contingency theory

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contingency theory

an approach to ORGANIZATIONAL ANALYSIS which emphasizes that the character and structure of ORGANIZATIONS can take a number of forms, and may be related to the technology in use or the organization's environment. Organizational features can be said to be contingent on such factors.

The idea of contingency is now so widely accepted in the study of organizations, and views premised on it so diverse that it is more accurate to speak of a contingency approach rather than one theory as such. The contingency approach is notable for rejecting the notion that there is one best way of structuring organizations (see CLASSICAL MANAGEMENT THEORY, SCIENTIFIC MANAGEMENT).

The contingency approach initially became popular in the 1960s. British industrial sociologist Joan Woodward (1916 -71) found that technology (in itself determined by what product the firm was making) was associated with certain structural characteristics. For instance, the more advanced the technology, the longer the CHAIN OF COMMAND. Woodward argued that there was a particular form of organizational structure appropriate to each technical situation. Other writers emphasized the importance of environment. American writers Paul Lawrence (1922 -) and Jay Lorsch (1932-) suggested that the greater the degree of environmental uncertainty and complexity, the greater the need for differentiation of management functions within the organization, but also the need for integrative devices to pull the organization together. Like Woodward they argued that there was an appropriate organizational form for each type of environment. A number of British writers also traced the relationship between environment and organizational form (see MECHANISTIC AND ORGANISMIC).

The most important investigation of these issues in the UK was conducted by the ‘Aston School’ (members of the Industrial Administration Research Unit at Aston University, including Derek Pugh (1930 -) and David Hickson (1931 -)) in the 1960s. This project found that the structuring of organizational activities (e.g. specialization of job roles and departments) was correlated not with technology but with the size of the organization, whilst the degree of centralization of decision-making was correlated with the degree of dependence upon other organizations, such as suppliers. Whilst most writers on organizations now adopt a contingency approach, views differ on how far certain factors, such as environment, determine organizational form and how far top managers can make a strategic choice to model their organizations in certain ways by taking account of such factors.

contingency theory

the proposition that the best organization structure for a particular firm depends upon the specific circumstances that it faces and that there is no uniformly best organization structure for all firms in all circumstances. The appropriate organizational structure for a firm in particular circumstances seeks to balance ECONOMIES OF SCALE and ECONOMIES OF SCOPE in production and distribution; TRANSACTION COSTS; AGENCY COSTS; and information flows.
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