Organizational theory is the study of corporate designs and structures. It also deals with the behaviour of individuals or groups in the organisation and how they interact with each other to accomplish set goals.
The Organizational theory studies the organisation so that it can identify the way to solve any issues. It offers an essential suggestion about ways that might help the organisation to cope successfully with rapid or sudden changes, meet the expectations of all its stakeholders and maximise productivity and efficiency.
Meaning of Organizational theory
The organizational theory provides a general reference to explain behavioural patterns in an organisation. It helps to look at the relationship between an organisation and its environment and the effects of that relationship on its modus operandi.
Organizational theory studies the impact of the external and internal business environment, for instance, cultural, legal, political etc. on the organisation. Applying the Organizational theory helps to improve the economic potential in society.
Organizational theories are studied because they address critical questions about the way an organisation works. It assumes that the organisation has goals, structure and members, but it puts its onus on the efficiency of the said organisation. Business entities use the Organizational theories that match their goals and business environment to improve its functionality and efficiency.
Types of Organizational theory
Some of the essential Organizational theories are
1. Classical Organizational theory
The classical Organizational theory emerged out of its shell in the late 19th century in the private sector. It is one of the traditional Organizational approaches wherein the onus is on the organisation and not on the employees who are working over there. As per the classical Organizational theory, the organisation is a machine and the employees its different parts.
The characteristics of the classical Organizational theory are
- The classical theory is built on an accounting model
- It has put the focus on finding issues after they have been made and then solving them
- The theory is about outputs and not input by employees
- The labour is not divided based on the jobs that are performed in the organisation
- Labour is considered stable and not subjected to change in the organisation
- The classical theory is in favour of an integrated and centralised system where the authority lies with the central figure
The advantages of the traditional Organizational theory are
- It has a clear structure for management in an organisation
- It can increase efficiency and productivity
- It creates better working conditions
- It helps to create bonds between workers and managers
- The theory helps to increase the wages of the workers
The disadvantages of the classical Organizational theory are
- The classical Organizational theory establishes a burden of work on the employees
- It is made for simple structures and not complex ones
- The theory creates frustration and disheartened attitude as it does not encourage creativity in the workers
2. Administrative Organizational theory
This theory has put its onus on corporate management and the human and behavioural factors in the management process. The concept is of departmentalisation, where the activities should be identified and classified to accomplish tasks more effectively.
In administrative, Organizational theory, the focus is on how the management is structured and how well the employees are organised to complete the given tasks effectively. The theory first tries to improve the efficiency levels of management to standardise the processes and then shifts to the operational level where the individual employees are made aware of the changes so that they can implement them in their daily schedules.
The principles of the administrative, Organizational theory are
- The division of work should be based on specialisations for the effective accomplishment of the given tasks
- Authority and responsibility are interlinked hence the authority figure is accountable for every decision that goes wrong
- The emphasis is on behaviour and obedience of employees towards each other
- There should be a unity of command, and the employees must receive orders from only one supervising head
- There should be a unity of direction that will encourage every employee to work towards a common objective
- There should be a systematic arrangement and order of people and things in the organisation. It means that the right person should be at the right job and all the materials should be in their proper place
The advantages of the administrative Organizational theory are
- It is a comprehensive theory to deal with management techniques
- It covers all the topics related to the management position to ensure success
The disadvantages of the administrative Organizational approach are
- It is based on human application
- There is too much reliance on experience
- Many of the assumptions of the administrative Organizational theory are untested and thus not viable
3. Scientific management Organizational theory
In scientific management Organizational theory, human beings are add-ons to the machinery so that they can perform routine tasks. This theory has put its onus on boosting the efficiency levels of every employee in the organisation and minimising task time.
It applies engineering science at the operating level to increase production levels. In this case, it is believed that improving the efficiency of workers at the working level will, in turn, enhance the ability of the management.
The principles of scientific management Organizational theory are
- It separates planning from implementation
- Supervisors play an essential role as they are needed to provide instructions in their respective field to people working under them
- Fatigue, motion and time are studied and considered in determining the work undertaken by each employee
- Standardises the cost of production, the period of employment and tools and thus improves the working conditions
- The theory emphasises on scientific selection and training of labours
- It divides work between manager and workers
- Financial incentives are necessary and must be provided to the workforce to motivate them and boost their productivity
The advantages of the scientific Organizational theory are
- It is responsible for enhanced production
- The managers have reasonable control over the production
- It decreases the chance of inaccuracy
- The cost of production is reduced
The disadvantages of the scientific Organizational theory are
- It requires huge capital investment
- The management takes complete control, and there is no chance to develop creativity
- The approach seems de-motivating to the employees
4. Bureaucratic Organizational theory
The word bureaucracy means the processes, patterns, rules and regulations that are created to minimise the complexity during the functioning in an organisation. It puts its focus on standardised principles, specialised workforce, trained administrative employees and hierarchy of authority.
The bureaucratic theory is about the administrative processes and structure of the organisation. It is impersonal by nature and is designed to bring the power structure in focus and ensure efficiency.
The characteristics of the bureaucratic Organizational theory are
- Tasks are divided based on specialisation and competencies into routine and straightforward categories. Every employee knows what is expected of him and is responsible for the allotted work. The organisation benefits by dividing work based on specialisation. It is not permitted for the employees to take on the tasks of their colleagues
- There are several hierarchical positions, and the managers are organised into layers where each one is responsible for the overall performance of its staff. The bottom layers are always subjected to control and supervision from the above layers
- It is competencies and technical skills that help to choose the employees. The employees are paid for their services through salary, which is dependent on their position in the organisation. They do not have any ownership interest in the organisation
- There are formal rules in place to ensure uniformity, and every administrative process is defined in the official law. All the rules are predictable so that the employees know what is expected from them
- The impersonal relationship is a prominent feature of bureaucracy, and it is precise requirements and regulations that create these impersonal relationships. It prevents bias and nepotism because decisions are now made based on rational factors and not personal ones
- The employees are hired based on their qualification and expertise. Deployment of the right people in the correct position creates a perfect fit that is healthy for a company.
The advantages of the bureaucratic Organizational theory are
- Large organisations with numerous hierarchical layers can be appropriately structured so that they can work effectively
- The set rules assist in the consistent execution of work by every employee
- It is easy for management to make adjustments and maintain control if necessary
The disadvantages of the bureaucratic Organizational theory are
- The bureaucratic system is all about red tape and paperwork and the hierarchial layers slow down critical processes
- Employee loyalty is in question because there is a distance between the employees
- Lack of innovative ideas as creative thinking is not encouraged in a bureaucratic organisation
5. Neo-Classical Organizational theory
As per the Neo-Classical Organizational theory, the organisation is a social system, and it is human actions that have a direct effect or impact on its performances. This is why this theory has put its primary focus on human beings in the organisation.
The characteristics of the neo-classical Organizational theory are
- In this theory, behavioural science is included in the management
- It takes a human relations approach in the organisation
- It considers that both formal and informal structure exists in the organisation
- The informal structure that happens because of social interactions between workforce affects and is affected by the formal one. Generally, a conflict can be seen between individual and Organizational interest and thus, one needs to integrate them to reach common goals.
- The theory asserts that individuals are diversely motivated as they want to fulfil specific needs
- The Neo-Classical Organizational theory believes that it is teamwork that can enable smooth functioning of the organisation. It is achievable through behavioural approach for instance how individuals interact and then respond to each other
The limitations of neo-classical Organizational theory are
- It puts its focus on the organisation and how it interacts with people and does not consider the surrounding environment
- It assumes that one approach of running the organisation will work in every environment
6. Modern Organizational theory
According to the modern Organizational theory, the organisation is related to a system that will change if there is a change in the external or internal environment. This is a concept that integrates the classical model and behavioural and social science.
The essentials of the modern Organizational theory are
- The modern theory accepts an organisation as an open system that regularly interacts with the environment to develop, sustain and grow in the market. In this theory, the existence of several essential elements like environment, feedback, process, output, transformation and input is accepted
- The approach includes multidimensional and multilevel aspects of the organisation and encompasses both the macro and microenvironment of the organisation.
- The organisation is adaptive by nature and can adjust to the changing environment
- It considers the organisation as a dynamic system
- In modern theory, results are uncertain and dependent on the chance of occurrence
- It is multivariable and shows that the events can be the result of numerous variables that can be either interdependent or interrelated
The criticism of the modern Organizational theory is
- The theory deals only in questions and not suitable answers
- It is based on mathematical, social and behavioural methods which are management theories in themselves
- Absence of unified knowledge