Organizational Theory and Behavior

© 1993, David S. Walonick, Ph.D.

Classical Organization Theory

Classical organization theory evolved during the first half of this century. It represents the merger of scientific management, bureaucratic theory, and administrative theory.

Frederick Taylor (1917) developed scientific management theory (often called "Taylorism") at the beginning of this century. His theory had four basic principles: 1) find the one "best way" to perform each task, 2) carefully match each worker to each task, 3) closely supervise workers, and use reward and punishment as motivators, and 4) the task of management is planning and control.

Initially, Taylor was very successful at improving production. His methods involved getting the best equipment and people, and then carefully scrutinizing each component of the production process. By analyzing each task individually, Taylor was able to find the right combinations of factors that yielded large increases in production.

While Taylor's scientific management theory proved successful in the simple industrialized companies at the turn of the century, it has not faired well in modern companies. The philosophy of "production first, people second" has left a legacy of declining production and quality, dissatisfaction with work, loss of pride in workmanship, and a near complete loss of organizational pride.

Max Weber (1947) expanded on Taylor's theories, and stressed the need to reduce diversity and ambiguity in organizations. The focus was on establishing clear lines of authority and control. Weber's bureaucratic theory emphasized the need for a hierarchical structure of power. It recognized the importance of division of labor and specialization. A formal set of rules was bound into the hierarchy structure to insure stability and uniformity. Weber also put forth the notion that organizational behavior is a network of human interactions, where all behavior could be understood by looking at cause and effect.

Administrative theory (i.e., principles of management) was formalized in the 1930's by Mooney and Reiley (1931). The emphasis was on establishing a universal set of management principles that could be applied to all organizations.

Classical management theory was rigid and mechanistic. The shortcomings of classical organization theory quickly became apparent. Its major deficiency was that it attempted to explain peoples' motivation to work strictly as a function of economic reward.

Neoclassical Organization Theory

The human relations movement evolved as a reaction to the tough, authoritarian structure of classical theory. It addressed many of the problems inherent in classical theory. The most serious objections to classical theory are that it created overconformity and rigidity, thus squelching creativity, individual growth, and motivation. Neoclassical theory displayed genuine concern for human needs.

One of the first experiments that challenged the classical view was conducted by Mayo and Roethlisberger in the late 1920's at the Western Electric plant in Hawthorne, Illinois (Mayo, 1933). While manipulating conditions in the work environment (e.g., intensity of lighting), they found that any change had a positive impact on productivity. The act of paying attention to employees in a friendly and nonthreatening way was sufficient by itself to increase output. Uris (1986) referred to this as the "wart" theory of productivity. Nearly any treatment can make a wart go away--nearly anything will improve productivity. "The implication is plain: intelligent action often delivers results" (Uris, 1986, p. 225).

The Hawthorne experiment is quite disturbing because it cast doubts on our ability to evaluate the efficacy of new management theories. An organization might continually involve itself in the latest management fads to produce a continuous string of Hawthorne effects. "The result is usually a lot of wheel spinning and cynicism" (Pascale, 1990, p. 103). Pascale believes that the Hawthorne effect is often misinterpreted. It is a "parable about researchers (and managers) manipulating and 'playing tricks' on employees." (p. 103) Erroneous conclusions are drawn because it represents a controlling and manipulative attitude toward workers.

Writing in 1939, Barnard (1968) proposed one of the first modern theories of organization by defining organization as a system of consciously coordinated activities. He stressed in role of the executive in creating an atmosphere where there is coherence of values and purpose. Organizational success was linked to the ability of a leader to create a cohesive environment. He proposed that a manager's authority is derived from subordinates' acceptance, instead of the hierarchical power structure of the organization. Barnard's theory contains elements of both classical and neoclassical approaches. Since there is no consensus among scholars, it might be most appropriate to think of Barnard as a transition theorist.

Simon (1945) made an important contribution to the study of organizations when he proposed a model of "limited rationality" to explain the Hawthorne experiments. The theory stated that workers could respond unpredictably to managerial attention. The most important aspect of Simon's work was the rigorous application of the scientific method. Reductionism, quantification, and deductive logic were legitimized as the methods of studying organizations.

Taylor, Weber, Barnard, Mayo, Roethlisberger, and Simon shared the belief that the goal of management was to maintain equilibrium. The emphasis was on being able to control and manipulate workers and their environment.

Contingency Theory

Classical and neoclassical theorists viewed conflict as something to be avoided because it interfered with equilibrium. Contingency theorists view conflict as inescapable, but manageable.

Chandler (1962) studied four large United States corporations and proposed that an organization would naturally evolve to meet the needs of its strategy -- that form follows function. Implicit in Chandler's ideas was that organizations would act in a rational, sequential, and linear manner to adapt to changes in the environment. Effectiveness was a function of management's ability to adapt to environmental changes.

Lawrence and Lorsch (1969) also studied how organizations adjusted to fit their environment. In highly volatile industries, they noted the importance of giving managers at all levels the authority to make decisions over their domain. Managers would be free to make decisions contingent on the current situation.

Systems Theory

Systems theory was originally proposed by Hungarian biologist Ludwig von Bertalanffy in 1928, although it has not been applied to organizations until recently (Kast and Rosenzweig, 1972; Scott, 1981). The foundation of systems theory is that all the components of an organization are interrelated, and that changing one variable might impact many others. Organizations are viewed as open systems, continually interacting with their environment. They are in a state of dynamic equilibrium as they adapt to environmental changes.

Senge (1990) describes systems thinking as:

understanding how our actions shape our reality. If I believe that my current state was created by somebody else, or by forces outside my control, why should I hold a vision? The central premise behind holding a vision is that somehow I can shape my future, Systems thinking helps us see how our own actions have shaped our current reality, thereby giving us confidence that we can create a different reality in the future. (p. 136)

A central theme of systems theory is that nonlinear relationships might exist between variables. Small changes in one variable can cause huge changes in another, and large changes in a variable might have only a nominal effect on another. The concept of nonlinearity adds enormous complexity to our understanding of organizations. In fact, one of the most salient argument against systems theory is that the complexity introduced by nonlinearity makes it difficult or impossible to fully understand the relationships between variables.

Organizational Structure

Until recently, nearly all organizations followed Weber's concept of bureaucratic structures. The increased complexity of multinational organizations created the necessity of a new structure that Drucker called (1974) "federal decentralization". In federal decentralization, a company is organized so that there are a number of independent units operating simultaneously. "Each unit has its own management which, in effect, runs its own autonomous business." (p. 572) This structure has resulted in large conglomerates which have diversified into many different fields in order to minimize risk.

The project management organizational structure has been used effectively in highly dynamic and technological environments (French, Kast and Rosenzweig, 1985). The project manager becomes the focal point for information and activities related to a specific project. The goal is to provide effective integration of an organization's resources towards the completion of a specific project. Impementing a project management approach often involves dramatic changes in the relationships of authority and responsibility.

The matrix organizational structure evolved from the project management form (Kolodny, 1979). It represents a compromise between the traditional bureuacratic approach and the autonomous project management approach. A matrix organization has permanently established departments that provide integration for project management. The matrix form is superimposed on the hierarchical structure, resulting in dual authority and responsibilities. Permanent functionality departments allocate resources to be shared among departments and managers.

Systems theory views organizational structure as the "established pattern of relationships among the parts of the organization" (French, Kast, and Rosenzweig, 1985, p. 348). Of particular importance are the patterns in relationships and duties. These include themes of 1) integration (the way activities are coordinated), 2) differentiation (the way tasks are divided), 3) the structure of the hierarchical relationships (authority systems), and 4) the formalized policies, procedures, and controls that guide the organization (administrative systems).

The relationship between the environment and organizational structure is especially important. Organizations are open systems and depend on their environment for support. Generally, more complex environments lead to greater differentiation. The trend in organizations is currently away from stable (mechanistic) structures to more adaptive (organic) structures. The advantage is that organizations become more dynamic and flexible. The disadvantage is that integration and coordination of activities require more time and effort.

The relationship between an organization and its environment is characterized by a two-way flow of information and energy. Most organizations attempt to influence their environment. Advertising campaigns and lobbying efforts are two examples. Some theorists believe that ". . . environments are largely invented by organizations themselves. Organizations select their environments from ranges of alternatives, then they subjectively perceive the environments they inhabit" (Starbuck, 1976, p. 1069). Strategic decisions regarding product lines and distribution channels contribute to the selection of the organizational structure and the environment.

It is a commonly held tenant that people are less satisfied with their work in highly structured organizations. Many research studies have been conducted to examine the relationship between organizational structure and employee behavior (e.g., satisfaction, performance, and turnover). However, the results of these studies are contradictory (Dalton, et al., 1980). Structural deficiencies can result in low motivation and morale, decisions lacking in timeliness or quality, lack of coordination and conflict, inefficient use of resources, and an inability to respond effectively to changes in the environment (French, Kast, and Rosenzweig, 1885).

One enduring and controversial debate about organizational structure is whether or not there is a maximum desirable size for an organization, after which there will be declining effectiveness. Does an organization become increasingly dysfunctional as it exceeds its "ideal" size? Several researchers have hypothesized that organizational growth is beneficial only up to a point (Hedberg, Nystrom, and Starbuck, 1976; Meyer, 1977; Perrow, 1979). Most researchers support a curvilinear growth theory. Pfeffer and Salancik (1978) found that profitability increases with size and then tapers off. Warwick (1975) reported that the growth in the U.S. State Department resulted in decreased flexibility and responsiveness, even though specific steps had been taken to abate these problems. There are several theories to explain these findings. The most common explanation is based on the fact that an organization's size is usually positively correlated with age. Older (i.e., larger) organizations have become more rigid in their ways and they are less able to adapt to change. Another popular theory is that in larger organizations, workers' jobs become more specialized. The lack of variety creates a less motivating environment. Other theories have proposed that excessive size creates crippling coordination problems (Filley and Aldag, 1980; Zald and Ash, 1966).

Organizational Birth and Growth

Clearly, one of the most dominant themes in the literature has been to define organizations from the perspective of their position on a growth curve. Cameron and Whetten (1983) reviewed thirty life-cycle models from the organizational development literature. They summarized the studies into an aggregate model containing four stages. The first stage is "entrepreneurial", characterized by early innovation, niche formation and high creativity. This is followed by a stage of "collectivity", where there is high cohesion and commitment among the members. The next stage is one of "formalization and control", where the goals are stability and institutionalization. The last stage is one of "elaboration", characterized by domain expansion and decentralization. The striking feature of these life-cycle models is that they did not include any notion of organizational decline. They covered birth, growth, and maturity, but none included decline or death. The classic S-curve typifies these life-cycle models. Whetten (1987) points out that these theories are a reflection of the 1960s and 1970s, two highly growth oriented decades.

Land and Jarman (1992) have attempted to redefine the traditional S-curve that defines birth, growth, and maturity. The first phase in organizational growth is the entrepreneurial stage. The entrepreneur is convinced that their idea for a product or service is needed and wanted in the marketplace. The common characteristic of all entrepreneurs and new businesses is the desire to find a pattern of operation that will survive in the marketplace. Nearly all new businesses fail within the first five years. Land and Jarman (1992) argue that this is "natural", and that even in nature, cell mutations do not usually survive. This phase is the beginning of the S-curve.

The second phase in organizational growth is characterized by a complete reversal in strategy. Where the entrepreneurial stage involves a series of trial and error endeavors, the next stage is the standardization of rules that define how the organizational system operates and interacts with the environment. The chaotic methods of the entrepreneur are replaced with structured patterns of operation. Internal processes are regulated and uniformity is sought. During this phase, growth actually occurs by limiting diversity. "Management procedures, processes, and controls are geared to maintain order and predictability" (Land and Jarman, 1992). This phase is the rapid rise on the S-curve.

Organizational growth does not continue indefinitely. An upper asymptopic limit can be imposed by a number of factors. Land and Jarman (1992, p. 258) identify the most common reasons why organizations reach upper growth limits:

· Rapidly increasing internal and market place complexity in such areas a product proliferation and market divisions

· Internal competition for resources

· Increasing cost of manufacturing and sales

· Diminishing returns

· Declining share of the market

· Decreasing productivity gains

· Growing external pressures from regulators and influence groups

· Increasing impact of new technologies

· New and unexpected competitors

The transition to the third phase involves another radical change in an organization. Most organizations are not able to make these changes, and they do not survive. "The organization must open up to permit what was never allowed in to become a part of the system, not only by doing things differently, but by doing different things" (Land and Jarman, 1992, p. 257). The organization needs to continue its core business, while at the same time engaging in inventing new business. This bifurcation is necessary because the entrepreneurial environment (of inventing business) is incompatible with the controlling environment of the core business.

The goal is a continuing integration of the new inventions into the mainstream business, where a re-created organization emerges. The core business is changed by the inventions it assimilates, and the organization takes on a new form. Land and Jarman (1992) believe that the greatest challenge facing today's organizations is the transition from phase two to phase three. "Organizations defeat their best intentions by continuing to operate with essential beliefs that automatically perpetuate the second phase." (p. 264)

There are several factors that contribute to organizational growth (Child and Kieser, 1981). The most obvious is that growth is a by-product of another successful strategy. A second factor is that growth is deliberately sought because it facilitates management goals. For example, it provides increased potential for promotion, greater challenge, prestige, and earning potential. A third factor is that growth makes an organization less vulnerable to environmental consequences. Larger organizations tend to be more stable and less likely to go out of business (Caves, 1970; Marris and Wood, 1971; Singh, 1971). Increased resources make diversification feasible, thereby adding to the security of the organization.

Child and Kieser (1981) suggest four distinct operational models for organizational growth. 1) Growth can occur within an organization's existing domain. This is often manifest as a striving for dominance within its field. 2) Growth can occur through diversification into new domains. Diversification is a common strategy for lowering overall risk, and new domains often provide fertile new markets. 3) Technological advancements can stimulate growth by providing more effective methods of production. 4) Improved managerial techniques can facilitate an atmosphere that promotes growth. However, as Whetten (1987) points out, it is difficult to establish cause and effect in these models. Do technological advancements stimulate growth, or does growth stimulate the development of technological breakthroughs? With the lack of controlled experiments, it is difficult to choose between the chicken and the egg.

Organizational Decline

Until recently, most theories about organization development viewed decline as a symptom of ineffective performance. Well-managed organizations were expected to grow year after year. Implicit in these theories was the idea that organizational growth is synonymous with expansion. These theories reflected what scholars observed in the business world. Organizational growth was an indicator of successful management.

Kenneth Boulding (1950) proposed a biological model of economics, characterized by birth, maturation, decline, and death. He argued that in all organisms, there is an "inexorable and irreversible movement towards the equilibrium of death." (p. 38) Many organizational theorists took strong exception to Boulding's biological determinism theory. They maintained that organizations are not constrained by a defined life cycle, and there is no indication that all organizations need to die.

The 1980's ushered in a new era where organizational decline was apparent everywhere. Management strategies involved reducing employees, salary freezes and reductions, cutting administrative overhead, and consolidating operations. It became clear that the traditional S-curve model was incomplete and did not address the issues of declining organizations.

One of the problems in the literature is that it is difficult to agree on a precise definition of organizational decline. Is a company in decline when it cuts back the number of employees in order to become more profitable? A common definition of decline is a decrease in profit or budget. Most theorists agree that decline negatively impacts individuals and the organization as a whole. Cameron, Whetten, and Kim (1987) argue that decline results in decreased morale, innovativeness, participation, leader influence, and long-term planning. They associate decline with, conflict, secrecy, rigidity, centralization, formalization, scapegoating, and conservatism.

Nystrom and Starbuck (1984) attribute organizational decline to over-confidence. According to this theory, a successful past can lure an organization to become over-confident in its ability to prosper. This leads to a lackadaisical attitude towards new innovations, quality, and customer satisfaction. Another theory is that large size promotes rigidity, which makes it cumbersome for an organization to respond to environmental changes (Whetten, 1987).

In applying the biological life-cycle model to organizations, Wilson (1980) identified two different types of organizational decline: "k" and ""r" extinction. When an organization has reached the upper asymptopic limit defined by carrying capacity of its niche, it declines because of k-extinction. The organization has exhausted its environmental resources, or other organizations have begun competing for limited resources. When an organization falls short of its upper asymptopic limit, and begins declining without reaching its maximum potential, it is called r-extinction. Bad management or a failure to remain competitive are the most common reasons for r-extinction.

Bibeault (1982) proposed a four-stage model to describe the process of turning around an organization in decline. The key to the process was to replace the top personnel. Bibeault argued that only way to reverse a decline is to 1) change the management, the rationale being that "problem causers have little credibility as problem solvers" (Whetten, 1987, p. 37). Chaffee (1984) also stressed the symbolic value of changing administrative personnel. Change in management is followed by 2) an evaluation stage, 3) implementing emergency actions and stabilization procedures, and finally, 4) a return to growth.

A different approach for describing organizational turnaround was proposed by Zammuto and Cameron (1985). Their model was based on the idea that turnaround could be accomplished by addressing five process domains. 1) The defense domain involves strategies for protecting the organization from a hostile environment. An example would be an organization that forms a common-purpose coalition with other organizations. 2) The offense domain involves expanding on the activities that the organization already does well. 3) Creating new domains consists of diversification activities. 4) The consolidation domain involves reducing the scope of activities by cutting back to core products and services. 5) The substitution domain involves replacing one set of activities with another.

In contrast to these theories, Harrigan (1980, 1981, 1982) and Porter (1980) have looked at how organizations respond to decline as a result of environmental limitations (i.e., k-extinction). Organizational activities often involve attempts to focus on a specific market niche in which the organization might have a competitive advantage. Another approach is to rapidly liquidate the organization, and extract as much remaining value as possible, although Harrigan (1982) notes that there are often financial, legal, structural, and emotional obstacles to this strategy.

The most common response to organizational decline is retrenchment. Whetten (1987) identifies three sequential stages involved in the process. The first is one of identification. Management must be sensitive to problems when they first appear, and be able to meet the problems head on. The second is one of communication. Management must communicate a clear message of the organization's situation and instill confidence in its ability to meet the crisis. The third stage involves the implementation of a downsizing program.

Sutton (1983) surveyed managers to examine their beliefs regarding how employees would react to an organizational closing. It was found that managers had several inaccurate perceptions. For example, managers' incorrectly believed that productivity and quality would plummet, employee sabotage and theft would increase, and there would be increases in conflict. On the other hand, Sutton's study did offer evidence that rumors were abundant, the best employees sought different employment, and that employee's had trouble accepting the closing.

The Learning Organization

Peter Senge (1990) defines learning as enhancing ones capacity to take action. "So learning organizations are organizations that are continually enhancing their capacity to create." (p. 127) Senge believes that organizations are evolving from controlling to predominantly learning.

Senge (1990) discusses learning disabilities in companies. One of the most serious disabilities is when people form a strong identification with their position. What they do becomes a function of their position. They see themselves in specific roles, and are unable to view their jobs as part of a larger system. This often leads to animosity towards others in the organization, especially when things go wrong. Another disability is that we are slow to recognize gradual changes and threats.

Senge (1990) refers to several other learning disabilities as "myths". He discusses the "myth of proactiveness", where "proactiveness is really reactiveness with the gauge turned up to 500%." (p. 129) Another myth is that we "learn from experience". Senge maintains that we actually only learn when the experience is followed by immediate feedback. Another myth is that management teams can provide creative and beneficial solutions. Senge maintains that the result of management teams is "skilled incompetence, where groups are highly skilled at protecting themselves from threat, and consequently keeping themselves from learning." (p. 131)

Senge (1990) believes that new organizations can be built by adopting a set of disciplines, where a discipline is defined as a "particular theory, translated into a set of practices, which one spends one's life mastering." (p. 131) Thus, mastering a discipline becomes a life-long learning process.

According to Senge, there are five disciplines important to the learning organization. The first discipline is "building a shared vision". "Building" involves an ongoing process, and "shared" implies that the vision is held in common by individuals. A second discipline of "personal mastery" demonstrates a commitment to the vision. A third discipline involves the idea of mental models, where we construct internal representations of reality. An important element of using mental models is the need to balance inquiry and advocacy. A fourth discipline in that only shared mental models are important for organizational learning. The fifth discipline is a commitment to a systems approach.

Community

Gozdz (1992) believes that learning organizations are centered around the concept of community. "An organization acting as a community is a collective lifelong learner, responsive to change, receptive to challenge, and conscious of an increasingly complex array of alternatives." (p. 108) Communities provide safe havens for its members and foster an environment conducive to growth. Gozdz describes the community as group of people who have a strong commitment to "ever-deepening levels of communication." (p. 111)

M. Scott Peck (1987) describes the process of building a community in The Different Drum. An organization goes through a four-stage process. The first stage is one of denial. Group members ignore differences in power, and pretend that they are a community. Decision-making processes go unchallenged. The next stage occurs when differences between members become apparent. Attempts are made to restore the situation to what has worked in the past by eliminating differences. An organization enters the third stage when members realize that their efforts to control differences have failed. They begin communicating and true collaborative efforts emerge. In the final stage, there is the true spirit of community. Differences are embraced. Decisions are made collectively. Learning and innovation comes from the group as a whole

Many organization experience brief periods of community, but they are not able to sustain those periods. Gozdz (1992) describes this failure as a lack of discipline and commitment.

There is an illusion that once a sense of community occurs within an organization it will remain constant. This is not the case. The sense of community or flow state is repeatedly lost. It can be deliberately regained at ever greater levels of organizational maturity, but only when sustaining community is seen and accepted as a path to developing mastery. This path is community as a discipline. (p. 114)

According to Gozdz (1992), the job of the leaders in the process of community building is to keep peoples' attention focused on the process. The four stages of community development are repeated over and over again. New situations and contingencies arise that initiate new cycles in the growth process.

Organizational Morality

The classical view of organizational responsibility is best illustrated by Adam Smith's (1937) belief that an "invisible hand" directs all activities towards the public good, and that the responsibility of an organization was only to maximize profits within the constraints of the law. The free market system was seen as a self-controlling mechanism, whereby an organization producing the best goods and services would prosper. Any interference with the free market system was viewed as an affront against the best interests of society.

The accountability concept states that organizations receive their charter from society as a whole, and therefore their ultimate responsibility is to society. Environmental and worker protection laws reflect the belief that maximization of profits is secondary to the health of society. The extensive proliferation of laws restricting business demonstrates a growing skepticism concerning the morality and ethics of corporate management.

Some theorists believe that organizations have the social responsibility "to take actions which protect and improve the welfare of society as a whole along with their own interests" (Davis and Blomstrom, 1980, p. 6). Others take a more narrow approach, and believe that social responsibility extends only to "social problems caused wholly or in part by the corporation" (Fitch, 1971, p. 38).

Linda Stark (1989) discusses the five stages of corporate moral development, although she is quick to point out that progression through the stages is neither linear or one direction. An amoral corporation pursues profit at any cost. A legalistic corporation follows the letter of the law, but not the spirit. A responsive corporation makes ethical decisions based on long-term economic decisions. An emergent ethical corporation recognizes its social responsibility and balances ethics and profitability. The ethical corporation places social responsibility at its center and bases its existence on ethics.

Environmental awareness has evolved to become a major ethical consideration in many corporations. During the 1950's, science and technology were viewed as the answer to the world's problems. The ecological ramifications of that era became apparent in the 1960's. The 1970's began with the organization of the first Earthday. The Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA) were created to monitor the environment and worker safety. During the 1980's, many corporations began to take proactive conservation measures. Environmental considerations began to be addressed at the manufacturing level so that harmful materials and waste were minimized or removed from the production process. Citizen action groups became increasingly effective in forcing corporations to examine their environmental impact. In the 1990's, many corporations have adopted the policy of "sustainable development." The key issue is that environmental protection is one of the highest priorities of every business.

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