
to achieve the objectives of the organisation. Rules and regulations are essential to
bring about this coordination of effort. Individuals working in organisations need to
know just what their responsibilities and duties are. Just as every sport or game has its
rules, so does every organisation.
(c) Division of Labour
Our third key feature is that all organisations have a structure: a framework of
positions where each person has a set of duties and functions to perform. When
people take up these various positions and perform their allotted duties, sociologists
talk of individuals in their 'work roles'. Every person who works in an organisation has
a role to perform.
In large organisations, roles may be highly specialised: for example, some work roles
may involve aspects of production, others may relate to marketing, etc. In the small
organisation, work roles will be more general: the proprietor of a small shop will
perform a range of buying and selling activities.
Economists term this breaking-up of activities into selected work tasks the division of
labour. In contrast to the system of self-sufficiency where one person performs a
whole range of activities to meet his or her own needs, in organisations labour is
divided between workers. The division of labour can increase the efficiency of an
enterprise, by allowing workers to specialise in certain aspects of work and so become
more expert at what they are doing.
We can thus sum up the third common feature of organisations:
All organisations have a structure, a framework within which individuals can
perform defined work roles. Because there is this division of labour, there
is specialisation of work activities in organisations.
(d) Chain of Authority
The fourth key feature of organisations springs from the fact that they comprise
individuals performing a variety of work roles which combine to achieve the
objectives of the organisation. If organisations are to be effective in the pursuit of
their goals, the work activities have to be controlled and directed, and decisions which
affect the whole organisation have to be taken. This calls for a structure of authority.
A structure of higher and lower organisational roles is called a hierarchy.

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The hierarchy of roles in a modern organisation may be seen as a chain of authority.


At the top of the chain, senior management make the important decisions and are
ultimately responsible for the success or failure of the organisation. Orders and
instructions springing from key decisions made by them are passed down the chain of
authority. At every level, appropriate action is taken and further orders are passed on
down the chain until the lowest levels are reached, by which time all instructions should
have been carried out. The number of levels of authority will vary with the size of an
organisation; large organisations will have many levels of authority, whereas small
organisations will have relatively few links in the chain.
The crucial point is that all organisations have a recognised system of authority which
controls and delegates tasks and duties within the organisation.
(e) Information Systems
The fifth feature common to all organisations arises from the fact that they need
information. Information is needed:
 To plan operations: management decisions cannot be made in a vacuum. Data
and information have to be studied so that various courses of possible action can
be appraised and rational decisions made.
 To help plan the most efficient use of resources: there are many possible
different uses and combinations of land, labour and capital, and up-to-date
information can help select the best possible combination, so information helps
optimise the use of resources.
 To control and evaluate the performance of the workforce: for example, to
check whether targets are being achieved in the various departments.
 To compare the performance of an organisation with that of other
organisations in a similar field.
To attempt to run an organisation without up-to-date, accurate information is like trying
to drive a car with your eyes blindfolded, and is equally likely to end in disaster. All
organisations must have means of obtaining, recording and storing information so that
it is readily available.
Thus, all organisations must possess information systems, which make up-to-date
information available to members of the organisation who need it to assist the efficient
running of the enterprise.

B. CLASSICAL THEORY: THE SEARCH FOR PRINCIPLES


OF ORGANISATION
The classical school of organisation theorists comprises those with the view that there is a
single set of principles of organisation which, once discovered, would be the key to the best
way of structuring all types of organisation. Such principles would form a scientific basis to
management which all aspiring managers can learn and practice. This approach is
sometimes referred to as the pursuit of the 'Holy Grail' of organisational structure.
Some of the approaches discussed in this section may seem outdated, but their principles of
management and organisation were based on extensive research in the early 20th century.
Many of the concepts remain relevant in contemporary organisations, particularly those
associated with management style. However, throughout this course you will find up-to-date
material based on relevant research to enable you to compare and contrast earlier thinking
on the topic with a more modern approach.

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The main proponents of classical thinking – principally Taylor, Fayol and Urwick – derived
their theories from their own practical experience in industry (mainly in the engineering field)
and observations. They argued that organisations should be structured in a logical and
scientific manner. They maintained that there were a number of fundamental principles upon
which organisations are built:
 There should be a blueprint of organisational structure which could be applied
universally.
 The structure of an organisation should be hierarchical, with clear levels of authority.
 Each level of authority should have its own functions to perform.
 Everyone in the organisation should know their place and what is expected of them.
It was argued that the principles of organisation which derive from this would offer scientific
guidance to managers on how to run an organisation.

Henri Fayol
Fayol was an early 20th-century mining engineer who developed an interest in management
principles. He realised the importance of structure and argued that every organisation needs
to be planned, organised and controlled. Fayol's notion of the ideal structure for all
organisations rested on the following principles.
(a) Division of Labour
Work is divided:
 Between the levels of authority in an organisation, with each level having its own
duties and responsibilities from top management down.
 Between departments and other groups, with each having its function to perform.
Here Fayol built on the work of earlier authors. As early as 1776, Adam Smith
identified the benefits of specialisation, or division of labour, in the production process.
Fayol extended this to the study of management.
(b) Coordination
The various levels and departments must be coordinated so that all their efforts pull in
the same direction towards achieving the objectives of the organisation.
(c) Span of Control
Fayol stressed the importance of establishing the maximum number of subordinates
which a superior can control. This is called the span of control.
(d) Economies of Scale
Wherever possible similar activities should be grouped together to avoid overlap and to
obtain economies that accrue to larger Units: for example, bulk buying, spreading
overheads, making better use of resources.
(e) Objectives
Every organisation must have clear objectives.
(f) Authority
There must be a clear line of authority.
(g) Responsibility
Where a person is given responsibility, he or she must also be given the authority
necessary to carry out the task. A superior can be held responsible for the actions of
his or her subordinates.

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(h) Specialisation
As far as possible people should specialise in order to be proficient.
(i) Definition of Tasks
Employees should know exactly what is expected of them.
(j) Unity of Effort
Everyone in the organisation should be working towards achieving the goals of the
organisation.
(k) Unity of Command
Each member of the organisation should have one clear superior to whom he or she is
responsible. The span of control should not be too wide; ideally no person should
supervise more than five or six subordinates.

Lyndall Urwick
Urwick developed the ideas of Fayol and then put forward his own principles of management:
(a) Objectives
Achieving its objectives is the reason for the existence of any organisation.
Organisations that fail to achieve their objectives should cease to exist.
(b) Specialisation
In an effective organisation there is the principle of 'one group, one function', i.e. every
section or department should do its own job well and not interfere in other activities.
(c) Coordination
Management should so structure the organisation that all the parts fit neatly together
and work as a functional whole.
(d) Authority
There should be clear lines of authority in the organisation.
(e) Responsibility
Superiors are responsible for the actions of their subordinates.
(f) Job Definition
All jobs should be described precisely and duties defined.
(g) Correspondence
Authority and responsibility should go hand in hand.
(h) Span of Control
A superior should be responsible for up to six subordinates.
(i) Balance
The sections and departments of an organisation should be in balance; no one
department should dominate the organisation.
(j) Continuity
The organisation should be set up in such a way that it can continue to perform its
functions.

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F W Taylor: Scientific Management


Taylor acquired his practical experience in the American steel industry and went on to
become a management consultant. Taylor termed his key principle scientific management
and he modelled his approach to management on those of scientists seeking the laws of
nature.
Taylor's principles are summarised below:
 Managers themselves should be guided by the scientific approach. In the division of
labour within an organisation, management should accept full responsibility for
planning, organising and supervising the work of subordinates. Workers should be
freed from these problems so as to concentrate on actually doing the job and
performing work tasks.
 Managers have a duty to select and train staff in the most efficient way of performing
work tasks.
 Managers should motivate workers with the prospect of earning good pay and the
chance of promotion for those who deserve it. Taylor stressed 'a fair day's pay for a fair
day's work'.
 Managers should ensure harmony in the workplace by showing that the success of an
employee is tied closely to the success of the organisation.
 Managers should see to it that a scientific approach is applied to each operation that an
employee performs, so as to avoid wastage of effort.
 Managers should produce a blueprint of the best way to perform a given task by
studying successful employees and then applying this to all employees.
 Managers should treat employees as individuals rather than as members of a wider
grouping like workgroups or trade unions.

Relevance of Classical Organisation Theory


It is very easy to construct a strong case against the ideas of the classical theorists, but the
concepts they put forward are remarkably persistent and may be seen in many different
types of organisation today. It is not sufficient, therefore, to dismiss them with a few well-
chosen arguments in favour of more modern approaches. We need to understand the value
in their ideas as the basis for their continued application.
(a) Principles of Organisation
The principles identified by Fayol and Urwick can be criticised on a number of points,
particularly in relation to their rigidity and their lack of appreciation of the external forces
influencing organisations. Their weaknesses are as follows:
 The rigidity of the principles preclude the need for flexibility in designing
organisational and management structures to suit the circumstances within which
organisations find themselves.
 There is an overemphasis on the division of labour and specialisation, the scalar
chain, spans of control and line authority, all of which have been affected by the
explosion of information and communications technology which tends to
empower both managers and workers at lower levels in the hierarchy.
 Human beings are seen as puppets that must be made to fit into organisational
roles: they are there to do as they are told.
 All important decision-making rests entirely with management, with very little
consultation with staff.

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 There is an assumption that organisations are largely self-contained units where


management has complete control over events. Organisations and their
employees, in the real world, exist in an environment. They need to be
responsive to external forces over which they may have little or no control: for
example, customers or competitors, a national strike or sudden rises in the cost
of oil.
 Fayol tended to be rather vague on the exact ways in which some of his
principles were to be put into action.
Despite these criticisms, though, there remains much of value in these theories:
 There is a strong element of common sense in the ideas put forward, and many
are easily recognisable by practising managers today.
 The critics, like those they criticise, tend to overstate their case. For example, the
classical theorists did not completely ignore the social dimension, but many
managers using the theories overstressed the techniques at the expense of the
people.
 The emphasis on the importance of objectives was a step forward. Likewise, the
focus was put on how the structure of an organisation affects its performance.
 Although the main stress was on the organisation, theorists like Fayol did accept
that modern organisations operate in environments. There is also a strong theme
in these theories that emphasises the importance of management education.
On balance, the strongest criticism of these approaches is their belief in the existence
of a single set of guiding principles of organisation. When these theories are used
more flexibly, they have much to contribute to our understanding of organisations and
their management.
(b) The Principles of Scientific Management
As with Fayol and Urwick, Taylor's work can be heavily criticised for its emphasis on
management control and lack of understanding of the complexities of the human
dimension to organisations and their management.
 When management takes over all the planning and organising functions, the
workers' role is reduced to taking orders. Workers have very little control over
their work situation.
 Money is seen as the major reward and motivator. Taylor says little about other
things which could contribute to job satisfaction. This form of management
encourages a 'carrot and stick' attitude by management to workers.
 By treating the workers as individuals, Taylor underestimates the important
effects of group pressures on production and efficiency. Taylor also
underestimates the importance of trade unions in some organisations.
 Taylor gives the impression that managers are only really interested in first-class
workers; there seems little place for older or handicapped people.
 Taylor talks about a fair day's pay for a fair day's work, but who is to decide just
what is fair? Taylor leaves little room for negotiation between management and
workers on such issues. Unscrupulous managers could exploit workers when
measuring performances and payments.
 Scientific management does not take account of the concept of group dynamics,
which was recognised by Elton Mayo in the 1930s Hawthorne Experiments at the
Western Electric Company (see later in this Unit).

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Despite these criticisms, scientific management remains an important theory of


management. If Taylor's principles are used sensitively, many of the criticisms can be
met. In particular, Taylor's ideas on material rewards for performance and achieving
sales targets have been applied extensively in some businesses. The basic payment-
by-results ideas have been refined into performance bonuses and various mixes of
money, type of car, etc. and other tangible rewards. Some enlightened firms are giving
their managers or staff some choice over how the reward package is made up: for
example, more emphasis on money, or less commission and a larger company car.

C. HUMAN RELATIONS SCHOOL: UNDERSTANDING THE


PEOPLE DIMENSION
The main feature of the Classical School is its concentration on structure. It views the
organisation virtually as a machine, and indeed another term for this view of organisations is
'mechanistic'. (This is also referred to as the 'formal' organisation, a term closely associated
with the work of Charles Handy and his role culture typology of an organisation, of which you
will learn more later in your course.)
When we consider the implications of the classical theorists for management and
organisation in practice, we can say that the technical features are all there, but something is
missing. We need to consider the human dimension: the people who fill the posts in the
organisation and their behaviour. Whilst there is some consideration of a need to take
account of human factors, by and large the human dimension is not seen as important to the
form of organisation. Thus, classical theorists can propose ideal types of organisation and
management unencumbered by the problems that arise from actually having people involved
in them.
From the 1930s, greater attention began to be paid to the way in which the human dimension
affected the operation of organisations and what this meant for management. The basic idea
underlying this work is that to understand and improve an organisation you need to
understand the people who work for it and to take account of the way in which they interact
with it.
Unlike the classical theorists, the writers of the human relations school do not postulate any
organisational solutions as such. They are more concerned to shed light on the way
organisations work in practice and to identify possible organisational practices which may
bring the needs of the formal organisation in line with the reality of the way people behave.
The key work which defines the human relations approach in respect of organisation and
management comes from Elton Mayo's studies at the Hawthorne plant of Western Electric
Company between 1927 and 1932. Other important contributions have been from Maslow
and McGregor in respect of motivation and leadership.

Elton Mayo and the Hawthorne Studies


Without going into great detail about the studies, the background was that the researchers
were trying to find the optimum level of lighting in the plant in order to maximise productivity.
As such, it started out as a strictly scientific management approach. However, the surprising
finding was that productivity increased among the group of workers being studied both when
the level of illumination was increased and when it was decreased. Subsequent studies by
Mayo led to the conclusion that what was affecting performance was the special attention
being paid to the group of workers rather than any external physical factors. Their working
lives had suddenly become more interesting because of the experiments which were taking
place; they felt important and valued, and the result was increased enthusiasm for their jobs
and a higher output.
This phenomenon has become known as the 'Hawthorne effect'.

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Having established from this that performance was related to psychological and sociological
factors as well as purely physical ones and the organisational structure, Mayo went on to
investigate the other forces at play in the workplace. These are summarised below:
 Workers are strongly motivated by social needs (for social interaction, self-esteem and
recognition, a sense of belonging and security) and seek satisfaction of those needs
over and above any others, including the need for money, once a certain level of
remuneration as been achieved;
 Individual workers belonged to groups at the workplace which had their own codes of
behaviour, leaders and means of enforcement of the group norms (which included
notions of what appropriate output standards were), constituting a whole 'informal'
organisation within the formal one.

Relevance of the Human Relations School


These discoveries shifted the emphasis in organisation and management thinking. Mayo
demonstrated that human attitudes and behaviour seem to be what govern activity at the
workplace, and what was required was to examine the needs and interaction of individuals,
the ways in which groups operate and what this means for management.
The Hawthorne studies showed that the formal structure, organisation, values and goals of
an undertaking are by no means the only, or even the main, determinant of behaviour in the
workplace. There will always be an informal network of work groups and interactions which
constitute an alternative form of organisation for the workforce, and one which is invariably
far more important in their lives.
This 'informal organisation' determines, to a large extent, worker's attitudes to the formal
organisation and, therefore, how they view the formal structure of authority. It is work group
norms which tend to set standards of performance, such as timekeeping, output, quality,
attitudes towards customers and clients, dress codes, etc., and management will find it
difficult to impose standards which do not accord with them.
This concept has important consequences for organisation and management in that it must
aim to bring the formal and informal organisations into line: in particular, the values and goals
which apply. Strategies to achieve this include empowerment and participation, as well as a
raft of measures to maintain and develop motivation.

D. CONTINGENCY THEORY
The key feature of contingency theory is that there is no one best method that applies to all
organisations. There is a wide range of possible structures from which to choose. The
decision as to what structure would be appropriate will be influenced by such factors as the
external environment in which the organisation operates, the motivation of the workforce,
their skills, knowledge, and commitment as well as their experience in the specific working
environment. Technology, the product or service of the organisation are also influencing
factors.
Contingency theory is primarily based (though not exclusively so) on the findings of personal
observations within organisations. We shall now look at important researchers in this field.

Joan Woodward
The purpose of Joan Woodward's study was to assess the degree to which the classical
principles of organisation were being applied in British firms and to analyse the relationship
between organisational structure and success. The basic studies were carried out in the
1950s but they are still relevant today. Woodward looked at 100 firms each employing at

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least 100 people. The firms analysed were involved in a wide range of activities including
manufacturing, commerce, medical institutions, building, newspapers, etc.
A definitive pattern did not emerge that could relate either to business success or to the
variety of different organisational structures, in terms of their numbers of levels of authority,
span of control, clarity or otherwise of definitions of duties, the extent of communication
and/or specialisation. What was identified, however, was a correlation between the level of
control over the production process and working patterns, which was directly linked to the
objectives of the organisation.
Woodward identified three broad categories which seemed to favour particular forms of
organisations.
(a) Unit or Small Batch Production
This is where there was least automation of processes, the accent being on 'one off' or
short runs for which it is not appropriate to gear up machines to control production. A
hierarchy of increasing application of technology within the category covered the
production of items to customers' specifications and prototypes, the making of large
equipment in stages, and the production of small batches of items.
In this category, it was found that organisational structure was quite loose. There was
much delegation of authority within a standard pyramidal hierarchy characterised by
relatively small spans of control and quite permissive management attitudes.
(b) Large Batch and Mass Production
Here, the production process is much more automated, the firms being those
concerned with the production of standard items in large quantity, and assembly-line
working. However, the technology is not entirely dominant since variations and
uncertainties occur even in the mass production lines of car manufacturing.
These organisations were characterised by much tighter control procedures and rigid
large-scale hierarchies with the traditional pyramid shape being very elongated at the
base, reflecting the way in which large numbers of workers are required at the lowest
levels, but there are relatively few middle and senior managers. Span of control is very
large (which may account for the management problems experienced by many large
industrial concerns).
(c) Process Production
This is characteristic of the oil refineries and chemical manufacturers studied where the
production process was more or less certain and completed automated.
Such firms tended to be flexible again, but within a different organisation structure, with
diamond-shaped hierarchies which reflected the small number of operatives required to
service and maintain the process machinery, and the larger group of middle managers,
scientists, accountants, etc. In these concerns, problems tended to arise in this 'bulge'
in the middle where opportunities for advancement were limited. The production
process also limited individual initiative.
Woodward's key contribution to organisational theory was the discovery that, far from there
being a set of preferred organisational principles, the main determinant of structure is the
kind of activity and the technology with which organisations are concerned. As she stated:
'The criterion of the appropriateness of an organisational structure must be the
extent to which it furthers the objectives of the firm – not, as management
teaching sometimes suggests, the degree to which it conforms to a prescribed
pattern. There can be no one best way of managing a business.'

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The Development of Organisational Theory 15

Burns and Stalker: the Influence of the Environment


Burns and Stalker studied management and economic performance in a series of electronics
firms where the key to success was the ability to respond quickly to technological innovation.
It was found that those organisations which embodied formal structures of hierarchies and
working relationships tended to be slower off the mark and less profitable than those firms
which were organised informally, had more lateral communication and allowed talented
individuals more personal initiative.
This led them to propose two 'ideal types' of management organisation which form the
extremes of a continuum along which most organisations can be placed.
(a) Mechanistic Systems
These forms of organisation exhibit a high degree of specialisation, a clear hierarchy
within which coordination, control and communication are constrained, and an
insistence on loyalty to the goals of the concern and the rules of the formal structure.
Such rigid systems are most appropriate to stable conditions.
(b) Organic Systems
These are more fluid forms of organisation appropriate to changing and uncertain
conditions, where new and unfamiliar problems continually arise which cannot be
broken down and distributed among the existing specialisms within the organisation.
Such systems are characterised by a flexible structure involving continual adjustment
and re-definition of individual tasks with a constructive rather than restrictive view of the
application of specialist knowledge. Interaction and communication occurs at any level
in the organisation and there are a range of different integrating mechanisms, such as
liaison teams, to ensure cohesion. Such a system was seen as generating a higher
degree of commitment to the organisation's goals.
Burns and Stalker argue that many of the features of the classical approach (formal line
structures of authority, clear division of labour and a tendency towards centralised decision-
making, with orders flowing down from the top) are appropriate when environments are fairly
stable with little change. However, when environments are changing rapidly a more flexible
(organic) structure is appropriate (flexible structures, delegated authority and decision-
making, and decentralisation).

Lawrence and Lorsch


These researchers were also concerned to discover which forms of organisational structure
coped best with various types of environment. They put forward two key concepts:
 Differentiation: if environments are changing rapidly and becoming difficult to predict,
organisations will set up more departments and sections. These in turn will become
more specialised, with a greater division of labour. These parts of subsections of an
organisation develop different attitudes and ways of doing things. This situation
creates the need for:
 Integration: ways in which the organisation as a whole draws together its parts or
subsystems in order to achieve its objectives.
Lawrence and Lorsch concluded that when environments are changing rapidly, both
differentiation and integration need to be at a high level. In contrast, when environments are
fairly stable, only integration needs to be high.

Aston Group
This group of researchers, based at the University of Aston, put forward yet another variation
of the contingency theory theme.

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16 The Development of Organisational Theory

They examined the way in which the classical concepts of structure were applied in different
types of organisation. Taking the concepts of specialisation or division of labour,
standardisation of methods, formal rules, tall structures with many layers of authority and
centralised decision-making, they argued that there were many possible permutations where
each of the these elements may be at high or low level. Thus, an organisation may be
centralised or decentralised, formal or informal, etc. They then considered the application of
these possible structural permutations in relation to various other features of the
organisation:
 Is it large or small?
 What kind of technology does it use?
 Who owns it?
 What markets does it serve?
They identified the size of the organisation as the most important factor influencing structure.
They concluded that as organisations grow larger they need to be more specialised (greater
division of labour), more formalised (more explicit and stricter rules), more standardised
(similar procedures and methods), but less centralised (greater delegation of decision-
making). This would assist firms to perform well as they grow larger.

Relevance of Contingency Theory


Contingency theory disputes the idea that, whilst organisation and management structures
are key determinants in the performance of an organisation, there is one best way to
organise an enterprise. Rather, deciding which organisational structure will produce the best
performance is situational, i.e. contingent upon certain circumstances. These
circumstances may be within the organisation or may be features of the environment.
If we draw the research together we find that if an organisation is to be successful in
achieving its goals, it must be so designed as to be able to meet demands arising from:
 The type of technology in use.
 The type of market for which the organisation caters.
 The range of products.
 The rate of change in design of products.
 The size of the organisation.
The basic principles put forward by the classical theorists only make sense when considered
in relation to these types of factor. Therefore principles such as span of control or unity of
command have to be modified for the various types of organisation found in modern society.
It is dangerous to take the ideas of the classical approach as a fixed blueprint and apply
them to every organisation. The way you decide the best structure for an organisation is to
ask, 'Which design of organisation will be most successful in achieving its objectives?' The
key phrase of contingency theory is that there is no one correct way of designing an
organisation: it depends on the circumstances within which the organisation finds itself.
The contingency models of organisation concentrate attention on what is an appropriate
organisational form in the light of the situational pressures on the organisation. Even though
the various studies were conducted in industrial organisations, we can see same processes
at work in all types of organisation. For example, the impact of new office technologies is a
clear example of the type of influence identified by Woodward, and administrative support
structures of many public bodies have been moving steadily away from the highly rigid rule-
bound bureaucracies of the past, along the continuum proposed by Burns and Stalker,
towards a more organic structure, in response to the continual pressure of change to which
they have been subjected.

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The Development of Organisational Theory 17

Management Style
Management style is generally based on the structure, culture and strategies of an
organisation, but it is important to mention here what Professor Paul Hersey and Ken
Blanchard referred to as 'Situational Leadership' where a good manager/leader will not
practice the same style in every situation. This would not be appropriate, in view of the
plethora of situations that managers face on a day-to-day basis. A single style (say
autocratic) would certainly not be appropriate in a situation where involvement of employees
is vital to getting the job done. Often a manager/leader needs the active commitment of his
or her staff when change is introduced and has to be managed particularly in tight timescales
imposed by the turbulent external market environment.

E. SYSTEMS THEORY
The Systems Approach
As organisations are complex dynamic goal-oriented processes, the systems framework is
fundamental to the understanding of organisational theory. A systematic view on
organisations is transdisciplinary and integrative: it transcends the perspectives of individual
disciplines, integrating them on the basis of a common 'code' or more specifically on the
basis of the formal approach to an organisation. The approach is primarily founded on
interrelationships and is based on a humanistic extension of the natural sciences.
System dynamics was originated in the late 1950s by Forrester of the MIT Sloan School of
management and has since been exemplified by the work of Banathy. Capra, Senge,
Hammond and Swanson who all propound the idea that systems theories are a
transdisciplinary, interdisciplinary and multiperspectival domain, the areas of which have
brought together the principles and concepts from ontology, philosophy, sociology, political
science, computer science, biology and engineering. Also included are geography,
psychotherapy and economics. Therefore, systems theory provides an interdisciplinary
dialogue and link between all areas of the sciences.
This frame of reference is composed of regularly interacting or interrelating groups of
activities, and has evolved from 'an individually oriented industrial psychology to a systems
and developmentally oriented organisational psychology'. This is because it is based on the
premise that organisations are highly complex social systems, as already mentioned.
The same line of thought can be applied to organisations in that they take inputs of varying
kinds, and transform them through a series of processes into outputs. The organisation is
essentially the transformation process, but in viewing it we must be aware of the inputs and
outputs as well.
This basic concept can be illustrated diagrammatically as follows.

Figure 1.1: Basic elements of a system

Organisation or
Inputs Outputs
transformation system

Feedback

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18 The Development of Organisational Theory

The feedback loop is included to show that outputs commonly have an effect upon the
system, often by returning as an input.
Before considering organisations as systems, a number of points about the nature of
systems need to be explained.
(a) Sub-Systems
Within each system, there are likely to be a number of 'sub-systems', each a separate
entity but each forming an integral part of the whole. Notably, the outputs from one
sub-system are likely to form, at least in part, the inputs for another sub-system. The
whole can, then, be seen as a system of interdependent parts, constantly in action
and reaction both internally in relation to each other and externally in relation to the
environment of the system.
This can be crucial in organisations since any change within a particular sub-system
will inevitably have repercussions throughout the whole system. Management must,
therefore, understand and consider the inter-relationships and inter-dependence of the
various parts which make up the organisation.
(b) Boundaries and the Environment
A boundary is regarded as existing around each system or sub-system, defining it and
separating it from all others.
There are certain types of system which function entirely within their boundaries and
are totally unaffected by anything outside. These are known as 'closed' systems.
However, far more common are 'open' systems, where flows occur across the
boundary and factors outside the system affect it significantly.
Anything outside the boundary of a system with the potential to affect its operation
constitutes the 'environment'.
These are important concepts since managerial problems often arise at the boundaries
of a system or sub-system, and events in the environment are often outside of the
control of those responsible for the system itself. Indeed, environmental monitoring is a
key activity for management as it enables managers to be aware of change which may
affect the functioning of the organisation.
(c) Objectives and Goals
The last introductory concept to consider briefly here is that of what the system exists
to do. All systems must have a purpose, at the very least to survive, but in terms of the
types of organisation we are concerned with, some form of mission expressed as aims,
objectives or goals.
This applies to sub-systems as well as the whole system. Thus, Ford would have as its
objective the production of motor cars, but each of the myriad sub-systems which make
up the organisation would have its own goals: for example, to paint the body parts and,
a sub-system of that, to mix paints into the correct colours.
The outputs of the transformation process are designed to meet these objectives.

The Organisation as a System


Katz and Kahn describe the basic system model of an organisation as a structure of
functioning parts embedded in an environment from which it draws inputs and into which it
pours outputs (largely goods and services to meet customer needs, but also by-products,
which may be useful to other organisations or may be waste or pollution). Figure 1.2 is a
simplified illustration of this.

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The Development of Organisational Theory 19

Figure 1.2: An Organisational System in its Environment

Environment

INPUTS THROUGHPUT OUTPUTS


Material Research & Products
Development
Human and Services
Production
Financial By-products
Marketing
Resources Emissions
After-Sales Service

Feedback

Katz and Kahn emphasised the role of feedback in the successful persistence of
organisations. If an organisation is to survive and thrive in its environment, it needs
information about its outputs: for example, how well its products are meeting customer
needs, or whether its by-products or emissions are causing environmental problems?
We can now develop the concept of the system to stress the interdependence of the various
parts in an organisation.
Consider a simple example of an organisation containing just four departments:
Department A Production
Department B Sales
Department C Distribution
Department D Finance
Each of these departments constitutes a sub-system of the organisation as a whole, and we
can show the interconnections between them as follows.
Figure 1.3: The interdependence of systems

Department A Department B
Production system Sales system

Department C Department D
Distribution system Finance system

For the organisation as a whole to function effectively each of the systems must themselves
function effectively, and they must all function effectively together. Department A must
produce goods efficiently, Department B must sell these goods, Department C must see to it
that the goods reach the customers and Department D must pay for the raw materials used
in production, and pay employees' wages, and must collect money as payment from the

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20 The Development of Organisational Theory

customers. Any malfunction in A means that production will be adversely affected and so
disturb the functioning of departments B, C and D. If Department B fails in its functions the
problems of unsold goods will feed back to production and will affect distribution and finance.
If Department C fails to deliver the goods on time this has implications for A, B and D. If
Department D fails to pay or collect money, all the other departments would be in serious
trouble.
In modern, complex organisations there are invariably far more than four systems, hence the
number of interconnections is considerably more than the six shown in Figure 1.1.
Note too that, in the example, we have identified departments with sub-systems. However,
the concept of a system does not necessarily equate with the way in which an organisation
groups its functions. Thus the finance sub-system will extend across the whole organisation,
including the financial activities of the other three departments, and the distribution sub-
system may even include other organisations.
The systems approach also concentrates attention on the dynamics of the organisation. It
allows us to consider not just how the organisation functions in formal or informal terms, but
what it reacts to and how change may affect it.
Obviously, if there is no change in the environment and inputs can remain constant, the
organisation will remain static and we can concentrate on the formal structures of the
transformation system. However, the human relations school taught us that the people who
work in the organisation are themselves a dynamic and there are very likely to be variations
in the attitudes, motivations, etc. of staff as an input. Crucially, though, the environment
within which most organisations operate is constantly changing, in both the nature of the
outputs required and the inputs available.
To view the organisation as a system, or as a complex of interrelated sub-systems, is to
study the extent to which it is able to achieve a balance in its internal and external
relationships, and how far it can develop and progress in relation to the changes in those
relationships.
A particular problem of complex systems is their reliance on the effective meshing together of
the parts or sub-systems. It is not sufficient for each part to perform at optimum (best
possible) level. Rather it is the fit of the parts that is crucial. We can illustrate this with an
example. If the sales department in a commercial firm pushes sales higher and higher, at
first sight this is an optimum performance; but if the production section cannot meet these
orders even when working at maximum capacity, then the firm will lose goodwill and offend
its customers. In the long run the firm may be worse off than if its sales subsection had been
less effective in generating orders. Viewed independently, both sales and production sub-
systems have been maximising their efforts, but viewed as a whole the system of the firm
was not at optimum performance because the fit between the sub-systems was unbalanced.
We term the effects which occur in unbalanced systems 'dysfunctions', meaning that they
do not assist the system as a whole to achieve its objectives.
It is relatively easy to spot dysfunctions arising from the poor performance of a sub-system,
but far more difficult to come to terms with the case where a sub-system gets out of step by
being too successful. Dysfunctions are revealed only when we view the organisation as a
whole system, and take account of the fit and the balance of the various sub-systems. If we
look at each sub-system as a separate entity we may assess them all as being highly
effective individually, yet fail to see that the total system is not performing at optimal level.
Inputs and outputs are invariably from or to the environment of the system and, as that
environment changes, so must the system. All organisations have experienced an enormous
amount of environmental change in the last 20 or 30 years in respect of both inputs
(principally in terms of technology) and outputs, with new products and standards being
demanded. In addition, the expectations of people, both as customers and staff, have
changed considerably. Consider what people now expect in terms of product specification

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The Development of Organisational Theory 21

for a new car or their treatment when reporting problems with that car, compared with 30
years ago, or what staff now expect their working environment to be like. As inputs and
outputs change, the organisation must be capable of changing to accommodate the new
requirements and maintaining equilibrium, that essential balance in a constantly shifting
environment.

Sub-Systems of the Organisation


We have noted that the organisation as a system has myriad inputs and outputs which are
constantly changing in response to environmental pressures. The impact of the environment
is crucial in shaping the organisational response.
The systems approach is a way to illustrate how inputs are organised to achieve the desired
outcomes in an effective manner. Proponents of the systems approach, notably Kast and
Rosenzweig, and Trist and Bamforth, have attempted to develop categories for the different
sub-systems which make up the organisational system as a whole, so that we can
concentrate more clearly on the organisational implications of each. Three main sub-
systems are identified:
 the technical sub-system
 the psycho-social sub-system
 the structural sub-system.
In addition, Kast and Rosenzweig proposed two further elements:
 the goals and values sub-system
 the managerial sub-system.
It is apparent that classical management theory emphasised the structural sub-system and
the human relations school the psycho-social sub-system, while those concerned with
management science and operational research have largely been interested in the technical
sub-system. The systems approach allows us to unite those approaches and study their
interaction within the organisation as a whole.
(a) Technical Sub-System
Any organisation employs technology in its broadest sense to assist it in carrying out its
tasks. In industry this will include factory machines, robotics, etc. to make, say, cars.
In the service sector, the accent is more on office technology (computers, photocopiers,
telephones, etc.), as well as systems for filing and other forms of record-keeping:
indeed, all the paraphernalia of information and communications.
The technology used is an important determinant of the organisation. It prescribes to a
considerable extent the way the work is done, the organisation form and the
relationships between people. Thus, examining the technical sub-system, and the way
in which it changes, can explain a great deal about organisation and management.
(b) Psycho-Social Sub-System
The other key element that organisations employ is, of course, people. The goals,
values, aspirations and modes of behaviour of the members of the organisation will
also be important determinants of the way work is done and the relationships between
people in the organisation. This gives recognition to the nature of the informal
organisation and culture, and its impact on organisational form and management.
If we consider the interaction of sub-systems, we can see that the technical sub-system
itself makes demands on staff. An organisation based on the use of personal
computers needs different abilities and aptitudes, more personal motivation, control
and initiative, than one based on a manual clerical system.

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22 The Development of Organisational Theory

(c) Structural Sub-System


Organisations employ technologies and people in order to get the work done (or, if we
put it in systems terms, in order to process inputs into outputs). The structural sub-
system is concerned with the ways in which this is achieved – the division of tasks,
their grouping into operation units, their coordination and control. This is very much the
approach of the classical management school, and indeed the formal expression of the
structural sub-system would be the organisation chart.
Once again, we can see that the structural form exerts its own demands on both the
technical and psycho-social sub-systems. For example, geographical divisions need
different sorts of staff and technical support than the specialised product groupings. It
is also true that structural form is constrained by the availability of appropriate
personnel and technology, so the interdependence can be seen.
(d) Goals and Values Sub-System
Whilst the psycho-social sub-system is concerned with the goals and values of the
members of the organisation, the goals and values sub-system emphasises the formal
goals and values of the organisation itself – the purpose of the undertaking and the
supporting sub-goals and value systems required to give expression to that purpose
throughout the organisation. For productive industry, goals and values are generally
expressed in terms of, or at least underpinned by, quantifiable targets – profits,
numbers of units produced over time, etc.
Goals and values do change considerably over time and can have a significant effect
on other sub-systems. Take, for example, the impact of equal opportunities legislation
and the promotion of non-discriminatory frameworks and value systems over the last
few decades. This has required changes in both the structural and psycho-social sub-
systems.
(e) Managerial Sub-System
This last category concentrates attention on the mechanisms of coordination and
control, beyond the formal lines of the structural sub-system. It includes the form of
management within the organisation and the techniques employed to ensure that the
work is carried out effectively and efficiently.
Again, the managerial imperatives can exert their own requirements on other aspects
of the organisation. The best example of this is the concern with 'quality' across
activities – customer care, total quality management – which demands that values,
structures and technology are employed in a particular way in order to give proper
expression to the particular managerial purpose
We can now redraw our simple system diagram to take account of the sub-systems we have
identified:

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The Development of Organisational Theory 23

Figure 1.4: The organisation as a system

Technical
sub-system

Psycho-social
sub-system

Structural
Inputs Outputs
sub-system

Goals and values


sub-system

Managerial
sub-system

Feedback

Boundary Management
The boundaries of a system separate that system from its environment: they define what is
part of the system and what is not. All systems exist within an environment, but we can
distinguish two types of environment – that which is external to the system (organisation) as
a whole and that which is internal to the system (organisation). In open systems, resources
and information flow across both external and internal boundaries. Boundary management is
concerned with the interface between the system as a whole, or any of its sub-systems, and
the external environment, and between the sub-systems and their internal environment.
The work of writers like Trist and Bamforth points to certain guiding principles for boundary
management:
 A flexible approach is needed to managing boundaries. External boundary
management is contingent on the nature of the environment. Internal boundary
management must smooth the interfaces between sub-systems (departments or
divisions).
 Boundary management should be based on clearly identified objectives for each and
every sub-system.
 The problems between sub-system interfaces may well be social, and this will call for
insights from the human relations approach.
 Boundary management must smooth the differential influence of technology across the
system as a whole. A sub-system such as production is shaped by one type of
technology, while another sub-section is shaped by another type of technology.
Managers must deploy skills to reconcile these differences.

Levels Within the Organisation


Just as it is useful to classify certain organisation-wide elements to help clarify the processes
at play in the system as a whole, it is also useful to look at the different levels of process
within the organisation. Organisations are not just one monolithic structure, but have
different levels of operation which each have their own purposes, require different inputs and

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24 The Development of Organisational Theory

outputs and, hence, a different transformation or organisational process. We can identify


three main levels.
(a) Technical or Operational Level
At this level, concern is with getting the actual task done. For example, in a finance
department, the task may be the payment of creditors. The emphasis will be on
determining the most efficient and effective method of achieving this: the cost of doing
it (do you wait until there are sufficient cheques needing to be produced in a batch or
do them on demand?), the measurement of results, etc. The timescale under
consideration is generally short.
(b) Tactical Level
The second level is concerned with the coordination and integration of the technical
level. Here, the emphasis is on mediation and compromise between the various
constituents of the organisation in order that the whole enterprise can work well
together. To pursue our previous example, left to its own devices, the technical level
concerned with the payment of creditors might institute a system incompatible with the
system for, say, the payment of wages and that for accounting for expenditure. Thus,
in the finance function generally, the organisational level will determine overall financial
systems and policies so that the different activities fit together in a coordinated fashion.
The organisational level is concerned with both the short-term timescale of the
technical process and the longer-term needs for ensuring continuity and consistency
across operations.
(c) Corporate or Strategic Level
At this organisation-wide level the concern is to deal with the development of the
organisation in relation to its environment, considering the internal and external
pressures and uncertainties and forming policy judgements about responses. It is
about determining the future direction of the operation, the overall methods of
achieving development and gaining commitment.
The timescale for this type of concern tends to be long-term, although the exigencies of
environmental pressures often dictate a much tighter timetable for action.
Table 1.1 brings these concepts together.
Table 1.1: The organisation as a system of levels

Level Task Timescale Approach

Technical Specific operations Short Costing and


measuring

Tactical Coordination of specific Short – Mediation and


operations medium compromise

Corporate Selection of operations in Long Forecasting and


light of changing negotiating
environment

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The Development of Organisational Theory 25

F. CONTEMPORARY THEORIES: THE SEARCH FOR


ORGANISATIONAL DRIVERS
The most recent approaches to the study of organisations and management have been
empirical in nature – that is to say, based on observation, although using more scientifically
acceptable techniques than the classical theorists. They have sought to identify features of
organisation and management which lead to successful and unsuccessful organisations, or
which are associated with particular types of organisation.
We can characterise these approaches as seeking to derive philosophies around which to
build the organisation – driving forces which dictate appropriate forms of organisation and
management.
The work of Peters and Waterman, published in 1982, caused a great deal of interest, as
they concentrated on establishing what attributes contributed to a company achieving
'excellence'. Their investigation looked at successful companies in the USA and found 43
companies with 'excellence criteria' which set them apart from their competitors. Clutterbuck
carried out further research to identify factors as 'differentiators' that encapsulated customer
satisfaction with successful companies in terms of profitability and position in their respective
markets.
These researches made a considerable contribution to organisational and management
practices but they were relatively short-lived and have been overtaken by later researchers
seeking to identify what practices are vital to organisational survival and growth. There is
little doubt that, at the time, Peters and Waterman provided a substantial contribution to the
study of what organisations should consider to maintain their customer/client levels and
profitability. Some of their weaknesses, however, were as follows:
 Five years after the investigation, many of the high-performing companies they
identified had failed specifically in the area of managing change and subsequently did
not maintain their competitive edge.
 They placed insufficient emphasis on the significance of the cultural context in which a
company operates, in terms of both the country's culture and the culture within the
organisation. A longitudinal study reported in 2005 found that as much as 97% of
managing change is unsuccessful because culture has not been considered
sufficiently.
 Peters and Waterman found that a strong family belief in an enterprise over several
generations can enhance the performance of the company. However, Townsend
concluded that family tradition can be a destructive force, because of the insularity and
nepotism which very often retarded innovation and therefore inhibited growth.

Excellence Theory
As already mentioned Peters and Waterman's study sought to identify what companies
needed to do to achieve excellence in terms of profitability and of being the market leader in
their business sector. Since their research there has been a plethora of studies carried out
mostly because of the changing trends in working patterns and employee expectations.
(a) Employee Engagement
Excellence in all of its varying definitions will only be achieved if employees are
engaged in and with the organisation's business objectives. It is difficult to achieve this
employee engagement because it is mostly associated with the level of motivation of
the individual. A contemporary organisation in unlikely to achieve high standards of
performance if this engagement is not present. Purcell's work with Bath University,
published in 2003, is crucial to the understanding of how organisations have moved
away from 'command and control' management styles with exclusive concentration on

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26 The Development of Organisational Theory

the customer, to a shift towards employees' expectations of an organisation, meeting


which in turn provides high-level commitment and loyalty and therefore achieves
customer satisfaction. Purcell's finding that a happy employee will achieve high
performance standards has been substantiated by further research. Pfeffer, Huselid,
Guest and Ulrick's investigations are noteworthy because of their relevance and
importance to the principle of employee engagement and how this reflects in the
sustainability of an organisation.
(b) Bias for Action
Even though the companies studied by Peters and Waterman were analytical in their
approach to decision-making, they were not restricted by too much analysis (what they
call 'paralysis by analysis'). Rather than create cumbersome committees generating
reams of documentation, small task groups are established, not so much to talk about
an issue, but to do something, even experimentally – often by the 'standing operation
procedure of do it, fix it, try it'.
Managers should be flexible and responsive to change. The excellent firm thrives on
change and actively seeks ways of changing so as to improve itself. This 'bias for
action', however, requires the organisation to be tolerant, both of risk-taking and of
mistakes being made. Managers must show enterprise and be prepared to experiment
and innovate; people must not be afraid to make a mistake. Constantly playing it safe
in a firm leads to inertia and this is the enemy of excellence. When problems arise
managers must get to the root of them and take action to sort them out – problems
should not be glossed over.
(c) Autonomy and Entrepreneurship
Excellent companies foster many 'leaders' and many innovators throughout the
organisation. People should not be held on so tight a rein that creativity is stifled.
Practical risk-taking is to be encouraged and such organisations are supportive of
'good ideas'. In the words of one chief executive, 'make sure you generate a
reasonable number of mistakes'. Being given the chance to try, even if your efforts fail,
is highly motivating.
(d) Close to the Customer
Excellent companies learn from the people they serve, often differentiating their
products to suit client needs. This is the essence of the marketing approach as
opposed to a selling approach. Everyone, from the highest to the lowest employee,
needs to be committed to the concept of customer service. Many of the most
innovative companies were found to have got their best ideas from their customers.
Excellent companies listen intently, and regularly, to their customers.
(e) Productivity through People
The excellent companies treated even their rank-and-file employees as a source of
ideas, not just a pair of hands. This is rooted in the concept of respect for every
individual, no matter how lowly his or her status. Putting this concept into effect helps
to break down the 'them and us' attitudes so prevalent in western organisations and to
generate commitment to the company, both of which can provide a direct boost to
productivity.
This is an essential corollary to the principles of both entrepreneurship and closeness
to the customer. Thus, managers must treat their staff at all levels in the firm as
valuable assets who should be given responsibility and encouraged to take risks to
improve the working of the organisation. They should also listen and learn from their
subordinates as well as their clients/customers.

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The Development of Organisational Theory 27

(f) Hands-On, Value-Driven


It is organisational achievement and performance that count, and overriding concern
for these derives from an organisational value system which demonstrably supports
and promotes them. Everything else is secondary. Peters and Waterman cite the
anecdote of the Honda worker who straightened the wiper blades of all the cars as he
walked past on his way out of the factory each evening because he was so committed
to the company value of perfection that he could not bear to see a 'flaw' in a car.
(g) 'Stick to the Knitting'
This premise relates to the injunction that you should never get involved in a business
or undertaking that you do not know how to run. The excellent firm concentrates on
what it does best and does not branch out into areas it does not fully understand.
This principle is principally concerned with the issues of acquisitions and mergers in
industry, but has application elsewhere as organisations seek to expand their range of
work. Although Peters and Waterman note that there are exceptions to this rule, the
odds on excellent performance seem to strongly favour those companies that stay
reasonably close to the business they know. In effect, they are saying that if you do not
have the expertise to achieve high levels of performance, leave it alone.
(h) Simple Form, Lean Staff
Although most of the companies studied were very large, they were characterised by
relatively simple management structures and relationships, without too many layers
and levels of authority. For example, none of them used 'matrix' forms of multi-
disciplinary project teams. Top-level staffing tended to be small and multi-billion dollar
enterprises had central corporate staff of fewer than 100.
(i) Simultaneous Loose-Tight Properties
There is a place for both centralised and decentralised forms of organisation.
One the one hand, the 'what' (key objectives, values and standards) should be centrally
determined and monitored for the whole organisation and no deviation should be
allowed. The organisation must have vision: it must know where it is going and how it
is going to get there.
On the other hand, the details of 'how' can be delegated. As long as the key standards
are maintained, individual departments should have as much freedom as possible in
determining how to attain them.

Theory Z
Ouchi developed this approach in an attempt to apply the lessons of Japanese organisation
and management styles and practices to the Western (mainly American) cultural experience.
(a) Japanese approach
It is worth reviewing the key points of the Japanese approach as a starting point. Ouchi
identified these as:
 secure lifetime employment
 consensual, participative decision-making
 collective responsibility for decisions, standards and performance
 slow personal development, evaluation and promotion
 implicit, informal control based on the overriding value system
 non-linear and non-specialised career paths

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28 The Development of Organisational Theory

 holistic concern for the well-being of the organisation and all its employees
(including their families) in the widest sense.
(b) Application to Western Organisations
In applying these to the context of Western organisations, one must recognise the far
greater emphasis in our culture on individual expression and responsibility, lack of
company loyalty, and the expectation of short-term and more immediate personal
rewards for performance. However, it is considered that some mitigation of these
tendencies, in effect some subjugation of the individual to the greater good of the
company is necessary. The key principle of the approach is, therefore, that the
organisation should develop a philosophy and value system which fosters commitment
to organisational goals through the following practices:
 long-term security of employment
 consensual, participative decision-making
 individual responsibility for decisions, standards and performance
 slow personal development, evaluation and promotion
 implicit, informal control within a framework of explicit formalised measures
 generally linear and moderately specialised career paths
 holistic concern for the well-being of the organisation and all its employees
(including their families) in the widest sense.
Note the subtle differences in the development of these principles for application to
western cultural values.

Organisational Culture
Culture is quite difficult to define. When we speak of culture we know what it is and
what/how it is manifested in an organisation but a clear, unambiguous definition eludes us!
This is because culture can mean different things to different people, depending on their life
experiences, their background, religion, beliefs and values. Handy described culture in
organisations as 'the way we do things around here'. These 'things' are the accepted norms
and values of an organisation, developed over time into expected behaviour patterns. They
generally emanate from the top management level of the organisation; but this is not always
the case, and analysing culture can be a complex task.
It is widely recognised that different organisations have distinctive cultures, built up through
tradition, history and structure. Culture gives the organisation a sense of identity. As part of
the induction (introduction) process to the company, a new employee will learn very quickly
what the culture is within the organisation because of the legends surrounding the owners or
founders of the organisation. For example, they might have been autocratic with scarce
interaction with their employees, worked long hours and be critical of formal education and/or
qualifications. Their mindset might be 'work hard, and do as you are told' rather than
welcoming employee participation
There are several influential writers on culture, including Handy's work which is still
recognised in contemporary organisations. Hofstede, Trompenaars, Hampden-Turner,
Schein, Schneider and Barsoux and Deal and Kennedy, are all worth reading.
(a) Cultural Analysis
We can develop an understanding of an organisation's culture by considering the
attributes listed below.

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The Development of Organisational Theory 29

 The organisation's goals – particularly its mission statement – and the extent to
which they are clear, communicated to and embraced by all levels of the
organisation.
 The dominant behaviour patterns applying to the interaction within the
organisation and between the organisation and its stakeholders (its existing and
potential customers, investors, owners, etc.), in respect to both what is expected
and whether actual behaviour lives up to these expectations.
 The distribution of authority and decision-making through the organisation:
basically along a continuum from authority being concentrated at the top or
spread downwards to teams of empowered employees working close to
customers.
 The structure of the organisation, which is closely related to the distribution of
authority and may be easier to identify through the use of organisation charts,
etc.
 The nature of leadership, which refers to the way in which power and authority is
exercised, again along a continuum from authoritarian to democratic.
 The values of the organisation in terms of its responsiveness to the needs and
aspirations of its own staff and to those of its stakeholders.
 The entrepreneurial spirit of the organisation, as revealed by the degree of
enterprise, innovation, competitiveness, flexibility and drive for excellence of the
organisation.
 Its readiness to embrace change arising from changes in its environment,
particularly whether this is proactive (anticipating and planning for change) or
reactive (coping with change as and when it arises).
Corporate culture is extremely difficult to change. It should be recognised that it takes
a long time for employees to get accustomed to such change, as it can lead to tensions
between the organisation and the individuals within it. Cummings and Worley state
that it is imperative for senior management to be in favour of the culture change, and
their behaviour needs to symbolise the kinds of values that are required for the change
to be effective.
(b) The Learning Organisation
The kind of culture which promotes a learning organisation is one whereby learning is
not perceived exclusively as formal training programmes or what is referred to (as a
generalisation) 'short, sharp bursts of training'. Senge argues that organisations should
constantly seek to improve processes, production outputs (irrespective of whether the
company produces a tangible product, for example a car, or provides a service, for
example banking), and employee skills and knowledge. These elements are crucial to
the organisation's survival and/or growth. Burgoyne and Boyatis have separately
researched the need for organisations to create the kind of environment in which all
employees, irrespective of their occupational position, feel able to put forward
suggestions for improving any area of the business (which does not necessarily have
to be the area in which the employee works).
Since the principle of the learning organisation was first put forward, important work
has been carried out with the emphasis on 'knowledge management' (KM). The
principle of knowledge management is to enable all employees to transfer their
knowledge, either through a formal educational programme and/or from knowledge
gained as a result of their experiences, either in their current or previous jobs.
A learning organisation will not be created unless there is active commitment from
senior management, which is cascaded in practical terms to the lower levels in the

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30 The Development of Organisational Theory

company. A policy or procedure stating that the organisation's strategy is to become a


learning organisation will be useless if senior management does not lead by example
and create an ethos, which is transformed into practice, of supporting and developing
employees at every level. The strategy to improve processes, systems, skills and
knowledge must be clearly communicated and practised.
(c) Culture of Excellence
The characteristics of this type of culture were emphasised by Peters and Waterman,
but it originated in a seminal work by Deming, who was at first scorned by American
organisations for his ideas on quality and what organisations should be doing to
develop/sustain their levels of output while still achieving. high levels of customer
satisfaction. Deming later went to Japan, and it was from his ideas that the Japanese
derived the concept of quality by 'right first time, and zero defects'. Deming's principles
have for the most part survived in Japan, and his ideas were transferred into practice in
the UK mostly because of Japanese involvement in the car industry. Many
organisations still aspire to realise his ideas by embracing the ethos of 'zero defects'.
Characteristics of a culture of excellence include the following.
 The role of leadership is crucial. Management should have a clear vision and be
able to provide the environment which motivates their staff towards the
achievement of the vision.
 There should be an emphasis on quality and value for both the company and the
customer. A pricing policy should reflect these and show awareness of the
customers' expectations and specific requirements. Creativity and innovation
should become the cultural norm, where employees are actively encouraged to
put forward their ideas for changing processes, procedures and practices. A
blame mindset has to be eradicated; instead employees should not be
apprehensive about making mistakes, within a culture where taking risks (within
set parameters) becomes acceptable and part of the organisation's business
strategic goals.
 Management and organisational structures should be flexible, to cope with the
turbulent external environment. Problem-solving and decision-making are cross-
functional, with employee involvement. The hierarchy of the organisation should
be appropriate to its place in the market; the fashion for downsizing or delayering
should not automatically be followed, although in many instances this might be
appropriate. Following 'best fit' instead of 'best practice' should become one of
the values of the organisation. Benchmarking, which is a process of comparing
and contrasting characteristics of other organisations against those of one's own
organisation, does have value, provided that the best practices identified in those
organisations are not emulated automatically. The important factor from
benchmarking is learning what best practices there are and then selecting those
which would fit comfortably with the culture of the existing organisation. That is of
course on the assumption that the existing culture is one that currently does not
need to change!
(d) Controlling Quality
In the past many organisations had a specific function termed 'Quality Control' to
ensure that goods and services were of an appropriate quality and acceptable to the
customer/client. The tasks of quality control were:
 Inspection: products were inspected, then either judged acceptable or returned
for modification or wastage.

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The Development of Organisational Theory 31

 Statistical sampling: in mass-production industries where standardised goods are


produced, random sampling would be used. For example, selecting a number of
produced Units from of each batch.
The benefits of quality control were that sub-standard goods were identified before they
reached the customer. There were substantial costs involved in this process, however,
and today fewer organisations have a quality control function. Many organisations
have instead put in its place procedures and systems whereby individual employees
are responsible for ensuring their own quality control in the product or service that they
provide to the customer.
This change has seen a substantial rise in employee motivation, loyalty and job
satisfaction, which is evidenced by Purcell's work as well as that of Ulwick, Pfeffer and
Guest. The willingness of employees to accept the responsibility in this way has been
highlighted by Bennis, Holbeche and others. There have to be reasonable and
therefore acceptable reward systems, high levels of employee participation in decision-
making, and goal-setting objectives that are based on sound to business plans. These
employee practices form part of a 'bundle' of benefits that motivate and develop
employees, in the manner Purcell and others identified in high-performing
organisations that were recognised by other organisations as being 'world class'.
Lack of quality, in contrast, is generally associated with:
 Uninterested, untrained employees with low morale which creates low motivation.
 Dissatisfaction with management styles which emphasise control and command
instead of empowerment.
 Unfair practices, inequality and maybe discrimination.
 Ineffective leadership: lack of interest in employees, lack of direction, inadequate
planning, and managers promoted to the level where they are incompetent and
have received no development or training to support their position.
 Working conditions, reward strategies, policies and procedures that are rigid and
have barely changed over decades.
 Lack of trust in management decisions (and sometimes also lack of integrity at
senior management and/or board level).

American and Japanese Corporate Culture Models


The direction of change in corporate cultures in recent years has tended to be from those
rooted in American organisational culture, towards a culture which owes much too Japanese
ideas. In addition, there has been a movement away from bureaucratic cultures towards
more flexible approaches. We can summarise the two corporate culture models as follows:
(a) American
The typical American organisational culture is characterised by decision-making
concentrated at the top, with instructions flowing down to subordinates (i.e. line
authority). We can see here the still considerable influence of Taylor and Fayol. In
accordance with this approach, few people are involved in planning and decision-
making.
This has the advantages stressed by the classical theorists: the objectives of the plans
and decisions are clear and unambiguous and decision-making is swift. However,
plans and decisions take some time to be implemented because they have some
distance to flow down the organisation. They need to be explained to the lower levels
and there may not be agreement or enthusiasm for these instructions among workers.

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32 The Development of Organisational Theory

Considerable bureaucracy tends to be present. Individuals have their areas of


discretion clearly delineated and are held personally responsible for results which stem
from their decisions.
Professionals operating within American organisations place their first loyalty to their
profession and see themselves as different from line managers, whom they regard as
'company men'. This is just one of several potentially conflicting areas in American
organisations; these become particularly apparent when the need for change arises in
the organisation.
The American corporate culture stresses the importance of short-term results. This
short-termism is an important influence on the organisations, producing a culture of the
hard sell and sometimes frantic activity. This cultural style is further reinforced by
rewarding individual results, a logical follow-on to holding individuals responsible for
their decisions and actions. Another feature of this culture is a sense of job insecurity
and rapid labour turnover; this in turn makes some firms reluctant to invest heavily in
long-term staff and management training.
The corporate culture of the USA favours strong, decisive leadership from the top.
Management is not afraid of confrontation and encourages competition.
Although many American firms do not fit the above model and many more are
attempting to change from it, the culture is sufficiently widespread to serve as the
model for organisational culture in the USA.
(b) Japanese
The typical Japanese organisational culture reveals many features in strong contrast to
the American model. Japanese decision-making tends to flow from the lower levels of
the organisation, with suggestions and ideas going up to top management and flowing
down again through consultations with people concerned. Bottom-up decision-making
encourages a culture of consensus, because people are likely to agree with decisions
where they have been involved with the decision-making process. However, there can
be drawbacks in that decision-making can be a long process and objectives may
become rather confused. Against this must be set the speedier, smoother
implementation of corporate plans and decisions.
The corporate culture in Japan tends to be more informal and less bureaucratic. All
staff, including professionals, are likely to owe their first loyalty to the firm. The
Japanese culture is far more collectivist; rather than rewarding individual results it is
the work group that is rewarded for good results. Japanese pride is in the group or the
organisation, not in the individual. This collective culture also applies to decision-
making, where many techniques are used to involve workers at all levels in the
planning and decision-making process.
The loyalty of Japanese employees to their organisations is reciprocated by the job
security offered to them. In many organisations there is lifetime employment, and as a
result firms are confident that their staff will remain with them. This, in turn, encourages
firms to undertake long-term, expensive training schemes, thus benefiting both staff
and organisation. The Japanese approach stresses the value of long-term results; in
consequence a calmer and more co-operative culture develops.
The value of consensus and agreement is reflected in the leadership style of Japanese
culture. The Japanese see the leader as primarily an enabler: the role of the leader is
to assist a group or section to achieve its objectives. The enabling role is carried on
through consultation, and subordinates are encouraged to help with suggestions.
Control is less authoritarian in Japanese organisations than in parallel American firms.
The Japanese culture encourages control by the group rather than by superiors;

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The Development of Organisational Theory 33

because results are measured in group terms it is in the interests of the group to see to
it that all group members are pulling their weight.
In summary, Japanese corporate culture has been more stable and democratic, has
greater consensus and takes a longer-term view than the American corporate culture.

Strategic Business Units and Internal Marketing


When large organisations produce a number of products or services they may split their
activities into a number of relatively autonomous divisions, known as strategic business units
(SBUs).
SBUs develop entrepreneurial culture within large organisations by being responsible for
developing, producing and marketing their own product or service. Each SBU can be
benchmarked for effectiveness and efficiency, so there are strong incentives to perform well.
SBUs may be profit centres, that is the units are responsible for both revenues and costs.
Another technique that develops entrepreneurial culture is internal marketing. This involves
divisions, departments or units marketing their products or services to other units within the
same organisation. The providing units satisfy the needs of the other units just as if they
were external customers. They meet the consuming units' needs for the right products at the
right price; of the right quality, in the right place at the right time. Supporters of internal
marketing argue that it increases effectiveness and efficiency by bringing the discipline and
culture of the market into the organisation itself.

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34 The Development of Organisational Theory

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