Top 3 Theories of Formal Organisation

This article throws light upon the top three theories of formal organisation. The theories are: 1. Classical Theory 2. Human and Participative Theories 3. Contingency Theory.

1. Classical Theory:

It focuses on structure, design and features like specialisation, scalar chain, departmentation, span of control, centralisation/decentralisation etc. The structure is created and people are appointed to run the various departments. Human beings and their interaction as part of informal social groups are not considered important.

It considers organisations as closed systems with very little or no interaction with the environmental forces. It emphasises on tasks more than people. Hierarchy of authority, division of work, specialisation, impersonal relations, narrow span of control are the important factors of classical theories of organisation.

It focuses on the following characteristics to design the organisation structure:

1. Organisation structure focuses on division of work to promote performance and efficiency through specialisation. It believes that division of work can increase organisational efficiency. Division of work improves performance. It believes that high degree of specialisation will lead to high efficiency in performance. Work should be broken into smaller units so that it becomes simple and specialised for people to perform. Division of labour should be done for all the tasks at all the levels of the organisation.

2. It advocates functional departmentation where work load is divided into different activities and similar activities are re-grouped as departments. Major functional departments in a manufacturing organisation are production, personnel, finance and marketing. Functional grouping of activities helps in clear identification of work to be performed by various departments.

It avoids overlapping and splitting of activities. There is neither duplication of work nor any activity remains unidentified. Every divided and sub-divided activity is allotted to the specific department. It, thus, promotes departmentation where people can be appointed at various levels to perform the departmental activities.

Functional process also promotes line and staff relationships in the organisation. The major functional departments are the line departments and staff assistance is provided in the form of advisory body to assist the line managers in carrying out the line activities. There is clear demarcation of line and staff authority which smoothens the organisational tasks.

3. It strongly supports hierarchy of relationships or the scalar chain. Unity of control is the basis for coordinating varied activities of organisational members. One subordinate should have one boss is the basis of unity of control. Functional relationships are ignored. People take orders from their seniors in command and issue directions to their subordinates. Final decision-making authority vests at the top.

This creates superior- subordinate relationships in the organisation and promotes coordination amongst levels in different functional areas. It also reduces conflicts as every individual reports to a single superior. Obligation can be defined, and results can be measured.

4. It advocates narrow span of control as the relationships are hierarchical in nature. People are directed to work. They do not assume responsibilities on their own. Formal plans, motivational factors and communication channels are designed to get the subordinates to work. Cross functional and cross-hierarchical relationships promote networking, specialized exchange of knowledge and, thus, a wider span of control. Though narrow span of control promotes coordination and close supervision over activities of the subordinates, wide span can lead to organisational growth.

Main contribution to classical theory has come from Taylor, Fayol, Weber, Oliver Sheldon, Chester Barnard etc. Based on the nature of authority, three types of organisations are defined in the classical theory: Line organisation, Line and Staff organisation and Functional organisation.

Limitations of Classical Theory:

Though classical theory aims to promote discipline in the organisation, it is not a complete theory of managing organisations as focus is more on tasks than people.

The theory is found inadequate on the following grounds:

1. It assumes organisations to be closed systems with little or no interaction with the environment. Modern organisations are open systems that actively interact with the environment. There is constant ‘give and take’ relationship between the organisations and the environment. Organisation structures change with change in environmental variables to meet their stated goals.

2. The factors affecting organisation structure; technology, size, people, strategy, etc. change with changes in internal and external environmental variables and, therefore, it is unrealistic to assume that people can work in organisations which have little interaction with environmental forces.

3. Classical theory assumes all organisations to be designed on similar principles of organising like division of work, specialisation, scalar chain etc. while it is not actually so. Today’s business is based more on networking and knowledge management which cuts across vertical and horizontal boundaries. Depending upon how much an organisation interacts with its counterparts abroad, the structures keep changing every time a new relationship is formed either in terms of adding or deleting an alliance.

4. Classical organisations are based on universality of principles of management which does not apply to modern organisations. Unity of command, for example, does not hold true in the world of specialisation. People are highly specialised today and subordinates receive orders from various specialists like human resources manager, finance manager etc. This gives rise to functional organisation structures which follow principles contrary to those followed in the classical theory.

This theory represents a static form of organisation that does not interact with the environment. In practice, no organisation can ignore the influence of environmental factors. An organisation actively influences and is influenced by the environmental forces. It also ignores the behavioural aspect of organisations as it considers people as resources rather than human beings. Informal groups, social interactions and group thinking are ignored. It is, thus, not considered as an acceptable theory of organisation.

Though this theory has limitations, it has provided a ground work for contemporary organisations to change the principles according to needs of the environment. The theory perhaps developed in times when organisations had little interaction with the environment, employees’ social needs were not strong and, therefore, the focus was more on formal relationships.

2. Human and Participative Theories:

The classical theory of organisation was opposed in 1950’s when behavioural theories emerged on the management scenario. The classical theory was criticised for being highly mechanistic, formal and impersonal. McGregor propounded Theory F which emphasised on human relationships as important contributors to organisational goals.

Hawthorne experiments conducted by Elton Mayo supported social and informal interactions amongst work groups to increase organisational efficiency. The human theories focused on people as means to achieve the tasks.

These theories characterised a shift from task – oriented approach to people – oriented approach. They are comparatively less mechanistic, impersonal and formal than the classical theory. They design organisation structures to suit the needs of people and aim to synthesise individual goals with organisational goals.

Features of the Human and Participative Theories:

Following are the important features of these theories:

(a) People do not wish to be directed. They self-direct and control their activities.

(b) Plans are made in consultation with subordinates. Participative styles of management are adopted.

(c) People not only accept responsibility; they also seek the responsibility.

(d) People use imagination, creativity and innovativeness in performing the organisational tasks.

(e) Both organisational resources and human potentialities are fully utilised.

(f) It improves productivity along with employee satisfaction.

(g) They harmonies individual goals with organisational goals rather than focus only on organisational goals.

(h) They view subordinates as innovative, creative and challenging and, thus, advocate a wide span of control.

(i) Human behaviour is determined by social and psychological factors and not just physiological factors.

(j) People work as a team and not individuals. They look after each others’ needs and also needs of the organisation.

(k) Informal organisations (or groups) co-exist with formal structures.

The human and participative theories, thus, focus on informal interaction amongst members that satisfy their psychological needs. This gives rise to flat, decentralised structure which smoothens the process of communication, decision-making and control. However, it is not free from limitations.

Some of its limitations are as follows:

1. People have different needs and, therefore, are motivated by different factors. This can give rise to conflicting opinions regarding technical and structural aspects of organisational working.

2. Human beings (people) is one of the factors to be considered in designing the organisation structure and not the only factor. This theory, thus, over emphasises on informal relationships in the organisations.

3. Contingency Theory:

Classical and Participative theories are not unrealistic. However, managers may choose a theory which consists of features from both to adapt the organisation to its surrounding environment. A theory is, thus, contingent upon the situation faced by managers.

The contingency theory identifies four factors that affect choice of theory. These are:

1. Nature of people:

People who are lazy, lack responsibility, do not wish to work on their own, prefer to be led and guided, wish to satisfy their lower-order needs only, prefer to be governed by the classical theory of organisations while people who enjoy their work, wish to seek greater responsibility, exercise self-direction and self-control and want to satisfy their higher-order needs prefer participative theory to organising.

2. Type of task and technology:

Classical form of organisation is preferred when goods are produced through mass production technology while participative theory is more suitable where job-order (small scale) or continuous technology is adopted. If organisation is producing goods using different types of technology, it may adopt different structures depending upon the processes used for different parts of the company.

3. The environment:

Organisations differ in structures on account of factors like differentiation, integration and environment for different departments. Differentiation is the different orientation of functional departments and integration is the unity of efforts of different departments in the light of environmental factors, i.e. all factors that lie outside the organisation.

Based on these aspects, production department is normally oriented towards the classical theory and sales and R&D departments prefer participative theory of organisation. Besides, firms which operate in dynamic environment are more flexible in their operations and, therefore, adopt participative theory while firms operating in stable environment work better according to principles of classical organisation.

4. Degree of change and uncertainty:

Change is a continuous phenomenon. Changes in both internal and external environment cause changes in the organisation structures. Change in attitudes, perception and knowledge from simple to complex shifts the organisation structure from classical to participative.

Externally, as society moves from underdevelopment to development, managers become creative, trained and skilled labour is available in abundant supply, the level of education and specialisation increases and, therefore, a shift from classical to participative organisation structure is observed.