A Shot of Organization Theory

22.10.2009

14 min read

When a newcomer of the field of organization studies come across with the term “Organization Theory”, she naturally presumes that it is about a primary scientific theory explaining organizations. Getting excited about it, she continues to read books, most of which list theories in a chronological order without much effort for linking or synthesizing them. The she starts getting confused with the various vague concepts and contradicting claims. At the end, if she is determined and fortunate enough she discovers that “Organization Theory” is actually a set of various approaches which provide different perspectives and propositions complementing or challenging each another, and as a result do not constitute a coherent body of knowledge. I don’t know whether this is the case in general for most new comers. But this is exactly how it happened for me when I first stepped into this domain.

I know, this is not an encouraging introduction. But don’t worry, you will be saved from most of the hassles I experienced. Instead of a classical introduction to organization theory, I will try to explain all necessary theoretical background in a synthesized way around an organization model.

So here are some fundamentals… Let’s see what organization theory is by quoting from Jeffrey Pfeffer.

“Organization Theory” is an interdisciplinary study providing focus on

a) the effect of social organizations on the behavior and attitudes of individuals within them,

b) the effects of individual characteristics and action on organization,…

c) the performance, success, and survival of organizations,

d) the mutual effects of environments, including resource and task, political, and cultural environments on organizations and vice versa, and

e) concerns with both the epistemology and methodology that undergird research on each of these topics.

Jeffrey Pfeffer.

As mentioned earlier, there are various perspectives in Organization Theory. It may be useful to provide a quick summary here for the ones who are not familiar to this domain.

A Nice-to-Know Detail

Based on the similarities in the way phenomena are defined and studied; academic world clusters approaches under three titles: modern, symbolic, and postmodern. Practical usefulness of this clustering is limited but it may worth mentioning here since you may come across them in different resources.

Modern perspective relies on “objectivism” and “positivism”.

  • It accepts that there is one reality and it exists even if we have not yet discovered it.
  • Social world, including organizations, is a product of human action; but it is not necessarily a product of human design. It exists independently of human beings.
  • Organizations are systems of decision and action driven by norms of rationality, efficiency, and effectiveness. They can be designed and managed.
  • It aims to discover the universal principles and laws that govern organizations, define the theories that explain them and/or their performance, and develop methods to test theory and its implications.

Symbolic (or symbolic interpretive) perspective relies on “subjectivism” and “interpretivism”.

  • It accepts that reality is relative and multiple. One cannot know an external or objective reality apart from her subjective awareness of it. What we think exists, exists for us; and therefore it is multiple.
  • Individuals that dominate an organization, create their own reality. How they see the world is to a large part determined not by any objective data but their own ability to shape their own reality. The extend to which they can impose their own reality to others, determine whether they are seen as successful or not.
  • Power is strongly linked with knowledge. There are power struggles between different bodies of knowledge for legitimacy by claiming to represent reality. However, these bodies of knowledge also socially create their own (different) realities. When one of them become socially legitimized and institutionalized, it exerts control over what we think and do.
  • It aims to understand how organizing happens by observing how life unfolds (rituals and other meaningful activities)

In some resources, you may also see that symbolic perspective is called “post-modern”. However there is another philosophical movement under this name. It has some overlaps with symbolic perspective but get differentiated from it by its focus on language and communication.

  • It accepts that nothing exists separate from renderings of it in speech, writing, or other forms of expression. The discourses constructed through language give the state of being a substantial appearance. Therefore reality is in constant flux.
  • Anyone who controls discourse can make something exist, or disappear. Such power allows someone to define the reality in which others must live, creating the potential for exploitation and abuse.
  • Organizations are places for enacting power relations, giving rise to oppression, irrationality, and falsehoods. As they are discourses, we can rewrite organizations in order to remove human folly and degradation
  • It aims to understand how organizing happens by revealing organizational discourses (ie. by deconstructing organizational texts)

Six OT Approaches

Here in this article, I focus mostly on modern perspective. Below you can see the mainstream approaches to organization theory under modern perspective.

  • Early Industrial Period
    • Mechanistic Approaches (also called as classical school)
    • Human Relations Approaches (also called as neoclassical school)
  • Late Industrial Period
    • Contingency and Open Systems Approaches
    • Cultural Excellence Approaches
    • Organizational Learning Approach
  • Post Industrial Period
    • Complexity Approach

Mechanistic Approaches (Classical School)

During the early part of the industrial revolution (1700s), factory system emerged and began to spread. Before that, the closest examples of organizations as we understand today were the feudal or monarchic states, religious organizations such as Catholic Church, or craft guilds of some specific professions in the world.

In that era, attitudes of the employers to the employees were based on the proposition that “Labor is unreliable”. It can even be said that the main motivation of early factory systems was to control and regulate worker behavior rather than to create efficiency.

This approach led development of mechanistic approaches which favor

  • Horizontal division of labor in order to minimize human skills and discretion
  • Vertical division of labor in order to tightly control and supervise

Adam Smith, attributed the growth of wealth and prosperity to the horizontal division of labor (Smith, 1776) and suggested that when work is split into simple tasks,

  • it is easier for a worker to gain dexterity and do the task more effectively
  • it is easier to develop machines to support workers on each specific simple task in order to support productivity

Charles Babbage underlined vertical division of labor for better productivity and profitability and proposed a method (Babbage, 1835) for vertical differentiation of labor in classes of

  • the entrepreneur and his technical specialists who design machines and plan work
  • operative managers and engineers who execute plans
  • workers (with a low level of skill) who undertake the tasks

On top of “division of labor” principles, Frederic Taylor developed an approach (later named as “Scientific Management”) (Taylor, 1911) to control worker behavior by introducing

  • work design and standardization (again) to reduce or remove worker’s control over the work
  • financial incentives to motivate

The work of Frank and Lillian Gilbreth brought ‘Scientific Management’ concept to a new level. They introduced stop motion methodology for analyzing and designing work at micro level.

Focus of Taylor and Gilbreths was at micro (task) level. A contemporary of them, Henry Fayol, was studying in France about similar topics but at a more macro (organizational) level. Amid the rapid but also harsh journey of industrialization of France, Fayol set the first comprehensive theory of management (Fayol, 1916). He proposed that there are 5 main functions of management (planning, organizing, comanding, coordinating, controlling). He also prescribed 14 universal principles of management. In many respects, work of Fayol was considered as complementary to his American contemporaries. 

Another contemporary, Max Weber, was working in Germany on the concept of “Bureaucracy” as a mechanism to eliminate human fallibility. He defined bureaucracy (Weber, 1924) as a system which includes

  • a rigid division of labor
  • a clear hierarchical authority structure (chain of command)
  • regular and continuous execution of the assigned tasks
  • detailed, formal and unbiased rules and procedures for everything
  • impersonal relationships
  • distinct separation of members’ organizational and personal lives

With bureaucracy, Weber did not only seek to control behavior of workers but also managers. His main focus was to replace system of patronage with rules and procedures by standardizing management and work practices.

In summary, it can be told that classical period approaches had a mechanistic view about organizations. Human component of the organizations were intentionally undermined and mechanical components (processes, rules, machines..etc) are promoted as a guarantee to control fallible human component.

Human Relations Approaches (Neoclassical School)

In 1930s a new creed of approaches began to emerge. Motivated by many studies showing effect of human fulfillment; this creed challenged mechanistic approaches and claimed that:

  • organizations are social systems, which are composed of informal components (relationships, norms…etc) as well as formal ones
  • people also have emotional needs and they seek to meet them through informal components
  • Informal components have detrimental effect on effectiveness and efficiency of organizations

Earlier advocates of this approach was Mary Parker Follet. She was a political thinker and based on her observations in the arena of politics, she argued that (Follet, 1924):

  • Achieving a sense of identity, pride and self-worth through meaningful work is an important motivator
  • Self-control through common purpose is more effective than managerial control
  • Participative decision making is more effective than expert or leader driven decision making.

However, real disruption to the classical approach came with Elton Mayo’s experiments (Roethlisberger, 1939) conducted in the mid-1920s and 1930s at a Western Electric Company plant known as the Hawthorn Works. The experiments’ target was to analyze how much working conditions affect output. However they proved that workers were more responsive to group involvement and managerial attention than to physical conditions or financial incentives. Humans have a deep need of recognition, security and belonging.

Abraham Maslow, who was a psychologist, brought further insight to the domain by studying human motivation factors. He was the first who differentiated between different types of human needs. (Maslow, 1943) (physiological needs, safety needs, social needs, esteem needs, self actualization needs) Maslow stated that people are motivated to achieve certain needs. When one need is fulfilled a person seeks to fulfill the next one, and so on. He also believed that people possess a set of motivation systems unrelated to rewards or unconscious desires.

An American executive Chester Bernard joined to Human Relations Approach (Barnard, 1938) by proposing that

  • Organizations are cooperative systems and workers have the ability to facilitate or frustrate the will of management
  • In order to avoid negative response of workers, leaders must carry out systematic communication about organizational goals and values
  • When organizations have clear goals and values, which can be understood, related and pursued by its members, they become more successful
  • Managers should obtain authority by convincing subordinates to cooperate by using persuasion power and tangible incentives.

Later, Douglas McGregor proposed (McGregor, 1960) a model for comparing the Human Relations Approach (Theory Y) with the Classical Approach (Theory X).

  • Theory X encompassed a negative view of human nature, which held that employees wanted to avoid responsibility and cherished financial security above all else.
  • Theory Y encompassed a positive view of human nature, which held that humans can learn to accept and seek responsibility; most people possess a high degree of imaginative and problem-solving ability; employees are capable of effective self-direction; and that self-actualization is among the most important rewards that organizations can provide their workers.

McGregor saw Theory Y as the practical application of Dr. Abraham Maslow’s Humanistic School of Psychology, or Third Force psychology, applied to scientific management. He also proposed that organizations that embraced Theory Y were generally more productive.

Contingency and Open Systems Approaches

Both mechanistic and human relations approaches were claiming that their approaches were the only one best way to manage organizations. However, in 1960s a new phenomenon began to emerge, claiming that one best way is not possible because organizations are open systems, whose effectiveness dependent upon different variables. In other words, best way for each organization is contingent upon its own conditions. Most important contingencies recognized by the academia were environment, characteristics of work and technology used, size, age and history of the organization.

When contingency theorists started to discover environmental contingencies, “Open Systems Perspective” was introduced. This perspective was based on “General Systems Theory”, which originated from biology, economics, and engineering. According to this theory, a system is a set of two or more elements where the behavior of each element has an effect on the behavior of the whole; the behavior of the elements and their effects on the whole are interdependent; and while subgroups of the elements all have an effect on the behavior of the whole, none has an independent effect on it (Skyttner, 1996: 7) When a system interacts with its environment by way of inputs, throughputs, and outputs, it becomes an “open system”.

It was the mid-1970s that systems theory found wide acceptance among organization theorists.  Building upon the important work of earlier theorists ( (Katz & Kahn, 1966); Lorsch and Sheldon, 1972; Seiler, 1967), David Nadler and Michael Tushman at Columbia University developed a simple, pragmatic approach to organization dynamics based on systems theory.  At roughly the same time, Harold Leavitt at Stanford University and Jay Galbraith at MIT were simultaneously grappling with the same issues. Nadler and Tushman’s efforts (Nadler, 1997) led to the development and refinement of an approach that has come to be known as the congruence model of organizational behavior. We discuss this perspective further in detail in the following chapters.

Cultural Excellence Approaches

In 1980s, another school began to emerge, emphasizing organizational culture as something that characterizes an organization. Organizational culture is defined as a system of shared assumptions, values, and beliefs, which governs how people behave in organizations.

Japanese management approach may have played a role in driving focus on culture topic. When Japanese industrial revolution turned Japan into an industrial empire by 1970s, interest of researches began to increase in Japanese organization and management approach. They suggested that Japanese success stemmed from mostly cultural aspects such as:

  • Employee involvement to change (by Kaizen, quality circles..etc)
  • Consensus seeking decision making
  • Life-time employment
  • Seniority based promotion and reward systems
  • Teamwork and work group bonding
  • Enterprise unions
  • Emphasize on long term goals
  • Long and detailed planning
  • Company welfarism
  • Training and education
  • Commitment to quality and timeliness

One of the leaders of cultural excellence approach in the western world, Tom Peters, together with a group of consultants in McKinsey, proposed a framework called “7S” in 1980s to provide a holistic model in analyzing and designing organizations. According to the model (Peters & Waterman, 1982), most important facets of an organization are:

  • Strategy
  • Structure
  • Systems
  • Staff
  • Style
  • Shared Values
  • Skills

Peters also concluded that it is the 4 soft Ss (staff, style, shared values, skills) that hold the key to business success. In his study, he also listed out 8 key attributes that successful companies demonstrate:

  • A bias for action
  • Closeness to the customer
  • Autonomy and entrepreneurship
  • Productivity through people rather than machines
  • Value driven rather than rule/procedure driven
  • Stick to knitting (exploit rather than explore)
  • Simple (lean) structure
  • Simultaneous firm and free (free to experiment but hold accountable for what is done)

Rosabeth Moss Kanter later introduced “post-entrepreneurial model” in his book called “When Giants Learn to Dance” (1990). She argued that big organizations must (learn to dance) create a marriage between entrepreneurial creativity and corporate discipline, cooperation and teamwork by pursuing below 3 strategies:

  • Restructuring to find synergies (create flatter, more responsive and less complex organizations)
  • Opening boundaries to form strategic alliances in the form of a
    • Service alliance: two or more companies form a temporary consortium to undertake a special project
    • Opportunistic alliance: two or more companies form a JV to benefit from each others access to specific technologies and markets
    • Stakeholder alliance: permanent partnership with another organization or employees or suppliers or customers
  • Creating new ventures from within

She also analyzed how post-entrepreneurial model impacts employees and identified 3 domains:

  • Reward systems: New methods (rofit sharing, individual performance bonus, venture return methods…etc.) were implemented by companies
  • Careers: Since organizations has become slimmer and more tasks have been outsourced, traditional forms of career paths have become invalid. Concept of “job security” turned into “employability security” and individuals needed the ability to adapt and enhance skills so as to be able to perform well in different types of jobs. Therefore people will join organizations not because of job security or career progression but to develop new skills and gain knowledge that will increase their employability.
  • Lifestyle: Employees started to work longer hours. To encourage this, companies started to provide many social services easing employee’s lives to allow them to focus more on work. Due to adverse side effects of work life on social life many people started to downshift (pass to a less demanding and less paid)

Later, Kanter also defined 2 types of change, one is “bold stroke” (rapid and short-term), the other is “long march” (slow and long-term).  She also proposed that these 2 approaches can be used in complementary fashion. For example, a change intiative can start a major strategy and organization restructuring (bold stroke) and then proceed with a cultural change initiative (long march). Long marches require support of the masses in order to be successful.

She also provided a kind of change receipt, calling it 10 commandments of executing change.

  • Analyze the need for change
  • Create a shared vision
  • Separate from the past
  • Create a sense of urgency
  • Support a strong leader role
  • Line up political sponsorship
  • Craft an implementation plan
  • Develop enabling structures
  • Communicate, involve people and be honest
  • Reinforce and institutionalize change

Charles Handy had a powerful effect on modern management thinking with his views on organizational development and leadership. He helped usher in a more humanitarian style of management and a more visionary and purpose-driven organizational methodology.

He brought an organizational culture model (Handy, 1976) defining four types:

  • The Power Culture: Based on Zeus, this culture is one of centralized, or top-down, power and influence.
  • The Role Culture: Based on Apollo, this culture is a bureaucratic one, run by strict procedures, narrowly defined roles and precisely delineated powers.
  • The Task Culture: Based on Athena, this culture is small-team-based, results- and solutions-oriented, and marked by flexibility, adaptability and empowerment.
  • The Person Culture: Based on Dionysius, this culture focuses on the individual. Such an organization is values-oriented, people-focused and geared toward meeting individual employees’ self-actualization needs.

He also identified 3 types of organization (Handy, 1989) that he argues will dominate in the future:

  • The Shamrock organization: Consist of three distinct group of staff, which are core, contractual, flexible 
  • The Federal organization: Consists of a network of organizations allied together
  • The Triple I organization: Consists of a core group that create added value based on information, intelligence and ideas.

Organizational Learning Approach

In 1990s another approach, which is called “Organizational Learning” or “Learning Organization”, came forward. Its roots were actually much older, but most probably cultural excellence and systems approaches played a role in revoking the concept.

There is no widely accepted definition of “Organizational Learning”. However, it can be said that this approach studies “learning for transformational change”. Peter Senge, who made the concept very popular by his book “The Fifth Discipline” (Senge, 1990), argued that there are five interrelated disciplines that promote OL:

  • Personal mastery: Achieving individual growth and learning
  • Mental models: Surfacing the way individuals think about people, situations and organizations
  • Shared vision: Developing a common view of the organization’s future
  • Team learning: Achieving collective learning
  • Systems thinking (The Fifth Discipline): Having the ability of recognizing complex and subtle components of the systems.

Complexity Approach

Over the last two decades, there is a growing interest in viewing organizations from the lens of complexity theories. Complexity theories are concerned with the emergence of order in dynamic systems, which operate at the edge of chaos. Common characteristics of these systems:

  • Complex systems have large number of independent yet interacting actors.
  • In such systems, order is governed by a small number of simple rules for which the cause and effect is not completely clear to us due to huge complexity. These rules permit limited chaos and relative order.
  • Members of these systems act by spontaneous self-organization
  • Behavior in such systems constitute different but similar forms. (ie: snow flakes are all different but all have six sides. Or planets follow different trajectories but all have same characteristics.).
  • Rather than reaching a stable equilibrium or falling apart, they keep changing at the edge of chaos (between order and disorder)

Natural systems (ie: weather) are good examples to such systems. Academicians of this school assume the idea that organizations are complex non-linear systems, too. The ones that succeed to operate at the edge of chaos, also pursue a path of continuous innovation.

Tetenbaum (1998) points out Visa as an example to the organizations of this kind. Visa is comprised of 20,000 financial institutions operated at 200 countries. It is a decentralized, non-hierarchical, self-organizing organization. Therefore nobody knows where it is located, how it is operated, or who owns it. 

Such a perspective shifts the role of management from command-and-control to promote self-organization. In such a context, the greatest levers in the hand of management will be the governing rules and the structure that provides greater democracy and power-equalisation. MacIntosch and MacLean (2001) provide evidence of how these can be reconfigured. In their study, they identified that a long established manufacturing company was suffering from 30 years of unstoppable decline due inappropriate rules (such as don’t innovate unless it leads to cost reduction) and a rigid structure that stifled innovation.