BBA Principle Management Fundamentals of Organizing Study Material Notes

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BBA Principle Management Fundamentals of Organizing Study Material Notes

BBA Principle Management Fundamentals of Organizing Study Material Notes: Concept of Organisation organizing organisation entity organisioatn group people organisation structure organisation process concept organisation theory classical organization theory classical organisation theory neoclassical organisation theory systems approach :

BBA Principle Management Fundamentals of Organizing Study Material Notes
BBA Principle Management Fundamentals of Organizing Study Material Notes

MCom I Semester Corporate Final Accounts Company Study Material Notes

Fundamentals of Organizing

Alter finalysing the creative phase of planning through which managers define what is to be done, the next issue comes before them is who will do it. Since the work is done by a number of persons working together, managers have to define who will do what and what will be relationship among these persons. This aspect is taken up by managers in the form of organising which basically involves analysis of activities to be performed for achieving organisational objectives, grouping these activities into various divisions departments, and sections so that these can be assigned to various Individuals, and delegating them appropriate authority so that they are able to carry on their work effectively. In management literature, sometimes, the terms organisation and organising are used interchangeably because the term organisation is used in many ways. Therefore, before going into dealing with various issues of organising, it is beneficial to be clear about organisation and organising.

Concept of Organisation and Organising

The term ‘organisation is used in many ways and in each way, the users use it in a specific reference. For example, Lyndall Urwick has observed that:

It may be mentioned here that the classicists have used the term organisation in the form of organising which is a part of management process. Presently, the term organisation is used in the following ways with or without prefix or suffix:

  1. as entity,
  2. as group of people,
  3. as structure, and
  4. as process.

Organisation as Entity

Most frequent use of the term organisation is as an entity and it is referred to as enterprise as a whole like company, corporation, partnership firm, etc. In this form, organisation is defined as collectivity of people for achieving common objectives. William Scott has defined organisations as follows:

“Organisations are collectivities of people that have been established for the pursuit of

relatively specific objectives on a more or less on continuous basis.” When the organisation is defined in this form, it has the following features:

  1. Identifiable Aggregation of Human Beings. Organisation is an identifiable aggregation of human beings. The identification is possible because human group is not merely a number of persons collected at random, but it is a group of persons who are interrelated. Identifiable aggregation does not mean that all the individuals know each other personally because, in large organisations, this is not possible. The identifiable group of human beings determines the boundary of the organisation. Such boundary separates the elements belonging to the organisation from other elements in its environment. However, the separation is rarely absolute, that is, some of the elements in the organisation will interact with its environment, The amount of interaction can be thought of in terms of permeability of the organisation boundary. This refers to the flow of both people and information across the boundary
  2. Deliberate and Conscious Creation. Organisation is a deliberately and consciously created human group. It implies that relationship between organisation and its members is contractual. They enter in the organisation through the contract and can be replaced also, that is, unsatisfactory persons can be removed and others assigned their tasks. The organisation can also recombine its personnel through promotion, demotion, and transfer. As such, organisations can continue for much longer period than their members. Such deliberate and conscious creation of human groups differentiates between casual or focused gathering having transitory relationships like a mob and social units. Some minimal amount of such construction and reconstruction is found in all social units, but it is much higher in the case of organisations. Such distinction is only relative but it is an important one. Other social units like family, community have some conscious planning (family budget, etc.). power centre (community chief), and replaceable membership (through divorce), but the extent to which these social units are consciously planned and deliberately structured with replaceable membership are much less as compared to organisations. Thus, companies, armies, hospitals, etc., are included in the category of organisation, while tribes, families, friendship groups, etc., are excluded.
  3. Purposive Creation. The organisation is a purposive creation, that is, all the organisations have some objectives or set of objectives. The objectives are mutually agreed upon by the members of the group. An organisational objective is a desired state of affairs which the organisation attempts to realise. Organisations are contrived social instruments through which society, or portion of it, obtains things that either could not be obtained at all or could not be had as easily or cheaply. Organisations are, thus, intervening elements between needs and their satisfaction. The success or failure of an organisation is measured in terms of achievement of its objectives.
  4. Coordination of Activities. In the organisation, there is a coordination of closely relevant activities of the members. The coordination is necessary because all the members contribute to commonly agreed goals. The object of coordination is activities, not individuals, as only some of the activities of individuals are relevant to the achievement of a particular objective. This is so because the same person can belong to many different organisations at the same time and in each one, only some of his activities are relevant. From this point of view, the organisation must spell out the activities or roles which must be fulfilled in order to achieve the goal. Which particular person performs this role may be irrelevant to the concept of organisation, though it will be relevant how well the organisation actually operates.
  5. Structure. The coordination of human activities requires a structure wherein various individuals are fitted. The structure provides power centres which coordinate and control concerted efforts of the organisation and direct them towards its goals. It is obvious that coordination among many diverse individuals is not possible without some means of controlling, guiding, and timing the various individuals or groups. The very idea of coordination implies that each individual or unit submits to some kind of authority for the sake of achievement of common objective. Since the individuals are structured in the hierarchy, there is also hierarchy of authority, and depending upon the size and nature of a particular organisation, there may be many centres of authority in the organisation. This does not mean that authority is always external; coordination can be achieved by selfdisciplining activities, but some kind of authority is essential for coordination in organisation, This may vary between complete self-discipline and complete autocracy.
  6. Rationality. There is a rationality in coordination of activities or behaviour. Every organisation has some specified norms and standards of behaviour; such norms of behaviour are set up collectively by the individuals and every member of the organisation is expected to behave according to these norms or standards. The behaviour is governed by reward and penalty system of the organisation which acts as a binding force on its members. The desirable behaviour is rewarded and undesirable one is penalised. To enforce rationality in behaviour, organisation also provides way for substitution of its members.

These characteristics differentiate an organisation from other social units such as community, family, clan, friendship group, etc. However, modern organisations, though not all, tend to be large and complex. Such characteristics are important from the point of view of their management. In a large organisation, the members are arranged in a number of hierarchies which present some specific problems besides the usual ones associated with every organisation, large or small. Such problems may be in the form of increased distance between decision centres and actual operative levels. This feature makes the coordination more difficult.

Organisation as Group of People

When organisation is defined as a group of people, it may be defined either as an entity as discussed earlier or any part of it. For example, when we refer to informal organisation, we refer to various groups of people in an organisation who create these groups on their own to satisfy their social needs. When organisation is referred to as a group of people, it is mostly referred to as different groups created either formally or informally. In this form, an organisation has the following features:

  1. An organisation always refers to people.
  2. The organisation is composed of people who interact among themselves.
  3. The interactions are specified by some sort of structure, that is, who will interact with whom.
  4. The interactions are meant to achieve some sort of objectives.

Organisation as Structure

Organisation is also referred to in the context of structure which prescribes the relationships among individuals and positions that they hold. There may be different ways in which these relationships are prescribed. Structure tends to be somewhat permanent with a provision of incorporating changes whenever required. However, the use of the term structure to denote organisation is not used independently but is combined with the term organisation either in the form of organisation structure or structure of organisation.

Organisation as Process

Classical theorists have used the term organisation in the form of process of organising through which organisation structure is created. Because of the use of the term organisation as a process, more confusion has been created in management literature. In the present context, the term organisation is mostly referred to as entity. Whenever It is used as a process, it is termed as organising rather as organisation. In this part of the text, we shall call it organising through which organisation structure is designed. Organising, being a process, consists of the following elements:

  1. Departmentation. The first basic element in basic element in organising is the departmentation, that is, creating various departments, divisions aments, divisions, and sections in order to perform various organisational activities. For creating department of creating departments, it is necessary to identify those activities whose performance would lead to the achievement of organisational objectives: identifying such activities and grouping the and grouping them into departments, It must be ensured that all the necessary activities are performed. (2) there is no duplication in performing various necessary activities, and (3) activities are performed in a sychronised and coordinated way. Another 1ssue that emerges because of grouping of activities and assigning these to individuals is the determination of span of management, that is, how many individuals should be put under the direct supervision of a superior manager. Various issues involved in departmentation and span of management will be discussed in Chapter 12.
  2. Linking Departments. After creating different departments (these may be called divisions, sections, etc. besides departments as all these emerge from grouping of activities), the next issue comes before the management is to decide how various departments of the organisation will be linked together so that they operate in a coordinated manner. The way these departments are linked together gives shape to overall organisation structure. Since there are different ways in which activities are grouped and linked, there are different forms of organisation structure which will be discussed in Chapter 13.
  3. Defining Authority and Responsibility. When a particular activity or group of activities is assigned to an individual, he becomes responsible for the performance of those activities. He can discharge this responsibility properly only when he has corresponding authority. Therefore, he needs authority which comes to him through the process of delegation. This aspect will be discussed in Chapter 14.
  4. Prescribing Authority Relationships. Since every individual who functions in the capacity of a superior has some authority, there is need for prescribing authority relationships among different individuals and departments in which they function. Such authority relationships may be in different forms because a particular activity of the organisation is related to other activities in different forms. This aspect of organising will be discussed in Chapter 15.

Various elements of organising do not show similar patterns in all organisations because two organisations may not be similar. Further, a particular organisation does not remain the same over the period of time. Therefore, a particular structure is not suitable for all organisations or for the same organisation over the period of time. Thus, there is need for designing structure according to the requirements of an organisation. In order to meet these requirements, either managers may go through the process of experimentation, that is, trial and error which is a costly affair or base their decisions on the previously developed theoretical framework. Organisation theory provides some insights about designing organisation structure by providing theoretical framework. Therefore, it is desirable to go through this theory.

Concept of Organisation Theory

The word ‘theory’ and its meaning is derived from Greek word ‘gewpix’, meaning theorie that is, looking at, viewing, or contemplating. Thus, theory is a systematic grouping of interrelated principles, Principles are fundamental truths, or what are believed to be truths at a given time, explaining relationships between two or more variables. Thus, theory basically explains the relationship between independent and dependent variables. From this point of view, Rudner has defined the concept of theory as follows:

Theory is a systematically related set of statements, including some law like generalisation Wat is empirically testable and the sort of systematic relatedness is deductive relatedness,

Applying the concept of theory in organisation theory, it can be defined as the study of structure and design of organisation. It explains how organisations are actually designed and offers suggestions on how they can be constructed to improve organisational effectiveness. Tosi has added one more dimension in the concept of organisation theory. and that is the analysis of human behaviour in interrelations. He defines organisation theory as:

“a set of interrelated constructs (concepts), definitions, and propositions that present a systematic view of behaviour of individuals, groups, and subgroups Interacting in some relatively patterned sequence of activity, the intent of which is goal directed.”

This definition emphasises the study of human behaviour as individual, group, and subgroup. However, this study is limited in the context of interactions only. Thus, behaviours, in general, do not fall within the purview of organisation theory. This analysis of interactional behaviour is necessary in understanding the dynamics of organisational design and structure. The various features of organisation theory can be presented below:

  1. The use of the term ‘theory’ in the phrase ‘organisation theory does not quite square with its meaning to the philosophy of science. The reason is that various concepts and postulates in organisation theory do not meet the requirement of a theory. At best, organisation theory contains various formulations dealing with organisational phenomena. But there has been a general application of phrase ‘organisation theoryto the various formulations which deal with the organisational phenomena.
  2. Organisation theory can be treated as a macro examination of organisation because it analyses the whole organisation as a unit. Thus, it is different from organization behaviour which deals with micro aspect of human behaviour in the organisation.
  3. Organisation theory prescribes relationship among variables in the organisation. It is a set of variables describing the parameters of organisation and contains series of ‘if… then’ statements which predict the effect of certain structural arrangements on performance and behaviour of human beings in the organisation. Tlius, it is different from management theory’ which is basically a theory of practice interested in facts and sound principles. It prescribes what to do to accomplish a desired outcome. Organisation theory has been classified into three groups: classical, neoclassical, and modern; though such a classification may not be universal and suitable for all time to come. For example, what is modern theory today may not be modern for tomorrow. However, this classification serves certain purpose, that is, the analysis of organisations from different viewpoints. The classification is based on the nature of organisations-structure, process. and interdependence-as perceived by various scholars engaged in the development of the field of organisation theory. Each of these categories represents a legitimate point of departure for enquiry of organisation; each has a set of value judgements and blases which allects the manner in which the organisations work. Different theories utilise different assumptions about the needs people wish to satisfy through organisations. Yet, each of them focuses on how organisations can be made more effective.

CLASSICAL ORGANISATION THEORY

The term ‘classical’ means something traditionally accepted or long established. The classical theory is the beginning of the systematic study of organisations. The classical writers have viewed an organisation as a machine and human beings as different components of that machine. Their approach has focused on input-output madiators and has given less attention to facilitating and obstructing factors in the external environment. The writers have dealt with human behaviour only in rudimentary manner. Therefore, this theory has been termed as ‘machine theory. ‘structural theory’ or ‘physiological theory’. Haire has identified the chief characteristics of classical organisation theory as follows:

  1. Classical organisation theory is built on an accounting model.
  2. It maximises neatness and control.
  3. It puts special emphasis on the detection of errors and their correction after they have happened.
  4. This approach to the organisation is the classical embodiment of the extra pair of hands concept.
  5. In designing the jobs and in picking these extra pair of hands, classical theory assumes man to be relatively homogeneous and relatively unmodifiable.
  6. Stability of the employees-stability in the sense of minimising change with the employees-is a goal in the organisation.
  7. Classical theory is in its essential character centralised, and the integration of the system is achieved through the authority and control of the central mechanisms. Classical organisation theory is based on the contributions of scientific management by Taylor and others, administrative management by Fayol and others, and bureaucratic system by Weber. All these have been discussed in Chapter 2 of the book.

Classical Theory and Organisational Design

The classical organisation theory has been developed around four major factors. These are division of labour, scalar and functional processes, structure, and span of control. These are also known as classical pillars.

  1. Division of Labour. Division of labour implies that work must be divided to obtain clearcut specialisation with a view to improving the performance of individuals in the organisation. The classical approach rests firmly on the assumption that the more a particular job is broken into its simplest component parts, the more specialised a worker can become in carrying out his part of the job. The more specialised a worker becomes in fulfilling his particular job, the more efficient the whole organisation will be.

For division of labour, it is necessary to identify the various activities to be performed. Such identification can be done at various levels in a large organisation because a major activity is to be fragmented into subactivities; these subactivities into further sub-activities, and so on. This process leads to differentiating the tasks necessary to accomplish an objective. Each differentiated task can be handled separately either by different individuals at the same time or by the same individuals at different times.

  1. Scalar and Functional Processes. Scalar and functional processes rest upon the assumption that there is a chain of command throughout the organisation. Someone exists at the top level of the organisation and exercises authority to make final decisions. Scalar process refers to the growth of chain of command, delegation of authority, unity of command, and the obligation to report. It is called scalar process because it provides a scale or grading of duties according to the degree of authority and responsibility. Scalar process generates of organisation into specialised parts and the regrouping of the parts into compatible units. Thus, each unit of the organisation may be functionally different than others; for example, marketing unit is different from production unit. Thus, while scalar process deals with the vertical growth of the organisation, functional processes are superimposed on cach other: superior-subordinate positions are created in various departments and functions. There are five basic components of scalar and functional processes: departmentation, coordination by hierarchy, unity of command, delegation of authority. and line and staff relationships.

(a) Departmentation Division of work or specialisation is usually accomplished through departmentation. Departmentation is the process of dividing the work of the organisation into various units or departments. The basic problem of departmentation is to find out the ways in which to group the tasks into individual jobs or to group into individual administrative units, to group units into larger units, and finally to establish the department at the top level so that costs involved in carrying out these organisational works are minimum.

(b) Coordination by Hierarchy. With jobs specialised and divided among units, coordination becomes necessary. Coordination can be achieved mainly through hierarchy or chain of command. The chain of command principle implies that every one from bottom to the top should have a superior to whom he is accountable. Therefore, coordination can be achieved in a better way if this chain of command is defined properly in the organisation.

(c) Unity of Command. Unity of command, as discussed in Chapter 2. means that a person in the organisation should receive orders from only one superior. The more completely an individual has a reporting relationship to a single superior, the less is the problem of conflict in instructions and greater is the feeling of personal responsibility for results.

(d) Delegation of Authority. Since assignment of activity to a person makes him responsible for achieving the results, he should be delegated authority to carry out his work. Delegation of authority means authorisation to an individual for making decisions. Through the process of delegation and redelegation, the authority is distributed at various points in the organisation.

(e) Line and Staff Relationships. Classical theory differentiates between line and staff relationships. Line relationship exists between superior and his subordinate in which a superior can direct the activities of his subordinate. He can give order and subordinate is obliged to carry out the order. On the other hand, staff relationship involves tendering the advice by staff personnel to line managers. It is not obligatory on the line managers to carry the work according to the advice. Line and staff relationships exist because of the functional process in the organisation.

  1. Structure. Structure is the framework of the formal relationships among various tasks, activities, and people in the organisation. Organisation structure determines the efficiency of the individuals and hence of the organisation. Therefore, there should be logical and rational structure. The basic structural element in the classical theory is the position Each position is made up of several expectations that others hold about the appropriate behaviour for the holder of the position. Various positions in the organisation are grouped in various ways-horizontally, vertically, or both. Each position holder is then sanctioned a certain amount of authority to perform organisational functions in a certain way. Depending on the distribution of authority, the organisation structure may be centralised or decentralised. In the case of centralisation, authority is concentrated in the higher positions and in the case of decentralisation, relevent authority is delegated to the lowest positions in the organisation.
  2. Span of Control. Span of control refers to the number of subordinates which can be effectively supervised by a superior. Span of control for a superior should be limited because every manager has a limited amount of knowledge and capacity. The classical approach to the span of control has dealt with generalisations embodying specific number of subordinates for an effective span ranging from four to six. Beyond this, a manager cannot exercise effective control and below this, his capacity and knowledge cannot be utilised fully Appraisal of Classical Theory The classical concepts represent an important part of organisation theory and give clue about how to design an organisation and manage it. The concepts have organised the fragmented thoughts in the area of management into a consolidated discipline to form base for further development. Many of the classical concepts hold valid even today and provide guidance for design of an organisation. However, classical theory has attracted lot of criticisms particularly from neo-classists. Such criticisms have been made against the classical theory as a whole or particular principles thereof. Criticisms of Whole Theory. According to present requirements of the organisations, classical theory suffers from many limitations. These limitations have been summarised by March and Simon as follows:
  3. Motivational assumptions underlying the theory are incomplete and consequently inadequate.
  4. There is little appreciation of the role of intraorganisational conflict of interest in defining limits of organisational behaviour.
  5. The constraints placed on the human being by his limitations as complex information processing system are given little consideration.
  6. Little attention is given to the role of cognition in identification and classification as well as in decision.
  7. The phenomenon of programme elaboration receives little emphasis.

Similar such criticisms have been offered by others also. For example, Bennis suggests that the focus of classical theory is on ‘organisation without people’. Katz and Kahn feel that this theory is inadequate in dealing with the complexity of organisation structure and functioning. These criticisms are based on the inadequacy of the theory in explaining the functioning of an organisation. Thus, if we integrate the various criticisms of classical theory, the following conclusions emerge: 1. Closed System Assumptions. Organisations have been treated as closed systems by classicists. A close system is one that has no environment and hence no interaction with outside world. Therefore, organisation structure can be designed on mechanistic pattern. Once the structure is created, it will run smoothly and efficiently through job description, policy specifications, and framing of exhaustive rules and regulations. Individuals can be fitted to jobs and they would function in the prescribed manner as the way of doing a job has already been perfected for them. Such a structure can be followed for any type of organisation, whether business or otherwise. In treating an organisation as a closed system, classicists have assumed two things: (0 There is no Impact of the environment on the organisation. (L0 Human beings are manipulated like a mechanical part. The response to a stimulus can be calculated with precision. However, these assumptions do not hold good in practice. First, organisation is an open system and is affected by its environment. Therefore, organisation structure should take into account the environmental variables. Thus, with the change in the environmental variables, organisation structure would also change. This aspect will be discussed later in the chapter. Second, human beings do not always behave rationally. Therefore, they cannot be treated as a part of machine but due considerations have to be given to their characteristics while designing the organisation structure. To the extent classical theory does not take these factors into account is inadequate.

  1. Static View of Organisation. Classicists take static view of the organisation and assume that once structure is created, it will work for ever. This means that there is no need for change or adjustment in organisational design. This is not true. If all the factors affecting! the design of organisational structure, viz., environment, technology, size, and people are static, the concept of static view of organisation holds true. However, these factors always keep on changing and managers are forced to keep watch on their organisation structure to make suitable change whenever need arises in the light of change in the above variables. Thus, static organisation structure is not suitable for most of the modern organisations.
  2. Too Much Reliance on Classical Pillars. Classical organisation theory relies too much on classical pillars like division of work, scalar functional processes, structural arrangement, and span of control. No doubt, at the beginning of the development of the organisation theory, these pillars were quite strong but not in today’s context when more knowledge has been developed in the area. These classical pillars are no longer applicable in organisational design because every organisation structure is tailor-made rather than based on principles of universality. Thus, one organisation structure may differ from another because the requirement of the two may be different.

Criticisms of Classical Principles. Classicists have given a number of principles of organisation. For example, Fayol has given fourteen principles of management many of which are related with organisational design and processes. Similar other principles have been given. These principles are supposed to be universal so that these can be applied to all organisations alike. However, these principles have two shortcomings:

  1. Lack of Universality. As against the views held by classicists, principles of organisation lack universality. Empirical researches suggest that there is not even a single principle which is applicable in all the circumstances. Further, many principles are actually internally contradictory. For example, principle of specialisation is frequently in conflict with principle of unity of command because more specialisation means that superior may control different types of personnel and a subordinate will have to receive orders from different specialists as shown by Taylor’s functional foremanship. Therefore, principles are not only short of universality but are contradictory too.
  2. Lack of Empirical Research. The various classical concepts and principles written by practitioners in management are based on personal experiences and observations. Therefore, various principles have not stood the test of rigorous empirical research using scientific methods. Moreover, it is not clear whether various principles are only action recommendations or definitions. A principle establishes cause and effect relationship of a function that is observed to be present in an organisation. From this point of view, it becomes necessary to define some independent specifications of what is meant so that the principles do not become simply a part of the definition of an organisation Since this has not been done with any consistency, the various classical principles become empirically vacuous.

Various criticisms of classical theory should not lead one to feel that it does offer any guidance for managerial action for organising. In fact many of the classical concepts are still valid. However, they have only limited applications. Therefore, managers should bear this fact while applying these concepts. For example, Scott has observed that:

NEOCLASSICAL ORGANISATION THEORY

The neoclassical theory has developed as a reaction to rationality and efficiency obsession of the classical theory which failed to recognise the significance of the impact of human beings on organisation structure. Neoclassical theory has started its development from the findings of famous Hawthorne Experiments. Afterwards, many contributions have been added to the field. The essence of neoclassical theory is contained in two points: (0) organisational situation should be viewed in social as well as in economic and technical terms; and (ii) the social process of group behaviour can be understood in terms of clinical method analogous to the doctor’s diagnosis of human organism. The neoclassical theory emphasises the task of complementing for some of the deficiencies in classical theory. This takes the postulates of classical model and modifies them to suit the needs of human beings in the organisation. Since the theory suggests only modifications in the basic postulates of classifical theory, it is referred to as neoclassical theory. The main propositions of neoclassical theory are as follows:

  1. The organisation is a social system.
  2. The social environment of the job affects people and is also affected by them and not by management alone.
  3. Informal organisation also exists within the formal organisation and it affects and is affected by the formal organisation.
  4. Human being is not totally rational and his behaviour can be predicted in terms of social and psychological factors.
  5. Human being has diverse motivational pattern and tries to fulfil different types of needs.
  6. Often there is a conflict between individual and organisational objectives which increases the importance of integration between individuals and organisation.
  7. Communication is necessary as it carries information necessary for organizational functioning and conveys the feelings and sentiments of people who work in the organisation
  8. Team-work is essential for cooperation among people. This is not achieved automatically but has to be achieved through behavioural approach.

Neoclassical Theory and Organisational Design

According to neoclassical theory, the organisation should be designed in such a way that meets the basic postulates of the theory as discussed above. The basic emphasis of neoclassical theory is on flat structure, decentralisation, and provision of informal organisation. It can be seen that this theory offers modifications over the classical organisation structure. For example, it accepts the concept of span of control but emphasises on wide span of control to give flat structure rather than narrow span of control resulting In tall structure as envisaged by the classical theory.

  1. Flat Structure. Neoclassical theory suggests flat structure as against tall structure. Neoclassicists feel that tall structure is against the human beings. It suffers from the following problems: communication problem because of increased differentiation between decision makers and implementers, lack of motivation to people, and being expensive because too many levels are added in the organisation. As against this, flat structure with wide span of control is more suitable for motivating human beings in the organisation; communication chain is shorter; and it is free from hierarchical control.
  2. Decentralisation. Neoclassical theory suggests decentralisation in organisation structure. Decentralisation is closely related to flat structure as wide span of control will result in horizontal increase of people. The decentralised structure offers various advantages and is in accordance with the various characteristics of human beings as identified by the neoclassicists.
  3. Informal Organisation. A major departure of neoclassical theory from the classical theory is that the former recognises that in every formal organisation, informal organisation also exists. Formal organisation structure represents as closely as possible the deliberate intention of its framers for the purpose of interactions that are expected to take place among its members. The informal organisation, on the other hand, is created because of the limitations of the formal organisation to fulfil the members’ needs. particularly the psychological needs. In an organisation, the behaviour of members is determined with interaction of formal and informal organisations. Since manager cannot control the informal organisation, he should make the best use of this in achieving the organisational objectives.

Appraisal of Neoclassical Theory

Neoclassical theory has given a new dimension to the design and management of the organisation. It has recognised such important factors which were almost ignored by classical theory like informal organisation, informal leader, group norms, non-economic motivation, irrational behaviour, and so on. All these factors are important in understanding the organisational behaviour. Thus, neoclassical theory has tried to overcome many of the deficiencies of classical theory.

Neoclassical theory, however, is not free from shortcomings. It suffers from incompetency, a short-sighted perspective, and lack of integration among various facets of human behaviour studied by it. It has been criticised by many and criticisms range from ‘human relations as a tool for cynical puppeteering of people to ‘human relations is no more than a trifling body of empirical descriptive information’. In fact, neoclassical theory has been called bankrupt. The major problems in neoclassical theory are as follows:

  1. Neoclassical theory lacks unified approach of organisation theory. In fact, it is not a new theory at all. What actually has been done in this theory is merely modification of classical concepts and models. Therefore, it is merely concerned with organisational modification rather than organisational transformation. Thus, neoclassical theory suffers from the same problems as classical theory does.
  2. Most of the assumptions of neoclassical theory on which it bases its recommendations for organisational design and operation are not true. The assumption that it is always possible to find out a solution that satisfies every body is not true. Thus, if basic assumptions are not true, how can recommendations based on these be practical? In the organisation, often there are sharp conflicts of interest among various groups in the organisation that are structural and not merely psychological. This aspect has not been dealt adequately.
  3. Various structures and formats of organisations given by neoclassicists are not applicable to all situations. It is true that while designing an organisation. consideration should be given to the characteristics of people working in the organisation but humanistic organisation structure may have its own limitations. As will be seen later, a suitable organisation structure is one which takes care of different variables which affect the organisational functioning and people may be one of the various factors.

 

 

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