Principles of Organizational Theory

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By: Sam Grover
Updated September 26, 2017
Organizational theory is a set of ideas and studies as to how people interact in groups. A basic
understanding of organizational theory is key if you are running a business because you will
likely have employees. It is important to understand the principles of how they act around one
another, how they act with you, what motivates them and what kind of incentives they should
have. Understanding organizational theory is the first step towards understanding your
employees and yourself.

Small-Batch Production
Organizations that create small amounts of high-value products or services (such as computer
programs, legal advice or copywriting) tend to focus more on the people making the product and
less on the product itself. This is because each individual person contributes more value in
these situations; small-batch companies can do more with less. They have smaller staff, fewer
managers and a higher level of specialization.

Large-Batch Production
Some companies create large amounts of products and services. Rather than sell small
amounts of products for a large amount of money they do the opposite (relative to cost). These
companies follow a different principle of organization. The lower levels of these companies will
have large amounts of less-skilled people who earn less pay, and more managers.

Classical Theory
Classical theory is closely related to large batch production, and indeed came about in the early
20th century when most organizations were manufacturing companies. It follows a scientific
method: examining every factor involved in production, adjusting one at a time, and assessing
whether it increases or decreases productivity. Classical theory is extremely effective on paper
because it reduces people to economic actors; it assumes their performance is directly related
to how much money they make, when the reality is that people are much more complex.
However, classical organizational theory is important because it forms a framework on which
other theories can be built.

Neoclassical Theory
Neoclassical theory is a more modern, versatile theory of organization. It recognizes the fact
that workers often behave irrationally, responding to non-economic incentives such as
increased lighting or a better sense of a connection between their labor and the finished
product.
Centralization vs Decentralization
Centralized organizations are essentially bureaucracies. Everyone has to report to a superior
before they make decisions, and everything is eventually run by the head office. A decentralized
organization, on the other hand, is one that lets managers make their own decisions and
focuses on results rather than following a set-in-stone process. Both of these can work,
depending on the needs and culture of the organization in question, so it is important to
understand the benefits and drawbacks of both of them.

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By: Chuck Robert
Reviewed by: Michelle Seidel, B.Sc., LL.B., MBA
Updated March 03, 2019
Academics and business owners periodically come up with theories for increasing worker output
while keeping the same number of workers through modern management theories. According to
political science professor Dr. Yasin Olum, modern management is the era of management that
began in the 1880s and 1890s with Frederick Taylor, who argued for the abandonment of old
management practices for empirically backed best practices. To maximize productivity,
managers must understand the latest best practices.

Maximize Employee Productivity

Modern management theories help businesses maximize production by using human resources
to their maximum potential. Businesses do whatever possible to develop workers towards their
maximum efficiency and potential.
Fredrick Taylor's theory of scientific management held that businesses could maximize the
productivity of unskilled workers by first observing work processes and then developing best
practices. Taylor's theory builds on Adam Smith's theory of the division of labor, which ensures
that each worker becomes increasingly more skilled at a particular task, allowing each worker to
become as productive as possible.

Simplify Decision Making

Max Weber theorized that hierarchical systems encourage informed decision making. In the
1990s, the theory of hierarchy delayering emerged. A report for the Institute for Employment
Studies argues that flattening the hierarchy would shorten communication paths, stimulate local
innovation, speed up decision making and create an environment where managers were more
closely involved in production. Flattening out hierarchy means removing overhead and reducing
bureaucracy.

Increase Staff Participation

Management theories of the 1930s focused on interpersonal relationships in the workplace,
called the human relations approach. Businesses gave the staff more influence over decisions
within the workplace. The human relations theory focused more on the psychological and
sociological aspects of management, using Abraham Maslow's theories of motivation and Chris
Argyris' ideas on how organizational structure interferes with satisfaction.

Think Objectively and Use Scientific Processes

Taylor's scientific management theories leave executives accountable to scientific processes,
instead of simply relying on their judgment. When management strategies are implemented,
others in the company can test the effectiveness of these strategies and determine if they are
truly effective. This discourages management from making decisions purely on whim and
instead encourages management to make scientifically proven changes that increase worker
productivity.

Adapt to Global Changes

Globalization theories take into account changes occurring throughout the world and how these
changes influence business. The globalization theories hold that the business world is becoming
increasingly more interconnected and many enterprises are engaging in business with other
international companies, investing, hiring overseas workers and handling overseas distribution
chains. Globalization is partially driven by the development of informational technologies such
as the Internet.

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What Are Organizational Theories?
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By: Le Bach Pham
Reviewed by: Hashaw Elkins, MSPM, PMP, CSM, CSPO, PMI-PBA, LSSBB
Updated October 18, 2018
Organizational theory attempts to explain the workings of organizations to produce
understanding and appreciation of organizations. Organizational theory draws from various
bodies of knowledge and disciplines. Some types of organizational theories include classical,
neoclassical, contingency, systems and organizational structure. These variations on
organizational theory draw from multiple perspectives, including modern and postmodern views.

Classical Organizational Theory

The classical perspective of management originated during the Industrial Revolution. It focuses
primarily on efficiency and productivity and does not take into account behavioral attributes of
employees. Classical organizational theory combines aspects of scientific management,
bureaucratic theory and administrative theory. Scientific management involves obtaining optimal
equipment and personnel and then carefully scrutinizing each component of the production
process, states StatPac Inc, an international software development and research company.
Bureaucratic theory places importance on establishing a hierarchical structure of power.
Administrative theory strives to establish universal management principles relevant to all
organizations.

Neoclassical Organizational Theory

Neoclassical organizational theory is a reaction to the authoritarian structure of classical theory.
The neoclassical approach emphasizes the human needs of employees to be happy in the
workplace, cited StatPac Inc. This allows creativity, individual growth and motivation, which
increases productivity and profits. Managers utilizing the neoclassical approach manipulate the
work environment to produce positive results.

Contingency Theory
Contingency theory accepts that there is no universally ideal leadership style because each
organization faces unique circumstances internally and externally. In contingency theory,
productivity is a function of a manager’s ability to adapt to environmental changes. Managerial
authority is especially important for highly volatile industries. This allows managers the freedom
to make decisions based on current situations. The contingency theory reveals situations that
require more intense focus and takes account of unique circumstances.

Systems Theory
Systems theorists believe all organizational components are interrelated. Changes in one
component may affect all other components, according to StatPac. Systems theory views
organizations as open systems in a state of dynamic equilibrium, which are continually changing
and adapting to environment and circumstance. Nonlinear relationships between organizational
components create a complex understanding of organizations in systems theory.

Organizational Structure
Organizational structure became an important aspect of organizational theory due to the
increasing complexities of multinational organizations and the need to more quickly and
efficiently reach the market. Project-focused structures enable a greater responsiveness to
market demands than purely functional or bureaucratic structures. Projectized organizational
structures focus on the project manager or project management office for information and
activities related to business projects. The matrix organizational structure features vertical
hierarchies of functional departments that facilitate projects along a horizontal axis. The
continual exchange of information and energy characterizes the relationship between
organizational structure and environment.

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Classical Approach to Organizational Communication
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By: Stephanie Faris
Updated October 31, 2018
Starting and growing a business can be complicated, especially since each leader chooses his
own approach to managing and interacting with employees. Two major communication theories
have been embraced as an important part of organizational structure. One of those is the
human relations theory, which became popular around the 1920s during the Industrial
Revolution. This theory states that people long to be part of a supportive team. The classical
theory, on the other hand, takes a more task-based approach to managing people and
businesses. Although classical management theory has been dismissed by some as being
outdated and less effective, a few variations on the theory make it more feasible for certain
types of organizations.

Classical Model of Communication

The original version of the classical approach was introduced in the 1900s when managers
needed a way to efficiently run assembly lines. It made sense at the time since efficiency was a
top priority for businesses. The classical model, also known as scientific management theory,
takes a look at all of the variables involved in completing a specific task and finds the best
method possible.

The early problem with the classical communication model was that many felt it prioritized an
assembly line method of working that wasn’t the best work culture to create in every business
type. This is especially true in the 21st century, when startups and large tech companies strive
to create a culture that engages their employees rather than worrying specifically about
streamlining operations. However, several authors have proposed twists on the classical
method that work well with some organizational structures.

The Four Basic Principles of Classical Theory

Before you can consider a classical approach for your organizational communication, it’s
important to know what it entails. There are four basic principles that form the foundation of
classical theory.

Standard Operating Procedures – Management must develop standard operating procedures

for every role within the organization.
Employee Selection – During the hiring process, hiring managers must strive to find the perfect
fit for each position based on the candidate’s skills and abilities.
Interruption-Free Environment -– To ensure workers are as productive as possible, managers
must make an effort to minimize interruptions in the workplace.
Incentivizing Workers – In order to ensure productivity, managers should offer routine wage
increases.
The focus of classical theory is on processes, not people. Although people are an important part
of getting the job done, managers are thinking more about how to build more mousetraps than
nurturing the workers putting those mousetraps together. The employees are merely a means to
an end in this scenario. For that reason, the classical approach is usually better suited to an
environment where employees perform repetitive tasks, such as on an assembly line or in a
mailroom.

The Classical Approach and Bureaucracy

In the late 1800s, German sociologist Max Weber made important observations about the
bureaucracy found in the ways organizations were set up. He was the first known person to use
the term “bureaucracy,” with his theory becoming known as both the bureaucratic theory of
management and the Max Weber theory. His theory was that bureaucracy was the best way to
structure an organization since it created an environment where all employees were treated
equally with work split evenly among everyone.

Weber described three types of power found in organizations. Those are traditional power,
charismatic power and legal power, with legal power being a bureaucracy. For bureaucratic
management to be successful, Weber believed all regular activities needed to be regarded as
official, management must have the authority to make and enforce rules and rules should be
easily respected within the established setup of the organization.

Fayol’s Theory on Managing People

Henri Fayol’s theory wasn’t dissimilar to Weber’s approach. His theory, which includes 14
principles, focuses on effectively managing people. From those 14 principles come five ways
that management should interact with employees.

Planning – To be most effective, Fayol believes management must schedule every part of a
business’s processes.
Organizing – An important part of efficient production is having all of the materials and
resources in place when needed.
Commanding – Effective management means being able to direct employee activity.
Coordinating – Employee cooperation and teamwork are important to success, and good
managers facilitate that.
Controlling – No matter how commanding a supervisor is, she’s only successful if employees
actually follow her commands.
Taylor’s Scientific Approach
Another theorist with his own approach to the classical theory was Frederick Winslow Taylor.
Taylor and his associates are considered the first team to take a scientific approach to studying
work processes. As part of their research, they looked closely at how work was performed and
how those methods directly impacted individual productivity levels. His belief was that optimizing
how tasks were performed was more important than pushing employees to work harder.

The result of Taylor’s research was "The Principles of Scientific Management," published in
1909. Taylor’s publication suggested that organizations optimize and simplify jobs, which would
in effect improve productivity. His suggestion that managers and workers needed to collaborate
was revolutionary for its time because before his publication, work had not been performed that
way. Factory managers were separated from their workers, with employees left with a set of
procedures that they carried out each day as they produced their work product. The main
incentive for workers to do a good job was to simply not get fired. Taylor’s suggestions included
rewarding employees for hard work through “a fair day’s pay for a fair day’s work,” which
involved rewarding employees who were more productive with higher pay than those who fell
short.

Classical Approach in Today’s Business

Although there are many different communication approaches in an organization, the classical
method can be a great start as you’re setting up your business structure. Even if you opt for
more of a human relations strategy, you can implement principles of the classical approach,
particularly Taylor’s more modern take. Taylor believed businesses could see better results if
they worked together on things, with employers rewarding those employees who performed
better. This structure is seen in many of today’s businesses, whether they’re brand-new startups
or large corporations.

The element of a classical approach that can benefit you most is the hierarchal structure you
can put in place that ensures your processes are efficient. Even if you’re fostering
communication among your team members, you can take a scientific look at your processes
and eliminate those items that bog down your teams. They’ll be able to work smarter, not
harder, which will save them valuable energy that they can put toward other work duties. Many
people today call this approach “lean manufacturing.”

Human Relations Management Techniques

The other item on the organizational communication theories list is the human relations
approach, which is in sharp contrast to the classical approach. However, since the human
relations approach is considered more modern by many experts, you can combine elements
from the human relations theory with your classical communication strategy.

The human resources management theory states that workers want to feel good about the work
they do on a daily basis. They want to see where they fit into the greater scheme of things and
feel as though they’re part of the team. This is more of a collaborative approach between
management and their employees rather than supervisors issuing commands and ensuring
they’re followed. Although there are elements of the classical approach that can complement
this strategy, human resources management theory puts the humans first, prizing their own
morale and career aspirations above the work itself.

References

About the Author

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By: Fraser Sherman
Reviewed by: Michelle Seidel, B.Sc., LL.B., MBA
Updated January 26, 2019
Researchers have been coming up with theories about how management works for more than a
century. The interest isn't just academic. By establishing the fundamentals of good
management, researchers hoped to make business more efficient. Classical management
theory treated businesses like machines. The neoclassical theory of management took the
human factor into account.

The Classical Theory

The classical theory of management dates back to the 19th century. The big thinkers of the day
conceived it as a way to streamline operations, increase productivity and enhance the bottom
line. Classical theory advocates specialization of labor, centralized leadership and decision
making and using financial rewards to motivate workers. Its key elements are:

Leadership is autocratic. The person in charge makes a decision, and the people below him
carry it out. There's no need for the boss to consult with subordinates or employees.

Management is hierarchical. At the top of the hierarchy are the owners, directors and executives
who set the long-range goals. Next come middle managers who apply the big-picture goals to
their individual departments. At the bottom of the management hierarchy are the supervisors
who directly interact with employees and handle daily problems.

Workers specialize. The classical theory was modeled on the assembly line. Every worker
specializes in one part of the whole project. That makes them efficient, thus increasing
productivity even though it limits their horizons.

Money gets results. If the company rewards hard work, employees will work harder.

The classical model was simple and made relationships and roles in the workplace easy to
understand. Everyone had a clearly defined task. Nobody had to worry about other matters.
However, the model approached workers as little more than cogs in a machine, an approach
that fell out of favor in the 20th century.
Neoclassical Organization Theory
The neoclassical theory of management took the concepts of the classical theory and added
social science. Rather than view workers as automatons whose performance rises in response
to better pay, neoclassical organization theory says the personal, emotional and social aspects
of work are stronger motivators.

The Hawthorne experiments were the game changer here. In 1924, Western Electric began a
series of experiments at the Hawthorne plant in Chicago, seeing how changes including pay
incentives, lighting levels and rest breaks affected performance. When it seemed that every
change improved performance, the company wondered if constant change was stimulating
employees to work harder. Trying to figure it out, they consulted with experts, including
psychologist George Elton Mayo.

Beginning of the Neoclassical Approach

One of the managers at Hawthorne had already figured out that the test group performed better
because management treated them better. Not only was the company paying them more
attention, the group supervisor talked to them and interacted with them as individuals. The
supervisor listened to their complaints and paid less attention to minor infractions.

Mayo interviewed the group and realized that they saw themselves as a united team. How they
interacted with each other and what they expected of each other influenced their performance
much more than management. Financial incentives didn't matter, but the support and approval
of their colleagues on the team mattered a great deal.

Mayo concluded that the classical model was flawed. It approached the workplace as if it could
be organized based on pure logic. In reality, personal, nonlogical and informal arrangements
played just as big a role in productivity. The neoclassical theory of management was built
around treating workers as people.

Roots of the Neoclassical Idea

Mayo's conclusions a century ago are commonplace now but were radical at the time:

Supervisors need to have good interpersonal skills. Aloof, autocratic management alienates
employees.

Supervisors and managers should be trained in listening and interviewing skills.

Workers' personal problems and issues are a factor in the workplace.

If workers feel they have some control, they perform better.

Workers should be given opportunities to express any frustrations they have with the job.

Bonding with coworkers is a big part of job satisfaction for most employees.
A feeling of worth improves performance more than changes to the working conditions.

Focusing purely on efficiency and ignoring the human factor won't improve performance.
Mayo wasn't the first person to express these ideas, but the Hawthorne experiments went a
long way toward showing they were valid.

Neoclassical Theory of Management

During the 20th century, other management theorists developed Mayo's critique of the classical
model and developed the elements of the neoclassical management approach:

Human beings aren't robots. No matter how logically you structure an organization, human
behavior can disrupt it.

Informal rules and arrangements affect how work is done more than the formal structure.

Rigid division of labor isolates workers, particularly those assigned to insignificant jobs.

* The classical approach looks efficient on paper, but it's less effective in practice.

A manager's authority is based partly on his personal skills. It can't be reduced to a universal
ratio like "one manager can handle up to 10 people."

Individual employees and managers have goals. They may not be the same as the goals of the
organization.

Communication is important. Lines of communication have to be open and known to everyone,

and they should be as short and direct as possible.
Neoclassical Pros and Cons
For management theorists, the great benefit of neoclassical theory is its improvement on
classical management theory. The classical theory ignored the human element, whereas the
neoclassical approach took individuals and their needs into account. Neoclassical theory drove
a stake into the belief that management could and should be entirely mechanistic and logical.

Beyond that, the basic insights of the neoclassical organization theory were essential to all later
theories, such as systems theory and contingency theory. Everything that came later built on the
neoclassical core. Neoclassical research drew psychologists and sociologists into the study of
management, making the discipline stronger.

One criticism of the neoclassical theory of management is that neoclassical theory never stood
on its own. It was classical management theory with the human insights added in. It built on
classical thinking rather than breaking away or replacing it. On top of that, the neoclassical
approach is decades old. It has become outmoded. Newer theories such as situational and
contingency theory see the limitations of the neoclassical theory of management:
It focuses on the organization and how it interacts with the people in it. It doesn't consider the
surrounding environment.

It assumes there's one approach to running the company that will work consistently in any
environment.
Newer Theories of Management
Both situational and contingency theories of management assume that a leader should be
flexible. What works as a leadership style in one situation may flop in a different environment.

Situational leaders take stock of their employees and the current conditions in the workplace
and outside the company. Then they adopt the management style that can best attain their
goals in the current circumstances. Like a neoclassical manager, the situational leader has to
understand people. However, they are more flexible and adaptive.

Like situational theory, contingency theory assumes different situations call for different
management styles. Contingency theorists, however, believe that a manager's style is fixed and
not something that can be changed to fit the environment. Success is contingent on the
manager having the right style for a given situation. If the manager and situation don't match,
then failure is inevitable.

Those are only two of the theories that have come to replace the neoclassical model.

References

About the Author

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What Is Organizational Restructuring?
Ryan McVay/Digital Vision/Getty Images
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By: Jonra Springs
Updated September 26, 2017
A business organization makes changes in personnel and departments and can change how
workers and departments report to one another to meet market conditions. Some companies
shift organizational structure to expand and create new departments to serve growing markets.
Other companies reorganize corporate structure to downsize or eliminate departments to
conserve overhead. Often new owners or managers rearrange business structure to create a
familiar business model.

Changing Strategy
The business climate dictates many changes in organizational structuring. Company directors
often reorganize corporate structure to accommodate the market shifts. Managers often pull
employees out of regions where sales are declining to concentrate on operations in thriving
markets. Some companies create new divisions to facilitate new products or product lines.
Some companies have trimmed production staffs and increased sales departments due to
surplus production. Internet sales often drive companies to add technical departments.

Changing Structural Types

Companies often rearrange business structure to follow a new business model. A small
company with a functional organizational structure changes to a product division model once it
has significant sales for a number of different products. Some businesses shift organizational
structure to a regional model to assign local managers to different markets affected by regional
factors. Other companies create a matrix grid to place the same key managers over all the
various departments and divisions.

Downsizing
Companies commonly downsize to remain functional during a loss of revenue. Most companies
draft a skeleton model of essential personnel, materials and facilities to remain in business. A
CEO will close departments, drop product lines, lay off managers and sell facilities to keep a
company afloat. Top managers reorganize business structure to meet the needs of the new
organization at its smaller size. Remaining managers typically oversee more departments with
fewer employees in each.

Expanding
Corporate expansion demands the creation of new departments to accommodate new products
or new facilities. Any company that opens new facilities to produce new products or house
additional departments has to rearrange business structure to include the new staff. The new
company managers must report to new upper level managers responsible for the new company
branch facility. Companies often make changes in the basic organizational structure type to
reassign the management throughout the expanded structure.

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Management Hierarchy
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By: Audra Bianca
Updated September 26, 2017
A management hierarchy depends on the assignment of roles and levels of authority to each
position in the hierarchy. For example, a vertical hierarchy positions line managers at the bottom
of the structure, middle managers in the middle layer and senior managers at the top. Authority
increases from the bottom to the top, with the chief executive holding the most power.

Proximity to the Line

You can evaluate a management hierarchy by the degree of separation between a manager's
job and the front-line personnel, or the people who directly perform production tasks or help
customers. Line managers in almost any organization interact the most with front-line workers,
but they enjoy the least amount of control. Some organizations devolve a lot of authority to line
managers to adjust operational decisions on the front line.

Moving to a Flatter Structure

In the two decades prior to 2011, organizations moved to flatter management hierarchies. This
was a paradigm shift, but it also reduced mostly layers of middle managers. Flattening a
management hierarchy means that the remaining layers of managers have more responsibility
than they would have had in a vertical hierarchy. Some tasks that used to belong to managers
also now belong to specialists, such as engineers, lawyers and policy experts, without
supervisory duties.

Organic Models
In any hierarchy, managers oversee human talents and other resources in pursuit of
organizational goals. While the vertical hierarchy has a long history, newer organizations have
sprung up with organic models of management. An Internet media company might grow and
add a new manager for each Web property it develops. A property might have its own
management hierarchy without there being any standard management hierarchy across the
company. This organic response ensures that an organization keeps with the needs of the
market instead of adding managers according to an outdated business model.

Cross-Functional Teams
A management hierarchy can still exist in an organization with a flatter structure, such as BMW's
use of cross-functional teams. When you look at this type of organization, you will see that
employees are encouraged to freely discuss their suggestions without tripping over their job
titles. Ideas are power. The workplace always vibrates with collaboration as people freely
debate which ideas are best for the company to meet its goals. There is also a heavy emphasis
on developing the newest products and services to meet consumer needs in the near future.

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Types of Horizontal Organizational Structures
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By: Walter Johnson
Updated September 26, 2017
Since the Industrial Revolution in northern Europe in the 18th century, business organization
has been vertical. This means that power has flowed from the top down. Managers, hired by
owners, serve to oversee all the functional aspects of the firm. More recently, this model has
been challenged in various ways that seek to empower employees as against employers. The
argument is that if functional groups within the firm were to take on more managerial
responsibility, employees' loyalty to the firm will increase as they now have a stake in the firm.

The Basics
The horizontal organization has many types. These types revolve around the nature of the
groups of sub-organizations within the firm that will take power from the older, vertical style of
management. There have been many proposals over the years, from radical to moderate. What
they all have in common is the empowering of functional units within the firm to take more
executive power to themselves in the process of serving the firm.

Ostroff's Approach
Frank Ostroff's well known book “The Horizontal Organization” created a new scheme of
management based around “core competencies.” This book changed the literature on horizontal
organizational theory. The core competencies are basically product development, sales, service
and accounting, with more or fewer depending on the organization. These organizational
competencies will serve to cross-fertilize one another, slowly developing a multi-skilled worker
who knows the firm intimately, not just from the point of view of a single area of specialization. It
is these competencies that will serve as the basic day-to-day management of the firm.

Barabba's Hybrid
Vincent Barabba's “hybrid” organization was developed just a few years before Ostroff. His view
was that the functional units of the organization should be in charge of management on a basic
level, but that these organizations be controlled by skill. Barabba's version of the horizontal idea
is to have merit, rather than functional unit, be the center of the firm. Those workers who have
proven themselves with the most skill, work ethic and loyalty should be in control of the firm.
Management should confine itself to “big picture” items and let the elites within the organization
run the show.

Worker's Control
A more radical approach to the horizontal idea reached its full maturity in the 1950s and '60s in
Marshal Tito's Yugoslavia. In this approach, each firm was organized by workers' councils,
which had full control over the firm. They hired managers, decided upon salaries and the daily
division of labor. Tito's 1949 "Basic Law on Workers' Self-Management" was explicitly dedicated
to eventually removing the state as a force in society. All social roles relating to economics were
to be taken by firm-specific and region-specific workers' councils, which would control both the
firm and the economic life of the society. These were all to be elected bodies, but the firm-
specific councils could be elected only by the workers in the firm.

References

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Pros and Cons of the Neoclassical Theory of Management
What Is Organizational Restructuring?
Do Employees Behave Differently in a Flat Vs. a Hierarchical Organizational Structure?
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By: Crystal Vogt
Updated September 26, 2017
Companies can vary in terms of how they are organizationally structured. Structure is important
for coordinating tasks properly and ensuring effective channels of communication. Depending
on the nature of your business, employees and managers can be structured in different ways to
achieve maximum productivity, manage individual work needs and ultimately reach corporate
goals and objectives. Two common types of organizational structures include "flat" structures
and "hierarchical," or "tall," structures.

Hierarchical Structures
Hierarchical structures are tiered arrangements that generally include many layers of
management between top executives and employees; they have low manager-to-employee
ratios. This translates to high manager involvement with employees since each worker doesn't
have to "share" a manager with many other employees. This allows managers to closely
oversee and manage employee performance. Hierarchical structures within companies also
tend to encourage employees to fulfill overall corporate objectives over individual ones.

Flat Structures
Unlike hierarchical structures, flat structures are much less tiered and pyramid-like in terms of
how they are organized. In flat structures, many employees report to few managers, leading to a
high manager-to-employee ratio. Flat structures lack the multiple levels of managers between
employees and top-level executives that characterize hierarchical structures. Instead,
employees may work directly with top-level management in a flat-structured company. This
results in employees who may be expected to make individual business decisions to reach
separate business goals that feed into overall corporate objectives without the aid of midlevel
managers.

Employee Behavior in a Hierarchical Structure

Employees in this structure tend to work under close monitoring and tight controls by midlevel
managers, which can lead to a stifling of creativity since bureaucracy and control can reign
supreme in lieu of variability. This can translate to a high specialization of skill sets among
employees, according to the book "Business Policy and Strategic Management."
Employee Behavior in a Flat Structure
Since flat structures provide for minimal supervision over projects and tasks, employees usually
experience more freedom, which can translate to more independent thinking and higher levels
of creativity. "Flat organizations provide greater need satisfaction for employees and greater
levels of self-actualization," the book "Principles of Management" asserts, and employees in flat
structures can also feel more "role ambiguity" within their organizations as workers can be
uncertain of job expectations. At the same time, employees may sense more upward mobility
chances in a flat structure since fewer managers are ranked above them.

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The Disadvantages of Participative Leadership Theories
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By: B. Maté
Updated September 26, 2017
Back in 1973, Professor Victor Vroom and Phillip Yetton published “The Normative Model of
Leadership Behavior,” in which they delved into the effects of involving subordinates into
decision making. Their research lead to what is known today as the participative leadership
theories—a democratic leadership style. However, participative leadership has its
disadvantages: decision making takes more time, it is less effective with unskilled labor and
there are potential dangers when it comes to information sharing.

Participative Leadership Theories

Participative Leadership Theories
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At the core of the participative leadership theories is democracy: Workers have the ability to
provide input into managerial decisions—although, the manager makes the final decision. This
was a relatively controversial leadership style in 1973, when autocratic leadership was prevalent
in the workplace. Later, the theories evolved to include Vroom’s “decision tree” and “time-driven
decision tree,” which are diagrams and matrices that help subordinates to arrive to a quicker
strategic decision. The decision tree is a participative leadership theory that attempts to pare
down the decisions a subordinate can make by prescribing a finite amount of strategies from
which he can choose. The time-driven decision tree furthers this concept by applying a matrix
that assigns levels of importance to the factors that influence the decision. Even with these
changes to the original participative leadership theory, there are still flaws that plague the
theories' implementation.

Time-intensive
None
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One of the major flaws in participative leadership theories is the level of time it takes from
problem to solution. When a group of people are supposed to deliberate on a problem and
possible strategies, they must have structure and guidance to help them be more time effective
when arriving to a decision. Though later amendments, such as the decision tree and the time-
driven decision tree, tried to give the participative style more structure, time efficiency is still a
problem. For example, in a scenario where there are only six priorities strategies to choose
from, subordinates would still have to come to accord one of the six strategies. In cases where
there is a time constraint or an immediate deadline, it might not be feasible to accommodate this
deliberation process.

Less Effective with Unskilled Workers

Less Effective with Unskilled Workers
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Another disadvantage of participative leadership theories is that they don't work on every type of
workplace environment. Manufacturing companies that have a large workforce might have more
difficulty arriving to a business decision using a democratic leadership style. Additionally, level
of skills play a role, as a large percentage of unskilled labor might hinder business decisions.
Or, an employee who lacks group skills might not have his voice heard in the democratic
process. Thus, this leadership style works best with smaller, more skilled labor force that can
provide management with informed input.

Information Sharing
Information Sharing
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Managers might not be inclined to inform every employee about sensitive business information.
Though this information might be vital for assessing the proper strategy, but may not be
information in which every employee should be privy. In participative leadership theories,
however, vital information might be shared regardless of its sensitive nature. This not only can
lead to a possible information leak, but also conflict among workers.
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Theories in Business Management
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By: Danielle Smyth
Reviewed by: Elisa Shoenberger, M.B.A.
Updated November 28, 2018
Managing a business is not easy. Depending on the sort of company you run and its specific
needs, there are countless strategies for managing employees, growth and productivity. In part
because the running of a business can be so overwhelming, a series of business management
theories have developed over time. Learning about and following these schools of thought can
help you to run your business.

What is the Theory of Business?

"The Theory of Business" is a Harvard Business Review classic work by business theorist Peter
Drucker. Published by Drucker in 1994, this piece centers on the notion that businesses in the
modern era suffer from a lack of direction when it comes to what to do. Drucker argues that, in
many cases, the right things have historically been done by the business, but that the
assumptions that once led the company to success are no longer valid in the current market for
a variety of reasons. These assumptions, which cover the potential customers, staffing needs
and strengths of the business, are what Drucker calls his “theory of business.” In this way, he
explains, business theories are actually specific to a company, rather than one overarching
notion that can be applied universally. Each business needs to determine what its own theory
has been and adapt it going forward to find maximum success.

What Are Principles of Management?

Management theories are widespread, but one thing is fairly commonly accepted: Management
can be broken down into four basic principles, all cogs in a wheel. Each must be properly
executed to achieve a well-managed staff. These four principles are planning, leading,
organizing and controlling.
Often, employees don’t actually see any of the planning or organizing that goes on behind the
closed door of their manager’s office. Effective managers, however, must engage in these
activities. Planning is essential, because it creates a detailed approach for reaching one or more
of the organization’s goals. Without this, employees are working without much direction.
Organizing requires managers to determine how they will allocate the resources that have been
made available to them and subsequently how they task their employees with various projects.

Leading and controlling are much easier to identify when you’re considering the behaviors of
your manager. Leading entails connecting with employees on a personal level and determining
what inspires them. From there, a good manager can encourage success and career-oriented
growth in their staff. Controlling, of course, is a necessary aspect of any manager’s role.
Managers have been tasked with overseeing a portion of their company, so it’s imperative that
they ensure all directives are met and that no one is acting contrary to the organization’s goals.
At times, the principle of control can lead to disciplinary action if a staff member is not acting
properly.

Famous Management Theories

There are a number of well-known theories in management, including Max Weber’s
Bureaucratic Theory, which he described in 1905. Weber's theory relies on strict rules, clear job
distinctions and hierarchy of authority. He advocated hiring based solely on finding the most
skilled person, regardless of that person's personality or how well he might "fit" with the rest of
the employees. Workers weren't supposed to chitchat under Weber's theory, anyway, because
work was a place to accomplish tasks, not make friends. He would have disdained many of
today's practices, such as collaboration, flexibility and thinking "outside the box." To Weber,
working inside the clearly defined box was ideal, while managers skulked around taking notes
on behaviors that needed to be reprimanded.

Douglas McGregor’s X Y Theory is nearly the polar opposite of Weber's Bureaucratic Theory. In
1960, McGregor defined Theory X as the idea that workers were just cogs in a wheel who
needed to be bullied and punished in order to do their work accurately (which sounds like he
was referring to Weber's theory). McGregor's Y Theory said that it was natural for people to
want to work and feel proud of what they accomplished. Those who felt engaged at work
enjoyed their work, felt fulfilled by it, and would become self-starters making creative decisions.
McGregor's XY Theory is still widely used today.

Since management is less a science than an art, it’s usually effective to combine multiple
theories until you identify the formula that is most productive for your company and your specific
team. An individualized strategy tends to yield the best results.

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