A Brief Review of Organizational Theories Course: Industrial Psychology

Course Code: GEN 207

Section: 01

Prepared for:

Dr. Sheikh M. Shahidullah

Department of Social Science

Prepared by:

Shati Itminan

ID: 2008-2-10-121

Date of submission: 9th August, 2010

Introduction: An organization, by its most basic definition, is an assembly of people working

together to achieve common objectives through a division of labor. An organization provides a

means of using individual strengths within a group to achieve more than can be accomplished

by the aggregate efforts of group members working individually. Over the years there have been

countless theories and models of how business organizations function and what their essential

characteristics are. In a successful organization, the theory goes, acts on relevant information

and ignores the irrelevant. Ultimately, the organization that excels at processing information

facilitates learning and the development of new knowledge. Organizational theories flatten the

rusty paths of organization in the quest of excellence both in production and work conditions.

Organizational Theories: Organizational theory is the systematic study and careful application

of knowledge about how people - as individuals and as groups - act within organizations.

Organizational theories describes the structure and functioning of organizations and deal with

several issues like distinguishing characteristics of the organization, structure, interrelationship

and interaction among people in organizations. The theories can be divided into two branches-

Descriptive and Perspective. In Descriptive Theory, the accurate picture and operation of the

organization are discussed and in a Perspective Theory, different ways of how to operate

properly are discussed. The theories can be also classified as Classical and Neo Classical

organizational theories. Classical organization theory evolved during the first half of this

century. It represents the merger of scientific management, bureaucratic theory, and

administrative theory. Neoclassical theories evolved to enrich the old theories. The most serious

objections to classical theory are that it created over conformity and rigidity, thus squelching

creativity, individual growth, and motivation. Neoclassical theory displayed genuine concern for

human needs.

A brief review of 10 Classical and Neo classical organizational theories are given here.

Theory X and Theory Y: These theories of human motivation were created and developed by

Douglas McGregor in the 1960s. These theory was widely used in human resource

management, organizational behavior, organizational communication and organizational

development. They describe two very different attitudes toward workforce motivation. It is a

human relation theory that deals with the interaction between supervisors and subordinates.

Theory X and theory Y dictate the average employee is-

Theory X Theory Y • The average employee is lazy.

• They have lack of ambition.

• They are resistant to change.

• They are gullible and not very bright.

• They dislike work and try to avoid it.

• They usually seek for new challenges.

• They are not resistant to change.

• They often accept responsibility.

• They are creative and imaginative.

• Strong commitment to the organization.

Theory Y is McGregor’s preferred management view, which he believes will lead to effective

and efficient operation of the organization.

Advantages:

• High level of motivation if successfully implemented.

• Theory X and Y determine whether to use hard approach or soft approach.

• Gives chance for job enlargement.

Disadvantages:

• The model is rigid as it tells about two extreme points “hard” and “soft”.

• It is mostly unrealistic as most of the organization falls in between the two poles.

Bureaucracy Theory: Bureaucracy theory, initially developed by Marx Weber in the late 1800s,

is a classical theory of structure of an organization. In the early days of large organizations, little

was known about effective structures to maintain such an organization. Bureaucracy theory was

an important remedy to resolve the conflicts and inefficiency of early organizations.

Bureaucracy theory mainly deals with four characteristics. They are discussed below.

1. Division of Labor: Division of labor refers to the organization’s specialized job positions,

each of which is responsible for different tasks. A complex job is divided into many

individual parts and handled by different people of the organization.

2. Delegation of Authority: Most organizations are hierarchically structured with one person

at the top who has omnipotent and ultimate power. Reporting to the top person will be

one or more people who have authority and control over others who are below them in

the hierarchy.

3. Span of Control: Span of control refers to the numbers of subordinates who report to

each supervisor.

4. Line versus Staff: Each position in an organization is classified either as line- who is

directly involved to the work and staff- who supports the line managers.

Advantages:

• Visible and strong chain of command.

• Problem of control and efficiency can be dealt decisively.

Disadvantages:

• Much paper work which causes more use of “red tape”.

• Vertical structures with multi- level of management.

Goal Setting Theory: Goal setting theory is considered as the most useful theory among the

I/O psychologist. The basic idea of this theory is that people’s behavior is motivated by their

internal intentions, objectives or goals. A goal is what a person consistently wants to achieve.

Goal setting theory is a technique used to increase incentives for workers to complete work

quickly and effectively. Goal setting theory includes five rules: clarity, challenge, commitment,

feedback and task complexity. Goals should be clear. The time frame should also be clear in

order to ensure that time is not wasted clarifying the task later or fixing mistakes. By making the

goals significant and challenging, workers will be motivated to do their best in order to receive

positive feedback. Employees will often be more committed to goals if they think they played a

role in the decision-making process. Then, they will feel like the project belongs to them. It is

better to use clear and direct goal like “increase production to 5000 units” instead of “do your

best to increase production”.

Two offspring of goal setting theory is “Control theory and Action theory”. Control theory focuses

on feedback received about the goals and Action theory focuses on the execution of plans to

walk towards the desired goal.

Advantages:

• Goal setting theory is proved to be effective theories to improve worker’s productivity.

• Self set difficult goals are more effective than organization set easy goals.

• Goals increases persistence or the time spent to attain the goal.

Disadvantages:

• Goals that are not challenging and time consuming make employees de-motivated.

• Complex jobs with multiple goals lower the performance level.

Maslow’s Need Hierarchy: Maslow's hierarchy of needs is a theory in psychology, proposed by

Abraham Maslow in 1943. Abraham Maslow developed a model in which basic, low-level needs

such as physiological requirements and safety must be satisfied before higher-level needs such

as self-fulfillment are pursued. In this hierarchical model, when a need is mostly satisfied it no

longer motivates and the next higher need takes its place.

1. Physiological needs are those required to sustain

life, such as: air, water, nourishment, sleep etc.

2. Safety needs are used to provide safety and

security ee from physical and emotional harm.

Such for example: Living in a safe area, Medical

insurance, Job security etc.

3. Social needs are those related to interaction with

other people and may include: Need to give and receive love.

4. Esteem needs are related to self-esteem such as self respect and achievement. For

example: Attention, Recognition, Reputation etc.

5. Self actualization means the quest to reach one’s full potential as a person. It is the

highest level of need.

Advantages:

• Helps to understand people's needs and potential.

• Helps to motivate employees and decide rewards at each level.

Disadvantages:

• The order of needs varies in different cultures.

• Some people like a “starving artist” will go for higher needs neglecting lower need.

Open System Theory: Open system theory was initially developed by Ludwig von Bertanlanffy

(1956), a biologist, but it was immediately applicable across all disciplines. It defines the

concept of a system, where "all systems are characterized by an assemblage or combination of

parts whose relations make them

interdependent". An open system is

a system which continuously

interacts with its environment. The

interaction can take the form of

information, energy, or material

transfers into or out of the system

boundary, depending on the

discipline which defines the concept

(see below). An open system should

be contrasted with the concept of an

isolated system which exchanges neither energy or matter, nor information with its environment.

Advantages:

• "Open systems" reflected the newfound belief that all organizations are unique and

should therefore be structured to accommodate unique problems and opportunities.

Disadvantages:

• It failed to succeed in environments where technologies or markets were rapidly

changing.

• They also failed to realize the importance of regional cultural influences in motivating

workers.

Open System Theory 

Herzberg’s Two Factor Theory: The two-factor theory (also known as Herzberg's motivation-

hygiene theory) states that there are certain factors in the workplace that cause job satisfaction,

while a separate set of factors cause dissatisfaction. It was developed by Frederick Herzberg, a

psychologist, who theorized that job satisfaction and job dissatisfaction act independently of

each other. The studies included interviews in which employees where asked what pleased and

displeased them about their work. Herzberg found that the factors causing job satisfaction (and

presumably motivation) were different from that causing job dissatisfaction. He developed the

motivation-hygiene theory to explain these results. He called the satisfiers motivators and the

dissatisfies hygiene factors, using the term "hygiene" in the sense that they are considered

maintenance factors that are necessary to avoid dissatisfaction but that by themselves do not

provide satisfaction.

Motivator Factors Hygiene Factors

• Achievement • Recognition • Work itself • Responsibility • Advancement • Growth

• Company policy • Supervision • Relationship with Boss • Work conditions • Salary • Relationship with Peers

Advantages:

• Easy for managers to know exactly what is needed to satisfy one employee.

• It is capable of handling individual differences.

Disadvantages:

• Satisfaction and dissatisfaction are generally no longer considered to exist on separate

scales.

• It always contains the assumption that happy and satisfied workers produce more.

Expectancy Theory: The expectancy theory has become a commonly accepted theory for

explaining how individuals make decisions regarding various behavioral alternatives. It was first

proposed by Victor Vroom. According to this theory motivational force (MF) for a behavior,

action, or task is a function of three distinct perceptions: Expectancy, Instrumentality, and

Valance. The motivational force is the product of the three perceptions:

MF = (Expectancy x Instrumentality x Valence)

Expectancy probability: It is the expectancy that one's effort will lead to the desired performance

and is based on past experience, self-confidence, and the perceived difficulty of the

performance goal.

Instrumentality probability: The instrumentality is the belief that if one does meet performance

expectations, he or she will receive a greater reward.

Valence: This is importance or function of his or her needs, goals, and values.

Advantages:

• Expectancy theory provides a framework for understanding how motivation operates in a

given situation.

• Dictates how managers should attempt to link employee performance and valued

rewards.

Disadvantages:

• One cannot expect people all act in a rational manner and weigh the various alternatives

open to them.

• Expectancy theory ignores the central role that emotions plays on effort and behavior.

Reinforcement Theory: Reinforcement theory is the process of shaping behavior by

controlling the consequences of the behavior. In reinforcement theory a combination of rewards

and/or punishments is used to reinforce desired behavior or extinguish unwanted behavior. Any

behavior that elicits a consequence is called operant behavior, because the individual operates

on his or her environment. Reinforcement theory concentrates on the relationship between the

operant behavior and the associated consequences, and is sometimes referred to as operant

conditioning. It is based on Law of Effect that dictates probability of a particular behavior

increases if it is followed by a reward or reinforcement.

The reinforcements and punishments are of four kinds. Positive reinforcement occurs when the

likelihood of a certain behavior increases as a result of the presentation of something pleasant

after the behavior. Negative reinforcement occurs when the likelihood of a certain behavior

increases as the result of removing something unpleasant after the behavior. Positive

punishment occurs when the like hood of a certain behavior decreases as the result of the

presentation of something unpleasant after the behavior. Negative punishment occurs when the

likelihood of a certain behavior decreases as the result of the removal of something pleasant

after the behavior.

Advantages:

• Effective in reducing absence, lateness and counterproductive work behavior.

• This theory has a wide acceptance in increasing job performance.

Disadvantages:

• This theory says nothing about whether a person will want a reward or not.

• Gives little insight into motivational processes.

Equity Theory: Equity Theory attempts to explain relational satisfaction in terms of perceptions

of fair/unfair distributions of resources within interpersonal relationships. Equity theory is

considered as one of the justice theories. It was first developed in 1963 by John Stacey Adams.

The belief is that people value fair treatment which causes them to be motivated to keep the

fairness maintained within the relationships of their co-workers and the organization. The

structure of equity in the workplace is based on the ratio of inputs to outcomes. Inputs are the

contributions made by the employee for the organization. This can be written in an equation like

this.

Inputs are defined as each participant’s contributions to the relational exchange and are viewed

as entitling him/her to rewards or costs. For example Time, Effort, Loyalty, Hard Work,

Commitment Ability etc.

Outputs are defined as the positive and negative consequences that an individual perceives a

participant has incurred as a consequence of his/her relationship with another. For example,

Salary, Status, Respect, Praise, Job security, Esteem etc.

Advantages:

• This theory predicts behavior in underpayment conditions.

• Easy for managers to judge the fairness of salary structure or delegation of authority.

Disadvantages:

• The basic assumption of this theory is very simple as it lacks influence of social factors.

• People will not always consider equity in terms of input and output.

Self- Efficacy Theory: Self-Efficacy is defined as a person’s belief about their ability to

organize and execute courses of action necessary to achieve a goal. In other words, persons

with strong efficacy beliefs are more confident in their capacity to execute a behavior. Beliefs

about self-efficacy have a significant impact on our goals and accomplishments by influencing

personal choice, motivation, and our patterns and emotional reactions. The stronger the

perceived self-efficacy, the more one can perform better. Higher self-efficacy is also

associated with more persistence, a trait that allows us to gain corrective experiences that

reinforce our sense of self-efficacy. This self-fulfilling prophecy is called Galatea Effect.

Self Efficacy theory focuses on how people attribute the cause of an event and how those

beliefs interact with internal perception of themselves. It defines three major elements of cause:

Locus, Stability, and Control ability.

1. Locus - determining the location of the cause—internals believe that they can control their

fate and externals think that their fate is controlled by some superpower like god.

2. Stability - whether the cause is static or dynamic over time.

3. Controllability - whether the person is actively in control of the cause.

Advantages:

• People with high self efficacy reported less work overload and psychological stress.

• Employee well being can be enhanced by raising self efficacy of the employees.

Disadvantages:

• Less ability to predict actual social interactions in many situations.

• Self efficacy shows little effectiveness in complex social situations