Class notes on "Neo- classical theory" (principle of management) for MBA- 1st year student

MBA and B.tech class notes

Evolution of Management Thought

Neo- Classical Theory

Neo- classical theory is also referred to as behavioral science approach to modifying and improving the classical theory. While classical theories focused more on structure and physical aspects of the worker and Neo-classical theory gives importance to human and social aspects of the worker and his relations in the organization. The neo-classical theory is based on the Hawthrone experiments. Elton Mayo conducted the Hawthrone experiments at Hawthron plant of General Electronic Company (GEC) between 1927 and 1993 at Chicago with 30,000 workers. The Hawthron plant was manufacturing telephone system bell. The objective of the experiment was to find out the behavior and attitude of workers at workplace under better working conditions. In the company, when management provide the benefits of medical allowance and pension with recreational facilities. Even thought workers get all facilities but the productivity was not up to expectation. So, in 1924, the professor Elton Mayo and his research team investigate the reasons for dissatisfaction of employees and decrease in productivity.

Four Phase of Hawthrone experiments: Prof. Elton Mayo and his team conducted researches in four phases. Illumination experiments (1924 1927) Relay assembly room experiments (1927 1928)

Mass interviewing programme (1928 -1930) Bank wiring room study (1931 1932)

Result of Hawthrone Experiments: Motivation: Employees are not motivated by only money (bonus scheme and incentive). Communication: communication helps the management and employees to have better mutual understanding. Through proper communication, management can easily identified the problem faced by its employees and can easily solve out. Social factors: Social factors are responsible for deciding the level of output. Behavior of workers: workers are not as individual identity but as members of a group in an organization and they have their own norms and beliefs. Workers behavior depends upon his mental level and emotions. Workers began to influence their group behavior towards management. Relationship: Employees do not like order and command. They preferred to maintain amicable relationship with their co-workers. They want cooperative attitude from their superiors. Production level: Teamwork and Group psychology increases productivity. Criticism of Hawthrone Experiments: Hawthrone experiment was not conducted scientifically. In the experiment, various format and structure are not feasible. Eltone Mayo gives more importance to human aspect and ignoring other important aspects. Group conflict is prevalent in an organization. Hawthrone experiment did not give any recognition to the forces which are responsible for productivity in the organization. During experiment, Eltone Mayo has assumed that a satisfied employee would be productive. But the finding was different. There is no link between working condition and productivity.

Major contributors of Neo-classical theory are: Chris Argyris- He recommended that worker should be given freedom to make their own judgments. Mary Praker Follett: He referred group influence. Dougals Me Gorgor: he referred two views. X-theory- it is based on classical theory and Y-theory- it is based on neo-classical theory. Abraham Maslow: He referred individual needs.