1. Contingency Theory

2. Timeline
1960s-70s – Tom Burns and George Stalker conduct an experiment to see how the environment affects a firm’s organizational and management systems.
-Joan Woodard conducted a study to determine how technology affects organizational structure.

3. Contingency Theory
There is no one best way to structure and manage organizations.
Structure and management are contingent on the nature of the environment in which the organization is situated.
Argues for “finding the best communication structure under a given set of environmental circumstances.”
Management of Innovation - Burns and Stalker (1968)

4. Key Concepts
Focus on determining the best management approach for any given situation.
Two types of environments: Stable (little to no change) and Innovative (great changes)
Two types of management systems: Mechanistic (similar to bureaucratic classical theory) and organic (nonbureaucratic, similar to behavioral management)

5. In a stable environment, mechanistic works best, In an innovative environment organic works best
Organizational structure is affected by technology.

6. Key Players & Major Contributors
Tom Burns
George Stalker
Joan Woodward
Frec Emerdy
Eric Trist

7. Burns and Stalker (1968) Management of Innovation
Organizational systems should vary based on the level of stability in the environment
Two different types of management systems
Mechanistic systems - appropriate for stable environment
Organic systems - required in changing environments (unstable conditions)
Management is the Dependent Variable
Variations in environmental factors lead to management

8. Lawrence and Lorsch (1969)
Key Issue is environmental uncertainty and information flow
Focus on exploring and improving the organization’s relationship with the environment
Environment is characterized along a certainty-uncertainty continuum

9. Organisational structure

10. Defining Organizational Structure
The formal arrangement of jobs within an organization.
Organizational Design
A process involving decisions about six key elements:
Work specialization
Departmentalization
Chain of command
Span of control
Centralization and decentralization
Formalization

11. Mechanistic- Organic Organisation
Organic Organization
Highly flexible and adaptable structure
Non-standardized jobs
Fluid team-based structure
Little direct supervision
Minimal formal rules
Open communication network
Empowered employees
Mechanistic Organization
A rigid and tightly controlled structure
High specialization
Rigid departmentalization
Narrow spans of control
High formalization
Limited information network (downward)
Low decision participation

13. Structural Contingency Factors
Structural decisions are influenced by:
Overall strategy of the organization
Organizational structure follows strategy.
Size of the organization
Firms change from organic to mechanistic organizations as they grow in size.
Technology use by the organization
Firms adapt their structure to the technology they use.
Degree of environmental uncertainty
Dynamic environments require organic structures; mechanistic structures need stable environments.

14. Structural Contingency Factors
Strategy Frameworks:
Innovation
Pursuing competitive advantage through meaningful and unique innovations favors an organic structuring.
Cost minimization
Focusing on tightly controlling costs requires a mechanistic structure for the organization.
Imitation
Minimizing risks and maximizing profitability by copying market leaders requires both organic and mechanistic elements in the organization’s structure

15. Structural Contingency Factors (cont’d)
Strategy and Structure
Achievement of strategic goals is facilitated by changes in organizational structure that accommodate and support change.
Size and Structure
As an organization grows larger, its structure tends to change from organic to mechanistic with increased specialization, departmentalization, centralization, and rules and regulations.

16. Structural Contingency Factors
Environmental Uncertainty and Structure
Mechanistic organizational structures tend to be most effective in stable and simple environments.
The flexibility of organic organizational structures is better suited for dynamic and complex environments.

17. Contingency Theory
Argues that there are no universally
applicable management theories or
techniques.
What you do “depends” on the
“situation”.
-internal contingency factors
-external contingency factors

18. Internal Contingency Factors
Tasks
People
Purpose
Tech-
nology
Structure

19. Technology and Structure
Organizations adapt their structures to their technology.
Woodward’s classification of firms based in the complexity of the technology employed:
Unit production of single units or small batches
Mass production of large batches of output
Process production in continuous process of outputs
Routine technology = mechanistic organizations
Non-routine technology = organic organizations

20. External Contingency Factors
Socio-cultural
Factors
Economic
Factors
Technological
Factors
Political/
Legal Factors

21. General Environment of Coca Cola
Sociocultural
Economic
Baby boomers drinking less
Immigrants drink less
Concerns about recycling
Concerns about health
Increased acceptance in China
and India
Easier access to refrigeration
Slow economic growth
Prospect of economic recovery
Mideast crisis affect oil prices
Coca Cola
Technological
Political
Increased health standards
for bottling
Stricter liability legislation
New recycle friendly canning tech.
New promotional opportunities
via the internet
Threat of substitute drinks

22. I O Putting it together: A Contingency Model of Organizations Tasks
Socio-cultural
Economic
Tasks I O
People
Purpose
Techn
Structure
Technological
Political

23. Task Environment Strategies
Competitive Strategies
Cooperative Strategies

24. Competitive Strategies
Pricing
Promotions
Production (demand smoothing,
forecasting,
reduced cycle time)

25. Cooperative Strategies
Cooptation
Bargaining
Joint Ventures (Coalitions)
Lobbying
Representation
Socialization
Domain Shifts

26. Summary:
Systems and Contingency Theories
- Recognize that external factors
as well as internal factors affect
management.

27. - Provide us with a way of distinguishing between environments
Summary...
- Provide us with a way of
distinguishing between environments
Degree of change
Stable Dynamic
Simple
Complex
Least
uncertainty
Complexity
Greatest
uncertainty

28. Summary...
- Provide a way of distinguishing
between organizations.
(open versus closed organizations)

29. Summary...
- Provide a way of distinguishing
between situations faced by
organizations (or the same
organization over time).
(Different contingency factors may
become more or less important.)

30. Summary...
- Shows that organizations have
choices in dealing with their
environments
-do nothing and be at the mercy
of the environment
-react
-anticipate
-proact
-change environments