Section 1: Introduction to Organisational Theory

1 Section overview
This section provides the necessary knowledge to gain an understanding of organisational theory, its origins and its value in
understanding organisational behaviour.
Learning outcome
By the end of this section, you should be able to:
define organisational behaviour
explain the principles of organisational theory as it is applied to organisational behaviour
outline key activities and approaches used by organisational theorists in contemporary organisations
use the language and terminology of organisational theory

2 Section requirements
Activities
There are four self-directed activities in this section.
Textbook
The textbook for this unit is: Robbins, S. P., & Judge, T. A. (2014). Organizational behavior (16th Global ed.). Sydney, Australia:
Pearson Australia.
Please read Chapter 1: What is organizational behavior?
Reading
There is one reading in this section.
Global firms in 2020: The next decade of change for organisations and workers. A report from the Economist Intelligence Unit
(2010)
Self-assessment
Please complete the self-assessment questions at the end of this section to test your understanding and knowledge against the
objectives stated in this section.

3 Introduction
There has never been a better time to learn about organisational behaviour.
Take a quick look at the dramatic changes in organisations. The typical employee is getting older; more women and people of
colour are in the workplace; corporate downsizing and the heavy use of temporary workers are severing the bonds of loyalty that
tied many employees to their employers; and global competition requires employees to become more flexible and cope with rapid
change. The global recession has brought to the forefront the challenges of working with and managing people during uncertain
times (Robbins and Judge, 2011(14th ed.) pp. 14-15).
Those working in small, medium and large enterprises in the public and private sector and in local or global markets whether
as people who manage or people who are managed benefit from understanding of organisational theory and the concepts and
practices associated with it.
This section reviews some of the more critical issues illuminated by organisational theory, provides insights into implications of
organisational theory for behaviour and approaches used within organisational theory to address problems as seen from a
management perspective.

4 Historical foundations of organisational theory

Management and leadership practices have been around in one form or another for centuries. The writings of Aristotle, Plato and
Confucius abound with references to and examples of leadership and management concepts.
It is generally agreed that organisational theory emerged as an academic discipline during the late 1940s. It is unique in the way it
applies and integrates diverse insights to promote a better understanding of human behaviour in organisations. Organisations
depend on managers to help ensure the work experiences of others are both productive and satisfying.
An organisation is defined in the course text book as: a consciously coordinated social unit, composed of two or more people,
that functions on a relatively continuous basis to achieve a common goal or set of goals (Robbins and Judge, 2011(14th ed. p.
5). Organisation theory is comprised of a systematic body of theories, terms, concepts, evidence etc. based upon research and
pertaining to organisational practices, organisational effectiveness, organisational change, the management of members of
organisations and the like.
Classical organisational theory
Key contributors to classical organisation theory included Henri Fayol (a French executive and engineer), Lyndall Urwick (a
British executive), and Max Weber (a German sociologist).
Weber, the most prominent of the three, proposed a bureaucratic form of structure that he believed would work for all
organisations (Weber, 1921). Although today the term bureaucracy conjures up images of paperwork, red tape, and inflexibility,
Webers model embraced logic, rationality, and efficiency. The model described by Weber (1921), was an early universal
approach to organisation structure. In its idealised form, a bureaucracy is logical, rational, and efficient.
In contrast to Webers views, contemporary organisation theorists recognise that different organisation structures may be
appropriate in different situations. This perspective, like scientific management, played a key role in developing management
thought. Webers ideas and the concepts associated with his bureaucratic structure are still interesting and relevant today.
Precursors of organisational theory
Robert Owen, Hugo Munsterberg, and Mary Parker Follett were among the first to recognise the importance of individual
behaviour to organisations.
In the early nineteenth century, British industrialist, Robert Owen, attempted to improve workplace conditions for industrial
workers. He raised the minimum age for hiring children, introduced meals for employees and shortened working hours.
In the early twentieth century, noted German psychologist, Hugo Munsterberg, argued that the field of psychology could provide
important insights into areas such as motivation and hiring new employees.
Another writer in the early 1900s, Mary Parker Follett, believed that management should become more democratic in its dealings
with employees. An expert in vocational guidance, Follett argued that organisations should strive harder to accommodate their
employees human needs (Munsterberg, 1913).
Managements perception of the relationship between the individual and the workplace did not change significantly until the
1930s. A series of now-classic research studies from that time led to organisational behaviour emerging as a field of study.
The Hawthorne studies
The Hawthorne studies led to some of the first discoveries of the importance of human behaviour in organisations. They were
conducted between 1927 and 1932 at Western Electrics Hawthorne plant near Chicago. General Electric initially sponsored the
research but withdrew its support after the first study was finished. Several researchers were involved, the best known being
Harvard faculty members and consultants, Elton Mayo and Fritz Roethlisberger, and chief of Hawthornes Employee Relations
Research Department, William Dickson.
Mayo (1933) cites the first major experiment at Hawthorne which investigated the effects of different levels of lighting on
productivity. The researchers systematically manipulated the lighting of the area in which a group of women worked. The groups
productivity was measured and compared with that of another group (the control group), whose lighting was left unchanged. As
lighting was increased for the experimental group, productivity went up. So did the productivity of the control group. Even when
lighting was subsequently reduced, the productivity of both groups continued to increase. Productivity started to decline only
when the lighting became almost as dim as moonlight. This led the researchers to conclude that lighting had no relationship to
productivity. It was at this point that General Electric withdrew its sponsorship of the project.
In another major experiment, a piecework incentive system was established for a nine-man group that assembled terminal banks
for telephone exchanges. The Hawthorneresearchers found that the group as a whole established an acceptable output level for its
members. Individuals who failed to meet this level were dubbed chisellers and those who exceeded it by too much were branded
rate busters. As a worker approached the accepted level each day, he slowed down to avoid overproducing in order to be
accepted by the group. (Moorhead & Griffin. 1998, p. 10)
After a follow-up interview program with several thousand workers, the Hawthorne researchers concluded that the human element
in the workplace was considerably more important than previously believed. The lighting experiment, for example, suggested that
productivity might increase simply because workers were singled out for special treatment and perhaps felt more valued. Being
accepted as part of a group was taken to mean more to the workers in the incentive system experiment than earning extra money.
Several other studies supported the overall conclusion that individual and social processes are too important to ignore.
Like the work of Taylor, the Hawthorne studies have been called into question (Carey, 1967; Yorks & Whitsett, 1985). Critics cite
weaknesses in research methods and alternative explanations of the findings. However, these studies played a major role in
advancing the field and are still among its most frequently cited works.

5 Organisational behaviour defined

Organisational behaviour is: a field of study that investigates the impact that individuals, groups and structure have on behaviour
within organisations, for the purpose of applying such knowledge toward improving an organisations effectiveness (Robbins and
Judge, 2011(14th ed.) p. 9).
Organisational behaviour has strong ties to other social and behavioural sciences including psychology, social psychology,
sociology, economics, politics and anthropology.
Organisational Behaviour includes the core topics of motivation, leader behaviour and power, interpersonal communication, group
structure and process, learning, attitude development and perception, change processes, conflict, job design and work stress.

Activity 1.1: Self-directed

Reflect on your experiences with two different organisations. Make a list of five key differences and five key similarities between
them.
Organisational purpose
It is commonly accepted that the purpose of any organisation is to produce a product or service. A clear statement of purpose is
important to guide such activities within an organisation and add clarity to the roles and functions of its members.
Westpac Banking Corporation aims to be the leading financial services company in Australia and New Zealand, with their stated
purpose being to help every one of our 10 million customers achieve all of their financial goals (Westpac Banking Corporation,
2009).
Note that alongside this stated purpose that the Westpac Group also helped its shareholders to achieve their financial goals. In the
first half year to 31 March 2014 earnings per share increased 7% and reported profit was $3,622 million (up 10% on first half
2013)
The contemporary challenge for managers in Australia, the Asia-Pacific region, the USA and most other countries is widely
regarded as being to rethink and restructure the way in which they manage their workforces, and to design their organisations so
they survive and remain competitive into the twenty-first century.
Some significant changes affecting all organisations are:
the global economy
developments in information and communication technologies
In the twenty-first century organisations should strive to achieve both productivity and employee job-satisfaction and to do so
while performing under the pressures of rapid and even unprecedented change. They should be willing and able to anticipate and
deal with changing environmental circumstances and to help others do the same.
Wood et al. (2006) contend that the biggest challenges that organisations must deal with in todays dynamic environment are:
globalisation
advances in technology
management of knowledge
evolving employment relationships
workplace culture, values and ethics
These are in addition to work options, quality management, workforce diversity and quality of work life - themes that are ever
present in the modern organisations.
Wood et al. (2006) also correctly report that important new competencies, such as cross-cultural awareness are being identified to
help contemporary organisations cope with these new demands (p.18).

6 Managers today
Wood et al. (2006) describes a manager as a person in an organisation who is responsible for work that is accomplished through
the performances contributions of one or more other people (p. 9).
In contemporary organisations managers confront a range of human resource issues including:
performance management
change management
organisational culture
While managers continue to influence the direction and operations of organisations their roles have changed. Changing economic
factors, removing layers of middle management, and the increasing practice of delegated responsibility, have led to a growing
expectation in some organisations that employees will manage themselves in their daily work.
Effective managers
Managers establish and support the conditions needed to ensure high productivity for themselves, for individual contributors, for
their work units, and for the organisation as a whole. This involves a commitment to accomplish different but complementary
performance outcomes for any individual, work unit or total organisation:
productivity is a summary measure of the quantity and quality of work performance, which also accounts for resource use
performance effectiveness measures whether important task goals are being attained
performance efficiency measures how well resources are being used
Wood et al. (2006) report that any manager should seek two key results for a work unit or work team:
task performance - the quality and quantity of the work produced or the services provided by the work unit
human resource maintenance - the attraction and continuation of a capable workforce over time
Good human resource maintenance is a major concern of organisational behaviour. It directs a managers attention to matters
such as job satisfaction, job involvement, organisational commitment, absenteeism and turnover, as well as performance (Wood
et al., 2006, p. 9).
Managers who are able to add value to the organisations bottom-line performance are most sought after. The efforts of these
managers clearly enable their work units to achieve high productivity and quality outcomes. They create high-performance
systems, allowing individuals and groups to work well together, benefiting the entire organisation, its stakeholders and its
customers.

7 The management process

In the early part of the 20th century, a French industrialist, Henri Fayol, claimed that all managers perform five management
functions: planning, organizing, commanding, coordinating and controlling (Robbins and Judge, 2011, 14th ed. p. 5).
Today, commanding is seldom mentioned explicitly in Organisational Theory but there is still a widespread consensus that
managers utilise organisational resources to plan, organise, lead and control in order to bring about high task performance and
human resource maintenance.
The four functions of management
Planning includes defining goals, establishing strategy, and developing plans to coordinate activities.
Organising is determining what tasks are to be done, who is to do them, how the tasks are to be grouped, who reports to whom and
where decisions are to be made.
Leading includes motivating subordinates, directing others, selecting the most effective communication channels and resolving
conflicts.
Controlling is monitoring activities to ensure they are being accomplished as planned and correcting any significant deviations.

8 Contemporary themes
Todays typical organisation is a global corporation with a high level of workforce diversity. Managers now face a range of issues
that challenge classical management theory.
Globalisation
The world economy is becoming increasingly global in character.
Consider, for example, the impact of international businesses on our daily lives:
we wake to the sound of an alarm clock made in the Japan
we drink our morning coffee from Colombian beans
we dress in clothes produced in China
we drive an Australian motor vehicle
along the way, we stop and buy petrol imported from the Middle East by Shell, a Dutch company
people all over the world eat at McDonalds restaurants and drink Coca Cola; both giants in US corporate history
While globalisation is not a new theme, researchers are now turning their attention to the debate of how well organisational
theories and practices work across cultures.
Managing in a global economy poses many different challenges and opportunities. For example, property ownership arrangements
vary widely around the world. So does the availability of natural resources and components of the infrastructure, as well as the
role of government in business.
From an organisational theory perspective an important consideration is how behavioural processes vary widely across cultural
and national boundaries. Values, symbols, and beliefs differ sharply among cultures. Different work norms and the role work plays
in a persons life influence patterns of both work-related behaviour and attitudes toward work. They also affect the nature of
supervisory relationships, decision-making styles and processes, and organisational configurations. Group and inter-group
processes, responses to stress, and the nature of political behaviours also differ from culture to culture.
Todays managers must be able to think globally and act locally in pursuing opportunities.
Many large multinational companies also face the growing trend of globalisation of the labour market. This simply means that
many of these large companies now source their employees within the country in which they do business rather than relying on
expatriates solely to run their offshore operations.
It is common, for example, to see workers in Indonesia making polo shirts for a large US clothing company. Lower wages,
combined with higher levels of productivity, allow the firm to sell its products for lower prices while still earning reasonable
profits. But managers at the company must work to understand the local culture and the behavioural forces that affect Indonesian
workers in order to effectively supervise the workers.
Globalisation is often linked to off shoring outsourcing work to lower-wage countries.
Japan is an example of a country that is extremely active in the shift towards locating productive capacity outside its national
boundaries and moving them to locations that offer the greatest comparative advantage.
Some experts argue that globalisation increases competition and market volatility. It also has the potential to reduce job security,
increase work intensification and demand more work flexibility from employees. Globalisation might partly explain why many
people now work longer hours, have heavier workloads and experience more work-family conflict than in any time in recent
decades.

Activity 1.2: Self-directed

Read the case study below and answer the questions that follow.

Case study: Colgate Palmolive

Fast-track young managers at Colgate Palmolive are oriented to the demands of globalisation early in their time with the company.
The firms P&G College for new managers focuses heavily on globalisation issues.
The fifteen positions available each year in the College are highly sought after; with up to 15,000 applications typically received.
Those selected are expected to be ready for globe-hopping careers.
In a global marketing management program, most participants have MBA degrees, speak at least one foreign language, and have
spent time living abroad.
They are also expected to work in a different country every few years as they earn their stripes for senior management.
Comment on the applicability of the programs described.
How does such a program benefit the organisation?
What disadvantages exist in such an approach?
Identify any groups that may be excluded or deterred from obtaining positions within this organisation as a result of the program?
Maturity of the workforce
The average age of workers is gradually increasing. This is partly because of declining birth rates and partly because people are
living and working longer.
Many organisations are finding retirees to be excellent part-time and temporary employees. Both McDonalds and Apple
Corporation have hired many older workers in recent years.
An organisation gains the expertise of skilled workers by hiring retirees while the individuals receive extra income and an
opportunity to continue to use their skills.

Activity 1.3: Self-directed

What policies exist in relation to mature age employees, in the organisation in which you are currently employed, or one where
you have recently worked?
Workforce diversity
Arguably, the most important and broad-based challenge for Australian and New Zealand organisations in the coming years will
be adapting to people who are different. The term used for describing this challenge is workforce diversity.
Workforce diversity is the increasing heterogeneity of organisations with the inclusion of different groups. But the term
encompasses anyone who varies from the norm.
This means that it also includes a broad mix of workers from different racial, ethnic and cultural backgrounds, of different ages
and sexualities, varying forms of embodiment and so differing ways and degrees to which they are disabled by organisations.
Wood et al. (2006) report that Perhaps the most notable change in the workforce is that it is more diverse than at any time in
history (p. 18).
Population demographics are known to be shifting, and workforce diversity is increasing across the world:
almost 25 per cent of Australias population will be 65-years-old or older by 2051. Almost 20 per cent may be 85-years or older
the US workforce will grow more slowly, with the number of people aged 18-24 falling sharply and those aged 55 and over
growing to one-fifth of the population
the countries of the European Union, ranging from Portugal to Germany, will experience low birth rates and rapidly ageing
populations
Japan will have the most rapidly ageing population of any major power, and will experience an increasing labour shortage
This growing level of diversity across the globe has special implications for countries such as Australia. In major cities, such as
Sydney and Melbourne, more than 40 percent of the workforce are non-Australian born or have parents born in other countries.
The 2006 Census recorded that almost 400 different languages are spoken in homes across Australia. Close to 20% of Australia's
population speak both English and another language at home.
Post-World War II, Australia has benefited from the arrival and work of immigrants from northern Europe, southern Europe and
many parts of Asia, the Middle East and Africa.
Relating these issues to the role of managers today, Wood et al. (2006) report that:
Managers must be aware of and able to successfully manage the context of the following trends:
the size of the workforce is growing more slowly than in the past
the pool of younger workers is a smaller percentage of the workforce
the average age of the workforce is rising
more women are entering the workforce
the proportion of ethnic minorities in the workforce is increasing
the proportion of immigrants in the workforce is increasing
workforce mobility is increasing in regions such as the European Union
labour packaging is growing through short-term migrant labour importation in many Asian and Middle East countries
international careers and mobile managers are now becoming commonplace
international experience is becoming a prerequisite for career progression to many top-level management positions
Organisations are now implementing specific strategies to manage their workforce diversity. Some are addressing the diversity of
their customer base and their workforce.

9 Evolving employee-employer expectations

Globalisation and recent changes in the workplace itself have led to two contrasting changes in relationships between employers
and employees:
aligning the workplace with employees work-life balance expectations
increasing workforce flexibility
Work-life balance
Work-life balance can be defined as minimising the conflict between work and non-work demands.
With the advent of two-income families and changes in the workplace expectations of Generation X and Generation Y, the notion
of work-life balance plays a prominent role in todays employment relationships.

Source: McCrindle, M. (2006). New generations at work: Attracting, recruiting, retraining and training generation Y. Retrieved
from http://www.mccrindle.com.au

McCrindles Generational Characteristics

Source: McCrindle, M. (2006). Bridging the gap: An employers guide to managing and retaining the new generations of
apprentices and trainees. Retrieved from http://www.mccrindle.com.au
Australias top workplaces strive to offer work-life balance offering part-time work, job sharing, home-based work, leave without
pay, career break and carer leave. Many of these conditions can also be found in the employment contracts of federal and state
public service organisations.
McShane and Travaglione (2007) report that, along with providing more work-life balance, companies are adjusting to emerging
workforce expectations of a more egalitarian workplace by reducing the hierarchy and replacing command and control
management with facilitating and teacher oriented leaders (p. 10).
Increasing workforce flexibility
Some organisations are demanding more flexibility from employees to remain responsive to changing market conditions.
Some emerging trends in this regard include:
Employability employees are expected to manage their own career development in anticipation of future workplace
requirements.
Casualisation of work employees are engaged without an ongoing or long-term work contract and minimum work hours can vary
in a non-systematic way.
Virtual work information communication technologies are adopted so employees can work outside the traditional workplace.

Reading
Read: Global firms in 2020: The next decade of change for organisations and workers. A report from the Economist Intelligence
Unit (2010).
This report by the Economist Intelligence Unit is based on a quantitative survey of 479 senior executives conducted in June and
July 2010 and in-depth qualitative interviews with relevant experts. It predicts and discusses the likely consequences of the rise of
emerging markets, the global financial crisis and demographic pressures for organisations. Consider implications from an
organisational theory perspective.

10 Contingency approach
This final part of the section introduces the concept of the contingency approach to managing.
The contingency approach is a view that a particular action may have different consequences in different situations. In other words
no single solution is best in all circumstances and the chosen solution is contingent on the situation.
When senior managers are faced with a situation that requires them to adopt one type of leadership style over another, they must
first analyse the situation and then select the best approach. A participatory approach in some instances may be appropriate instead
of a directive approach.
Organisational behaviour specialists embrace the contingency approach because it helps them realistically interrelate individuals,
groups, and organisations. Managers must read and interpret the situational contingencies facing them before deciding the best
way to coordinate and integrate work activities.
As organisations and even units within the same organisation are diverse in size, objectives, and work practices, it would be
surprising to find universally applicable principles that work in all situations. A contingency approach to describe what managers
do then is intuitively logical.
Contingency variables
Organisation size
The number of people in an organisation is a major influence on the way that managers manage. As size increases, so do the
problems of coordination.
The type of organisation structure appropriate for 50,000 employees is likely to be inefficient for an organisation of 50 employees.
Routineness of task technology
An organisation uses technology to transform inputs into outputs.
Routine technologies require organisational structures, leadership styles, and control systems that differ from those required by
customised or non-routine technologies.
Environmental uncertainty
The degree of uncertainty caused by political, technological, socio-cultural and economic changes influences the management
process.
What works best in a stable and predictable environment may be totally inappropriate in a rapidly changing and unpredictable
environment.
Individual differences
Individuals differ in their desire for growth, autonomy, tolerance of ambiguity and expectations.
These and other individual differences are particularly important when managers select motivation techniques, leadership styles
and job designs.

Activity 1.4: Self-directed

Read the case study below and answer the questions that follow.

Case study: Difficult transations

Tony Stark had just finished his first week at Reece Enterprises and decided to drive to a small lakefront lodge for some fishing
and relaxation.
Tony had worked for the previous ten years for the OGrady Company. OGrady had been through some hard times and had
recently shut down several of its operating groups, including Tonys, to cut costs. Tonys experience and recommendations made
finding another position fairly easy. As he was driving, he reflected on the past ten years and the apparent situation at Reece.
At OGrady, things had been great. Tony had been part of the team from day one. The job had met his personal goals and
expectations perfectly and Tony believed he had grown greatly as a person. His work was appreciated and recognised. He had
received three promotions and many more pay increases.
Tony had also liked the company itself. The firm was decentralised, allowing its managers considerable autonomy and freedom.
The corporate culture was easy-going. Communication was open. It seemed that everyone knew what was going on at all times. If
you didnt know about something it was easy to find out.
The people had been another plus. Tony and three other managers went to lunch often and played golf every Saturday. They got
along well both personally and professionally and truly worked together as a team. Their boss had been very supportive, giving
them the help they needed but also staying out of the way and letting them work.
When word about the shutdown came down, Tony was devastated. He was sure that nothing could replace OGrady. After the
final closing was announced, he spent only a few weeks looking around before he found a comparable position at Reece
Enterprises.
As Tony was driving, he reflected that comparable probably was the wrong word. Reece and OGrady were about as different as
you could get. Top managers at Reece apparently didnt worry too much about who did a good job and who didnt. They seemed
to promote and reward people based on how long they had worked there and how well they played the never-ending political
games.
Maybe this stemmed from the organisation itself, Tony pondered. Reece was a bigger organisation than OGrady and it was
structured much more bureaucratically. It seemed that no one was allowed to make any sort of decision without obtaining three
signatures from higher up. Those signatures, though, were hard to obtain. All the top managers usually were too busy to see
anyone, and inter-office memos apparently had very low priority.
Tony also had some problems fitting in. His peers treated him with polite indifference. He sensed that a couple of them resented
that he, an outsider, had been brought in at their level after they had worked their way up the ladder.
On Tuesday he had asked two colleagues about playing golf. They had politely declined, saying they did not play often. Later in
the week, Tony overheard them making arrangements to play that very Saturday. It was at this point that Tony had decided to go
fishing. As he steered his car off the road to buy petrol and supplies, he wondered if perhaps he had made a mistake in accepting
the Reece offer without finding out more about what he was going into.
Identify several concepts and characteristics from the field of organisational behaviour that this case illustrates.
What advice can you give Tony?
How would this advice be supported by behavioural concepts and processes?
Is it possible to find an ideal place to work? Explain you answer.
11 Conclusion and Self-assessment
Conclusion
Organisational theory is an important management discipline that addresses the people aspect of the workplace as well as various
trends, work practices and processes, and change initiatives.
Todays organisations are experiencing high and dramatic rates of changes. They now face a range of issues from the employment
of mature-aged workers, higher number of minority groups (including women) in the workforce, restructuring, re-engineering and
downsizing, the use of e-business and new technology, and the advent of the global organisation and workforce.
The aim of organisational behaviour is to solve key management issues, offer a contingency approach to these solutions and
recognise that no one method is the ultimate solution.
This Organisational Behaviour unit presents a range of management concepts and methodologies that can be considered for use in
organisations.

Self-assessment
Did you achieve the objectives for this section? To test your knowledge, write brief answers to the following questions:
Why is understanding change a vital management issue?
Describe the contingency approach and its application in organisational behaviour.
Identify the importance of workplace diversity in your geographical location and organisation.
Relate briefly the origins of organisational theory.
Explain some business gains of hiring mature-aged workers.