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



Neoclassical Organization Theory by Erlan Bakiev, Ph. D. Zirve University
Neoclassical Organization Theory
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: 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
Neoclassical Organizational 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
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
• 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
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’
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.
• 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
• 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
• 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
• 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
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
• 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
• 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
• Lines of communication should be as short and as direct as
• 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
• Herbert Simon (1916 – 2001)
– 1960- Decisions
– Studied decision-making within
– 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 1990s)
– 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
• 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.
• 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
• Consciousness of these limits may alter
Weighing the criteria of analysis
• Empirical research and experimentation to determine
the relative desirability of alternative administrative
• 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
Behavioral Science Contributors
• Douglas McGregor (1906–1964)
• Developed the Theory X (traditional—
negative—management approach) and Theory
Y (positive management approach) to workers
and work motivation.
Behavioral Science Contributors
Theory X and Theory Y
Douglas McGregor 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
• 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
• Managers should allow workers greater
latitude, and create an organization to
stimulate the workers.
Theory X vs. Theory Y
Figure 2.3
The Human Relations Model
Worker Satisfaction
leads to . . .
Enhanced Worker
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
• 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,
• 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
• It is irrelevant if the purpose is attained as
long as it exists – “doing something
• Social vacuum –being lost /
• “anomie” - complex situations of social
paralysis due to the absence of effective
norms of conduct
Consequences of Informal Organizations
• 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
• The attitudes, institutions, customs of informal society
affect and are partly expressed through formal
Consequences of Informal Organizations
• 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
The functions of informal organizations
• Communication
• Cohesiveness
• Security - personal integrity, self-respect,
independent choice