Organizational Theory

Organizational Theory studies organizations as a whole, the way they adapt, the strategies and structures that guide them. Eisenhardt (1985) considers organizational theory to be rational, information based, efficiency oriented, concerned with determinants of control strategy and distinguish between two types of performance evaluation control: behaviour based and outcome based. The organizational theory:

  • Compares ability to measure behaviors and outcomes.
  • Uses control as a measurement and evaluation process. Reward is implicit.
  • Can reduce divergent preferences through social control.
  • Uses information as a purchasable commodity.[1]

An organisation theory furnishes a general frame of reference for explaining understanding behaviour patterns in organisations. It also furnishes a scientific base for managerial actions for predicting, controlling and influencing behaviour with a view to increase efficiency of the organisation. It also encompasses the study of structure, functioning and performance of organisations and of the behaviour of groups and individuals working in organisations. According to Joe Kelly “Organisation theory is a set of interrelated concepts, definitions and propositions that present a systematic view of behaviour Organisation theory is a set of propositions which seeks to of individuals, groups and subgroups interacting in some relatively patterned explain how individuals and sequence of activity, the intent of which is goal directed.” Organisation theory is a macro analysis of an organisation, that is, how the organisation structure is designed to integrate people with organisation. It is descriptive and predictive about a particular state of affair in the organisation.[2]

Classification of Organizational Theories[3]
Organizational theories which explain the organization and its structure can be broadly classified as classical or modern.

  • Classical Organization Theory: Classical organization theories (Taylor, 1947; Weber, 1947; Fayol, 1949) deal with the formal organization and concepts to increase management efficiency. Taylor presented scientific management concepts, Weber gave the bureaucratic approach, and Fayol developed the administrative theory of the organization. They all contributed significantly to the development of classical organization theory.
    • Taylor's scientific management approach: The scientific management approach developed by Taylor is based on the concept of planning of work to achieve efficiency, standardization, specialization and simplification. Acknowledging that the approach to increased productivity was through mutual trust between management and workers, Taylor suggested that, to increase this level of trust,
      • the advantages of productivity improvement should go to workers,
      • physical stress and anxiety should be eliminated as much as possible,
      • capabilities of workers should be developed through training, and
      • the traditional 'boss' concept should be eliminated.
    • Weber's bureaucratic approach: Weber's theory is infirm on account of dysfunctions (Hicks and Gullett, 1975) such as rigidity, impersonality, displacement of objectives, limitation of categorization, self-perpetuation and empire building, cost of controls, and anxiety to improve status. Considering the organization as a segment of broader society, Weber (1947) based the concept of the formal organization on the following principles:
      • Structure: In the organization, positions should be arranged in a hierarchy, each with a particular, established amount of responsibility and authority.
      • Specialization: Tasks should be distinguished on a functional basis, and then separated according to specialization, each having a separate chain of command.
      • Predictability and stability: The organization should operate according to a system of procedures consisting of formal rules and regulations.
      • Rationality: Recruitment and selection of personnel should be impartial.
      • Democracy: Responsibility and authority should be recognized by designations and not by persons.
    • Administrative theory: The elements of administrative theory (Fayol, 1949) relate to accomplishment of tasks, and include principles of management, the concept of line and staff, committees and functions of management.
      • Division of work or specialization: This increases productivity in both technical and managerial work.
      • Authority and responsibility: These are imperative for an organizational member to accomplish the organizational objectives.
      • Discipline: Members of the organization should honour the objectives of the organization. They should also comply with the rules and regulations of the organization.
      • Unity of command: This means taking orders from and being responsible to only one superior.
      • Unity of direction: Members of the organization should jointly work toward the same goals.
      • Subordination of individual interest to general interest: The interest of the organization should not become subservient to individual interests or the interest of a group of employees.
      • Remuneration of personnel: This can be based on diverse factors such as time, job, piece rates, bonuses, profit-sharing or non-financial rewards.
      • Centralization: Management should use an appropriate blend of both centralization and de-centralization of authority and decision making.
      • Scalar chain: If two members who are on the same level of hierarchy have to work together to accomplish a project, they need not follow the hierarchy level, but can interact with each other on a 'gang plank' if acceptable to the higher officials.
      • Order: The organization has a place for everything and everyone who ought to be so engaged.
      • Equity: Fairness, justice and equity should prevail in the organization.
      • Stability of tenure of personnel: Job security improves performance. An employee requires some time to get used to new work and do it well.
      • Initiative: This should be encouraged and stimulated.
      • Esprit de corps: Pride, allegiance and a sense of belonging are essential for good performance. Union is strength.
      • The concept of line and staff: The concept of line and staff is relevant in organizations which are large and require specialization of skill to achieve organizational goals. Line personnel are those who work directly to achieve organizational goals. Staff personnel include those whose basic function is to support and help line personnel.
      • Committees: Committees are part of the organization. Members from the same or different hierarchical levels from different departments can form committees around a common goal. They can be given different functions, such as managerial, decision making, recommending or policy formulation. Committees can take diverse forms, such as boards, commissions, task groups or ad hoc committees. Committees can be further divided according to their functions. In agricultural research organizations, committees are formed for research, staff evaluation or even allocation of land for experiments.
      • Functions of management: Fayol (1949) considered management as a set of planning, organizing, training, commanding and coordinating functions. Gulick and Urwick (1937) also considered organization in terms of management functions such as planning, organizing, staffing, directing, coordinating, reporting and budgeting.
  • Neoclassical Theory: Neoclassical theorists recognized the importance of individual or group behaviour and emphasized human relations. Based on the Hawthorne experiments, the neoclassical approach emphasized social or human relationships among the operators, researchers and supervisors (Roethlisberger and Dickson, 1943). It was argued that these considerations were more consequential in determining productivity than mere changes in working conditions. Productivity increases were achieved as a result of high morale, which was influenced by the amount of individual, personal and intimate attention workers received.
    • Principles of the neoclassical approach: The classical approach stressed the formal organization. It was mechanistic and ignored major aspects of human nature. In contrast, the neoclassical approach introduced an informal organization structure and emphasized the following principles:
      • The individual: An individual is not a mechanical tool but a distinct social being, with aspirations beyond mere fulfilment of a few economic and security works. Individuals differ from each other in pursuing these desires. Thus, an individual should be recognized as interacting with social and economic factors.
      • The work group: The neoclassical approach highlighted the social facets of work groups or informal organizations that operate within a formal organization. The concept of 'group' and its synergistic benefits were considered important.
      • Participative management Participative management or decision making permits workers to participate in the decision making process. This was a new form of management to ensure increases in productivity.

Note the difference between Taylor's 'scientific management' - which focuses on work - and the neoclassical approach - which focuses on workers.

  • Modern Theories: Modern theories tend to be based on the concept that the organization is a system which has to adapt to changes in its environment. In modern theory, an organization is defined as a designed and structured process in which individuals interact for objectives (Hicks and Gullet, 1975). The contemporary approach to the organization is multidisciplinary, as many scientists from different fields have contributed to its development, emphasizing the dynamic nature of communication and importance of integration of individual and organizational interests. These were subsequently re-emphasized by Bernard (1938) who gave the first modern and comprehensive view of management. Subsequently, conclusions on systems control gave insight into application of cybernetics. The operation research approach was suggested in 1940. It utilized the contributions of several disciplines in problem solving. Von Bertalanffy (1951) made a significant contribution by suggesting a component of general systems theory which is accepted as a basic premise of modern theory. Some of the notable characteristics of the modern approaches to the organization are:

· a systems viewpoint,
· a dynamic process of interaction,
· multilevelled and multidimensional,
· multimotivated,
· probabilistic,
· multidisciplinary,
· descriptive,
· multivariable, and
· adaptive.

Modern understandings of the organization can be broadly classified into:

  • The systems approach: The systems approach views organization as a system composed of interconnected - and thus mutually dependent - sub-systems. These sub-systems can have their own sub-sub-systems. A system can be perceived as composed of some components, functions and processes (Albrecht, 1983). Thus, the organization consists of the following three basic elements (Bakke, 1959):
    • (i) Components: There are five basic, interdependent parts of the organizing system, namely:
      • the individual,
      • the formal and informal organization,
      • patterns of behaviour emerging from role demands of the organization,
      • role comprehension of the individual, and
      • the physical environment in which individuals work.
    • (ii) Linking processes: The different components of an organization are required to operate in an organized and correlated manner. The interaction between them is contingent upon the linking processes, which consist of communication, balance and decision making.
      • Communication is a means for eliciting action, exerting control and effecting coordination to link decision centres in the system in a composite form.
      • Balance is the equilibrium between different parts of the system so that they keep a harmoniously structured relationship with one another.
      • Decision analysis is also considered to be a linking process in the systems approach. Decisions may be to produce or participate in the system. Decision to produce depends upon the attitude of the individual and the demands of the organization. Decision to participate refers to the individual's decisions to engross themselves in the organization process. That depends on what they get and what they are expected to do in participative decision making.
    • (iii) Goals of organization: The goals of an organization may be growth, stability and interaction. Interaction implies how best the members of an organization can interact with one another to their mutual advantage.
  • Socio-technical approach: It is not just job enlargement and enrichment which is important, but also transforming technology into a meaningful tool in the hands of the users. The socio-technical systems approach is based on the premise that every organization consists of the people, the technical system and the environment (Pasmore, 1988). People (the social system) use tools, techniques and knowledge (the technical system) to produce goods or services valued by consumers or users (who are part of the organization's external environment). Therefore, an equilibrium among the social system, the technical system and the environment is necessary to make the organization more effective.
  • The contingency or situational approach: The situational approach (Selznick, 1949; Burns and Stalker, 1961; Woodward, 1965; Lawrence and Lorsch, 1967) is based on the belief that there cannot be universal guidelines which are suitable for all situations. Organizational systems are inter-related with the environment. The contingency approach (Hellriegel and Slocum, 1973) suggests that different environments require different organizational relationships for optimum effectiveness, taking into consideration various social, legal, political, technical and economic factors.

See Also


  1. Definition - What does Organizational Theory mean? Integrating Performance
  2. Explaining What Organizational Theory Is Diksha Kahyap
  3. The Broad Classifications of Organizational Theories FAO