Evolution of Organisation Theory - 2 | Commerce & Accountancy Optional Notes for UPSC PDF Download

Modern Theory of Organisation

• The contemporary organizational theory acknowledges the dynamic conditions prevailing at both micro and macro levels and acknowledges the significant societal changes. This modern theory is an amalgamation of perspectives from various organizational thinkers, and it is closely associated with the system theory, focusing on the concept of a system. Chester I. Barnard (1938) played a pioneering role by conceptualizing the organization as a social system characterized by cooperative interactions among its members, with organization, individuals, and customers seen as integral parts of the environment. Subsequently, Mary Parker Follet (1940) emphasized the integration of individual and organizational units through a systemic approach.
• Norbert Weiner (1948), a trailblazer in cybernetics, provided a clear perspective on organizations as systems. Operational researchers such as Churcham (1957) also considered the system as an intricately interconnected complex with functionally related components. Social scientists like Katz and Kahn further contributed to this comprehensive theory of organizations, employing an open systems approach.

Systems Theory

• Organizational realities have been explored from various perspectives, leading to the emergence of diverse theories. As a result, there is a growing need to examine organizations holistically. The advancement of scientific knowledge has facilitated the development of a general systems theory for the integration of scientific understanding.
• The systems approach is particularly pertinent when studying complex public organizations with intricate structures embedded in larger social, political, and economic contexts. According to the open systems perspective, an organization thrives and expands by obtaining inputs from the environment, processing them internally to generate outputs. Through this input-conversion-output process, an organization sustains itself and evolves. Systems thinking allows for a comprehensive understanding of the organization, encompassing its distinct parts and their interconnections.
• The systemic perspective of organizations was evident in the writings of M.P. Follet and Chester Bernard. Herbert Simon's decision-making framework aligns with the systems approach, further elaborated by him and his associates. Philips Selznick applied the systems framework in his studies of complex governmental and other organizations. Key writings in this field include "Organization Theory" by Haire, and Norbert Weiner made significant contributions in the field of Cybernetics, offering a clear view of an organization as a system comprising inputs, processes, outputs, feedback, and an environment.
• In simple terms, a system can be defined as a collection of interdependent parts forming an organized unit or entity. These parts, known as sub-systems, interact and are subject to change, with interrelatedness and interdependence. Changes in any sub-system lead to changes in others. A working organization can be seen as consisting of three broad sub-systems: the technical sub-system, representing formal relationships; the social sub-system, providing social satisfaction through informal group relations; and the power sub-system, reflecting the exercise of power or influence by individuals and groups. The total system emerges from the interaction of these various sub-systems, and both the total system and sub-systems interact with the environment, influencing or being influenced by each other.
• The system approach features several aspects:
  • A system is a group of interrelated but separate elements.
  • The arrangement of all elements must be orderly.
  • Proper communication facilitating interaction among the elements is crucial.
  • Interaction should lead to achieving a common goal.
• Enterprise operations are viewed in terms of basic elements involved in procuring and transforming inputs into outputs. Money, employees, and managers themselves are parts of the system. Inputs, such as materials, information, and energy, flow into the organization, while outputs consist of products, services, and satisfaction provided. The organization transforms inputs into various outputs and offers them to the external environment. The sale of outputs provides the necessary energy, known as feedback, to repeat this system's cycle. 
• Organisation systems like social systems are considered to be Cybernetic in their behaviour with regard to the external environment. This means that they are self steering, using feedback to guide and control their behaviour. They develop mechanism to collect interpret and apply feed back in their decision making process so as to acquire the capacity to adapt, evaluate perform and to correct errors.
• The systems approach to management perceives organizations as highly intricate entities susceptible to internal and external changes. To meet the diverse needs of such organizations, a balanced and integrated management approach is necessary. At the core of the systems approach lies a Management Information System and communication network, facilitating the collection, analysis, and flow of information and quantitative data to aid in planning and control. This approach underscores the significance of decision-making as the primary means of harmonizing different parts of the organization. Contemporary thinkers see management as a system of integrating activities aimed at optimizing scarce resources. Management is also viewed as a subsystem of the social system, requiring adaptation and coping with environmental changes.
• The systems approach offers several advantages:
  • It provides a unified focus for organizational efforts.
  • Managers get an opportunity to view the organization as a whole, greater than the sum of its parts.
  • Treating the organization as an open system emphasizes dynamic interactions between subsystems.
  • The modern theory incorporates a multilevel and multidimensional approach, covering both micro and macro aspects.
  • The system is based on multiple variables, acknowledging that events may result from various interrelated and interdependent factors.
  • The feedback mechanism allows organizations to rearrange their parts in response to environmental changes.
• The systems approach is widely applied in organizational analysis, proving to be a valuable tool for conceptualizing organizations and understanding their external and internal relationships. It has facilitated the contingency or situational view of organizations, departing from the traditional approach that advocated a one-size-fits-all structure. Under the influence of systems theory, the prevailing perspective in organizational analysis is that structure can vary based on factors such as environmental conditions and technology.
• Despite its fascinating appeal, systems theory has limitations. It does not offer a complete explanation of the entire organizational system, failing to clarify the unique relationships among the subsystems of a specific organization in a given environment.

Contingency Theory

• The modern approach to organization theory underscores the significance of dynamic interaction with the environment and other situational factors that influence organizational design.
• Two crucial lines of thought play a significant role in determining key situational factors. One emphasizes the importance of technology in shaping organizational design, while the other suggests the significance of the environment. Technology, in this context, refers to the techniques employed by organizations in their workflow activities to convert inputs into outputs. This concept is applicable across various types and forms of organizations, regardless of whether they are production-oriented or service-oriented. The role of technology is evident in activities that lead to the transformation of materials.
• Management ecology has been developed to explore the role of the environment in managerial functions. The individual and the organizational environment engage in a complex state of interaction, with the organization itself interacting with its environment. Effectively managing an organization requires a thorough understanding of its environment.
• The contingency approach posits that there is no universally best way to manage. Instead, there are numerous effective ways to perform various management functions, and the best approach depends on the situation. Unlike universal principles, this theory suggests that managers must analyze different situations and adopt the most suitable approach for that specific context. For instance, improving productivity might involve work simplification and additional incentives in some situations, while job enrichment and democratic employee participation might be recommended in others. The contingency approach emphasizes two aspects: it focuses on specific situational factors influencing the appropriateness of one managerial strategy over another, and it highlights the importance of developing skills in situational analysis for managers. These skills help managers identify crucial contingency factors that influence their managerial approach.
• The contingency approach exhibits the following characteristics:
  • Management action is contingent upon actions outside the system or subsystem, depending on the circumstances.
  • Organizational action should align with the behavior observed outside the system, ensuring integration with the environment.
  • Due to the specific relationship between organizations and their environments, no action can be universally applied, as it varies from one situation to another.
• Contingency theory focuses on practical, day-to-day problem-solving tasks that managers encounter, gaining popularity for several reasons:
  • Conceptual Framework: Contingency theory offers a conceptual framework that allows managers to systematically study the characteristics of major organizational components and their interrelationships.
  • Linkage between Theory and Practice: It provides a practical way to study and analyze organizations, suggesting a range of alternatives applicable to specific situations.
  • Basis for Introducing Changes: Contingency theory explains the dynamic process of organizational change, offering insights into relevant changes in the environment and providing necessary information to maintain dynamic equilibrium.
  • Wide Applicability: It is useful wherever there is a need to define or redefine relationships within an organization.
  • New Micro Phase: Considered a new micro phase in management by Scott and Mitchell, the contingency approach focuses on pragmatic problem-solving, distinct from humanistic and general systems perspectives.
• Despite its significant appreciation, the contingency theory has some notable limitations. It is criticized for its theoretical complexity, as even simple problems require analysis across numerous organizational components, each with numerous dimensions. This complexity makes empirical testing challenging. Therefore, it faces criticism for its intricate nature, lack of content, difficulty in empirical testing, and reactive tendencies.

Contemporary Issues in Organisation Theory

Various organizational theories have been discussed, outlining three distinct approaches: (i) Structural-Functional, (ii) Socio-Psychological, and (iii) System-Contingent. These approaches are interdependent, with each offering unique perspectives and relationships. While each theory contributes to understanding organizations, it is challenging to create a singular theory that comprehensively explains them. The mechanistic (structural) approach may overlook human issues, and the humanistic socio-psychological approach might not consider the closed and formal aspects of an organization. The differences among these theories lie in their focus and emphasis. Recognizing the need to consolidate various views, a synoptic view of contemporary trends and issues in organization theory is presented in Table, derived from the research of several scholars.
Table: Contemporary Trends in Organisation Theory

The fundamental goal of organization theory is to provide explanations and predictions. Its purpose is to comprehend social or human structures designed as organizations. This theory serves as a tool for researchers to test and refine their ideas about organizations.
Given the changing environment, contemporary issues in organizational theory include:

• The influence of technology on the human aspect of an organization.
• The effects of globalization on organizational designs.
• The repercussions of different strategies on organizations.
• How changes in human behavior impact organizations.
• The impact of emerging organizations on society.
• The interface between the environment and organization.
• Cross-cultural effects on organizations.
• The impact of people's mobility and technology on organizations, and so forth.

Conclusion

• An organization is a collective economic and social entity where individuals collaborate to achieve a shared objective. The structure and activities of the organization are clearly defined to ensure a smooth workflow. Organizational principles offer guidance for the effective operation of the organization. Organizational theory delves into explaining the structure and design of organizations, aiding in the understanding, diagnosis, and response to organizational needs and issues.
• The classical organization theory has evolved through three streams: Bureaucracy, Administrative theory, and Scientific management theory. Bureaucracy theory posits that every organization develops a system of specialization and a set of systematic rules and procedures to maximize efficiency and productivity. Bureaucracy characteristics encompass division of labor, hierarchy, rules, rationality, impersonality, rules orientation, and neutrality. Drawbacks of bureaucracy include impersonality, limited delegation, goal displacement, strict categorization, self-perpetuation, empire building, and the costs of control.
• Administrative theory categorizes the activities of an industrial organization into six groups: technical, commercial, financial, security, accounting, and managerial. This theory asserts that management is a process analyzable through intellectual dissection of managerial functions. It introduces fourteen management principles facilitating smooth organizational functioning. Criticisms arise due to its closed system nature and underestimation of human factors.
• Scientific management theory aids in scientifically determining the best methods for performing tasks and selecting, training, and motivating workers. The emphasis lies on the scientific selection of personnel, incentives, and functional foremanship, aiming to increase productivity while overlooking human relations.
• The neo-classical theory of organization emphasizes social factors and emotions in the workplace, advocating for a participative approach, human dignity, and effective communication as crucial aspects of efficient management. Despite being considered an improvement over the classical theory for focusing on human relations and informal organization, it faces criticism for placing excessive emphasis on people.
• Modern organizational theory considers dynamic conditions at micro and macro levels. The systems theory highlights the integration of individual and organizational units through a systems approach, reflected in terms of inputs, processes, outputs, and feedback. The contingency theory suggests that management action is contingent on external actions, urging integration with the environment. Contemporary issues in organizational theory call for the consolidation of diverse views to comprehend an organization comprehensively.