Neoclassical and
Modern Systems
Theories
Pat Nepomuceno IR 202 Prof Marasigan
Learning
Objectives
• Understand the key concepts, principles, and differences between
neoclassical and modern systems theories of organization.
⚬ Overview of Neoclassical Theory of Organization
⚬ Key Concepts of Neoclassical Theory
⚬ Overview of Modern Systems Theory of Organization
⚬ Key Concepts of Modern Systems Theory
⚬ Comparison and Conclusion
Classical vs Neoclassical
late 19th / early 20th century mid 20th century
emphasizes efficiency, productivity, emphasizes human relations, employee
and a hierarchical structure needs, and a more flexible structure
advocates for participative
centralizes decision-making at the top management and wider distribution of
decision-making power
relies on rationality and objective considers employees' needs and
criteria motivations
Key concepts of
Neoclassical
Theory
• Informal structure: acknowledges the existence and
importance of informal groups and networks within the
organization; dictates how things are actually done.
• Open and informal communication: encourages
open and transparent communication between all levels
of the organization.
Key concepts of
Neoclassical
Theory
• Human Relations: stresses the significance of
interpersonal relationships in the workplace. A positive
work environment, characterized by supportive social
interactions and respect for individual needs, can enhance
employee satisfaction and productivity (Argyris, 1957).
• Motivation: employees can be motivated by social and
psychological wants, and not solely by economic
Key concepts of
Neoclassical
Theory
• Participative Management: advocates for involving
employees in decision-making processes. Participative
management approaches, such as team-based work and
open communication channels, can empower employees,
foster a sense of ownership, and improve organizational
performance (Likert, 1961).
Elements of
Neoclassical Theory
• The Individual
⚬ individual differences must be recognised.
⚬ importance of interpersonal relationships and of
fostering positive interactions among individuals
within the organization.
⚬ advocate the adoption of multidimensional model of
motivation which is based upon economic, individual
and social factors.
Elements of
Neoclassical Theory
• Work Groups
⚬ describes the vital effects of group psychology and
behaviour on motivation and productivity.
⚬ promotes teamwork, collaborative problem-solving
and decision-making.
⚬ focuses on building cohesive teams that work well
together.
Elements of
Neoclassical Theory
• Participatory Management
⚬ advocates for involving employees in decision-
making processes. Participative management
approaches, such as team-based work and open
communication channels, can empower
employees, foster a sense of ownership, and
improve organizational performance (Likert,
1961).
2 Movements
1. human relations movement
⚬ social and psychological factors are important in
determining worker productivity and satisfaction.
The movement shows that efficient leaders are
employee-centric, democratic and follow a
participative style.
⚬ Elton Mayo, Fritz Roethlisberger, and the
Hawthorne Studies are central to this movement.
2 Movements
1. human relations movement
⚬ Employee Satisfaction: Recognizes that employee
satisfaction and well-being are crucial for
productivity and organizational success.
⚬ Interpersonal Relationships: Emphasizes the
importance of fostering positive interpersonal
relationships and creating a supportive work
environment.
⚬ Motivation: Focuses on understanding employees'
needs, motivations, and behaviors to create a more
2 Movements
2. behavioral movement
⚬ developed in the 1940s and 1950s, incorporating
insights from psychology, sociology, and
anthropology to understand human behavior within
organizations. This movement further expanded on
the principles of the human relations movement.
⚬ Abraham Maslow, Douglas McGregor, Rensis Likert,
and Kurt Lewin
2 Movements
2. behavioral movement
⚬ proposes ideas about how managers should
behave to motivate the employees.
⚬ the aim is to encourage employees to perform at
the highest level and achieve organizational goals.
2 Movements
2. behavioral movement
⚬ Motivation and Needs: Applies theories such as
Maslow's Hierarchy of Needs and McGregor's
Theory X and Theory Y to understand and address
employees' intrinsic and extrinsic motivations.
⚬ Participative Management: Encourages employee
involvement and participation in decision-making
processes, fostering a sense of ownership and
commitment.
2 Movements
2. behavioral movement
⚬ Group Dynamics: Examines the behavior of
individuals and groups within organizations,
focusing on teamwork, collaboration, and group
cohesion.
human relations behavioral
movement movement
Timeline 1930s - 1950s 1950s - 1970s
Understanding human
Employee welfare,
behavior at work,
Focus motivation, and
motivation, and group
interpersonal relations
dynamics
Douglas McGregor,
Elton Mayo, Mary Parker
Key Figures Abraham Maslow,
Follett
Frederick Herzberg
emphasis on employee
focused on motivation,
welfare & morale, leading
Influence on management leadership styles, and
to a more participative
organizational behavior
management styles
human relations behavioral
movement movement
- Different types of
- Employee satisfaction managerial assumptions
impacts productivity about workers (Theory X
- Importance of social and and Theory Y)
interpersonal relations at - Hierarchical needs that
Key Concepts
work motivate individuals
- Hawthorne Studies, (Maslow)
Theory of Human - Factors that lead to job
Motivation satisfaction and
dissatisfaction (Herzberg)
Emphasized informal social Emphasized psychological
Approach
factors and social aspects of work
human relations behavioral
movement movement
- Improved understanding - Introduced psychological
of worker motivation insights into management
Impact - Shifted focus from task- - Influenced organizational
oriented to people- development and human
oriented management resource practices
- Overemphasis on social
- Theories sometimes seen
aspects, neglecting task
as overly idealistic
and technical aspects
Criticism - Difficult to generalize
- Limited to specific
across different cultures
contexts like Western
and organizations
cultures
Hawthorne
Experiment
• led by Elton Mayo and Fritz Roethlisberger
of the Harvard Business School.
• Hawthorne Works of Western Electric
Company, Chicago
• 1927 to 1932
⚬ Illumination Experiment
⚬ Relay Assembly Test Room Experiment
⚬ Interviewing Programme
⚬ Bank Wiring Test Room Experiment
Hawthorne Experiment
• brought out that the productivity of the employees is not the
function of only physical conditions of work and money wages
paid to them. Productivity of employees depends heavily
upon the satisfaction of the employees in their work situation.
• concluded that work arrangements in addition to meeting the
objective requirements of production must at the same time
satisfy the employee's subjective requirement of social
satisfaction at his work place.
Limitation
Overemphasis on Human Relations s Lack of Formal Structure
Neoclassical theory places a strong
The flexible and informal nature may
emphasis on human relations,
result in a lack of clear structure and
sometimes at the expense of efficiency
defined roles.
and productivity.
Potential for Inefficiency
The participative management style and Challenges in Large Organizations
decentralized decision-making processes Implementing neoclassical principles can
may lead to slower decision-making and be challenging in large organizations with
potential inefficiencies, as consensus- complex structures and numerous
building and employee involvement can employees.
be time-consuming.
Limitation
Dependency on Management Quality
s Risk of Informal Group Dominance
The recognition and leverage of informal
ineffective managers who lack the skills
groups can sometimes lead to the
to build positive relationships and
dominance of certain groups or cliques,
motivate employees may struggle to
potentially resulting in favoritism and
implement these principles successfully.
exclusion of other employees.
Measurement and Evaluation
Balancing Flexibility and Control Assessing the effectiveness of
Excessive flexibility may lead to a lack of neoclassical principles can be difficult, as
discipline and control, while too much the focus on human relations and
control can stifle creativity and employee employee well-being may not always
autonomy. translate directly into measurable
outcomes and performance metrics.
Modern Theory of Organization
(Systems Theory)
• considers an organization as an adaptive system
which has to adjust to changes in its environment.
• an organization is now defined as a structured process
in which individuals interact for attaining objectives.
• views organization as a system composed of
interconnected - and thus mutually dependent - sub-
systems.
Characteristics of Systems Theory
• Sub-Systems – each organization is a system
made up of a combination of many sub-systems.
These sub-systems are inter-related.
• Holism – each sub-system works together to
make up a single whole system. Decisions made
in any subsystem affect the entire system.
• Synergy – the collective output of the whole
system is greater than the sum of output of its
sub-systems.
Characteristics of Systems Theory
• Closed and Open Systems – the whole
organization is an open system made up of a
combination of open and closed sub-systems.
• Feedback and Adaptation - focuses on the
need for organizations to adapt and evolve in
response to changes in the environment.
Components
• Inputs – raw materials, human resources, capital,
information, technology
• A Transformational Process – employee work
activities, management activities, operations
Methods
• Outputs – products or services, financial results,
information, human results
• Feedback – results from outputs influence inputs.
• The Environment – these components make up
internal and external factors that affect the system.
Elements of Systems Theory
1.
Parts
An individual and his personality is the basic
part of the system. Every individual’s
Individual attitude and motives determine his
expectation when he participates in the
organization system.
interrelated pattern of jobs which are
Formal designed to regulate the actions of
Organization individuals and other resources in the
organization.
Elements of Systems Theory
1.
Parts
the informal group, typically, demands the
individual to conform to its laid-down
Informal behavior patterns. The individual conforms
Organizatio in order to accomplish his goals by
associating with the informal group. Since
n
the two interact, they modify each other’s
behavior.
Elements of Systems Theory
1.
Parts
- individuals are expected to play certain
roles. These roles determine their status.
Status and
- this fusion process acts to wield divergent
Roles elements together in order to preserve the
integrity of the organization.
Physical - physical surroundings in which an
Setting individual performs a job.
Linking Process
COMMUNICATIO
N
An effective mechanism which links all the
organizational sub-systems together.
It also works as a control and coordination
mechanism to link the decision centers in the
Linking Process
BALANCE
an equilibrating mechanism which allows the
different parts of the system to stay in a
harmonious and structured relationship with each
other.
Linking Process
DECISION-MAKING
Decision to produce depends upon the attitude
of the individual and the demands of the
organization. Decision to participate refers to
the individual's decisions to engross themselves in
the organization process.
Goals of an Organization
Growth - increase in the size, capacity, and market
presence of an organization over time.
Stability - refers to the organization's ability to
maintain steady operations, financial health, and
workforce satisfaction over time.
Interaction - the organization's ability to engage
effectively with its internal and external stakeholders.
Limitations
Overemphasis on
Complexity Interdependence
Adaptability
Potential for
Limited Practical Information Resistance to
Application Overload Change
SYSTEMS
CLASSICAL NEOCLASSICAL
THEORY
focuses on human takes a holistic view,
emphasizes
relations, employee emphasizing
efficiency,
motivation, and interconnectedness,
productivity, and a
informal structures adaptability, and
mechanistic view of
within continuous
organizations.
organizations. improvement.
human -
human - machine human - human
environment
