Evolution of Organisation Theory - 1 | Commerce & Accountancy Optional Notes for UPSC PDF Download

Classical Theories of Organisation

Classical theories of organization refer to the older theories that originated from the works of influential figures like F.W. Taylor, Max Weber, James Moorey, E.F.L. Beach, and Lois Allen. These theories, developed between 1900 and 1950 AD, had a significant impact and are categorized into three streams: Bureaucracy, Administrative Theory, and Scientific Management. All three streams share similar assumptions and collectively contribute to the concept of organizational structure. Within classical theory, an organization is perceived as a mechanistic structure, encompassing relationships, power dynamics, objectives, roles, activities, and communication.
The components of classical theory collectively define organization as a structured framework where individuals collaborate:

Bureaucracy

• Bureaucracy, devised during the industrial revolution, is a social invention designed to structure and oversee the operations of a firm. It refers to a system where the government is managed by officials, either directly or indirectly. Max Weber (1864-1920) systematically developed the bureaucratic theory, defining it as an ideal type of organization. In this framework, roles, tasks, and relationships within an organization are clearly defined, closely regulated, and controlled in accordance with formal authority. Weber emphasized that bureaucratic structures, characterized by specialization and systematic rules, achieve the highest efficiency and are the most formally rational means of control within an organization. According to him, every organization comprises a structure of activities directed toward specific objectives, employing specialization and rules to enhance efficiency and productivity.
• Weber identified factors contributing to the growth of bureaucracy, including the development of modern organizations and corporations. Despite its inherent drawbacks, bureaucracy is deemed essential for the functioning of complex organizations. Additionally, the expansion of technical knowledge and modern technology plays a crucial role in fostering bureaucratic specialization. Weber also underscored the impact of capitalism, asserting that a stable state and well-organized administration are vital for the proper functioning of a capitalist system. Capitalism, in turn, is considered the most rational economic foundation for bureaucratic administration.

Characteristics of Bureaucracy
The bureaucratic organizational form is characterized by specific structural and behavioral features:

• Division of Labour and Specialization: Bureaucracy relies on specialization through the division of labor, focusing more on job roles than individual capabilities. Clear roles for officials are defined based on the division of work, leading to well-defined job content and organizational goals. This clarity aids in designing the hierarchical structure, involving a specified sphere of competence with defined authority and means of compulsion.
• Hierarchy: Bureaucracy features a clear hierarchy, with distinct separation between superior and subordinate officers. Lower-ranking officers are under the control and supervision of higher-ranking ones. Remuneration is determined by job nature and responsibility grade, and promotions are based on both seniority and merit.
• Rules: Bureaucracy operates according to a consistent system of abstract rules. Emphasized by Weber, rules prevent personal favoritism, arbitrariness, or nepotism from hindering organizational functioning. Personal discretion must be justified by impersonal ends, ensuring objective decision-making.
• Rationality: Weber's ideas on efficiency and rationality align closely with the bureaucratic model. Bureaucracy is considered the most rational means of achieving control over human beings, as it ensures a high degree of efficiency through objectively chosen means toward desired ends. Rationality is enhanced by the reliance on rules, minimizing the impact of personal whims and traditional pressures.
• Impersonality: Decision-making and overall organizational conduct in bureaucracy are characterized by impersonality. There is no room for personal whims, irrational sentiments, or subjective influences. Official activities are conducted in a business-like manner, emphasizing operational impersonality.
• Rule Orientation: Rationality and impersonality are maintained through the formulation of rules and procedures that define official spheres of authority and conduct. Employees are expected to adhere to these rules in the discharge of their duties.
• Neutrality: Bureaucracy upholds the principle of neutrality in decision-making and implementation. It is expected to be politically neutral, committed solely to the work it is designed to perform. The bureaucratic system aims to remain impartial and objective in its orientation.

Criticism of Bureaucracy
Max Weber's normative model, while suitable for any large and complex organization, often faces shortcomings in actual bureaucratic practices. Bureaucracy, deemed a necessary evil in large and complex organizations, is critiqued for various demerits by scholars:

• Rigidity: A rigid bureaucratic structure, while aiming for perfection, can stifle innovation, hindering the adaptability of an evolving organization. Excessive reliance on rules may suppress initiative, leading to organizational obsolescence.
• Impersonality: Bureaucracy emphasizes secondary and contractual relationships, contradicting the desirable primary and personal nature of organizational interactions. Lack of personal involvement can result in lower productivity levels.
• Delegation: Bureaucratic structures often face criticism for concentrating power at higher levels, hindering the delegation of authority and responsibilities. This lack of delegation can lead to unnecessary delays in organizational decision-making.
• Goal Displacement: Strict adherence to rules and regulations may lead to goal displacement, where the focus shifts from achieving goals to following procedures. This adherence, irrespective of goal achievement, can impede organizational effectiveness.
• Strict Categorization: Bureaucracy's emphasis on coordination and specialization relies on strict categorization, which becomes dysfunctional when attempting to categorize an adaptive and ever-changing world. Bureaucracy struggles with the realization that complete categorization is unattainable.
• Self-perpetuation and Empire Building: Bureaucrats may perceive holding office as personal ownership, leading to self-perpetuation tendencies that discourage innovation. Bureaucracies, once fully established, become resistant to destruction even when they have outlived their usefulness. The desire for prestige and pay often drives bureaucrats to increase the number of subordinates, fostering empire building.
• Cost of Controls: The maintenance of numerous rules, regulations, and procedures for conformity in bureaucracy incurs a significant cost. Excessive restrictions and delays imposed by bureaucratic procedures can lead to frustration among individuals within the organization.

Administrative Theory

• Scientific management, initially focused on enhancing individual workers' productivity on the shop floor, overlooked the role of managers and their functions in the overall organization. In the early 20th century, Henri Fayol, the director of a French coal mining company, conducted a systematic analysis of the management process, introducing the Process or Functional Approach.
• Fayol identified six interdependent operations within organizational activities: technical, commercial, financial, security, accounting, and administrative or managerial operations. Unlike previous thinkers, he emphasized the managerial activities and skill requirements, defining the management process as having universal application. Fayol identified five essential elements of the management process: forecasting and planning, organizing, commanding, coordinating, and controlling.
• Management, according to Fayol, involved the application of skills that could be acquired through systematic instruction and training. These skills were seen as applicable across various institutions, including churches, schools, political organizations, and industries.
• In addition to analyzing the management process and functions, Fayol formulated fourteen flexible principles as guidelines for management implementation. These principles were intended to be universally applicable, offering guidance to managers in diverse circumstances. Fayol asserted that the required skills and abilities for effective management varied based on the manager's position within the organization. Administrative skills were deemed more crucial for higher-level managers, while technical abilities were emphasized for lower-level positions. Fayol also highlighted the necessity of formal education and training in management, emphasizing its importance across different walks of life. In summary, Fayol's analysis provides a framework for understanding the management process and offers principles for its implementation.

Let's review the principles proposed by Fayol:

• Division of work
• Authority and Responsibility
• Discipline
• Unity of command
• Unity of Direction
• Subordination of individual interest to general interest
• Remuneration of Personnel
• Centralization
• Scalar Chain
• Order
• Equity
• Stability of Tenure
• Initiative
• Esprit de corps

The Administrative Theory of Management and the Functional Approach to management can be seen as evolving from Fayol's foundational work. Fayol established a conceptual framework for analyzing the management process, isolating and examining management as a distinct and separate activity. His analysis of universally relevant managerial skills and the general management principles significantly contributed to the body of knowledge in management. While some critics labeled it inconsistent, vague, and pro-management, Fayol's contributions have had a lasting impact.

Scientific Management

• The scientific management approach, developed by F.W. Taylor and others between 1890 and 1930, aimed to scientifically determine the most efficient methods for task performance, as well as the selection, training, and motivation of workers. Frederick Winslow Taylor, often considered the father of scientific management, along with contributors like Frank Gilbreth, Lillian Gilbreth, and Henry Gantt, focused on optimizing the utilization of human resources in industrial organizations, particularly at the shop floor level.
• Taylor, an engineer by profession, revolutionized the management system by relying on production line time studies instead of traditional work methods. He conducted detailed analyses of steelworkers' movements on various jobs, breaking down each task into its components. Using time studies as a foundation, Taylor designed the quickest and most effective methods for performing each task, determining the optimal work rate for employees with the available equipment and materials. He encouraged employers to pay more productive workers at a higher rate, establishing what he called the "differential rate system." This system incentivized workers to surpass their previous performance standards to earn higher wages.
• The legacy of scientific management extends beyond industrial settings, as its efficiency techniques have been applied to a wide range of tasks in non-industrial organizations, including fast-food service and surgeon training. Taylor's relentless pursuit of improved efficiency through careful scientific analysis advocated for an inductive, empirical, and detailed study of each job to identify the best way to organize work.
• Taylor's concept of scientific management was fundamentally centered on applying a scientific approach to replace trial-and-error and rule-of-thumb methods in management.
  The key objectives of this new approach included:
  • Developing and using scientific methods to establish work standards, determine a fair day's work, and identify the best ways of performing tasks.
  • Scientifically selecting and placing workers based on their suitability for specific tasks, along with providing training and development for maximum efficiency.
  • Establishing clear-cut divisions of work and responsibilities between management and workers.
  • Cultivating harmonious relations and close cooperation with workers to ensure that work is performed according to planned jobs and tasks.
• Several techniques were developed to support scientific management, including:
• Time study to analyze and measure the time required for various job elements, standardizing operations, and determining a fair day's work.
• Motion study involving close observation of job-related movements to eliminate wasteful motions and identify the best way to perform tasks.
• Standardization of tools, equipment, machinery, and working conditions.
• Incentive wage plans with differential piece rates for efficient and inefficient workers.
• Functional foremanship, where different specialist foremen supervise machine speed, group work, repairs, etc.
• Taylor presented his ideas systematically, making significant contributions to management practices.
  His key contributions included:
  • Emphasizing the importance of applying scientific methods like inquiry, observation, and experimentation to management problems.
  • Advocating for the separation of planning from execution to enable workers to perform at their best and earn accordingly.
  • Highlighting the management aim of maximizing both employer prosperity and employee welfare.
  • Stressing the need for a complete mental revolution among both workers and management, promoting harmony and cooperation instead of individualism and discord to realize the benefits of scientific management.

Merits

• The primary advantage of scientific management lies in the efficient conservation and proper utilization of every unit of energy. Specialization and the division of labor, stemming from scientific management, have played a pivotal role in the second industrial revolution. 
• Time and motion techniques serve as crucial tools for organizing tasks in a more effective and rational manner. In essence, scientific management not only offers a rational approach to solving organizational problems but also contributes to the professionalization of management.
• While the fundamental principles of scientific management were initially formulated by Taylor, his associates such as Gantt, Frank and Lillian Gilbreth, and Emerson further expanded on these ideas, developed new techniques, and enhanced the management approach. 
• In practical terms, scientific management proved highly fruitful in enhancing productivity and operational efficiency, gaining widespread acceptance in the USA and Western Europe.

Limitations

• Scientific management faces criticism on various fronts. Some argue that it focuses solely on the technical efficiency of workers and places undue emphasis on production. It presupposes that workers are inherently lazy, necessitating strict supervision and managerial authority. 
• The approach tends to believe that monetary rewards alone can motivate workers, neglecting the social and psychological aspects of the work environment. Other critics label it as unscientific, antisocial, psychologically unfair, and anti-democratic. The criticism of being unscientific stems from the lack of a valid and reliable method to measure worker efficiency and wages. It is considered antisocial as workers are treated as mere economic tools. 
• From a psychological standpoint, it is deemed unfair as it fosters unhealthy competition among workers for greater earnings. Lastly, it is viewed as anti-democratic as it undermines worker independence. Trade unions oppose scientific management, contending that it leads to autocratic management, increases employee workload, and negatively impacts employment opportunities.

Neo-Classical Theory of Organisation

• The neo-classical theory, also known as the human relations school of thought, is an evolution and extension of classical theory, incorporating modifications and additions. It builds upon the foundation laid by classical theory but places greater emphasis on the psychological and social aspects of individual workers and their work groups. While classical theory focused on organizational structure, order, formal organization, economic factors, and objective rationality, the neo-classical view highlights social factors and emotions in the workplace. 
• The term "human relations" is commonly used to describe the managerial interactions with employees. The core of human relations contributions is captured in two key aspects: first, the organizational situation should be examined in social, economic, and technical terms, and second, the clinical method used is analogous to a doctor's diagnosis of the human organism.

The Howthorne Experiments

• The human relations movement originated from a series of renowned studies conducted at the Western Electric Co. between 1924 and 1933, famously known as the "Hawthorne Studies" due to their association with the Hawthorne plant near Chicago. Initially aimed at investigating the correlation between workplace lighting levels and worker productivity, the studies started with experiments involving test and control groups subjected to changes in lighting conditions. Surprisingly, improvements or deteriorations in lighting did not consistently align with changes in productivity.
• In subsequent experiments, a group of workers experienced alterations in various variables, including increased wages, varied rest periods, and shortened workdays and weeks. The results remained inconclusive, prompting the involvement of Elton Mayo and his associates from Harvard. Mayo and his team proposed that a complex set of attitudes, including a sense of pride and motivation, led to increased productivity. Special attention and sympathetic supervision reinforced this motivation, giving rise to what became known as the Hawthorne Effect.
• Mayo and his colleagues concluded that employees tended to work harder when they perceived that management cared about their well-being, and supervisors paid special attention to them. This observation highlighted the positive impact of informal work groups and the social environment on productivity. While many employees found their work uninspiring, the relationships and friendships formed with colleagues, often influenced by shared grievances against management, provided meaning to their work and a degree of protection from managerial pressures. Consequently, group dynamics and social environments frequently exerted a stronger influence on worker productivity than explicit management directives.
• The Hawthorne Studies yielded several key findings:
  • The physical workplace environment had no significant impact on work efficiency.
  • Positive attitudes of workers and their teams towards their work were crucial determinants of efficiency.
  • Fulfilling workers' social and psychological needs positively influenced morale and work efficiency.
  • Employee groups formed through social interactions and common interests had a significant impact on workers' performance.
  • Economic rewards alone were insufficient motivators for workers. Job security, recognition from superiors, and the right to express opinions on relevant matters were more impactful motivators.
• The human relations approach to management, stemming from these findings, posits that modern organizations are social systems where interpersonal relationships and the social environment shape employee behavior. This approach emphasizes that the superior-subordinate authority-responsibility relationship should consider the social and psychological satisfaction of employees. The belief is that by ensuring employee happiness, organizations can secure their full cooperation and enhance efficiency. The approach advocates for the development of social groups at work, allowing free expression of employees' viewpoints, and encourages democratic leadership to facilitate communication and employee participation in decision-making.
• While the objective of the human relations approach is to enhance worker productivity, it underscores that employee satisfaction is the most effective means of achieving higher productivity and efficiency. Managers are urged to understand the social and psychological factors motivating employees and to create a satisfying work environment where individuals can fulfill their needs while contributing to organizational goals.
• Mayo introduced the concept of a "social man," motivated by social needs, seeking rewarding job relationships, and responding more to work-group pressures than to managerial control. The neo-classical theory, building on these principles, emphasizes the importance of coordination, communication, and the recognition of human dignity for motivating human resources. It also highlights the significance of addressing issues like fatigue and monotony, emphasizing that mistreatment of employees can lead to human problems. The theorists argue that participation, recognition of human dignity, and communication are essential for efficient management. Additionally, they stress the role of informal organizations alongside formal structures in an organizational setting.
• While the neo-classical theory represents an improvement over the classical theory by introducing new variables like informal organizations, it has faced criticism for being overly cynical, short-sighted, and lacking integration among various facets of human behavior.