Contingency Theory

Since the 1970 Contingency Theory has proved - as theory - to be more influential than the Classical approach or Human Relations approach. At its essence, Contingency Theory rejects the "one best way" approach of organisational design. Rather, organisations have to be designed depending situational variables it faces. The main variables being: environment, technology, and size.

Contingency Theory is based on systems theory. It adopted the premise that organisations are open systems. Systems whose internal operation and effectiveness are dependent upon particular situational variables at one time. These could and most likely will differ per organisation.

Following the core belief of open systems theory, a (internal or external) change in one part of the organisation will cause changes in other parts of the organisation.

The three main contingencies

Environmental uncertainty and dependence

Management of any organisation depends on action of others. Actions which can't be controlled or understand fully. These actions can originate internally and externally. This dependency and uncertainty will always exists. As such it should be taken into account when designing organisational structures and procedures.

Technology

Technologies can vary from large and complex to small and simple. This results into the observation that the needs and way to control technology effectively will vary as well. Managing a car assembly line requires different capabilities that managing a network of laptops.

Size

It is argued that the techniques and structure to manage a small organisation will not be effective for large organisations - and likewise. As such, size can be seen as a key variable in designing and managing organisations.

Summary of Contingency Theory

Contingency Theory is far more cohesive school of thought.

Consisting of three unifying themes:

• Organisations are open systems
• Structure, and therefore performance, is dependent upon the particular circumstances faced by each organisation
• There is no "one best way" for all organisations, there is a "one best way" for each organisation

Criticism of Contingency Theory

An agreed of good performance does not exist. This makes it difficult to show that linking structure to the situational variables brings the claimed benefits.

There is no agreed or unchallenged definitions of the three main contigencies.

To examine the link between structure and contingencies researchers use the formal organisational structures. It disregards any informal structures, which have impact as depicted by the Hawthorn Experiments.

The development of Contingency Theory

Tom Burns and George Macpherson Stalker: importance of environment

Examined 20 organisations in a variety on industries. Assessment of how their structures responded to the environment they operated.

Their findings rejected an universal "one best way"

Identified five different types of environment, based upon level of uncertainty. Ranging from stable to least predictable.

Identified two basic or ideal forms of structure. Mechanistic and organic.

Mechanistic fitted stable environments the best, where organic suited least predictable best. As such they argued that both the Classical approach as then Human Relations approach has it merits, depending on the uncertainty of the environment.

Paul Lawrence and Jay Lorsch: case for environment

Extended the work of Burns and Stalker in the US. They ddid not only looked at the relationship between organisation and environment, but also the relationship between individual departments and the external environment.

Researched firms were analysed in terms of degree differentiation and integration.

differentiation: the degree to which managers and staff in their own departments see themselves as separate. Having distinct practices, procedures, and structures from others in the organisation.

integration: the level and form of collaboration that is necessary between departments in order to achieve their individual objectives within the environment in which the firm operates

They found differences between key departments in their researched organisations. Short-term focussed departments as productions operated in a stable environment. As such they adopted mechanistic approaches. R&D for example had a long-term focus in an unpredictable environment. Consequently, their organisation structure was more organic of form.

Additionally, they showed that the degree of integration was critical to the overall performance of the organisation. The most successful firms in their research had the highest level of differentiation and integration.

Where departments have different structures, practices and procedures, achieving integration is not easy. Lawrence and Lorsch found that successful organisations by openly confronting conflict, and working through problems in the interest of the overall needs of the organisation.

Companies that successfully handled conflicts were able to do so by the knowledge and expertise of those involved, rather than formal position. Caused by the respect between colleagues.

James Thompson: environmental uncertainty and dependence

Thompson argued three propositions to forward the environmental perspective.

Although organisations are not rational entities, they strive to be so. Being rational is in the best interest of those who manage it to be effective and efficient.

Different levels of an organisation may exhibit, and need, different structures and operate on a more or less rational basis

Organisational effectives is not only uncertain due to external environmental uncertainty but also internal uncertainty.

This internal dependence is captured by Thompson is a classification scheme.

pooled interdependence: each part of an organisation operates relatively autonomous manner. By fulfilling their individual purposes, the enable the organisation as a whole to function effectively

sequential interdependence: where the output from one part of the organisation constitutes the input for other parts of the system

Reciprocal interdependence where overall effectiveness requires direct interaction between an organisation's separate parts.

Thompson's influential contribution and main arguments are:

Different sections of an organisation will be characterised by varying levels of complexity, rationality, and formalisation, depending on the extent to which managers can shield them from the level of uncertainty present in the environment

The higher both the overall level of uncertainty and that faced by each area of the organisation, the greater will be the dependence of one area on another

As this interdependence increases, coordination through standardised procedures and planning mechanisms will become less effective and the need for more personal contact and informal interaction grows

The more that coordination is achieved through mutual reciprocity in this manner the less rational will be the operation of the organisation.

Joan Woodward: case for technology

Carried out a major study across 100 UK manufacturing firms.

Woodward defined technology not to only be the machinery, but alls the way it was organised, operated, and integrated.

She identified three types of production technologies:

Small batch (or unit) production: where customer requirements were for one-off or specialist products.

Large batch (or. mass) production: where standardised products were made in large numbers to meet a forecast demand.

Process production: where production was in a continuous flow, such as an oil refinery.

Grouping organisations led to the emergence of a clear pattern.

The more complex the production process was, the more mechanistic the organisation structure was. Small batch production typically took place in organic organisations.

Charles Perrow: case for technology

Perrow extended Woodward's work on technology and structures in the US.

Attention was brought to two major dimensions

variability: extent to which work was being carried out is variable or predictable;

analysis _ and categorisation: extent to which technology can be analysed and categorised

Using these dimensions Perrow showed that routine work typically is done in mechanistic organisations, where non-routine production is done in organic organisations.

Aston Group: case for size

The Aston Group found after much research, that size was the most powerful predictor of specialisation, use of specific procedures and reliance on paperwork.

The larger the organisation, the more likely it was to adopt - and need - a mechanistic structure. The same goes for the reverse. The smaller the organisation, the more likely it needs an organic and flexible structure.

Two main explanations for the relationship between size and bureaucracy.

Increased size offers greater opportunities for specialisation. This will manifest itself in terms of greater structural differentiation and high degree of uniformity among sub-units. This will make managerial coordination more difficult, resulting into imposing a system of impersonal controls. Like formal procedures, standardised reporting and control systems

The difficulty of directing ever larger numbers of staff makes it highly inefficient to use a personalised, centralised style of management. It requires the adoption of more decentralised and impersonal control systems. Leading to more bureaucracy.