Everything you need to know about the neo-classical theory of management. Neo-Classical theory is called human relations and behavioural science approach.
It is built on the base of classical theory. It modified, improved and extended the classical theory. Classical theory concentrated on job content and management of physical resources.
Neo-Classical theory gave greater emphasis to man behind the machine and stressed the importance of individual as well as group relationship in the plant or workplace.
Neo-Classical approach may be analysed in three parts, namely — 1. Hawthorne Experiment 2. Human Relation Movement 3. Behavioural Approach.
Additionally, learn about the modern approach, elements and features of neo-classical theory.
Neo-Classical Theory of Management: Hawthorne Experiment, Human Relations Movement and Behavioural Approach
Neo-Classical Theory of Management – Hawthorne Experiment, Human Relation Movement and Behavioural Approach (With Modern Approach)
The Neo-Classical approach was evolved over many years because it was found that classical approach did not achieve complete production efficiency and workplace harmony. Managers still encountered difficulties and frustrations because people did not always follow predicted or rational patterns of behaviour.
Thus, there was increased interest in helping managers deal more effectively with the ‘people side’ of their organisation. The neo-classical theory reflects a modification over classical theories.
The neo-classical approach recognizes the primacy of psychological and social aspects of the workers as an individual and his relations within and among groups and the organisation. It gained importance after the World War I, particularly in the wake of the “Hawthorne experiments” at Western Electric Company by Elton Mayo 10 during 1924 to 1932. Elton Mayo is generally recognized as the father of the Human Relations Movement.
The basic features of neoclassical approach are:
(i) The business organisation is a social system.
(ii) Human factor is the most important element in the social system.
(iii) It revealed the importance of social and psychological factors in determining worker productivity and satisfaction.
(iv) The behaviour of an individual is dominated by the informal group of being a member.
(v) The aim of the management is to develop social and leadership skills in addition to technical skills. It must be done for the welfare of the workers.
(vi) Morale and productivity go hand-to-hand in an organization.
A famous series of studies of human behaviour in work situations was conducted at the Western Electric Company from 1924 to 1933. In 1927 a group of researchers led by Elton Mayo and Fritz J. Roethlisberger and Dickson at the Harvard Business School were invited to join at Western Electric’s Hawthorne plant near Chicago. The studies began as an attempt to investigate the relationship between the level of lighting in the workplace and the productivity of workers.
The initial experiment carried out over a period of three years sought to determine the effects of different levels of illumination on worker’s productivity. The results of the experiments were ambiguous. When the test group’s lighting conditions were improved, productivity tended to increase just as expected, although the increase was erratic.
But there was a tendency for productivity to continue to increase when the lighting conditions were made worse, besides lighting was influencing the worker’s performance, as the work group was not able to maintain relationship between illumination and productivity.
In the second set of experiments, a smaller group of six female telephone operators was put under close observation and control. Frequent changes were made in working conditions such as hours of work, lunch break, rest periods, etc.
Again the results were ambiguous, as performance tended to increase even when the improvements in working conditions were withdrawn. It was found that socio-psychological factors exercised a greater influence on productivity and working conditions.
The third set of experiment attempted to understand how group norms affect group effort and output. It was noted that the informal organisation of workers controlled the norms established by the groups in respect of each member’s output. The researcher concluded that informal work groups have a great influence and productivity.
In the subsequent experiments, Mayo and his associates decided that financial incentives, when these were offered, were not causing the productivity improvements. The researchers concluded that employees would work harder if they believed management was concerned about their welfare, and supervisors paid special attention to them. This phenomenon was subsequently labelled as the Hawthorne Effect.
These findings concerning human behaviours at work focused on the worker as an individual and considered the importance of caring for his feelings and understanding the dynamics of informal organisation of workers. The view point of Hawthorne Effect thus gave birth to human relations movement and provided the thrust toward democratization of organizational power structures and participative management. It ushered in an era of organizational humanism.
Hawthorne experiment led to the development of human relations approach. It revealed the importance of social and psychological factors in determining workers, productivity and satisfaction. This movement is marked by informal grouping, informal relationship and leadership Pattern of communication and philosophy of industrial humanism.
The values of human relation are exemplified in the work of Douglas McGregor and A. H. Maslow. Human relation approach is a social psychological approach and suggests business enterprise is a social system in which group norms play a significant role.
Financial incentive was less of a determining factor on a workers output than were group pressure and acceptance and the concomitant security. It ushered an era of organisational humanism. Managers would no longer consider the issue of organisation design without including effects on work groups, employees’ attitudes, and manager-employee relationships.
Elton Mayo, Mary Parker Follett and Douglas McGregor, Roethlisberger, Dickson, Dewey and Lewin, etc., were the main contributors that led to the development of Human Relations Movement.
The human relations movement marked by the following factors:
This movement viewed organization as a social system composed of numerous interacting parts in which groups norms exercise a significant influence on the behaviour and performance of individuals. The movement emphasized that apart from economic needs, the employees have other social and psychological needs such as recognition, affiliation, appreciation, self-respect, etc.
The groups determine the norms of behaviour for the group member and thus exercise a great influence on the attitudes and performance of workers. Group Dynamics at the workplace become a major force. The human relations approach was focused on teaching people-management skills, as opposed to technical skills.
This approach strongly believed that there should be no conflicts or clashes in the organisation; and if it arises, it must be removed through improvement of human relations in the organisation. They consider that informal organisation does also exist within the framework of formal organisation and it affects and is affected by the formal organisation.
Contributions of Human Relations Approach or Hawthorne Studies:
The human relations proposed the following points as a result of their findings of the Hawthorne experiments:
1. Social System:
The organisation in general is a social system composed of numerous interacting parts. The social system defines individual roles and establishes norms that may differ from those of the formal organisation.
The workers follow a social norm determined by their coworkers, which defines the proper amount of work, rather than try to achieve the targets management thinks they can achieve, even though this would have helped them to earn as much as they physically can.
2. Social Environment:
The social environment on the job affects the workers and is also affected by them. Management is not the only variable. Social and psychological factors exercise a great influence on the behaviour of workers. Therefore, every manager should adopt a sound human approach to all organizational problems.
3. Informal Organization:
The informal organisation does also exist within the framework of formal organisation and it affects and is affected by the formal organisation.
4. Group Dynamics:
At the workplace, the workers- often do not act or react as individuals but as members of groups. The group determines the norms of behaviour for the group members and thus exercises a powerful influence on the attitudes and performance of individual workers. The management should deal with workers as members of work groups rather than as individuals.
5. Informal Leader:
There is an emergence of informal leadership as against formal leadership and the informal leader sets and enforces group norms. He helps the workers to function as a social group and the formal leader is rendered ineffective unless he conforms to the norms of the group of which he is supposed to be in-charge.
Two-way communication is necessary because it carries necessary information downward for the proper functioning of the organisation and transmits upward the feelings and sentiments of people who work in the organisation.
It will help in securing workers cooperation and. participation in the decision-making process. Workers tend to be more productive when they are given the opportunity to express their feelings, opinions and grievances. This also gives them psychological satisfaction.
7. Non-Economic Rewards:
Money is only one of the motivators, but not the sole motivator of human behaviour. The social and psychological needs of the workers are very strong. So, non-economic rewards such as praise, status, inter-personal relations, etc., play an important role in motivating the employees. Such rewards must be integrated with the wages and fringe benefits of the employees.
There may arise conflicts between the organizational goals and group goals. Conflicts will harm the interest of workers if they are not handled properly. Conflicts can be resolved through improvement of human relations in the organisation.
The human relations approach has been criticized on the following grounds:
1. Lack of Scientific Validity:
The human relation drew conclusions from Hawthorne studies. These conclusions are based on clinical insight rather than on scientific evidence. The groups chosen for study were not representative in character. The findings based upon temporary groups do not apply to groups that have continuing relationship with one another. Moreover, the experiments focused on operative employees only.
2. Over-Emphasis on Group:
The human relations approach over-emphasizes the group and group decision-making. But, in practice, groups may create problems for the management and collective decision-making may not be possible.
3. Over-Stretching of Human Relations:
It is assumed that all organizational problems are amenable to solutions through human relations. This assumption does not hold good in practice. The satisfied workers may not be more productive workers.
4. Limited Focus on Work:
The human relations approach lacks adequate focus on work. It puts all the emphasis on interpersonal relations and on the informal group. It tends to overemphasize the psychological aspects at the cost of the structural and technical aspects.
5. Over-Stress on Socio-Psychological Factors:
The human relations approach undermines the role of economic incentives in motivation and gives excessive stress on social and psychological factors. If the wages are too low, the employees will feel dissatisfied despite good interpersonal relations at the work place. Thus, it may be said that the human relations approach seeks to exploit the sentiments of employees for the benefit of the organisation.
6. Negative View of Conflict between Organizational and Individual Goals:
It views conflict between the goals of the organisation and those of individuals as destructive. The positive aspects of conflicts such as overcoming weaknesses and generation of innovative ideas are ignored.
Managers began thinking in terms of group processes and group rewards to supplement their former concentration on the individual worker. The study of human behaviour and human interactions has assumed much significance as a result of this approach.
No doubt, this approach has provided many new ideas in managing the organisation, but this is not free from certain limitations – Human relations approach cannot be treated as complete package to deal with human being effectively, because no attempt had been made for studying and analyzing human behaviour systematically and scientifically.
The human relations approach undermines the role of economic incentives in motivation and gives excessive stress on social and psychological factors. In actual practice, financial incentive plays a crucial rule to motivate employers. The human relations approach presented a negative view of conflict between organisational and individual goals.
It views these conflicts as destructive. The positive aspects of conflicts such as overcoming weaknesses and generation of innovative ideas are ignored. The human relation drew conclusions from Hawthorne experiments which were clinical based, rather than scientific.
The experiments focused on a particular group chosen for study which did not represent the entire work force. The human relations approach did not give adequate focus on work. It puts all the emphasis on interpersonal relations and on the informal group. It tends to overemphasize the socio-psychological aspects at the cost of structural and technical aspects.
The human relations approach over emphasized on group Dynamics. But in actual practice, group and group norms, in formal process exercise a light influence in organisation functioning.
Mayo and his colleagues pioneered the use of the scientific method in their studies of people in the work environment. Later researchers were more rigorously trained in the social sciences (psychology, sociology, and anthropology) and used more sophisticated research methods.
Thus, these later researchers became known as ‘behavioural scientists’. Several sociologists and psychologists, e.g., A.H. Maslow, Douglas McGregor, Argyris, F. Herzberg, Rensis Likert and J.G. Likert, Kurt Lewin, Keith Davis and others have made significant contributions to the development of this approach.
Under Behavioural Science Approach, the knowledge was drawn from behavioural sciences. It focuses on human behaviour in organizations and seeks to promote verifiable propositions for scientific understanding of human behaviour in organisation behaviour and stresses the development of human beings for the benefit of both the individual and the organization.
It is broad based and consisted of multiple concepts such as motivation, leadership, communication, group Dynamics, job redesign, organizational change and development, impact of technology on jobs, etc. It highlights the group and group relationships broadly which is the focus point of this theory to judge the group behaviour in the organisation.
The main propositions of this approach are as follows:
1. Behavioural Science Approach is an inter-disciplinary approach and integrates the knowledge drawn from different disciplines for the study of human behaviour.
2. This approach advocates that an organisation is a socio-technical system which consists of individuals and their interpersonal and social relationship with each other, and another side it consists of various techniques, methods and procedures used by them for performing jobs.
3. Behavioural Approach recognizes individual differences in terms of their personality, goals, beliefs, values and perception. Therefore, these matters are important for the organisation in case of motivation.
4. Behavioural Approach recognizes goal conflicts in the organisation and suggests reconciliation of the goals of the individuals and the organisation for the effectiveness and efficiency of the organisation.
5. This approach emphasized on informal group which exercise a significant influence on the attitudes, behaviour and performance of employees.
6. Behavioural Science approach stressed upon groups, group behaviour and group dynamics. Workers have their own informal groups and they have their own norms, cultures and communication system.
This is broad based and consists of multiple concepts such as motivation, leadership, communication, change and development, group dynamics, jobs redesign, etc. Behavioural approach provided a new insight to human behaviour. It integrates the different knowledge of different fields for the scientific study of human behaviour for the benefits of both the individual and the organisation.
These scholars and others have shown how human beings bring to their task aspects of behaviour which the effective manager should profitably understand. After all, it is individuals and groups with which a manager is concerned and while organizational roles are designed to accomplish group purposes, these roles must be filled by people.
The behavioural school has drawn heavily on the work of Maslow. His development of a need hierarchy to explain human behaviour and the dynamics of motivation process is an important contribution.
Douglas McGregor built on Maslow’s work in explaining his ‘Theory X’ and ‘Theory Y’. Frederick Herzberg developed a two-factor theory of motivation. He made a distinction between the factors which either cause or prevent job dissatisfaction (hygiene factors), and those factors which actually lead to motivation (motivational factors).
In the area of leadership, Robert Blake and Jane Mouton developed and popularized the ‘Managerial Grid’, Rensis Likert has identified and extensively researched four Management Systems which include –
System 1 – Authoritative
System 2 – Benevolent Authoritative
System 3 – Consultative;
System 4 – Group Participative.
Each system characterizes an organizational climate by employing several key dimensions of effectiveness such as communication, motivation, leadership and others.
To sum up, the behavioural sciences approach gives emphasis on increasing productivity through motivation and leadership. The central core of this approach lies in the following aspects of human behaviour, motivation, leadership, communication, participative management and group dynamics. The behavioural sciences have provided managers with a systematic understanding of one of the most critical factors in the process of management — the human element.
Insights evolving from that understanding have been used to design work situations that encourage increased productivity. It has enabled organizations to formulate programmes to more efficiently train workers and managers, and it has effects in numerous other areas of practical significance.
Appraisal of Behavioural Science Approach:
The study of human behaviour is of great significance in management. Since an individual is a product of social system, his behaviour is not determined by organizational forces alone, but many forces like perception, attitudes, habits, arid socio-cultural environment also shape his behaviour.
Therefore, in understanding human behaviour in the organisation, all these factors must be taken into account. The behavioural approach suggests how the knowledge of human behaviour can be used in making people more effective in the organisation.
Behaviourists have enriched management theory through their contributions in the areas of group dynamics, motivation communication and leadership. However, they have failed in developing an integrated theory of management.
Although study of human behaviour in organisations is extremely important yet management cannot be confined only to this area. There are other variables such as technology and environment which have an important bearing on the effectiveness of an organisation.
The behavioural sciences have not achieved the precision of the physical sciences. Often the complexities of the human factor and the organisational setting make exact predictions impossible. It is not uncommon for programmes based on sound behavioural principles to have unexpected results.
It should also be noted that the findings of behavioural science research are tentative and require further investigation. They should not be treated as applicable to all situations. Behavioural guidelines can be helpful and profitable, but care must be taken not to accept them as being completely valid and applicable to all situations.
Recent development took place in management theories after 1930. It was perhaps Chester I. Barnard, who in 1938 provided a comprehensive explanation of the modern view of management and organization. He considered the individual, organisation suppliers and customers as a part of the environment. Ten years later Norbert Weiner’s 21 pioneering work on cybernetics developed concepts of systems controlled by information feedback.
It is important to note that with the passage of time, the viewpoints have been changed or modified. Each major contributor brought new knowledge, awareness, tools and techniques to understand the organization better. In modern era, we are richer than even before in terms of our knowledge about approaches to understand organisations better.
The modern approach includes the following view points:
(i) Quantitative Approach,
(ii) Systems Approach, and
(iii) Contingency Approach.
The details of these theories are discussed below:
The approach gained the prominence after the world war II, when British formed the operational research team-group of mathematicians, physicists and other scientists who were brought together to solve problems and operations.
These groups were expected to develop optimal decisions about deployment of military resources. This approach is also known as ‘Management Science Approach, Mathematical Approach, Decision Theory Approach or Operations Research.’
It is based on the approach of scientific management. It offers a systematic and scientific analysis and solutions to the problems faced by managers. Today management Science Approach solving a problem begins when a mixed team of specialists from relevant disciplines is called to analyses the problems and propose a course of action to management.
The team constructs a mathematical model to simulate the problem. The model, shows in symbolic terms, all the relevant factors that bear on the problem and how they are interrelated.
Eventually, management science team presents management with a rational basis for making a decision. The techniques commonly used for solving mathematical problems in decision-making are Linear programming, critical path method, PERT, Games Theory, Queuing theory, Break Even Analysis, etc. Simply, operation Research is regarded as the application of scientific methods and mathematical models for solving problems.
The basic postulates of Operation Research Method are as:
(a) Management is regarded as a problem-solving mechanism with the help of mathematical tools and techniques.
(b) Management problems can be described in quantitative or mathematical symbols, data and relationship.
(c) The different variables in management can be quantified and related to equation which can be solved.
(d) It covers decision making, system analysis, and some aspect of human behaviour.
(e) The team uses the basic mathematical models; operation research mathematical tools, simulation, games theory, PERT, CPM to solve the problems.
Over the years, a large number of quantitative techniques and operation research have been developed. The major contributors included in this school are Newman, Charles Hitch, Russell Ackoff, Robert Schlaifer, Herbert Simon, James March, R.M. Cyert and W.C. Churchman. The techniques of management science are a well-established part of the problem solving armory of most large organizations.
Management Science techniques are used in such activities as capital budgeting and cash flow management, production, scheduling, development of product strategies, planning for human resource development, optimum inventory levels, etc.
The development of techniques has contributed significantly in developing orderly thinking in management and the study of various problems and talking optimum or best solutions to the problem. It provides a rational basis of decision making. It has been used as a planning and controlling tool in management.
Quantitative Approach suffers from the limitations in spite of widespread use of many problems:
(a) This approach is focused on decision-making and ignored other functions of management.
(b) Management Science Approach is too complicated for ready understanding the concept and language of the problem and implementation.
(c) Management Scientists feel that they have not achieved their full potential for solving management problems because of their remoteness from and lack of awareness of the problem and constraints actually faced by managers.
(d) It does not consider the human element in the organisation.
(e) The approach is based on unrealistic assumptions, e.g., all related variables are measurable and have a functional relationship.
On the whole, due to these constraints, the quantitative approach has very limited application that only in respect of decision-making and problem-solving.
In the nineteenth century, modern theories of organization and management have been developed. The perspective here is to provide a systems view point. In 1951, Weiner’s pioneering work on cybernetics developed concepts of systems control by information feedback.
He described on adaptive system as mainly dependent upon measurement and correctional through feedback. Later, Ludwig Von, Hempel, Bass and Hans Joans 22 and Keneth E. Boulding 23 evolved the General System Theory (GST). Significant contributions have been made by A.K. Rice, E.L. Trist, D.S. Pough, Robert Katz/Kahn in systems approach.
The Systems Approach to management attempts to view the organisation as a unified, purposeful system composed of interrelated parts. The system Approach gives managers a way of looking at an organisation as a whole and as a part of the larger environment. System Theory tells us that the activity of any part of an organisation affects the activity of every other part. It is an-integrating approach which considers the management in its totality.
A system is defined as the assemblage of things connected or independent, so as to form a complex unity, a whole composed of parts in orderly arrangement according to plan. This has been defined as ‘an organized of complex whole’, an assemblage or combination of things or parts forming a complex unitary whole.
The world is considered to be a system in which various national economy are sub-systems. In turn, each national economy is composed of its various industry, each industries is composed of firms, and of course, each firms is composed of various components such as production, finance, marketing, etc.
Thus, each system consists of several such systems and, in turn, each subsystem further is composed of various components or sub-units; which are interrelated or interdependent each other.
The main elements of Systems Approach are as:
(a) An organization is a unified and integrative system consisting of several interrelated and interdependent parts. It gives a manager a way of looking at the organization as a whole.
(b) A system is considered an open system because it interacts with the environment. All organizations interact with their environment. It gets various resources from the environment and transforms them into outputs desired by the environment.
(c) The parts that make-up the whole of a system are called sub-systems. And each system in turn may be a sub-system of a still larger whole. All these sub-systems are functionally interacting and interdependent.
(d) Each system has a boundary that separates it from its environment. The boundaries are more flexible in an open environment. It maintains the clear and proper relationship between the system and its environment.
The system boundary is rigid in closed system. The boundary of a system classifies it into two parts – (a) open system, (b) closed system.
(e) Management as a system is dynamic which suggests-that equilibrium in the organisation always changing. The survival and growth in a dynamic environment demands an adaptive system which can continuously adjust to changing environment. Management tends to bring changes in the sub-systems of the organisation to cope up with the environmental challenges.
(f) Systems Approach follows the law of synergy. Synergy means that the whole is greater than the sum of its parts. In organizational terms, it means that as separate departments within an organisation cooperate and interact, they become more productive than if each had acted in isolation. The parts of a system become more productive when they interact with each other.
(g) Feedback is the key to system controls. As operation of the system proceeds, information is fed back to the appropriate people or perhaps to a computer so that the work can be assessed and, if necessary, corrected.
(h) Management as a discipline draws and integrates knowledge from various disciplines and schools of thought, like psychology, sociology, anthropology, mathematics, operation research, and so on.
Evaluation of System Theory:
System theory calls attention to the dynamic and interrelated nature of organisations and the management task. Thus, systems theory provides, understand unanticipated consequences as they may develop. System is a framework within which we can plan actions and anticipate both immediate and far-reaching consequences and at the same time, it allows us to understand unanticipated consequences as they may develop.
With a system perspective, generally managers can more easily maintain a balance between the needs of the various parts of the enterprise and the needs and goals of the firm as a whole.
One of the implications of this approach is the integration of various factors affecting management. The systems Approach forces the management to think out in a new and different way.
Lastly, systems approach facilitates better understanding of willingness in complex environment, that is, the system within which managers make decisions can be provided a more explicit framework, and such decision-making should be easier to handle.
Inspite these significant points, the systems approach is not free form limitations:
(a) The systems approach cannot be considered a unified theory of organisation. This is in no way a unified body of thought. Systems approach fails to take a comprehensive study to analyze the organisations from different angles.
(b) The systems approach has failed to specify the nature of interactions and inter dependencies between an organisation and its external environment.
(c) The systems approach has failed to spell out the precise relationship between various subsystems.
(d) The systems approach does not provide action framework applicable to all types of organisations.
(e) The systems approach does not offer any tools or techniques for analysis and synthesis of the system and environment.
Contingency Approach shares a common ancestry with socio-technical system theories. The latest approach of management which integrates the various approaches is known as ‘contingency’ or ‘situational’ approach. Charles Kindleberger specified upon what it depends, and in what ways. It depends is an appropriate response to the important questions in management.
Management theory attempts to determine the predictable relationships between situation, actions, and outcomes. It focuses on the interdependence of the various factors involved in managerial situation. The early beginnings can be found in the studies of Burns and Stalker in 1950 which examines what happens to the behaviour of organisation members as a consequence of technological changes.
Joan Woodward analyzed the influence of technology on organisation structure. She found that span of control; interpersonal relationships, participation and other structural aspects differed to technology used.
Lawrence and Lorsch (1967) attempted to explain the internal states and processes in an organisation according to their external environment. Jay Galbraith revealed that the amount of information required by an organization depend on the level of uncertainties, interdependence and adaptation mechanisms.
Tom Bums, G.W. Stalker. Joan Woodward, James Thompson, Paul Lawrence, Jay Galbraith and other pioneers made significant contribution to the contingency theory.
The contingency approach was developed by managers, consultants, and researches who tried to apply the concepts of the major schools to read-life situations. They found that methods that were effective in one situation would not work in other situations
According to contingency approach, then, the task of managers is to identify which technique will in a particular situation under particular circumstances, and at a particular time, best contribute to the attainment of management goals. The basic theme of the contingency approach is that there is no single best way of managing application in all situations. The application of management principles and practices should be contingent upon the existing circumstances.
Functional, behavioural, quantitative and systems tool of management should be applied situational. Management should deal with different situations in different ways. There cannot be a particular management action or design which will be appropriate for all situations.
Contingency Approach is based on generalizations of ‘if’ and ‘then’. ‘If’ represents environmental variables which are interdependent. ‘Then’ represent management variables which are dependent on the environment.
The system approach emphasizes the interrelationships between parts of an organization. The contingency approach builds upon this perspective by focusing in detail on the nature of relationships existing between these parts.
It seeks to define those factors that are crucial to a specific task or issue and to clarify the functional interactions between related factors. This approach is a long-sought synthesis that brings together the best of all segments of what Harold Koontz has called the “Management Theory Jungle.”
The main features of contingency approach are as:
(a) The contingency approach stresses that there is no one best style of leadership which will suit every situation. The effectiveness of leadership style varies from situation to situation. Therefore, according to this approach, management is entirely situational.
(b) Contingency Approach is action-oriented as it is directed towards the application of systems concepts and the knowledge gained from other approaches. The contingency approach builds upon this perspective by following in detail on the nature of relationships existing between these parts.
(c) Contingency theory attempts to determine the predictable relationships between situations, actions and outcomes.
(d) Management should match or ‘fit’ its approach to the requirements of the particular situation. Management has to exercise the action subject to environmental changes.
(e) Contingency approach provides significant contribution in organisational design. It suggests that no organizational design can be suitable for all situations, rather, the suitable design is one determined, keeping in view the requirements of environment, technology, risk and people. Contingency approach is useful orientation in management.
It emphasizes the multivariate nature of organisations and attempts to understand how organizations operate under varying conditions in specific circumstances. This theory suggests organization design and actions which are most appropriate for specific situation.
The primacy of contingency approach is challenged by several theorists. They argue, for one thing, that the contingency approach does not incorporate all the aspects of systems theory, and they hold that it has not yet developed to the point of which it can be considered a true theory.
Critics also argue that there is really not much that is new about contingency approach. For example, even the classical theorists such as Fayol cautioned that management principles must be flexible.
The contingency approach is also criticized on the ground that it is totally a practical approach without being supported by required theoretical and conceptual framework. The managers experience difficulty in analyzing situations in the absence of needed research devices and generalizations for understanding behaviour of the situation. Some of the classical theorists forgot the pragmatic cautions of Fayol and others. Instead, they tried to come up with “universal principles” that could be applied without the “it depends” dimension.
Managers applied the absolute principles by these theorists. Lastly, the consideration of environmental factors is necessary to develop an organizational design and action. But, managers are certainly unaware of the environmental changes and could not analyze the environmental factors properly.
The theme of contingency approach that management must be aware of the complexity and trying to determine what would work best in a particular situation in the absence of certain methods, models and techniques that are relevant to appraise situation.
Neo-Classical Theory of Management – Human Relations Perspective, Behavioural Science Perspective and Social System School
The Neo-Classical Theory – covered two streams dealing with human factor, viz.:
(a) Human Relations; and
(b) Behavioural Sciences Approach.
E. Mayo and Roethlisberger pioneered human relations movement around 1930 and go Maslow McGregor and others launched behavioural sciences movement around 1940, i.e., Refinement of human relations movement.
Neo-classical theory is called human relations and behavioural science approach. It is built on the base of classical theory. It modified, improved and extended the classical theory. Classical theory concentrated on job content and management of physical resources. Neo-classical theory gave greater emphasis to man behind the machine and stressed the importance of individual as well as group relationship in the plant or workplace.
The neoclassical theory has been divided under three heads:
1. Human Relations Perspective;
2. Behavioural Science Perspective; and
3. Social System School.
Barnard highlighted the importance of ‘group philosophy’ making a transition away from the individualistic concern of structural thought towards the group concept necessary for contemporary human relations approach to management.
The behavioural science approach to management is the core of the new classical theory. It pointed out the role of psychology and sociology in the understanding of individual as well as group behaviour in an organisation. It advocated the importance of human values in business.
Hawthorne Studies – Elton Mayo and Fritz J. Roethlisberger at the Harvard Business School conducted Hawthorne studies in the Hawthorne plant of Western Electric Company in the U.S.A. between 1927 and 1932. They were the pioneers of human relations approach.
Mayo and his associates applied for the first time psychological approach to management. They adopted clinical and diagnostic methods. Earlier from 1924 to 1927, the National Research Council made a study in collaboration with the Western Electric Company to determine the effect of illumination and other conditions upon workers and their productivity. The initial experiments failed to establish any consistent relationship between output and illumination.
Contrary to normal expectations, output tended to increase as the intensity of lighting varied from the normal level both in the upward and downward directions. As the intensity of light was increased or decreased the productivity of the workers under observation keep on increasing.
It is at this stage that Mayo and Roethlisberger took over the investigation and continued the research to find out the real factors, i.e., factors other than working conditions which were influencing output. The study originally started with five workers and was ultimately extended to cover more than twenty thousand workers.
Hawthorne studies can be divided into four stages:
i. The First Stage – Deals with an experiment on working conditions and employee efficiency.
ii. In Second Stage – The experiment was concerned with an interviewing programme designed to determine what aspects of the environment employees either liked to disliked.
iii. During the Third Stage – The collected interview results were studied and analysed and a theory was presented to explain the nature of employee satisfaction or dissatisfaction.
iv. The Fourth Stage – Involved supplementing the interview method through direct observation.
The researchers general conclusion was that non-logical behaviour or ‘sentiments’ among the workers must be considered along with economic and logical factors as influencing the work group. It can be emphasised that the Hawthorne studies revealed the importance of social and psychological factors in determining worker’s productivity and satisfaction.
From the Hawthorne studies the following principles can be drawn:
(a) The workers in a group develop a common psychological on uniting them as a group in the form of informal organisation. This influences their group conduct and behaviour.
(b) Mental attitudes and emotions including prejudices influence employee’s behaviour considerably.
(c) Management must understand that a typical group behaviour can dominate or even supersede individual propensities and predilections.
(d) Human and social motivation can play even a greater role than mere monetary incentives in moving or motivating and managing employee’s groups.
Mayo has stated that an organisation is a social system. Knowledge of human nature can solve many problems of management. He has emphasised that successful human relations approach can easily create harmony in an organisation, higher employee satisfaction and, therefore higher operational efficiency.
Productivity is influenced by plant efficiency, work environments, managerial style, job contents, man-machine etc. Till 1950 human relations movement was in full swing and in full operation.
But after 1950, management thought has been turning somewhat away from the extreme human relation’s ideas, particularly regarding direct relation between morale and productivity. Modern management thought wants equal emphasis on man and machine and we can evolve appropriate man-machine system to secure both goals i.e. productivity and satisfaction for all interested persons.
The behavioural science school of management thought started after 1940 and it gave special attention on understanding individuals and their inter-personal relations. A.H. Maslow developed a need hierarchy to explain human behaviour within an organisation. Psychologists brought into limelight many aspects of rational behaviour, the sources of motivation and the nature of leadership.
The behavioural sciences have provided modern management with a more objective, systematic and scientific understanding of one of the most puzzling and critical factors in the process of management – “the man or the women behind the machine.” An organisation based on the human element is essentially a social system and not merely techno-economic system.
The knowledge of individual and group behaviour enables us to develop suitable work atmosphere or situations which an increase productivity as well as employee satisfaction. We can prepare training programmes for workers and managers with the help of behavioural sciences.
F. Herzberg and V. Vroom proposed and propounded motivational models explaining the causes of human behaviour and motivation in business.
D. McGregor explained certain basic assumptions about the human element and put forward two managerial styles, viz:
(a) Theory X-representing classical views of management and organisation; and
(b) Theory Y-representing neo-classical or modern views of management and organisation.
Sociologists and psychologists have contributed a lot during the last forty five years to behavioural science school of management thought. These contributions in the field of human resource development have influenced remarkably the concepts of organisation and management. Management has now recognised the need for integrating employee interests with those of the organisation.
There are three elements of neo-classical theory:
i. The individual
ii. Work Groups (Informal Organisations); and
iii. Participative Management.
i. The Individual:
The Neo-classical theory emphasised that individual differences must be recognised. An individual has feelings, emotions, perception and attitudes, he has ever changing psychology. Each person has got his own merit. Each is to bring to the job situation certain attitudes, beliefs and ways of life, as well as skills, technical, social and logical. Each person has certain hopes, aspirations and expectations.
Each individual has certain meaning of his job, his supervision, working conditions, his group etc. The inner world of the workers, which was completely ignored by the classical theory is more important than the external reality in the determination of productivity. Thus, inter-personal relations at work determine the rise or fall in productivity.
ii. Work Groups or Informal Organisations:
Workers are not isolated or unrelated individuals; they are social beings and should be treated as such, by the management. The existence of informal organisation is natural. It cannot be denied. On the otherhand, management must recognise its importance and it must be integrated with formal organisation.
The neo-classical theory described the vital effects of group psychology and behaviour on motivation and productivity. Each work group has its own leader, unwritten constitution and its own production standard imposed by social sanctions on the group members. Classical theory ignored the importance of informal organisation. Human relations brought out its importance.
iii. Participative Management:
Neo-classical writers advocated worker participation in management. Allowing labour to participate in decision-making primarily to increase productivity was a new form of supervision. Taylorsim was opposed to such participation. Taylor wanted only experts in job analysis and planning of job operations. Modern management now welcomes worker’s participation in planning job contents and job operations.
Classical theory was job-oriented and it focused its attention on scientific job analysis. Neo-classical theory focuses its attention on the worker and it is employee-oriented. Now we have a shift in managerial style from product-centred approach to employee and group- centred approach. Worker is the centre in a modern plant. Plant layout, machinery, tools etc., must offer employee convenience and facilities. Neo-classical theory is built upon the success of classical theory.
Behavioural scientists have clearly pointed out that job conditions and the job itself are the motivations that can satisfy the needs of both employees and the organisation. These motivations are challenging job, independence, recognition, participation achievement, enlargement and enrichment of the job itself.
Advocates of human relations and behavioural science approach to management:
(a) Organisation as a Social System – The business organisation is not a techno- economic system. Basically it is a social system.
(b) Motivation to Employee through the Media of Non-monetary Incentives -The employee can also be motivated by many social and psychological wants and not solely by economic incentives because his behaviour is also influenced by feelings, emotions and attitudes. Logical factors like more money are less important than emotional factors in determining production efficiency.
(c) Democratic Leadership – Democratic rather than authoritarian leadership is essential in order to honour psychosocial demands. It will be always beneficial if management will learn to develop co-operative attitudes and not to rely merely on command. It has been observed that matured employees dislike command.
(d) Two-way Communication – Effective two-way communication network is essential to establish common flow of understanding in any organisation and then only organisation can attain its goals. Therefore, participation becomes an important instrument under neo-classical approach.
(e) Employee Development – Management must take proper interest in employee development and worker’s satisfaction as there is a very close connection between morale and productivity. In other words productivity and satisfaction go together hand-in hand in any business.
(f) Group Psychology and Attitudes – Informal group and informal organisation must be recognised. Group psychology plays an important role in any enterprise. We must rely more on group efforts. Team work is the key to productivity. Management is always responsible for team work.
(g) Human Importance in Man-machine System – It is very essential that management must develop social skills in addition to technical skills. The neo-classical theory tried to solve the man-machine equation by emphasising that man is a living machine and he is far more important than the inanimate machine. Therefore, key to higher productivity lies not in technical development alone but in actual practice, it lies in the employee’s morale. When morale is high, output is also high. Man to man relationships, team spirit and group harmony should be given top preference by management.
Job structure and job design should receive secondary importance. Therefore, motivation, communication and co-ordination function of management should receive more importance than the techniques of planning and control.
The founder father of social system school is Chester I. Barnard who has studied the inter-relationship within the organisation. His definition of formal organisation is regarded to be a major contribution in the field of management. His publication “The Functions of the Executive” (1938) is a highly significant work in which he has visualised the concept of cooperative system. He started with the individual, moved to co-operative organised endeavour and ended with the executive functions.
The social system school of management thought is closely related to the behaviour school of management. “This includes those researchers who look upon management as a social system, that is, a system of cultural inter-relationships. Sometimes, as in the case of March and Simon, the system is limited to formal organisation, using the term ‘organisation’ as equivalent to enterprise rather than the authority-activity concept used most often in management. In other cases, the approach is not to distinguish the formal organisation but rather to encompass any kind of system of human relationship”.
The other exponents of this school of thought are Maslow, Argyris, March and Simon, Herzberg and Likert. Their opinion has given rise to this school of thought.
The main focus of this approach is to study different aspects of social systems. In this, organisation is essentially a cultural system composed of groups of people who work in cooperation.
For achieving the goals of the organisation a co-operative system of management can be developed only by understanding the social behaviour of groups and individuals. In other words, an organisation as a social system is affected by the cultural environment and different types of pressures.
This supporters of this school advocate that efforts should be directed towards establishing harmony between the goals of the organisation and goals of the groups and the individual members.
Neo-Classical Theory of Management – Hawthorne Experiment, Human Relations Movement and Behavioural Sciences Movement (With Elements of Neo-Classical Theory)
Neo-Classical theory is called human relations and behavioural science movement. It is built on the base of classical theory. It modified, improved and extended the classical theory. Classical theory concentrated on job content and -management of physical resources.
Neo-Classical theory gave greater emphasis to man behind the machine and stressed the importance of individual as well as group relationships in the plant or workplace. The behavioural science approach to management is the core of the new classical theory. It pointed out the role of psychology and sociology in the understanding of individual as well as group behaviour in an organisation. It advocated the importance of human values in business.
Elton Mayo and his associates conducted Hawthorne studies in the Hawthorne plant of Western Electric Company in the U.S.A. between 1927 and 1932. They were the pioneer human relationists. Mayo and his associates applied for the first time psychological approach to management. They adopted clinical and diagnostic methods.
They formulated certain behavioural principles on the basis of the Hawthorne Studies:
1. The workers in a group develop a common psychological bond uniting them as a group in the form of informal organisation. This influences their group conduct and behaviour.
2. Mental attitudes and emotions, including prejudices influence considerably employee’s behaviour.
3. Management must understand that a typical group behaviour can dominate or even supersede individual propensities and predilections.
4. Human and social motivation can play even a greater role than mere monetary incentives in moving or motivating and managing employee groups.
Mayo pointed out that an organisation is a social system. Informal organisation is a reality. Effective management involves leading persons, not merely manipulating robots. Knowledge of human nature can solve many problems of management. He stressed that successful human relations approach can easily create harmony in an organisation, higher employee satisfaction and, therefore, greater operational efficiency.
2. Human Relations Movement:
Elion Mayo and his associates conducted Hawthorne studies in the Hawthorne plant of Western Electric Company in the U.S.A., between 1927 and 1932. They were the pioneer human relationists. They pointed out that workers were not simply ‘cogs in the machinery.’ Instead, the employee morale both individually and in groups could have profound effects on productivity.
Managers should adopt a more ‘people-oriented’ approach to management. Management should recognise that people are essentially social beings and not merely economic beings. As social beings, they are members of a group and management should understand the group attitudes and group psychology also in determining solutions to management problems.
Human relationists made very significant contributions to management thought by bringing into limelight human and social factors in organisations. But these concepts were carried beyond an appropriate limit. Later on, it was proved that there is no direct and deep connection between morale and productivity. Morale is an elusive quality and it is not a very meaningful concept of management thought.
There are many other factors which influence productivity directly. Productivity is influenced by plant efficiency, work environments managerial style, job contents, man-machine system, financial resources, marketing efficiency, materials movement, etc. Till 1950, human relations movement was in full operation.
But after 1950, management thought has been turning somewhat away from the extreme human relations ideas, particularly regarding direct relation between morale and productivity. Modern management thought wants equal emphasis on man and machine and we can evolve appropriate man-machine system to secure both goals, i.e. productivity and satisfaction for all interested parties.
3. Behavioural Sciences Movement:
Initial human relations studies tended to concentrate on employee satisfaction and morale implying thereby direct connection between morale and productivity. Later on behavioural science approach through its objective and scientific research of individual behaviour and motivation indicated that relationship between morale and productivity was oversimplified.
Behavioural science movement was a further refinement of human relations movement and it covered much wider scope in interpersonal roles and relationships. Earlier human relations experts were referred as cow sociologists. Contented workers were considered productive workers just as contented cows would give more milk.
The behavioural science school of management thought started after 1940 and it gave special attention on understanding individuals and their interpersonal relations. A. Maslow developed a need hierarchy to explain human behaviour within an organisation.
Psychologists brought into limelight many aspects of rational behaviour, the sources of motivation and the nature of leadership. F. Herzberg and V. Vroom proposed motivational models explaning the causes of human behaviour and motivation in business.
D. McGregor explained certain basic assumptions about the human element and put forward two managerial styles, viz., Theory X representing classical views of management and organisation, and Theory Y representing neo-classical or modern views of management and organisation.
Sociologists and psychologists during the last forty years have contributed a lot to behavioural science school of management thought. These contributions in the field of human resource development have influenced remarkably the concepts of organisation and management. Management has now recognised the need for integrating employee interests with those of the organisation.
The behavioural sciences have provided modern management with a more objective, systematic and scientific understanding of one of the most puzzling and critical factors in the process of management the man or the woman behind the machine. An organisation based on the human element is essentially a social system and not merely techno-economic system.
The knowledge of individual and group behaviour enables us to develop suitable work atmosphere or situations which can increase productivity as well as employee satisfaction. We, can build up training programmes for workers and managers with the help of behavioural sciences.
Human relations, together with the behavioural sciences constitute the neo-classical theory of management which opened the door for deliberate shift from bureaucratic to participative and democratic leadership or managerial style.
The classical theory reflected almost all the aspects of Theory X, whereas the neo-classical theory of management reflected almost all the facets of Theory Y. Maslow. Munsterberg Mayo, Roethisberger, Herzberg, Whitehead, are the leading proponents of the neo-classical theory.
Elements of Neoclassical Theory:
There are three elements of neoclassical theory:
(1) The Individual:
The classical theory ignored the differences among the individuals. The neoclassical theory emphasised that individual differences must be recognised. An individual has feelings, emotions, perception and attitudes; he has ever-changing psychology. Each person is unique.
Each is bringing to the job situation certain attitudes, beliefs and ways of life, as well as skills, technical, social and logical. Each person has certain hopes, aspirations and expectations. Each individual has certain meaning of his job, his supervision, working conditions, his group, etc.
The inner world of the workers (ignored by the classical theory) is more important than the external reality in the determination of productivity. Thus, inter-personal relations at work determine the rise or fall in productivity. Of course, physical and economic conditions must be satisfactory. Ease of work (Physical and mental ease) gives speed of work. Unidimensional economic model of motivation is firmly discounted.
Instead, human relationists advocate the adoption of multidimensional model of motivation which is based upon economic, individual and social factors. Hence, the package deal of motivation includes financial and non-financial incentives in the right proportion.
(2) Work Groups (Informal Organisations):
An individual in a group develops social wants, e.g., a desire to belong, to be accepted by, and stand well in his work group. Workers are not isolated, unrelated individuals; they are social beings and should be treated as such, by management. The existence of informal organisation is natural. It cannot be denied.
On the other hand, management must recognise its importance and it must be integrated with formal organisation. The informal communication (the grapevine) is often very speedy and often accurate. It cannot be eliminated. The neoclassical theory described the vital effects of group psychology and behaviour on motivation and productivity.
Each work group has its own leader, unwritten constitution and its own production standard imposed by social sanctions on the group members. Classical theory ignored the importance of informal organisation. Human relations brought out its importance.
(3) Participative Management:
The emergence of participative management is inevitable when emphasis is given on the individual and work groups. Neo-classical writers advocated worker participation in management. Allowing labour to participate in decision making primarily to increase productivity was a new form of supervision.
Taylorism was opposed to such participation. Taylor wanted only experts in job analysis and planning of job operations. Modern management now welcomes workers participation in planning job contents and job operations.
Classical theory was job oriented and it focused its attention on scientific job analysis. Neoclassical theory focusses its evolution of management thought attention on the worker and it is employee-oriented. Now we have a shift in managerial style from product-centred approach to employee and group-centred approach. Worker is the centre in a modern plant.
Plant layout, machinery, tools etc., must offer employee convenience and facilities. Neoclassical theory is built upon the success of classical theory. The pillars of classical approach – order, rationality, structure etc., have been modified by the neoclassical movement. Classical approach satisfied the basic economic needs of the organisation and society.
Now neo-classical approach is trying to satisfy personal security, and social needs of workers. Both approaches must be suitably integrated to emphasise the need not only for recognition of human values but also for recognition of productivity simultaneously. Modern management must have the twin primary objectives viz., Productivity (classical approach) and satisfaction (neo-classical approach).
Neo-Classical Theory of Management (With Features)
Neo-classical approach may be analysed in three parts, namely — Hawthorne Experiment, Human Relation Movement and Behavioural Approach. The main basis of this approach is ‘man is truly above all’. Human beings are considered more important than physical resources (i.e. materials and machines etc.). The exponents view that human behaviour car be analysed and this is generally guided by cause and effect principles.
There are certain variables behind human behaviour such as emotions, feelings, motivation, aim, aspirations and desires etc. As such, if proper attention is given to the expectations, desires and grievances of the workers or if their attitude can be visualized and understood, the efforts of management will be more fruitful.
The neo-classical theory emphasises that a worker brings both his person and personality to the workplace, and both these aspects must be taken into consideration while managing the organisation. The main function of management is to get things done by others. So if human behaviour of the workers is not properly understood, it will be impossible for the management to get work done by them.
The classical approach lays emphasis on the details of work to be done and the management of physical resources, while neo-classical approach focuses its attention on human elements and on the importance of individuals and group relations of human beings at work. The behavioural science approach to management is the core of neo-classical theory.
Main features of neo-classical approach:
The different aspects, which are discussed in this approach, are as follows:
1. The business organisation is not just a techno-economic system. It is basically a social system.
2. The employees cannot be motivated solely by economic incentives, but can also be motivated if their social and psychological wants are satisfied, because human behaviour is influenced by emotions, feelings and attitude. As such, in determining production efficiency, emotional factors play a more important role than monetary factors.
3. There is a close relationship between morale and productivity and therefore management must take greater interest in employees’ development and satisfaction.
4. Democratic leadership is considered to most essential for satisfying the psychological needs of the employees. The management should try to develop cooperative attitude in the organisation and should not merely rely on the techniques of command.
5. For a clear understanding between management and workers, an effective two-way communication network is quite essential. If it is established, the organisation can certainly achieve its goals. An effective communication becomes an important tool for human relation movement.
6. According to this approach, the informal group in an organisation must be recognised. Group psychology plays an important role in any organisation. So, due importance must be given to group efforts.
7. In addition to technical skills, the management must also encourage the development of social skills.
8. Management should give preference to man-to-man relationship, team spirit, group harmony etc.
In brief, the neo-classical approach believes that successful management depends largely on a manager’s ability to understand and work with and through the people who have a variety of cultural backgrounds, perceptions, needs and aspirations. It is a humanistic approach focusing on human relations, group motivation, dynamic leadership and democratization of the power structure through participative management etc.
The classical approach focuses on structure, order, formal organisation, economic factors, work and objective rationally, whereas the neo-classical theory emphasises social and psychological factors existent at work (i.e., the formal needs and emotions).