Contingency Theory: Adapting organization to environment

Contingency theory is a class of behavioral theory that claims that there is no best way to organize a corporation, to lead a company, or to make decisions. Instead, the optimal course of action is contingent (dependent) upon the internal and external situation. Several contingency approaches were developed concurrently in the late 1960s.

They suggested that previous theories such as Weber's bureaucracy and Taylor's scientific management had failed because they neglected that management style and organizational structure were influenced by various aspects of the environment: the contingency factors. There could not be "one best way" for leadership or organization.

Historically, contingency theory has sought to formulate broad generalizations about the formal structures that are typically associated with or best fit the use of different technologies. The perspective originated with the work of Joan Woodward (1958), who argued that technologies directly determine differences in such organizational attributes as span of control, centralization of authority, and the formalization of rules and procedures. Some important contingencies for companies are listed below :

▪ 1. Technology

▪ 2. Suppliers and distributors

▪ 3. Consumer interest groups

▪ 4. Customers and competitors

▪ 5. Government

▪ 6. Unions

Gareth Morgan in his book Images of Organization describes the main ideas underlying contingency in a nutshell:

▪ Organizations are open systems that need careful management to satisfy and balance internal needs and to adapt to environmental circumstances

▪ There is no one best way of organizing. The appropriate form depends on the kind of task or environment one is dealing with.

▪ Management must be concerned, above all else, with achieving alignments and good fits

▪ Different types or species of organizations are needed in different types of environments

Fred Fiedler's contingency model focused on a contingency model of leadership in organizations. This model contains the relationship between leadership style and the favorableness of the situation. Situational favorableness was described by Fiedler in terms of three empirically derived dimensions

1. The leader-member relationship, which is the most important variable in determining the situation's favorableness

2. The degree of task structure, which is the second most important input into the favorableness of the situation

3. The leader's position power obtained through formal authority, which is the third most important dimension of the situation

Situations are favorable to the leader if all three of these dimensions are high. That is, if the leader is generally accepted and respected by followers(first dimension), if the task is very structured (second dimension), and if a great deal of authority and power are formally attributed to the leader's position (third dimension), then the situation is favorable.

William Richard Scott describes contingency theory in the following manner: "The best way to organize depends on the nature of the environment to which the organization must relate".[1] The work of other researchers including Paul Lawrence, Jay Lorsch, and James D. Thompson complements this statement. They are more interested in the impact of contingency factors on organizational structure. Their structural contingency theory was the dominant paradigm of organizational structural theories for most of the 1970s. A major empirical test was furnished by Johannes M Pennings who examined the interaction between environmental uncertainty, organization structure and various aspects of performance.

Classical Management Theory: Designing bureaucratic organizations

Summary (5/31 pdf, P19)

Classical organizational theory espouses two perspectives:

The classical management theory is a school of management thought in which theorists delved into how to find the best possible way for workers to perform their tasks. The classical management theory is divided into two branches, the classical scientific and the classical administrative. The classical scientific branch comes from the scientific mindset of attempting to increase productivity. During the height of the classical scientific theory, theorists would use almost mechanical methods towards labor and organization to achieve goals of productivity and efficiency. Some of the basic techniques of the classical scientific theory include creating standardized methods for a task and dividing work between employees equally.

On the other hand, the classical administrative theory focuses on how management can be organized to achieve productivity. Henri Fayol, a leading figure in management theory, devised several management theories geared towards efficiency, such as creating a unified direction among managers, centralization, and discipline. Other management theories focused on building team confidence, such as establishing teamwork, using initiative, and equity.

Strengths of Classical Management Theory

Current management organization and structure can find much of its roots from the classical management theory. One of the main advantages of the classical management theory was to devise a methodology for how management should operate. Management principles devised during this period can be seen as a foundation for current management behavior today, such as serving as a force of authority and responsibility.

In addition, another benefit of the classical management theory is the focus on division of labor. By dividing labor, tasks could be completed more quickly and efficiently, thus allowing productivity to increase. Division of labor can be seen in many applications today, ranging from fast food restaurants to large production facilities. In addition, the classical management theory also gave rise to an autocratic leadership style, allowing employees to take direction and command from their managers.

Flaws of Classical Management Theory

The main weakness of the classical management theory arose from its tough, rigid structure. One of the main principles of the classical management theory is to increase productivity and efficiency; however, achieving these goals often came at the expense of creativity and human relations. Oftentimes, employers and theorists would focus on scientific, almost mechanical ways of increasing productivity. For example, managers would use assembly line methods and project management theories that focused on efficient division of tasks. However, employers ignored the relational aspect in employees, in the process of trying to predict and control human behavior. In fact, the human relations movement arose in response to the classical management theory, as a way to understand the role of human motivation in productivity.

Additional flaws of the classical management theory include a heavy reliance on prior experience. The theorists of this time only tested their assumptions with certain industries, such as manufacturing and other high production companies. However, in today’s environment, the rigid structure of classical management theory would not translate well in most companies. Many businesses realize the importance of improving employee motivation and behavior, and implement departments devoted solely to improving human relations.

Bureaucratic Theory

Developed in the Industrial Age, Max Weber's theory of bureaucracy centers around the theme of rationalization, rules and expertise. Developed from the Administrative Principles theory, the bureaucracy theory also focuses on efficiency and clear roles.[2] The bureaucracy theory is implemented inFlat organization structures and is suited for larger organizations that require formalization of roles. [5]

Criticism of the Classical Perspective

Although the classical perspective encourages efficiency, it is often criticized as ignoring the importance of human needs. This perspective rarely takes into consideration human error or the variability of work performances related to individual workers.