Lesson 2 - Organizational Theory

 Describe the major components of the classical and
humanistic management perspectives.

 Discuss the management science approach and its
current use in organizations.
 Explain the major concepts of systems thinking and the
contingency view.
 Describe the management changes brought about by a
technology-driven workplace, including the role of big
data analytics and supply chain management.
 Explain how organizations are implementing the ideas
of bossless workplaces and employee engagement to
facilitate a people-driven workplace.
Copyright © 2022 All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2-2
 Early ideas about management strategy
• Sun Tzu (770-476 B.C.), The Art of War
 Early ideas about leadership

• Nicolò Machiavelli (1469-1527), The Prince
 Early ideas about the design and organization

of work
• Adam Smith, The Wealth of Nations
 • division of labor
1-3
“SHANG CHANG RU ZHAN "THE MARKETPLACE IS A
CHANG” BATTLEFIELD"
The Art of War The Art of Management
Fight for the enemy’s supply wagons You compete for resources against all
other organizations
Capture their supplies by using You must make only what creates
overwhelming force overwhelming value
Reward the first who capture them Reward those who discover it
Then change their banners and flags Buy what else you need and re-label it
Mix them in with your own to increase Mix internal and external products to
your supply line increase your value
Keep your soldiers strong by Retain your employees by being
providing for them successful
This is what it means to beat the This is what it means to compete in the
enemy while you grow more powerful marketplace while growing more
powerful
Copyright © 2022 All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1-4
 New science of management lies in the old art
of government
• "to be a great pretender and dissembler.“
• “cunning and intrigue, the triumph of force over
reason.”
• "a prince" ought to have no other aim or thought,
nor select anything else for his study, than war
and its rules and discipline."
1-5
 Adam Smith wrote ‘The Wealth of Nations’
(1776)
 Division of Labor (or Job Specialization) and the
economic advantages that organization and
society would gain from this.
 Breaking down jobs into narrow and repetitive
tasks.
 Division of Labor increased productivity by
increasing each worker`s skill and dexterity,
saving time lost in changing tasks.
1-6
 Organizational theory studies the effect of
social relationships between the individuals
working together and their overall effect on the
performance of the organization.
 Also, it studies the effects of the internal and
external business environment on the
organization.
 Organizational theories help in identifying the
suitable structure for an organization, efficient
enough to deal with specific problems.
1-7
 Organization theory has evolved over time:
• Classical Theory
• Human Relations Theory
• Management Science Theory
• Systems Theory
• Contingency Theory
• Modern Theories
8
1-9
 The classical theorists were primarily
concerned with the structure and activities to
make organizations efficient operating
machines.
 The division of work, establishment of a
hierarchy of authority, and the span of control
were seen to be of utmost importance in the
achievement of an effective organization.
 The human aspect of things was not considered
by these theorists
10
 These theorists were seen as administrators,
very prescriptive in terms of what and how
things must be done.
 Administration is concerned with procedures,
accountability, and risk avoidance, while
management aims to take calculated risks and
maintain stability within the organization.
• Administration aims at avoiding risk completely.
11
Three subfields of the classical theory were:
 Scientific Management
• Frederick Winslow Taylor (1856-1915)
• Frank and Lilian Gilbreth
• Henry Gantt (1861-1919)
 Bureaucratic Organizations
• Max Weber (1864-1924)
 Administrative Principles
• Henri Fayol (1841-1925)
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Frederick Winslow Taylor
 Taylor was an American engineer known as the
“father of scientific management.
 Published Principles of Scientific Management (1911)
 Scientific management is the systematic study

of the relationship between people and tasks
for the purpose of redesigning the work
processes for increased productivity and
higher efficiency.
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 Taylor observed workers’ purposely operating
well below their capacity (soldiering).
 More productive, fear jobs would be eliminated
 Non-incentive wage systems
 Rule-of-thumb (leave training to the initiative of the
workers) training methods - inefficient
 Taylor advocated the use of the scientific

method to define the “one best way” for a job
to be done.
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 Principles of Scientific Management
• Scientifically study each part of a task and
develop the best method of performing the task.
 Replaces the old rule-of-thumb method.
• Scientifically select and then train, teach, and

develop workers to perform the task by using
the scientifically developed method.
 Previously, workers chose their own work and trained
themselves as best they could.
15
 Principles of Scientific Management
• Cooperate with the workers to ensure that they
use the scientifically developed methods.
• Divide work and responsibility so that

management is responsible for planning work
methods using scientific principles and workers
are responsible for executing the work.
 Previously, almost all the work and the greater part
of the responsibility were done by the workers.
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 The following principles were also suggested
to guide management:
• Each worker should have a large, clearly
defined, daily task.
• Standard conditions are needed to ensure the
task is more easily accomplished.
• High payment should be made for successful
completion of tasks.
 Workers should suffer loss when they fail to meet the
standards laid down.
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Frank and Lilian Gilbreth
 The Gilbreths were American engineers who
developed Taylor’s idea of work-study, to
pioneer time and motion study.
 Interested in the “best way” of doing a task.
 Used motion pictures (film) to break motions
down into incremental parts, which they called
‘therbligs” (Gilbreth spelt backwards).
 Reducing the number of motions in a task could
increase efficiency.
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Frank and Lilian Gilbreth
 Flow process charts were also devised by the
Gilbreths to enable whole operations or
processes to be analysed.
 5 symbols were used to cover Operations,
Transportation, Inspection, Delay and Storage
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Henry Laurence Gantt
 Gantt was an American mechanical engineer
and an associate of Taylor.
 He improved upon Taylor’s ideas and he was
best known for two key contributions:
• The Gantt Chart
• The Task and Bonus System
20
 The Gantt Chart is a tool that provides a visual
(graphic) representation of the extent to which
tasks have been achieved.
• It identifies key tasks, assigns an estimated time
to complete the task, and determines a starting
date for each element of a task.
21
 The Task and Bonus System: each employee
who finished his/her quota of the day received
a bonus in addition to the regular day rate.
 Also, the supervisor was paid a bonus if all the
workers finished their quotas.
• This helped to convert the supervisor from an
overseer and driver of workers to a helper and
teacher of subordinates.
 This enabled workers to earn a living while
learning to increase efficiency, and production.
22
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Maximilian (Max) Karl Emil Weber
 Weber was a German sociologist who studied
and developed a theory of authority structures.
 Weber called the ideal type of organization a
Bureaucracy, which is characterized by:
 Division of Labor
 Authority Hierarchy
 Formal Selection
 Formal Rules and Regulations
 Impersonality
 Career Orientation
24
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Henri Fayol
 Fayol was a French manager, who focused on
what managers did and what constituted good
management practice.
 Fayol identified five functions of management:
• Planning (plans)
• Organizing (resources)
• Commanding (employees)
• Coordinating (activities)
• Controlling (performance)
26
Henri Fayol
 Fayol’s 14 Principles of Management
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 Division of Work – specialization increases
output because employees become
increasingly skilled and efficient.
 Authority – managers must be able to give
orders, but they must also keep in mind that
with authority comes responsibility.
 Discipline – employees must obey and respect
the rules that govern the organization.
 Unity of Command – every employee should
receive orders/report to only one superior.
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 Unity of Direction – the organization should
have a single plan of action to guide managers
and workers.
 Subordination of Individual Interests to the
General Interest – The interests of any one
employee or group should not take precedence
over the interests of the organization.
• Goal congruence is important – personal
development must be in keeping with the
organizational goals.
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 Remuneration – employees must be paid a fair
remuneration for their services. This includes
financial and non-financial compensation.
 Centralization – the degree to which employees
are involved in the decision-making process. It
is important to aim for an appropriate balance.
 Equity – managers should be kind and fair to
their subordinates, both maintaining discipline
as necessary and acting with kindness where
appropriate.
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 Scalar Chain – the line of authority from top
management to the lowest ranks, employees
should be aware of where they stand in the
organization's hierarchy or chain of command.
• This will help to ensure an orderly flow of
information and supplement the principle of
unity of command.
• An organizational chart will depict the various
levels within the organization.
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 Order – people and materials should be in the
right place at the right time. The workplace
facilities must be clean, tidy, and safe for
employees. This ensures safety and efficiency
in the workplace.
 Stability of Tenure of Personnel – managers
should prioritize personnel planning, minimize
employee turnover and ensure replacements
are available to fill vacancies.
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 Initiative – employees should be given the
necessary level of freedom to take initiative to
create and carry out plans. New and better
ideas are generated, and employees are likely
to take a greater interest in the functioning of
the organization.
 Esprit de Corps – organizations should strive to
promote team spirit to build harmony and unity.
Team spirit helps develop an atmosphere of
mutual trust and understanding.
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 In the 1950s, Herbert Simon and James
March introduced the administrative decision-
making model for understanding
organizational behaviour.
 The model suggested that incomplete

information, psychological and sociological
processes, and the decision maker’s cognitive
abilities affect decision making and that
decision-makers often choose satisfactory, not
optimal, solutions.
34
Herbert Simon and James March
 Bounded Rationality is an ability to reason
that is constrained by the limitations of the
human mind itself.
 When individuals make decisions, they
examine a limited set of possible alternatives
rather than all available options. This is due to
human bounded rationalities.
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Herbert Simon and James March
 Satisficing is searching for and choosing an
acceptable response or solution, not
necessarily the best possible one.
 Individuals “satisfice”; thatis, they choose
satisfactory or “good-enough” choices, rather
than seeking optimal choices / perfect
solutions to problems.
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 Prior to human relations was industrial
psychology, which emerged as a specific field
about 1913.
 It was concerned with the problems of fatigue,
monotony, and efficiency in work, as well as in
the design of equipment, lighting, and other
working conditions.
 Industrial psychology emphasized the study of
large and small groups in industry.
37
Hugo Munsterberg
 Munsterberg created the field of industrial
psychology - the scientific study of individuals
at work to maximize their productivity and
adjustment.
 In 1913, his book Psychology and Industrial
Efficiency addressed personnel selection and
equipment design. His assumptions were people
need to fit the organization; behavioral sciences
helped organizations shape people to serve as
replacement parts for organizational machines.
1-38
 The basis of the human relations movement was
the integration of various disciplines e.g.
industrial psychology and sociology, applied
anthropology, and social psychology, and was
concerned with the human problems that
management encountered.
 The theorists of human relations were
concerned with human factors.
39
Mary Parker Follett & Chester Barnard
 Follett and Barnard saw organizations as social
systems that required understanding human
behaviors, needs, and attitudes
 Emphasized the importance of people rather
than engineering techniques (scientific
management - Taylor)
 Empowerment: facilitating instead of controlling
 Recognition of the informal organization
 Introduced acceptance theory of authority -
• willingness of the subordinates to accept his/her right to give orders
and comply with them
1-40
 The “Hawthorne Experiments” were a series of
studies into worker productivity beginning in
1924 and ceasing in 1932, initially conducted
by the National Research Council and later by
Western Electric and Harvard University
 Researchers set out to study the relations
between lighting and efficiency
• Increased lighting resulted in increased
efficiency, but to their surprise, efficiency
continued to improve as the lighting dimmed to
faint moonlight levels
1-41
 The Hawthorne Effect - change in behavior
following the onset of a novel treatment
(generally new or increased attention). Effect
eventually wears off (behavior returns to
original) as the "novelty" dissipates.
 In 1933, Elton Mayo made an interim report on
the Hawthorne studies. It contains the first
significant call for the human relations
movement
1-42
Elton Mayo
 Mayo showed the existence of informal
employee groups and their effects on
production, the importance of employee
attitudes, the value of a sympathetic and
understanding supervisor, and the need to treat
people as people - not simply as human capital.
 During the experiments the employees felt that
someone cared about them, so their morale
improved, and they produced more.
43
A manager’s behavior or leadership approach
can affect a worker’s level of performance.
 Therefore, the Human Relations Movement

advocated the idea that supervisors receive
behavioural training to manage subordinates in
ways that elicit their cooperation and increase
their productivity.
44
 Social psychologists emphasize that people are
the most crucial factor in determining
organizational effectiveness but have more than
just physical and social needs.
 Some social psychological theories of
motivation are:
 Abraham Maslow - Hierarchy of Needs Theory
 Douglas McGregor - Theory X Theory Y
 Frederick Herzberg - Motivation-Hygiene Theory
 Chris Argyris - Immaturity-Maturity Theory
 David McCelland – Human Motivation Theory
 Victor Vroom - Expectancy Theory
45
 Applying statistics, optimization models,
computer simulations, and other quantitative
techniques to aid management decision-
making.
• Operations management – focuses on managing
production in manufacturing organizations
• Operations research – used for improving the
effectiveness of management decisions
• Quantitative approach – quantitative tools and
complex quantitative analysis used for managerial
decision-making
1-46
A system is a set of interrelated and
interdependent parts arranged in a manner
that produces a unified whole.
 Basic Types of Systems
• Closed systems
 Are not influenced by and do not interact with their
environment (all system input and output is internal).
• Open systems
 Dynamically interact with their environments by
taking in inputs and transforming them into outputs
that are distributed into their environments.
47
 An organization, as a system, is open and
dynamic; that is, it continually receives new
resources (people, materials, and money) or
information (concerning strategy, environment,
and history) from the environment.
 The new resources, called inputs, are then
transformed into new output.
 Transformation processes are key
organizational components that change inputs
into outputs.
48
1-49
 Transformation processes include the
interactions between the tasks, individuals'
formal organizational arrangements, and
informal organization.
 The transformation of inputs creates changes in
individual, group, and organizational
behaviours and attitudes.
 Individuals are expected to adapt to the
changing circumstances and environment as
they convert input into goods or services.
50
 Systems can be divided into two categories:
• Deterministic, where the behaviour can be
completely determined.
• Probabilistic, where behaviour can only be
estimated within degrees of likelihood.
 No single structure results in a predetermined
set of inputs, outputs, and transformations.
 The external environment is never static, and as
such monitoring of it is important if an
organization is to succeed in its objectives.
51
 When organizations receive new inputs or
experience certain transformations, they
simultaneously seek balance or equilibrium.
 When organizations become unbalanced or

experience disequilibrium, such as when
changes in the environment make current
staffing inadequate, organizations attempt to
return to a steady state, which may mirror or
significantly differ from the original state of
equilibrium.
52
 To return to the optimum state of balance
within the organization, decisions such as
whether to employ or retrench workers, acquire
a new plant facility or discontinue operations in
certain locations will have to be made.
 If a new plant facility entails new technology,
then retraining may be needed, or new
employees may be an alternative to overcome
the existing human resource deficiency.
53
 Organisations as open systems demonstrate
equifinality, which means organizations may
employ a variety of means to achieve their
desired objectives.
 Organizations that survive adapt to a particular
situation. They respond to changes in the
environment with appropriate changes in the
systems.
54
 The contingency approach, also sometimes
called the situational approach, says that
organizations are individually different, face
different situations (contingency variables),
and require different ways of managing.
 There is no one universally applicable set of
management principles (rules) by which to
manage organizations.
1-55
 Burns and Stalker (1961) described two
different types of management systems:
• Mechanistic systems (machine-like) have
characteristics such as those in the scientific and
classical-management traditions.
 Appropriate to stable environmental conditions.
• Organic systems (living, human and flexible) are

more flexible and loosely structured; allow more
employee influence over decisions.
 Appropriate to changing organizations.
56
57
 Joan Woodward was a British professor who
found that the type of structure an organization
develops (and should develop) is influenced by
the organization’s technology.
 Woodward suggested:
• Mechanistic type of organization fits best with
mass production technology.
• Organic type of organization responds best to a
unit or continuous process production.
58
 It is important to note that the contingency
approach stresses the need for managers to
examine the relationship between the internal
and external environment of an organization.
 The systems approach to management
emphasizes that relationships between various
parts of an organization are interlocked.
 The contingency approach has emphasized this
idea by focusing on the nature of such
relationships.
59
 Recent thinking in organization design has re-
emphasized the importance of fitting
organizational structure to various
contingencies. This also extends to leadership,
group dynamics, power relations, and work
design.
 The levels and departmentalization of an
organization should therefore be determined
by the circumstances both internally and
externally.
60
 Total Quality Management
 Just-In Time and Lean Production
 5S
 Six Sigma
 Kaizen
 Technology-Driven Workplace
 People-Driven Workplace
1-61
 Qualitymovement is strongly associated with
Japan. The US ignored the ideas of W. Edwards
Deming, “Father of the Quality Movement”
 Total
Quality Management (TQM) became
popular in the 1980s and 90s
 Total
quality management (TQM) is a
management philosophy devoted to continual
improvement and responding to customer
needs and expectations.
 Just In Time (JIT) is a philosophy of continuous
improvement, wherein unused or waste
resources are identified and removed.
 Lean manufacturing is a management
philosophy that is based on eliminating the
activities that do not add any value to the end
product and finding efficiencies.
 In lean manufacturing, the approach of ‘less is
better’ is adopted to produce goods on-
demand only.
1-63
 5S: is a waste-eliminating technique used in
organizations to improve production efficiency.
 Seiri (Sort): organizing the work area to eliminate
unnecessary items.
 Seiton (Straighten): arranging all the required items in
an accessible range for users.
 Seiso (Shine): keeping machines, equipment, and
tools clean.
 Seiketsu (Standardize): standardizing practices across
all workstations in the same type of job.
 Shitsuke (Sustain): continuing the process of
improvement.
1-64
 Six Sigma: is a technique that lays emphasis on
measuring the quality to attain perfection,
where 99.99966% of products manufactured
are statistically expected to be free of defects
(3.4 defective parts/million).
 Kaizen: is a Japanese word that means
"improvement" or "change for the best.” It is a
philosophy or practice that emphasizes the
continuous improvement of processes.
1-65
 Customer Relationship Management
• Technology used to build relationship with
customers
 Outsourcing
• Contracting functions or activities to other
organizations to cut costs
 Big Data Analysis
• Technologies, skills, and processes for searching
and examining massive, complex sets of data
• Uncovers hidden patterns and correlations
 Supply Chain Management

• Managing the sequence of suppliers and
purchasers' relationships to get goods to
consumers.
67
 The Bossless Workplace
• work from home
• accountability to the customers and team
 Employee Engagement
• emotional involvement in the job
• satisfaction with work conditions
• enthusiastic contribution to the team
68

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 Describe the major components of the classical and

humanistic management perspectives.

 Early ideas about leadership

 Early ideas about the design and organization

 Scientific management is the systematic study

 Taylor advocated the use of the scientific

• Scientifically select and then train, teach, and

• Divide work and responsibility so that

 The model suggested that incomplete

 Therefore, the Human Relations Movement

 When organizations become unbalanced or

• Organic systems (living, human and flexible) are

 Supply Chain Management

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