Understanding the ins and outs of how organizations are structured as well as how they function is essential to streamlining operations and informing overall business strategy. However, there’s more to organizational theory than meets the eye, including some competing schools of thought on the subject.
With a better understanding of not just the history of organizational theory but also the various theories and their potential applications, you can apply these concepts to support structure, efficiency, and adaptability in your own line of work.
What Is Organizational Theory?
Organization theory, also known as organizational theory, is defined by one researcher as “the study of organizations and their structure, behavior, and dynamics. It aims to understand how organizations function, adapt, and interact with their environments.”
Organizational theory is interdisciplinary in nature — with its applications extending to nearly every imaginable industry. By applying core components of organizational theory, it is possible to improve structure and performance in practically any business and any industry.
A Brief History of Organizational Theory
Although some research has noted that “theoretical writing about management began more than 4,000 years ago,” some of the most notable advancements in organizational theory as we know it today have occurred within the last 100 years.
More specifically, the roots of organizational theory can, at least partially, be traced back to Max Weber’s contributions in the mid-1950s. During this time, Weber began writing about his own findings as they related to organizational and relational rules. These publications served as the foundation for organizational theory as it applies today.
Meanwhile, key historical moments (such as the Industrial Revolution) and the emergence of human-centered theories throughout the 20th century inspired the further development of organizational theories that focused on organizational structures and processes.
Major Organizational Theories
Within the overarching concept of organizational theory, there exist a number of major schools of thought, each differing in its approach and methods. Learn more about each major organizational theory below as well as some practical applications for each.
Classical Organizational Theory
When most people refer to organizational theory as a general concept, this is the approach to which they’re alluding. Under classical organizational theory, there is a strong emphasis on structure, hierarchy, and efficiency — with employees typically reporting up a clear chain of command. This type of approach tends to be best applied in stable work environments where employees perform more repetitive tasks.
Human Relations Theory
Under human relations theory, things get a little more nuanced as this theory takes into consideration some additional factors beyond structure and hierarchy. Human relations theory focuses more on motivation, communication, and employee well-being. Rooted in the Hawthorne studies (which indicated the importance of employees feeling seen and valued in the workplace), this organizational theory is applied in people-centric organizations to maintain productivity and morale.
Systems Theory
Under systems theory, organizations are viewed more as a set of interrelated systems than as singular entities. This perspective requires researchers to see the impact that each department or component can have on other parts of the organization with an emphasis on feedback, adaptability, and holistic thinking.
Contingency Theory
When decision-makers follow contingency theory, they’re committing to the idea that there is no such thing as a “one-size-fits-all” approach to managing or running a business. Instead, under contingency theory, the best organizational structure depends on numerous specific internal and external conditions. As a result, leaders subscribing to this theory must be readily adaptable and versatile, applying the best approach for any given situation.
Institutional Theory
Institutional theory operates under the assumption that organizational behavior (OB) is mostly shaped by the social norms, regulations, and cultural expectations surrounding the organization itself. This model looks closely at how these different factors can affect the behaviors, processes, and structures of a business — acknowledging that no business can operate separately from its environment.
Resource Dependence Theory
Resource dependence theory (RDT) highlights how organizations manage relationships and resources to reduce their vulnerability and enhance their sense of autonomy. Within this framework, businesses are seen as dependent on external resources, with processes and business strategies being crafted around this dependence.
Sociotechnical Systems Theory
Sociotechnical systems theory looks more closely at the balance between social and technical systems as well as how this interplay affects performance and operations. Under this theory, businesses are tasked with prioritizing both their people and their technological components to create a well-rounded system. This type of approach tends to work best in tech-heavy environments where many different tools and technologies are used on a regular basis.
Applying Organizational Theory in Practice
There are plenty of organizational theories out there — but they can be better understood when seen in practice. Fortunately, you don’t have to venture far to find examples of how organizations across different industries apply these theories in scenarios ranging from operations and communication to compliance and cultural alignment.
Consider, for example, how the healthcare industry uses organizational theory frameworks to improve patient outcomes and streamline operations. More specifically, many hospitals rely on human relations theory to boost employee morale and improve retention during a time when nursing shortages are a growing problem. Likewise, healthcare organizations may apply classical organizational theory to assess how different structures and hierarchies are serving (or not serving) patients.
To this end, the American Institute of Health Care Professionals (AIHCP) identifies several core components for understanding and improving organizational behavior in healthcare settings:
- Individual behavior and attitudes
- Group dynamics and team interactions
- Leadership and management styles that promote open communication and ethical behavior
- Organizational culture and structure that supports teamwork and continuous improvement
- Decision-making processes that are inclusive and data-driven
- Communication patterns that ensure clarity and reduce misunderstandings
How to Choose the Right Organizational Theory for Your Business
With so many competing organization theory options to choose from, how can business leaders decide on the method that’s best for their needs? One key factor to consider is that, in some cases, the best approach may even be a combination of theories. Regardless, here are a few practical tips to keep in mind as you consider the framework that’s best for your organization.
Assess Your Business Environment
Start with a thorough and honest assessment of your organizational environment and your goals. What are you hoping to accomplish, both in the short and long term? Perhaps you’re looking to streamline efficiency, or maybe you’re more focused on driving innovation. Consider elements like market dynamics, pace of change, and industry predictability here. According to an article for Forbes by Morgan Massie, an award-winning leadership consultant, understanding your external and internal environments is key to choosing the theory that aligns with the level of control, structure, and flexibility you need. This foundational clarity helps ensure that your chosen framework aligns with your reality — not just a theoretical ideal.
Consider Organizational Size and Complexity
Next, consider how the size and structure of your organization could influence the organizational theory that’s the right fit for your needs. For larger organizations with ample human assets, for example, a human relations theory may be a suitable approach. On the other hand, businesses with many nuanced and complex departments may benefit more from a systems approach. Smaller companies may benefit from more organic models that emphasize collaboration, while larger firms might require more mechanistic models with clearly defined roles.
Evaluate Strategic Goals
After having evaluated such factors as organizational size, environment, and complexity, now is the time to assess how key organizational theories may or may not align with your strategic goals. For example, if your goal is to drive more business innovation, then an approach that centers more on boosting employee morale and creativity may be ideal. In this specific instance, a human relations organizational theory may be appropriate.
On the other hand, if your business is more focused on boosting adaptability and versatility in a changing market, a systems approach or contingency approach may be better.
Analyze Your Culture and Workforce
Think about, too, how different organizational theories may fit in with your company culture. After all, workforce values and internal culture can align better with certain organizational theories, including people-centric and structure-centric approaches that value people over processes.
As an expert in the healthcare space, Chief Culture & Health Equity Officer Gina Forrest states that defining an organization’s shared philosophy involves reflecting on questions such as, “Do your policies, culture, and strategies align with a shared management approach?” and, “How can you intentionally shape your organizational philosophy to drive greater success?” To do so, she emphasizes several theories that could help shape this approach: human relations theory, systems theory of management, and scientific management theory (which “applies scientific principles to improve efficiency and productivity”).
Blend and Adapt as Needed
Finally, even once you’ve chosen an organizational approach or narrowed down your options, there’s always room for change. Some businesses may find that everything runs most smoothly when they use a blend of various theories to meet their needs and goals. This can be a great way to create a more flexible and customized approach that takes into consideration what makes your organization unique.
According to Inc., in the 1960s, experts began to embrace a more holistic, “open-systems” view that “reflected the newfound belief that all organizations are unique — in part because of the unique environment in which they operate — and that they should be structured to accommodate unique problems and opportunities.” This is attributed to the fact that “traditional bureaucratic organizations generally failed to succeed in environments where technologies or markets were rapidly changing.”
With all this in mind, continually assess and evaluate how well your chosen organizational theory is working as it relates to achieving your goals and objectives. If something isn’t working, it may be time to revisit your options and take an adaptive approach — or work some other organizational theories into your current approach until you’re happy with the results.
The Role of Organizational Theory in Business Success
No matter which organizational theory you may subscribe to, all businesses could benefit from the proper application of organizational theory in shaping business structures and processes. Through the use of organizational theory, it is possible to improve overall decision-making, boost productivity and efficiency, and gain better insights into organizational function.
Advancing Your Career Through Organizational Psychology
Organizational theory is a complex topic that requires an in-depth understanding to successfully apply to real-world business scenarios. When you know how to apply the right organizational theory to your own business and adapt as needed, you can set yourself up for greater success down the road.
Looking to enhance your comprehension of organizational theory to effect organizational design and change? JWU Online’s Master of Science in Organizational Psychology program may be the right fit for you. In this 100% online program, you’ll explore coursework in essential areas of the field such as leadership theory and practice, team dynamics, organizational theory and change, and motivation in the workplace. Reach out to request more information about this program, or start your online application for admission today.
For more information about completing your degree online, complete the Request Info form, call 855-JWU-1881, or email [email protected].