A5 ORGANIZATION

Introduction

With constant changes such as technological evolutions and globalization affecting

organizations and their environments, management theories need to adapt and address emerging
challenges. In today’s organizational environments, contemporary management theories take in
consideration these rapid changes, helping to interpret and explain the impact of the changes on
organizations (Porth & McCall, 2001). Organizations in the 21st century deal with constant
changes such as globalization, technological evolutions, regulatory changes, competition, and
other unexpected events, among others. These challenges can be viewed and addressed through
the lenses of contemporary theories, namely chaos, complexity, and contingency theories, and
presented their foundations and characteristics by comparing and contrasting their key concepts.
These concepts include nonlinearity, feedback, bifurcation, strange attractors, fractals,and self-
organization for chaos theory; nonlinearity, dynamism, feedback, self-organization, emergence,
and adaptability for complexity theory; and adaptation, equifinality, effectiveness, and
congruency for contingency theory. Examples of studies and organizational applications of these
theories were provided, and implications for scholars and organizational leaders were discussed.
This paper can provide an insight for managers into choosing the most suitable business theory
to apply to their organizations, and best practices to enhance performance. To put everything into
perspective, this article will also discuss specific studies conducted on these theories and
demonstrate the implications of the theories for researchers and organizational leaders. Apart
from that, this article also aims at identifying how business structures are influenced by changes
in business mindsets, thus proposing a redesigned model for business to harvest greater
performance.

Historical Perspective

First, a brief overview about business theory is essential to provide readers with its definition
and implications in today’s flexible world of business. Generally, a “business theory” can be
defined as the assumptions that shape any organization’s behavior, dictate its decisions about
what to do and what not to do, and define what the organization considers meaningful results.

1
A5 ORGANIZATION

These assumptions are about markets, how the external factors are operating and their impacts on
the structure and performance of the organization . They are about identifying customers and
competitors, their values and behavior. They are about technology and its dynamics, about a
company’s strengths and weaknesses. In short, a business theory comprises all the guidelines for
the organization to base its operations on - a North Star for directions. Throughout the history of
organizational management, there have been a multitude of business theories, each of which has
its own advantages and disadvantages. Some most salient business theories in practice are:
Contingency theory, System theory, Complexity theory and Chaos theory. However, today’s
dynamic world of business means that the choice of business theory must be done in a prudent,
discerning manner, so that clear, vivid guidelines can be created for the organization. Based on
the characteristics of each of the four aforementioned business theories, I firmly believe that
Contingency theory stands out as being the most suitable theory to the majority of organizations
in the world. Below will be an explanation for the choice of contingency by providing its history
as well as characteristics.

Contingency Theory

The contingency approach to leadership was influenced by two earlier research programs
endeavoring to pinpoint effective leadership behavior. During the 1950s, researchers at Ohio
State University administered extensive questionnaires measuring a range of possible leader
behaviors in various organizational contexts. Although multiple sets of leadership behaviors
were originally identified based on these questionnaires, two types of behaviors proved to be
especially typical of effective leaders: consideration leader behaviors that include building good
rapport and interpersonal relationships and showing support and concern for subordinates and
initiating structure leader behaviors that provided structure (e.g., role assignment, planning,
scheduling) to ensure task completion and goal attainment. About the same time, investigators
from the University of Michigan's Survey Research Center conducted interviews and distributed
questionnaires in organizations and collected measures of group productivity to assess effective
leadership behaviors. The leadership behavior categories that emerged from the University of
Chicago were similar to the consideration and initiating structure behaviors identified by the
Ohio State studies. The University of Michigan investigators, however, termed these leadership

2
A5 ORGANIZATION

behaviors relation-oriented behavior and task-oriented behavior. This line of research was later
extended by Robert Blake and Jane Mouton in 1964 to suggest that effective leaders score high
on both these behaviors. They suggested that previous theories such as Weber's bureaucracy and
Taylor's scientific management had failed because they neglected that management style and
organizational structure were influenced by various aspects of the environment: the contingency
factors. There could not be "one best way" for leadership or organization. Historically,
contingency theory has sought to formulate broad generalizations about the formal structures that
are typically associated with or best fit the use of different technologies. The perspective
originated with the work of Joan Woodward (1958), who argued that technologies directly
determine differences in such organizational attributes as span of control, centralization of
authority, and the formalization of rules and procedures. In short, contingency theory can be
defined as an organizational theory that claims that there is no best way to organize a
corporation, to lead a company, or to make decisions. It is an approach suggesting that the best
solution to a problem depends on various factors such as the environment, goals, technology, and
people involved. Contrary to classical theories that advocate one best way of doing things,
contingency theory suggests that the best way depends on the environmental uncertainty and
instability as well as other contingent factors (Tosi & Slocum, 1984). Instead, the optimal course
of action is contingent (dependent) upon the internal and external situation, rendering wide
flexibility in the organization’s structure and performance as well. As a result, contingent leaders
are flexible in choosing and adapting to succinct strategies to suit change in situation at a
particular period in time in the running of the organization (Wikipedia). It is an approach
suggesting that the best solution to a problem depends on various factors such as the
environment, goals, technology, and people involved. Contrary to classical theories that advocate
one best way of doing things, contingency theory suggests that the best way depends on the
environmental uncertainty and instability as well as other contingent factors (Tosi & Slocum,
1984. While complexity and chaos theories refute the Newtonian reductionist idea of system
linearity, contingency theory refutes the traditional idea of single managing principle and
suggests the application of different management styles depending on the situation. Like many
other organizational challenges, managing depends on the situation in which it is applied, and the
notion of situational decision-making constitutes the basis of the contingent approach.
Contingency theory, just like the other three theories of management mentioned above, has a

3
A5 ORGANIZATION

unique set of strengths and weaknesses that must be acquired by managers in order to make
justified decisions. On the one hand, contingency theory is useful to organizations in various
aspects. First, since the theory is in a class of contingency theories, it is considered flexible,
which is one of the major advantages of the contingency approach. This means that you can use
this theory in different situations that fit with a company's demands. That makes it much better
than a more-rigid theory that tries to find one solution to fit with every problem. he approach is
adaptive. This means that it allows organizations to stay flexible and transform their policies and
strategies according to the changing environment. The managers can consider the entire factors,
analyze situations thoroughly and then make the appropriate decision. This means that they can
consider every factor variables and circumstances that may affect their solutions in the present
and the future as well. Due to this approach the scope of leadership has widened, rendering those
big shots much more assertive, which is also tantamount to a greater deal of burden heaped on
their shoulders. Before Fiedler's contingency theory, psychologists studying leadership focused
their attention on specific traits of leaders. They believed there was a universal model that all
leaders should strive for. Fiedler's contingency theory was groundbreaking because it was the
first theory proposing there wasn't one right way of leading others, but many ways. Fiedler
discovered that different management styles worked best for different types of businesses based
on factors such as the type of work, organizational structure, stress levels and how readily
change was accepted. Through Fiedler's contingency theory, businesses are able to better assess
and tailor their management to specific organizational needs. Moreover, contingency theory also
enables flexibility in structure: Different types of tasks require different structural levels.
Fiedler's contingency theory takes this into consideration by allowing for flexibility in task
structure. For example, manufacturing and production environments tend to require a great deal
of structuring as workers need to be told what to do to complete a task. On the other hand,
creative occupations such as those with artists or software developers, require less structuring
and more freedom to explore creativity. On the other hand, certain conspicuous limitations are
found in this type of management approach. First, despite the lucrative features and advantages
that the contingency management theory has to offer to the organizations it is not completely
liberated from criticism. There is no single optimal solution to a problem which means that
managers can iterate as much as they want in search of solutions. This can sometimes lead to
wastage of resources, time and money. It is widely acknowledged that in organizations’ search

4
A5 ORGANIZATION

for the ideal type of leadership, a great deal of money and effort must be invested until the most
suitable managerial style has been identified. Moreover, it is not always feasible for the
managers to consider every factor and determine all the variables involved in their decision-
making process. There can be various constraints such as time, cost and resources due to which it
can become difficult for the managers to gather all the information and analyze that information
completely. The leaders in organizations that utilise contingency theory should be capable of
gathering, assessing and filtering information so that prompt measures can be applied universally
in the entire organization. Any delay, otherwise, could lead to inertia in the entire organization
and culminate in business failure. From the analysis above, it is likely to assume that in today’s
environment, the advantages of contingency theory outweigh its weaknesses, making this type of
management approach ideal for organizations to implement. The contingency theory definition
offers a dynamic approach to leadership. With the help of such a theory, the management can
decide the best way to lead the organization and make the right decisions. It considers the nature
of the work of the organization and the approach of the workers. It gives no one path of
management. Hence, highlighting the flexibility that is required in every leader. Today’s
business environment is fraught with unexpected changes, largely due to the omnipresence of
technology and its impact on organization’s structure. Traditional values and guidelines are no
longer the norms: information technology is all the rage, and organizational management should
be no exception in the application of technology. Provided the dynamic characteristic of
technology, therefore, the application of contingency theory, with its wondrous flexibility,
proves worthwhile. Many organizations around the world have witnessed considerable success
since the application of contingency approach, such as Coca Cola, H&M or Stussy Clo.

Industry Best practices

After highlighting the relevance of contingency in today’s dynamic environment, this excerpt
will pinpoint some best practices for organizational learning and structure. First, let’s come to
grips with the fundamentals of learning and structure. Learning and knowledge are the most
valuable and essential core competencies of a high-performing organization. Knowledge is
generated, used, and assimilated by people at unprecedented rates of speed and is accessible to
an ever-expanding literate population. Knowledge is also becoming embedded in processes that

5
A5 ORGANIZATION

are being delivered through technology. The result is “extraordinary human and technological
leverage, more responsive organizational and process designs, and higher performance”(Mische,
2001). And what is knowledge? According to Davenport and Prusak (1998), knowledge is the
final product of data and information. It is the result of formal and informal learning,
experience,institutionalization and ability, and incorporates tacit adaptation and extension. In any
organization, the optimization of its structure and learning behaviors is facilitated by a set of
practices - operations and guidelines. Optimizing the organizational structure is one way for
learning leaders to substantially impact the business value they create for their organizations.
Optimal organizational structures can improve business alignment and targeted execution on
business goals and priorities. The first practice is to thoroughly and correctly apply the
contingency theory, which encompasses 3 stages. The first step is to determine your preferred
leadership style using the LPC (least-preferred coworker scale). The least-preferred coworker
scale, developed by American scholar Fred Fiedler, identifies whether an individual's leadership
style is either relationship-oriented or task-oriented. The least preferred coworker (LPC) scale
requires a person to rate the one individual they would least want to work with—the least-
preferred coworker—using a range of 18 to 25 bipolar (positive or negative) adjectives, with
ratings from 1 to 8. The LPC score is then computed by totaling all the ratings. A high LPC score
indicates that the individual is a relationship-oriented leader, while a low LPC score suggests a
task-oriented leader. The second step is To understand the situation that organizations are facing,
by answering the following questions: Is trust with your team high or low (member relations)?
Are tasks vague or clear-cut and well understood (task structure)?Is your authority low or high
(position power)?. Finally, managers need to determine whether their leadership style is
appropriate. After all, the contingency theory places emphasis on the awareness of the leaders,
whose role is crucial in the performance of the organization. Another industry best practice is to
foster a sense of collaboration and teamwork within the organization, thus avoiding isolation. In
fact, alienated workers do not care about performing their jobs. All they care about is getting a
paycheck and advancing their own interests. The first thing a manager needs to do is find out
how to make his employees care about the company's vision. Engaged workers are not only more
enthusiastic and productive; they also become less passive, taking responsibility for their
performance and attracting fresh talent to the company. On the other hand, unwilling employees
will cause dissatisfaction and disappointment to their colleagues, which in the long term leads to

6
A5 ORGANIZATION

a belligerent atmosphere and mistrust between co-workers. When team members don't trust each
other, they devote a lot of time to avoiding conflict rather than airing their real opinions and
working to find common ground. A state of perpetual ambiguity ensues, in which clear goals and
strategies fail to emerge out of group discussion. Lencioni labels this lack of commitment the
"third dysfunction" of team dynamics. It can lead to poor decision making and stifle productivity.
Staying committed to the team's initiative means creating an atmosphere where conflict is
welcomed, not feared, because differing perspectives help to shape a clear goal. Therefore,
managers should implement methods such as tea breaks or team building trips to encourage
devotion to work and also foster a harmonious working environment for colleagues. Moreover,
in any organization, meetings are an indispensable part. "No action, activity or process is more
central to creating a healthy organization than the meeting." (Lencioni). The author suggests that,
in order to be fully successful, management should do the following: Create separate meetings
for tactical and strategic business planning, Assess a tactical agenda only after the team has
reviewed its progress against goals, Make sure there is enough time allocated for the
clarification, debate, and resolution of major issues, Meet quarterly outside the office to review
what is happening in the industry, the company, and the team. Meetings provide the organization
with a regular forum on core values, allowing members to realign principles and give perspective
on business practices. Finally, managers need to monitor the progress and results of tasks using
the measurement criteria you defined in the “Create a Plan” step. Some simple tasks may be
measured as simply “completed” or “not completed.” Managers can also increase productivity by
setting milestones on the way to each goal that help employees track how well the plan is
progressing. With this concrete feedback, top executives can search for ways to increase the
business’s efficiency at turning resources into outputs.

New business mindset

With many changes underway, driven by the era of technology, many organizational leaders
have adopted a different way of thinking, a different way of perceiving the world of business and
their management style. The corporate world has also changed drastically in the last twenty
years. The pace of commercial and technological change that’s dominated the 21st century has
led to a hyper-competitive business environment; one that’s far removed from the stability of the

7
A5 ORGANIZATION

past. Fast forward to today, and we live in a world driven by commercial and technological
disruption. With change a constant, leaders need to be both attuned to the impact of technology
on their business and highly adaptable as a result. This has meant a shift away from the
autocratic leadership style of the 20th century and towards a more collaborative approach. In this
new style of leadership, work is no longer ordered from above but powered from within. This
new way of working has opened the door to innovation and creativity, which is crucial for
organisations wanting to gain a competitive advantage. It has also brought teamwork,
productivity, meaning and purpose to every aspect of our work, which just so happens to be
exactly what employees today are seeking. There has been a shift away from hard leadership to
soft leadership skills too. Leaders are more people-oriented than task-oriented. We’ve talked in
previous blog posts about the power of leading with kindness and a more human approach. We
can see this in the greater awareness of how employees’ different personalities reflect how they
respond to leadership. Leaders are more open to adapting their approach to get the best out of the
individuals they lead, using tools like personality profiling that offer insights into the best ways
to manage people based on their natural behavioural preferences. Among the many new traits
that emerge as a modern quality that drives organizational performance is knowledge.
Knowledge, as the intangible asset of "Intellectual Capital", has now become the primary source
of wealth and power in business and society in general. This displaces in large degree the
tangible assets "Industrial Capital" of plant, equipment, energy, financial capital. Business
management and leadership must be rethought to account for the different and surprising
characteristics of knowledge, the new primary capital. Another quality that is being embraced is
system dynamics within organizations and managerial styles. New system dynamics are at work
in the economy - everything is speeded up. Now change is faster, unrelenting, and more
transformative than at any time in history. In addition, a new understanding of the process of
change is emerging as the new sciences of chaos and complexity develop. Business and society
need to be rethought in terms of rapid transformative change, using the new insights of the
hidden order in the chaos of complex adaptive dynamic systems. These new driving forces play a
crucial role in determining the performance level of any organization. Back to many decades
ago, organizations only worked to serve one purpose: increasing its revenue without taking into
consideration other important values such as reputation or future prospects. Consequently, their
approach was largely product-centric, centralising on the number of products generated and the

8
A5 ORGANIZATION

revenue earned from the sale of that product. Today, however, new driving forces have changed
the performance level of organizations. Employees won’t perform in a vacuum. Certain factors
like the employer, personal preferences, and many other external factors affect employee
performance. Traditional measures of performance such as Profit growth, Share dividend, Profit
per employee, Return on investment, Asset/revenue ratio, Revenue, Total Value of sales are no
longer the only aspects that organizations thrive to achieve. Instead, intangible assets are
increasingly appreciated: Quality of service customers receive, Product development times,
Responsiveness to customers, Fault-report frequency and resolution, Customer loyalty, Relative
perceived value by customers, Speed, flexibility, and ability. In other words, measuring the
performance level in organizations nowadays means assessing the efficiency in the said
categories that organizations carry out. For example, regardless of how much revenue a business
can generate on a yearly basis, its performance level will not be considered high unless the given
business can satisfy its customers, through various measures in order to come to grips with
customer’s awareness. A typical example of an organization with a high performance level is
Apple. In its embryonic years as a tech startup, Apple focused solely on revenue and the number
of customers paying money to purchase its products. However, shifts in business mindsets,
which embrace many intangible assets of the new era such as knowledge or system dynamics,
rendered Apple’s leaders to change their perception, thus managerial style and the entire tech
corporation. In recent years, Apple has embraced a brand new approach to marketing: aware of
the pivotal role of customers, they hold many surveys to collect feedback and expectations from
customers, based on which adjustments to their signature products can be made. In this way,
Apple has changed itself from a product-centric organization to a customer-centric organization
with the ultimate goal of pleasing customers and earning revenue simultaneously. Empirical
research conducted by experienced academics around the world bears one collective result: the
performance level of Apple can be considered as “effective”, given their flexibility and
adaptability to new local and global trends in business environment, that is, the importance of
customers as the most valuable asset of any organization, and the emergence of knowledge as the
new criteria for assessing how wealthy a corporation is. In other words, modern organizations
with modern business perception will lean towards generating both financial values and
intangible values (the spread of knowledge, reputation,...) instead of rigidly focusing on the
materialistic outcomes. Overall, the performance of the organization whose mindset is modern,

9
A5 ORGANIZATION

being affected by new driving forces of the 21st century, will be significantly leveraged.

Redesign organization for higher performance

The final paragraph of this article would be apportioned to redesigning an existing organization
to harvest the optimal performance. Here, the chosen business is Vertu, a British-based
manufacturer and retailer of luxury handmade mobile phones, established by Finnish mobile-
phone manufacturer Nokiain 1998. These high-end phones, upon their emergence in the mobile
phone market, took the world by storm and became all the rage, gradually epitomising as a
symbol for the wealthy. The brand is also celebrated for its customer-centric policy, nourishing
the quality of each phone manufactured in lieu of the number of products, a reason why its yearly
product number only added to hundreds. This is a new, modern mindset of Vertu executives,
who are aware of the importance of customers’ satisfaction. However, there is one flaw in this
tech organization, which, if resolved, will engender even higher performance. To provide a
context, Vertu only manufactures traditional feature phones with the traditional pad, regardless
of the fact that smart, touch-screen models of phones are dominating the phone market. As a
result, recent four years witnessed alarming reductions in Vertu revenue, calling for appropriate
measures. From the above paragraph, it is obvious that in order to flourish in this flexible, highly
dynamic environment, organizations and their managers should adopt different approaches,
making as many changes as possible to identify the most suitable direction. Vertu can utilise the
contingency business theory mentioned above in order to become flexible and versatile, which
means it will adapt to both local and global trends in the market. By using the contingency
approach, Vertu can both satisfy market’s demands ( in this case smart, touch-screen phones) and
simultaneously retain its signature feature (fastidious, handcrafted manufacturing). Moreover, it
can follow the 3-step guide said above in order to fully employ the contingency theory. In the
long term, the application of this management theory is bound to cement Vertu’s position in the
severe market, where flexibility and adaptability play a pivotal role in determining the
performance of any organization. Moreover, Vertu should also introduce courses for its
employees, in which they will embrace new era challenges and driving forces that shape business
in this century. Through such courses, Vertu employees will get acquainted with new trends in
the business environment, such as the fact that system dynamics are increasingly accentuated.

10
A5 ORGANIZATION

Aware of how fast changes are, Vertu employees will alter themselves, adopting new techniques
and approaches so that their signature products will be enhanced even further. In the long run, if
Vertu follows contingency theory and new era business mindset, they are likely to succeed,
harvesting high performance levels in this dynamic world of business.

11
A5 ORGANIZATION

REFERENCE

A GUIDE TO CONTINGENCY APPROACH IN MANAGEMENT. Retrieved from

https://www.goassignmenthelp.com.au/blog/contingency-theory-of-management/

Emily Marsh. (2021). How leadership has changed: 2000 versus 2020. https://www.t-
three.com/soak/insights/leadership-2000-2020

Galbraith, J. R. (2014). Designing organizations: Strategy, structure, and process at the business
unit and enterprise levels (3rd ed.). San Francisco, CA: Jossey-Bass.

Nicky Lamarco (2018). The Advantages of Fiedler's Contingency model

.https://smallbusiness.chron.com/advantages-fiedlers-contingency-model-18368.html

Smriti Chand. 4 Limitations of Contingency Approach | Management.

https://www.yourarticlelibrary.com/management/4-limitations-of-contingency-approach-
management/27906

Tanya Robertson. (2019) The Advantages of Fiedler's Contingency Theory.

https://bizfluent.com/info-10074476-advantages-fiedlers-contingency-theory.html

Wheatley, M. J., & Kellner-Rogers, M. (1996). A simpler way. San Francisco, CA: Berrett-
Koehler.

What are Management Theories?

https://corporatefinanceinstitute.com/resources/careers/soft-skills/management-theories/

Lawler, E. E. (1996). From the ground up: Six principles for building the new logic corporation.
San Francisco, CA: Jossey-Bass.

12
A5 ORGANIZATION

13
A5 ORGANIZATION

14