Contingency theory starts from the idea that the most efficient organizational design is where the structure fit the contingencies. As early as 1968, Stinchcombe discovered that external environmental forces (social structure) powerfully shaped firms’ initial structures during the founding period, and these structures persisted in the long run, well beyond the time of founding. He asserts that the entrepreneurial creation of new forms of organizations is preeminently a political phenomenon, because support has to be mobilized for the goals, authority structure, technology, and clients embodied in the new form.
Short history: During 1950s, Ohio State U and Michigan U, U Chicago tried to use surveys to pinpoint the effective leadership behavior. They rebutted Weber's bureaucracy and Taylor's scientific management, management and argues that structure is influenced by environment. (contingencies: technology, suppliers and distributors, consumer interest groups, customers and competitors, government, unions)
Gareth Morgan, Fred Fiedler, William Richard Scott describes contingency theory in the following manner: "The best way to organize depends on the nature of the environment to which the organization must relate". The work of other researchers including Paul Lawrence, Jay Lorsch, and James D. Thompson complements this statement. They are more interested in the impact of contingency factors on organizational structure.
Their structural contingency theory was the dominant paradigm of organizational structural theories for most of the 1970s. A major empirical test was furnished by Johannes M Pennings who examined the interaction between environmental uncertainty, organization structure and various aspects of performance.
Our readings mainly focus on structural contingency theory— how contingency factors influence the structure of the organizations. Thompson argues that technology and environment are the basic forces that shape the structure of organizations (Burton, 2006).
Strategies to study organizations are divided as open and closed systems.
Closed system
Structures of an organization designed to gain higher efficiency (Taylor’s Scientific management and Weber’s bureaucracy: coordination and control). Efficiency is the goal in a closed system. The technology determines the logic of rational operation in close system and are buffered from environment uncertainty
Open system: organizations are set of interdependent parts which together make up a whole. This whole organization is also interdependent with the environment (RD, EO and neo-institutionalism). Survival is the goal in open system
Close system analysis of organizational design:
Organizational domain is defined as the place for organizations to get technology, serve related populations, gaining resources (Levine and White, 1961). Organizations will form a domain if they have domain consensus, which is defined as a set of expectations both for members of an organization and for others with whom they interact, about what the organization will and will not do.
The idea for close system design is that firms change their structures and domains because of their technology. 1)Organization with long-linked technology seek to expand their domains by vertical integration - combination of successive stages of production (oil) 2) Organization employing mediating technologies seek to expand their domains by increasing populations served (railroad, telephone) 3)Organization employ intensive technologies seek to expand their domains by incorporating the object worked on (hospital university).
However, boundary of the organization is constrained by: 1) multi components organizations will seek to grow until the least reducible component is fully occupied 2) organizations with capacity in excess of what the task environment support will seek to enlarge their domains 3) limit to expansion include government constrains
The structure is formed when major components are further segmented or departmentalized, and connections are established within and between departments. The internal interdependence of technology determines the coordination mechanisms.
There are four types of internal interdependency: 1)pooled interdependence: each part renders a discrete contribution to the whole and each is supported by the whole. 2) sequential interdependence: X must act properly before Y can act. 3) reciprocal interdependence: outputs of each become inputs for the others. Each unit poses contingency for the other.
According to the four types of interdependency, there are three ways of coordinations 1) standardization (pooled): establishment of routines/rules that constrain action of each unit into paths consistent with those taken by others in the interdependent relationship. 2) Coordination by plan (sequential): establishment of schedules for the interdependent units by which their actions may be governed. 3) Coordination by mutual adjustment (reciprocal): transmission of new info during the process of action. Coordination by feedback.
Open system analysis of organizational design:
The main idea of open system organizational design is that reduce uncertainty with two set of strategies within task environment.
Task environment is defined as relevant or potentially relevant to goal setting and goal attainment (Dill, 1958)
The first set of strategy is control: 1) minimize power of task-environment elements over them by maintaining alternative sources 2) seek prestige, as this is the cheapest way of acquiring power. 3) seek power over those on which they are dependent.
The second set of strategy is cooperation- power gained by exchanging commitments 1) contracting : negotiation of an agreement for the exchange of performances in the future 2) co-opting (Selznick, 1949): process of absorbing new elements into the leadership or policy determining structure of organizations 3) Coalescing: combination or joint venture with another organization.
By Kate Jue Wang
References:
Stinchcombe, L. A. (n.d.). Stratification and organization.
Burton, Richard M., et al. Organization design: the evolving state-of-the-art. Vol. 6. Springer Science & Business Media, 2006.
Taylor, F. (1914). The principles of scientific management.
Levine, Sol, and Paul E. White. "Exchange as a conceptual framework for the study of interorganizational relationships." Administrative science quarterly (1961): 583-601.
Dill, William R. "Environment as an influence on managerial autonomy." Administrative science quarterly (1958): 409-443.
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