CPU BUSINESS AND INFORMATION TECHNOLOGY COLLEGE

SCHOOL OF GRATUATE STUDIES

ASSIGNMENT ON:

NEO-CLASSICAL MANAGEMENT THEORY, FEATURES,

ELEMENTS AND ADVANTAGE & DISADVANTAGE

BY:
 ABEBA ALEM – EMBA382/14
 BETHLEHEM GETACHEW -- EMBA383/14
 ZEHAB SHEMSU – EMBA019/14
 SARA KIFLE – EMBA907/14
 SEWAGEGNEHU TAMENE -- – EMBA908/14
 BESUFIKAD YITBAREK -- – EMBA357/14

SUB. TO: FELEKE SOLOMON (ASS.PROFFESOR)

ADDIS ABABA, ETHIOPIA

December 14, 2023
NEOCLASSICAL MANAGEMENT THEORY
 NEO-CLASSIC MANAGEMENT THEORY
2022
As the name suggests, neoclassical consists of two parts: neo and classical. Neo means new, and
classical refers to the work done by a group of economists in the 18th and 19th centuries. In the
classical theory, management focus was on job content and physical resources. Classical
management theorists considered humans as an addition to a machine. However, critics were of
the view that this theory lacks compassion toward people. The organizations working on this
principle are keeping emotional beings in the same category as machines.
With neoclassical organizational theory, theorists put forward incorporating behavioral sciences
into management to address the shortcomings of classical theory.

THE ESSENTIAL FEATURES OF THE NEOCLASSICAL APPROACH OF

MANAGEMENT ARE:

1. The business organization is a social system

2. The human factor is the most critical element in this social system
3. Social and psychological factors play a crucial role in determining productivity and
employee satisfaction.
4. The management should also develop social and leadership skills apart from technical
skills. They should think more about the welfare of workers
5. Productivity in an organization is directly related to employee morale.

TWO MOVEMENTS IN THE NEOCLASSICAL THEORY OF MANAGEMENT

The neoclassical organizational theory talks about ways and ideas that focus on the emotional
beings of the organization. There are two primary sources of the neoclassical theory of
organization: the human relations movement and the behavioral science approach.
The human relations movement regarded organization as a social system. Social physiologists
and sociologists put focus on group dynamics and promoted people-management skills in
addition to technical skills.
The behavioral science approach considers human behavior in organizations and promotes the
development of human beings and its benefits at the individual and organizational levels.
Let’s take a look at how the work of these various sociologists and psychologists
promoted neoclassical organizational theory.

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HUMAN RELATIONS MOVEMENT
According to this theory, social and psychological factors are important in determining worker
productivity and satisfaction. The movement shows that efficient leaders are employee-centric,
democratic and follow a participative style.
BEHAVIORAL MOVEMENT
This is a more mature version of human relation theory. The theory proposes ideas about how
managers should behave to motivate the employees. And the aim is to encourage employees to
perform at the highest level and achieve organizational goals.
ELEMENTS OF NEOCLASSICAL THEORY OF MANAGEMENT
There are three elements of neo-classical theory:
1. THE INDIVIDUAL
The neoclassical theory of organization emphasized individual differences ignored
earlier in the classical theory. Every individual has emotions, feelings, hopes,
aspirations, and expectations. They have got their own merit.
2. WORK GROUPS
Workers are not isolated but part of certain groups, which are informal organizations.
Management must integrate these informal organizations with the formal ones.
3. PARTICIPATIVE MANAGEMENT
The neoclassical approach of management suggests the participation of workers in
management.
As the neoclassical theory is employee-oriented, workers’ participation in planning job
contents and operations will improve productivity.

ADVANTAGES OF THE THEORY

One of the critical features of the neoclassical theory is that it is a refinement of the classical
theory and takes human relations and behavioral sciences into account. Neoclassical theory
considered human beings and their issues. Classical Theory had completely overlooked these
factors. The neoclassical theory opposed the approach that focused on logic alone and saw the
organization as a machine-like process.

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Later on, contingency theory and systems theory would evolve out of neoclassical theory.
However, all future innovations used the neoclassical theory as the foundation. Also, for the first
time, Neoclassical theory considered social and psychological factors in the discipline of
management.

DISADVANTAGES OF THE THEORY

The neoclassical theory of management systems has a weakness in that it does not stand in
isolation. It refined classical theory to add a human element to it. So it is a refinement of the
classical theory and not an entire replacement. Since its inception, various other approaches have
taken the place of neoclassical theory. Contingency and situational theory have risen as critiques
of the neoclassical theory. The neoclassical theory has fallen out of favor.
1. It relies too much on the internal social system of an organization. It overlooks
environmental factors.
2. It hypothesizes that one process for managing the company is enough and will work in
every environment.