Organization Theory

The Organizational Theory refers to the set of interrelated concepts, definitions that explain the behavior of individuals or groups or subgroups, who interacts with each other to perform the activities intended towards the accomplishment of a common goal.

In other words, the organizational theory studies the effect of social relationships between the individuals within the organization along with their actions on the organization as a whole. Also, it studies the effects of internal and external business environment such as political, legal, cultural, etc. on the organization.

The term organization refers to the group of individuals who come together to perform a set of tasks with the intent to accomplish the common objectives. The organization is based on the concept of synergy, which means, a group can do more work than an individual working alone.

Thus, in order to study the relationships between the individuals working together and their overall effect on the performance of the organization is well explained through the organizational theories. Some important organizational theories are:

1. Classical Theory
2. Scientific Management Theory
3. Administrative Theory
4. Bureaucratic Theory
5. Neo-Classical Theory
6. Modern Theory

An organizational structure plays a vital role in the success of any enterprise. Thus, the organizational theories help in identifying the suitable structure for an organization, efficient enough to deal with the specific problems.

Classical Theory

The Classical Theory is the traditional theory, wherein more emphasis is on the organization rather than the employees working therein. According to the classical theory, the organization is considered as a machine and the human beings as different components/parts of that machine.

The classical theory has the following characteristics:

1. It is built on an accounting model.
2. It lays emphasis on detecting errors and correcting them once they have been committed.
3. It is more concerned with the amount of output than the human beings.
4. The human beings are considered to be relatively homogeneous and unmodifiable. Thus, labor is not divided on the basis of different kinds of jobs to be performed in an organization.
5. It is assumed that employees are relatively stable in terms of the change, in an organization.
6. It is assumed that the authority and control should be vested with the central authority only, in order to have a centralized and integrated system.

Some writers of the classical theory emphasized on the technological aspects of the organization and how the individuals can be made more efficient, while others emphasized on the structural aspects of an organization so that individuals collectively can be made more efficient. Thus, this purview of different writers resulted in the formation of two distinct streams:

• Scientific Management Stream
• Administrative Management Stream

Thus, according to this theory the human beings are just considered as a means of production.

Scientific Management Theory

The Scientific Management Theory is well known for its application of engineering science at the production floor or the operating levels. The major contributor of this theory is Fredrick Winslow Taylor, and that’s why the scientific management is often called as “Taylorism”.

The scientific management theory focused on improving the efficiency of each individual in the organization. The major emphasis is on increasing the production through the use of intensive technology, and the human beings are just considered as adjuncts to machines in the performance of routine tasks.

The scientific management theory basically encompasses the work performed on the production floor as these tasks are quite different from the other tasks performed within the organization. Such as, these are repetitive in nature, and the individual workers performing their daily activities are divided into a large number of cyclical repetition of same or closely related activities. Also, these activities do not require the individual worker to exercise complex-problem solving activity. Therefore, more attention is required to be imposed on the standardization of working methods and hence the scientific management theory laid emphasis on this aspect.

The major principles of scientific management, given by Taylor, can be summarized as follows:

• Separate planning from doing.
• The Functional foremanship of supervision, i.e. Eight supervisors required to give directions and instructions in their respective fields.
• Time, motion and fatigue studies shall be used to determine the fair amount of work done by each individual worker.
• Improving the working conditions and standardizing the tools, period of work and cost of production.
• Proper scientific selection and training of workmen should be done.
• The financial incentives should be given to the workers to boost their productivity and motivate them to perform well.

Thus, the scientific management theory focused more on mechanization and automation, i.e., technical aspects of efficiency rather than the broader aspects of human behavior in the organization.

Administrative Theory

The Administrative Theory is based on the concept of departmentalization, which means the different activities to be performed for achieving the common purpose of the organization should be identified and be classified into different groups or departments, such that the task can be accomplished effectively.

The administrative theory is given by Henri Fayol, who believed that more emphasis should be laid on organizational management and the human and behavioral factors in the management. Thus, unlike the scientific management theory of Taylor where more emphasis was on improving the worker’s efficiency and minimizing the task time, here the main focus is on how the management of the organization is structured and how well the individuals therein are organized to accomplish the tasks given to them.

The other difference between these two is, the administrative theory focuses on improving the efficiency of management first so that the processes can be standardized and then moves to the operational level where the individual workers are made to learn the changes and implement those in their routine jobs. While in the case of the scientific management theory, it emphasizes on improving the efficiency of the workers at the operating level first which in turn improves the efficiency of the management. Thus, the administrative theory follows the top-down approach while the scientific management theory follows the bottom-up approach.

Bureaucratic Theory

The Bureaucratic Theory is related to the structure and administrative process of the organization and is given by Max Weber, who is regarded as the father of bureaucracy. What is Bureaucracy? The term bureaucracy means the rules and regulations, processes, procedures, patterns, etc. that are formulated to reduce the complexity of organization’s functioning.

According to Max Weber, the bureaucratic organization is the most rational means to exercise a vital control over the individual workers. A bureaucratic organization is one that has a hierarchy of authority, specialized work force, standardized principles, rules and regulations, trained administrative personnel, etc.

The Weber’s bureaucratic theory differs from the traditional managerial organization in the sense; it is impersonal, and the performance of an individual is judged through rule-based activity and the promotions are decided on the basis of one’s merits and performance.

Also, there is a hierarchy in the organization, which represents the clear lines of authority that enable an individual to know his immediate supervisor to whom he is directly accountable. This shows that bureaucracy has many implications in varied fields of organization theory.

Thus, Weber’s bureaucratic theory contributes significantly to the classical organizational theory which explains that precise organization structure along with the definite lines of authority is required in an organization to have an effective workplace.

Modern Theory

The Modern Theory is the integration of valuable concepts of the classical models with the social and behavioral sciences. This theory posits that an organization is a system that changes with the change in its environment, both internal and external.

There are several features of the modern theory that make it distinct from other sets of organizational theories, these are:

1. The modern theory considers the organization as an open system. This means an organization consistently interacts with its environment, so as to sustain and grow in the market. Since, the organization adopts the open system several elements such as input, transformation, process, output, feedback and environment exists. Thus, this theory differs from the classical theory where the organization is considered as a closed system.
2. Since the organization is treated as an open system, whose survival and growth is determined by the changes in the environment, the organization is said to be adaptive in nature, which adjusts itself to the changing environment.
3. The modern theory considers the organization as a system which is dynamic.
4. The modern theory is probabilistic and not deterministic in nature. A deterministic model is one whose results are predetermined and whereas the results of the probabilistic models are uncertain and depends on the chance of occurrence.
5. This theory encompasses multilevel and multidimensional aspects of the organization. This means it covers both the micro and macro environment of the organization. The macro environment is external to the organization, while the micro environment is internal to the organization.
6. The modern theory is multi-variable, which means it considers multiple variables simultaneously. This shows that cause and effect are not simple phenomena. Instead, the event can be caused as a result of several variables which could either be interrelated or interdependent.

The scientists from different fields have made major contributions to the modern theory. They emphasized on the importance of communication and integration of individual and organizational interest as prerequisites for the smooth functioning of the organization.

Neo-Classical theory

The Neo-Classical Theory is the extended version of the classical theory wherein the behavioral sciences gets included into the management. According to this theory, the organization is the social system, and its performance does get affected by the human actions.

The classical theory laid emphasis on the physiological and mechanical variables and considered these as the prime factors in determining the efficiency of the organization. But, when the efficiency of the organization was actually checked, it was found out that, despite the positive aspect of these variables the positive response in work behavior was not evoked.

Thus, the researchers tried to identify the reasons for human behavior at work. This led to the formation of a Neo-Classical theory which primarily focused on the human beings in the organization. This approach is often referred to as “behavioral theory of organization” or “human relations” approach in organizations.

The Neo-Classical theory posits that an organization is the combination of both the formal and informal forms of organization, which is ignored by the classical organizational theory. The informal structure of the organization formed due to the social interactions between the workers affects and gets affected by the formal structure of the organization. Usually, the conflicts between the organizational and individual interest exist, thus the need to integrate these arises.

The Neo-Classical theory asserts that an individual is diversely motivated and wants to fulfill certain needs. The communication is an important yardstick to measure the efficiency of the information being transmitted from and to different levels of the organization. The teamwork is the prerequisite for the sound functioning of the organization, and this can be achieved only through a behavioral approach, i.e. how individual interact and respond to each other.