BSc (Hons) Business Management Module 2. Organisation Theory and Change Management STUDY GUIDE Organisation Theory and Change Management is the second of four modules which form the BSc (Hons) Business Management top-up degree: • • • • Module 1. Managing into the future Module 2. Organisation Theory and Change Management Module 3. Strategic Management Module 4. Leadership: Theory and Practice © 2012, Management Development Partnership Page 1
STRUCTURE OF THE MODULE The Organisation Theory and Change Management module is divided into four Units: Unit 1: Early Organisational Theory: the Rise and Fall of the Rational Organisation Unit 2: New Paradigms and Perspectives in Organisational Theory Unit 3: Fundamentals of Change Management Unit 4: Developments in Change Management – a Framework for the Future Each Unit covers one of the four Knowledge and Understanding learning outcomes listed on the next page. It should take about three weeks of full time study to cover a Unit.
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Main Reading • Burnes, B. 2009. Managing Change, 5th Ed. (Harlow, FT/Prentice Hall). Referred to throughout as Burnes. Module Aims We tend to think of the time in which we live as being one of unprecedented change particularly with regard to the business environment. When we examine the past, however, it seems to be composed of times of relative stability punctuated by periods of ‘unprecedented change’. Furthermore, even in turbulent times organisations do not all face the same degree of challenge in their environments and some appear better able to cope than others.
Despite the development of a plethora of different approaches, the management of change is still considered to be extremely difficult and highly prone to failure. The aim of this module is to provide you with an understanding of various models of change, to indicate their usefulness and drawbacks, and to enable you to draw your own conclusions as to which approaches are most suitable in different circumstances. To do this, the module considers the context of change by examining organisational structures and management systems together with the behaviours of those who populate organisations.
By the end of the module you should be able to understand and analyse the challenges facing an organisation in order to identify what change models are appropriate in a given situation, evaluate the issues and problems that these approaches may create, and identify actions that will increase the chances of success. © 2012, Management Development Partnership Page 2 LEARNING OUTCOMES By the end of this module, you should be able to: Knowledge and Understanding • • • • Analyse the context and current preoccupations driving the development of organisational theory and change management.
Apply knowledge of how organisational politics, conflict and power affect an organisation’s culture. Understand the background to the development of change management theories. Evaluate the efficacy of different approaches to managing the process of change. Subject Specific Skills (including practical/professional skills) • • • • Understand the relevance of, and be able to apply a range of change management approaches within organisations. Analyse an organisation in order to identify the characteristic of its culture.
Be able to apply change management theory to an understanding of the strategic and change management options available to an organisation. Understand the interaction between available choices of what to change and how to achieve it. Cognitive Skills • • • • Apply appropriate change management approaches to different organisations by matching theory and the practice in the context of an organisation. Examine emerging change management issues from a range of perspectives and challenge viewpoints, ideas and concepts with well-reasoned judgements.
Analyse how changes in the business environment influence the appropriateness of an organisational culture and how this impacts on organisational performance. Identify the appropriateness (or otherwise) of a change management approach that is to be applied to an organisation. Key Transferable Skills • • • • • Develop an in-depth understanding of the different change management models available to organisations. Use increased self-awareness to reflect upon the cultural strengths and weaknesses within organisations.
Effectively analyse and critique alternatives in order to assess the effectiveness of an organisation’s choices in regards of change management. Be able to adapt to change and make effective choices that are appropriate for the situation of the organisation. Through written and verbal communications, present an argument clearly and persuasively supported by relevant theory, research and examples. © 2012, Management Development Partnership Page 3
Introduction Over the past thirty years organisations have had to cope with a wide variety of challenges ranging from globalisation, rapid growth, the emergence of new technologies and new competitors, to falling markets, depressed economies, consolidations, and the collapse of some customers, suppliers, and even the financial institutions who lend them money. A global survey which examined organisational transformation (McKinsey, 2008), concluded that, ‘Organizations need to change constantly … ’. hich highlights the fact that for society at large, and organisations in particular, the magnitude, speed, impact, and especially the unpredictability of change are greater than ever. Similarly, when Hammer and Champy (1993) declared that, ‘… change has become both pervasive and persistent … it is normality’, many people thought it was something of an exaggeration. However, this is now seen as a statement of the blindingly obvious. Organisational change would not be considered particularly important if products and markets were stable and organisational change was rare.
It would be considered even less of an issue if it were easily managed and success could be guaranteed. However, in a recent survey of executives from around the world, McKinsey found that only a third of organizations managed change successfully, and over the years, there has been a continuous stream of examples of change projects that have gone wrong, some disastrously so. (See Bywater, 1997; Chua and Lam, 2005; Cummings and Worley, 1997; Kanter et al, 1992; Kotter, 1996; Stace and Dunphy, 1994; Stickland, 1998. Two highly respected commentators in the field of organisational change, Beer and Nohria (2000), claim that nearly two-thirds of all change efforts fail, and one of the world’s leading management consultancies, Bain & Co, claim the general failure rate is around 70 per cent (Senturia et al, 2008). The striking feature of this failure rate is that it happened despite the wide range of information, advice and assistance that organisations can and do call upon in planning and executing change.
This is perhaps why managers consistently identify the difficulty of managing change as one of the key obstacles to the increased competitiveness of their organisation (Industrial Society, 1997; Dunphy et al, 2003; IBM, 2008; Senturia et al, 2008). What is needed is a clear and practical change theory that explains what changes organisations need to make and how they should make them. Unfortunately, the advice available is often confusing and based on contradictory theories, approaches and recipes.
Although some are well thought out and grounded in theory and practice, others seem disconnected from either theory or reality. Another issue is that each of the major approaches tend to view organisations from the discipline of the author – whether it is psychology, sociology, economics, engineering, etc. – which can result in an incomplete and unbalanced picture. Change theory requires an interdisciplinary perspective. So, regardless of what their proponents may claim, we still do not have an approach to change that is theoretically holistic, universally applicable and practical.
Nevertheless, whilst all theories have drawbacks, some are more useful than others and we need to understand the strengths and weaknesses of each and the situations in which they can be applied. © 2012, Management Development Partnership Page 4 We are all influenced, assisted and, potentially, misled by theory often without realising it. Over our lives we adopt and internalise systems of ideas which we use to guide us. These ‘systems of ideas’ – or in this case organisation theories as they are commonly called – are crucial to change management in two respects.
First, they provide models of how organisations should be structured and managed. Second, they provide guidelines for judging and prescribing the behaviour and effectiveness of individuals and groups in an organisation. To understand how to change organisations, and why it may be necessary, you first need to understand their structure, management and behaviour. As Mintzberg and Quinn (1991) point out, there is often limited knowledge and perhaps false assumptions of organisational structures and practices and change cannot hope to be successful under these circumstances.
A full understanding is necessary if informed choices are to be made when instigating and implementing change. Hence these factors are examined in terms of how organisations actually operate as opposed to how theorists suppose them to operate. The aim is not to provide a ‘hands-on’ practical guide to organisational change, but to enable you to understand various theories and approaches to change within a broader framework of the development, operation and behaviour of organisations, and those who populate them.
The key themes are, therefore: • Understanding the wider theoretical and historical context within which organisations operate, and the pressures and options they face for change. The fact that organisational change cannot be separated from organisational strategy, and vice versa. That organisations are not rational entities per se, although managers usually present their deliberations and decisions as being based on logic and rationality. The tendency to present approaches to change as being limited in number and mutually exclusive.
In practice, however, the range of approaches is wide and can often be used sequentially or in combination. That the appropriateness of each approach is dependent upon the type of change being considered and the constraints under which an organisation operates although these can be changed to make them more amenable to a preferred approach or style of management. That organisations can exercise a wide degree of choice in what they change, when they change and how they change. • • • • • As part of your wider reading you will inevitably include general management textbooks and come across alternative perspectives on organisation theory.
Thus you will come across Systems Theory (treated here as part of Contingency Theory), Total Quality Management, Business Process Re-engineering, IT or Knowledge Intensive Organisations, etc. In this module these perspectives are not covered in depth. This is not to say that they are devoid of usefulness: on the contrary they may be very effective. For the purposes of this module, however, such issues are considered from the point of view of how they are imposed on organisations. You may also come © 2012, Management Development Partnership Page 5 cross material that impinges on the subject matter of change management but from the point of view of political theory, philosophical theory, psychology, sociology etc. For example, you will find much that has been written from a Marxist perspective. Although all of these are interesting, and have a valid contribution to make, the material is usually confusing and not relevant. References • Beer, M and Nohria, N (eds) (2000) Breaking the Code of Change. Harvard Business School Press: Boston, MA, USA. Bywater PLC (1997) Executive Briefings: The Executive Role in Sponsoring Change – Making It Happen.
Bywater PLC: Reading. Chua, A and Lam, W (2005) Why KM projects fail: a multi-case analysis. Journal of Knowledge Management, 9 (3), 6 – 17. Cummings, TG and Worley, CG (1997) Organization Development and Change (6th edition). South-Western College Publishing: Cincinnati, OH, USA. Dunphy, D, Griffiths, A and Benn, S (2003) Organizational Change for Corporate Sustainability. Routledge: London. Hammer, M and Champy, J (1993) Re-engineering the Corporation. Nicolas Brealey: London. IBM (2008) The Enterprise of the Future: IBM Global CEO Study. IBM: Somers, NY, USA. Industrial Society (1997) Culture Change.
Managing Best Practice 35. Industrial Society: London. Kanter, RM, Stein, BA and Jick, TD (1992) The Challenge of Organizational Change. Free Press: New York, USA. Kotter, JP (1996) Leading Change. Harvard Business School : Boston, MA. McKinsey & Company (2008) Creating Organizational Transformations. The McKinsey Quarterly, July, 1 – 7, available at www. mckinseyquarterly. com Mintzberg, H and Quinn, JB (1991) The Strategy Process: Concepts, Contexts and Cases. Prentice Hall: London. Senturia, T; Flees, L; and Maceda, M (2008) Leading change management requires sticking to the PLOT. Bain & Company: London.
Stace, DA and Dunphy, DD (1994) Beyond the Boundaries: Leading and ReCreating the Successful Enterprise. McGraw-Hill: Sydney, Australia. Stickland, F (1998) The Dynamics of Change: Insights into Organisational Transition from the Natural World. Routledge: London. • • • • • • • • • • • • • • © 2012, Management Development Partnership Page 6 Unit 1 (weeks 1 – 3): Early Organisational Theory: the Rise and Fall of the Rational Organisation The learning outcome for this Unit is: Analyse the context and current preoccupations driving the development of organisational theory and change management.
Syllabus • The rise of commerce and the birth of the factory: the relationship between employers and employees; industrialisation and the organisation of work; Industrialisation in Europe, Scandinavia and the USA. The notion of organisational effectiveness. The development of organisational theory: Classical Approach; Scientific Management; Motion study; Fayol – administration; Weber – Bureaucracy. The Human Relations approach: The Hawthorne Experiments; Barnard’s cooperative systems; Maslow’s Hierarchy of needs; McGregor’s Theory X and Theory Y; Job Design.
The Contingency Theory approach: The importance of the organisation’s environment – Burns and Stalker, Lawrence and Lorsch, Thompson; The importance of technology, Woodward and Perrow; The importance of size, the Aston Group. • • • • Core Reading BURNES: CHAPTERS 1 AND 2 Unit Content In this Unit we examine the factors that led to the development of organisation theories and put these developments in the context of the times in which the theories were developed. Though considered academically obsolete, these theories underpin much of modern theory and still have an extensive influence on today’s organisations.
Chapters 1 and 2 from Burnes provide the core material for this unit and should be read in their entirety. We need first to make a minor diversion in order to address a term that will crop up throughout the module: this is the concept of ‘organisational effectiveness’. Instinctively, we think we understand what this is. It is only when we begin to think a little more profoundly that the problem reveals itself, and since the whole thrust of organisation theory and change management theory is about how to obtain and improve organisational effectiveness, it is important to establish at the outset what we mean by it.
The Supplementary Reading 1 (see end of Unit), examines the issues behind the definitions. The meaning of the term has undoubtedly changed over time. Initially, it was thought to be more or less synonymous with the financial return to the owners of © 2012, Management Development Partnership Page 7 a company. Subsequently, the interests of an increasingly wide range of ‘stakeholders’ needed to be taken into account. Hence the focus of organisational effectiveness became more complex but these were still the only focus. Many stakeholders could be seen to have conflicting aims.
As John Gross (2004) put it, “The self-fulfillment of a mouse is not entirely compatible with the self-fulfillment of a cat”. Latterly, the focus of organisational effectiveness has become how organisations structure and organise themselves to achieve their goals, whatever they may be. As a consequence, organisational effectiveness now concerns not just what organisations achieve but how they achieve it. Industrial organisations were virtually unknown before the beginnings of the Industrial Revolution in the mid 18th century. See Supplementary Reading 2 at the end of the Unit) Since then commercial organisations have not only come to permeate every aspect of our lives, but they have also acquired a diverse range of theories, nostrums and semi-sacrosanct beliefs about how they should be structured, managed and changed. Burnes Chapter 1 discusses the origins of organisations from the Industrial Revolution to the early years of the twentieth century when the first comprehensive theory of organisations emerged.
Two of the overarching and complementary characteristics of this period were the conflict between workers and managers, and the search for a systematic, scientific, and above all efficient approach to running and changing organisations. The key themes of this chapter are: • Although industrialisation was primarily concerned with the move from a subsistence economy to a money-market economy, the main enabling mechanism for this was the creation of the factory system. The pattern and purpose of industrialisation varied from country to country.
In Britain and the USA it was driven by individuals seeking profit maximisation. In Germany in particular, but also in France, industrialisation was largely statesponsored with the aim of furthering the economic and military objectives of the state rather than increasing the profit-making capacity of individuals. The development of organisation theory coincided with the need by managers to legitimate and enhance their authority to initiate change. • • Manufacturing organisations responded to the opportunities created by commerce and in doing so created the problems that organisation theory seeks to address.
The rapid expansion of national and international commercial activity, driven mainly by a merchant class, created opportunities and problems that could not be accommodated under the old order. The result was a move away from autonomous, individual units of production to collective units of production controlled by an entrepreneur – the factory system which is the precursor of all modern organisations. Although factories were arguably more efficient (from the merchant’s point of view at least), their main advantage lay in increasing control over the employees, e. g. dictating what was made, how and when.
In the section headed ‘The relationship between employers and employees’ (Burns, pp. 14-15), we can see the first manifestation of a key feature of the early factory © 2012, Management Development Partnership Page 8 system that polluted industrial attitudes down the years: the antagonistic relationship between owners, with a predominantly master/servant mindset, and employees. Decisions made by the generally autocratic owners in every area of management were often ruthless, erratic, capricious and arbitrary, and frequently counterproductive. Factories became battlegrounds with owners eeking to impose new conditions and equipment, whilst workers resisted, overtly (by striking) or covertly (including sabotage). The contribution of early theorists is highlighted in ‘Industrialisation and the organisation of work’. Note, particularly, the first appearance in print of the concept of the division of labour in Adam Smith’s, The Wealth of Nations (1776), a fundamental innovation still in operation today. The next section examines the pattern of industrial development in Britain, Continental Europe, Scandinavia and the US highlighting their different responses to particular circumstances and needs.
Even at this stage some of the divisions in underlying attitudes towards the organisation of work that continue to the present day can be seen. Later we will refer back to this section when we review the concept of national cultures which can affect how organisations manage themselves. The Classical School The contributions of Frederick Taylor in the US, Henri Fayol in France and Max Weber in Germany to the development of organisational theory are examined in the section ‘Organisation theory: the Classical approach’ (Burns, p31).
This section examines how, from different backgrounds but with complementary motivations, they attempted to replace arbitrary and capricious management and its ad hoc rule-ofthumb approach to organisations, with a universally applicable theory of how to manage. Their aim was to devise management structures that would efficiently and effectively achieve the organisations objectives. Their approaches fused into what became known as the Classical school of organisation theory characterised by • • • A horizontal and hierarchical division of labour.
The minimisation of human skills and discretion. An attempt to construe organisations as rational-scientific entities. The basic assumptions underlying the Classical approach can be summarised as: • • • There is one best way for all organisations to be structured and operate. Their approach is founded on the rule of law and legitimate managerial authority. Organisations are rational: they are collective entities consistently and effectively pursuing rational goals. People are motivated to work solely by financial reward.
Human fallibility and emotions, at all levels in the organisation, should be eliminated because they threaten the consistent application of the rule of law and the efficient pursuit of goals. • • © 2012, Management Development Partnership Page 9 • For this reason, the most appropriate form of job design is based on the hierarchical and horizontal division of labour to create narrowly focused jobs. These should be encased in tight, standardised procedures and rules which remove discretion, dictate what job-holders do and how they do it, and allow their work to be closely monitored and controlled by their direct superiors.
Further details of the Classical School can be found in Supplementary Reading 3 at the end of this Unit. The Classical Approach was a landmark in organisation theory and practice. For most of the 20th century, particularly in large private-sector organisations and the public sector, bureaucracy was seen as the ‘one best way’. The Classical Approach was the beginning of ‘scientific management’ and its reception varied. In the USA, early opposition from trade unions diminished after a while giving way to more or less universal adoption.
At opposing ends of the political spectrum it was enthusiastically taken up in communist Russia and capitalist Japan. European countries in general, both management and unions, rejected it. It was promoted by the Marshall Plan to help European industry recover and improve performance after the Second World War (Carew, 1987; Rose, 1988). Overall the Classical Approach had an enormous impact and its long shadow still stands over today’s organisations. It was the first real and consistent attempt at a set of guidelines for constructing, managing and changing organisations.
However, given that it grew out of (and was designed to respond to) particular circumstances, so its appropriateness began to be questioned as these changed. Ultimately the Classical approach, whilst it was a significant advance on what went before, was badly flawed. Its view of human nature and motivation was inaccurate and counterproductive. It alienated workers from, and made them resentful of, the organisations that employed them. The Classical School not only constrained workers’ ability to make and block change.
By laying down hard and fast rules of what was and was not best practice, it also constrained management’s freedom of action thus alienating many managers as well as workers. The Human Relations School The Human Relations approach was a reaction against the mechanistic, pessimistic view of human nature put forward in the Classical approach. It attempted to reintroduce the human element into organisational life and claim for itself the title of the ‘one best way’.
The Human Relations School contended that; • • people have emotional as well as economic needs, organisations are cooperative systems that comprise informal structures and norms as well as formal ones, workers have to be involved in change if it is to be successful. • The Human Relations School concentrated on researching the sociological and psychological aspects of the working environment, such as human interaction, motivation and work-related needs – including the need for belonging and © 2012, Management Development Partnership Page 10 elf-esteem. The theorist who dominated this school of thought was Elton Mayo who carried out a series of experiments now known as the Hawthorne Experiments. Other theorists include Douglas McGregor (Theory X and Y), Frederick Herzberg (Two Factor Theory) and Abraham Maslow (Hierarchy of Needs). These are described in more detail in the first few pages of Burnes, Chapter 2 (read up to the Contingency Theory section). Activity As you read this section, think about the problems of trying to apply their theories and recommendations in real organisations.
What detailed, concrete steps could you take to put this into practice? The Human Relations Approach seems intrinsically attractive and plausible, but despite this it faced opposition on several counts (Rose, 1988; Kerr and Fisher, 1957; Landsberger, 1958; Whyte, 1960): • Economists rejected the argument that non-material incentives have a potentially stronger motivating influence than material incentives. (One could respond, “Well, they would say that wouldn’t they” but it seems the evidence for the motivational influence of both material and non-material incentives is not strong. The emphasis placed by the proponents of the Human Relations approach on the need for ‘togetherness’ and ‘belonging’ was seen by some as a denial of individualism. Others thought that it belittled workers and portrayed them as irrational beings who, given the chance, would cling to management as a baby clings to its mother. Trade unions saw Human Relations as a vehicle for manipulating labour and undermining, or even attempting to eliminate, trade unions. Perhaps paradoxically, a criticism by management was that its supposedly powerful manipulative techniques were either useless or inoperable!
Sociologists criticised it for attempting a sociological analysis of organisations without taking account of society at large within which each organisation exists. There are undoubted inconsistencies in the interpretation of the Hawthorne Experiments. Maslow’s work was found to lack empirical substance when researchers attempted to validate it. Bennis’s views (predicting the death of bureaucracy) were attacked because evidence showed that bureaucracy was growing rather than declining (Pugh et al, 1969a, 1969b).
Even the proposition that increased job satisfaction leads to increased performance was attacked (Kelly 1982b). Page 11 • • • • • • • • © 2012, Management Development Partnership A criticism that the Human Relations approach shares with the Classical approach is that it claims to be the ‘one best way’. It seemed implausible that any approach could claim that there is only one method of structuring and managing organisations, and that it holds good for all organisations and for all time.
The most telling argument against the ‘one best way’ approach is that presented by Davis et al (1955): if jobs and work organisation are social inventions designed to meet the needs of societies and organisations at particular points in time, then there can never be a one best way for all organisations and for all times. (Further information on the Human Relations School can be found in Supplementary Reading 4 at the end of this Unit. ) Contingency Theory The continuing co-existence of both the Classical and Human Relations approaches left managers with something of a dilemma as to which ‘best way’ to adopt.
In response to this, Contingency Theory emerged in the 1960s. This grew from questioning and rejecting the idea that there is a ‘one best way’ for all organisations. Instead, it argued for a ‘one best way’ for each organisation. It did not, therefore, reject the Classical and Human Relations approaches; instead it maintained that the structures and practices of an organisation are dependent (i. e. contingent) on the circumstances it faces. Contingency theorists based their approach on systems theory which created a clear departure from the Classical approach and Human Relations School.
Systems theory views organisations as organisms that interact with their external environments. The Classical and Human Relations Approaches had tended to view organisations as closed systems (an arguably reasonable stance as their focus was entirely internal). The Contingent view is consistent with evidence that not all organisations – or even all successful ones – have the same structure, and that even within organisations, different structural forms can be observed (Mintzberg, 1979).
Though many situational variables, such as the age of the organisation and its history, have been proposed as being influential in determining structure, it is generally agreed that the three most important contingencies are the Environment, Technology and Size. Environmental uncertainty and dependence It is argued that the management of any organisation is undertaken in circumstances of uncertainty and dependence, both of which change over time. Uncertainty arises because of our inability ever to understand and control events fully, especially the actions of others whether outside or inside an organisation.
Because of this, forecasting is an inexact and hazardous enterprise. Similarly, the dependence of management upon the goodwill and support of others, whether they be internal or external groups, makes an organisation vulnerable and, in some circumstances, even threaten its very existence. Levels of uncertainty and dependence will vary but can never be totally eliminated. They must, therefore, be taken into account, i. e. treated as a contingency when designing organisational structures and procedures (Burns and Stalker, 1961; Child, 1984; Lawrence and Lorsch, 1967; Pugh, 1984; Robbins, 1987; Thompson, 1967). 2012, Management Development Partnership Page 12 Technology The argument for technology being a key variable follows similar lines to that of the environment. Organisations creating and providing different products and services use different technologies. Even those producing similar products may use different techniques. Since these technologies can vary from the large and expensive, such as a car assembly line, to the relatively small and cheap, such as a personal computer, the form of organisation necessary to ensure their efficient operation will also vary.
If so, there is a need to treat technology as a contingent variable when structuring organisations. There are distinct variants in the case for technology, however, which reflect the different definitions of technology that theorists and researchers have employed. The two best-developed approaches are found in Woodward’s (1965, 1970) studies of ‘operations technology’ and Perrow’s (1967, 1970) analysis of ‘materials technology’. The former refers to the equipping and sequencing of activities in an organisation’s work flow, whilst the latter refers to the characteristics of he physical and informational materials used. Woodward’s work tends to relate more to manufacturing organisations, whereas Perrow’s is more generally applicable (Hickson et al, 1969; Thompson, 1967; Zwerman, 1970). Size Some would argue that this is not just a key variable but the key variable. The case for size being a significant variable has a long antecedence within organisation theory, being first cited by Weber in the early part of the twentieth century when making the case for bureaucracy (Weber, 1947).
The basic case is quite straightforward: it is argued that the structure and practices necessary for the efficient and effective operations of small organisations are not suitable for larger ones. For small organisations, centralised and personalised forms of control are claimed to be appropriate, but as organisations grow in size more decentralised and impersonal structures and practices become more relevant (Blau, 1970; Mullins, 1989; Pugh et al, 1969a, 1969b; Scott, 1987). These arguments are developed in more detail in the second half of Burnes, Chapter 2 which you should now read.
Activity As you read the section on Contingency Theory, you should note the extent to which previous theory is reprised and adapted to become the recommended response to specific contingencies. The Contingency approach can be considered a more cohesive school of thought than either the Classical or Human Relations approaches. It was immediately attractive because: • it was in tune with the times in which it emerged, a period of rapid economic and technological change with a tendency towards much larger organisations and a significant increase in domestic and international competition.
Contingency Theory offered an understanding of why these events were causing problems for organisations, and also how to resolve them (Burnes, 1989). Page 13 © 2012, Management Development Partnership • it seemed simpler to understand and apply than the Human Relations approach. It suggested that if organisations adopt a structure which aligns with their environment, technology and size the result will be good performance. If they do not the result will be poor performance. it sought to apply rationality to organisation design, suggesting in effect a menu of appropriate responses to particular situations, i. . they have to align their structure with their size, technology and environment. • To implement an appropriate organisational structure and maintain its relevance in changing circumstances, the approach to change management implied – but not given voice by Contingency Theorists – was similar to that of the Classical school: managers should analyse data on the situational variables the organisation faced and match these to an appropriate structural option. Employees would inevitably accept the course of action arising from the analysis and would, therefore, co-operate.
Unfortunately the application of Contingency Theory proved to be not so straightforward: • Difficulty arises in relating structure to performance. Without an agreed definition of ‘good performance’ it is difficult to show that linking structure to situational variables brings the benefits claimed (Hendry, 1979, 1980; Mansfield, 1984; Terry, 1976). There are a wide range of factors other than structure which can influence performance, not least of which is luck. There is still no agreed definition of the three key situational variables – environment, technology and size.
This makes it difficult not only to establish a link between them and structure, but also to apply the theory (Dastmalchian, 1984; Mullins, 1989; Pugh and Hickson, 1976; Robbins, 1987; Warner, 1984; Wood, 1979). It has proved difficult to show that the relationship between size and structure has an appreciable impact on performance. It has been suggested that this relationship may rely instead on the political and cultural nature of organisations (Allaire and Firsirotu, 1984; Child, 1984; Mansfield, 1984; Pugh and Hickson, 1976; Salaman, 1979).
Research was inevitably based on the organisation’s formal organisational structure for comparison purposes. Yet the actual operational performance of an organisation may depend more on the informal structures created by workers than the formal ones laid down by management. Structure and associated practices and policies may be strongly influenced by external forces, such as regulation (Mullins, 1993). The assumption that contingencies are a ‘given’ at a point in time has been challenged.
Managers may have a significant degree of choice and influence over not only structure but also situational variables which they may be able to manipulate. • • • • • © 2012, Management Development Partnership Page 14 • It has been argued that an organisation’s environment is socially constructed and managers have the ability to ‘construct’ an environment which serves their needs (Hatch, 1997). A key underlying assumption is that organisations pursue clear-cut, well thought out, stable and compatible objectives that can be fitted into a Contingency perspective.
In practice objectives are often unclear and organisations may pursue a number of conflicting goals at the same time making it difficult to apply a Contingency approach (Abodaher, 1986; Edwardes, 1983; Hamel and Prahalad, 1989; Mintzberg, 1987; Sloan, 1986). The last criticism is that Contingency Theory is too mechanistic and deterministic, and ignores the complexity of organisational life. Organisations are not the rational entities many would like to believe, but must be seen as social systems with all the cultural and political issues that this raises.
Structure is therefore the product of power struggles between individuals and groups within the organisation each arguing and fighting for their own perspective and position (Allaire and Firsirotu, 1984; Buchanan, 1984; Hickson and Butler, 1982; Morgan, 1986; Pfeffer, 1981; Robbins, 1987; Salaman, 1979). • • Therefore, despite its attractiveness, Contingency Theory, like the Classical and Human Relations approaches, fails to provide a convincing explanation for the way organisations do, and should, operate.
Conclusions The whole point of organisation theory is to help organisations analyse and rectify the weaknesses and problems in their current situation, and to assist them in bringing about the changes necessary to achieve their future objectives. The design and management of organisations has moved from an ad hoc process based on guesswork or prejudice, to one that is highly complex and informed by a host of practical and theoretical considerations. One would think that this would have made the running of organisations an easier and more certain process. Unfortunately it has not.
Organisations are larger and more complex than in the past whilst the practical guidelines and theories available to managers give conflicting and confusing signals. Simple solutions are always beguiling. This is one of the reasons why the Classical approach, with its deep roots in the Industrial Revolution and its straightforward mechanical approach to organisations and their members, has proved so enduring despite strong evidence of its lack of suitability in many situations. Quick-fix solutions to the perceived problems of organisational life arise time and again, e. g. anaceas such as new technology, human resources management, Total Quality Management, Business Process Re-engineering, culture change, etc. Such initiatives may be beneficial but they encourage a reductionist, fragmented approach and can create an atmosphere of resignation as one ‘fad’ is succeeded by another with none given the time necessary to prove itself (Collins, 2000) Short-term piecemeal initiatives do not seem to work over the long term which requires a more holistic and consistent approach. The choice is still problematic: all the approaches considered here have their supporters and critics.
All may be capable © 2012, Management Development Partnership Page 15 of helping organisations to diagnose or understand their present situation and how they got there. However, none has universal acceptance as providing guidance for the future. Similarly, it is not obvious how organisations should actually achieve the process of transformation. The Human Relations movement offers guidance such as having clear objectives, good communication and leadership, but is not helpful in explaining how change objectives should be set, planned and implemented.
Contingency Theory provides a process for setting objectives stressing the need to identify and analyse the situational variables an organisation faces in order to choose the most appropriate structure. However, planning and implementation issues are assumed to be straightforward which flies in the face of reality. It is also not clear what benefits would derive from implementing the recommendations of the Human Relations Approach or Contingency Theory given the criticisms of these approaches. None of the approaches discussed so far provides a solution to all the known organisational ills that their proponents claim.
All fail to reflect and explain the complexities of day-to-day organisational life that we experience. None address the concept of organisational culture even as its importance as both a promoter of and a barrier to organisational competitiveness has become apparent. Nor do they appear to take account of national differences and preferences. None pay regard to the many wider societal factors that now impact on our lives, such as the need to show greater social responsibility whether it be in the area of ‘green’ issues or equal opportunities.
In the face of the many challenges facing organisations, the Classical approach, the Human Relations School and Contingency Theory have all fallen out of favour. The next Unit describes perspectives on organisational life that have become increasingly influential in the last 30 years. Example Assignment Question (not for submission to MDP) Read Case Study 2: ‘Volvo’s approach to Job design’ (Burns, p. 90), and answer the following questions 1. To what extent does the Volvo case support the arguments of the Human Relations school in terms of human motivation? . Does the Volvo case support or undermine the arguments of the Contingency theorists in terms of aligning structures and practices with the situational variables the organisation faces? Example Examination Questions 1. The Classical Approach to organisational effectiveness is still a major influence on management practice today. To what extent is this so and why? Using examples, illustrate how its influence can still be seen in modern organisations.
A good answer to this question would: a) Review the main elements of the Classical approach considering the contributions of Fayol, Taylor and Weber; Assess the strengths and weaknesses of the approach; b) © 2012, Management Development Partnership Page 16 c) Consider what types of modern organisations still seem to apply the Classical approach and why, and what types of modern organisations do not use this approach, and why; Determine what aspects of the Classical Approach are still in evidence; Provide examples of appropriate organisations; Cite appropriate references and provide evidence of wider reading than just the Subject Guide. ) e) f) 2. The Classical Approach has been attacked on almost every front and yet it still influences present-day management practice. Why is this so? The key assertions about the nature of organisations and individuals made by the opponents to the Classical approach can be summarised as follows: • Organisations are not machines but cooperative systems. To operate effectively and efficiently, they require the active cooperation of workers and not just their passive obedience. People are motivated by a range of rewards, including social esteem, not just monetary ones.
Motivating factors change over time; what motivates a person one day may be ineffectual the next. • • 3. How does the Human Relations approach manifest itself in modern organisations? This is not as easy as it may at first seem. Instinctively you may feel that the obvious vestige of the Human Relations approach is the function that is now called ‘Human Resource Management, but when you think about it, HRM has very little to do with the Human Relations approach. The Human Relations approach does not directly concern the provision of pensions, healthcare, incentives, training, etc. and indeed many of these were advocated by the Victorian-era philanthropic business owners or even Taylor! The trouble is, as the previous Activity may have made you realise, a lot of the outputs of the Human Relations approach are difficult to pin down, akin to ‘knitting fog’. Many are also statements which can be dismissed as glimpses of the blindingly obvious. Ultimately, there are two things to consider: • The most evident vestige of the Human Relations approach is Job Design which you would generally find in a Management Services or Production Engineering function.
The principles of the Human Relations approach underpin much current management thinking and are present in the basic assumptions underlying many recent initiatives. So the influence is still there but it is to a certain extent buried deep within modern approaches to management. Page 17 • © 2012, Management Development Partnership References • • Abodaher, D (1986) Iacocca. Star: London. Allaire, Y and Firsirotu, ME (1984) Theories of organizational culture. Organization Studies, 5(3), 193–226. Blau, PM (1970) The formal theory of differentiation in organizations. American Sociological Review, 35, 201–18.
Buchanan, DA (1984) The impact of technical implications and managerial aspirations on the organization and control of the labour process. Paper Page 18 • • © 2012, Management Development Partnership presented to the Second Annual Conference on the Control and Organisation of the Labour Process, UMIST/Aston, 28–30 March. • Burns, T and Stalker, GM (1961) The Management of Innovation. Tavistock: London. Burnes, B (1989) New Technology in Context. Gower: Aldershot. Carew, A (1987) Labour Under the Marshall Plan: The Politics of Productivity and the Market. Manchester University Press: Manchester. Child, J (1984) Organization.
Harper & Row: Cambridge. Collins, D (2000) Management Fads and Buzzwords. Routledge: London. Dastmalchian, A (1984) Environmental dependencies and company structure in Britain. Organization Studies, 5(3), 222–41. Davis, LE, Canter, RR and Hoffman, J (1955) Current job design criteria. Journal of Industrial Engineering, 6(2), 5–11. Davis, R (1928) The Principles of Factory Organization and Management. Harper & Row: New York, USA. Edwardes, M (1983) Back from the Brink. Collins: London. Gross, J, “A poet’s animal kingdom” Daily Telegraph 11/1/2004 Hamel, G and Prahalad, CK (1989) Strategic intent.
Harvard Business Review, May–June, 63–76. Hatch, MJ (1997) Organization Theory: Modern, Symbolic and Postmodern Perspectives. Oxford University Press: Oxford. Hendry, C (1979) Contingency theory in practice, I. Personnel Review, 8(4), 39 – 44. Hendry, C (1980) Contingency theory in practice, II. Personnel Review, 9(1), 5 – 11. Hickson, DJ and Butler, RJ (1982) Power and decision-making in the organisational coalition. Research report presented to the Social Science Research Council. Hickson, DJ, Pugh, DS and Pheysey, DC (1969) Operations technology and organisation structure: an empirical reappraisal.
Administrative Science Quarterly, 14, 378–97. Kelly, JE (1982b) Scientific Management, Job Redesign and Work Performance. Academic Press: London. • • • • • • • • • • • • • • • • © 2012, Management Development Partnership Page 19 • Kerr, C and Fisher, L (1957) Plant sociology: the elite and the Aborigines. In M Komarovsky (ed): Common Frontiers of the Social Sciences. Greenwood: Westport, CT, USA. Landsberger, HA (1958) Hawthorne Revisited: ‘Management and the Worker’. Its Critics and Developments in Human Relations in Industry. Cornell University Press: New York, USA. Lawrence, PR and Lorsch, JW (1967) Organization and Environment.
Harvard Business School: Boston, MA, USA. Mansfield, R (1984) Formal and informal structures. In M Gruneberg and T Wall (eds): Social Psychology and Organizational Behaviour. Wiley: Chichester. Mintzberg, H (1979) The Structure of Organizations. Prentice Hall: Englewood Cliffs, NJ, USA. Mintzberg, H (1987) Crafting strategy. Harvard Business Review, 19(2), 66–75. Morgan, G (1986) Images of Organizations. Sage: Beverly Hills, CA, USA. Mullins, L (1989) Management and Organisational Behaviour. Pitman: London. Mullins, LJ (1993) Management and Organisational Behaviour (3rd edition). Pitman: London.
Perrow, C (1967) A framework for the comparative analysis of organizations. American Sociological Review, 32, 194–208. Perrow, C (1970) Organizational Analysis: A Sociological View. Tavistock: London. Pfeffer, J (1981) Power in Organizations. Pitman: Cambridge, MA, USA. Pugh, DS (ed) (1984) Organization Theory. Penguin: Harmondsworth. Pugh, DS and Hickson, DJ (1976) Organizational Structure in its Context: The Aston Programme 1. Saxon House: Farnborough. Pugh, DS, Hickson, DJ, Hinings, CR and Turner, C (1969a) The context of organization structures. Administrative Science Quarterly, 14, 91–114.
Pugh, DS, Hickson, DJ and Hinings, CR (1969b) An empirical taxonomy of structures of work organisation. Administrative Science Quarterly, 14, 115–26. Robbins, SP (1987) Organization Theory: Structure, Design, and Applications. Prentice Hall: Englewood Cliffs, NJ, USA. Rose, M (1988) Industrial Behaviour. Penguin: Harmondsworth. Salaman, G (1979) Work Organisations. Longman: London. • • • • • • • • • • • • • • • • • • © 2012, Management Development Partnership Page 20 • Scott, WR (1987) Organizations: Rational, Natural and Open Systems. Prentice Hall: Englewood Cliffs, NJ, USA.
Sloan, AP (1986) My Years with General Motors. Penguin: Harmondsworth. Smith, A (1776) The Wealth of Nations, Volume 1. Methuen (1950 edition): London. Terry, PT (1976) The contingency theory and the development of organisations. Paper presented to the British Sociological Association. Thompson, J (1967) Organizations in Action. McGraw-Hill: New York, USA. Warner, M (1984) New technology, work organisation and industrial relations. Omega, 12(3), 203–10. Whyte, WH (1960) The Organization of Man. Penguin: Harmondsworth. Wood, S (1979) A reappraisal of the contingency approach to organization.
Journal of Management Studies, 16, 334–54. Woodward, J (1965) Industrial Organization: Theory and Practice. Oxford University Press: London. Woodward, J (1970) Industrial Organization: Behaviour and Control. Oxford University Press: London. Weber, M (1947) The Theory of Social and Economic Organization (trans). Free Press: Glencoe, IL, USA. Zwerman, WL (1970) New Perspectives in Organization Theory. Greenwood: Westport, CT, USA. • • • • • • • • • • • Additional Readings • Wilson, JF (1995) British Business History, 1720–1994. Manchester University Press: Manchester.
Despite its title, this book neither confines itself to British history nor examines business in a narrow sense. Amongst other things, John Wilson’s book provides an excellent review of the development of management in Britain, Germany, Japan and the USA from the early days of the Industrial Revolution. Pollard, S (1965) The Genesis of Modern Management. Pelican: Harmondsworth. Though published over 40 years ago, Sydney Pollard’s book still provides one of the best descriptions of the development of management, and the reaction of labour, in the eighteenth and nineteenth centuries. Rose, M (1988) Industrial Behaviour. Penguin: Harmondsworth.
Michael Rose’s book provides a well-researched and thorough account of the rise and development of Scientific Management, the Human Relations movement and provides an interesting review of the work of Joan Woodward and the Aston Group. Page 21 • • © 2012, Management Development Partnership • Sheldrake, J (1996) Management Theory: From Taylorism to Japanization. International Thompson Business Press: London. John Sheldrake gives an excellent summary of the lives and contributions of Taylor, Fayol and Weber and those of the contributors to the Human Relations Approach. Taylor, FW (1911) The Principles of Scientific Management.
Dover (1998 edition): New York, NY, USA. This is perhaps the most cited, if least read, of all management books. However, as it numbers only 76 pages and is couched in quite accessible language, it is well worth reading. Hendry, C (1979) Contingency Theory in practice, I. Personnel Review, 8(4), 39– 44. Hendry, C (1980) Contingency Theory in practice, II. Personnel Review, 9(1), 5–11. Wood, S (1979) A reappraisal of the contingency approach to organization. Journal of Management Studies, 16, 334–54. Taken together these three articles provide an excellent review of Contingency Theory. • •
Supplementary Reading 1: What is Organisational Effectiveness? Rollinson (2002) states that, “‘Effectiveness’ is one of the most frequently used (and misused) words in discussing organisations. There is no universally accepted theory of organisational effectiveness and neither is there universally accepted criteria or a definition that allows the effectiveness of an organisation to be measured. ” Books on management, however, use the term, ‘organisational effectiveness’ extensively and it tends to be used as a measure against which to compare the appropriateness of whatever is being discussed, whether it concerns people, systems or strategy.
This is not surprising: if one is seeking to promote, denigrate or just evaluate a particular © 2012, Management Development Partnership Page 22 approach it is much more convincing to say that it does or does not improve organisational effectiveness rather than merely to say that one does or doesn’t like it. The surprising thing is not that the term ‘organisational effectiveness’ is used so often, but that so few writers seek to explain what they mean by it. Some people appear to consider that the term is so eadily understandable that there is no need to define it. Others take the opposite view, i. e. it is so difficult to explain that they don’t even try. As the following list shows, it is the latter group – the ones who consider the term difficult to define – who seem to have a better grasp of the topic. “The test of effectiveness is the accomplishment of a common purpose or purposes …” (Barnard,1932: 60) “Effectiveness focuses on opportunities to produce revenue, create markets, and to change the economic characteristics of existing products and markets. (Drucker,1977: 32) “… the degree to which an organisation attains its short- (ends) and long-term (means) goals, the selection of which reflects strategic constituencies, the self-interest of the evaluator and the life stage of the organisation. ” (Robbins,1987: 51) “… a system’s effectiveness can be defined as its capacity to survive, adapt, maintain itself, and grow, regardless of the particular functions it fulfils. ” (Schein,1988) “Effectiveness is achieved when the organisation pursues appropriate goals. (Lewis et al, 1998) “Effectiveness can be considered in terms of profitability, in terms of the pursuit of organisational goals (at whatever cost), or the quality of life for those involved. ” (Huczynski and Buchanan, 2001: 561) “Effectiveness is concerned with impact – does the service achieve its intended purpose? ” (Doherty and Horne, 2002: 340) “Effectiveness is concerned with ‘doing the right things’ …” (Mullins, 2002: 233) Although there are commonalities in the definitions, there are also many differences. For example, Barnard’s ‘common purpose’ is not the same as Drucker’s ‘economic characteristics’.
In examining the research on organisational effectiveness, Robbins (1987) notes that early research tended to define it as the degree to which an organisation achieves its goals. However, this definition tends to raise more questions than it answers, for example, whose goals? Organisations have multiple stakeholders – shareholders, managers, employees, customers, suppliers and even society at large. They all have goals for, and expectations of, the organisation (Jones, 2001). This is why those now studying organisational effectiveness prefer to take a multi-goal – multi-stakeholder perspective (Rollinson, 2002).
However, this does not eliminate the ‘whose goals? ‘ question. Though some goals and some stakeholders are compatible, others are not. © 2012, Management Development Partnership Page 23 For example, when a government announces plans to build a new road some will support the decision, such as road haulage groups, and some will oppose it such as people who live near the proposed new road. Even if we just focus on the goals of one group, say senior managers, we often find a range of opinions over what an organisation’s goals are, or should be (Pfeffer, 1992).
Some managers will believe that the goal should be increased profitability but argue over whether this is short-term or long-term. Others will argue for market share or market growth. Many will stress share price and dividend payments whilst others advocate definitions that promote their own goals or self-interest (Ibid). There have been many studies of organisational effectiveness but the fact that criteria as diverse as product quality, absenteeism, profitability, stability, motivation and communication have been used to define effectiveness shows how difficult the concept is to define (Robbins, 1987).
The problem appears to be that many researchers focus on whether the goals being pursued are appropriate and the degree to which they are achieved (Rollinson, 2002). They do not ask how organisations structure and organise themselves to achieve their goals. Yet if one looks at studies of other types of effectiveness, such as managerial effectiveness, they focus not on what is achieved but how it is achieved (Yukl, 2002). Take perhaps the most popular book on managerial effectiveness, Stephen Covey’s The Seven Habits of Highly Effective People (1989).
Covey does not emphasise goals as such but the skills and competences managers need to develop in order to achieve their own and their organisation’s goals. Similarly, the Longman Dictionary of Contemporary English (1978:350) defines effectiveness as “… the ability or power to have a desired effect …” Like Covey’s work, this definition of effectiveness focuses on the process by which an outcome is achieved. Handy (1993) in looking at organisational effectiveness is one of the few writers who has sought to identify the factors that affect the achievement of goals, including leadership, reward systems and organisational structure.
He points to the need to see these variables not as isolated features of organisational life, but as a part of organisational theories, i. e. consistent and coherent approaches to structuring and running organisations. Burnes (1998) takes a similar view arguing that organisational effectiveness stems from the approach that organisations adopt towards how they are structured and run. From this perspective, like many others, Burnes states that for most of the 20th century the main approaches to achieving effectiveness were the Classical approach, the Human Relations approach and the Contingency approach.
Supplementary Reading 2: Pre-Classical Organisations (Extracted from McLean, J. ,2006. Contemporary issues in Administration and Management, MDP) Arguably, the single most influential factor on the theorisation of management and organisations was the Industrial Revolution. The revolution radically transformed the production capacity of England, Europe and the USA. Prior to the Revolution, many societies were reliant on small-scale, self sufficient agriculture with 80-90% of people © 2012, Management Development Partnership Page 24 iving in the countryside, although this position changed by the time the Revolution was firmly established. The USA and Europe used Britain’s pioneering model as a benchmark towards industrialising their own economies. Some historians suggest that the Industrial Revolution occurred in the following three distinct stages: The First Industrial Revolution: Textiles and Steam 1712-1830 1712: 1733: 1764: 1769: 1769 1779: 1785: 1793: 1807: 1830: The Newcomen steam engine John Kay invents the flying shuttle James Hargreaves invents the spinning jenny Richard Arkwright patents the water frame.
James Watt improves the Newcomen steam engine making it more efficient Samuel Crompton perfects the spinning mule Edmund Cartwright patents a power loom Eli Whitney patents the cotton gin Robert Fulton begins steamboat service on the Hudson River George Stephenson begins rail service between Liverpool and London The Spread of the Industrial Revolution 1830-1875 1840: 1856: 1859: 1866: Samuel Cunard begins transatlantic steamship service Henry Bessemer develops the Bessemer converter The first commercial oil well is drilled in Pennsylvania The Siemens brothers develop the open hearth furnace for steelmaking
The Second Industrial Revolution: Electricity and Chemicals 1875-1905 1836: 1866: 1876: 1879: 1892: 1899: 1903: Samuel F. B. Morse invents the telegraph Cyrus Field lays the first successful transatlantic cable Alexander Graham Bell invents the telephone Thomas Edison invents the incandescent light bulb Rudolf Diesel patents the diesel engine Guillermo Marconi patents wireless telegraphy The Wright Brothers make the first successful