NEO-CLASSICAL ORGANIZATION THEORY (Human Relations and Behavioral Approaches in Management)

What is Neo-Classical Theory?

is also known as the Human Relations Movement.

The Business Organization is a Social System

Organizations are not just mechanical structures but dynamic systems of human interactions

The Human Factor is the Most Critical Element

Employees are not just “resources” but individuals with emotions, needs, and social connections.

Social and Psychological Factors Affect Productivity

•Job performance is influenced by teamwork, relationships, leadership, and job satisfaction.

Leadership Should Focus on Both Social and Technical Skills

•Managers must develop people-oriented leadership styles to foster workplace harmony

.Morale and Productivity are Interconnected

•Higher employee morale leads to higher productivity, lower turnover, and better job satisfaction.

Individual

Each worker is unique, with different motivations, emotions, and personal goals.

Managers must recognize individual differences to enhance productivity.

Work Groups

Employees work better in groups than in isolation.

•Informal groups (friendships, social circles) influence job performance

Participative Management

Employees should have a say in decision-making.

•Involvement increases job satisfaction and motivation.

Orientation

New employees should be properly introduced to the company’s values and cultu

A well-structured onboarding process leads to higher retention and job commitment

Motivation

Workers need more than just money to stay motivated.

Recognition, job security, career growth, and positive work relationships matter.

Leadership

Managers should develop human-centered leadership styles.

Leadership is about guiding, inspiring, and supporting employees, not just controlling them.

Employee Development

Organizations should invest in training and development programs

Workers perform better when they feel their skills are valued and enhanced

Human Relations Movement

Founded by George Elton Mayo (1920s Industrial Revolution).

Focuses on the social and psychological needs of employees.

Led to the famous Hawthorne Studies (Western Electric Company, Illinois)

Illumination Experiment

Tested how lighting affected productivity.

Conclusion: Productivity increased regardless of lighting changes → social factors matter more than physical conditions.

Relay Assembly Test Room Experiment

Studied small-group work settings.

•Conclusion: Workers performed better when given freedom, recognition, and better communication.

.Interview Experiment

Asked workers about job satisfaction.

•Conclusion: Employees work harder when they feel heard and valued

Bank Wiring Observation Room Experiment

Studied informal groups.

•Conclusion: Social bonds and teamwork greatly influence productivity.

Behavioral System Approach

•Focuses on management behavior and motivation techniques.

•Managers should create a work environment that motivates employees to achieve organizational goals.

Abraham Maslow

Hierarchy of Needs

Douglas McGregor

– Theory X and Theory Y

Frederick Herzberg

Two-Factor Theory

George Elton Mayo (Human Relations Movement)

•Conducted the Hawthorne Studies.

•Discovered the importance of social interactions, employee recognition, and motivation.

Chester Barnard (Cooperative System Theory)

•Father of the Cooperative System in organizations.

•Stressed the importance of worker cooperation and informal groups.

Herbert Simon (Decision-Making Theory)

•Criticized Classical Theory for being too rigid.

•Introduced the idea that managers must adapt decisions based on

Limitations of Neo Classical Theory

1.It is just an extension – It doesn’t fully break away from the traditional management model.

2.It is outdated – Modern organizations now use Contingency Theory and Systems Theory, which are more flexible.

3.It assumes one-size-fits-all solutions – Ignores that different organizations require different management styles.

Conclusion for Neo Classical Theory

This theory transformed management thinking by shifting the focus from structure and efficiency to people and relationships.

•It laid the foundation for modern HR practices, organizational behavior, and employee motivation theories.

•However, today’s organizations combine multiple management approaches to create adaptive and dynamic workplaces.