Contingency theory

Table of Contents

Introduction

1 Definition and Development

2 Strengths

3 Weaknesses

Conclusion

List of references

Introduction

This work answers the question What are the strengths and weaknesses of the systems approach as used by contingency writers in analysing organisations? To provide a sound insight into the strengths and weaknesses, the notion of contingency theory needs to be de- fined and its development understood. So, the first chapter displays the most significant ideas and characteristics of contingency theory and briefly follows the developmental steps of how contingency theory found its way into management on the basis of some of its most influential writings. The second and the third chapter take the contrary positions for strengths or for weaknesses of the contingency approach.

Nevertheless, this paper does not provide a complete or conclusive view of contin- gency theory, the selection of the writings and the deliberate focus on uncertainty and envi- ronment as contingency factors with just a short reference to other factors like strategy, tech- nology and size is intended. The interpretation of strengths and weaknesses can, if not derived from the literature, be considered as biased by my personal subjective view and is, therefore, a limitation of this work. The essay, finally, concludes with a brief appreciation and evaluation of contingency theory.

1 Definition and Development1

"What kind of organization does it take to deal with various economic and market con- ditions?" (1986, p. 1) is the ‘fundamental question’ that Lawrence and Lorsch raised in their book Organization and Environment, first published in 1967. In doing so they acknowledged that different industrial environments require different organizational structures, which is why they are credited "with having invented the term of contingency theory" (Donaldson, 1995, p. xii). Burrell and Morgan describe the basic assumption of the contigency theory that the effective operation of an enterprise is dependent upon there being an appropri- ate match between its internal organisation and the nature of the demands placed upon it by its tasks, its environment and the needs of its members (2001, p. 164).

This reflects the theory-building findings of Lawrence and Lorsch (1967; 1986) and others (i.e. Burns & Stalker, 1968; Woodward, 1958), who through the adoption of quantitative comparative research discovered that, in fact, organisations with differing formal structures and characteristics exist. Contingency research is based on an open systems framework and takes, therefore, a contradicting position towards the precedent predominant classical man- agement thought.

The classical management school held "that there was a single organizational structure that was highly effective in organizations of all kinds" (Donaldson, 1996, p. 58), a closed sys- tem concept which is "focused on the one best way to organize in all situations" (Lawrence & Lorsch, 1986, p. 3). This view of the organisation is furthermore described as bureaucratic system with a high degree of decision making and emphasises on the hierarchy as well as ex- act job definitions.

From the 1930s onwards another management approach developed, the human relations school, characterized by the focus on the individual employee and his psychological and social needs. The notion of motivation and participative decision-making are connected to this management thought. Contingency theory, however, provides the foundation to combine both the idea of human resource and the classical thought, it considers management decision contingent on the demands of the employees and adapts classical management to a more flexible and uncertain environment (Donaldson, 1996).

The main contingency concepts are task uncertainty, which is regarded as “the core contingency concept”, innovation and size (Donaldson, 1996, p. 58). The effect of task uncer- tainty is that the higher the extent of uncertainty the less formal, centralized and specialised the structure of an organisation can be. This stems from expertise at lower hierarchy stages that need to be utilised, hence job contents cannot be exactly defined and limited. Only "low uncertainty tasks are most effectively performed by centralized hierarchy since this is simple, quick and allows close coordination cheaply" (Donaldson, 1996, p. 58). Although the degree of necessary innovation or the need for technological change can be regarded as factors which have the same effects that uncertainty, the increase of size is, however, a structure- determining circumstance leading into the opposite direction, to a bureaucratic organizational structure (Donaldson, 1996).

Before the term of 'contingency theory' was coined Burns and Stalker had already done empirical research about organizations, market situation and technical environment in the electronics industry resulting in the finding of "two formally contrasted forms of man- agement systems" (1968, p. 119), a 'mechanistic' and an 'organic' system. Underlying a stable and certain environment, the former expresses a specialized, differentiated, precisely defined and formalized organisation emphasizing on a tall hierarchy with predominant vertical com- munication. The latter outlines a flexible, network-structure, where communication is lateral rather than vertical and based on information rather than instructions. In the organic system the individual task encourages commitment and contribution to the integral situation of the concern appropriate to changing environmental conditions (Burns & Stalker, 1968). The field studies of Woodward provided similar conclusions. Successful firms used mechanistic or or- ganic structures according to the predictability of technological change and necessary adop- tion by the organisation (1958, cited in Burrell & Morgan, 2001 and Donaldson, 1995).

Based on these early insights Lawrence and Lorsch (1986) argued that the environ- ment does not influence the whole organization in the same way. Different types or segments of environment have different effects on units and departments. In addition an increasing rate of environmental causes that differentiation and integration within each organisational part increase as well (Donaldson, 1996). "Greater rates of environmental change require certain parts of the organization, such as the R&D department, to face high levels of uncertainty rela-

tive to other parts, such as the production department" (Donaldson, 1996, p. 60). This, how-

ever, leads to structurally and culturally differing departments, which impairs communication, coordination and collaboration between the units. In their study Lawrence and Lorsch (1986) proved that only the organizations in which structures fit their environments and which con- fronted environmental dynamics with a higher level of integration had been successful.

To sum up task uncertainty Donaldson argues that

[a]ll contingency theories postulate a fit between the contingency and structural variables that produce high performance

and that

[d]emonstrating that the theoretically postulated fit has a positive relationship with performance is an important part of contingency research (1995, p. xiii).

Besides uncertainty and other contingency factors, the contigency of strategy deserves to be briefly mentioned. "Corporate strategy affects the diversification, horizontal integration, vertical integration, geographic extensiveness and acquisition patterns of the corporation" (Donaldson, 1995, p. xiv), hence, strategy determines structure, proved by surveys of Chan- dler (1962) and Donaldson (1987). Donaldson formalized this finding in his "SARFIT (Struc- tural Adjustment (Adaption) to Regain Fit) model" (1995, p. xv) which basically says that the change of the contingency factor strategy lead to a misfit, which consequently causes a per- formance loss and urges the corporation to 'regain fit' by a second, needed structural change.

To summarize the notion of 'contingency theory' Burrell and Morgan state: "The or- ganisation can be considered as a biological organism which is in mutual interdependence and influence with its environment but, nevertheless, "a unit of its own right"" (2001, p. 168). The contingency theory is concerned with understanding the key relationships between organisa- tion and environment which ensure the organisation's survival. The different but interdepend- ent organisational subsystems face differing and environmental states, which let each find a position in a continuum between a mechanistic or organic orientation. The position deter- mines how "functional subsystems" (Burrell & Morgan, 2001, p. 168), like operational, hu- man, managerial or strategic control subsystem, are structured to fit environmental demands.

2 Strengths1

The fundamental value of the 'contingency theory' is that the contingency writers pioneered a new perspective for the role of management by combining earlier management thought rather than contradicting it. So Burns and Stalker previously wrote:

We have endeavoured to stress the appropriateness of each system to its own specific set of conditions. Equally, we desire to avoid the suggestion that either system is supe- rior under all circumstances to the other. In particular, nothing in our experience justi- fies the assumption that mechanistic systems should be superseded by organic in con- ditions to stability. The beginning of administrative wisdom is the awareness that there is no one [stressed by myself] optimum type of management system (1968, p. 125).

The final statement marks another advantage of the approach: the possibility for a wide application and validation of contingency theory by acknowledging that different structures are effective and successful in their own way.

Third, the approach, basically, seems to be a intuitively correct. Lawrence and Lorsch foresightedly proposed more than four decades ago that

[o]ne of the major causes of management's concern with organizational issues is that the technical, economic, and geographical conditions facing their organizations are be- coming more diverse and are constantly changing. The pace of technological change is stepping up, and the technologies of process and product are becoming multinational, operating over wider geographical areas and under more diverse economic and cul- tural conditions. These trends have just started, and projections indicate that they will accelerate (1986, p. 3-4).

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