Literature review 10

The principles break with the classics of organization theory by Weber (1922), Taylor
(1911), and Fayol (1929) that all propose one best way of organizational design independent
of its environment (Child 1970; Pfeffer and Salancik 1977). Contingency theory stipulates
that organizations achieve the highest performance if their design fits its situational
determinants (Donaldson 2001; Qiu, Donaldson, and Luo 2012; Sinha and van de Ven 2005).
The concept of fit between determinants and organizational design variables is key to
contingency theory. An organization can deviate from the optimal fit for a short period of
time, but needs to achieve fit between its organization and the environment to survive in the
long term (Donaldson 2001). Scholars of contingency theory perceive an organization as an
open system adapting to such environmental determinants (Bertalanffy 1949). To achieve
maximum performance, there is one optimal organizational design given certain determinants
(Lawrence and Lorsch 1967c; Schreyögg 1980).

Figure 2: Contingency theory approach to organizational design

Organizational
Determinants design Performance
variables

Source: Kieser and Walgenbach 2010

Contingency theory scholars have researched several key determinants of an organization.

Kieser (2006) differentiates these in internal and external determinants. Exemplary external
determinants are environmental uncertainty (Burns and Stalker 1961; Pennings 1975) and
technology (Perrow 1970; Woodward 1958, 1965). Exemplary internal determinants are
organizational size (Child 1975) and company strategy (Chandler 1969). Contingency theory
scholars consider external determinants as given determinants that the organization cannot
influence (Schreyögg 1980).
In characterizing and designing organizations, scholars of the classic school of
contingency theory return to concepts developed in Weber’s (1922) bureaucracy concept
(Dow 1988; Hall 1963; Udy 1959). Specialization and integration are two key variables to
design the organization (Lawrence and Lorsch 1967a, 1967c). The terms specialization and
differentiation are interchangeably used (Galbraith 1973; Lawrence and Lorsch 1967a;
Pennings 1975; Pugh et al. 1968). Contingency theory considers specialization not only in the
classic sense of division of labor to achieve better performance (Galbraith 1973). Lawrence
and Lorsch (1967c, p. 9) extended the concept: “Both because of their prior education and
experience and because of the nature of their task, they would develop specialized working