Neoclassical Organization Theory by Erlan Bakiev Ph D

Neoclassical Organization Theory by Erlan Bakiev, Ph. D. Zirve University Spring 2012

How Neoclassical Organizational Theories have appeared? • The human relations movement evolved as a reaction to the tough, authoritarian structure of classical theory. • İt addressed many of the problems inherent in classical theory • Neos state that classical organizational theories created over-conformity and rigidity, thus squelching creativity, individual growth, and motivation. • Neoclassical theory displayed genuine concern for human needs

Classical vs. Neoclassical Theory Classical Organizational Theory: Theory The approach that assumes that there is a single best way to design organizations. • This approach assumes that managers need to have close control over their subordinates and calls for designing organizations with tall hierarchies and a narrow span of control. Neoclassical Organizational Theory: Theory An attempt to improve on the classical organizational theory that argues that not only economic effectiveness, but also employee satisfaction, should be goals of an industrial organization. • This approach assumes that managers do not have to carefully monitor their subordinates and calls for designing organizations with flat hierarchies and a wide span of control.

Neoclassical Organization Theory • Neoclassical organizational theory is a criticism of classical theory; attempt to humanize the rigid structure • Follows workflow and productivity of classical, but meets employee needs • According to neoclassical organizational theory, effective organizations are designed with flat hierarchical structures and a high degree of decentralization

Neoclassical Organization Theory Cont. • İt is an attempt to improve classical organizational theory that argues employee satisfaction as well as economic effectiveness are the goals of organizational structure

Classical vs. Neoclassical Theory

The Hawthorne Studies of how characteristics of the work setting affected worker fatigue and performance at the Hawthorne Works of the Western Electric Company from 1924 -1932.

The Hawthorne Studies Cont. • One of the first experiments that challenged the classical view was conducted by Mayo and Roethlisberger (late 1920’s) • While manipulating conditions in the work environment (e. g. , intensity of lighting), they found that any change had a positive impact on productivity (Western Electric plant in Hawthorne, Illinois, (Mayo, 1933)). • Mayo wanted to find out what effect fatigue and monotony had on job productivity and how to control them through such variables as rest breaks, work hours, temperatures and humidity

The Hawthorne Studies Cont. • Worker productivity was measured at various levels of light illumination. • Researchers found that regardless of whether the light levels were raised or lowered, worker productivity increased.

The Hawthorne Studies Cont. Human Relations Implications • Hawthorne effect — workers’ attitudes toward their managers affect the level of workers’ performance

The Hawthorne Studies Cont. • Human relations movement – advocates that supervisors be behaviorally trained to manage subordinates in ways that elicit their cooperation and increase their productivity

The Hawthorne Studies Cont. Implications • Behavior of managers and workers in the work setting is as important in explaining the level of performance as the technical aspects of the task

The Hawthorne Studies Cont. • Demonstrated the importance of understanding how the feelings, thoughts, and behavior of work-group members and managers affect performance

Challenges of Hawthorne Studies • The Hawthorne experiment doubts on our ability to evaluate the efficacy of new management theories. • An organization might continually involve itself in the latest management fads to produce a continuous string of Hawthorne effects. • "The result is usually a lot of wheel spinning and cynicism" (Pascale, 1990, p. 103). • Pascale believes that the Hawthorne effect is often misinterpreted. It is a "parable about researchers (and managers) manipulating and 'playing tricks' on employees. " (p. 103) • Erroneous conclusions are drawn because it represents a controlling and manipulative attitude toward workers.

Behavioral School of Management • An organization was viewed as a social system of people-to-people and people-towork networks in which employees have both social needs and the desire to make meaningful contributions toward the accomplishment of organizational goals.

Behavioral School Contributors Cont. • Mary Parker Follett (1868– 1933) • Asserted that managers’ influence and power should flow from their knowledge and skill.

Mary Parker Follett • Focused on how organizations cope with conflict and the importance of sharing goals • Emphasized the need to discover and enlist individual and group motivation • The first principle for individual and group success is the “capacity for organized thinking”

Mary Parker Follett • Concerned that Taylor ignored the human side of the organization • Suggested workers help in analyzing their jobs • If workers have relevant knowledge of the task, then they should control the task

Mary Parker Follett • Her ideas on negotiation, power, and employee participation were highly influential in the development of the fields of organizational studies, alternative dispute resolution, and the Human Relations Movement.

Behavioral School Contributors Cont. • Chester Barnard (1886– 1961) • Provided insight into the concept of formal (consciously created) and informal (spontaneous) organizations within firms. • İn the writing of 1939, Barnard proposed one of the first modern theories of organization by defining organization as a system of consciously coordinated activities.

Chester Barnard • Argued that managers must gain acceptance for their authority • Advocated the use of basic management principles • Cautioned managers to issue no order that could not or would not be obeyed

Chester Barnard • Barnard stressed the role of the executive in creating an atmosphere where there is coherence of values and purpose. • Organizational success was linked to the ability of a leader to create a cohesive environment. • He proposed that a manager's authority is derived from subordinates' acceptance, instead of the hierarchical power structure of the organization. • Barnard's theory contains elements of both classical and neoclassical approaches. Since there is no consensus among scholars, it might be most appropriate to think of Barnard as a transition theorist.

Chester Barnard • Barnard formulated two interesting theories: one of authority and the other of incentives. He set the rules: • The channels of communication should be definite; • Everyone should know of the channels of communication; • Everyone should have access to the formal channels of communication; • Lines of communication should be as short and as direct as possible; • Competence of persons serving as communication centers should be adequate; • The line of communication should not be interrupted when the organization is functioning; • Every communication should be authenticated.

Behavioral School Contributors Cont. • Herbert Simon (1916 – 2001) – 1960 - Decisions – Studied decision-making within organizations – Programmed vs. un-programmed – Developed the “science” of improved organizational decision-making through quantitative methods such as operations research and computer technology

Herbert Simon (1946 through 1990 s) – First Neoclassicalist to seriously challenge the tenets of Classical Organizational Theory – Criticized the “General Principles of Management” (see Fayol) approach – They were inconsistent, conflicting, & inapplicable to many administrative situations facing managers – Said that “so-called principles” could, with equal logic, be applied in diametrically opposed ways to the same set of circumstances. – “so-called principles” really were proverbs

Herbert Simon • 1947 - Said of “Classical Organization Theory” – Theory of bounded rationality of human beings who “satisfice” because they do not have the intellectual capacity to maximize

Behavioral School Contributors Cont. • Simon (1945) made an important contribution to the study of organizations when he proposed a model of "limited rationality" to explain the Hawthorne experiments. • The theory stated that workers could respond unpredictably to managerial attention. • The most important aspect of Simon's work was the rigorous application of the scientific method. • Reductionism, quantification, and deductive logic were legitimized as the methods of studying organizations.

Criticism • There is no such thing as a single purpose. • Purposes must be in a hierarchy (which to follow when they are in conflict) • Purposes are interconnected • Cannot see the forrest because of the trees • There is no best way

The diagnosis of administrative situations • There is no ONE BEST WAY • Efficiency is not a principle it is a definition – it does not tell me how to do things • Bounded rationality (Physiological limitations, Value limitations, Knowledge limitations) • Consciousness of these limits may alter them

Weighing the criteria of analysis • Empirical research and experimentation to determine the relative desirability of alternative administrative arrangements • 2 conditions for this : 1)objectives of the must be clearly specified and can be accurately measured. 2) sufficient control so that the effects can be determined through a causal relation • Principles must be logical – administration cannot be more than art, and even art cannot be founded on proverbs.

Behavioral Science Contributors Cont. • Douglas Mc. Gregor (1906– 1964) • Developed the Theory X (traditional—negative —management approach) and Theory Y (positive management approach) to workers and work motivation.

Behavioral Science Contributors Cont. Theory X and Theory Y Douglas Mc. Gregor proposed the two different sets of assumptions about workers. • Theory X assumes the average worker is lazy, dislikes work and will do as little as possible. • Workers have little ambition and wish to avoid responsibility • Managers must closely supervise and control through reward and punishment.

Theory X and Theory Y • Theory Y assumes workers are not lazy, want to do a good job and the job itself will determine if the worker likes the work. • Managers should allow workers greater latitude, and create an organization to stimulate the workers. 2 -33

Theory X vs. Theory Y Figure 2. 3 2 -34

The Human Relations Model Worker Satisfaction leads to. . . Enhanced Worker Performance A management model that views the employee as socially motivated and operates from the assumption that a social need-satisfied worker is a productive worker.

The Behavioral Science Influence • Behavioral science movement • A movement that stressed the need to conduct a systematic and controlled field and laboratory studies of workers and their motivation, attitudes, and behavior. • Introduced the growth model of the employee. • The movement eventually gave rise to organizational behavior as a discipline.

Informal Organizations • Individuals tend to interact with each other outside formal government prescriptions and these interactions create informal organizations • Informal organization - aggregate of personal contacts with a “state of mind” • Informal Organizations are rather indefinite and structureless

Consequences of Informal Organizations • Establish certain attitudes, customs, habits, institutions • Create the condition under which formal organizations may arise • Associations always have a purpose – “purely passive or bovine kind of association among men is of short duration

Consequences of Informal Organizations Cont. • It is irrelevant if the purpose is attained as long as it exists – “doing something together” • Social vacuum –being lost / • “anomie” - complex situations of social paralysis due to the absence of effective norms of conduct

Consequences of Informal Organizations Cont. • social activities cannot be action at distance • Rational action is a purposive cooperation action – capacity of rational action is derived from this • There is no society which is not structured by formal organizations • The attitudes, institutions, customs of informal society affect and are partly expressed through formal organization

Consequences of Informal Organizations Cont. • A society is structured by formal organizations, formal organizations are vitalized and conditioned by informal organization – there cannot be one without the other • You cannot understand how an organization works by looking at its charter • Invisible government is a recognition of informal organization

The functions of informal organizations • Communication • Cohesiveness • Security - personal integrity, self-respect, independent choice