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The Evolution of Organization Theory

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Lecture – 03
The Evolution of Organization Theory – I
Welcome to this course on Organization Theory/Structure and Design. Now, we will talkabout module 3. So, we are talking about part 1 that is the Introduction to OrganizationTheory and in module 1 and 2 we have talked about an Overview of Organization Theory.Now, in this module 3 and module 4 we will talk about the Evolution of this theory that is theOrganization Theory. So, let us start with module 3 and let us see what the things that thismodule will cover are.(Refer Slide Time: 01:04)
The first thing that we will talk about today is understanding the evolution of organizationtheories. Then we will talk about identifying Adam Smith’s contribution to organizationtheory; thereafter we will be explaining how the industrial revolution changed organizations.Then we will describe the type 1 classification framework; defining the four principles ofscientific management; followed by describing Henry Fayol’s contribution to organizationtheory and, then we will define Max Weber bureaucracy.
(Refer Slide Time: 01:38)
To start with what is a theory? A theory is a coherent group of assumptions. So, firstimportant thing here is that it is coherent group of assumptions put forth to explain therelationship between two or more observable facts and to provide sound basis for predictingfuture events.So, we are talking of a coherent group of assumptions that will explain a relationship betweentwo or more observable facts that is the third thing and to provide a basis for predicting futureevents. So, two or more observable facts are understood so that we can make somepredictions about the future events.Now, why do we need to study organization theory? So, there are several reasons for that.First is it guides management decision; the second is it shapes our view of organization, thenit also makes us aware of the business environment and it becomes a source of new ideas.
(Refer Slide Time: 02:42)
While understanding the evolution of organization theories one must keep in mind thecumulative development of theories as the underlying theme. So, we are talking aboutcumulative development of theories. So, that is the underlying theme. So, theories areintroduced, evaluated, then refined and new insights tend to reflect the limitations of earliertheories.So, first they are introduced then they are evaluated, then refined and then new theories andnew insights they come to reflect or to overcome the limitations of earlier theories. So, this ishow there is this cumulative development of theories. But, also keep in mind that theories arenot developed and understood in air-tight silos.So, they are not there for all times to come, but as a continuous flow where different streamskeep on adding and editing the existing and prevalent theories based on changingcircumstances.So, new theories they keep on coming because of the changing circumstances. So, in socialsciences and in management these theories they are not air-tight silos. So, they keep onchanging, editing keeps on happening, new theories keep on coming, old theories keep ongoing out of fashion. So, this is how this continues.
(Refer Slide Time: 04:15)
Let us talk of the case of the United Parcel Service that is UPS. It is the world’s largest parceldelivery company. Despite being over a 100 year old, this privately held company isdescribed as one of the most efficient companies in the world. Its efficiency lies to someextent in the practice of scientific management principles that originated in the early part of20th century.So, because of its using the scientific management principle that is why it is considered to be
a very efficient organization. So, UPS has more than 1000 industrial engineers who use time-study techniques to set standards for every job in the company.
(Refer Slide Time: 05:18)
For instance, a sorter at package-sorting hubs is expected to handle 1124 packages an hourand is allowed no more than one mistake per 2500 packages. Drivers of delivery trucks areinstructed to walk to a customer’s door at the base of three feet per second. UPS also keepsdaily worksheets that specify performance goals and work output for every employee anddepartment.(Refer Slide Time: 05:37)
Now, let us understand the context of these organization theories. So, different socialstructures would suggest different ideas about organizations and the discussion around these
would help us understand the evolution of theories in a better and a more holistic way.Throughout our discussion we would keep referring about the external circumstances thathelped in shaping the theoretical development.So, for us these external circumstances are very important and they keep on changing, that iswhy, the theory development in our context it keeps on changing, it keeps on happening, newtheories keep on coming.(Refer Slide Time: 06:31)
So, continuing with understanding the context there are these pre-industrial societies whichconsisted of agrarian and pre scientific. Then came industrial societies, and classical,neoclassical and modern are the three classifications that they had and then came the postindustrial societies.
(Refer Slide Time: 07:10)
Now, let us look at what this pre industrial societies are, that we are talking about. So, theywere biased against management. Ruling class perceived work, commerce and trade asundignified. So, they were the ruling class and they did not want to do that kind of thing.Work was done by slaves and individuals were bound to their stations for entire lifetime.Rules were made by those ruling class and they were not questioned. Profit making was notfavorably viewed by the ruling class. Money should be made by conquering and wars and notby trade commerce and work. So, this is what was happening in pre-industrial societies.(Refer Slide Time: 07:59)
Then came agrarian societies. Most pre-industrial societies were agrarian societies wherefarm/house was the focus of the work. Children generally followed in the footsteps of parentsand continued with their traditional work. So, children also used to do the same thing, thesame work that their parents used to do.Craftwork was prevalent. Land ownership was highly regarded and meant wealth. So, thiswas what was considered to be of wealth, that is land ownership.(Refer Slide Time: 08:28)
Now, let us look at organization theories during pre-industrial societies. The earliest insighton organization theory issues seems to emerge in form of message from the bible. Managersneed to delegate authority in large organizations and only the unusual or exceptional decisionwould flow back up the hierarchy for resolution otherwise there would be resolved then andthere. The earlier philosophers such as Socrates and Plato discussed leaderships anddescribed work specialization.
(Refer Slide Time: 09:19)
This implies that the best structure for an organization is one that promotes effective workeffort 1. 2nd it minimizes complexity and the 3rd one is one of the most enduring andsuccessful models in this sense could be the Roman Catholic church which follows ahierarchal structure.The pope, then comes cardinal, archbishops, bishops and parish priest. So, this was thehierarchy that was there in the Roman Catholic Church. So, this was considered to be themost successful model of organization.(Refer Slide Time: 09:48)
Then came industrial societies. With the emergence of a structured and organized disciplineof economics and ideas such as division of labor by Adam Smith in 1776, manufacturingstarted becoming more standardized. Further, Industrial Revolution brought significantchanges in the society and had a major impact on the development of organization theory.So, this industrial revolution then brought in this development of organization theory. Earlierall kind of organization theory used to come from the Bible and the church. So, whateverhappened there was considered to be ideal and all kind of organizations were structured likethe church.(Refer Slide Time: 10:37)
Now, there are two stages of industrialization. The 1st is development of an industrialinfrastructure. So, it means a – nationwide transportation system; b – source of cheap power;c – technological innovation; d – modern communications; e – networked financialinstitutions and f – that is educated labor force. So, that was the 1st stage, the 2nd wascreation of capital goods sector.
(Refer Slide Time: 11:20)
The current state of organization theory is the result of an evolutionary process which beganwith the industrial revolution. The building of factories required the simultaneous creation oforganizational structures to facilitate efficient manufacturing processes. Jobs had to bedefined. Here came job definition. Jobs had to be defined; work flow that is the process ofactivities the flow of activities was established, departments were created and coordinationmechanism was developed.So, this is what happened in industrial societies. First define they job then the flow ofactivities created departments and then how does these departments will be coordinated sothat mechanism was developed. In short, complex organizational structure had to bedesigned.
(Refer Slide Time: 12:22)
Now, developing a framework – there are two underlying dimensions in the evolution oforganization theory. So, what are these two? The 1st one is organizations are systems thatwas considered prior to 1960s. Then the 2nd is ends of organization structure that startedcoming from the beginning of 1960s.(Refer Slide Time: 12:39)
So, this is about developing a framework. So, now, you see that on the x-axis we have thetimelines. So, this figure shows the timelines of emergence of organization theories from1890 to 1990s. So, during this period that is 1890 as you can see there was a labor shortage.
In 1910 came the World War I that went from 1914 to 1918. Then, 1930 came the greatdepression followed by in 1940 the World War II that went from 1941 to 1945 and in 1950deming lecture on quality came. 1960 protest movement and then in 1980 IBM PC wasintroduced. So, this is what happened along the time lines.Let us start with this classical management theory. So, they had started from 1890s and theyare continuing till now. The behavioral school they started in about 1920 and they are stillcontinuing. The quantitative school they started again somewhere in 1940s and continued thesystems approach they started somewhere in 1950s and are continuing, then came thecontingency approach from 1970 to 1990s and then the new human relation movement. So,that started in 1950s and they and it is continuing.So, now the advantage of this figure is that you can see how the various theories havedeveloped over a period of time starting from 1890 to 1990 over this 100 year period.(Refer Slide Time: 14:53)
So, now, let us talk about this framework in some more detail. The first dimension reflectsorganizations are system. Prior to about 1960s organization theory tend to be dominated by aclosed system perspective; organization were seen as essentially autonomous and sealed offfrom their environment. The primary focus was on the internal characteristics of theorganization. So, you see that the primary focus was on the internal characteristics of theorganizations.
(Refer Slide Time: 15:05)
Then the second dimension deals with that end of organization structure. Beginning around1960s, organization theory began to take on a distinctly open-system perspective. So, now,they came in with an open-system perspective. The primary focus shifted from the internalcharacteristics to approaches that emphasized the importance of events and processes externalto the organization. So, with this now we are trying to incorporate the events and processesthat are happening outside the organization.(Refer Slide Time: 15:51)
So, now we have started taking that thing into consideration into the decision making intoorganization theories. However, the second dimension includes two opposing perspective. So,the 1st perspective is the rational perspective. A structure of organization is conceived as avehicle to achieve specified objectives.And the 2nd is the social perspective which emphasizes that a structure is primarily the resultof the conflicting force by organization constituents who seek power and control. Theoutcome of these two dimensions led to clarifying organization theory under four types that isthis table 3.1.(Refer Slide Time: 16:26)
Now, it categorizes the evolution of all organizational theories. So, on this axis now we aretalking of the approximate timeframe from 1900 to 1930, from 1930 to 60s and the third onefrom the 60s to 1975 and then 1975 onwards. Now, the first framework was systemsperspective. So, in 1900 to 1930 it was closed and then from 6 and from 30 to 60 again it isclosed, but then 60s onwards it became open.Similarly, the end perspective it started with the rational went on to become social then againflipped back to being rational and then again it came back to social. The central theme in the1st phase it had mechanical efficiency; in the 2nd phase it had a focus on people and humanrelations; in the 3rd phase it had a focus on contingency designs and in the 4th phase it hadthe focus on power and politics.
So, now, this theoretical classification. The first one from 1900 to 1930 is type I; from 1930sto 1960s is type 2; from 1960s to 1975 it is type 3 and from 1975 onwards it is type 4.(Refer Slide Time: 17:58)
Now, this shows the organization theories on this timeframe starting from 1900 to 1970. So,we started with traditional theory moved on in 1940s to modification theories and in 1970s tocontemporary theories. So, I have tried to make this a development of organization theoryvery clear to you on the basis of the various timeframe and also on the basis of varioustheories how they have developed over a period of time, how the changes have come in thesetheories over the period of time.
(Refer Slide Time: 18:28)
Now, again on the left hand side you can look at the traditional or classical theories, inbetween are modification theories and on the extreme right there are contemporary theories.So, we are talking about the different contemporary theories. So, we started with scientificmanagement, that is, efficient task performance, then came the bureaucratic model that isauthority and structure then came administrative theory that is universal managementprinciple.Now, these modification theories in between; so, there was this management science, theneconomic, technical and rationality, human relations, behavioral science that is psychologyand sociology and then we moved on to the contemporary theories, system approachsubsystems and environment contingency approach. So, now, you see that there is no bestmethod.
(Refer Slide Time: 19:20)
Now, let us look at the type 1 theorists, those people who propounded type 1 theories. So,type 1 theorists were the ones who developed the classical school which comprised ofdevelopment of universal principles that would apply in all situations. Organizations wereconsidered as mechanical devices to achieve certain goals. It emphasized on achievingefficiency in internal functions.(Refer Slide Time: 19:54)
Under this category, we would describe the following theorists and their perspective:Frederick W Taylor: Scientific management, Henry Fayol: Principles of organization, MaxWeber Bureaucracy and Ralph Davis: Rational planning.(Refer Slide Time: 20:23)
Now, let us look at in detail about these type 1 theorists. So, we are talking of F W Taylor’sscientific management theory. He believed that workers output was only about one third ofwhat was possible. So, you see that the worker was able to produce three times more.Thus, in order to correct the situation he applied scientific method to jobs on the shop floor,as seen in the case of UPS that we have talked about earlier. He further proposed fourprinciples of scientific management with the perspective of improving the productivity andefficiency of manual workers. So, his focus was on manual workers and about increasingtheir productivity and efficiency.
(Refer Slide Time: 20:59)
Now, these are some of the principles of scientific management. The 1st is the replacement ofrule of thumb methods for determining each element of a workers job with scientificdetermination. The 2nd is the scientific selection and training of workers. The 3rd is thecooperation of management and labor to accomplish work objectives in accordance with thescientific method.And, the 4th is a more equal division of responsibility between managers and works, with theformer doing the planning and supervising and the later doing the execution. So, managerswere supposed to be planning and supervising while workers were supposed to be doing theexecution.
(Refer Slide Time: 21:48)
Now, what does scientific management do? Develop a science of work; 2nd
, develop anefficiency technique that can be adopted by organization. The 3rd is to establish job design,scientific selection and development of workers and the 4th one is to foster a rationalapproach to solving problems and lay foundation for the professionalization of management.(Refer Slide Time: 22:19)
The limitations of scientific management are that it is focused on a very limited segment oforganizational activity that is organization of work at the lowest level of the organization.The 2nd is it does not take into account the human and social aspects. So, that is very
important, but then it assumes that every work is scientific in nature and human and socialaspects do not come into picture. It lays emphasis on productivity and profit alone.(Refer Slide Time: 22:57)
Now, let us look at Henry Fayol, that is, the administrative management theory. So, Fayoldeveloped 14 general principles applicable to managers at all levels of an organization anddescribe the functions of each manager. His primary focus was on the following areas. The1st focus area was to systematize an organization. 2nd is use scientific forecasting and propermethod of management.The 3rd is the macro concept and the 4th one is focus on the formal organization structurethat separates the basic process of general management.
(Refer Slide Time: 23:48)
Now, these are the 14 principles of Henry Fayol. The 1st is the division of work that is thespecialization increases output by making employees more efficient. The 2nd principle isauthority and responsibility. Authority gives managers the right to give orders. Now, to beeffective a manager’s authority must equal his or her responsibility. The 3rd is disciplineemployees need to obey and respect the rules that govern the organization.(Refer Slide Time: 24:18)
The 4th is unity of command every employee should receive orders from only one superior.The 5th one is unity of direction each group of organizational activities that have the sameobjectives should be directed by one manager using one plan.(Refer Slide Time: 24:36)
The 6th is subordination of individual interest to general interest. The interest of any oneemployee or group of employees should not take precedence over the interest of theorganization as a whole. The 7th is remuneration of personnel workers must be paid a fairwage for their services.(Refer Slide Time: 24:58)
The 8th principle is centralization. The degree to which subordinates are involved in decisionmaking. The 9th principle is scalar chain – the line of authority from top management to thelowest ranks represent the scalar chain communication should follow this chain. The 10th isthe order – orderly place for people and material in organization. The 11th one is equity –managers should be kind and fair to their subordinates. This implies ensuring equity andjustice in organizations.(Refer Slide Time: 25:37)
The 12th is stability of tenure of personnel. This also implies adaptation. Management shouldprovide orderly personnel planning and ensure that replacements are available to fillvacancies.
(Refer Slide Time: 25:54)
The 13th principle is initiative. Employees who are allowed to originate and carry out planswill exert high level of effort and the 14th is esprit de corps – promoting team spirit will buildharmony and unity within the organization. So, these are the 14 principles of Henry Fayol.(Refer Slide Time: 26:16)
Then comes the next, that is, Max Weber, he is also a type 1 theorist and we will talk abouthis bureaucratic model. So, prior to bureaucratic organizations employees were loyal to asingle individual rather than to the organization or the organization’s mission. Resourceswere used to realize individual desires rather than organization goals.
Max Weber took a systematic approach that is looked at organization as a whole anddeveloped an ideal type organization structure. So, his contribution is this development ofideal type organization structure.(Refer Slide Time: 26:58)
You may find some similarities with Henry Fayol’s. So, his model was characterized by onedivision of labor that is jobs are broken down into simple routine and well-defined tasks. The2nd thing is career orientation - Managers are career professionals not owners of unit theymanage. The 3rd is authority hierarchy – positions organized in a hierarchy with a clear chainof command.
(Refer Slide Time: 27:36)
The 4th is formal selection - people selected for jobs based on technical qualification and notother things. The 5th is formal rules and regulations - system of written rules and standardoperating procedures. So, that is a very important contribution of Max Weber. And, 6th isimpersonality – uniform applications of rule and controls not according to personalities. So,that is important, rules and controls are to be applied uniformly and not depending upon thepersonalities.(Refer Slide Time: 28:16)
So, this is the Max Weber bureaucratic model, in between is bureaucracy should have, thereshould be a hierarchy of authority, a formal selection process, formal rules and regulationsthat is written maybe written down, impersonality and career orientation and followed by thedivision of labor. So, these are the six dimensions of this Max Weber bureaucratic model.(Refer Slide Time: 28:42)
Now, just let us look at the contribution of Fayol and Weber’s theory. They providedconcepts of identifiable principles for effective managerial behavior and they made managersaware of the basic kinds of problems in any organization. Another type 1 theorist is RalphDavis who gave this rational planning theory.
(Refer Slide Time: 29:04)
So, the final contribution of type 1 theorists discussed here is the rational planningperspective. So, now, we have come a long way starting from a scientific management and F.W. Taylor to Ralph Davis. So, he proposed that structure was a logical outcome oforganization objectives. Davis stated that the primary objective of a business firm iseconomic service. The economic value is generated by the activities of members whoengaged in creating the products and services.(Refer Slide Time: 29:56)
The management’s job is to group the activities in such a way that it forms an organization.So, now these managers they are supposed to group these activities and then this forms anorganization. The rational-planning perspective offered a simple and straightforward modelfor designing and organization. So, this rational-planning then became a default method fororganization structure; so, because it offered a simple and straight forward model fordesigning an organization.(Refer Slide Time: 30:16)
Management’s formal planning determines the organization’s objectives. These objectives,then, in logical fashion, determine the development of a structure, and the flow of authorityand other relationships. So, this development of a structure, the flow of authority and otherrelationships flow in a logical fashion from management’s formal planning to organizationobjectives and then that leads to the development of structure. it is not the other way that firstwe come up with a structure and then we come down to managements formal planning, but itstarts with management formal planning and then it moves on to the development of thisstructure.Hence, the structure of organization is contingent upon objectives and not the other way.
(Refer Slide Time: 31:14)
In order to conclude we have started this module by discussion on theory and understandingthe significance of studying organization theory. Then, we went on and we traced theevolution of organization theories and the context that shaped their development. After thatwe realized the modern organization theory began with the work of the type 1 theorists. Theyrelied heavily on simplistic and universal principles, developing models of organizations thatwere overly rational and mechanistic.(Refer Slide Time: 31:48)
These are the four books from which the material was used to develop this module.
Thank you.