The Development of organisational Theory

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Study Unit 1

The Development of Organisational Theory

Contents Page

Introduction to the Module 3

Introduction to Organisational Theory 4

A. Nature of Organisations 5

Towards a Definition of Organisation 5

Features Common to All Organisations 5

B. Classical Theory: The Search for Principles of Organisation 7

Henri Fayol 8

Lyndall Urwick 9

F W Taylor: Scientific Management 10

Relevance of Classical Organisation Theory 10

C. Human Relations School: Understanding the People Dimension 12

Elton Mayo and the Hawthorne Studies 12

Relevance of the Human Relations School 13

D. Contingency Theory 13

Joan Woodward 13

Burns and Stalker: the Influence of the Environment 15

Lawrence and Lorsch 15

Aston Group 15

Relevance of Contingency Theory 16

E. Systems Theory 17

The Systems Approach 17

The Organisation as a System 18

Sub-Systems of the Organisation 21

Boundary Management 23

Levels Within the Organisation 23

(Continued over)

2 The Development of Organisational Theory

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F. Contemporary Theories: The Search for Organisational Drivers 25

Excellence Theory 25

Theory Z 27

Organisational Culture 28

American and Japanese Corporate Culture Models 31

The Development of Organisational Theory 3

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INTRODUCTION TO THE MODULE

The subject of this module is the internal processes of organisations: how they are organisedand managed in order to achieve the purposes for which they exist. In this first Unit we shallbe concerned with a number of different approaches to the way in which organisation andmanagement may be analysed and understood. This is the realm of 'organisational theory'and it forms an important backdrop to the whole course.

Before developing this in more detail, though, we should make an important point about theapproach adopted in this course as a whole and how you should work through it.

You should, through your previous studies, be reasonably familiar with much of thefunctioning of organisations and management. To some extent this course will deepen andwiden that knowledge and understanding. However, much of this subject involves looking atthat same knowledge from different perspectives. We shall be concerned with exploring theforces which shape organisations and the dynamics of their internal processes, rather thanwith simple descriptions, and with analysing key concepts which underpin organisation andmanagement; and we shall be assessing the implications of these concepts.

Each Unit starts with an Introduction which sets out a clear analytical framework for the topicunder discussion. The examination of the topic which follows does not provide a completepicture at this level; and so you do need to carry out additional reading. This is important toenhance your understanding of the topic as well as providing you with the material to be ableto critically compare and contrast the different perspectives on the topic.

You do need to develop a broad understanding of the key principles, concepts and processesidentified in each topic area. There is a multitude of excellent books on managementtheories and organisational principles. Many of these are listed in the reading section of thesyllabus but you should also carry out a Web search to identify those that are specificallymentioned in this study manual. This is because of the up-to-date material that has beenincluded in this manual so that you can explore different writers' views, are able to interpretthese, and understand their applications in modern management and organisationalenvironments.

A vital component of your study is to constantly review and assess how the different conceptsapply to your own organisation. It is recommended that you make notes after workingthrough a topic area to help you to retain your learning. It would be helpful if you consideredthe following questions when you are making your notes:

How do we apply these concepts, ideas and processes?

Why is our organisation and management the way it is?

What benefits and problems arise from this?

How would I apply these ideas and concepts in my organisation?

What benefits and problems would arise?

Finally, think about your own view of management and organisation. Consider what you feelare the key forces which do, or should, shape organisations.

Working through the course in this way should enable you to develop an appreciation of thedynamics of organisation and management in the increasingly turbulent environments ofmodern organisations. It should also give you a greater insight into the problems they face atall levels and the wide variety of organisational forms which have resulted.


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INTRODUCTION TO ORGANISATIONAL THEORY

Organisational theory involves identifying the different approaches to understandingorganisations, which cover a wide spectrum of views over many decades.

The history of organisations really starts with armies. These were the first large-scale co-operative groups formed specifically for a purpose and they are characterised by a hierarchyof authority within which decisions are made at the top and passed down in the shape oforders which must be followed. A second early development was that of publicadministration whereby organisations came into being to implement the decisions ofgovernment: initially to collect taxes, but increasingly to order and regulate society throughlaws and the application of various rules. Again, these organisations were characterised by ahierarchy of authority and a requirement to comply with its exercise.

These models for the large-scale organisation of people for a purpose were, with a fewexceptions, followed by business organisations as they developed in the Middle Ages and,through industrialisation, came to dominate work in society.

The study of organisations emerged from what we would call today sociology. This owed itsorigins to philosophers turning their attention to the way in which whole societies functionand, in due course, to the study also of the social constructions which are created in them.

The first studies of organisation sought, in the fashion of the time, to identify the essentialprocesses at work in all organisations and to encapsulate these in principles which could bebeneficially applied to all organisations. This was the approach of 'scientific management'and, since the organisations at the time all mirrored the military/public administration model, itwas not surprising that the principles identified were based around the concept of thehierarchy of authority and obedience to decisions and rules.

In the 1930s a major shift in thinking took place with the realisation that, at the operationallevel in organisations, people were actually bending the rules and decisions to meet theirown needs. Increasingly, sociologists and social psychologists turned their attention to theway in which the people who make up the organisation behave. This was the approach ofthe 'human relations' school. Their contribution has been to develop an understanding ofhow management works on the social level, outside of the hierarchy of authority, and how,therefore, organisations may respond to the needs of their staff.

After 1945 two further significant approaches developed, which looked at organisation andmanagement in the context of the environment of the organisation, both internal andexternal. These were as follows.

Contingency theory, which states that there is no one 'best' form of organisation andmanagement, but that the most appropriate form will be dictated by a variety of factorsin the environment. This has given rise to a concern with those environmental factorsand how they influence the organisation (which will be the subject of the next Unit).The key modern concept of stakeholder theory can be traced to this approach.

Systems theory, which provides a way of analysing how organisations, and any partof them, function by reference to their inputs, outputs and the processes which takeplace in between. This is an extremely useful analytical tool which we shall use indetail at several points in the course to explore the ways in which organisation andmanagement processes operate.

More recently, in the increasingly competitive and changing environment within which allorganisations exist, most attention has been devoted to what makes organisationssuccessful. We characterise this here as the search for organisational drivers andconsider approaches which concentrate on 'excellence' and 'organisational culture'.


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A. NATURE OF ORGANISATIONS

It is common now to define business in terms of what it does and why it exists. At its mostgeneral, we can say that business exists to meet the needs of a society; and thus there willbe many different types of business to meet the many different needs of societies.

There are three main types of entity found in the business sector: sole traders, partnershipsand companies. However, business does not satisfy all the needs of society and there arealso a range of 'non-business' entities which exist to meet needs not catered for by profit-seeking businesses. Thus, we must consider public-sector bodies such as governmentagencies, as well as not-for-profit bodies such as charities.

Towards a Definition of Organisation

All these different types of business are often referred to as organisations. You need tohave a clear and comprehensive definition which is wide enough to encompass and embraceall those institutions which are commonly called organisations, but which excludes othersocial institutions, such as the family.

Writers attempting to put forward a definition often concentrate on specific aspects: somestress structure, others hierarchy or authority. We will attempt to draw together these variousstrands into a sound definition:

Organisations are institutions which persist over time, possessing a recognisablestructure of work roles arranged in a hierarchy of power and authority.

Organisations pursue specific goals, which are concerned with converting resourcesinto utilities which meet human needs.

In order to optimise the factors of production, organisations must possess informationsystems.

Features Common to All Organisations

With the range of organisational forms, we face some difficulty in saying just what is anorganisation. Perhaps a way to overcome this problem is to look at those features which arecommon to all organisations.

(a) Providing Utilities

Organisations exist to meet the needs of people. These needs range from theessentials of life, such as food, fuel, clothes and shelter, to desirable services, such asentertainment or sport.

Organisations perform their tasks by taking what economists term the factors ofproduction and converting them into utilities. The factors of production are:

Land, which includes all those resources provided by nature, e.g., minerals,trees, etc., as well as the land itself.

Labour, which includes human skills of body and brain.

Capital, which means machinery and those goods which contribute to futureproduction.

When economists refer to utilities, they mean goods and services which satisfypeople's wants. For the utilities to be effective, they must be available at the place andtime that consumers want them. This involves distribution.

Distribution includes the systems of transport (road, rail, air and sea) which movegoods to the places of consumption, and also the wholesale and retail organisations


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which buy goods from manufacturers and sell to consumers. All organisations have insome way or another to be connected with the consumers of their goods and services.

We can sum up our first common feature of organisations thus:

All organisations meet some of the needs of members of modern societies.They all take resources (physical and human) and convert them into utilities(the goods and services produced). All organisations have to ensure thatthese utilities reach consumers as and when required.

(b) Rules and Regulations

The second feature common to all organisations is that they all have rules andregulations which govern the running of the enterprise. These may be formal andwritten; or they may be informal, generally accepted ways of doing things.

Large organisations will have a written statement which outlines the structure andpurpose of the organisation. Small organisations, such as a family shop, have aninformal but generally agreed policy on how the enterprise should be run.

Organisations combine the activities of people and the control of resources in order toproduce goods and services, and these activities have to be directed and coordinatedto achieve the objectives of the organisation. Rules and regulations are essential tobring about this coordination of effort. Individuals working in organisations need toknow just what their responsibilities and duties are. Just as every sport or game has itsrules, so does every organisation.

(c) Division of Labour

Our third key feature is that all organisations have a structure: a framework ofpositions where each person has a set of duties and functions to perform. Whenpeople take up these various positions and perform their allotted duties, sociologiststalk of individuals in their 'work roles'. Every person who works in an organisation hasa role to perform.

In large organisations, roles may be highly specialised: for example, some work rolesmay involve aspects of production, others may relate to marketing, etc. In the smallorganisation, work roles will be more general: the proprietor of a small shop willperform a range of buying and selling activities.

Economists term this breaking-up of activities into selected work tasks the division oflabour. In contrast to the system of self-sufficiency where one person performs awhole range of activities to meet his or her own needs, in organisations labour isdivided between workers. The division of labour can increase the efficiency of anenterprise, by allowing workers to specialise in certain aspects of work and so becomemore expert at what they are doing.

We can thus sum up the third common feature of organisations:

All organisations have a structure, a framework within which individuals canperform defined work roles. Because there is this division of labour, thereis specialisation of work activities in organisations.

(d) Chain of Authority

The fourth key feature of organisations springs from the fact that they compriseindividuals performing a variety of work roles which combine to achieve theobjectives of the organisation. If organisations are to be effective in the pursuit oftheir goals, the work activities have to be controlled and directed, and decisions whichaffect the whole organisation have to be taken. This calls for a structure of authority.A structure of higher and lower organisational roles is called a hierarchy.


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The hierarchy of roles in a modern organisation may be seen as a chain of authority.At the top of the chain, senior management make the important decisions and areultimately responsible for the success or failure of the organisation. Orders andinstructions springing from key decisions made by them are passed down the chain ofauthority. At every level, appropriate action is taken and further orders are passed ondown the chain until the lowest levels are reached, by which time all instructions shouldhave been carried out. The number of levels of authority will vary with the size of anorganisation; large organisations will have many levels of authority, whereas smallorganisations will have relatively few links in the chain.

The crucial point is that all organisations have a recognised system of authority whichcontrols and delegates tasks and duties within the organisation.

(e) Information Systems

The fifth feature common to all organisations arises from the fact that they needinformation. Information is needed:

To plan operations: management decisions cannot be made in a vacuum. Dataand information have to be studied so that various courses of possible action canbe appraised and rational decisions made.

To help plan the most efficient use of resources: there are many possibledifferent uses and combinations of land, labour and capital, and up-to-dateinformation can help select the best possible combination, so information helpsoptimise the use of resources.

To control and evaluate the performance of the workforce: for example, tocheck whether targets are being achieved in the various departments.

To compare the performance of an organisation with that of otherorganisations in a similar field.

To attempt to run an organisation without up-to-date, accurate information is like tryingto drive a car with your eyes blindfolded, and is equally likely to end in disaster. Allorganisations must have means of obtaining, recording and storing information so thatit is readily available.

Thus, all organisations must possess information systems, which make up-to-dateinformation available to members of the organisation who need it to assist the efficientrunning of the enterprise.

B. CLASSICAL THEORY: THE SEARCH FOR PRINCIPLESOF ORGANISATION

The classical school of organisation theorists comprises those with the view that there is asingle set of principles of organisation which, once discovered, would be the key to the bestway of structuring all types of organisation. Such principles would form a scientific basis tomanagement which all aspiring managers can learn and practice. This approach issometimes referred to as the pursuit of the 'Holy Grail' of organisational structure.

Some of the approaches discussed in this section may seem outdated, but their principles ofmanagement and organisation were based on extensive research in the early 20th century.Many of the concepts remain relevant in contemporary organisations, particularly thoseassociated with management style. However, throughout this course you will find up-to-datematerial based on relevant research to enable you to compare and contrast earlier thinkingon the topic with a more modern approach.


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The main proponents of classical thinking – principally Taylor, Fayol and Urwick – derivedtheir theories from their own practical experience in industry (mainly in the engineering field)and observations. They argued that organisations should be structured in a logical andscientific manner. They maintained that there were a number of fundamental principles uponwhich organisations are built:

There should be a blueprint of organisational structure which could be applieduniversally.

The structure of an organisation should be hierarchical, with clear levels of authority.

Each level of authority should have its own functions to perform.

Everyone in the organisation should know their place and what is expected of them.

It was argued that the principles of organisation which derive from this would offer scientificguidance to managers on how to run an organisation.

Henri Fayol

Fayol was an early 20th-century mining engineer who developed an interest in managementprinciples. He realised the importance of structure and argued that every organisation needsto be planned, organised and controlled. Fayol's notion of the ideal structure for allorganisations rested on the following principles.

(a) Division of Labour

Work is divided:

Between the levels of authority in an organisation, with each level having its ownduties and responsibilities from top management down.

Between departments and other groups, with each having its function to perform.

Here Fayol built on the work of earlier authors. As early as 1776, Adam Smithidentified the benefits of specialisation, or division of labour, in the production process.Fayol extended this to the study of management.

(b) Coordination

The various levels and departments must be coordinated so that all their efforts pull inthe same direction towards achieving the objectives of the organisation.

(c) Span of Control

Fayol stressed the importance of establishing the maximum number of subordinateswhich a superior can control. This is called the span of control.

(d) Economies of Scale

Wherever possible similar activities should be grouped together to avoid overlap and toobtain economies that accrue to larger Units: for example, bulk buying, spreadingoverheads, making better use of resources.

(e) Objectives

Every organisation must have clear objectives.

(f) Authority

There must be a clear line of authority.

(g) Responsibility

Where a person is given responsibility, he or she must also be given the authoritynecessary to carry out the task. A superior can be held responsible for the actions ofhis or her subordinates.


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(h) Specialisation

As far as possible people should specialise in order to be proficient.

(i) Definition of Tasks

Employees should know exactly what is expected of them.

(j) Unity of Effort

Everyone in the organisation should be working towards achieving the goals of theorganisation.

(k) Unity of Command

Each member of the organisation should have one clear superior to whom he or she isresponsible. The span of control should not be too wide; ideally no person shouldsupervise more than five or six subordinates.

Lyndall Urwick

Urwick developed the ideas of Fayol and then put forward his own principles of management:

(a) Objectives

Achieving its objectives is the reason for the existence of any organisation.Organisations that fail to achieve their objectives should cease to exist.

(b) Specialisation

In an effective organisation there is the principle of 'one group, one function', i.e. everysection or department should do its own job well and not interfere in other activities.

(c) Coordination

Management should so structure the organisation that all the parts fit neatly togetherand work as a functional whole.

(d) Authority

There should be clear lines of authority in the organisation.

(e) Responsibility

Superiors are responsible for the actions of their subordinates.

(f) Job Definition

All jobs should be described precisely and duties defined.

(g) Correspondence

Authority and responsibility should go hand in hand.

(h) Span of Control

A superior should be responsible for up to six subordinates.

(i) Balance

The sections and departments of an organisation should be in balance; no onedepartment should dominate the organisation.

(j) Continuity

The organisation should be set up in such a way that it can continue to perform itsfunctions.


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F W Taylor: Scientific Management

Taylor acquired his practical experience in the American steel industry and went on tobecome a management consultant. Taylor termed his key principle scientific managementand he modelled his approach to management on those of scientists seeking the laws ofnature.

Taylor's principles are summarised below:

Managers themselves should be guided by the scientific approach. In the division oflabour within an organisation, management should accept full responsibility forplanning, organising and supervising the work of subordinates. Workers should befreed from these problems so as to concentrate on actually doing the job andperforming work tasks.

Managers have a duty to select and train staff in the most efficient way of performingwork tasks.

Managers should motivate workers with the prospect of earning good pay and thechance of promotion for those who deserve it. Taylor stressed 'a fair day's pay for a fairday's work'.

Managers should ensure harmony in the workplace by showing that the success of anemployee is tied closely to the success of the organisation.

Managers should see to it that a scientific approach is applied to each operation that anemployee performs, so as to avoid wastage of effort.

Managers should produce a blueprint of the best way to perform a given task bystudying successful employees and then applying this to all employees.

Managers should treat employees as individuals rather than as members of a widergrouping like workgroups or trade unions.

Relevance of Classical Organisation Theory

It is very easy to construct a strong case against the ideas of the classical theorists, but theconcepts they put forward are remarkably persistent and may be seen in many differenttypes of organisation today. It is not sufficient, therefore, to dismiss them with a few well-chosen arguments in favour of more modern approaches. We need to understand the valuein their ideas as the basis for their continued application.

(a) Principles of Organisation

The principles identified by Fayol and Urwick can be criticised on a number of points,particularly in relation to their rigidity and their lack of appreciation of the external forcesinfluencing organisations. Their weaknesses are as follows:

The rigidity of the principles preclude the need for flexibility in designingorganisational and management structures to suit the circumstances within whichorganisations find themselves.

There is an overemphasis on the division of labour and specialisation, the scalarchain, spans of control and line authority, all of which have been affected by theexplosion of information and communications technology which tends toempower both managers and workers at lower levels in the hierarchy.

Human beings are seen as puppets that must be made to fit into organisationalroles: they are there to do as they are told.

All important decision-making rests entirely with management, with very littleconsultation with staff.


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There is an assumption that organisations are largely self-contained units wheremanagement has complete control over events. Organisations and theiremployees, in the real world, exist in an environment. They need to beresponsive to external forces over which they may have little or no control: forexample, customers or competitors, a national strike or sudden rises in the costof oil.

Fayol tended to be rather vague on the exact ways in which some of hisprinciples were to be put into action.

Despite these criticisms, though, there remains much of value in these theories:

There is a strong element of common sense in the ideas put forward, and manyare easily recognisable by practising managers today.

The critics, like those they criticise, tend to overstate their case. For example, theclassical theorists did not completely ignore the social dimension, but manymanagers using the theories overstressed the techniques at the expense of thepeople.

The emphasis on the importance of objectives was a step forward. Likewise, thefocus was put on how the structure of an organisation affects its performance.

Although the main stress was on the organisation, theorists like Fayol did acceptthat modern organisations operate in environments. There is also a strong themein these theories that emphasises the importance of management education.

On balance, the strongest criticism of these approaches is their belief in the existenceof a single set of guiding principles of organisation. When these theories are usedmore flexibly, they have much to contribute to our understanding of organisations andtheir management.

(b) The Principles of Scientific Management

As with Fayol and Urwick, Taylor's work can be heavily criticised for its emphasis onmanagement control and lack of understanding of the complexities of the humandimension to organisations and their management.

When management takes over all the planning and organising functions, theworkers' role is reduced to taking orders. Workers have very little control overtheir work situation.

Money is seen as the major reward and motivator. Taylor says little about otherthings which could contribute to job satisfaction. This form of managementencourages a 'carrot and stick' attitude by management to workers.

By treating the workers as individuals, Taylor underestimates the importanteffects of group pressures on production and efficiency. Taylor alsounderestimates the importance of trade unions in some organisations.

Taylor gives the impression that managers are only really interested in first-classworkers; there seems little place for older or handicapped people.

Taylor talks about a fair day's pay for a fair day's work, but who is to decide justwhat is fair? Taylor leaves little room for negotiation between management andworkers on such issues. Unscrupulous managers could exploit workers whenmeasuring performances and payments.

Scientific management does not take account of the concept of group dynamics,which was recognised by Elton Mayo in the 1930s Hawthorne Experiments at theWestern Electric Company (see later in this Unit).


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Despite these criticisms, scientific management remains an important theory ofmanagement. If Taylor's principles are used sensitively, many of the criticisms can bemet. In particular, Taylor's ideas on material rewards for performance and achievingsales targets have been applied extensively in some businesses. The basic payment-by-results ideas have been refined into performance bonuses and various mixes ofmoney, type of car, etc. and other tangible rewards. Some enlightened firms are givingtheir managers or staff some choice over how the reward package is made up: forexample, more emphasis on money, or less commission and a larger company car.

C. HUMAN RELATIONS SCHOOL: UNDERSTANDING THEPEOPLE DIMENSION

The main feature of the Classical School is its concentration on structure. It views theorganisation virtually as a machine, and indeed another term for this view of organisations is'mechanistic'. (This is also referred to as the 'formal' organisation, a term closely associatedwith the work of Charles Handy and his role culture typology of an organisation, of which youwill learn more later in your course.)

When we consider the implications of the classical theorists for management andorganisation in practice, we can say that the technical features are all there, but something ismissing. We need to consider the human dimension: the people who fill the posts in theorganisation and their behaviour. Whilst there is some consideration of a need to takeaccount of human factors, by and large the human dimension is not seen as important to theform of organisation. Thus, classical theorists can propose ideal types of organisation andmanagement unencumbered by the problems that arise from actually having people involvedin them.

From the 1930s, greater attention began to be paid to the way in which the human dimensionaffected the operation of organisations and what this meant for management. The basic ideaunderlying this work is that to understand and improve an organisation you need tounderstand the people who work for it and to take account of the way in which they interactwith it.

Unlike the classical theorists, the writers of the human relations school do not postulate anyorganisational solutions as such. They are more concerned to shed light on the wayorganisations work in practice and to identify possible organisational practices which maybring the needs of the formal organisation in line with the reality of the way people behave.

The key work which defines the human relations approach in respect of organisation andmanagement comes from Elton Mayo's studies at the Hawthorne plant of Western ElectricCompany between 1927 and 1932. Other important contributions have been from Maslowand McGregor in respect of motivation and leadership.

Elton Mayo and the Hawthorne Studies

Without going into great detail about the studies, the background was that the researcherswere trying to find the optimum level of lighting in the plant in order to maximise productivity.As such, it started out as a strictly scientific management approach. However, the surprisingfinding was that productivity increased among the group of workers being studied both whenthe level of illumination was increased and when it was decreased. Subsequent studies byMayo led to the conclusion that what was affecting performance was the special attentionbeing paid to the group of workers rather than any external physical factors. Their workinglives had suddenly become more interesting because of the experiments which were takingplace; they felt important and valued, and the result was increased enthusiasm for their jobsand a higher output.

This phenomenon has become known as the 'Hawthorne effect'.


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Having established from this that performance was related to psychological and sociologicalfactors as well as purely physical ones and the organisational structure, Mayo went on toinvestigate the other forces at play in the workplace. These are summarised below:

Workers are strongly motivated by social needs (for social interaction, self-esteem andrecognition, a sense of belonging and security) and seek satisfaction of those needsover and above any others, including the need for money, once a certain level ofremuneration as been achieved;

Individual workers belonged to groups at the workplace which had their own codes ofbehaviour, leaders and means of enforcement of the group norms (which includednotions of what appropriate output standards were), constituting a whole 'informal'organisation within the formal one.

Relevance of the Human Relations School

These discoveries shifted the emphasis in organisation and management thinking. Mayodemonstrated that human attitudes and behaviour seem to be what govern activity at theworkplace, and what was required was to examine the needs and interaction of individuals,the ways in which groups operate and what this means for management.

The Hawthorne studies showed that the formal structure, organisation, values and goals ofan undertaking are by no means the only, or even the main, determinant of behaviour in theworkplace. There will always be an informal network of work groups and interactions whichconstitute an alternative form of organisation for the workforce, and one which is invariablyfar more important in their lives.

This 'informal organisation' determines, to a large extent, worker's attitudes to the formalorganisation and, therefore, how they view the formal structure of authority. It is work groupnorms which tend to set standards of performance, such as timekeeping, output, quality,attitudes towards customers and clients, dress codes, etc., and management will find itdifficult to impose standards which do not accord with them.

This concept has important consequences for organisation and management in that it mustaim to bring the formal and informal organisations into line: in particular, the values and goalswhich apply. Strategies to achieve this include empowerment and participation, as well as araft of measures to maintain and develop motivation.

D. CONTINGENCY THEORY

The key feature of contingency theory is that there is no one best method that applies to allorganisations. There is a wide range of possible structures from which to choose. Thedecision as to what structure would be appropriate will be influenced by such factors as theexternal environment in which the organisation operates, the motivation of the workforce,their skills, knowledge, and commitment as well as their experience in the specific workingenvironment. Technology, the product or service of the organisation are also influencingfactors.

Contingency theory is primarily based (though not exclusively so) on the findings of personalobservations within organisations. We shall now look at important researchers in this field.

Joan Woodward

The purpose of Joan Woodward's study was to assess the degree to which the classicalprinciples of organisation were being applied in British firms and to analyse the relationshipbetween organisational structure and success. The basic studies were carried out in the1950s but they are still relevant today. Woodward looked at 100 firms each employing at


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least 100 people. The firms analysed were involved in a wide range of activities includingmanufacturing, commerce, medical institutions, building, newspapers, etc.

A definitive pattern did not emerge that could relate either to business success or to thevariety of different organisational structures, in terms of their numbers of levels of authority,span of control, clarity or otherwise of definitions of duties, the extent of communicationand/or specialisation. What was identified, however, was a correlation between the level ofcontrol over the production process and working patterns, which was directly linked to theobjectives of the organisation.

Woodward identified three broad categories which seemed to favour particular forms oforganisations.

(a) Unit or Small Batch Production

This is where there was least automation of processes, the accent being on 'one off' orshort runs for which it is not appropriate to gear up machines to control production. Ahierarchy of increasing application of technology within the category covered theproduction of items to customers' specifications and prototypes, the making of largeequipment in stages, and the production of small batches of items.

In this category, it was found that organisational structure was quite loose. There wasmuch delegation of authority within a standard pyramidal hierarchy characterised byrelatively small spans of control and quite permissive management attitudes.

(b) Large Batch and Mass Production

Here, the production process is much more automated, the firms being thoseconcerned with the production of standard items in large quantity, and assembly-lineworking. However, the technology is not entirely dominant since variations anduncertainties occur even in the mass production lines of car manufacturing.

These organisations were characterised by much tighter control procedures and rigidlarge-scale hierarchies with the traditional pyramid shape being very elongated at thebase, reflecting the way in which large numbers of workers are required at the lowestlevels, but there are relatively few middle and senior managers. Span of control is verylarge (which may account for the management problems experienced by many largeindustrial concerns).

(c) Process Production

This is characteristic of the oil refineries and chemical manufacturers studied where theproduction process was more or less certain and completed automated.

Such firms tended to be flexible again, but within a different organisation structure, withdiamond-shaped hierarchies which reflected the small number of operatives required toservice and maintain the process machinery, and the larger group of middle managers,scientists, accountants, etc. In these concerns, problems tended to arise in this 'bulge'in the middle where opportunities for advancement were limited. The productionprocess also limited individual initiative.

Woodward's key contribution to organisational theory was the discovery that, far from therebeing a set of preferred organisational principles, the main determinant of structure is thekind of activity and the technology with which organisations are concerned. As she stated:

'The criterion of the appropriateness of an organisational structure must be theextent to which it furthers the objectives of the firm – not, as managementteaching sometimes suggests, the degree to which it conforms to a prescribedpattern. There can be no one best way of managing a business.'


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Burns and Stalker: the Influence of the Environment

Burns and Stalker studied management and economic performance in a series of electronicsfirms where the key to success was the ability to respond quickly to technological innovation.It was found that those organisations which embodied formal structures of hierarchies andworking relationships tended to be slower off the mark and less profitable than those firmswhich were organised informally, had more lateral communication and allowed talentedindividuals more personal initiative.

This led them to propose two 'ideal types' of management organisation which form theextremes of a continuum along which most organisations can be placed.

(a) Mechanistic Systems

These forms of organisation exhibit a high degree of specialisation, a clear hierarchywithin which coordination, control and communication are constrained, and aninsistence on loyalty to the goals of the concern and the rules of the formal structure.Such rigid systems are most appropriate to stable conditions.

(b) Organic Systems

These are more fluid forms of organisation appropriate to changing and uncertainconditions, where new and unfamiliar problems continually arise which cannot bebroken down and distributed among the existing specialisms within the organisation.Such systems are characterised by a flexible structure involving continual adjustmentand re-definition of individual tasks with a constructive rather than restrictive view of theapplication of specialist knowledge. Interaction and communication occurs at any levelin the organisation and there are a range of different integrating mechanisms, such asliaison teams, to ensure cohesion. Such a system was seen as generating a higherdegree of commitment to the organisation's goals.

Burns and Stalker argue that many of the features of the classical approach (formal linestructures of authority, clear division of labour and a tendency towards centralised decision-making, with orders flowing down from the top) are appropriate when environments are fairlystable with little change. However, when environments are changing rapidly a more flexible(organic) structure is appropriate (flexible structures, delegated authority and decision-making, and decentralisation).

Lawrence and Lorsch

These researchers were also concerned to discover which forms of organisational structurecoped best with various types of environment. They put forward two key concepts:

Differentiation: if environments are changing rapidly and becoming difficult to predict,organisations will set up more departments and sections. These in turn will becomemore specialised, with a greater division of labour. These parts of subsections of anorganisation develop different attitudes and ways of doing things. This situationcreates the need for:

Integration: ways in which the organisation as a whole draws together its parts orsubsystems in order to achieve its objectives.

Lawrence and Lorsch concluded that when environments are changing rapidly, bothdifferentiation and integration need to be at a high level. In contrast, when environments arefairly stable, only integration needs to be high.

Aston Group

This group of researchers, based at the University of Aston, put forward yet another variationof the contingency theory theme.


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They examined the way in which the classical concepts of structure were applied in differenttypes of organisation. Taking the concepts of specialisation or division of labour,standardisation of methods, formal rules, tall structures with many layers of authority andcentralised decision-making, they argued that there were many possible permutations whereeach of the these elements may be at high or low level. Thus, an organisation may becentralised or decentralised, formal or informal, etc. They then considered the application ofthese possible structural permutations in relation to various other features of theorganisation:

Is it large or small?

What kind of technology does it use?

Who owns it?

What markets does it serve?

They identified the size of the organisation as the most important factor influencing structure.They concluded that as organisations grow larger they need to be more specialised (greaterdivision of labour), more formalised (more explicit and stricter rules), more standardised(similar procedures and methods), but less centralised (greater delegation of decision-making). This would assist firms to perform well as they grow larger.

Relevance of Contingency Theory

Contingency theory disputes the idea that, whilst organisation and management structuresare key determinants in the performance of an organisation, there is one best way toorganise an enterprise. Rather, deciding which organisational structure will produce the bestperformance is situational, i.e. contingent upon certain circumstances. Thesecircumstances may be within the organisation or may be features of the environment.

If we draw the research together we find that if an organisation is to be successful inachieving its goals, it must be so designed as to be able to meet demands arising from:

The type of technology in use.

The type of market for which the organisation caters.

The range of products.

The rate of change in design of products.

The size of the organisation.

The basic principles put forward by the classical theorists only make sense when consideredin relation to these types of factor. Therefore principles such as span of control or unity ofcommand have to be modified for the various types of organisation found in modern society.

It is dangerous to take the ideas of the classical approach as a fixed blueprint and applythem to every organisation. The way you decide the best structure for an organisation is toask, 'Which design of organisation will be most successful in achieving its objectives?' Thekey phrase of contingency theory is that there is no one correct way of designing anorganisation: it depends on the circumstances within which the organisation finds itself.

The contingency models of organisation concentrate attention on what is an appropriateorganisational form in the light of the situational pressures on the organisation. Even thoughthe various studies were conducted in industrial organisations, we can see same processesat work in all types of organisation. For example, the impact of new office technologies is aclear example of the type of influence identified by Woodward, and administrative supportstructures of many public bodies have been moving steadily away from the highly rigid rule-bound bureaucracies of the past, along the continuum proposed by Burns and Stalker,towards a more organic structure, in response to the continual pressure of change to whichthey have been subjected.


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Management Style

Management style is generally based on the structure, culture and strategies of anorganisation, but it is important to mention here what Professor Paul Hersey and KenBlanchard referred to as 'Situational Leadership' where a good manager/leader will notpractice the same style in every situation. This would not be appropriate, in view of theplethora of situations that managers face on a day-to-day basis. A single style (sayautocratic) would certainly not be appropriate in a situation where involvement of employeesis vital to getting the job done. Often a manager/leader needs the active commitment of hisor her staff when change is introduced and has to be managed particularly in tight timescalesimposed by the turbulent external market environment.

E. SYSTEMS THEORY

The Systems Approach

As organisations are complex dynamic goal-oriented processes, the systems framework isfundamental to the understanding of organisational theory. A systematic view onorganisations is transdisciplinary and integrative: it transcends the perspectives of individualdisciplines, integrating them on the basis of a common 'code' or more specifically on thebasis of the formal approach to an organisation. The approach is primarily founded oninterrelationships and is based on a humanistic extension of the natural sciences.

System dynamics was originated in the late 1950s by Forrester of the MIT Sloan School ofmanagement and has since been exemplified by the work of Banathy. Capra, Senge,Hammond and Swanson who all propound the idea that systems theories are atransdisciplinary, interdisciplinary and multiperspectival domain, the areas of which havebrought together the principles and concepts from ontology, philosophy, sociology, politicalscience, computer science, biology and engineering. Also included are geography,psychotherapy and economics. Therefore, systems theory provides an interdisciplinarydialogue and link between all areas of the sciences.

This frame of reference is composed of regularly interacting or interrelating groups ofactivities, and has evolved from 'an individually oriented industrial psychology to a systemsand developmentally oriented organisational psychology'. This is because it is based on thepremise that organisations are highly complex social systems, as already mentioned.

The same line of thought can be applied to organisations in that they take inputs of varyingkinds, and transform them through a series of processes into outputs. The organisation isessentially the transformation process, but in viewing it we must be aware of the inputs andoutputs as well.

This basic concept can be illustrated diagrammatically as follows.

Figure 1.1: Basic elements of a system

Inputs OutputsOrganisation or

transformation system

Feedback


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The feedback loop is included to show that outputs commonly have an effect upon thesystem, often by returning as an input.

Before considering organisations as systems, a number of points about the nature ofsystems need to be explained.

(a) Sub-Systems

Within each system, there are likely to be a number of 'sub-systems', each a separateentity but each forming an integral part of the whole. Notably, the outputs from onesub-system are likely to form, at least in part, the inputs for another sub-system. Thewhole can, then, be seen as a system of interdependent parts, constantly in actionand reaction both internally in relation to each other and externally in relation to theenvironment of the system.

This can be crucial in organisations since any change within a particular sub-systemwill inevitably have repercussions throughout the whole system. Management must,therefore, understand and consider the inter-relationships and inter-dependence of thevarious parts which make up the organisation.

(b) Boundaries and the Environment

A boundary is regarded as existing around each system or sub-system, defining it andseparating it from all others.

There are certain types of system which function entirely within their boundaries andare totally unaffected by anything outside. These are known as 'closed' systems.However, far more common are 'open' systems, where flows occur across theboundary and factors outside the system affect it significantly.

Anything outside the boundary of a system with the potential to affect its operationconstitutes the 'environment'.

These are important concepts since managerial problems often arise at the boundariesof a system or sub-system, and events in the environment are often outside of thecontrol of those responsible for the system itself. Indeed, environmental monitoring is akey activity for management as it enables managers to be aware of change which mayaffect the functioning of the organisation.

(c) Objectives and Goals

The last introductory concept to consider briefly here is that of what the system existsto do. All systems must have a purpose, at the very least to survive, but in terms of thetypes of organisation we are concerned with, some form of mission expressed as aims,objectives or goals.

This applies to sub-systems as well as the whole system. Thus, Ford would have as itsobjective the production of motor cars, but each of the myriad sub-systems which makeup the organisation would have its own goals: for example, to paint the body parts and,a sub-system of that, to mix paints into the correct colours.

The outputs of the transformation process are designed to meet these objectives.

The Organisation as a System

Katz and Kahn describe the basic system model of an organisation as a structure offunctioning parts embedded in an environment from which it draws inputs and into which itpours outputs (largely goods and services to meet customer needs, but also by-products,which may be useful to other organisations or may be waste or pollution). Figure 1.2 is asimplified illustration of this.


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Figure 1.2: An Organisational System in its Environment

Environment

INPUTS THROUGHPUT OUTPUTS

Material

Human and

Financial

Resources

Research &Development

Production

Marketing

After-Sales Service

Products

Services

By-products

Emissions

Feedback

Katz and Kahn emphasised the role of feedback in the successful persistence oforganisations. If an organisation is to survive and thrive in its environment, it needsinformation about its outputs: for example, how well its products are meeting customerneeds, or whether its by-products or emissions are causing environmental problems?

We can now develop the concept of the system to stress the interdependence of the variousparts in an organisation.

Consider a simple example of an organisation containing just four departments:

Department A Production

Department B Sales

Department C Distribution

Department D Finance

Each of these departments constitutes a sub-system of the organisation as a whole, and wecan show the interconnections between them as follows.

Figure 1.3: The interdependence of systems

Department A Department B

Production system Sales system

Department C Department D

Distribution system Finance system

For the organisation as a whole to function effectively each of the systems must themselvesfunction effectively, and they must all function effectively together. Department A mustproduce goods efficiently, Department B must sell these goods, Department C must see to itthat the goods reach the customers and Department D must pay for the raw materials usedin production, and pay employees' wages, and must collect money as payment from the


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customers. Any malfunction in A means that production will be adversely affected and sodisturb the functioning of departments B, C and D. If Department B fails in its functions theproblems of unsold goods will feed back to production and will affect distribution and finance.If Department C fails to deliver the goods on time this has implications for A, B and D. IfDepartment D fails to pay or collect money, all the other departments would be in serioustrouble.

In modern, complex organisations there are invariably far more than four systems, hence thenumber of interconnections is considerably more than the six shown in Figure 1.1.

Note too that, in the example, we have identified departments with sub-systems. However,the concept of a system does not necessarily equate with the way in which an organisationgroups its functions. Thus the finance sub-system will extend across the whole organisation,including the financial activities of the other three departments, and the distribution sub-system may even include other organisations.

The systems approach also concentrates attention on the dynamics of the organisation. Itallows us to consider not just how the organisation functions in formal or informal terms, butwhat it reacts to and how change may affect it.

Obviously, if there is no change in the environment and inputs can remain constant, theorganisation will remain static and we can concentrate on the formal structures of thetransformation system. However, the human relations school taught us that the people whowork in the organisation are themselves a dynamic and there are very likely to be variationsin the attitudes, motivations, etc. of staff as an input. Crucially, though, the environmentwithin which most organisations operate is constantly changing, in both the nature of theoutputs required and the inputs available.

To view the organisation as a system, or as a complex of interrelated sub-systems, is tostudy the extent to which it is able to achieve a balance in its internal and externalrelationships, and how far it can develop and progress in relation to the changes in thoserelationships.

A particular problem of complex systems is their reliance on the effective meshing together ofthe parts or sub-systems. It is not sufficient for each part to perform at optimum (bestpossible) level. Rather it is the fit of the parts that is crucial. We can illustrate this with anexample. If the sales department in a commercial firm pushes sales higher and higher, atfirst sight this is an optimum performance; but if the production section cannot meet theseorders even when working at maximum capacity, then the firm will lose goodwill and offendits customers. In the long run the firm may be worse off than if its sales subsection had beenless effective in generating orders. Viewed independently, both sales and production sub-systems have been maximising their efforts, but viewed as a whole the system of the firmwas not at optimum performance because the fit between the sub-systems was unbalanced.We term the effects which occur in unbalanced systems 'dysfunctions', meaning that theydo not assist the system as a whole to achieve its objectives.

It is relatively easy to spot dysfunctions arising from the poor performance of a sub-system,but far more difficult to come to terms with the case where a sub-system gets out of step bybeing too successful. Dysfunctions are revealed only when we view the organisation as awhole system, and take account of the fit and the balance of the various sub-systems. If welook at each sub-system as a separate entity we may assess them all as being highlyeffective individually, yet fail to see that the total system is not performing at optimal level.

Inputs and outputs are invariably from or to the environment of the system and, as thatenvironment changes, so must the system. All organisations have experienced an enormousamount of environmental change in the last 20 or 30 years in respect of both inputs(principally in terms of technology) and outputs, with new products and standards beingdemanded. In addition, the expectations of people, both as customers and staff, havechanged considerably. Consider what people now expect in terms of product specification


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for a new car or their treatment when reporting problems with that car, compared with 30years ago, or what staff now expect their working environment to be like. As inputs andoutputs change, the organisation must be capable of changing to accommodate the newrequirements and maintaining equilibrium, that essential balance in a constantly shiftingenvironment.

Sub-Systems of the Organisation

We have noted that the organisation as a system has myriad inputs and outputs which areconstantly changing in response to environmental pressures. The impact of the environmentis crucial in shaping the organisational response.

The systems approach is a way to illustrate how inputs are organised to achieve the desiredoutcomes in an effective manner. Proponents of the systems approach, notably Kast andRosenzweig, and Trist and Bamforth, have attempted to develop categories for the differentsub-systems which make up the organisational system as a whole, so that we canconcentrate more clearly on the organisational implications of each. Three main sub-systems are identified:

the technical sub-system

the psycho-social sub-system

the structural sub-system.

In addition, Kast and Rosenzweig proposed two further elements:

the goals and values sub-system

the managerial sub-system.

It is apparent that classical management theory emphasised the structural sub-system andthe human relations school the psycho-social sub-system, while those concerned withmanagement science and operational research have largely been interested in the technicalsub-system. The systems approach allows us to unite those approaches and study theirinteraction within the organisation as a whole.

(a) Technical Sub-System

Any organisation employs technology in its broadest sense to assist it in carrying out itstasks. In industry this will include factory machines, robotics, etc. to make, say, cars.In the service sector, the accent is more on office technology (computers, photocopiers,telephones, etc.), as well as systems for filing and other forms of record-keeping:indeed, all the paraphernalia of information and communications.

The technology used is an important determinant of the organisation. It prescribes to aconsiderable extent the way the work is done, the organisation form and therelationships between people. Thus, examining the technical sub-system, and the wayin which it changes, can explain a great deal about organisation and management.

(b) Psycho-Social Sub-System

The other key element that organisations employ is, of course, people. The goals,values, aspirations and modes of behaviour of the members of the organisation willalso be important determinants of the way work is done and the relationships betweenpeople in the organisation. This gives recognition to the nature of the informalorganisation and culture, and its impact on organisational form and management.

If we consider the interaction of sub-systems, we can see that the technical sub-systemitself makes demands on staff. An organisation based on the use of personalcomputers needs different abilities and aptitudes, more personal motivation, controland initiative, than one based on a manual clerical system.


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(c) Structural Sub-System

Organisations employ technologies and people in order to get the work done (or, if weput it in systems terms, in order to process inputs into outputs). The structural sub-system is concerned with the ways in which this is achieved – the division of tasks,their grouping into operation units, their coordination and control. This is very much theapproach of the classical management school, and indeed the formal expression of thestructural sub-system would be the organisation chart.

Once again, we can see that the structural form exerts its own demands on both thetechnical and psycho-social sub-systems. For example, geographical divisions needdifferent sorts of staff and technical support than the specialised product groupings. Itis also true that structural form is constrained by the availability of appropriatepersonnel and technology, so the interdependence can be seen.

(d) Goals and Values Sub-System

Whilst the psycho-social sub-system is concerned with the goals and values of themembers of the organisation, the goals and values sub-system emphasises the formalgoals and values of the organisation itself – the purpose of the undertaking and thesupporting sub-goals and value systems required to give expression to that purposethroughout the organisation. For productive industry, goals and values are generallyexpressed in terms of, or at least underpinned by, quantifiable targets – profits,numbers of units produced over time, etc.

Goals and values do change considerably over time and can have a significant effecton other sub-systems. Take, for example, the impact of equal opportunities legislationand the promotion of non-discriminatory frameworks and value systems over the lastfew decades. This has required changes in both the structural and psycho-social sub-systems.

(e) Managerial Sub-System

This last category concentrates attention on the mechanisms of coordination andcontrol, beyond the formal lines of the structural sub-system. It includes the form ofmanagement within the organisation and the techniques employed to ensure that thework is carried out effectively and efficiently.

Again, the managerial imperatives can exert their own requirements on other aspectsof the organisation. The best example of this is the concern with 'quality' acrossactivities – customer care, total quality management – which demands that values,structures and technology are employed in a particular way in order to give properexpression to the particular managerial purpose

We can now redraw our simple system diagram to take account of the sub-systems we haveidentified:


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Figure 1.4: The organisation as a system

Technicalsub-system

Psycho-socialsub-system

InputsStructural

sub-systemOutputs

Goals and valuessub-system

Managerialsub-system

Feedback

Boundary Management

The boundaries of a system separate that system from its environment: they define what ispart of the system and what is not. All systems exist within an environment, but we candistinguish two types of environment – that which is external to the system (organisation) asa whole and that which is internal to the system (organisation). In open systems, resourcesand information flow across both external and internal boundaries. Boundary management isconcerned with the interface between the system as a whole, or any of its sub-systems, andthe external environment, and between the sub-systems and their internal environment.

The work of writers like Trist and Bamforth points to certain guiding principles for boundarymanagement:

A flexible approach is needed to managing boundaries. External boundarymanagement is contingent on the nature of the environment. Internal boundarymanagement must smooth the interfaces between sub-systems (departments ordivisions).

Boundary management should be based on clearly identified objectives for each andevery sub-system.

The problems between sub-system interfaces may well be social, and this will call forinsights from the human relations approach.

Boundary management must smooth the differential influence of technology across thesystem as a whole. A sub-system such as production is shaped by one type oftechnology, while another sub-section is shaped by another type of technology.Managers must deploy skills to reconcile these differences.

Levels Within the Organisation

Just as it is useful to classify certain organisation-wide elements to help clarify the processesat play in the system as a whole, it is also useful to look at the different levels of processwithin the organisation. Organisations are not just one monolithic structure, but havedifferent levels of operation which each have their own purposes, require different inputs and


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outputs and, hence, a different transformation or organisational process. We can identifythree main levels.

(a) Technical or Operational Level

At this level, concern is with getting the actual task done. For example, in a financedepartment, the task may be the payment of creditors. The emphasis will be ondetermining the most efficient and effective method of achieving this: the cost of doingit (do you wait until there are sufficient cheques needing to be produced in a batch ordo them on demand?), the measurement of results, etc. The timescale underconsideration is generally short.

(b) Tactical Level

The second level is concerned with the coordination and integration of the technicallevel. Here, the emphasis is on mediation and compromise between the variousconstituents of the organisation in order that the whole enterprise can work welltogether. To pursue our previous example, left to its own devices, the technical levelconcerned with the payment of creditors might institute a system incompatible with thesystem for, say, the payment of wages and that for accounting for expenditure. Thus,in the finance function generally, the organisational level will determine overall financialsystems and policies so that the different activities fit together in a coordinated fashion.

The organisational level is concerned with both the short-term timescale of thetechnical process and the longer-term needs for ensuring continuity and consistencyacross operations.

(c) Corporate or Strategic Level

At this organisation-wide level the concern is to deal with the development of theorganisation in relation to its environment, considering the internal and externalpressures and uncertainties and forming policy judgements about responses. It isabout determining the future direction of the operation, the overall methods ofachieving development and gaining commitment.

The timescale for this type of concern tends to be long-term, although the exigencies ofenvironmental pressures often dictate a much tighter timetable for action.

Table 1.1 brings these concepts together.

Table 1.1: The organisation as a system of levels

Level Task Timescale Approach

Technical Specific operations Short Costing andmeasuring

Tactical Coordination of specificoperations

Short –medium

Mediation andcompromise

Corporate Selection of operations inlight of changingenvironment

Long Forecasting andnegotiating


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F. CONTEMPORARY THEORIES: THE SEARCH FORORGANISATIONAL DRIVERS

The most recent approaches to the study of organisations and management have beenempirical in nature – that is to say, based on observation, although using more scientificallyacceptable techniques than the classical theorists. They have sought to identify features oforganisation and management which lead to successful and unsuccessful organisations, orwhich are associated with particular types of organisation.

We can characterise these approaches as seeking to derive philosophies around which tobuild the organisation – driving forces which dictate appropriate forms of organisation andmanagement.

The work of Peters and Waterman, published in 1982, caused a great deal of interest, asthey concentrated on establishing what attributes contributed to a company achieving'excellence'. Their investigation looked at successful companies in the USA and found 43companies with 'excellence criteria' which set them apart from their competitors. Clutterbuckcarried out further research to identify factors as 'differentiators' that encapsulated customersatisfaction with successful companies in terms of profitability and position in their respectivemarkets.

These researches made a considerable contribution to organisational and managementpractices but they were relatively short-lived and have been overtaken by later researchersseeking to identify what practices are vital to organisational survival and growth. There islittle doubt that, at the time, Peters and Waterman provided a substantial contribution to thestudy of what organisations should consider to maintain their customer/client levels andprofitability. Some of their weaknesses, however, were as follows:

Five years after the investigation, many of the high-performing companies theyidentified had failed specifically in the area of managing change and subsequently didnot maintain their competitive edge.

They placed insufficient emphasis on the significance of the cultural context in which acompany operates, in terms of both the country's culture and the culture within theorganisation. A longitudinal study reported in 2005 found that as much as 97% ofmanaging change is unsuccessful because culture has not been consideredsufficiently.

Peters and Waterman found that a strong family belief in an enterprise over severalgenerations can enhance the performance of the company. However, Townsendconcluded that family tradition can be a destructive force, because of the insularity andnepotism which very often retarded innovation and therefore inhibited growth.

Excellence Theory

As already mentioned Peters and Waterman's study sought to identify what companiesneeded to do to achieve excellence in terms of profitability and of being the market leader intheir business sector. Since their research there has been a plethora of studies carried outmostly because of the changing trends in working patterns and employee expectations.

(a) Employee Engagement

Excellence in all of its varying definitions will only be achieved if employees areengaged in and with the organisation's business objectives. It is difficult to achieve thisemployee engagement because it is mostly associated with the level of motivation ofthe individual. A contemporary organisation in unlikely to achieve high standards ofperformance if this engagement is not present. Purcell's work with Bath University,published in 2003, is crucial to the understanding of how organisations have movedaway from 'command and control' management styles with exclusive concentration on


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the customer, to a shift towards employees' expectations of an organisation, meetingwhich in turn provides high-level commitment and loyalty and therefore achievescustomer satisfaction. Purcell's finding that a happy employee will achieve highperformance standards has been substantiated by further research. Pfeffer, Huselid,Guest and Ulrick's investigations are noteworthy because of their relevance andimportance to the principle of employee engagement and how this reflects in thesustainability of an organisation.

(b) Bias for Action

Even though the companies studied by Peters and Waterman were analytical in theirapproach to decision-making, they were not restricted by too much analysis (what theycall 'paralysis by analysis'). Rather than create cumbersome committees generatingreams of documentation, small task groups are established, not so much to talk aboutan issue, but to do something, even experimentally – often by the 'standing operationprocedure of do it, fix it, try it'.

Managers should be flexible and responsive to change. The excellent firm thrives onchange and actively seeks ways of changing so as to improve itself. This 'bias foraction', however, requires the organisation to be tolerant, both of risk-taking and ofmistakes being made. Managers must show enterprise and be prepared to experimentand innovate; people must not be afraid to make a mistake. Constantly playing it safein a firm leads to inertia and this is the enemy of excellence. When problems arisemanagers must get to the root of them and take action to sort them out – problemsshould not be glossed over.

(c) Autonomy and Entrepreneurship

Excellent companies foster many 'leaders' and many innovators throughout theorganisation. People should not be held on so tight a rein that creativity is stifled.Practical risk-taking is to be encouraged and such organisations are supportive of'good ideas'. In the words of one chief executive, 'make sure you generate areasonable number of mistakes'. Being given the chance to try, even if your efforts fail,is highly motivating.

(d) Close to the Customer

Excellent companies learn from the people they serve, often differentiating theirproducts to suit client needs. This is the essence of the marketing approach asopposed to a selling approach. Everyone, from the highest to the lowest employee,needs to be committed to the concept of customer service. Many of the mostinnovative companies were found to have got their best ideas from their customers.Excellent companies listen intently, and regularly, to their customers.

(e) Productivity through People

The excellent companies treated even their rank-and-file employees as a source ofideas, not just a pair of hands. This is rooted in the concept of respect for everyindividual, no matter how lowly his or her status. Putting this concept into effect helpsto break down the 'them and us' attitudes so prevalent in western organisations and togenerate commitment to the company, both of which can provide a direct boost toproductivity.

This is an essential corollary to the principles of both entrepreneurship and closenessto the customer. Thus, managers must treat their staff at all levels in the firm asvaluable assets who should be given responsibility and encouraged to take risks toimprove the working of the organisation. They should also listen and learn from theirsubordinates as well as their clients/customers.


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(f) Hands-On, Value-Driven

It is organisational achievement and performance that count, and overriding concernfor these derives from an organisational value system which demonstrably supportsand promotes them. Everything else is secondary. Peters and Waterman cite theanecdote of the Honda worker who straightened the wiper blades of all the cars as hewalked past on his way out of the factory each evening because he was so committedto the company value of perfection that he could not bear to see a 'flaw' in a car.

(g) 'Stick to the Knitting'

This premise relates to the injunction that you should never get involved in a businessor undertaking that you do not know how to run. The excellent firm concentrates onwhat it does best and does not branch out into areas it does not fully understand.

This principle is principally concerned with the issues of acquisitions and mergers inindustry, but has application elsewhere as organisations seek to expand their range ofwork. Although Peters and Waterman note that there are exceptions to this rule, theodds on excellent performance seem to strongly favour those companies that stayreasonably close to the business they know. In effect, they are saying that if you do nothave the expertise to achieve high levels of performance, leave it alone.

(h) Simple Form, Lean Staff

Although most of the companies studied were very large, they were characterised byrelatively simple management structures and relationships, without too many layersand levels of authority. For example, none of them used 'matrix' forms of multi-disciplinary project teams. Top-level staffing tended to be small and multi-billion dollarenterprises had central corporate staff of fewer than 100.

(i) Simultaneous Loose-Tight Properties

There is a place for both centralised and decentralised forms of organisation.

One the one hand, the 'what' (key objectives, values and standards) should be centrallydetermined and monitored for the whole organisation and no deviation should beallowed. The organisation must have vision: it must know where it is going and how itis going to get there.

On the other hand, the details of 'how' can be delegated. As long as the key standardsare maintained, individual departments should have as much freedom as possible indetermining how to attain them.

Theory Z

Ouchi developed this approach in an attempt to apply the lessons of Japanese organisationand management styles and practices to the Western (mainly American) cultural experience.

(a) Japanese approach

It is worth reviewing the key points of the Japanese approach as a starting point. Ouchiidentified these as:

secure lifetime employment

consensual, participative decision-making

collective responsibility for decisions, standards and performance

slow personal development, evaluation and promotion

implicit, informal control based on the overriding value system

non-linear and non-specialised career paths


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holistic concern for the well-being of the organisation and all its employees(including their families) in the widest sense.

(b) Application to Western Organisations

In applying these to the context of Western organisations, one must recognise the fargreater emphasis in our culture on individual expression and responsibility, lack ofcompany loyalty, and the expectation of short-term and more immediate personalrewards for performance. However, it is considered that some mitigation of thesetendencies, in effect some subjugation of the individual to the greater good of thecompany is necessary. The key principle of the approach is, therefore, that theorganisation should develop a philosophy and value system which fosters commitmentto organisational goals through the following practices:

long-term security of employment

consensual, participative decision-making

individual responsibility for decisions, standards and performance

slow personal development, evaluation and promotion

implicit, informal control within a framework of explicit formalised measures

generally linear and moderately specialised career paths

holistic concern for the well-being of the organisation and all its employees(including their families) in the widest sense.

Note the subtle differences in the development of these principles for application towestern cultural values.

Organisational Culture

Culture is quite difficult to define. When we speak of culture we know what it is andwhat/how it is manifested in an organisation but a clear, unambiguous definition eludes us!This is because culture can mean different things to different people, depending on their lifeexperiences, their background, religion, beliefs and values. Handy described culture inorganisations as 'the way we do things around here'. These 'things' are the accepted normsand values of an organisation, developed over time into expected behaviour patterns. Theygenerally emanate from the top management level of the organisation; but this is not alwaysthe case, and analysing culture can be a complex task.

It is widely recognised that different organisations have distinctive cultures, built up throughtradition, history and structure. Culture gives the organisation a sense of identity. As part ofthe induction (introduction) process to the company, a new employee will learn very quicklywhat the culture is within the organisation because of the legends surrounding the owners orfounders of the organisation. For example, they might have been autocratic with scarceinteraction with their employees, worked long hours and be critical of formal education and/orqualifications. Their mindset might be 'work hard, and do as you are told' rather thanwelcoming employee participation

There are several influential writers on culture, including Handy's work which is stillrecognised in contemporary organisations. Hofstede, Trompenaars, Hampden-Turner,Schein, Schneider and Barsoux and Deal and Kennedy, are all worth reading.

(a) Cultural Analysis

We can develop an understanding of an organisation's culture by considering theattributes listed below.


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The organisation's goals – particularly its mission statement – and the extent towhich they are clear, communicated to and embraced by all levels of theorganisation.

The dominant behaviour patterns applying to the interaction within theorganisation and between the organisation and its stakeholders (its existing andpotential customers, investors, owners, etc.), in respect to both what is expectedand whether actual behaviour lives up to these expectations.

The distribution of authority and decision-making through the organisation:basically along a continuum from authority being concentrated at the top orspread downwards to teams of empowered employees working close tocustomers.

The structure of the organisation, which is closely related to the distribution ofauthority and may be easier to identify through the use of organisation charts,etc.

The nature of leadership, which refers to the way in which power and authority isexercised, again along a continuum from authoritarian to democratic.

The values of the organisation in terms of its responsiveness to the needs andaspirations of its own staff and to those of its stakeholders.

The entrepreneurial spirit of the organisation, as revealed by the degree ofenterprise, innovation, competitiveness, flexibility and drive for excellence of theorganisation.

Its readiness to embrace change arising from changes in its environment,particularly whether this is proactive (anticipating and planning for change) orreactive (coping with change as and when it arises).

Corporate culture is extremely difficult to change. It should be recognised that it takesa long time for employees to get accustomed to such change, as it can lead to tensionsbetween the organisation and the individuals within it. Cummings and Worley statethat it is imperative for senior management to be in favour of the culture change, andtheir behaviour needs to symbolise the kinds of values that are required for the changeto be effective.

(b) The Learning Organisation

The kind of culture which promotes a learning organisation is one whereby learning isnot perceived exclusively as formal training programmes or what is referred to (as ageneralisation) 'short, sharp bursts of training'. Senge argues that organisations shouldconstantly seek to improve processes, production outputs (irrespective of whether thecompany produces a tangible product, for example a car, or provides a service, forexample banking), and employee skills and knowledge. These elements are crucial tothe organisation's survival and/or growth. Burgoyne and Boyatis have separatelyresearched the need for organisations to create the kind of environment in which allemployees, irrespective of their occupational position, feel able to put forwardsuggestions for improving any area of the business (which does not necessarily haveto be the area in which the employee works).

Since the principle of the learning organisation was first put forward, important workhas been carried out with the emphasis on 'knowledge management' (KM). Theprinciple of knowledge management is to enable all employees to transfer theirknowledge, either through a formal educational programme and/or from knowledgegained as a result of their experiences, either in their current or previous jobs.

A learning organisation will not be created unless there is active commitment fromsenior management, which is cascaded in practical terms to the lower levels in the


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company. A policy or procedure stating that the organisation's strategy is to become alearning organisation will be useless if senior management does not lead by exampleand create an ethos, which is transformed into practice, of supporting and developingemployees at every level. The strategy to improve processes, systems, skills andknowledge must be clearly communicated and practised.

(c) Culture of Excellence

The characteristics of this type of culture were emphasised by Peters and Waterman,but it originated in a seminal work by Deming, who was at first scorned by Americanorganisations for his ideas on quality and what organisations should be doing todevelop/sustain their levels of output while still achieving. high levels of customersatisfaction. Deming later went to Japan, and it was from his ideas that the Japanesederived the concept of quality by 'right first time, and zero defects'. Deming's principleshave for the most part survived in Japan, and his ideas were transferred into practice inthe UK mostly because of Japanese involvement in the car industry. Manyorganisations still aspire to realise his ideas by embracing the ethos of 'zero defects'.

Characteristics of a culture of excellence include the following.

The role of leadership is crucial. Management should have a clear vision and beable to provide the environment which motivates their staff towards theachievement of the vision.

There should be an emphasis on quality and value for both the company and thecustomer. A pricing policy should reflect these and show awareness of thecustomers' expectations and specific requirements. Creativity and innovationshould become the cultural norm, where employees are actively encouraged toput forward their ideas for changing processes, procedures and practices. Ablame mindset has to be eradicated; instead employees should not beapprehensive about making mistakes, within a culture where taking risks (withinset parameters) becomes acceptable and part of the organisation's businessstrategic goals.

Management and organisational structures should be flexible, to cope with theturbulent external environment. Problem-solving and decision-making are cross-functional, with employee involvement. The hierarchy of the organisation shouldbe appropriate to its place in the market; the fashion for downsizing or delayeringshould not automatically be followed, although in many instances this might beappropriate. Following 'best fit' instead of 'best practice' should become one ofthe values of the organisation. Benchmarking, which is a process of comparingand contrasting characteristics of other organisations against those of one's ownorganisation, does have value, provided that the best practices identified in thoseorganisations are not emulated automatically. The important factor frombenchmarking is learning what best practices there are and then selecting thosewhich would fit comfortably with the culture of the existing organisation. That is ofcourse on the assumption that the existing culture is one that currently does notneed to change!

(d) Controlling Quality

In the past many organisations had a specific function termed 'Quality Control' toensure that goods and services were of an appropriate quality and acceptable to thecustomer/client. The tasks of quality control were:

Inspection: products were inspected, then either judged acceptable or returnedfor modification or wastage.


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Statistical sampling: in mass-production industries where standardised goods areproduced, random sampling would be used. For example, selecting a number ofproduced Units from of each batch.

The benefits of quality control were that sub-standard goods were identified before theyreached the customer. There were substantial costs involved in this process, however,and today fewer organisations have a quality control function. Many organisationshave instead put in its place procedures and systems whereby individual employeesare responsible for ensuring their own quality control in the product or service that theyprovide to the customer.

This change has seen a substantial rise in employee motivation, loyalty and jobsatisfaction, which is evidenced by Purcell's work as well as that of Ulwick, Pfeffer andGuest. The willingness of employees to accept the responsibility in this way has beenhighlighted by Bennis, Holbeche and others. There have to be reasonable andtherefore acceptable reward systems, high levels of employee participation in decision-making, and goal-setting objectives that are based on sound to business plans. Theseemployee practices form part of a 'bundle' of benefits that motivate and developemployees, in the manner Purcell and others identified in high-performingorganisations that were recognised by other organisations as being 'world class'.

Lack of quality, in contrast, is generally associated with:

Uninterested, untrained employees with low morale which creates low motivation.

Dissatisfaction with management styles which emphasise control and commandinstead of empowerment.

Unfair practices, inequality and maybe discrimination.

Ineffective leadership: lack of interest in employees, lack of direction, inadequateplanning, and managers promoted to the level where they are incompetent andhave received no development or training to support their position.

Working conditions, reward strategies, policies and procedures that are rigid andhave barely changed over decades.

Lack of trust in management decisions (and sometimes also lack of integrity atsenior management and/or board level).

American and Japanese Corporate Culture Models

The direction of change in corporate cultures in recent years has tended to be from thoserooted in American organisational culture, towards a culture which owes much too Japaneseideas. In addition, there has been a movement away from bureaucratic cultures towardsmore flexible approaches. We can summarise the two corporate culture models as follows:

(a) American

The typical American organisational culture is characterised by decision-makingconcentrated at the top, with instructions flowing down to subordinates (i.e. lineauthority). We can see here the still considerable influence of Taylor and Fayol. Inaccordance with this approach, few people are involved in planning and decision-making.

This has the advantages stressed by the classical theorists: the objectives of the plansand decisions are clear and unambiguous and decision-making is swift. However,plans and decisions take some time to be implemented because they have somedistance to flow down the organisation. They need to be explained to the lower levelsand there may not be agreement or enthusiasm for these instructions among workers.


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Considerable bureaucracy tends to be present. Individuals have their areas ofdiscretion clearly delineated and are held personally responsible for results which stemfrom their decisions.

Professionals operating within American organisations place their first loyalty to theirprofession and see themselves as different from line managers, whom they regard as'company men'. This is just one of several potentially conflicting areas in Americanorganisations; these become particularly apparent when the need for change arises inthe organisation.

The American corporate culture stresses the importance of short-term results. Thisshort-termism is an important influence on the organisations, producing a culture of thehard sell and sometimes frantic activity. This cultural style is further reinforced byrewarding individual results, a logical follow-on to holding individuals responsible fortheir decisions and actions. Another feature of this culture is a sense of job insecurityand rapid labour turnover; this in turn makes some firms reluctant to invest heavily inlong-term staff and management training.

The corporate culture of the USA favours strong, decisive leadership from the top.Management is not afraid of confrontation and encourages competition.

Although many American firms do not fit the above model and many more areattempting to change from it, the culture is sufficiently widespread to serve as themodel for organisational culture in the USA.

(b) Japanese

The typical Japanese organisational culture reveals many features in strong contrast tothe American model. Japanese decision-making tends to flow from the lower levels ofthe organisation, with suggestions and ideas going up to top management and flowingdown again through consultations with people concerned. Bottom-up decision-makingencourages a culture of consensus, because people are likely to agree with decisionswhere they have been involved with the decision-making process. However, there canbe drawbacks in that decision-making can be a long process and objectives maybecome rather confused. Against this must be set the speedier, smootherimplementation of corporate plans and decisions.

The corporate culture in Japan tends to be more informal and less bureaucratic. Allstaff, including professionals, are likely to owe their first loyalty to the firm. TheJapanese culture is far more collectivist; rather than rewarding individual results it isthe work group that is rewarded for good results. Japanese pride is in the group or theorganisation, not in the individual. This collective culture also applies to decision-making, where many techniques are used to involve workers at all levels in theplanning and decision-making process.

The loyalty of Japanese employees to their organisations is reciprocated by the jobsecurity offered to them. In many organisations there is lifetime employment, and as aresult firms are confident that their staff will remain with them. This, in turn, encouragesfirms to undertake long-term, expensive training schemes, thus benefiting both staffand organisation. The Japanese approach stresses the value of long-term results; inconsequence a calmer and more co-operative culture develops.

The value of consensus and agreement is reflected in the leadership style of Japaneseculture. The Japanese see the leader as primarily an enabler: the role of the leader isto assist a group or section to achieve its objectives. The enabling role is carried onthrough consultation, and subordinates are encouraged to help with suggestions.

Control is less authoritarian in Japanese organisations than in parallel American firms.The Japanese culture encourages control by the group rather than by superiors;


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because results are measured in group terms it is in the interests of the group to see toit that all group members are pulling their weight.

In summary, Japanese corporate culture has been more stable and democratic, hasgreater consensus and takes a longer-term view than the American corporate culture.

Strategic Business Units and Internal Marketing

When large organisations produce a number of products or services they may split theiractivities into a number of relatively autonomous divisions, known as strategic business units(SBUs).

SBUs develop entrepreneurial culture within large organisations by being responsible fordeveloping, producing and marketing their own product or service. Each SBU can bebenchmarked for effectiveness and efficiency, so there are strong incentives to perform well.

SBUs may be profit centres, that is the units are responsible for both revenues and costs.

Another technique that develops entrepreneurial culture is internal marketing. This involvesdivisions, departments or units marketing their products or services to other units within thesame organisation. The providing units satisfy the needs of the other units just as if theywere external customers. They meet the consuming units' needs for the right products at theright price; of the right quality, in the right place at the right time. Supporters of internalmarketing argue that it increases effectiveness and efficiency by bringing the discipline andculture of the market into the organisation itself.


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Documents

The Development of organisational Theory