THEORY OF OGRANIZATIONS
Organizational theory is "the study
of organizations for the benefit of identifying common themes for the purpose
of solving problems, maximizing efficiency and productivity, and meeting the
needs of stakeholders."[1] Organizational
theory contains three subtopics: classical perspective, neoclassic perspective
and environmental perspective.[2] It complements the
studies of organizational behaviorand human resource studies.
Rise of organizations
Organizations, which are defined as “social
units of people that are structured and managed to meet a need or to pursue
collective goals (“Organizations”),” are said to have risen in the United
States within a variety of social and historical contexts. Several of those
factors are credited with making organizations viable and necessary options for
citizens, and they built on one another to bring organizations to the level of
importance that they are at today.
In 1820, about 20% of the United States
population was dependent on a wage income. That number increased to 90% by 1950.[3]Generally, farmers and
craftsmen were the only ones by 1950 who were not dependent on working for
someone else; prior to that, most people were able to survive by hunting and
farming their own food, making their own supplies, and remaining almost fully
self-sufficient.[3] As transportation
became more efficient and technologies were further developed, self-sufficiency
became an economically poor choice.[4] As in the Lowell
Textile Mills, various machines and processes were developed for each step of
the production process, thus making mass production a cheaper and faster
alternative to individual control. In addition, as the population grew and
transportation progressed, the pre-organizational system struggled to support
the needs of the market.[4] These conditions
made for a wage dependent population that sought out jobs in growing
organizations, leading to a shift from individual and family production.
In addition to a shift to wage dependence,
externalities from industrialization also created a perfect opportunity for the
rise of organizations. Various negative effects such as pollution,workplace accidents,
crowded cities, and unemployment became rising concerns. Rather than small
groups such as families and churches being able to control these problems as
they had in the past, new organizations and systems were required in order to
keep their heightened effects down.[3] The smaller
associations that had contained various social issues in the past were no
longer viable, and instead were collapsed into larger formal organizations.
These organizations were less personal, more distant, and more centralized;
but, what they lacked in locality, they made up for in efficiency.[3] Along with wage
dependency and externalities, growth of industry also played a large role in
the development of organizations. Markets that were quickly growing and
expanding needed employees right away – because of that, a need developed for
organizational structures that would help guide and support these new
employees.[5] Some of the first
New England factories relied on daughters of farmers at their onset; later, as
the economy changed, they began to gain work from the farmers, and finally,
European immigrants. Many Europeans left their homes for the promises of US
industry, and about 60% of those immigrants stayed in the country. They became
a permanent class of workers in the economy, which allowed factories to
increase production and produce more than they had before.[3] With this large
growth came the need for organizations and leadership that was not previously
needed in small businesses and firms.
Overall, the historical and social context in
which organizations rose in the United States allowed for not only the
development of organizations, but also for their spread and growth. Wage
dependency, externalities, and growth of industries all played into the change
from individual, family, and small-group production and regulation to large
organizations and structure.
Even though the decline in small business might
not seem to substantiate how the development in organizations leads to
increased aggregate economic return, it exemplifies the cut-throat nature of
capitalism. As organizations develop, they devour the smaller organizations
that cannot keep up, but also allow for the evolution of innovative management
and production techniques for other larger companies. The development of
organizations demands a higher level of skillset from workers as it continues
to grow. It also builds precautionary measures on cutting edge technology. It
amplifies the need for specialization and accounts of functionalism in various
organizations and their respective societies. Through much advancement in the
interaction of capitalistic bureaucracies, the development of organizations is
what has driven contemporary firms to thrive in its modern day society.
Competing theories of
organization
As organizations are implemented over time, many
people experimented as to which one was best. These theories of organizations
include Bureaucracy, Rationalization (Scientific Management), and the Division
of Labor. Each theory provides distinct advantages and disadvantages when
implemented. However, there is no best way to organize labor. For instance, the
division of labor may be more effective for a car company, while a bureaucracy
is more effective for a government program such as the FDA.
·
Official Jurisdiction on all areas are ordered by rules or laws
already implemented.
·
There is an office hierarchy; a system of super- and subordination
in which there is supervision of lower office by higher ones.
·
The management of the modern office is based upon written rule,
which are preserved in original form.
·
Office management requires that of training or specialization.
·
When the office is developed/established it requires the full
working capacity of individuals.
·
Rules are stable and can be learned. Knowledge of these rules can
be viewed as expertise within the bureaucracy (these allow for the management
of society)
When a bureaucracy is implemented, they can
provide accountability, responsibility, control, and consistency. The hiring of
employees will be an impersonal and equal system.[6]
Although the classical perspective encourages
efficiency, it is often criticized as ignoring human needs. Also, it rarely
takes into consideration human error or the variability of work performances
(each worker is different)
Rational system perspective
In a rational organization system, there are two
significant parts: Specificity of Goals and Formalization. Goal specification
provides guidelines for specific tasks to be completed along with a regulated
way for recourses to be allocated. Formalization is a way to standardize
organizational behavior. As a result, there will be stable expectations, which
create the rational organizational system.[9]
·
Scientific Management: Taylor analyzed how to maximize the amount
of output with the least amount of input. This was Taylor’s attempt to rationalize
the individual worker.
1. Divide work between
managers and workers
2. Provide incentive system
(based on performance)
3. Scientifically train
workers
4. Create a science for
each individual’s responsibilities
5. Make sure work is done
on time/efficiently
There are problems that arose out of scientific
management. One is that the standardization leads workers to rebel against the
mundaneness. Another is that workers may reject the incentive system because
they are required to constantly work at their optimum level, an expectation
that may be unrealistic.
Division of labor
The division of labor is the specialization of
individual labor roles. It is often associated with increasing output and
trade.[10] According to Adam
Smith, the division of labor is efficient due to three reasons: occupational
specialization, saving from not changing tasks, and machines taking the place
of human labor. Occupational specialization leads to increased productivity and
distinct skill. Also, Smith argued that human and physical capital must be
similar or matched; if the skill of workers were matched with technological
improvements, there would be a major increase in productivity.
Although the division of labor is often viewed
as inevitable in a capitalistic society, there are several specific problems
that may arise. They include a lack of creativity, monotony, and lack of
mobility. Creativity will naturally suffer due the monotonous atmosphere that
the division of labor creates. Doing the same routines may not be for everyone.
Also, employees aren’t familiar with other parts of the job. They cannot assist
employers of different parts of the system.
Modernization theory
Modernization “began when a nation’s rural
population started moving from the countryside to cities” (Shah 3).[11] It deals with the
cessation of traditional methods in order to pursue more contemporary effective
methods of organization. Urbanization is an inevitable characteristic of
society because the formation of industries and factories induces profit
maximization. It is fair to assume that along with the increase in population,
as a result of the subsequent urbanization, is the demand for an intelligent
and educated labor force (Shah 3).[12] Following the
1950s, Western culture utilized the effects of mass media coverage to
communicate their good fortune attributed to modernization. The coverage
promoted “psychic mobility” among the social class and increased the
aspirations of many hopefuls in developing economic countries (Shah 4).[12] Under this theory,
any country could modernize by using Western civilization as a template.
Although this theory of modernization seemed to
pride itself on only the benefits, countries in the Middle East saw this
movement in a new light. Middle Eastern countries believed that the media
coverage of modernization implied that the more “traditional” societies have
not “risen to a higher level of technological development” (Shah 6).[12] Consequently, they
believed a movement that benefits those who have the monetary resources to
modernize technological development would discriminate against the minorities
and poor masses (Shah 6).[12] Thus, they were
reluctant to modernize because of the economic gap it would create between the
rich and the poor.
The growth of modernization took place beginning
in the 1950s. For the ensuing decade, people analyzed the diffusion of
technological innovations within Western society and the communication that
helped it disperse globally (“Modernization Theory”).[13] This first “wave”
as it became known had some significant ramifications. First, economic
development was enhanced from the spread of new technological techniques. And
second, modernization supported a more educated society (as mentioned above),
and thus a more qualified labor force (“Modernization Theory”).[13] The second wave
took place between the years 1960 and 1970. This period was labeled
anti-modernization, because it saw the push of innovations of Western society
onto developing countries as an exertion of dominance (“Modernization Theory”).[13] It refuted the
concept of relying heavily on mass media for the betterment of society. The
last wave of modernization theory, which took place in the 1990s, depicts
impersonality (Perrow 737).[14] As uses of
newspapers, TVs, and radios become more prevalent, the need for direct contact,
a concept traditional organizations took pride in, diminishes. Thus,
organizational interactions become more distant (“Modernization Theory”).[13]
According to Frank Dobbin, the modern worldview
is the idea that “modern institutions are transparently purposive and that we
are in the midst an evolutionary progression towards more efficient forms
(138).”[12] This phrase
epitomizes the goal of modern firms, bureaucracies, and organizations to
maximize efficiency. The key to achieving this goal is through scientific
discoveries and innovations (Dobbin 139).[12] Dobbin discusses
the outdated role of culture in organizations. “New Institutionalists” explored
the significance of culture in the modern organization (Dobbin 117).[12] However, the
rationalist worldview counters the use of cultural values in organizations,
stating, “transcendental economic laws exist, that existing organizational
structures must be functional under the parameters of those laws, [and] that
the environment will eliminate organizations that adopt non-efficient
solutions” (Dobbin 138).[12]These laws govern the
modern organizations and lead them in the direction that will maximize profits
efficiently. Thus, the modernity of organizations is to generate maximum
profit, through the uses of mass media, technological innovations, and social
innovations in order to effectively allocate resources for the betterment of
the global economy.
Classical perspective
The classical perspective emerges from the Industrial Revolution and centers on theories of efficiency.
There are two subtopics under the classical perspective: the scientific
management and bureaucracy theory.[2]
Criticism of the
classical perspective
Weber’s theories were purposed to set a stage
for other organizations to follow, and the characteristics are so ideal that
they may be impossible for any actual organization to succeed. He wanted to
come up with a set of guidelines that would favor both efficiency and, most
importantly, conditions that would make the workers top priority. It was common
for earlier theorists to distort Weber’s views, and today, people still make
the same mistakes as they did when Weber’s views first came into play. He has
always been critiqued for the branches of his ideas that don’t work in reality,
but the point of his theory was not to actually create an organization, but to
create an ideal model for other organizations to follow.
One big misconception that people have had in
the past is a question of Weber’s morality due to their oversimplification of
his characteristics of a pure bureaucracy. “There is dangerous risk of
oversimplification in making Weber seem cold and heartless to such a degree
that an efficiently-run Nazi death camp might appear admirable” (Bureaucracy
Theory). In reality, Weber believed that by using human logic in his system, we
could achieve improvement of human condition in various workplaces. Complexity
in an organization yields the highest success, therefore simplifying it leads
to the illusions of over-authority and intense hierarchical power that are
inaccurate of Weber’s beliefs.
Another critique of Weber’s theory is the
argument of efficiency. Highest efficiency, in theory, can be attained through
pure work with no regard for the workers (for example, long hours with little
pay), which is why oversimplification can be dangerous. If we were to take one
characteristic focusing on efficiency, it would seem like Weber is promoting
unhealthy work conditions, when in fact, he wanted the complete opposite. Put
all of them together, and we have the ideal organization, but since a pure
bureaucracy is nearly impossible to obtain, efficiency takes the back seat in
his beliefs. Though his theories include characteristics of a highly efficient
organization, we must remember that these characteristics are only meant to set
a model for other organizations to follow, and if all the other conditions are
not perfect, the organization is not pure. Is it really a bad thing that
Weber’s priorities were for the people rather than the company itself?
With this said, the characteristics of Weber’s
theory have to all be perfect for a bureaucracy to function at its highest
potential. “Think of the concept as a bureau or desk with drawers in it, which
seems to call out to you, demanding that everything must fit in its place”
(Bureaucracy Theory). If one object in the drawer does not fit properly, the
entire drawer becomes untidy, which is exactly the case in Weber’s theory; if
one characteristic is not fulfilled the rest of them are unable to work in
unison, leaving the organization performing below its full potential.
One characteristic that was meant to better
workplace conditions was his rule that “Organization follows hierarchical principle
-- subordinates follow orders or superiors, but have right of appeal (in
contrast to more diffuse structure in traditional authority)” (Bureaucracy
(Weber)). In other words, everyone in a company or any sort of work environment
has the opportunity and right to disagree or to speak up if they are unhappy
with something rather than not voice their opinion in fear of losing their job.
Open communication is a very important part of Weber’s ideal bureaucracy, and
is practiced today. Because of the communication it may not be the most
efficient, but Weber would argue that improved human conditions are more
important than efficiency.
It is hard to critique Weber’s theories strictly
because of the fact that they are theories; they are nearly impossible to perform
in real life, therefore how can we know if they work or not? They are merely a
set of guidelines that make up bureaucracy, which today many believe is the
best way to run organizations in all aspects.
Efficiency and teleological arguments in Weberian bureaucracy
Max Weber believed that an ideal bureaucracy
consists of six specific characteristics: hierarchy of authority,
impersonality, written rules of conduct, promotion based on achievement,
specialized division of labor, and efficiency.[18] This ultimate
characteristic of Weberian bureaucracy, which states that bureaucracies are
very efficient, is controversial and by no means accepted by all sociologists.
There are certainly both positive and negative consequences to bureaucracy, and
strong arguments for both the efficiency and inefficiency of bureaucracies.
While Max Weber’s work was published in the late
1800s and early 1900s, before his death in 1920, his work is still referenced
today in the field of sociology. Weber’s theory of bureaucracy claims that it
is extremely efficient, and even goes as far as to claim that bureaucracy is
the most efficient form of organization.[19] Weber claimed that
bureaucracies are necessary to ensure the continued functioning of society,
which has become drastically more modern and complex in the past century.[20] Furthermore, he
claimed that without the structured organization of bureaucracy, our complex
society would be much worse off, due to the fact that society would act in an
inefficient and wasteful way.[21] He saw
bureaucracies as organizations driven towards certain goals, which they could
carry out efficiently. In addition, within an organization that operates under
bureaucratic standards, the members will be better off due to the heavy
regulation and detailed structure. Not only does bureaucracy make it much more
difficult for arbitrary and unfair personal favors to be carried out, it also
means that promotions and hiring will generally be done completely by merit.[22]
Weber most definitely saw bureaucracies as
goal-driven, efficient organizations, but one must not come to the quick and incorrect
conclusion that he saw no downfalls to bureaucracy. He recognized that there
are constraints within the bureaucratic system. First of all, he realized that
bureaucracies were ruled by very few people with very large amounts of
unregulated power.[23] This tends to lead
to a situation of oligarchy, whereby a limited number of officials become the
political and economic power.[24] Furthermore, Weber
considered further bureaucratization to be an “inescapable fate,” due to the
fact that it is supposedly superior to and more efficient than other forms of
organization.[25] Weber’s analysis
of bureaucracies led him to believe that they are too inherently limiting to
individual human freedom and he feared that people would begin to be too
controlled by bureaucracies.[26] His rationale
comes from the knowledge that the strict methods of administration and
legitimate forms of authority associated with bureaucracy act to eliminate
human freedom.
Regardless of whether or not bureaucracies
should be considered positively efficient or too efficient to the extent that
they become negative, Weberian bureaucracy tends to offer a teleological
argument. A theory, in this case bureaucracy, is considered to be teleological
if it involves aiming at specific goals. Weber claimed that bureaucracies are
goal-oriented organizations, which use their efficiency and rational principles
to reach their goals.[27] A teleological
analysis of businesses leads to the inclusion of all involved stakeholders in
decision-making.[28] The teleological
view of Weberian bureaucracy postulates that all actors in an organization have
various ends or goals, and attempt to find the most efficient way to achieve
these goals.[29]
Scientific Management
The Scientific Management theory was introduced
by Frederick Winslow Taylor to encourage production efficiency and
productivity.[30]Taylor argues that
inefficiencies could be controlled through managing production as a science.
Taylor defines scientific management as "concerned with knowing exactly
what you want men to do and then see in that they do it in the best and
cheapest way."[31]According to Taylor,
scientific management affects both workers and employers, and stresses the
control of the labour force by management.
Principles of Scientific Management
Taylor identifies four inherent principles of
the scientific management theory.
1. The creation of a
scientific method of measurement that replaces the "rule-of-thumb"
method
2. Emphasis placed on the
training of workers by management
3. Co-operation between
manager and workers to ensure the principles are being met
Bureaucratic Theory
The scholar most closely associated with
Bureaucratic theory is Max Weber. In Economy and Society, his seminal book published in 1922, Weber
articulates the necessary conditions and descriptive features of bureaucracy.
An organization governed under Weber’s conception of bureaucracy is
characterized by the presence of impersonal positions that are earned and not
inherited, rule-governed decision-making, professionalism, chain of command,
defined responsibility, and bounded authority.
Weber begins his discussion of bureaucracy by
introducing the concept of ‘jurisdictional areas’: institutions governed by a
specific set of rules or laws.[32] In a ‘jurisdictional
area’ regular activities are assigned as official duties, the authority to
assign these duties is distributed through a set of rules, and duties are
fulfilled continuously by qualified individuals. These elements make up a
bureaucratic agency in the case of the state and a bureaucratic enterprise in
the private economy.
·
It is possible to find the utilization of hierarchical subordination in
all bureaucratic structures. This means that higher-level offices supervise
lower level offices.
·
In bureaucracies, personal possessions are kept separate from the
monies of the agency or the enterprise.
·
People who work within a bureaucracy are usually trained in the
appropriate field of specialization.
·
Bureaucratic officials are expected to contribute their full
working capacity to the organization.
·
Positions within a bureaucratic organization must follow a
specific set of general rules.
Weber argued that in bureaucracy, taking on a
position or office signifies an assumption of a specific duty necessary for the
organization. This conception is distinct from historical working relationships
in which a worker served a specific ruler, not an institution.[33]
The hierarchical nature of bureaucracies allows
employees to demonstrate achieved social status[33] When an office
holder is elected instead of appointed, that person is no longer a purely
bureaucratic figure. He derives his power ‘from below’ instead of ‘from above.’
When a high-ranking officer selects officials, they are more likely to be
chosen for reasons related to the benefit of the superior than the competency
of the new hire. When high-skilled employees are necessary for the bureaucracy
and public opinion shapes decision-making, competent officers are more likely
to be selected.[32]
According to Weber, if ‘tenure for life’ is
legally guaranteed, an office becomes perceived as less prestigious than a
position that can be replaced at any time. If ‘tenure for life’ or a ‘right to
the office’ develops, there is a decrease in career opportunities for ambitious
new hires and overall technical efficiency becomes less guaranteed[33]
In a bureaucracy, salaries are provided to
officials. The amount is determined on the basis of rank and helps to signify
the desirability of a position. Bureaucratic positions also exist as part of
stable career tracks that reward office-holders for seniority.[33]
Weber argues that the development of a ‘money
economy’ is the “normal precondition for the unchanged survival, if not the
establishment, of pure bureaucratic administrations”.[33] Since bureaucracy
requires sustained revenues from taxation or private profits in order to be
maintained, a money economy is the most rational way to ensure its continued
existence.
Weber posits that officials in a bureaucracy
have a property right to their office and attempts at exploitation by a
superior means the abandonment of bureaucratic principles. He articulates that
providing a status incentive to inferior officers helps them to maintain
self-respect and fully participate in hierarchical frameworks[32] Michel Crozier
reexamined Weber’s theory in 1964. He determined that bureaucracy is flawed
because hierarchy causes officers to engage in selfish power struggles that
damage the efficiency of the organization.[34]
Neoclassical perspective
The Neoclassical perspective began with the
Hawthorne studies in the 1920s. This approach gave emphasis to “affective and
socio-psychological aspects of human behaviours in organizations.”[35] The human relations movement was a movement which had the primary
concerns of concentrating on topics such as morale, leadership, and mainly
factors that aid in the cooperation in Organizational behavior.
Hawthorne study
A number of sociologists and psychologists made
major contributions to the study of the neoclassical perspective, which is also
known as the human relations school of thought. Elton Mayo and his colleagues
were the most important contributors to this study because of their famous
Hawthorne study from the “Hawthorne plant of the Western Electric Company
between 1927 and 1932.”[36]
The Hawthorne study suggested that employees
have social and psychological needs along with economic needs in order to be
motivated to complete their assigned tasks. This theory of management was a
product of the strong opposition against “the Scientific and universal
management process theory of Taylor and Fayol.”[36] This theory was a
response to the way employees were treated in companies and how they were
deprived of their needs and ambitions.
In November 1924, a team of researcher –
professors from the renowned Harvard Business school of USA began investigating
into the human aspects of work and working conditions at the Hawthorne plant of
Western Electric Company, Chicago. The company was producing bells and other
electric equipments for telepohone industry. Prominent Professors included in
the research team were Elton Mayo (Psychologist), Roethlisberger and Whilehead
(Sociologist), and William Dickson (Company representative). The team conducted
four separate experimental and behavioural studies over a seven-year period.
These were:
1. Illumination Experiments (1924–27) to find
out the effect of illumination on worker's productivity.
2. Relay Assembly Test Room
experiment (1927–28)
to find out the effect of changes in number of work hour and related working
condition on worker productivity.
3. Experiment in
interviewing Working : In 1928, a number of researchers went directly to workers,
kept the variables of previous experiment aside, and talked about what was, in
their opinion, important to them. Around 20,000 workers were interviewed over a
period of two years. The interviews enabled the researchers to discover a rich
and intriguing world that previously remained undiscovered and unexamined
within the Hawthorne studies undertaken so far. The discovery of the informal
organisation and its relationship to the formal organisation was the landmark
of experiments in interviewing workers. These experiment led to a richer
understanding of the social, interpersonal dynamics of people at work.
4. Bank wiring Room
Experiments (1931–32) to find out social system of an organisation.
Results from the Hawthorne studies
The Hawthorne studies helped conclude that “a
human/social element operated in the workplace and that productivity increases
were as much an outgrowth of group dynamics as of managerial demands and
physical factors.”[36] The Hawthorne
studies also concluded that although financial motives were important, social
factors are just as important in defining the worker-productivity.
Hawthorne Effect was the improvement of
productivity between the employees, it was characterized by:
·
The satisfactory interrelationships between the coworkers
·
It classifies personnel as social beings and proposes that sense
of belonging in the workplace is important to increase productivity levels in
the workforce.
·
An effective management understood the way people interacted and
behaved within the group.
·
The management attempts to improve the interpersonal skills
through motivations, leading, communication and counseling.
·
This study encourages managers to acquire minimal knowledge of
behavioral sciences to be able to understand and improve the interactions
between employees
Criticism of the Hawthorne study
Critics believed that Mayo gave a lot of
importance to the social side of the study rather than addressing the needs of
an organization. Also, they believed that the study takes advantage of
employees because it influences their emotions by making it seem as if they are
satisfied and content, however it is merely a tool that is being used to
further advance the productivity of the organization.[36]
Environmental
Perspective
Contingency Theory
The Contingency Theory is a class of the
behavioral theory that claims that there is no best way to organize a
corporation, to lead a company, or to make decisions. An organizational,
leadership, or decision making style that is effective in some situations, may
not be successful in other situations. The optimal organization, leadership, or
decision making style depends upon various internal and external
constraints (factors).
Contingency Theory factors
Some examples of such constraints (factors)
include:
·
The size of the organization
·
How the firm adapts itself to its environment
·
Differences among resources and operations activities
1. Cy on the Organization
In the Contingency Theory on the Organization,
it states that there is no universal or one best way to manage an organization.
Secondly, the organizational design and its subsystems must
"fit" with the environment and lastly, effective organizations must
not only have a proper "fit" with the environment, but also between
its subsystems.
2. Contingency Theory of Leadership
In the Contingency Theory of Leadership, the
success of the leader is a function of various factors in the form of
subordinate, task, and/ or group variables. The following theories stress using
different styles of leadership appropriate to the needs created by different
organizational situations. Some of these theories are:
·
The Contingency theory: The contingency model theory, developed
by Fred
Fiedler,
explains that group performance is a result of interaction between the style of
the leader and the characteristics of the environment in which the leader
works.
·
The Hersey–Blanchard situational theory: This theory is an
extension of Blake and Mouton's Managerial Grid and Reddin's 3-D Management
style theory. This model expanded the notion of relationship and task
dimensions to leadership, and readiness dimension.
3. Contingency Theory of Decision-Making
The effectiveness of a decision procedure
depends upon a number of aspects of the situation:
·
The importance of the decision quality and acceptance.
·
The amount of relevant information possessed by the leader and
subordinates.
Criticism of the Contingency theory
It has been argued that the contingency theory
implies that a leader switch is the only method to correct any problems facing
leadership styles in certain organizational structures. In addition, the
contingency model itself has been questioned in its credibility.[38]
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