Contingency Theories of Organizations

Part 2 – OB: What is the core argument of contingency theories of organizations? Discuss giving examples from at least one such theory. Evaluate the claims of this theory and assess its relevance for organizations today.

Organizations operate in many different environments and it is vital to assess how they influence their structures. Effective and efficient organizing has become increasingly important in the modern world characterized by rapid changes. Contingency approaches emphasize that in order for organizations to succeed they must adopt a structure suitable for the environment in which they operate.

There are many forms of contingency theory. In general, contingency theories are a class of behavioral theory that claim that there is no best way to organize a corporation and the organizational structure of the company. An organizational or leadership style that is effective in some situations may not be successful in others. Therefore, the best way of organizing the company, is contingent upon the internal and external situation of the company.

External environments influence organizations in a varied number of ways. Critical external factors include, but are not limited to, the size of the organization, labor markets, availability and cost of capital, competitors, governmental laws and policies, managerial assumptions about employees, strategies, technologies used, etc.

The main ideas of contingency theory are:

* There is no universal or one best way to manage

* The design of organizations and its subsystems must ‘fit’ with the environment

* Effective organizations not only have a proper ‘fit’ with the environment but also between its subsystems

* The needs of an organization are better satisfied when it is properly designed and the management style is appropriate both to the tasks undertaken and the nature of the work group.

Several contingency approaches were developed simultaneously in the late 1960s. The emergence of the theory was the result of criticisms of the classical theories such as Weber’s bureaucracy (Weber, 1946) and Taylor’s scientific management (Taylor, 1911) which had failed because they neglected that management style and organizational structure were influenced by various aspects of the environment: the contingency factors. The contingency approach originated with the work of Joan Woodward (1958), who declared that successful organizations in different industries with different technologies were characterized by different organizational structures.

In this essay I will discuss three influential contingency theories, those of Burns and Stalker (1961), Lawrence and Lorsch (1967) and Fiedler (1967).

Tom Burns and Graham Stalker in their 1961 book, “The Management of Innovation” studied about 20 Scottish and British electronics companies operating in increasingly competitive and innovative technological markets. Their findings demonstrated that organizations operating in stable environments are very different from those which have to face a changing and dynamic environment. The authors have discovered that differences in the way firms approached change and innovation related to the values and mission of the firms.

Burns and Stalker classified the firms into 2 categories on the basis of their managerial structures and practices: mechanistic and organic.

The authors found that mechanistic organizations, also called bureaucracies, are suited for relatively stable environmental conditions. Such organizations are clearly programmed, strictly controlled and hierarchically structured. Often they do not have mission and vision statements, and instead depend on established rules for guidance, measuring success by the degree to which staff conforms to process and procedure. Organizational tasks are typically broken down into specialized activities. Individuals are responsible for their specific functions in a relative isolation from the overall organizational goal.

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The organic organizations are more likely to exist under unstable environmental conditions. Organic organizations are orientated towards results, have a flat organization structure instead of a hierarchy, and little structure in terms of process and rules. They focus on results and employees receive positive rewards for creative and pragmatic contributions. Given these conditions it becomes necessary to review and redefine the responsibilities, methods, inter-role relationships, and even goals on a continual basis.

Burns and Stalker emphasized that each system is appropriate under its own specific conditions. Neither system was superior to the other under all situations. Since the 1960s much of writings in organization theories field is a constant debate between the machine/organ analogies, and attempts to develop growth models of how simple mechanistic forms can grow into the more complex organic forms.

Another significant study to demonstrate the relationships between environmental characteristics and effective organizational structures was conducted by Paul Lawrence and Jay Lorsch (1967). They studied ten US firms in three separate industries (plastics, food, containers) that confronted varying degrees of uncertainty, complexity and change.

The researchers found that successful firms in each industry had a different degree of differentiation. The firms operating in uncertain, complex, rapidly changing environments had more highly differentiated internal structures: sales, production and R&D departments. Such organizations require the greater need for suitable mechanisms for integrating and resolving conflicts between ranges of segments.

Successful firms in more homogeneous and stable environment were more formalized and hierarchical in their forms. Authors concluded that successful firms must have internal structures as complex as environments in which they operate.

This seminal work of Lawrence and Lorsch refined the contingency theory by demonstrating that different markets and technological environments require different kinds of organizations, and that subunits or functional departments within an organization might be managed in different ways, due to variations resulting from their sub-environments. Their view is ecological — those organizations that can best adapt to the environment will survive.

Managerial leadership has influenced organizational activities in many ways. These influences include motivating subordinates, budgeting scarce resources, and serving as a source of communication. Contingency theories of leadership argue that no single leadership style is effective in all circumstances, but the leadership styles are contingent on the organizational and situational context. Fred Fiedler’s theory (1967) is the earliest and most extensively researched is also known as contingency model of leadership effectiveness.

Fiedler’s ideas originated from trait and behavioral models by stating that performance of the group is dependent on the leader’s psychological orientation and on three contextual variables: group atmosphere, task structure, and leader’s power position. The contingency model underlines the importance of both the leader’s personality and the situation in which that leader operates.

The first major factor in Fiedler’s theory is known as the leadership style. This is the consistent system of interaction that takes place between a leader and work group. In order to classify leadership styles, Fiedler has developed an index called the Least-Preferred Coworker (LPC) scale.

To get an LPC score a leader is asked to think of co-workers with whom he/she has ever worked and choose the one with whom the work was the most difficult. Then this person is rated on a number of eight-point bipolar scales (friendly/unfriendly, hostile/supportive, etc.). The responses to these scales are summed and averaged: a high LPC score suggests that the leader has a human relations orientation, while a low LPC score indicates a task orientation.

The second major factor in Fiedler’s theory is known as situational favorableness or environmental variable. This basically is defined as the degree a situation enables a leader to exert influence over a group. Fiedler then extends his analysis by focusing on three key situational factors, which are leader-member, task structure and position power.

For leader-member relations, Fiedler maintains that the leader will have more influence if they maintain good relationships with group members who like, respect, and trust them, than if they do not. Fiedler explains that task structure is the second most important factor in determining structural favorableness. He contends that highly structured tasks, which specify how a job is to be done in detail provide a leader with more influences over group actions than do unstructured tasks. Finally, as for position power, leads who have the power to hire and fire, discipline and reward, have more power than those who do not. For example, the head of a department has more power than a file clerk.

By classifying a group according to three variables, it is possible to identify eight different group situations or leadership style. These eight different possible combinations were then classified as either task orientation or relationship orientated.

Several implications can be derived from Fiedler’s findings. First, it is not accurate to speak of effective and ineffective leaders. Fiedler goes on by suggesting that there are only leader who perform better in some situations, but not all situations. Second, almost anyone can be a leader by carefully selecting those situations that match his or her leadership style. Lastly, the effectiveness of a leader can be improved by designing the job to fit the manager. For instance, by increasing or decreasing a leader’s position power, changing the structure of a task, or influencing leader-member relations, an organization can alter a situation to better fit a leader’s style.

The following aspects can be considered as strengths of Fiedler’s theory: it is predictive and supported by a lot of empirical research, it does not require that people be effective in all situations and provides a way to assess leader style that could be useful to an organization. However among its weaknesses are the fact that it is cumbersome to use, it doesn’t explain what to do when there is a mismatch between style and situation and it doesn’t take into account situational variables, like training and experience, which also have an impact in a leader’s effectiveness. Finally, there is some doubt whether the LPC is a true measure of leadership style.

In summary, the essence of contingency theory is that best practices depend on the contingencies of the situation. Contingency theory is often called the “it all depends” theory, because when a contingency theorist is being asked for an answer, the typical response will be that it all depends. While this may sound simplistic, assessing the contingencies on which decisions depend can be a very complex. Contingency theorists try to identify and measure the conditions under which things will likely occur.

Considering that organizations should attain both external and internal fit to achieve superior performance, at the same time, the processes of strategy formulation and implementation are not separable activities; there is a need for an integrative approach that incorporates both schools of thought. The appropriate management style and organizational structure depend on the environmental context of the organization concerned.

The ability to manage change is now recognized as a core organizational competence.

References:

1. Fineman, S., Sims, D. & Gabriel, Y. (2005) Organizing and organizations , London, Sage.

2. Smith, M. J. (1984). Contingency rules theory, context, and compliance behaviors. Human Communication Research, 10, 489-512.

3. Burns, T., Stalker, M. (1961). The Management of Innovation, 3rd Edition, 1994, Oxford University Press

4. Lawrence, P. R., Lorsch, J. W. (1967). Organization and Environment. Cambridge, MA: Harvard University Press.

5. Fiedler, F. E. (1964). A Contingency Model of Leadership Effectiveness. Advances in Experimental Social Psychology (Vol.1). 149-190. New York: Academic Press.

Burnes, B. (1996), No such thing as … a “one best way” to manage organizational change. Management decision, Vol. 34, Issue 10, pp. 10-18