Theories of Organizations

According to Joe Kelly, “Organisation theory is a set of interrelated concepts, definitions and
propositions that present a systematic view of behavior of individuals, groups and subgroups
interacting in some relatively patterned sequence of activity, the intent of which is goal-directed.”

Organizational theories are a set of propositions which seek to explain how individuals and groups
behave in different organizational structures and environment.

A central part of the study of organization and management is the development of management
thinking and what might be termed management theory. The application of theory brings about
change in actual behavior. Managers reading the work of leading writers on the subject might see in
their ideas and conclusions a message about how they should behave. This will influence their
attitudes towards management practice.

The study of organizational theory is important for the following reasons:

1. It helps to view the interrelationships between the development of theory, behavior in

organizations and management practice.

2. An understanding of the development of management thinking helps in understanding principles

underlying the process of management.

3. Knowledge of the history helps in understanding the nature of management and organizational
behavior and reasons for the attention given to main topic areas.

4. Many of the earlier ideas are of continuing importance to the manager and later ideas on
management tend to incorporate earlier ideas and conclusions.

5. Management theories are interpretive and evolve in line with changes in the organizational
environment.

A framework of analysis

There are, however, many ways of categorizing these various approaches. For example, Skipton
attempts a classification of 11 main schools of management theory. Whatever form of categorization
is adopted, it is possible to identify a number of other approaches, or at least sub-divisions of
approaches, and cross-grouping among the various approaches. The choice of a particular
categorization is therefore largely at the discretion of the observer.

We here will be describing following four approaches in detail:

1. Classical – including scientific management, administrative management and bureaucracy

2. Human relations – including neo-human relations

3. Systems approach

4. Contingency approach

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Attention is also drawn to other approaches, including: Decision-making; Social action and Post-
modernism.

Classification of Organisational Theories

1. Classical Organisation theory

a. Scientific Management or Machine Theory

b. Administrative Management or Management Process

c. Bureaucracy

2. Neo-classical Organisation theory

3. Behavioral Science Approach

4. Social System Approach

5. Modern Organisational Theory

a. Systems Approach
b. Contingency Approach

Classical Organisational Theories

The classical theory represents the traditionally accepted views about organisatrions. It is said to be
the oldest school of thought about organization and its management. These can be traced historically
to the 19th century prototype industrial and military organizations. Several writers namely: Taylor,
Fayol, Weber, Luther, Gullick, Urwick, Mooney and Reiley and many others have contributed to the
classical thought. These writers have placed emphasis on planning of the work, the technical
requirements of the organization, principles of management, and the assumption of rational and
logical behavior. Organization here is treated like a machine and its efficiency can be increased by
making each individual working in the organization efficient. Classical approach of management is
the first studies of management, which emphasized rationality and making organizations and workers
as efficient as possible. It offers a convenient framework for the education and training of future
managers. According to Batrol, the classical school is characterized by highly structured, with
emphasis on the formal organization with clearly defined functions and detailed rules, autocratic
leadership. The three greatest proponents of classical theory were Taylor, Fayol, and Weber. Each
identifies detailed principles and methods through which this kind of organization could be achieved.

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The classical thought can be studied under three streams, namely,
1. Scientific Management or Lower Level Management analysis.
2. Administrative Management or Comprehensive analysis of management.
3. Bureaucratic Management.

All the three concentrated on the structure of organization for greater efficiency. All these theorists
were concerned with the structure of organizations and that is why their approach is also called as
“Structural Theory of Organisation.”

Scientific Management

F.W Taylor was the first person who insisted on the introduction of scientific methods in
management. He launched a new movement during the last decade of 19th century which is known
as “Scientific Management”. That is why Taylor is regarded as the Father of Scientific Management.
Although the techniques of scientific management could conceivably be applied to management at
all levels, the research, research applications and illustrations relate mostly to lower-level managers.
Therefore theory is also referred to lower level management analysis.

Scientific management consists primarily of the work of Frederick W. Taylor, Frank and Lilian Gilbreth,
and Henry L. Gantt. Frederick W Taylor (1856-1915) is commonly called the father of scientific
management because of the significance of his contribution. He started his career as an apprentice
in a small shop in Philadelphia (USA) in 1875.Taylor witnessed much inefficiency (Robbins et al, 2003).
He sought to create a mental revolution among both workers and managers by defining clear
guidelines for improving production efficiency. He argued that the four principles of management
would result in prosperity for both workers and managers.

Scientific management means application of scientific methods to the problems of management. He

advocated scientific task setting based on time and motion study, standardization of materials, tools
and working conditions, scientific selection and training of workers and so on. He laid emphasis on
the following principles:

1. Science. Not rule of thumb: Develop a science for each element of a man’s work, which replaces
the old ‘rule of thumb’ method.
2. Harmony in group action, rather than discord.

3. Maximum output in place of restricted output.

4. Scientific selection, training and placement of the workers.

5. Almost equal division of work and responsibility between workers and managers.

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The basic idea behind above stated principles was to change the mental attitudes of the workers
and the management towards each other. Taylor called it ‘Mental Revolution’ which has three
implications:

I. All out efforts for increase in production;

ii. Creation of the spirit of mutual trust and confidence;
iii. Including and developing the scientific attitude towards problems.

Taylor’s thinking was confined to organization at the shop level. However, he demonstrated the
possibility and significance of the scientific analysis of various aspects of management. To put the
philosophy of scientific management into practice, Taylor and his associates suggested the following
techniques:

I. Scientific task setting to determine a fair day’s work.

ii. Work study to simplify work and increase efficiency. It includes method study, time study and
motion study.
iii. Standardization of materials, tools, equipment, costing system, etc.
iv. Scientific selection and training of workers.
v. Differential piece-wage plan to reward the highly efficient workers.
vi. Specialization in planning and operations through ‘functional foremanship’. Foremen in the
planning department include: route clerk, instruction card clerk, time and cost clerk and shop
disciplinarian and those in operations department include: gang boss, speed boss, repair boss and
inspector.
vii. Elimination of wastes and rationalization of system of control.

Appraisal of Scientific Management

Taylor’s scientific management was associated with many benefits to the industry. The main benefit
of scientific management is “conservation and savings, making an adequate use of everyone’s energy
of any type that is expended”. Following are the benefits related to scientific management:

1. It had replaced the traditional rule of thumb by making the use of scientific techniques for each
element of man’s work.
2. It involved proper selection and training of workers.
3. It established a harmonious relationship between workers and management.
4. Due to scientific management, equal division of responsibilities between workers and management
became possible.
5. Standardization of tools, equipment, materials and work method.
6. Detailed instructions and constant guidance of workers.

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Administrative Management Theory

The advocates of this school undertook management as a process involving certain functions like
planning, organizing, directing and controlling. This is why it is called as the ‘functional’ approach.
Henri Fayol is regarded as the Father of general management. Organization here is defined in terms
of certain functions where fourteen principles of management have universal applicability. Fayol,
Gulick, Sheldon, Mooney and Reiley and Urwick have contributed to this stream of thought and gave
functions of managers and propounded the principles of sound organization and management that
are said above.

Fayol initiated by classifying all operations in business organizations under six categories:

I. Technical (production)
ii. Commercial (purchase and sale)
iii. Financial (funding and controlling capital)
iv. Security (protection)
v. Accounting (balance sheet; costing records)
vi. Administrative or managerial (planning, organizing, commanding, coordinating and controlling).

According to Fayol managerial activity deserved more attention. In his view management is the process
composed of five functions: planning, organizing, commanding, coordinating and controlling where:

a. Planning means to study the future and arrange the plan of operations;
b. Organizing means to build up the material and human organization of the business;
c. Commanding means to make the staff do their work;
d. Coordinating means to unite all the activities;
e. Controlling means to see that everything is done as per the standards that have been laid down and
the instructions given.

Fayol insisted that in order to be effective, management should be based on fourteen principles:

1. Division of work: A firm’s work should be divided into specialized, simplified tasks. Matching
task demands with workforce skills and abilities will improve productivity. The management
of work should be separated from its performance.

2. Authority and responsibility: Authority is the right to give orders, and responsibility is the
obligation to accept the consequences of using authority. No one should possess one without
having the other as well.

3. Discipline: Discipline is performing a task with obedience and dedication. It can be ex-pected
only when a firm’s managers and subordinates agree on the specific behaviors that subordinates
will perform.

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 4. Unity of command: Each subordinate should receive orders from only one hierarchical
superior. The confusion created by having two or more superiors will undermine authority,
discipline, order, and stability.

5. Unity of direction: Each group of activities directed toward the same objective should have
only one manager and only one plan.

6. Subordination of individual interest to general interest: The interests of individuals and the
whole organization must be treated with equal respect. Neither should be allowed to supersede
the other.

7. Remuneration of Personnel: the pay received by employees must be fair and satisfactory to
employees as well as organisation. Pay should be distributed in proportion to personal
performance, but employees’ general welfare must not be threatened by unfair incentive-
payment schemes.

8. Centralization: centralization is the retention of authority by managers, to be used when

managers desire greater control. Decentralization should be used if subordinates’ opinion and
experience are needed.

9. Scalar chain: The scalar chain is a hierarchical string extending from the uppermost manager
to the lowest subordinate. The line of authority follows this chain and is the proper route for
organizational communications

10. Order: Order, or “everything in its place,” should be instilled whenever possible because it
reduces wasted materials and efforts. Jobs should be designed and staffed with order in mind.

11. Equity: Equity means enforcing established rules with a sense of fair play, kindliness, and
justice. It should be guaranteed by management, as it increases members’ loyalty, devotion,
and satisfaction.

12. Stability: Properly selected employees should be given the time needed to learn and adjust to
their jobs. The absence of such stability undermines organizational performance.

13. Initiative: Staff members should be given the opportunity to think for themselves. This
approach improves the distribution of information and adds to the organization’s pool of
talent.

14. Esprit de corps (union is strength): Managers should harmonize the interests of members
by resisting the urge to split up successful teams. They should rely on face-to-face
communication to detect and correct misunderstandings immediately.

Fayol thought that these principles would be useful to all types of group activity. However he did not
consider these principles as immutable laws. The word principle is just used for convenience. His

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theory of management completely revolutionized the thinking of managers as throughout his treatise,
there exists an understanding of the universality of the principles.

Fayol v/s Taylor

Taylor (Scientific Management) Fayol (Administrative Management)

More attention was paid to shop and factory More attention was paid on the functions of
management. managers and the management process as a
whole.

He worked from bottom to top level. His centre He worked from top to bottom level laying
of study was the operator at the shop level. stress on unity of command, unity of direction,
coordination, espirit de corps.

His approach was a kind of efficiency He had a wider perspective. His scheme was to
movement. Thus he had a narrow perspective. evolve principles which could be applied to
administration in different spheres.

He gave stress on increasing productivity rather He showed regard for the human element by
than on human resources. advocating principles such as initiative, stability
of service and spirit of cooperation.

He is also known as Father of Scientific He is also known as Father of Administrative

Management. Management

Bureaucracy

Bureaucratic management is a stream of classical theory of management. It is “a formal system of

organization that is based on clearly defined hierarchical levels and roles in order to maintain
efficiency and effectiveness.” This theory was developed by Max Weber and is widely used in the
management of both public and private sector organizations. According to the bureaucratic
management approach, organizations are usually divided into hierarchies. These divisions help in
creating “strong lines of authority and control within the organization.
Max Weber (1864-1924) was the first of management theorists who developed a theory of authority
structures and relations based on an ideal type of organization he called a bureaucracy – a form of
organization characterized by division of labor, a clearly defined hierarchy, detailed rules and
regulations, and impersonal relationships. Bureaucratic management depends upon administration
devices. Max Weber presents the ideal organization structure. According to Weber the bureaucratic
management approach is based on four principles -Hierarchical positions, rules of system, division of
labor for specialization, and impersonal relationship. Max Weber contributed to the organization
theory by introducing bureaucracy as an ideal form of organization. His primary contribution includes
his theory of authority structure and his description of organization based on the nature of authority
relations within them. Weber’s ideas about organization design were influenced by:

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a. The amazing growth of industrial organizations,
b. His military experience,
c. Lack of trust in human judgment and emotions.

It was Weber’s belief that there are three types of legitimate authority:

a. Rational-legal authority: Obedience is owned to a legally established position or rank within

the hierarchy of a business, military unit, government, and so on.
b. Traditional authority: Here people obey a person because he belongs to certain class or
occupies a position traditionally recognized as possessing authority such as a royal family.
c. Charismatic authority: Obedience here is based on the follower’s belief that is person has
some special power or appeal.

As per Weber’s theory of bureaucracy rational-legal authority is the most important type of authority
in the organization because in traditional authority, leaders are not chosen on the basis of their
capabilities and charismatic authority is too emotional and irrational.

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Characteristics of Bureaucracy

1. Division of work: In bureaucracy, the degree of division of work is very high at both the
operative and administrative levels which results in specialization of work.

2. Hierarchy of Positions: In a bureaucratic organisation, there is a well defined hierarchy of

authority wherein each lower position is under the control of a higher one. Thus there exists,
Unity of command. Quantity of authority in such an organization increases as one move
towards the upper level in the organization.

3. Rules and regulations: There exists a very well defined set of rules and regulations in a
bureaucratic organization that are laid down by the top administrators that assures standardized
operations and decisions, protect the human resources and ensure equality of treatment.

4. Impersonal Conduct: in such organization there exists impersonality of relationships among

the organizational members. There is no room for emotions and sentiments in bureaucratic
structures and all decisions and rules and regulations framed are highly impersonal.

5. Staffing: the employees are employed on contractual basis where in tenure of service is based
on the rules and regulations laid down by the top management. Each employee gets a salary
every month that is based on the job he handles and also on the length of service.

6. Technical Competence: Every selection in such organization is on the basis of technical

competence of bureaucrats. Promotions are also based on technical qualifications and
performance.

7. Official Records: This organizational structure follows an efficient system of record keeping.
All the decisions and activities are formally recorded and preserved safely for future reference.
This is made possible by extensive filing system.

Appraisal of Bureaucracy

Bureaucracy is an administrative device that can help in achieving following advantages:

1. There exists proper delegation of authority where every individual gets work on the basis of
their past performance as well as their capabilities.

2. Well defined set of rules and regulations assure consistent actions.

3. Employee’s behavior is rational and predictable because decision taken are bound to the rules
and regulations and not affected by emotions.

4. It leads to efficiency in the organization that result in specialization due to proper division of
work.

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 NEO-CLASSICAL THEORY OF ORGANISATION
The classical writers Taylor, Fayol, Weber ignored the human relations aspect within an organization.
The neo-classical approach developed as a reaction to the classical principles but it did not abandon
them altogether.
Neo-classical approach is the extended form of classical approach of management. It builds on
Classical approach, but broadens and expands it; it does not totally divorce itself from its predecessor.
Rather, neoclassical theory adds a more human element to the science of organization and
management. The neo-classical writers have focused on human aspect of the industry. They modified
the classical theory by emphasizing on the fact that organization is a social system and the human
factor is the most important element within it. They conducted some experiments known as Hawthrone
Experiments and investigated informal groupings, informal relationships, patterns of communication,
patterns of informal leadership, etc. Elton Mayo is generally recognized as the father of the Human
Relations School. Other contributors include: Roethliberger, Dickson, Dewey, Lewin, Simon,
Smithburg, Thompson etc.
The human relations approach is concerned with the recognition of the importance of human element
in organizations. It revealed the importance of social and psychological factors in determining workers’
productivity and satisfaction. According to them an organization cannot achieve its objectives without
the cooperation of people and such cooperation cannot be secured or ordered. It has to be consciously
achieved. Neo-classical approach concentrates on people-oriented organization where both formal and
informal organizations integrate.
Neo-classical approach is based on two main points:
1. Organizational situation should be viewed in social as well as in economic and technical terms.

2. The social process of group behavior can be understood in terms of clinical method analogous to the
doctor’s diagnosis of human organism.

There are mainly three elements of neoclassical theory of management. They are Hawthorne
Experiment, Human Relation Movement, and Organizational Behavior.

Hawthorne experiments

The Hawthorne studies were a series of experiments conducted at the Western Electric Company
(USA) between 1927 and 1932 that provided new insights into individual and group behavior (Griffin
R W, 2006). The research, originally sponsored by General Electric, was conducted by Elton Mayo
and his associates. The studies focused on behavior in the workplace. In one experiment involving this
group of workers, for example, researchers monitored how productivity changed as a result of changes
in working conditions. The Hawthorne studies and subsequent experiments lead scientists to the
conclusion that the human element is very important in the workplace. The Hawthorne studies were
among the earliest attempts to use scientific techniques to examine human behavior at work. A three-
stage series of experiments assessed the effects of varying physical conditions and management
practices on workplace efficiency. The first experiment examined the effects of workplace lighting on
productivity; it produced the unexpected findings that changes in lighting had little effect but that
changes in social conditions seemed to explain significant increases in group productivity. Additional
experiments led the researchers to conclude that social factors—in particular, workers’ desires to
satisfy needs for companionship and support at work-explained the results observed across all of the
Hawthorne studies. The Hawthorne experiments may classified into four stages: Illumination

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experiments, Relay assembly test room experiments, Mass interviewing program, Bank wiring
observation room study.

Stage 1: Illumination Experiment: This was conducted to establish relationship between output and
illumination. The output tended to increase every time as the intensity of light was improved. But the
output again showed an upward trend when the illumination was brought down gradually from the
normal level. Thus, it was found that there is no consistent relationship between output of workers and
illumination in the factory. There were some other factors which influenced the productivity of workers
when the intensity of light was increased or decreased.

Stage 2: Relay assembly Room Experiment: Here, a small homogeneous work group of girls was
constituted. Several new elements were introduced in the work atmosphere of this group. These
included: job simplification, shorter work hours, rest breaks, friendly supervision, improved physical
conditions, free social interactions among the group and changed incentive pay. Productivity and
morale were maintained even if improvements in working conditions were withdrawn. The researchers
concluded that socio-psychological factors such as feeling of being important, recognition, attention,
participation, cohesive work-group, and non-directive supervision held the key for higher productivity.

Stage 3: Mass Interview Program: Another significant phase of the experiments was the interviewing
program. The lighting experiment and the relay assembly test room drew attention to the form of
supervision as a contributory factor to the workers’ level of production. In an attempt to find out more
about the workers’ feelings towards their supervisors and their general conditions of work, a large
interviewing program was introduced. More than 20,000 interviews were conducted before the work
was ended because of the depression. Initially, the interviewers approached their task with a set of
prepared questions, relating mainly to how the workers felt about their jobs. However, this method
produced only limited information. The workers regarded a number of the questions as irrelevant; also
they wanted to talk about issues other than just supervision and immediate working conditions.
As a result, the style of interviewing was changed to become more non-directive and open- ended.
There was no set list of questions and the workers were free to talk about any aspect of their work. The
interviewers set out to be friendly and sympathetic. They adopted an impartial, non-judgemental
approach and concentrated on listening. Using this approach, the interviewers found out far more about
the workers’ true feelings and attitudes. They gained information not just about supervision and
working conditions but also about the company itself, management, work group relations and matters
outside of work such as family life and views on society in general. Many workers appeared to
welcome the opportunity to have someone to talk to about their feelings and problems and to be able
to ‘let off steam’ in a friendly atmosphere. The interviewing program was significant in giving an
impetus to present-day human resource management and the use of counselling interviews, and
highlighting the need for management to listen to workers’ feelings and problems. Being a good
listener is arguably even more important for managers in today’s work organizations and it is a skill
which needs to be encouraged and developed.

Stage 4: Bank Wiring Observation Room Experiment: This experiment was conducted on a group
of workers under conditions which were as close as possible to normal. This group comprised of 14
workers. After the experiment, the production records of this group were compared with their earlier
production records. There were no significant changes in the two because of the maintenance of
‘normal conditions’. However, existence of informal cliques in the group and informal production
norms were observed by the researchers. Major observations were:

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1. Each individual was restricting output.
2. The group had its own unofficial standards of performance.
3. Individual output remained fairly constant over a period of time.
4. Department records were distorted due to differences between actual and reported output.

Later re-analyses of the Hawthorne experiments not only found weaknesses in the studies’ methods
and techniques, but also suggested that changes in incentive pay, tasks being per- formed, rest periods,
and working hours led to the productivity improvements attributed by researchers to the effects of
social factors. Nonetheless, the Hawthorne studies raised serious questions about the efficiency-
oriented focus of the scientific management and administrative principles perspectives. In so doing,
they stimulated debate about the importance of human satisfaction and personal development at work.
The human relations perspective of management thought that grew out of this debate redirected
attention away from improving efficiency and toward increasing employee growth, development, and
satisfaction.

Human relation movement

Taking a clue from the Hawthorne Experiments several theorists conducted research in the field of
interpersonal and social relations among the members of the organization. These relations are known
as human relations. A series of studies by Abraham H. Maslow, Douglas Mc Gregor, Frederick
Herzberg, Keth Davis, Rensis Likert and others lead to what is human relation movement (Singh,
1983). Human relation movement argued that workers respond primarily to the social context of the
workplace, including social conditioning, group norms and interpersonal dynamics.

Organizational Behavior

Several psychologists and sociologists began the study of group dynamics, Chris Argyris, Homans
Kurt Lewin, R.L. Katz, Kahn and others developed the field of organizational behavior. It involves the
study of attitudes, behavior and performance of individuals and groups in organizational settings. This
approach came to be known as behavioral approach. It is extended and improved version of human
relations movement. It is multidimensional and interdisciplinary the application of knowledge drawn
from behavioral sciences (Psychology, sociology, anthropology, etc) to the management problems.
Therefore, it is also called behavioral science approach.

Features of Neo-classical Theory

1. The organization is a social system composed of several interacting parts.

2. The behavior of an individual is dominated by the informal group of which he is a member.
3. The social environment on the job affects the workers and is also affected by them.
4. The informal organization also exists within the framework of formal organization and is affected
by the formal organization.
5. Monetary incentives are not the only sole motivators for an individual. Non-monetary incentives
also play a vital role in motivating employees.
6. In an organization it is ultimately cooperative attitude and not the mere command which yields
result.
7. There is generally a conflict between organizational and individual goals. For smooth functioning
of organization it is necessary to integrate individual goals with the organizational goals and vice versa.
8. Morale and productivity can go hand in hand in an organization.

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9. Management must aim at developing social and leadership skills in addition to technical skills. It
must take interest in welfare of organization.
10. Both- way communication is necessary in an organization.

Factors affecting Human Relations

Human relations in an organization are determined by the individual, work group, leader and work
environment.
Individual: Behavior of an individual is affected by his feelings, sentiments, values and attitudes.
Motivation of an individual should give due consideration to their economic, social and psychological
needs. Thus, motivation is a complex process.
Work-Group: The work group is the centre of locus of human relations approach. It helps in
determining the attitudes and performance of individual workers. The Hawthrone studies have shown
that informal groups have a majopr influence over the behavioural pattern of workers.
Work Environment: It has been recommended by several human relationist that a positive work
environment results in achievement of not only organizational goals but also leads to employee
satisfaction.
Leader: Leadership plays a major role in an organization. A leader must ensure full and effective
utilization of all organizational resources to achieve organizational goals. He must be patient, strong,
empathetic and should be able to adapt to various personalities and situations. As per Hawthrone
studies, a leader can contribute substantially in increasing productivity by providing a free, happy and
pleasant work environment where bossism is totally absent and where all members are allowed to
contribute towards decision making. 18

Contributions of Human Relations Approach or Hawthrone studies

1. Flat structure: Neo-classical theorists have suggested a flat structure against tall structure (as
given by classical theorists) where decision making involves everyone and is quicker and much
more effective. Here communication chain is shorter and suitable to motivate employees as
much more freedom is given to the employees over here.

2. Social System: the social system defines individual roles and establishes norms that may differ
from those of formal organization. The workers follow a social norm determined by their co-
workers, which defines the proper amount of work rather than try to achieve the targets
management thinks they can achieve, even though this would have helped them to earn as
much as they physically can.

3. Informal Organisation: classical theorists did not consider informal groups. Neo-classical
theorists felt that both formal and informal organization must be studied to understand the
behavior of organizations fully. Informal groups can be used by the management for effective
and speedy communication and for overcoming resistance on the part of workers. Thus both
formal and informal organizations are inter-dependent.

4. Decentralization of authority and Decision- making: This has allowed initiative and
autonomy at the lower levels.

5. Non- economic rewards: money is not assumed to be the sole motivator for human beings.
The social and psychological needs of the workers are also very strong. So non-economic

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 rewards like praise, status, inter-personal relations, etc play an important role in motivating
employees. Such rewards must be integrated with wages and fringe benefits of the employees.
6. Conflicts: Conflict may arise between organizational goals and group goals. Conflicts will
harm the interest of workers if they are not handled properly. Conflicts can be resolved through
improvement of human relations in the organization.

7. Group Dynamics: A group determines norms of behavior for the group members and exercises
a powerful influence on the attitudes and performance of individual workers. The management
should deal with workers as members of work groups rather than individuals.

Classical Vs Neoclassical theory:

Classical and neoclassical approach to management made outstanding contribution to the

development of management thought. Under classical approach, attention was focused on job and
machine. On the other hand, neoclassical approach to management emphasizes on increasing
production through an understanding of people. According to proponents of this theory, if managers
understand their people and adapt their organizations to them, Organization success will usually
follow. However, the classical theory stresses on task and structure while the neoclassical theory
emphasizes people aspect.

Points of Distinction Classical Approach Neo classical Approach

Focus Functions and economic Emotions and human qualities
demand of workers of workers

Structure Impersonal and mechanistic Social System

Application Autocratic management and Democratic process

strict rules

Emphasis Discipline and rationality Personal security and social

demand

Work goal of workers Maximum remuneration and Attainment of organisational

reward goals

Concept about men Economic being Social being

Relation Formal Informal

Nature Mechanistic Organistic

Content Scientific management, Hawthrone experiments,

administrative management human relation movement and
and bureaucratic management organisational behavior.

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 MODERN ORGANISATION THEORY
The modern management thinkers define organisation as a system and also consider the impact of
environment on the effectiveness of the organisation. This theory treats organisation as a system of
mutually dependent variables. This theory has been developed on a strong conceptual analytical base and
is based on empirical research data. The modern organisation theory has been evolved on the pattern of
General System Theory (GST). The General System Theory studies the various parts of a system and
interaction between them in an integrated manner an also considers the interaction of the system with
the external environment. The modern organisation theory uses the concepts of GST and facilitates the
analysis of nay organisation.

As a result, two approaches have gained importance after 1960s which are as follows:

a. Systems Approach

b. Contingency Approach

Systems Approach

The classical theories of organization were, in the first place, interested in the material and financial
aspects of the organization, and the human relations and human resources theories in the psychological
aspects of the organization.

The system method of treatment is relating to the investigating into the component part of the
organizational systems in the multidirectional connections between the causes and effects in the
organization. It is conceived of the feed forward and feedback information. With a system approach we
deal with the organization as a system whole consisting of the mutually connected parts. The system
approach means dealing with these parts in their mutual connection as a part of the whole. A no system
approach in the investigating into the organization, however, means dealing with the parts of a whole,
irrespective of the mutual connection. It is just for this reason that the no system dealing with the
organization is only a partial one and cannot explain the organizational phenomena in their totality. The
totality of the organization and of its phenomena can be explained only by the system approach.
According to Kats and Rosenzweig, “A system is an organized, unitary whole composed of two or more
independent parts, components or sub-systems and delineated by identifiable boundaries from its
environmental supra system.” It is simply an assemblage or combination of things or parts, forming a
complex whole.

Features of Organisational system:

I. A system is goal-oriented.
II. A system consists of several sub-systems that are interdependent and inter-related.
III. A system is engaged in processing or transformation of inputs into outputs.
IV. An organisation is an open and dynamic system. It has continuous interaction with the environment.
It is sensitive to its environment such as government policies, competition in the market, change in tastes
and preferences of people, etc.
V. A system has a boundary which separates it from other systems.

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Features of Systems Approach

1. Open System view of Organisation: As per classical theory organisation was a closed system.
But modern theory considers organisation as an open system which has continuous interaction
with the environment. It gets various resources from the environment and transforms them into
outputs desired by the environment. Due weight age has to be given to the environmental
factors affecting the management of an organisation.

2. Adaptive to dynamic environment: An organisation operates in an environment which is

dynamic in nature so a system that is adaptive to such dynamism is needed. Management tends
to bring changes in the sub-systems of the organisation to cope up with the challenges of
environmental forces.

3. Whole Organisation: This approach looks at the organisation as a whole that is greater than
the sum of its parts. The emphasis is given on the summation of various sub-systems of the
organisation to ensure overall effectiveness of the system.

4. Multi-Level Analysis: Systems approach has both macro and micro aspects. At the macro
level, it can be applied to the whole industry or the national economic system. At the micro
level, it can be applied to an organisation and even to a sub-system of the organisation.

5. Multi-variety analysis: It takes into account many variables simultaneously. This means that
there is no single variable responsible for something to happen rather it may be the result of
many variables that may be interrelated or interdependent. This interrelatedness and
interdependence makes managing quite a complex process.

6. Synergy: the output of a system is always more than the combined output of its parts. This is
called the Law of synergy. The parts of a system become more productive when they interact
with each other than when they act in isolation.

7. Multi-disciplinary: Modern theory of Management is enriched by contributions from various

disciplines like psychology, sociology, economics, anthropology, mathematics, operations,
research and so on.

8. Probabilistic: modern organisation theory is probabilistic rather than deterministic. It does not
predict the outcome of any action because of a high degree of uncertainty in the environment.
Being probabilistic, it only points out the probability and never the certainty of performance
and consequent results.

9. It represents a balanced thinking on organisation and management, and provides a unified

focus to organizational efforts.

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Contingency Approach

The classical approach suggested one best form of structure and placed emphasis on general sets of
principles while the human relations approach gave little attention at all to structure. In contrast, the
contingency approach showed renewed concern with the importance of structure as a significant
influence on organizational performance. The contingency approach, which can be seen as an
extension of the systems approach, highlights possible means of differentiating among alternative
forms of organisation structures and systems of management. There is no one optimum state.

For example, the structure of the organisation and its ‘success’ are dependent, that is contingent upon,
the nature of tasks with which it is designed to deal and the nature of environmental influences.

The most appropriate structure and system of management is therefore dependent upon the
contingencies of the situation for each particular organisation. The contingency approach implies that
organisation theory should not seek to suggest one best way to structure or manage organizations but
should provide insights into the situational and contextual factors which influence management
decisions.

It is an improvement over the systems and other approaches. The contingency approach to management
has its roots in general systems theory and the open systems perspective, as well as in the Simon-
March-Cyert stream of theory and research. Thompsom recognized the intersection of these traditions
and extended them in a landmark work that represents a cornerstone of contingency approach.

The term contingency as used in contingency theory is similar to its use in direct practice. A
contingency is a relationship between two phenomena. If one phenomenon exists, then a conclusion
can be drawn about another phenomenon. For example, if a job is highly structured, then a person with
a freewheeling disposition will have problems with the job. Contingencies can sometimes be
considered conditions.

It suggests that managerial actions and organizational design must be appropriate to given situation.
The latest approach to management which integrates the various approaches to management is known
as “Contingency” or “Situational” approach. It is not new. Pagers and Myers propagated this approach
in the area of personnel management in 1950. However, the work of Joan Woodward in the 1950s
marked the beginning of the contingency approach to organisation and management. Other
contributors include Tom Burns, G.W. Stalker, Paul Lawrence, Jay Borsch and James Thompson. They
analyzed the relationship between the structure of organisation and the environment. Thus, contingency
approach incorporates external environment and attempts to bridge the theory-practice gap. In simple
words, contingency approach also regards organisation as an open and dynamic system which has
continuous interaction with the environment.

As per the contingency approach, the task of managers is to try to identify which technique or method
will be more suitable for achieving the management objectives under the available situation. Managers
have to develop a sort of situational sensitivity in order to deal with their managerial problems as they
develop from time to time.

Contingency approach views are applicable in designing organisational structure and in deciding the
degree of decentralization in establishing communication and control systems and also in deciding
motivational and leadership approaches. In brief, it is applicable to different areas of organisation and

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management it is an attempt to integrate various viewpoints and to synthesize various fragmented
approaches to management.

Contingency theory attempts to relate research on many management variables, for example, research
on professionalism and centralized decision making or worker education and task complexity. It allows
you to analyze a situation and determine what variables influence the decision with which you are
concerned.

This approach is based upon the fact that there is no one best way to handle any of the management
problems. The application of management principles and practices should be contingent upon the
existing circumstances. Functional, behavioral, quantitative and systems tools of management should
be applied situation ally. There are three major parts of the overall conceptual framework for
contingency management:

i. Management concepts,
ii. Principle and techniques;
iii. Contingent relationship between the above two.

Contingency theory attempts to analyze and understand interrelationships with a view towards taking
the specific managerial actions necessary to deal with the issue. This approach is both analytical and
situational with the purpose of developing a practical answer to the questions in hand.

It has rejected universality of management principles and it appeals to common sense. It requires the
ability to analyze and diagnose a managerial situation correctly and act accordingly. Use of
contingency approach is not possible without the ability to match the management knowledge and
skills as per the management situation.

It is action-oriented as it directs towards the integrated application of systems concepts and the
knowledge gained from other approaches.

As per contingency approach managers should develop situational sensitivity and practical selectivity.
Adoption of these two traits can prove to be useful in formulating strategies, designing effective
organizations, planning information systems, establishing communication and control systems,
shaping motivational and leadership approach, resolving conflicts, managing change, etc.
This approach says that there should be congruence between the organisation and its environment and
among the various sub-systems. The appropriate fit between the organisation and its environment and
the appropriate internal organizational design will lead to greater effectiveness, efficiency and
participant satisfaction. Thus, there is no standard design that could be applied to all organizations
under all situations. Managers have to apply different ideas to different situations to cope with them
and ensure effectiveness and efficiency in decision making.

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These contingency theory-building steps involve three types of variables;

1. Contingency variables: They represent situational characterstics are usually exogenous to the
organisation or manager. In most instances the opportunity to control or manipulate these variables
is, at best, limited and indirect.
2. Response variables: They are the organisational or managerial actions taken in response to current
or anticipated contingency factors.
3. Performance Variables: They are the dependent measures and represent specific aspects of
effectiveness that are appropriate to evaluate the fit between contingency variables and response
variables for the situation under consideration.

Contingency Approaches in Organisational Behavior

Within the organisational behavior literature, the contingency approach has made its most significant
contribution in the area of leadership theory and research. Contingency approaches to leadership tie
the leader's effectiveness to the nature of the situation and acknowledge that worker’s needs and
problems vary, requiring that leadership style match the types of individuals involved and the
characteristics of their work situation.
While the situational approach has been used to study leadership since the 1950s
House proposed a theory of leadership that clearly illustrates the contingency approach. He contends
that the functions of a leader vary depending on the needs of subordinates and the type of work to be
accomplished. According to House's theory, a leader obtains good performance from his/her work unit
by increasing subordinates' personal rewards from goal attainment and by making the path to these
rewards easier to follow (e.g. by instructing, reducing roadblocks and pitfalls, and increasing the
opportunities for personal satisfaction along the way). To be effective, the leader must tailor his/her
style and approach to individual subordinates and situations. In ambiguous situations (and with
subordinates to whom ambiguity can be frustrating), effectiveness is achieved when the leadership
provides structure. In routine situations, on the other hand, the additional structure provided may be
viewed as redundant and insulting by subordinates, who may consequently become dissatisfied. In
essence, the theory holds that the level of leader structure depends on the ambiguity of the task, and
the level of leader consideration depends on the intrinsic satisfaction of the task. The theory has been
elaborated and tested since it was proposed.

Appraisal of Contingency Approach

It is an improvement over systems approach. It can be easily applicable in all types of organizations
for all type of decision making. It holds a great promise for future development of management
theories. It rejects the notion of one best way of doing things. It believes in flexible and adaptive
methods to be used to solve management related issues. But still a lot more is needed to be explored in
this context. Contingency approach is not supported by much literature.

Merits

1. It is pragmatic and open minded. It discounts preconceived notions, and universal validity of
principles.
2. It relives managers from dogmas and set principles. It provides freedom to choose, manage and
judge the external environment and use the most suitable management techniques. Here, importance is
given to the judgement of the situation and not the use of specific principles.

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3. It has a wide-ranging applicability and practical utility in organisations. It advocates comparative
analysis of organisations to bring suitable adjustment between organization structure and situational
peculiarities.
4. It focuses attention on situational factors that affect the management strategy. The theory combines
the mechanistic and humanistic approaches to fit particular/specific situation. It is superior to systems
approach as it not only examines the relationship between sub-systems of an organisation but also the
relationship between the organisation and its external environment.

Demerits

1. It is argued that the contingency approach lacks a theoretical base.

2. Under contingency approach a manager is supposed to think through all possible alternatives as he
has no dried principals to act upon. This brings the need of more qualities and skills on the part of
managers. The responsibility of a manager increases as he has to analyze the situation, examine the
validity of principles and techniques to the situation at hand, make right choice by matching the
technique to the situation and finally execute his choice. The areas of operation of a manager are quite
extensive under this theory.

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Difference between Contingency and systems Approach:
Points of Distinction Systems approach
Emphasis Interdependencies and
interactions among systems
and sub-systems
Focus Internal Environment and
organizational sub-systems
Solutions It provides deterministic
solutions to all managerial
problems
Organisational view It views all organisations alike.
Evolution Major contributors in systems
approach have been
psychologists.
Organisational Variables It is very broad considering all
personal, social, technical,
structural, environmental and
organizational variables.
Therefore, managing involves
establishing relationships
among them while undertaking
any action.
Model of Human Beings It usually employs a richer
model of human beings than
contingency model. It takes
into account full range of
human behavior in the
organisation.
It is a combination of three
approaches: the classical
approach, the behavioral
approach and the management
science approach.
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Contingency Approach
It identifies nature of
interdependencies and the
impact of environment on
organizational design and
managerial styles.
External environment of
organization
It provides probabilistic and
pragmatic solutions to all
managerial problems.
It treats all organisations as
separate unique entity.
Sociologists have contributed
to this approach. It has been
built over systems approach.
It concentrates on structural
adaptation of organisation.
This approach tends to predict
the ultimate outcome of a
disturbance of the
organizational equillibrium by
a change in the task
environment.
It is interested in structural
adaptation of organisation to
its task environment.
Therefore, contingency
theories talk mostly in terms of
structural change in the
organisation in response to a
change in environment.
It combines two or more of the
other approaches depending on
the given situation.