GROUP 1

Organizational Theories Models, Concepts and Ideas

Modern management theory

Modern organization theory is rooted in concepts developed during the
beginnings of the Industrial Revolution in the late 1800s and early 1900s. Of
considerable import during that period was the research done by of
German sociologist Max Weber (18641920). Weber believed that
bureaucracies, staffed by bureaucrats, represented the ideal organizational
form. Weber based his model bureaucracy on legal and absolute authority,
logic, and order. In Weber's idealized organizational structure, responsibilities
for workers are clearly defined and behavior is tightly controlled by rules,
policies, and procedures.
Modern management theory has changed the way managers look at their
jobs. Advancements and refinements in management theory and practice have
enabled managers and managerial systems to evolve.
Modern management theory refers to emphasizing the use of systematic
mathematical techniques in the system with analyzing and understanding the
inter-relationship of management and workers in all aspect.
Modern theories of organization are classified into quantitative theory,
system theory and contingency theory.

Quantitative Theory - The quantitative theory includes operation

research and quantification of the problem. It analyses the problems
from quantifiable angles and provides solutions to complex problems only
with the help of statistical and mathematical models such as linear and
non-linear programming, game theory, decision tree, simulation and

probability. Computers are used to solve management problems

whereas mathematical models were previously used for the purpose. A
large number of problems are solved with the use of simulation equations
and computers. The development of equations requires specialized skills
and advance knowledge of mathematics, statistics, economics and
behavioral sciences. Models are tested while the context of the real world
and use of operation research. Operation research is conducted by
diverse specialists and management experts. It is useful from the levels
of planning for organizing, actuating and control. It is known that
mathematical models do not provide the ultimate solutions. If they are
used in a given environment with real assumptions, they can suggest
appropriate measures which can be used for solving problems. The
quantitative approach is merely a tool for finding a suitable solution, but
is not a solution in itself. It has become a valuable supplement rather
than a substitute for management and organization. The role of human
skills and behavior cannot be ignored for the purpose of management.

System Theory - A system is a set of interconnected and inter-related

elements of management activity. It is an arrangement of components of
activities performed for achieving certain objectives. Thus, a system has
three components: arrangement, objectives and a plan. The arrangement
is designed and planned in an effective manner to achieve the objective.
Men, materials and money are planned to achieve the objectives of the
organization. Recently, it has been agreed that the organization is a
system wherein operation, marketing, finance, etc. are subsystems. The
modern organization theory believes in the General Systems
Theory (GST) which is applicable to all scientific phenomena. Kenneth
and Boulding have contributed a systems theory to establish to single,

self-contained and generalized theory for particular disciplines. The

system approach believes in a static structure and a dynamic and
cybernetic system. It has increased mobility, technological behavior, selfawareness and the goal-directed approach. The system is an
organization wherein the various components are subsystems which are
managed and mobilized for attaining the organizational goals. It is an
interconnected, interdependent and interacting arrangement of men and
materials. For example, business is a social technical system, a plant is
a botanical system, and a car is a mechanical system and so on.
Characteristics of the System Theory A business or industrial
organization has a system approach towards individuals, formal and informal
organizations status and role, process, resources and goals which are
interlinked to attain objectives through a synergistic effect. The system
approach is divided into closed and open systems. The open system consists of
the input transformation process, output, feedback and environment. An
organization is considered an open system because it continuously interacts
with the external environment for survival. The closed system believes in
internal management. It is like a closed loop which is autonomous and
independent.
Use of System Theory in an Organization An organization is considered
a dynamic system which evaluates acts and interacts with the environment. It
is open and incorporates all the changes and challenges of the social set up.
The organization consists of interacting and interdependent subsystems.

Scientific Management

Frederick Winslow Taylor (1856-1915) was an American inventor and

engineer that applied his engineering and scientific knowledge to management
and developed a theory called scientific management theory. Frederick Taylor's
scientific management theory can be seen in nearly all modern manufacturing
firms and many other types of businesses. His imprint can be found in
production planning, production control, process design, quality control, cost
accounting, and even ergonomics. If you understand the principles of scientific
management, you will be able to understand how manufacturers produce their
goods and manage their employees. You will also understand the importance
of quantitative analysis, or the analysis of data and numbers to improve
production effectiveness and efficiency.
Principles of Scientific Management Theory

In broad terms, scientific management theory is the application of

industrial engineering principles to create a system where waste is avoided, the
process and method of production is improved, and goods are fairly distributed.
These improvements serve the interests of employers, employees, and society in
general. Taylor's theory can be broken down into four general principles for
management:

Actively gathering, analyzing, and converting information to laws, rules,

or even mathematical formulas for completing tasks.

Utilizing a scientific approach in the selection and training of workers.

Bringing together the science and the worker so that the workers apply
the scientifically developed techniques for the task.

Applying the work equally between workers and managers where

management applies scientific techniques to planning and the workers
perform the tasks pursuant to the plans.

Important components of scientific management include analysis, synthesis,

logic, rationality, empiricism, work ethic, efficiency, elimination of waste, and
standardized best practices. All of these components focus on the efficiency of
the worker and not on any specific behavioral qualities or variations among
workers.

Bureaucratic Theory

The Max Weber theory of management, sometimes called bureaucratic

management theory, is built on principles outlined by Frederick Taylor in his
scientific management theory. Like Taylor, Weber advocated a system based on
standardized procedures and a clear chain of command. Weber stressed
efficiency, as did Taylor, but also warned of the danger of emphasizing
technology at the expense of emotion.

One primary difference between Max Weber and management, and other
theories of management, is that while Weber outlined the principles of an ideal
bureaucracy, he also pointed out the dangers a true bureaucracy could face.
Key elements of the Max Weber management theory include:

Clearly defined job roles

A hierarchy of authority

Standardized procedures

Meticulous record-keeping

Hiring employees only if they meet the specific qualifications for a job

Weber's theory of bureaucratic management also has two essential

elements. First, it entails structuring an organization into a hierarchy.
Secondly, the organization and its members are governed by clearly defined
rational-legal decision-making rules. Each element helps an organization to
achieve its goals.
An organizational hierarchy is the arrangement of the organization by
level of authority in reference to the levels above and below it. For example, a
vice-president of marketing is below the company's president, at the same level
as the company's vice president of sales, and above the supervisor of the
company's social media department. Each level answers to the level above it,
with the ultimate leader of the organization at the top.
The easiest way to understand the term rational-legal decision-making
rules is to think of it as a set of explicit and objective policies and procedures
that governs how an organization function.

Hawthorne Theory

The Hawthorne studies were conducted with the workers at the

Hawthorne plant of the Western Electric Company by Elton Mayo and Fritz
Roethlisberger in the 1920s. The Hawthorne studies were part of a refocus on
managerial strategy incorporating the socio-psychological aspects of human
behavior in organizations.
The studies suggested that employees have social and psychological needs
along with economic and financial needswhich must be met in order to be
motivated to complete their assigned tasks. The human relations movement is

concerned with morale, leadership, and factors that aid in the cooperation of
workers.
The Hawthorne studies helped conclude that workers were highly
responsive to additional attention from their managers and the feeling that
their managers actually cared about, and were interested in, their work. The
studies also concluded that although financial motives are important, social
factors are equally important in defining the worker productivity.
The Hawthorne studies showed that people's work performance is
dependent on social issues and job satisfaction, and that monetary incentives
and good working conditions are generally less important in improving
employee productivity than meeting individuals' need and desire to belong to a
group and be included in decision making and work.
This theory of management was a byproduct of the issues that arose
from the classical, scientific perspectives on management (i.e., Taylorism). The
simplest explanation of the hypothesis being investigated is quite intuitive.
Employees (i.e. human resources) are not merely motivated by financial gain,
and productivity is not simply a byproduct of incentives and optimized working
spaces. People are motivated by inclusion, constructive feedback, interest,
autonomy, and a wide variety of other 'soft' factors (i.e. factors aside from
money and other tangible resources).A

Nature of Administrative Organization

Type of Organization
Organizations are set up in specific ways to accomplish different goals,
and the structure of an organization can help or hinder its progress toward
accomplishing these goals. Organizations large and small can achieve higher

sales and other profit by properly matching their needs with the structure they
use to operate. There are three main types of organizational structure: functional,
divisional and matrix structure.

1.

Functional Structure
Functional structure is set up so that each portion of the organization is

grouped according to its purpose. In this type of organization, for example,

there may be a marketing department, a sales department and a production
department. The functional structure works very well for small businesses in
which each department can rely on the talent and knowledge of its workers and
support itself. However, one of the drawbacks to a functional structure is that
the coordination and communication between departments can be restricted by
the organizational boundaries of having the various departments working
separately.

2.

Divisional Structure

Divisional structure typically is used in larger companies that operate in a wide

geographic area or that have separate smaller organizations within the
umbrella group to cover different types of products or market areas. For
example, the now-defunct Tecumseh Products Company was organized
divisionally--with a small engine division, a compressor division, a parts
division and divisions for each geographic area to handle specific needs. The
benefit of this structure is that needs can be met more rapidly and more
specifically; however, communication is inhibited because employees in
different divisions are not working together. Divisional structure is costly
because of its size and scope. Small businesses can use a divisional structure
on a smaller scale, having different offices in different parts of the city, for

example, or assigning different sales teams to handle different geographic

areas.

3.

Matrix

The third main type of organizational structure, called the matrix structure, is
a hybrid of divisional and functional structure. Typically used in large
multinational companies, the matrix structure allows for the benefits of
functional and divisional structures to exist in one organization. This can
create power struggles because most areas of the company will have a dual
management--a functional manager and a product or divisional manager
working at the same level and covering some of the same managerial territory.

Decentralization vs Centralization

Centralization is said to be a process where the concentration of decision

making is in a few hands. All the important decision and actions at the lower
level, all subjects and actions at the lower level are subject to the approval of
top management. According to Allen, Centralization is the systematic and
consistent reservation of authority at central points in the organization. The
implication of centralization can be :1. Reservation of decision making power at top level.
2. Reservation of operating authority with the middle level managers.
3. Reservation of operation at lower level at the directions of the top level.
Under centralization, the important and key decisions are taken by the top
management and the other levels are into implementations as per the
directions of top level

Decentralization is a systematic delegation of authority at all levels of

management and in all of the organization. In a decentralization concern,
authority in retained by the top management for taking major decisions and
framing policies concerning the whole concern. Rest of the authority may be
delegated to the middle level and lower level of management.
Decentralization is not the same as delegation. In fact, decentralization is
all extension of delegation. Decentralization pattern is wider is scope and the
authorities are diffused to the lowest most level of management. Delegation of
authority is a complete process and takes place from one person to another.
While decentralization is complete only when fullest possible delegation has
taken place.

The following are the major differences between centralization and

decentralization:
1. The unification of powers and authorities, in the hands of high level
management is known as Centralization. Decentralization means
dispersal of powers and authorities by the top level to the functional level
management.
2. Centralization is best for a small sized organization, but large sized
organization should practice decentralization.
3. In centralization formal communication flow is there. Conversely, in
decentralization, communication stretches in all directions.
4. In centralization due to concentration of powers in the hands of a single
person, the decision takes time. On the other hand, decentralization
proves better in terms of decision making as the decisions are taken
much closer to the actions.

5. There is full leadership and coordination in Centralization.

Decentralization, shares the burden of the top level managers.
6. The reason for centralization is inadequate control over the organization,
but the reason for decentralization is good and effective control over the
same.

3 Types of Authority

The influential sociologist Max Weber proposed a theory of authority that

included three types. He pioneered a path towards understanding how
authority is legitimated as a belief system. The Webers three types of authority
are traditional, charismatic, and legal-rational authority.

1. Traditional authority is legitimated by the sanctity of tradition. The

ability and right to rule is passed down, often through heredity. It does
not change overtime, does not facilitate social change, tends to be
irrational and inconsistent, and perpetuates the status quo. In fact,
Weber states: The creation of new law opposite traditional norms is
deemed impossible in principle. Traditional authority is typically
embodied in feudalism or patrimonialism. In a purely patriarchal
structure, the servants are completely and personally dependent upon
the lord, while in an estate system (i.e. feudalism), the servants are not
personal servants of the lord but independent men (Weber 1958, 4).
But, in both cases the system of authority does not change or evolve.
2. Charismatic authority is found in a leader whose mission and vision
inspire

others.

It

is

based

upon

the

perceived

extraordinary

characteristics of an individual. Weber saw a charismatic leader as the

head of a new social movement, and one instilled with divine or

supernatural powers, such as a religious prophet. Weber seemed to favor
charismatic authority, and spent a good deal of time discussing it. In a
study of charisma and religion, Riesebrodt (1999) argues that Weber also
thought charisma played a strong - if not integral - role in traditional
authority systems. Thus, Webers favor for charismatic authority was
particularly strong, especially in focusing on what happened to it with
the death or decline of a charismatic leader. Charismatic authority is
routinized in a number of ways according to Weber: orders are
traditionalized, the staff or followers change into legal or estate-like
(traditional) staff, or the meaning of charisma itself may undergo change.
3. Legal-rational authority is empowered by a formalistic belief in the
content of the law (legal) or natural law (rationality). Obedience is not
given to a specific individual leader - whether traditional or charismatic but a set of uniform principles. Weber thought the best example of legalrational authority was a bureaucracy (political or economic). This form of
authority is frequently found in the modern state, city governments,
private and public corporations, and various voluntary associations. In
fact, Weber stated that the development of the modern state is identical
indeed with that of modern officialdom and bureaucratic organizations
just as the development of modern capitalism is identical with the
increasing bureaucratization of economic enterprise (Weber 1958, 3).