Organizational theory is the study of the structures of organizations. Four major theories contribute to this study classical theory, human relations or neo-classical theory, contingency or decision theory and modern systems theory. Over time, the emphasis in organizational theory has shifted from stiff, hierarchical structures rampant in the industrial age to broader, more flexible structures more prevalent in the technological, modern age.
Classical organization theory evolved during the first half of the 20th century. It represents the merger of scientific management, bureaucratic theory and administrative theory. Scientific management theory has four basic principles: a scientific method exists to perform each task; select, train and develop workers for each task; closely supervise employees; and management’s role is planning and control. Bureaucratic theory and administrative theory expanded on these principles. However, over time academics and practitioners began to view classical organization theory as too rigid and authoritative. It focused on structure and economic rewards and ignored individual freedom and the working environment.
Human Relations Theory
Human relations theory also is referred to as neoclassical theory. It uses some of the beliefs of classical theory as its base but expands those beliefs to incorporate other principles. Key principles include emphasizing differences between people to create different effective motivators; and resolving creative conflict to help develop new ideas and build stronger working relationships. Another principle involves emphasizing social interactions, participative management and decision-making.
Followers of contingency theory, also referred to as decision theory, view conflict as manageable. This theory espouses the principle that organizations act rationally and linearly to adapt to environmental changes. Contingency theory assesses management effectiveness by management’s environmental adaption abilities. In addition, in volatile industries — for example, technology — managers at all levels must have the authority to make decisions in their area, contingent on what is happening. Companies and managers must adjust their managerial styles and techniques based on the conditions occurring around them.
Modern Systems Theory
The foundation of the modern systems theory is the principle that all of an organization’s components interrelate nonlinearly, therefore making a small change in one variable impact many others. A small change can cause a huge impact on another variable or large changes in a variable can cause a nominal impact. Another principle is that organizations operate as open systems in dynamic equilibrium as they constantly adjust and adapt to changes in their environment.