Notes

1. Discipline Specific Elective (DSE-1)
ORGANIZATIONAL BEHAVIOUR
Reference Material
Unit I, III-V
Discipline Specific Elective (DSE-4)
Department of Commerce
Semester-V/VI
B.Com.(Hons.)/B.Com.(Prog.) Commerce
SCHOOL OF OPEN LEARNING
University of Delhi

2. UNIT I
Lesson 1 Theories of Organisation
Lesson 2 Neo-Classical Theory of Organisation
Lesson 3 Modern Organisation Theory
Lesson 4 Organisational Behaviour
UNIT III
Lesson 1 Introduction to Motivation
Lesson 2 Content Theories of
Lesson 3 Process Theories of Motivation
Lesson 4 Application of Motiv
Lesson 5 Fundamentals of Motivation
Lesson 6 Theories of Motivation
UNIT IV
Lesson 1 Leadership
Lesson 2 Contemporary Issues in Leadership
Lesson 3 Power and Conflict
Lesson 4 Authority and Power
UNIT V
Lesson 1 Organizational Culture
Lesson 2 Organisational Development
Lesson 3 Stress
Editor
K.B.Gupta
SCHOOL OF OPEN LEARNING
5, Cavalry Lane, Delhi
CONTENTS
of Organisation
heory of Organisation
Modern Organisation Theory
Organisational Behaviour-meaning
Introduction to Motivation
Content Theories of Motivation
Process Theories of Motivation
Application of Motivational Concepts
Fundamentals of Motivation
Theories of Motivation
Contemporary Issues in Leadership
and Conflict
Authority and Power
Organizational Culture
Development
SCHOOL OF OPEN LEARNING
University of Delhi
5, Cavalry Lane, Delhi-110007

3. 1
LESSON-1
THEORIES OF ORGANISATION
Khushboo Garg
Associate Professor
I.P. University
According to Joe Kelly, “Organisation theory is a set of interrelated concepts, definitions and
propositions that present a systematic view of behavior of individuals, groups and subgroups
interacting in some relatively patterned sequence of activity, the intent of which is goal-
directed.”
There is a considerable body of knowledge and literature called organizational theories
developed over years reflecting what goes on in organizations. Organizational theories are a set
of propositions which seek to explain how individuals and groups behave in different
organizational structures and environment.
A central part of the study of organisation and management is the development of management
thinking and what might be termed management theory. The application of theory brings about
change in actual behavior. Managers reading the work of leading writers on the subject might see
in their ideas and conclusions a message about how they should behave. This will influence their
attitudes towards management practice.
The study of organizational theory is important for the following reasons:
1. It helps to view the interrelationships between the development of theory, behavior in
organizations and management practice.
2. An understanding of the development of management thinking helps in understanding
principles underlying the process of management.
3. Knowledge of the history helps in understanding the nature of management and
organizational behavior and reasons for the attention given to main topic areas.
4. Many of the earlier ideas are of continuing importance to the manager and later ideas on
management tend to incorporate earlier ideas and conclusions.
5. Management theories are interpretive and evolve in line with changes in the
organizational environment.
As McGregor puts it:
Every managerial act rests on assumptions, generalizations, and hypotheses – that is to say, on
theory. Our assumptions are frequently implicit, sometimes quite unconscious, often conflicting;
nevertheless, they determine our predictions that if we do a, b will occur. Theory and practice
are inseparable.
Miner makes the point that the more that is known about organizations and their methods of
operation, the better the chances of dealing effectively with them. Understanding may be more
advanced than prediction, but both provide the opportunity to influence or to manage the future.
Theory provides a sound basis for action. However, if action is to be effective, the theory must
be adequate and appropriate to the task and to improved organizational performance. It must be a
‘good’ theory.
However, the systematic development of management thinking is viewed, generally, as dating
from the end of the nineteenth century with the emergence of large industrial organizations and

4. 2
the ensuing problems associated with their structure and management.6 In order to help identify
main trends in the development of organizational behavior and management theory, it is usual to
categorize the work of writers into various ‘approaches’, based on their views of organizations,
their structure and management. Although a rather simplistic process, it does provide a
framework in which to help direct study and focus attention on the progression of ideas
concerned with improving organizational performance.
A framework of analysis
There are, however, many ways of categorizing these various approaches. For example, Skipton
attempts a classification of 11 main schools of management theory. Whatever form of
categorization is adopted, it is possible to identify a number of other approaches, or at least sub-
divisions of approaches, and cross-grouping among the various approaches. The choice of a
particular categorization is therefore largely at the discretion of the observer.
We here will be describing following four approaches in detail:
1. Classical – including scientific management, administrative management and
bureaucracy
2. Human relations – including neo-human relations
3. Systems approach
4. Contingency approach
Attention is also drawn to other approaches, including: Decision-making; Social action and Post-
modernism.
Classification of Organisational Theories
1. Classical Organisation theory
a. Scientific Management or Machine Theory
b. Administrative Management or Management Process
c. Bureaucracy
2. Neo-classical Organisation theory
3. Behavioral Science Approach
4. Social System Approach
5. Modern Organisational Theory
a. Systems Approach
b. Contingency Approach
Classical Organisational Theories
The classical theory represents the traditionally accepted views about organisatrions. It is said to
be the oldest school of thought about organization and its management. These can be traced
historically to the 19th
century prototype industrial and military organizations. Several writers
namely: Taylor, Fayol, Weber, Luther, Gullick, Urwick, Mooney and Reiley and many others
have contributed to the classical thought. These writers have placed emphasis on planning of the
work, the technical requirements of the organization, principles of management, and the
assumption of rational and logical behavior. Organization here is treated like a machine and its

5. 3
efficiency can be increased by making each individual working in the organization efficient.
Classical approach of management is the first studies of management, which emphasized
rationality and making organizations and workers as efficient as possible. It offers a convenient
framework for the education and training of future managers. According to Batrol, the classical
school is characterized by highly structured, with emphasis on the formal organization with
clearly defined functions and detailed rules, autocratic leadership. The three greatest proponents
of classical theory were Taylor, Fayol, and Weber. Each identifies detailed principles and
methods through which this kind of organization could be achieved.
The classical thought can be studied under three streams, namely,
1. Scientific Management or Lower Level Management analysis.
2. Administrative Management or Comprehensive analysis of management.
3. Bureaucratic Management.
All the three concentrated on the structure of organization for greater efficiency. All these
theorists were concerned with the structure of organizations and that is why their approach is
also called as “Structural Theory of Organisation.”
Scientific Management
F.W Taylor was the first person who insisted on the introduction of scientific methods in
management. He launched a new movement during the last decade of 19th
century which is
known as “Scientific Management”. That is why Taylor is regarded as the Father of Scientific
Management. Although the techniques of scientific management could conceivably be applied
to management at all levels, the research, research applications and illustrations relate mostly to
lower-level managers. Therefore theory is also referred to lower level management analysis.
Scientific management consists primarily of the work of Frederick W. Taylor, Frank and Lilian
Gilbreth, and Henry L. Gantt. Frederick W Taylor (1856-1915) is commonly called the father of
scientific management because of the significance of his contribution. He started his career as an
apprentice in a small shop in Philadelphia (USA) in 1875.Taylor witnessed much inefficiency
(Robbins et al, 2003). He sought to create a mental revolution among both workers and managers
by defining clear guidelines for improving production efficiency. He argued that the four
principles of management would result in prosperity for both workers and managers.
Scientific management means application of scientific methods to the problems of management.
He advocated scientific task setting based on time and motion study, standardization of
materials, tools and working conditions, scientific selection and training of workers and so on.
He laid emphasis on the following principles:
1. Science. Not rule of thumb: Develop a science for each element of a man’s work,
which replaces the old ‘rule of thumb’ method.
2. Harmony in group action, rather than discord.
3. Maximum output in place of restricted output.
4. Scientific selection, training and placement of the workers.
5. Almost equal division of work and responsibility between workers and managers.

6. 4
The basic idea behind above stated principles was to change the mental attitudes of the workers
and the management towards each other. Taylor called it ‘Mental Revolution’ which has three
implications:
i. All out efforts for increase in production;
ii. Creation of the spirit of mutual trust and confidence;
iii. Including and developing the scientific attitude towards problems.
Taylor’s thinking was confined to organization at the shop level. However, he demonstrated the
possibility and significance of the scientific analysis of various aspects of management. To put
the philosophy of scientific management into practice, Taylor and his associates suggested the
following techniques:
i. Scientific task setting to determine a fair day’s work.
ii. Work study to simplify work and increase efficiency. It includes method study, time
study and motion study.
iii. Standardization of materials, tools, equipment, costing system, etc.
iv. Scientific selection and training of workers.
v. Differential piece-wage plan to reward the highly efficient workers.
vi. Specialization in planning and operations through ‘functional foremanship’. Foremen in
the planning department include: route clerk, instruction card clerk, time and cost clerk
and shop disciplinarian and those in operations department include: gang boss, speed
boss, repair boss and inspector.
vii. Elimination of wastes and rationalization of system of control.
Other than Taylor, Frank Gilbreth (1868-1924) and Lilian Gilbreth (1878-1972) were also
significant contributors to the scientific method. As a point of interest, the Gilbreths focused on
handicapped as well as normal workers. Like other contributors to the scientific method, they
subscribed to the idea of finding and using the best way to perform a job. The primary
investigative tools in the Gilbreths research were motion study, which consist of reducing each
job to the most basic movements possible. Motion analysis is used today primarily to establish
job performance standards.
Henry L. Gantt (1861-1919) too, was interested in increasing worker efficiency. Gantt attributed
unsatisfactory or ineffective tasks and piece rates (incentive pay for each product piece an
individual produces) primarily to the fact that these tasks rate were set according to what had
been done by workers in the past or on somebody’s opinion of what workers could do.
Mooney and Reiley set out a number of common principles which relate to all types of
organizations. They place particular attention on:
1. the principle of co-ordination – the need for people to act together with unity of action,
the exercise of authority and the need for discipline
2. the scalar principle – the hierarchy of organisation, the grading of duties and the process
of delegation
3. the functional principle – specialisation and the distinction between different kinds of
duties.

7. 5
Brech attempts to provide a practical approach to organisation structure based on tried general
principles as opposed to the concentration on specific cases or complex generalizations of little
value to the practicing manager. He sets out the various functions in the organisation and the
definition of formal organizational relationships. Although clearly a strong supporter of the
formal approach in some of his views such as, for example, on the principle of span of control,
Brech is less definite than other classical writers and recognizes a degree of flexibility according
to the particular situation.
Brech does place great emphasis, however, on the need for written definition of responsibilities
and the value of job descriptions as an aid to effective organisation and delegation. This work
builds on the ideas of earlier writers, such as Urwick, and therefore provides a comprehensive
view of the classical approach to organisation and management.
Appraisal of Scientific Management
Taylor’s scientific management was associated with many benefits to the industry. The main
benefit of scientific management is “conservation and savings, making an adequate use of
everyone’s energy of any type that is expended”. Following are the benefits related to scientific
management:
1. It had replaced the traditional rule of thumb by making the use of scientific techniques for
each element of man’s work.
2. It involved proper selection and training of workers.
3. It established a harmonious relationship between workers and management.
4. Due to scientific management, equal division of responsibilities between workers and
management became possible.
5. Standardization of tools, equipment, materials and work method.
6. Detailed instructions and constant guidance of workers.
Apart from the above discussed long listed benefits Taylor’s theory of Scientific management
was highly criticized by the workers, managers, psychologists and even by the general public on
the following grounds:
1. The use of word ‘Scientific’ before ‘Management’ was highly objected because what it
actually meant by scientific management is nothing but a scientific approach to
management.
2. It was said that most of the principles of scientific management relates only to production
management and certain essential aspects of management i.e. finance, marketing,
personnel and accounting etc were ignored.
3. The concept of Functional Foremanship that aims at bringing specialization in the
organization advocated by Taylor was also criticized because in actual practice it is not
feasible for one worker to carry out instructions from eight foreman.
4. This part of classical theory is truly production centered as it concentrates too much on
technical aspects of work and undermines human factor in industry. It resulted in
monotony of job, loss of initiative, wage reductions, job insecurity, etc.
5. Scientific management theory simply ignores the social and psychological needs of
workers. Here workers were treated as ‘rational economic beings’. Human resources
were referred to as mere extensions of machines devoid of any feelings and emotions.

8. 6
Only monetary incentives and exercise of authority were considered as ways to make
them work.
6. Trade unionists criticized this theory and regarded it as the means to exploit labour
because the wages of workers were not increased in direct proportion to productivity
increase.
Many of the above mentioned criticisms were later remedied by the other contributors to
scientific management like Henri L. Gantt, Frank Gilberth, Lilian Gilberth and Harrington
Emerson. It can be said that Taylor introduced scientific reasoning to the disciplines was
management.
Administrative Management Theory
The advocates of this school undertook management as a process involving certain functions like
planning, organizing, directing and controlling. This is why it is called as the ‘functional’
approach. Henri Fayol is regarded as the Father of general management. Organization here is
defined in terms of certain functions where fourteen principles of management have universal
applicability. Fayol, Gulick, Sheldon, Mooney and Reiley and Urwick have contributed to this
stream of thought and gave functions of managers and propounded the principles of sound
organization and management that are said above.
Fayol initiated by classifying all operations in business organizations under six categories:
i. technical (production)
ii. commercial (purchase and sale)
iii. financial (funding and controlling capital)
iv. security (protection)
v. accounting (balance sheet; costing records)
vi. administrative or managerial (planning, organizing, commanding, coordinating and
controlling).
According to Fayol managerial activity deserved more attention. In his view management is the
process composed of five functions: planning, organizing, commanding, coordinating and
controlling where:
a. Planning means to study the future and arrange the plan of operations;
b. Organizing means to build up the material and human organization of the business;
c. Commanding means to make the staff do their work;
d. Coordinating means to unite all the activities;
e. Controlling means to see that everything is done as per the standards that have been laid
down and the instructions given.

9. 7
Fayol insisted that in order to be effective, management should be based on fourteen principles:
1. Division of work: A firm’s work should be divided into specialized, simplified tasks.
Matching task demands with workforce skills and abilities will improve productivity. The
management of work should be separated from its performance.
2. Authority and responsibility: Authority is the right to give orders, and responsibility is
the obligation to accept the consequences of using authority. No one should possess one
without having the other as well.
3. Discipline: Discipline is performing a task with obedience and dedication. It can be ex-
pected only when a firm’s managers and subordinates agree on the specific behaviors that
subordinates will perform.
4. Unity of command: Each subordinate should receive orders from only one hierarchical
superior. The confusion created by having two or more superiors will undermine
authority, discipline, order, and stability.
5. Unity of direction: Each group of activities directed toward the same objective should
have only one manager and only one plan.
6. Subordination of individual interest to general interest: The interests of individuals
and the whole organization must be treated with equal respect. Neither should be allowed
to supersede the other.

10. 8
7. Remuneration of Personnel: the pay received by employees must be fair and
satisfactory to employees as well as organisation. Pay should be distributed in proportion
to personal performance, but employees’ general welfare must not be threatened by
unfair incentive-payment schemes.
8. Centralization: centralization is the retention of authority by managers, to be used when
managers desire greater control. Decentralization should be used if subordinates’ opinion
and experience are needed.
9. Scalar chain: The scalar chain is a hierarchical string extending from the uppermost
manager to the lowest subordinate. The line of authority follows this chain and is the
proper route for organizational communications
10. Order: Order, or “everything in its place,” should be instilled whenever possible because
it reduces wasted materials and efforts. Jobs should be designed and staffed with order in
mind.
11. Equity: Equity means enforcing established rules with a sense of fair play, kindliness,
and justice. It should be guaranteed by management, as it increases members’ loyalty,
devotion, and satisfaction.
12. Stability: Properly selected employees should be given the time needed to learn and
adjust to their jobs. The absence of such stability undermines organizational performance.
13. Initiative: Staff members should be given the opportunity to think for themselves. This
approach improves the distribution of information and adds to the organization’s pool of
talent.
14. Esprit de corps (union is strength): Managers should harmonize the interests of
members by resisting the urge to split up successful teams. They should rely on face-to-
face communication to detect and correct misunderstandings immediately.
Fayol thought that these principles would be useful to all types of group activity. However he did
not consider these principles as immutable laws. The word principle is just used for convenience.
His theory of management completely revolutionized the thinking of managers as throughout his
treatise, there exists an understanding of the universality of the principles.
Criticism of Management Process or Functional Approach
Although the management process approach has made significant contribution to the
development of thought, their work still has been criticized on the following grounds:
1. There is no single classification of managerial functions acceptable to all the functional
theorists.
2. There exists lack of unanimity about the various terms such as management and
administration, commanding and directing, etc.
3. The functionalists have considered their principles to be universal in nature but many of
the principles have failed to deliver the desired results in certain situations.
4. In this theory theorists have not considered the external environment of business.
5. Fayol has over- emphasized on the intellectual side of management. He thought that
management should be formally taught, but he did not elaborate the nature and contents
of management education.

11. 9
Fayol v/s Taylor
Taylor (Scientific Management) Fayol (Administrative Management)
More attention was paid to shop and factory
management.
More attention was paid on the functions of
managers and the management process as a
whole.
He worked from bottom to top level. His centre
of study was the operator at the shop level.
He worked from top to bottom level laying
stress on unity of command, unity of direction,
coordination, espirit de corps.
His approach was a kind of efficiency
movement. Thus he had a narrow perspective.
He had a wider perspective. His scheme was to
evolve principles which could be applied to
administration in different spheres.
He gave stress on increasing productivity
rather than on human resources.
He showed regard for the human element by
advocating principles such as initiative,
stability of service and spirit of cooperation.
He is also known as Father of Scientific
Management.
He is also known as Father of Administrative
Management.
Bureaucracy
Bureaucratic management is a stream of classical theory of management. It is “a formal system
of organization that is based on clearly defined hierarchical levels and roles in order to maintain
efficiency and effectiveness.” This theory was developed by Max Weber and is widely used in
the management of both public and private sector organizations. According to the bureaucratic
management approach, organizations are usually divided into hierarchies. These divisions help in
creating “strong lines of authority and control within the organization.
Max Weber (1864-1924) was the first of management theorists who developed a theory of
authority structures and relations based on an ideal type of organization he called a bureaucracy
– a form of organization characterized by division of labor, a clearly defined hierarchy, detailed
rules and regulations, and impersonal relationships. Bureaucratic management depends upon
administration devices. Max Weber presents the ideal organization structure. According to
Weber the bureaucratic management approach is based on four principles -Hierarchical
positions, rules of system, division of labor for specialization, and impersonal relationship. Max
Weber contributed to the organization theory by introducing bureaucracy as an ideal form of
organization. His primary contribution includes his theory of authority structure and his
description of organization based on the nature of authority relations within them. Weber’s ideas
about organization design were influenced by:
a. The amazing growth of industrial organizations,
b. His military experience,
c. Lack of trust in human judgment and emotions.
It was Weber’s belief that there are three types of legitimate authority:
a. Rational-legal authority: Obedience is owned to a legally established position or rank
within the hierarchy of a business, military unit, government, and so on.

12. 10
b. Traditional authority: Here people obey a person because he belongs to certain class or
occupies a position traditionally recognized as possessing authority such as a royal
family.
c. Charismatic authority: Obedience here is based on the follower’s belief that is person
has some special power or appeal.
As per Weber’s theory of bureaucracy rational-legal authority is the most important type of
authority in the organization because in traditional authority, leaders are not chosen on the basis
of their capabilities and charismatic authority is too emotional and irrational.
Characteristics of Bureaucracy
1. Division of work: In bureaucracy, the degree of division of work is very high at both the
operative and administrative levels which results in specialization of work.
2. Hierarchy of Positions: In a bureaucratic organisation, there is a well defined hierarchy
of authority wherein each lower position is under the control of a higher one. Thus there
exists, Unity of command. Quantity of authority in such an organization increases as one
move towards the upper level in the organization.
3. Rules and regulations: There exists a very well defined set of rules and regulations in a
bureaucratic organization that are laid down by the top administrators that assures
standardized operations and decisions, protect the human resources and ensure equality of
treatment.
4. Impersonal Conduct: in such organization there exists impersonality of relationships
among the organizational members. There is no room for emotions and sentiments in

13. 11
bureaucratic structures and all decisions and rules and regulations framed are highly
impersonal.
5. Staffing: the employees are employed on contractual basis where in tenure of service is
based on the rules and regulations laid down by the top management. Each employee gets
a salary every month that is based on the job he handles and also on the length of service.
6. Technical Competence: Every selection in such organization is on the basis of technical
competence of bureaucrats. Promotions are also based on technical qualifications and
performance.
7. Official Records: This organizational structure follows an efficient system of record
keeping. All the decisions and activities are formally recorded and preserved safely for
future reference. This is made possible by extensive filing system.
Appraisal of Bureaucracy
Bureaucracy is an administrative device that can help in achieving following advantages:
1. There exists proper delegation of authority where every individual gets work on the basis
of their past performance as well as their capabilities.
2. Well defined set of rules and regulations assure consistent actions.
3. Employee’s behavior is rational and predictable because decision taken are bound to the
rules and regulations and not affected by emotions.
4. It leads to efficiency in the organization that result in specialization due to proper division
of work.
Just like any other theory there has been some criticisms by other theorists in regards to
bureaucracy. They are discussed as follow:
1. The rules laid may be followed in paper and not in reality. The strict rules or guidelines
can instead assure inefficiency. The rules may be misunderstood or misused by the
person concerned that may result in red tapism and technicalism.
2. Individuals cannot take any initiative on their own because they are supposed to follow
the defined code of conduct and rules.
3. Bureaucracy does not place any emphasis on individual goals.
4. Such organization does not consider informal organizational and inter-personal relations.
5. In such organization innovation is highly discouraged because every member of the
organization is supposed to behave in certain manner.
6. Since bureaucratic structures are very tall consisting of several layers of executives
communicating with top level can be difficult for the lower level.
7. Such organizational structure is not effective under dynamic environment because it
cannot undergo the changes that are demanded by the fast changing environment.
Appraisal of Classical Theory
Classical approach made a significant contribution to the development of management theories.
This perspective had three primary thrusts. Scientific management focused on employees within
organizations and on ways to improve their productivity. Administrative theory focused on the
total organization and on way to make it more efficient. Bureaucratic management focused on
eliminating managerial inconsistencies that means it emphasized the position rather than person

14. 12
and organization continues even when individual leave. Classical approach highlighted the
universal character of management principles. It made a clear distinction between operative
activities and managerial activities. It also identified the application of scientific method to the
problems of management and highlighted the need for mutual cooperation between employers
and employees.
The classical theory was highly criticized by the neo-classical and modern theorists. The neo-
classical writers attacked this theory on the basis of treatment given to human beings. Modern
theorists also criticized it on the basis of narrow view they have assumed for the organization by
ignoring the external environment of the organization. The classical writers have been criticized
generally for not taking sufficient account of personality factors and for creating an organisation
structure in which people can exercise only limited control over their work environment. The
idea of sets of principles to guide managerial action has also been subject to much criticism. For
example, Simon writes:
Organisational design is not unlike architectural design. It involves creating large, complex
systems having multiple goals. It is illusory to suppose that good designs can be created by using
the so-called principles of classical organisation theory.
Research studies have also expressed doubt about the effectiveness of these principles when
applied in practice. However, the classical approach prompted the start of a more systematic
view of management and attempted to provide some common principles applicable to all
organizations. These principles are still of relevance in that they offer a useful starting point in
attempting to analyze the effectiveness of the design of organisation structure. The application of
these principles must take full account of:
a) the particular situational variables of each individual organisation,
b) the psychological and social factors relating to members of the organisation.
The other objections against classical theory are:
1. Narrow view of Organisation: the classical writes have ignored human relations aspect
completely. They have stressed only on the formal organization, impersonal decision
making etc. informal groups, interplay of individual personalities, individual goals are all
neglected. It is said that the focus of this theory is on ‘organization without people’.
2. Assumption of closed system: An organisation is an open system that interacts with the
external environment. But in this theory organizational interaction with external
environment is not given any importance and is assumed that organization is a closed
system.
3. Static view of organization: The classical theorists have viewed organization as static
while organization is a dynamic system. The organization can instantly respond to
changes in the environment and adapt accordingly. The environment influences the
organization and is influenced by it too. Thus, the best organizational pattern should
meet the external and internal requirements and these requirements are ever-changing
and dynamic.
4. Unrealistic assumption about human behavior: Here in this theory certain unreal
assumptions have been made by human beings. They assumed human beings as an inert
machine that perform tasks assigned to them and ignore their social, psychological and
motivational aspects of human behavior. Human behavior is the most unpredictable and

15. 13
complex. This assumption of classical writers led the workers to frustration, conflict and
failure and thus made man subordinate to the organization.
5. Economic reward as the main motivators: They have assumed that money and
monetary incentives are the only means to make people work in an organization whereas
this is highly unreal. Non- monetary incentives like job enrichment, praise, respect,
recognition, a pat on the back also plays an important role and can work as real
motivators.
6. Lack of Empirical Verification: All the principles stated above were based on personal
judgments and experiences of the practitioners. The principles lack precision and
comprehensive framework for analysis. Moreover, it is also not clear whether these
principles are action recommendations or simply statements.
7. Neglect of Decision-Making: Decision making plays a vital role in an organization but
classical theorists have paid little attention to decision making process.
8. Hierarchial Structure: Classical theorists have attempted to define the ‘right’
organizational structure. But they did not explore why certain forms of organizational
structure are more effective than others.

16. 14
LESSON-2
NEO-CLASSICAL THEORY OF ORGANISATION
Khushboo Garg
Associate Professor
I.P. University
The classical writers Taylor, Fayol, Weber ignored the human relations aspect within an
organization. The neo-classical approach developed as a reaction to the classical principles but it
did not abandon them altogether.
Neo-classical approach is the extended form of classical approach of management. It builds on
Classical approach, but broadens and expands it; it does not totally divorce itself from its
predecessor. Rather, neoclassical theory adds a more human element to the science of
organization and management. The neo-classical writers have focused on human aspect of the
industry. They modified the classical theory by emphasizing on the fact that organization is a
social system and the human factor is the most important element within it. They conducted
some experiments known as Hawthrone Experiments and investigated informal groupings,
informal relationships, patterns of communication, patterns of informal leadership, etc. Elton
Mayo is generally recognized as the father of the Human Relations School. Other contributors
include: Roethliberger, Dickson, Dewey, Lewin, Simon, Smithburg, Thompson etc.
The human relations approach is concerned with the recognition of the importance of human
element in organizations. It revealed the importance of social and psychological factors in
determining workers’ productivity and satisfaction. According to them an organization cannot
achieve its objectives without the cooperation of people and such cooperation cannot be secured
or ordered. It has to be consciously achieved. Neo-classical approach concentrates on people-
oriented organization where both formal and informal organizations integrate.
Neo-classical approach is based on two main points:
1. Organizational situation should be viewed in social as well as in economic and
technical terms.
2. The social process of group behavior can be understood in terms of clinical
method analogous to the doctor’s diagnosis of human organism.
There are mainly three elements of neoclassical theory of management. They are Hawthorne
Experiment, Human Relation Movement, and Organizational Behavior.
Hawthorne experiments
The Hawthorne studies were a series of experiments conducted at the Western Electric
Company (USA) between 1927 and 1932 that provided new insights into individual and group
behavior (Griffin R W, 2006). The research, originally sponsored by General Electric, was
conducted by Elton Mayo and his associates. The studies focused on behavior in the workplace.
In one experiment involving this group of workers, for example, researchers monitored how
productivity changed as a result of changes in working conditions. The Hawthorne studies and
subsequent experiments lead scientists to the conclusion that the human element is very
important in the workplace.

17. 15
The Hawthorne studies were among the earliest attempts to use scientific techniques to examine
human behavior at work. A three-stage series of experiments assessed the effects of varying
physical conditions and management practices on workplace efficiency. The first experiment
examined the effects of workplace lighting on productivity; it produced the unexpected findings
that changes in lighting had little effect but that changes in social conditions seemed to explain
significant increases in group productivity. Additional experiments led the researchers to
conclude that social factors—in particular, workers’ desires to satisfy needs for companionship
and support at work-explained the results observed across all of the Hawthorne studies. The
Hawthorne experiments may classified into four stages: Illumination experiments, Relay
assembly test room experiments, Mass interviewing program, Bank wiring observation room
study.
Stage 1: Illumination Experiment: This was conducted to establish relationship between output
and illumination. The output tended to increase every time as the intensity of light was improved.
But the output again showed an upward trend when the illumination was brought down gradually
from the normal level. Thus, it was found that there is no consistent relationship between output
of workers and illumination in the factory. There were some other factors which influenced the
productivity of workers when the intensity of light was increased or decreased.
Stage 2: Relay assembly Room Experiment: Here, a small homogeneous work group of girls
was constituted. Several new elements were introduced in the work atmosphere of this group.
These included: job simplification, shorter work hours, rest breaks, friendly supervision,
improved physical conditions, free social interactions among the group and changed incentive
pay. Productivity and morale were maintained even if improvements in working conditions were
withdrawn. The researchers concluded that socio-psychological factors such as feeling of being
important, recognition, attention, participation, cohesive work-group, and non-directive
supervision held the key for higher productivity.
Stage 3: Mass Interview Program: Another significant phase of the experiments was the
interviewing program. The lighting experiment and the relay assembly test room drew attention
to the form of supervision as a contributory factor to the workers’ level of production. In an
attempt to find out more about the workers’ feelings towards their supervisors and their general
conditions of work, a large interviewing program was introduced. More than 20,000 interviews
were conducted before the work was ended because of the depression. Initially, the interviewers
approached their task with a set of prepared questions, relating mainly to how the workers felt
about their jobs. However, this method produced only limited information. The workers regarded
a number of the questions as irrelevant; also they wanted to talk about issues other than just
supervision and immediate working conditions.
As a result, the style of interviewing was changed to become more non-directive and open-
ended. There was no set list of questions and the workers were free to talk about any aspect of
their work. The interviewers set out to be friendly and sympathetic. They adopted an impartial,
non-judgemental approach and concentrated on listening. Using this approach, the interviewers
found out far more about the workers’ true feelings and attitudes. They gained information not
just about supervision and working conditions but also about the company itself, management,
work group relations and matters outside of work such as family life and views on society in
general. Many workers appeared to welcome the opportunity to have someone to talk to about
their feelings and problems and to be able to ‘let off steam’ in a friendly atmosphere. The

18. 16
interviewing program was significant in giving an impetus to present-day human resource
management and the use of counselling interviews, and highlighting the need for management to
listen to workers’ feelings and problems. Being a good listener is arguably even more important
for managers in today’s work organizations and it is a skill which needs to be encouraged and
developed.
Stage 4: Bank Wiring Observation Room Experiment: This experiment was conducted on a
group of workers under conditions which were as close as possible to normal. This group
comprised of 14 workers. After the experiment, the production records of this group were
compared with their earlier production records. There were no significant changes in the two
because of the maintenance of ‘normal conditions’. However, existence of informal cliques in
the group and informal production norms were observed by the researchers. Major observations
were:
1. Each individual was restricting output.
2. The group had its own unofficial standards of performance.
3. Individual output remained fairly constant over a period of time.
4. Department records were distorted due to differences between actual and reported output.
Later re-analyses of the Hawthorne experiments not only found weaknesses in the studies’
methods and techniques, but also suggested that changes in incentive pay, tasks being per- formed,
rest periods, and working hours led to the productivity improvements attributed by researchers to
the effects of social factors. Nonetheless, the Hawthorne studies raised serious questions about the
efficiency-oriented focus of the scientific management and administrative principles perspectives.
In so doing, they stimulated debate about the importance of human satisfaction and personal
development at work. The human relations perspective of management thought that grew out of
this debate redirected attention away from improving efficiency and toward increasing employee
growth, development, and satisfaction.
Human relation movement
Taking a clue from the Hawthorne Experiments several theorists conducted research in the field
of interpersonal and social relations among the members of the organization. These relations are
known as human relations. A series of studies by Abraham H. Maslow, Douglas Mc Gregor,
Frederick Herzberg, Keth Davis, Rensis Likert and others lead to what is human relation
movement (Singh, 1983). Human relation movement argued that workers respond primarily to
the social context of the workplace, including social conditioning, group norms and interpersonal
dynamics.
Organizational Behavior
Several psychologists and sociologists began the study of group dynamics, Chris Argyris,
Homans Kurt Lewin, R.L. Katz, Kahn and others developed the field of organizational behavior.
It involves the study of attitudes, behavior and performance of individuals and groups in
organizational settings. This approach came to be known as behavioral approach. It is extended
and improved version of human relations movement. It is multidimensional and interdisciplinary
the application of knowledge drawn from behavioral sciences (Psychology, sociology,

19. 17
anthropology, etc) to the management problems. Therefore, it is also called behavioral science
approach.
Features of Neo-classical Theory
1. The organization is a social system composed of several interacting parts.
2. The behavior of an individual is dominated by the informal group of which he is a
member.
3. The social environment on the job affects the workers and is also affected by them.
4. The informal organization also exists within the framework of formal organization and is
affected by the formal organization.
5. Monetary incentives are not the only sole motivators for an individual. Non-monetary
incentives also play a vital role in motivating employees.
6. In an organization it is ultimately cooperative attitude and not the mere command which
yields result.
7. There is generally a conflict between organizational and individual goals. For smooth
functioning of organization it is necessary to integrate individual goals with the
organizational goals and vice versa.
8. Morale and productivity can go hand in hand in an organization.
9. Management must aim at developing social and leadership skills in addition to technical
skills. It must take interest in welfare of organization.
10. Both- way communication is necessary in an organization.
Factors affecting Human Relations
Human relations in an organization are determined by the individual, work group, leader and
work environment.
Individual: Behavior of an individual is affected by his feelings, sentiments, values and
attitudes. Motivation of an individual should give due consideration to their economic, social and
psychological needs. Thus, motivation is a complex process.
Work-Group: The work group is the centre of locus of human relations approach. It helps in
determining the attitudes and performance of individual workers. The Hawthrone studies have
shown that informal groups have a majopr influence over the behavioural pattern of workers.
Work Environment: It has been recommended by several human relationist that a positive work
environment results in achievement of not only organizational goals but also leads to employee
satisfaction.
Leader: Leadership plays a major role in an organization. A leader must ensure full and effective
utilization of all organizational resources to achieve organizational goals. He must be patient,
strong, empathetic and should be able to adapt to various personalities and situations. As per
Hawthrone studies, a leader can contribute substantially in increasing productivity by providing a
free, happy and pleasant work environment where bossism is totally absent and where all
members are allowed to contribute towards decision making.

20. 18
Contributions of Human Relations Approach or Hawthrone studies
1. Flat structure: Neo-classical theorists have suggested a flat structure against tall
structure (as given by classical theorists) where decision making involves everyone and is
quicker and much more effective. Here communication chain is shorter and suitable to
motivate employees as much more freedom is given to the employees over here.
2. Social System: the social system defines individual roles and establishes norms that may
differ from those of formal organization. The workers follow a social norm determined
by their co-workers, 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.
3. Informal Organisation: classical theorists did not consider informal groups. Neo-
classical theorists felt that both formal and informal organization must be studied to
understand the behavior of organizations fully. Informal groups can be used by the
management for effective and speedy communication and for overcoming resistance on
the part of workers. Thus both formal and informal organizations are inter-dependent.
4. Decentralization of authority and Decision- making: This has allowed initiative and
autonomy at the lower levels.
5. Non- economic rewards: money is not assumed to be the sole motivator for human
beings. The social and psychological needs of the workers are also very strong. So non-
economic rewards like praise, status, inter-personal relations, etc play an important role
in motivating employees. Such rewards must be integrated with wages and fringe benefits
of the employees.
6. Conflicts: Conflict may arise between 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 organization.
7. Group Dynamics: A group determines norms of behavior for the group members and
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
individuals.
Some leading contributors
Among the best-known contributors to the neo-human relations approach are Herzberg and
McGregor. Herzberg isolated two different sets of factors affecting motivation and satisfaction at
work. One set of factors comprises those which, if absent, cause dissatisfaction. These are
‘hygiene’ or ‘maintenance’ factors which are concerned basically with job environment.
However, to motivate workers to give of their best, proper attention must be given to a different
set of factors, the ‘motivators’ or ‘growth’ factors. These are concerned with job Content.
McGregor argued that the style of management adopted is a function of the manager’s attitudes
towards human nature and behavior at work. He put forward two suppositions called Theory X
and Theory Y which are based on popular assumptions about work and people. Other major
contributors to the neo-human relations approach are:
Likert, whose work includes research into different systems of management;
McClelland, with ideas on achievement motivation and

21. 19
Argyris, who considered the effect of the formal organisation on the individual and psychological
growth in the process of self-actualisation. Argyris major contributions include his work on
organizational learning and on effective leadership.
The neo-human relations approach has generated a large amount of writing and research not only
from original propounders, but also from others seeking to establish the validity, or otherwise, of
their ideas. This has led to continuing attention being given to such matters as organisation
structuring, group dynamics, job satisfaction, communication and participation, leadership styles
and motivation. It has also led to greater attention to the importance of interpersonal interactions,
the causes of conflict and recognition of ‘employee relations’ problems.
Criticism of Human Relation Approach
Neoclassical theory has made significant contribution to an understanding of human behavior at
work and in organization. It has generated awareness of the overwhelming role of human factor
in industry. This approach has given new ideas and techniques for better understanding of human
behavior. Contributors to this approach recognize an organization as a social system subject to
the sentiments and cultural patterns of the member of the organization, group dynamics,
leadership, motivation, participation, job environmental, etc constitute the core of the
neoclassical theory. This approach changed the view that employees are tools and furthered the
belief that employees are valuable resources. It also laid the foundation for later development in
management theory.
The human relations approach has provided modifications to classical approach and has
considered the employees as humans that was missing in the classical theory. They understood
the need of two-way communication, informal groups, non-monetary incentives and several
other aspects that led to the betterment of employees in the organization. But still this theory
suffers from certain limitations. It was found incomplete, short-sighted and lack of integration
was found among many aspects of human relations studied by it. Some of those objections are
given below:
1. Limited Applicability: The various structures of organization given by neo-classical
theorists are not universal. Their application is limited. There is no particular structure
which may serve the purpose of all organizations. The relationists also overlooked
some of the environmental constraints which managers cannot ignore and this lapse
makes the applicability of this theory limited.
2. Lack of Scientific Validity: most of the conclusions of this approach were drawn
from Hawthrone studies. These conclusions were based on clinical insights rather
than on scientific evidence. The groups chosen for study were not representative in
character. The findings were based upon temporary groups that cannot be applied to
groups that have continuing relationship with one another.
3. Unreal Assumptions: the assumption that says that there is a solution of every
problem which satisfies everyone in the organization is unreal. Often there are
conflicts of interest among various groups in the organisation that are structural and
not merely psychological.
4. Negative View of Conflict between Organisational and Individual Goals: it views
conflict between the goals of the organization and those of individuals as destructive.

22. 20
The positive aspects of conflicts such as overcoming weakness and generation of
innovative ideas are ignored.
5. Over-emphasis on Group: This approach has over emphasized on group and group
decision-making. But in actual practice, groups may sometimes create problems for
management and collective decision making may not lead to a rationale consensus.
6. Over-stretching of Human Relations: it is assumed here that satisfied workers are
more productive whereas this may not hold true always. This approach says that all
organizational problems are subject to solutions through human relations whereas this
might not hold true always.
7. Limited focus on work: this approach throughout has only talked about humans and
human relations in an organisation. It does not come out with new and better ways to
improve productivity n an organisation. It lacks adequate focus on work. It has over
emphasized the psychological aspects at the cost o9f the structural and technical
aspects.
8. Over-concern with Happiness: the Hawthrone studies suggested that happy
employees will be productive employees. This equation between happiness and job
satisfaction is unfortunate as it represents a naïve and simplistic view of the nature of
man. Studies have shown a consistent relationship between happiness or morale and
productivity. It is quite possible to have a lot of happy but unproductive workers.
Classical Vs Neoclassical theory:
Classical and neoclassical approach to management made outstanding contribution to the
development of management thought. Under classical approach, attention was focused on job
and machine. On the other hand, neoclassical approach to management emphasizes on increasing
production through an understanding of people. According to proponents of this theory, if
managers understand their people and adapt their organizations to them, Organization success
will usually follow. However, the classical theory stresses on task and structure while the
neoclassical theory emphasizes people aspect.
Points of Distinction Classical Approach Neo classical Approach
Focus Functions and economic demand of
workers
Emotions and human qualities
of workers
Structure Impersonal and mechanistic Social System
Application Autocratic management and strict
rules
Democratic process
Emphasis Discipline and rationality Personal security and social
demand
Work goal of workers Maximum remuneration and
reward
Attainment of organisational
goals
Concept about men Economic being Social being
Relation Formal Informal
Nature Mechanistic Organistic
Content Scientific management,
administrative management and
bureaucratic management
Hawthrone experiments,
human relation movement and
organisational behavior.

23. 21
Classical and Neo-classical: A concluding note
Classical and neoclassical approaches made a crucial role in the advancement of management
theories and practices. The adopted management approaches are important due to the facts that
determine the efficiency and congenial environment with which managerial activities are
performed. In this era of rapid economic development and industrial expansion of different
nations, classical and neoclassical theorists made an undeniable role by developing different
techniques of production and it enabled every nation to be involved in this global market.
Though classical theory is now treated to be outdated, it is important because it introduced the
concept of management as a subject for intellectual analysis and provided a basis of ideas that
have been developed by subsequent schools of management thought. Neoclassical approach put
overemphasis on human variables and symbolic rewards which may not be appreciated by the
recipient’s significant others”. It serves as the “backbone” to many current management theories.
So, it is clear that the field of management have some remarkable and pertinent theories which
are underpinned by pragmatic study evidence. This development holds a rather brighter future
for the study, research, and practice of management.
Behavioural Science Approach
Under behavioral science approach, the knowledge drawn from behavioral sciences, namely,
psychology, sociology and anthropology, is applied to explain and predict human behavior. It
focuses on human behavior in organisations and seeks to promote verifiable propositions for
scientific understanding of human behavior in organisations. It lays emphasis on the study of
motivation, leadership, communication, group dynamics, participative management, etc. it
believes that it is difficult to understand the sociology of a group separate from the psychology of
the individual comprising it and the anthropology of the culture within which it exists. Thus, the
behavioural sciences are transactional; they are concerned with all relevant aspects of human
behavior including the interactions among all important factors.
Data is objectively collected and analyzed by the social scientists to study varius aspects of
human behavior. The pioneers of this school reasoned that in as much as managing involves
getting things done with and thought people, the study of management must be centred around
people and their interpersonal relations.
Quantitative or Management Science Approach
The quantitative or mathematical approach uses pertinent scientific tools for providing a
quantitative basis for managerial decisions. The abiding belief of this approach is that
management problems can be expressed in terms of mathematical symbols and relationships.
The basic approach is the construction of a model because it is through this device that the
problem is expressed in its basic relationships and in terms of selected objectives. The users of
such models are known as management scientists.
The technique commonly used for managerial decision-making include Linear Programming,
Critical Path Method (CPM), Program Evaluation Review Technique (PERT), Games Theory,
queuing Theory and Break-Even Analysis. The application of such techniques helps in solving
several problems of management such as inventory control, production control, price
determination, etc.

24. 22
LESSON-3
MODERN ORGANISATION THEORY
Khushboo Garg
Associate Professor
I.P. University
The modern management thinkers define organisation as a system and also consider the impact
of environment on the effectiveness of the organisation. This theory treats organisation as a
system of mutually dependent variables. This theory has been developed on a strong conceptual
analytical base and is based on empirical research data. The modern organisation theory has been
evolved on the pattern of General System Theory (GST). The General System Theory studies the
various parts of a system and interaction between them in an integrated manner an also considers
the interaction of the system with the external environment. The modern organisation theory uses
the concepts of GST and facilitates the analysis of nay organisation.
As a result, two approaches have gained importance after 1960s which are as follows:
a. Systems Approach
b. Contingency Approach
Systems Approach
The classical theories of organization were, in the first place, interested in the material and
financial aspects of the organization, and the human relations and human resources theories in
the psychological aspects of the organization.
The system method of treatment is relating to the investigating into the component part of the
organizational systems in the multidirectional connections between the causes and effects in the
organization. It is conceived of the feed forward and feedback information. With a system
approach we deal with the organization as a system whole consisting of the mutually connected
parts. The system approach means dealing with these parts in their mutual connection as a part
of the whole. A no system approach in the investigating into the organization, however, means
dealing with the parts of a whole, irrespective of the mutual connection. It is just for this reason
that the no system dealing with the organization is only a partial one and cannot explain the
organizational phenomena in their totality. The totality of the organization and of its phenomena
can be explained only by the system approach.
According to Kats and Rosenzweig, “A system is an organized, unitary whole composed of two
or more independent parts, components or sub-systems and delineated by identifiable boundaries
from its environmental supra system.” It is simply an assemblage or combination of things or
parts, forming a complex whole.
Features of Organisational system:
i. A system is goal-oriented.
ii. A system consists of several sub-systems that are interdependent and inter-related.
iii. A system is engaged in processing or transformation of inputs into outputs.
iv. An organisation is an open and dynamic system. It has continuous interaction with the
environment. It is sensitive to its environment such as government policies, competition
in the market, change in tastes and preferences of people, etc.
v. A system has a boundary which separates it from other systems.

25. 23
Open system Concept:
With the emergence in the 1960s of the open systems perspective, human relations concerns
related to employee satisfaction and development broadened to include a focus on organizational
growth and survival. According to the open systems perspective, every organization is a system
unified structure of interrelated subsystems and it is open subject to the influence of the
surrounding environment. Together, these two ideas form the essence of the open systems
approach, which states that organizations whose subsystems can cope with the surrounding
environment can continue to do business, whereas organizations whose subsystems cannot cope
will not survive. The systems approach views the organisation as a whole and involves the study
of the organisation in terms of the relationship between technical and social variables within the
system. Changes in one part, technical or social, will affect other parts and thus the whole
system.
Long-wall coal-mining study
The idea of socio-technical systems arose from the work of Trist and others, of the Tavistock
Institute of Human Relations, in their study of the effects of changing technology in the coal-
mining industry in the 1940s.
The increasing use of mechanization and the introduction of coal-cutters and mechanical
conveyors enabled coal to be extracted on a ‘long-wall’ method. Shift working was introduced,
with each shift specializing in one stage of the operation – preparation, cutting or loading.
However, the new method meant a change in the previous system of working where a small, self-
selecting group of miners worked together, as an independent team, on one part of the coalface –
the ‘single place’ or ‘short-wall’ method. Technological change had brought about changes in the
social groupings of the miners. It disrupted the integration of small groups and the psychological
and sociological properties of the old method of working. There was a lack of co-operation
between different shifts and within each shift, an increase in absenteeism and signs of greater
social stress. The ‘long-wall’ method was socially disruptive and did not prove as economically
efficient as it could have been with the new technology. The researchers saw the need for a
socio-technical approach in which an appropriate social system could be developed in keeping
with the new technical system. The result was the ‘composite long-wall’ method with more
responsibility to the team as a whole and shifts carrying out composite tasks, the reintroduction
of multi-skilled roles and a reduction in specialization. The composite method was
psychologically and socially more rewarding and economically more efficient than the ‘long-
wall’ method.
The socio-technical system
The concept of the organisation as a ‘socio-technical’ system directs attention to the
transformation or conversion process itself, to the series of activities through which the
organisation attempts to achieve its objectives. The socio-technical system is concerned with the
interactions between the psychological and social factors and the needs and demands of the
human part of the organisation, and its structural and technological requirements. Recognition of
the socio-technical approach is of particular importance today. People must be considered as at
least an equal priority along with investment in technology. For example, Lane et al. point out
that major technological change has brought about dramatic changes in worker behavior and

26. 24
requirements. It is people who unlock the benefits and opportunities of information
communication technology.
Technology determinism
The concept of socio-technical systems provides a link between the systems approach and a sub-
division, sometimes adopted – the technology approach. Writers under the technology heading
attempt to restrict generalizations about organizations and management and emphasize the
effects of varying technologies on organisation structure, work groups and individual
performance and job satisfaction. This is in contrast with the socio-technical approach which did
not regard technology, per se, as a determinant of behaviour. Under the heading of the
technology approach could be included the work of such writers as Walker and Guest (effects of
the assembly line production method on employee behavior);
Sayles (relationship between technology and the nature of work groups); and Blauner (problems
of ‘alienation’ in relation to different work technologies).
In one of the seminal works on the open systems perspective, Daniel Katz and Robert Kahn
identified the process shown in Figure as essential to organizational growth and survival.
This process consists of the following sequence of events:
a. Every organization imports inputs, such as raw materials, production equipment, human
resources, and technical know-how, from the surrounding environment. For instance,
Shell Oil Company hires employees and, from sources around the world, acquires
unrefined oil, refinery equipment, and knowledge about how to refine petroleum
products.
b. Some of the inputs are used to transform other inputs during a process of throughput. At
Shell, employees use refinery equipment and their own know-how to transform unrefined
oil into petroleum products such as gasoline, kerosene, and diesel fuel.
c. The transformed resources are exported as outputs—saleable goods or services—to the
environment. Petroleum products from Shell’s refineries are loaded into tankers and
transported to service stations throughout North America.
d. Outputs are exchanged for new inputs, and the cycle repeats. Shell sells its products and
uses the resulting revenues to pay its employees and purchase additional oil, equipment,
and know-how.
Fig. The Open System Perspective
Source: Katz and Kahn, 1966

27. 25
According to Katz and Kahn, organizations will continue to grow and survive only as long as
they import more material and energy from the environment than they expend in producing the
outputs exported back to the environment. Information inputs that signal how the environment
and organization are functioning can help determine whether the organization will continue to
survive. Negative feedback indicates a potential for failure and the need to change the way things
are being done.
An open system obtains inputs such as raw materials, labor, capital, technology and information
from the environment. Operations are performed upon the inputs and combined with the
managerial process to produce desirable outputs which are supplied back to the environment i.e.
customers. Through a feedback process, the environment’s evaluation of the output becomes part
of the inputs for further organizational activity. If the environment is satisfied with the output,
business operations continue. If it is not, changes are initiated within the business system so that
the requirements of the customers are fully met. This is how an open system responds to the
forces of change in the environment.
After noting that every organization’s environment is itself composed of a collection of more or
less interconnected organizations supplier companies, competitors, and customer firms. Emery
and Trist proposed the existence of four basic kinds of environments.
a. The first kind, which they labeled the placid random environment, is loosely
interconnected and relatively unchanging. Organizations in such environments operate
independently of one another, and one firm’s decision to change the way it does business
has little effect on its rivals. These organizations are usually small for example, landscape
maintenance companies, construction firms, and industrial job shops and can usually
ignore each other and still stay in business by catering to local customers.
b. Placid clustered environments are more tightly interconnected. Under these conditions,
firms are grouped together into stable industries. Environments of this sort require
organizations to cope with the actions of a market fairly constant group of suppliers,
competitors, and customers. As a result, companies in placid clustered environments
develop strategic moves and countermoves that correspond to competitors’ actions.
Grocery stores in the same geographic region often do business in this type of
environment, using coupon discounts, in-store specials, and similar promotions to lure
customers away from other stores.
c. Disturbed reactive environments are as tightly interconnected as placid clustered
environments, but are considerably less stable. Changes that occur in the environment
itself have forceful effects on every organization. For instance, new competitors from
overseas, by increasing automation and changing consumer tastes in the U.S. automobile
market, revolutionized the domestic auto industry in the 1970s and 1980s. In response,
GM and Ford had to change their way of doing business, Chrysler ultimately merged
with Germany’s Daimler-Benz to become Daimler-Chrysler, and a fourth long-time
manufacturer, American Motors, ceased to exist. In such circumstances, organizations
must respond not only to competitors’ actions but also to changes in the environment
itself. Owing to their unpredictable ability, it is difficult to plan how to respond to these
changes.
d. Turbulent fields are extremely complex and dynamic environments. Companies operate
in multiple markets. Public and governmental actions can alter the nature of an industry

28. 26
virtually overnight. Technologies advance at lightning speed. The amount of information
needed to stay abreast of industrial trends is overwhelming. As a result, it is virtually
impossible for organizations to do business in any consistent way. Instead, they must
remain flexible in the face of such uncertainty, staying poised to adapt themselves to
whatever circumstances unfold. Today’s computer and communications industries
exemplify such sort of environment. Technological change and corporate mergers are
creating and destroying entire categories of companies at ever-increasing rates.
Emery and Trist suggested that organizations must respond in different ways to different
environmental conditions. Tighter environmental interconnections require greater awareness
about environmental conditions, and more sweeping environmental change necessitates greater
flexibility and adaptability. Other open systems theorists, including Paul Lawrence, Robert
Duncan, and Jay Galbraith, have similarly stressed the need for organizations to adjust to their
environments.
Scott Model: Analysis of Organisation System
According to W.G. Scott, the systems theory asks a range of inter-related questions which are not
seriously considered by the classical and neo-classical theories. The important questions are:
1. What are the strategic parts of the system?
2. What is the nature of their mutual dependency?
3. What are the main processes in the system which link the parts together, and facilitate
their adjustment to each other?
4. What are the goals sought by the system?
Parts of the System
Scott has discussed five parts of the system:
1. Individual: Individual and his personality structure (motives and attitudes) is a basic part
of the system.
2. Formal Organisation: it is interrelated pattern of jobs which make up the structure of a
system. There is generally an incongruency between the goals of the organisation and
those of organisational members. Modern organisational theory has given considerable
attention to this aspect of inter-action of organisational and individual demands.
3. Informal Organisation: it comes into existence along with the formal organisation
automatically. Individuals have expectations from the informal organisation and the
informal organisation also demands same type of behavior from the individuals. Both
these sets of expectations interact resulting in modifying the behavior of one another.
4. Fusion Process: it is a force which acts to weld divergent elements together for the
preservation of organisational integrity. It may be noted that a part of modern
organisational theory rests on research findings in social psychology relative to reciprocal
patterns of behavior stemming from role demands generated by both formal and informal
organisation, role perceptions peculiar to the individual.
5. Physical Setting: the physical setting in which a job is performed is also very important.
Interactions present in the complex man-machine system need to be carefully studied.

29. 27
The human engineer cannot approach this problem in a purely technical fashion. He has
to take the help of social theorists like psychologists and sociologists.
The various parts of a system are interwoven or interlinked. The interconnection is achieved by
three linking processes, namely, communication, balance and decision-making.
1. Communication: communication is viewed as the method by which action is evoked from
the parts of the system. Communication acts as stimuli resulting into action, and as a
control and coordination mechanism linking the decision centers in the system in a
synchronized pattern.
2. Balance: Balance refers to an equilibrating mechanism whereby the various parts of the
system are maintained in a harmoniously structured relationship to one another. Balance
appears in two varieties: quasi-automatic and innovative. Both act to ensure system
integrity in the face of changing environment. By quasi-automatic balance we mean that
the system has built in propensities to maintain steady states. If human organisations are
open, self-maintaining systems, then control and regulatory processes are necessary.
Adaptation by a system is generally automatic when changes are minor in nature. The
need for innovative balancing efforts arises when adaptation to a change is outside the
scope of the existing programs designed for the purpose of keeping the system in balance.
New programs have to be found out in order to maintain the integrity of the system.
3. Decision-Making: Decisions refers to the problem solving activity. Two types of
decisions are important, viz., decisions to produce and decisions to participate in the
system. Decisions to produce are largely a result of interaction between individual
attitudes and the demands of organisation. Motivation analysis has becoe central to
studying the nature and resultsof the interactions. Individual decision to participate in the
system reflect on such issues as the relationship between organisational rewards versus
the demands made by the organisation. Whatever may be the kind of decision, decisions
are internal variables in an organisation dependent upon jobs, individual expectations and
motivations, and or5ganisational structure.
Cybernetics: It is a crucial aspect of the systems approach as it is related to both communication
and control. It integrates the linking processes discussed above and creates self-regulatory
systems of flow of information. Cybernetics makes a deep and comprehensive study of
controlled and controllable systems to determine principles governing the organisation and
structure of control systems. It studies the common properties of different control systems and
also the properties which are quite independent of their material basis.
The control process generally involves the transmission, accumulation, storage and processing of
information about the controlled object, process, environment conditions, work program, etc. the
nature of information carried varies widely from system to system. Another characterstic feature
of the whole diversity of such systems is the feedback. Through it they receive information on
the effects or results of their control operations.
The purpose of cybernetics is to maintain system stability in face of change. Cybernetics can’t be
studied without considering communication networks, information flow and some kind of
balancing processes aimed at preserving the integrity of the system. A thorough knowledge of
cybernetics can be used to synthesise the proceses of communication and balance. It is quite

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common that the organisation using sophisticated management information systems adopt
cybernetics models as an integral part of their mode of operation.
Goals of the System: to the system analysis, goals of an organisation are growth, stability and
interaction. The last goal refers to systems which provide a medium for association of members
with others. These goals seem to apply to different forms of organisation at varying levels of
complexity.
Features of Systems Approach
1. Open System view of Organisation: As per classical theory organisation was a closed
system. But modern theory considers organisation as an open system which has
continuous interaction with the environment. It gets various resources from the
environment and transforms them into outputs desired by the environment. Due weight
age has to be given to the environmental factors affecting the management of an
organisation.
2. Adaptive to dynamic environment: An organisation operates in an environment which
is dynamic in nature so a system that is adaptive to such dynamism is needed.
Management tends to bring changes in the sub-systems of the organisation to cope up
with the challenges of environmental forces.
3. Whole Organisation: This approach looks at the organisation as a whole that is greater
than the sum of its parts. The emphasis is given on the summation of various sub-systems
of the organisation to ensure overall effectiveness of the system.
4. Multi-Level Analysis: Systems approach has both macro and micro aspects. At the
macro level, it can be applied to the whole industry or the national economic system. At
the micro level, it can be applied to an organisation and even to a sub-system of the
organisation.
5. Multi-variety analysis: It takes into account many variables simultaneously. This means
that there is no single variable responsible for something to happen rather it may be the
result of many variables that may be interrelated or interdependent. This interrelatedness
and interdependence makes managing quite a complex process.
6. Synergy: the output of a system is always more than the combined output of its parts.
This is called the Law of synergy. The parts of a system become more productive when
they interact with each other than when they act in isolation.
7. Multi-disciplinary: Modern theory of Management is enriched by contributions from
various disciplines like psychology, sociology, economics, anthropology, mathematics,
operations, research and so on.
8. Probabilistic: modern organisation theory is probabilistic rather than deterministic. It
does not predict the outcome of any action because of a high degree of uncertainty in the
environment. Being probabilistic, it only points out the probability and never the certainty
of performance and consequent results.
9. It represents a balanced thinking on organisation and management, and provides a
unified focus to organizational efforts.
Limitations of Systems Approach
1. Lack of unification: this approach cannot be considered as a unified theory of
organisation. It cannot be applied to all types of organisation.

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2. Abstract Analysis: the systems theory is too abstract to be of much use to the practicing
managers. It indicates that various parts of the organisation are interrelated and its
interrelationship is dynamic. But it has failed to spell out the precise relationship between
various sub-systems.
3. Limited View of Organisation-Environment Interface: The systems approach has
failed to specify the nature of interactions and interdependencies between an organisation
and its external environment.
4. Limited Application: It has limited applications. It does not provide action framework
applicable to all types of organizations. Most of the concepts used here cannot be applied
in small organizational structures.
Contingency Approach
The classical approach suggested one best form of structure and placed emphasis on general sets
of principles while the human relations approach gave little attention at all to structure. In
contrast, the contingency approach showed renewed concern with the importance of structure
as a significant influence on organizational performance. The contingency approach, which can
be seen as an extension of the systems approach, highlights possible means of differentiating
among alternative forms of organisation structures and systems of management. There is no one
optimum state.
For example, the structure of the organisation and its ‘success’ are dependent, that is contingent
upon, the nature of tasks with which it is designed to deal and the nature of environmental
influences.
The most appropriate structure and system of management is therefore dependent upon the
contingencies of the situation for each particular organisation. The contingency approach implies
that organisation theory should not seek to suggest one best way to structure or manage
organizations but should provide insights into the situational and contextual factors which
influence management decisions.
It is an improvement over the systems and other approaches. The contingency approach to
management has its roots in general systems theory and the open systems perspective, as well as
in the Simon-March-Cyert stream of theory and research. Thompsom recognized the intersection
of these traditions and extended them in a landmark work that represents a cornerstone of
contingency approach.
The term contingency as used in contingency theory is similar to its use in direct practice. A
contingency is a relationship between two phenomena. If one phenomenon exists, then a
conclusion can be drawn about another phenomenon. For example, if a job is highly structured,
then a person with a freewheeling disposition will have problems with the job. Contingencies can
sometimes be considered conditions.
It suggests that managerial actions and organizational design must be appropriate to given
situation. The latest approach to management which integrates the various approaches to
management is known as “Contingency” or “Situational” approach. It is not new. Pagers and
Myers propagated this approach in the area of personnel management in 1950. However, the
work of Joan Woodward in the 1950s marked the beginning of the contingency approach to
organisation and management. Other contributors include Tom Burns, G.W. Stalker, Paul
Lawrence, Jay Borsch and James Thompson. They analyzed the relationship between the
structure of organisation and the environment. Thus, contingency approach incorporates external

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environment and attempts to bridge the theory-practice gap. In simple words, contingency
approach also regards organisation as an open and dynamic system which has continuous
interaction with the environment.
As per the contingency approach, the task of managers is to try to identify which technique or
method will be more suitable for achieving the management objectives under the available
situation. Managers have to develop a sort of situational sensitivity in order to deal with their
managerial problems as they develop from time to time.
Contingency approach views are applicable in designing organisational structure and in deciding
the degree of decentralization in establishing communication and control systems and also in
deciding motivational and leadership approaches. In brief, it is applicable to different areas of
organisation and management it is an attempt to integrate various viewpoints and to synthesize
various fragmented approaches to management.
Contingency theory attempts to relate research on many management variables, for example,
research on professionalism and centralized decision making or worker education and task
complexity. It allows you to analyze a situation and determine what variables influence the
decision with which you are concerned.
This approach is based upon the fact that there is no one best way to handle any of the
management problems. The application of management principles and practices should be
contingent upon the existing circumstances. Functional, behavioral, quantitative and systems
tools of management should be applied situation ally. There are three major parts of the overall
conceptual framework for contingency management:
i. Management concepts,
ii. Principle and techniques;
iii. Contingent relationship between the above two.
Contingency theory attempts to analyze and understand interrelationships with a view towards
taking the specific managerial actions necessary to deal with the issue. This approach is both
analytical and situational with the purpose of developing a practical answer to the questions in
hand.
It has rejected universality of management principles and it appeals to common sense. It requires
the ability to analyze and diagnose a managerial situation correctly and act accordingly. Use of
contingency approach is not possible without the ability to match the management knowledge
and skills as per the management situation.
It is action-oriented as it directs towards the integrated application of systems concepts and the
knowledge gained from other approaches.
As per contingency approach managers should develop situational sensitivity and practical
selectivity. Adoption of these two traits can prove to be useful in formulating strategies,
designing effective organizations, planning information systems, establishing communication
and control systems, shaping motivational and leadership approach, resolving conflicts,
managing change, etc.
This approach says that there should be congruence between the organisation and its
environment and among the various sub-systems. The appropriate fit between the organisation

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and its environment and the appropriate internal organizational design will lead to greater
effectiveness, efficiency and participant satisfaction. Thus, there is no standard design that could
be applied to all organizations under all situations. Managers have to apply different ideas to
different situations to cope with them and ensure effectiveness and efficiency in decision
making.
The open systems perspective views the complex organisation as a set of interdependent parts
that, together, constitute a whole which, in turn, is interdependent with some larger environment.
The interactive nature of the elements within the organisation - and between the organisation and
the environment - result in at least two open system characteristics that are central to the
contingency approach: adaptation and equi-finality. First, the principle of adaptation asserts that
the elements within the system adapt to one another to preserve the basic character of the system.
Second, the principle of equi-finality holds that a system can reach the same final state from
differing initial conditions and by a variety of paths.
The Simon-March-Cyert stream of work adds to the open systems perspective the view that
organisations are problem-facing and problem-solving entities. The organisation develops
processes for searching, learning and deciding — processes that attempt to achieve a satisfactory
level of performance under norms of bounded rationality. Organisational decision-makers
undertake rational decision processes designed to cope with the complexity and uncertainty of
their situations, all of which result in deliberate decisions by using a satisfying criterion for
performance.
As derived from these conceptual antecedents, the essential premise of the contingency approach
is that effectiveness, broadly defined as organisational adaptation and survival[26], can be
achieved in more than one way. For example, management theorists and researchers have
recognized more than one way to organize effectively, more than one strategy that maximizes
profitability and market position, and more than one leadership style that achieves organisational
goals.
Each way is not equally effective under all conditions; certain organisational actions or responses
are more appropriate than others, depending on the situation. The contingency approach
suggests, therefore, that we can observe wide variations in effectiveness, but that these variations
are not random. Effectiveness depends on the appropriate matching of contingency factors with
internal organisational designs that can allow appropriate responses to the environment.
Theoretical and practical contributions are achieved through:
1. Identifying important contingency variables that distinguish between contexts;
2. Grouping similar contexts based on these contingency variables, and
3. Determining the most effective internal organisational designs or responses in each major
group.
These contingency theory-building steps involve three types of variables;
1. Contingency variables: They represent situational characterstics are usually exogenous to
the organisation or manager. In most instances the opportunity to control or manipulate
these variables is, at best, limited and indirect.
2. Response variables: They are the organisational or managerial actions taken in response
to current or anticipated contingency factors.

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3. Performance Variables: They are the dependent measures and represent specific aspects
of effectiveness that are appropriate to evaluate the fit between contingency variables and
response variables for the situation under consideration.
These steps typically result in contingency theories that focus primarily on outcome or content
issues, rather than on processes. They attempt to determine the organisation structure, strategy or
leadership style to be used in a particular situation, but do not emphasise on the dynamics of the
process by which an organisation adapts or a leader becomes effective.
Usually IF-THEN approach is followed where in If means environment that is an independent
variable and Then means management variable dependent factors. Whenever anything happens
in the environment then all the possible effects of this happening are studied on management
variable and then the most effective solution is selected.
Kats and Rosenzweig have analyzed the suitability of two kinds of structures under different
types of environment. These are:
Stable-mechanistic organizational design: It is used under following situations.
a) When environment is relatively stable and certain
b) Organizational goals are well-defined and enduring
c) Technology used is relatively stable and uniform
d) Productivity is of utmost importance
e) Routine activities take place
f) Decision making is programmable and coordination and control processes tend to make
tightly structured, hierarchical system possible.
Adaptive-organic organisational design: It is used in the following situations.
a) When environment is relatively uncertain and turbulent
b) Organizational goals are diverse and changing
c) Technology is complex and dynamic
d) There are many non-routine activities in which creativity and innovation hold extreme
importance
e) Innovative decision making processes are utilized and coordination and control occur
through reciprocal adjustments. The system is more flexible and less hierarchical.
Contingency Approaches in Organisational Behavior
Within the organisational behavior literature, the contingency approach has made its most
significant contribution in the area of leadership theory and research. Contingency approaches to
leadership tie the leader's effectiveness to the nature of the situation and acknowledge that
worker’s needs and problems vary, requiring that leadership style match the types of individuals
involved and the characteristics of their work situation.
While the situational approach has been used to study leadership since the 1950s
House proposed a theory of leadership that clearly illustrates the contingency approach. He
contends that the functions of a leader vary depending on the needs of subordinates and the type
of work to be accomplished. According to House's theory, a leader obtains good performance
from his/her work unit by increasing subordinates' personal rewards from goal attainment and by
making the path to these rewards easier to follow (e.g. by instructing, reducing roadblocks and

35. 33
pitfalls, and increasing the opportunities for personal satisfaction along the way). To be effective,
the leader must tailor his/her style and approach to individual subordinates and situations. In
ambiguous situations (and with subordinates to whom ambiguity can be frustrating),
effectiveness is achieved when the leadership provides structure. In routine situations, on the
other hand, the additional structure provided may be viewed as redundant and insulting by
subordinates, who may consequently become dissatisfied. In essence, the theory holds that the
level of leader structure depends on the ambiguity of the task, and the level of leader
consideration depends on the intrinsic satisfaction of the task. The theory has been elaborated
and tested since it was proposed.
Appraisal of Contingency Approach
It is an improvement over systems approach. It can be easily applicable in all types of
organizations for all type of decision making. It holds a great promise for future development of
management theories. It rejects the notion of one best way of doing things. It believes in flexible
and adaptive methods to be used to solve management related issues. But still a lot more is
needed to be explored in this context. Contingency approach is not supported by much literature.
Merits
1. It is pragmatic and open minded. It discounts preconceived notions, and universal validity
of principles.
2. It relives managers from dogmas and set principles. It provides freedom to choose,
manage and judge the external environment and use the most suitable management
techniques. Here, importance is given to the judgement of the situation and not the use of
specific principles.
3. It has a wide-ranging applicability and practical utility in organisations. It advocates
comparative analysis of organisations to bring suitable adjustment between organization
structure and situational peculiarities.
4. It focuses attention on situational factors that affect the management strategy. The theory
combines the mechanistic and humanistic approaches to fit particular/specific situation. It
is superior to systems approach as it not only examines the relationship between sub-
systems of an organisation but also the relationship between the organisation and its
external environment.
Demerits
1. It is argued that the contingency approach lacks a theoretical base.
2. Under contingency approach a manager is supposed to think through all possible
alternatives as he has no dried principals to act upon. This brings the need of more
qualities and skills on the part of managers. The responsibility of a manager increases as
he has to analyze the situation, examine the validity of principles and techniques to the
situation at hand, make right choice by matching the technique to the situation and finally
execute his choice. The areas of operation of a manager are quite extensive under this
theory.

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Difference between Contingency and systems Approach:
Points of Distinction Systems approach Contingency Approach
Emphasis Interdependencies and
interactions among systems
and sub-systems
It identifies nature of
interdependencies and the
impact of environment on
organizational design and
managerial styles.
Focus Internal Environment and
organizational sub-systems
External environment of
organization
Solutions It provides deterministic
solutions to all managerial
problems
It provides probabilistic and
pragmatic solutions to all
managerial problems.
Organisational view It views all organisations
alike.
It treats all organisations as
separate unique entity.
Evolution Major contributors in systems
approach have been
psychologists.
Sociologists have contributed
to this approach. It has been
built over systems approach.
Organisational Variables It is very broad considering all
personal, social, technical,
structural, environmental and
organizational variables.
Therefore, managing involves
establishing relationships
among them while
undertaking any action.
It concentrates on structural
adaptation of organisation.
This approach tends to predict
the ultimate outcome of a
disturbance of the
organizational equillibrium by
a change in the task
environment.
Model of Human Beings It usually employs a richer
model of human beings than
contingency model. It takes
into account full range of
human behavior in the
organisation.
It is interested in structural
adaptation of organisation to
its task environment.
Therefore, contingency
theories talk mostly in terms
of structural change in the
organisation in response to a
change in environment.
It is a combination of three
approaches: the classical
approach, the behavioral
approach and the management
science approach.
It combines two or more of the
other approaches depending
on the given situation.
Other Organisational Approaches- A Brief Description
The Decision-making Approach
The systems approach involves the isolation of those functions most directly concerned with the
achievement of objectives and the identification of main decision areas or sub-systems. Viewing
the organisation as a system emphasizes the need for good information and channels of
communication in order to assist effective decision-making in the organisation. Recognition of