Classical and Neoclassical Organization Theory

Classical organization theory

In the early twentieth century, industrialisation and large organisations prompted theories asking how an organisation could run most efficiently. They broadly saw people as rational actors who respond to economic rewards and assumed that a well-designed formal structure raises efficiency.

• Scientific management: Taylor (1911) used time and motion studies to find the 'one best way' of doing a job, and argued for standard workloads, piece-rate pay and separating planning from doing.
• Administrative management: Fayol (1916) divided management into planning, organising, commanding, coordinating and controlling, and proposed principles such as division of work, unity of command and hierarchy. Gulick (1937) summarised the chief executive's functions as POSDCoRB (planning, organising, staffing, directing, coordinating, reporting, budgeting).
• Bureaucracy: Weber saw bureaucracy, based on legal-rational authority, as the most rational form of organisation, with rules, hierarchy, written files, specialisation and impersonality.

Neoclassical organization theory

The experiments at Western Electric's Hawthorne Works in the 1920s and 1930s (Roethlisberger & Dickson, 1939) were interpreted as showing that peer-group norms, attention and recognition affect productivity more than physical conditions such as lighting. This gave rise to human relations theory, which sees people as social beings and makes informal organisation, morale, participation and communication objects of management. Barnard (1938) viewed the organisation as a cooperative system, stressed the balance of inducements and contributions, and proposed the acceptance theory of authority, in which authority exists when subordinates accept it.

Comparison

• View of people: classical theory sees economic, rational actors; neoclassical theory sees social actors.
• Focus: formal structure and principles versus informal groups and human relations.
• Common ground: both focus on the inside of the organisation, largely ignore the external environment (a closed-system view), and aim at productivity and efficiency.

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Criticism and later developments

Simon (1946) criticised the classical principles as contradictory 'proverbs of administration' and opened the behavioural approach centred on decision-making and bounded rationality. Human relations theory was also criticised for the validity of its interpretation of the experiments and for being manager-centred manipulation. Later work treated organisations as open systems interacting with their environment, leading to systems theory, contingency theory and organic forms such as adhocracy.

References

1. Taylor, F. W. (1911). The Principles of Scientific Management. Harper & Brothers.
2. Fayol, H. (1916). Administration industrielle et générale. Dunod.
3. Gulick, L., & Urwick, L. (Eds.) (1937). Papers on the Science of Administration. Institute of Public Administration.
4. Weber, M. (1922). Wirtschaft und Gesellschaft. J. C. B. Mohr.
5. Roethlisberger, F. J., & Dickson, W. J. (1939). Management and the Worker. Harvard University Press.
6. Barnard, C. I. (1938). The Functions of the Executive. Harvard University Press.
7. Simon, H. A. (1946). The proverbs of administration. Public Administration Review, 6(1), 53-67.