NEO CLASSICAL

THEORY OF
MANAGEMENT
INTRODUCTION
The term classical refers to work done by a group of
economists in18th and 19th centuries.
The word neo means “New”.
Much of these work was developing theories about the
way markets and markets economies and are generally
termed as “Neo-classical economists”.
The neo classical approach was set out by Alfred
Marshall in his principles of economics, published in
1890.
.
• It may be noted here that the theories stated by Taylor
and Fayol are called by writers as classical theories
• while the theories stated by writers as classical
theories the human relations movement and the
behavioural science movement are called new-classical
theories.
Elements of Neo-classical theories
 1.Individual
 2. Work Group
3.Participative management
4.Oreintation
5. Motivation
6. Leadership
7. Employee Development
Individual
Neo-classical theory recognized the individual
differences which were ignored by the classical theory.
Every individual has emotions, feelings, attitudes,
hopes, aspirations, and expectations.
The new-classical theory advocated a package deal of
motivation, including financial and non financial
incentives, to make the workers feel at ease at work
and increase their productivity.
 Work Group
• An individual in a group develops Social wants.
• As he is a social being, he develops a desire to belong &
to be accepted by his work group.
Participative Management
• Neo-classical theory suggested workers
participation in management for improving their
productivity.
Orientation
Classical theory was job oriented while neo-classical
theory is employee oriented.
There is a shift in managerial style from product
oriented approach to employee and group centred
approach.
classical theory was concerned with the basic needs of
organization and society whereas neo-classical
approach tried to satisfy the personal security and
social needs of workers.
Motivation
• No-classical writers considered business organization as a
social system,
• The employees could be motivated by social and
psychological wants and not solely by economic incentives.
Leadership
• Democratic style of leadership is essential to develop co-
operative attitude of employee towards management.
Employee Development
As there is a close connection between moral and
production, neo-classical writers emphasized that
management that must take greater interest in
employee development workers satisfaction.
 Neo Classical
theory of
management

Human relation Behavioral

movement system
Human relation theory of management
The human relation theory of
management began development in
the early 1920’s during the industrial
revolution
At that time productivity was the focus
of business .
Professor Elton mayo began his
experiment(the Hawthorne studies) ,
to prove the importance of people for
productivity not machine
Human relation theory of management
The human relations management theory is a
researched belief that people desire to be part of a
supportive team that facilitates development and
growth .
Therefore , if employees receive special attention and
are encouraged to participate , they perceive their work
has significance , and they are motivated to be more
productive , resulting in high quality
Hawthorne Experiment
 George Elton Mayo(1880-1949) was
an Australian born psychologist ,
researcher and organizational theorist.
 Mayo is known as the founder of the
human relations movement.
 The research he conducted under the
rubric of the Hawthorne Studies in the
late 1920s and early 1930s showed the
importance of groups in affecting the
behaviour of individuals at work.
 He carried out a number of
investigations to look at ways of
improving productivity
Hawthorne Effect
The Hawthorne effect is the idea that “behaviour
during the course of an experiment can be altered by a
subject’s awareness of participating in an experiment”.
The initial Hawthorne effect took place in the
Hawthorne plant of western electric company in the
1920’s and 1930’s.
The studies were composed of many long
“investigations into the importance for work behaviour
and attitudes of a variety of physical , economic and
social variables”.
 Hawthorne Experiment
 The Hawthorne experiment were first conducted in November ,
1924 at western electric company’s Hawthorne plant in Chicago.
 The initial tests were sponsored by the National research council
(NRC) of the national academy of sciences.
 In 1927 , a research team from Harvard business school was
invented to join the studies after the illumination test drew
unanticipated results.
 A team of researchers led by George Elton Mayo from the
Harvard business school carried out the studies.
 (General Electric originally contributed funding , but they
withdrew after the first trial was completed).
 Four Parts Of Hawthorne
Experiment
I. Part 1-Illumination Experiments (1924-27).
II. Part 2-Relay Assembly Test Room Study (1927-1929).
III. Part 3-Mass Interviewing Programme (1928-1930).
IV. Part 4-Bank Wiring Observation Room Experiment
(1932)
 Part 1 – Illumination Experiments (1924-
1927)
These experiments were performed to find out the effect
of different levels of illumination (lighting) on
productivity.
The brightness of the light was increased and decreased
to find out the effect on the productivity of the test group.
Surprisingly , the productivity increased even when the
level of illumination was decreased.
It was concluded that factors other than light were also
important.
 Part 2 – Relay assembly test room study
( 1927-1929)
Under these test two small groups of six female telephone
relay assemblers were selected. Each group was kept in a
separate rooms. From time to time, changes were made in
working hours , rest periods, lunch breaks, etc. They were
allowed to choose their own rest periods and to give
suggestions. Output increased in both the control rooms.
It was concluded that social relationship among workers,
participation in decision-making, etc. had a greater effect
on productivity than working conditions.
 Part 3 – Mass interviewing programme
(1928-1930)
21,000 employees were interviewed over a period of three
years to find out reasons for increased productivity. It was
concluded that productivity can be increased if workers
are allowed to talk freely about matters that are important
to them.
Part 4 – Bank wiring observation room
experiment (1932)
A group of 14 male workers in the bank wiring room
were placed under observation for six months. A
workers' pay depended on the performance of the
group as a whole . The researchers thought that the
efficient workers would put pressure on the less
efficient workers to complete the work. However, it
was found that the group established its own
standards of output , and social pressure was used to
achieve the standards of output.
Behavioural science approach
 Behavioural science theory
It is redefined form of human relations approach.
This approach focuses on individual behaviour, group
behaviour, job design,motivation,leadership and
communication.
This approach emerged in the later years of 1940s.
This approach is the basis of management discipline-
organisational behaviour.
But this approach is not applicable universally to all the
organisations which operate in different social, religious
and cultural background.
 Contributors to behavioural
science approach

ABRAHAM
MASLOW
 Contributors to behavioural science approach

Fredrick
Herzberg
 Contributors to behavioural science
approach

Douglas
McGregor
 Contributors to behavioural science
approach
Needs theory
 Need for power : desire to influence or
control others ,be responsible and have
authority over others.

 Need for achievement : desire to

accomplish something difficult , attain high
standards of success , master complex tasks ,
surpass others.
David
McClelland  Need for affiliation : desire to form close
personal relationships and friendships , avoid
conflicts.
It believes that-
1. Organisational is a socio-economic and technical system.
2. A variety of factors influence the interpersonal and group
behaviour of people in organisations.
3. Individuals working in an organisation have goals which may
differ from organisational goals.
4. Conflict is inevitable.
5. Individuals differ in personality , attitude , beliefs , perception ,
etc.
6. Motivated workers are key to productivity.
7. High performance can be better be achieved by self direction
and control.
8. An open and trusting organisational climate improves
productivity.
 Conclusion
Classical and neoclassical approaches made a crucial role in
the advancement of management theories and practices
Though classical theory is now outdated, it is still important
as it introduced the concept of management as a subject for
intellectual analysis . Neoclassical approach put
overemphasis on human variable and symbolic reward .
So it is clear that the field of management has some
remarkable theories which are underpinned by pragmatic
study evidence . The development holds a rather brighter
future for the study , research and practice of management .