A3. Neoclassical & Contingency Theories

Neoclassical theory

Theory developed in the 1950s that describes psychological or behavioral issues associated with an organization; there is no formal theory for this

Neoclassical theory

Also known as the "Behavioral Theory of Organization, Human Relations, or New Classical Theory of Management" that recognizes the importance of individual or group behavior and emphasized human relations

Neoclassical

Connotes a modernization or updating of the original (classical) theory while still acknowledging its contributions

Primary contribution of the neoclassical theory

To reveal that principles proposed by classical theory were not as universally applicable and simple as originally formulated

Core principles of neoclassical organizational theory

Emphasis on the human factor; Importance of informal organization; Decentralization and participation; Focus on communication and group dynamics

Foundations of the neoclassical theory

Hawthorne experiment, Comprehensive theory of behavior in formal organizations, Application of classical theories to current situations, McGregor's Theory X and Theory Y, Argyris Growth Perspective

Hawthorne Experiment by Elton Mayo

This theory demonstrated that employee productivity is influenced not only by physical work conditions by social factors

Hawthorne Effect

Phenomenon where individuals change their behavior when they are aware that they are being observed or studied

Comprehensive Theory of Behavior in Formal Organization by Chester Barnard

This theory believes that organizations are cooperative systems that exist to overcome individual limitations, requiring communication, cooperation, and a shared purpose

Comprehensive Theory of Behavior in Formal Organization by Chester Barnard

This theory believes that effective organizations need to ensure that employees accept and act upon legitimate orders, and authority is established through the willingness of subordinates to follow directives

Application of Classical Theories to Current Situations of His Time by Herbert Simon

Human decision-making is bounded by limited information and cognitive abilities, leading to “satisfying” rather than optimizing, and organizations are complex systems best understood through a contingency approach

Growth Perspective by Argyris

This theory believed that organizations that acknowledged and aided individual growth would be more likely to prosper than those that ignored or actively inhibited this growth; the presence of movement from passive to active organisms

Modern Organizational Theory

This theory views organizations as complex, dynamic, and open systems that interact with their external environment

3 major perspectives within the modern organizational theory

Systems theory, Contingency theory, & Organizational Learning Theory

Systems theory

This major perspective in the Modern Organization Theory views organizations as a system composed of interconnected subsystems which emphasizes interdependence and the need for integration and coordination to achieve organizational goals

Organizational learning theory

This major perspective in the Modern Organization Theory focuses on how organizations learn, adapt, & develop capabilities overtime; emphasizing the importance of knowledge acquisition, sharing, and retention

Contingency theory (Situational theory)

This major perspective in the Modern Organization Theory argues that there is no single “best” way to manage or lead an organization; instead, the most effective approach depends on the specific situation or context, The “it depends” theory

4 Contingency Theory Models

Contingency Model by Joan Woodward

Lawrence and Lorsch’s Model (Environment)

Fiedler’s Contingency Model (Leadership)

Mintzberg’s Contingency Model (Configuration)

Contingency Model by Joan Woodward

This contingency theory model believes that different production technologies demand different organizational structures to be effective

Continuous-Process Organizario

According to Joan Woodward, these organizations need small span of control and a long chain of command

Mass Production Organizations

According to Joan Woodward, these organizations need a large span of control and a moderately long chain of command

Small Batch Producers

According to Joan Woodward, these organizations need a moderate span of control and a relatively short chain of command

Lawrence and Lorsch’s Model (Environment)

This contingency theory model focuses on how organizations adapt to the demands of their external environment

Environmental uncertainty

Under Lawrence and Lorsch’s Model, this aspect views the environment as having different sub-environments with varying degrees of uncertainty

Differentiation

Under Lawrence and Lorsch’s Model, this aspect states that organizational subunits differ in terms of their goals, time horizons, interpersonal styles, and formality of structure

Integration

Under Lawrence and Lorsch’s Model, this aspect states that differentiated subunits need to collaborate and coordinate their activities to achieve overall organizational goals

Fiedler’s Contingency Model (Leadership)

This contingency theory model focuses on leadership effectiveness being contingent on the fit between the leader’s style and the favorableness of the situation

Leader-member relations

Under Fiedler’s Contingency Model (Leadership), this aspect is the trust, confidence, and respect that subordinates have for their leader (good or poor)

Task structure

Under Fiedler’s Contingency Model (Leadership), this aspect is how much tasks are clearly defined, structured, and have clear procedures and goals (high or low)

Position power

Under Fiedler’s Contingency Model (Leadership), this aspect is how much authority and influence the leader has due to their position in the organization (strong or weak)

Mintzberg’s Contingency Model (Configuration)

This contingency theory states that organizations naturally cluster into certain configurations or types, with each configuration being a relatively stable and effective combination of structure, situation (contingencies), and strategy

Age and size

Under Mintzberg’s Contingency Model, this aspect states that older and larger organizations tend to be more formalized

Technical system

Under Mintzberg’s Contingency Model, this aspect is the complexity and sophistication of the technology used

Environment

Under Mintzberg’s Contingency Model, this aspect is the stability, complexity, market diversity, and hostility

Power

Under Mintzberg’s Contingency Model, this aspect is the external control and the power of various stakeholders