Organizational Theory:

Study of organizational designs and organizational structures, relationship of

organizations with their external environment, and the behavior of managers and
technocrats within organizations. It suggests ways in which an organization can cope
with rapid change. An organization, by its most basic definition, is an assembly of
people working together to achieve common objectives through a division of labor. An
organization provides a means of using individual strengths within a group to achieve
more than can be accomplished by the aggregate efforts of group members working
individually. Business organizations are formed to deliver goods or services to
consumers in such a manner that they can realize a profit at the conclusion of the
transaction. Over the years, business analysts, economists, and academic researchers
have pondered several theories that attempt to explain the dynamics of business
organizations, including the ways in which they make decisions, distribute power and
control, resolve conflict, and promote or resist organizational change.

Introduction: Organizations differ greatly in size, function, and makeup.

Nevertheless, the operations of nearly all organizationsfrom the multinational
corporation to a newly opened delicatessenare based on a division of labor; a
decision-making structure; and rules and policies. The degree of formality with
which these aspects of business are approached vary tremendously within the
business world, but these characteristics are inherent in any business enterprise
that utilizes the talents of more than one person.

Organizations practice division of labor both vertically and horizontally. Vertical

division includes three basic levelstop, middle, and bottom. The chief function of top
managers, or executives, typically is to plan long-term strategy and oversee middle
managers. Middle managers generally guide the day-to-day activities of the
organization and administer top-level strategy. Low-level managers and laborers put
strategy into action and perform the specific tasks necessary to keep the organization
operating.

Organizations also divide labor horizontally by defining task groups, or departments,

and assigning workers with applicable skills to those groups. Line units perform the
basic functions of the business, while staff units support line units with expertise and
services. In general, line units focus on supply, production, and distribution, while staff
units deal mostly with internal operations and controls or public relations efforts.

Decision-making structures, the second basic organizational characteristic, are used to

organize authority. These structures vary from operation to operation in their degree of
centralization and decentralization. Centralized decision structures are referred to as
"tall" organizations because important decisions usually emanate from a high level and
are passed down through several channels until they reach the lower end of the
hierarchy. Conversely, flat organizations, which have decentralized decision-making
structures, employ only a few hierarchical levels. Such organizations are typically
guided by a management philosophy that is favorably disposed toward some form of
employee empowerment and individual autonomy.

A formalized system of rules and policies is the third standard organizational

characteristic. Rules, policies, and procedures serve as templates of managerial
guidance in all sectors of organizational production and behavior. They may document
the most efficient means of accomplishing a task or provide standards for rewarding
workers. Formalized rules provide managers with more time to spend on other problems
and opportunities and help ensure that an organization's various subsystems are
working in concert. Ill-conceived or poorly implemented rules, of course, can actually
have a negative impact on business efforts to produce goods or services in a profitable
or satisfactory manner.

Thus, organizations can be categorized as informal or formal, depending on the degree

of formalization of rules within their structures. In formal organizations, say researchers,
management has determined that a comparatively impersonal relationship between
individuals and the company for which they work is viewed as the best environment for
achieving organizational goals. Subordinates have less influence over the process in
which they participate, with their duties more clearly defined.

Informal organizations, on the other hand, are less likely to adopt or adhere to a
significant code of written rules or policies. Instead, individuals are more likely to adopt
patterns of behavior that are influenced by a number of social and personal factors.
Changes in the organization are less often the result of authoritative dictate and more
often an outcome of collective agreement by members. Informal organizations tend to
be more flexible and more reactive to outside influences. But some critics contend that
such arrangements may also diminish the ability of top managers to effect rapid change.

Differences between the public and the private orgnizations:

The Private Sector

The private sector is usually composed of organizations that are privately owned and
not part of the government. These usually includes corporations (both profit and nonprofit) and partnerships.
An easier way to think of the private sector is by thinking of organizations that
are not owned or operated by the government. For example, retail stores, credit unions,
and local businesses will operate in the private sector.
The Public Sector
The public sector is usually composed of organizations that are owned and operated by
the government. This includes federal, provincial, state, or municipal governments,
depending on where you live. Privacy legislation usually calls organizations in the public
sector a public body or a public authority.
Some examples of public bodies in Canada and the United Kingdom are educational
bodies, health care bodies, police and prison services, and local and central
government bodies and their departments.

Theories of personality:
Trait theory of personality
A major weakness of Sheldon's morphological classification system and other type
theories in general is the element of oversimplification inherent in placing individuals
into a single category, which ignores the fact that every personality represents a unique
combination of qualities. Systems that address personality as a combination of qualities
or dimensions are called trait theories. Well-known trait theorist Gordon Allport (18971967) extensively investigated the ways in which traits combine to form normal
personalities, cataloguing over 18,000 separate traits over a period of 30 years. He
proposed that each person has about seven central traits that dominate his or her
behavior. Allport's attempt to make trait analysis more manageable and useful by
simplifying it was expanded by subsequent researchers, who found ways to group traits
into clusters through a process known as factor analysis. Raymond B. Cattell reduced
Allport's extensive list to 16 fundamental groups of inter-related characteristics, and
Hans Eysenck claimed that personality could be described based on three fundamental
factors: psychoticism (such antisocial traits as cruelty and rejection of social customs),
introversion-extroversion, and emotionality-stability (also called neuroticism). Eysenck
also formulated a quadrant based on intersecting emotional-stable and introvertedextroverted axes.

Psychodynamic theory of personality

Twentieth-century views on personality have been heavily influenced by the

psychodynamic approach of Sigmund Freud. Freud proposed a three-part personality
structure consisting of the id (concerned with the gratification of basic instincts), the ego
(which mediates between the demands of the id and the constraints of society), and the
superego (through which parental and social values are internalized). In contrast to type
or trait theories of personality, the dynamic model proposed by Freud involved an
ongoing element of conflict, and it was these conflicts that Freud saw as the primary
determinant of personality. His psychoanalytic method was designed to help patients
resolve their conflicts by exploring unconscious thoughts, motivations, and conflicts
through the use of free association and other techniques. Another distinctive feature of
Freudian psychoanalysis is its emphasis on the importance of childhood experiences in
personality formation.
Phenomenological theory of personality
Another major view of personality developed during the twentieth century is the
phenomenological approach, which emphasizes people's self-perceptions and their
drive for self-actualization as determinants of personality. This optimistic orientation
holds that people are innately inclined toward goodness, love, and creativity and that
the primary natural motivation is the drive to fulfill one's potential. Carl Rogers, the figure
whose name is most closely associated with phenomenological theories of personality,
viewed authentic experience of one's self as the basic component of growth and
wellbeing. This experience together with one's self-concept can become distorted when
other people make the positive regard we need dependent on conditions that require
the suppression of our true feelings. The client-centered therapy developed by Rogers
relies on the therapist's continuous demonstration of empathy and unconditional positive
regard to give clients the self-confidence to express and act on their true feelings and
beliefs. Another prominent exponent of the phenomenological approach was Abraham
Maslow, who placed self-actualization at the top of his hierarchy of human needs.
Maslow focused on the need to replace a deficiency orientation, which consists of
focusing on what one does not have, with a growth orientation based on satisfaction
with one's identity and capabilities.
Behavioral theory of personality
The behaviorist approach views personality as a pattern of learned behaviors acquired
through either classical (Pavlovian) or operant (Skinnerian) conditioning and shaped by
reinforcement in the form of rewards or punishment. A relatively recent extension of
behaviorism, the cognitive-behavioral approach emphasizes the role cognition plays in
the learning process. Cognitive and social learning theorists focus not only on the
outward behaviors people demonstrate but also on their expectations and their thoughts
about others, themselves, and their own behavior. For example, one variable in the

general theory of personality developed by social learning theorist Julian B. Rotter is

internal-external orientation. "Internals" think of themselves as controlling events, while
"externals" view events as largely outside their control. Like phenomenological theorists,
those who take a social learning approach also emphasize people's perceptions of
themselves and their abilities (a concept called "self-efficacy" by Albert Bandura).
Another characteristic that sets the cognitive-behavioral approach apart from traditional
forms of behaviorism is its focus on learning that takes place in social situations through
observation and reinforcement, which contrasts with the dependence of classical and
operant conditioning models on laboratory research.Aside from theories about
personality structure and dynamics, a major area of investigation in the study of
personality is how it develops in the course of a person's lifetime. The Freudian
approach includes an extensive description of psychosexual development from birth up
to adulthood. Erik Erikson outlined eight stages of development spanning the entire
human lifetime, from birth to death. In contrast, various other approaches, such as those
of Jung, Adler, and Rogers, have rejected the notion of separate developmental stages.
An area of increasing interest is the study of how personality varies across cultures. In
order to know whether observations about personality structure and formation reflect
universal truths or merely cultural influences, it is necessary to study and compare
personality characteristics in different societies. For example, significant differences
have been found between personality development in the individualistic cultures of the
West and in collectivist societies such as Japan, where children are taught from a young
age that fitting in with the group takes precedence over the recognition of individual
achievement. Cross-cultural differences may also be observed within a given society by
studying the contrasts between its dominant culture and its subcultures (usually ethnic,
racial, or religious groups).

Evolution of management theories:

The evolution in management theory over the last century is the history of the constantly
changing role of leaders in organizations. As organizational leaders evolved from the
carrot-and-stick wielding owner-managers of the earlier Industrial Era to the Servant
Leaders of the 21st Century, the impact of individual leaders on organizations became
progressively important. Whereas early managers could rely on authority and strongarm tactics to reach their goals, servant leaders in our time are challenged to set
personal examples by living the values and principles they wish their followers to
achieve.

Early Management and the study of management

Although great feats of human achievement such as the Egyptian pyramids, the
Great Wall of China, the Colosseum in Rome and the Taj Mahal in India all bear
testimony to skilled management in ancient times, the formal study of management only
began late in the 19th century.
The main driving force behind this development of management as a science was the
transition from 19th century entrepreneurial capitalism to early 20 th century managerial
capitalism. Whereas the first capitalists were business owners who used their own
finances to fund organizations that they managed themselves, rapid industrial growth
saw the formation of large organizations with capital often provided by outsiders. This
not only widened the gap between owners or shareholders and management, it also
brought new management challenges.

Scientific Management
Scientific Management, also called Taylorism, is a theory of management that analyzes
and synthesizes workflows. Its main objective is improving economic efficiency,
especially labor productivity. It was one of the earliest attempts to apply science to the
engineering of processes and to management.Its development began in the United
States with Frederick Winslow Taylor in the 1880s and '90s within the manufacturing
industries. Its peak of influence came in the 1910s;by the 1920s, it was still influential
but had entered into competition and syncretism with opposing or complementary ideas.
Although scientific management as a distinct theory or school of thought was obsolete
by the 1930s, most of its themes are still important parts of industrial engineering and
management today. These include analysis; synthesis; logic; rationality; empiricism;
work ethic; efficiency and elimination of waste; standardization of best practices; disdain
for tradition preserved merely for its own sake or to protect the social status of particular
workers with particular skill sets; the transformation of craft production into mass
production; and knowledge transfer between workers and from workers into tools,
processes, and documentation.
The Administrative Approach

Across the Atlantic ocean Jules Henri Fayol (1841-1925), a fellow engineer and
manager of a group of French mines, came to the conclusion that management was an
activity common to all human undertakings (including home, business, government,
schools, etc.) and that all these undertakings needed five basic administrative functions
(planning, organizing, commanding, coordinating and controlling). He argued that
because management was an all-encompassing activity, it should be taught in schools,
colleges and universities.
Fayols approach rejected the old notion that managers are born, not made,
proposing instead that management is a skill which can be acquired if its principles are
understood.
The Bureaucratic Approach
Max Weber (1864-1920) was a German sociologist who approached management by
focusing on organizational structure, dividing organizations into hierarchies with clear
lines of authority and control. This meant that managers were given legal authority
based on their position in the organizational structure, to enforce rules and policy.
Webers bureaucratic system helped large organizations to function in a more stable,
organized and systematic manner. However, by doing away with personality based or
charismatic leadership, individuality and creativity is often sacrificed. Bureaucratic
leaders and workers are required to obey rules and do only what they are told. The
result is that these leaders seldom think outside the box and therefore find it very
difficult to adapt to changing environments and new challenges.

Characteristics of public organizations:

1. State Ownership:

The enterprise ownership has to be vested with the State. It could be in the nature of
Central, State or local government ownership or any instrumentality of the state too can
have the ownership of public enterprise.
2. State Control:
Public Enterprise is controlled by the Government both in its management and
functioning. The Government has the direct responsibility to manage the affairs of the
enterprise through various devices and exercises control over it by means of a number
of agencies and techniques.
3. Public Accountability:
Public Enterprises owe accountability to people as they are funded through public
money. This accountability is realised through legislature and its committees, ministers,
audit institutions and other specialised agencies.
4. Autonomy:
Public Enterprises function with utmost autonomy under given situations. They are free
from day to day interference in their affairs and management.
5. Coverage:
The public enterprise traverses all areas and activities. There is hardly any field of
activity, which is not covered by the operations of public enterprises.

Quantitative approach:
Quantitative analysis involves using scientific or mathematical data to understand a
problem, such as analyzing surveys to predict consumer demand. This contrasts with a
qualitative approach, which uses a more social methodology, like interviewing people.
The quantitative approach focuses on the results from a large number of people,
instead of focusing on individuals. Often a combination of the two approaches is used to
solve a problem, taking advantage of each approach's strengths.
Benefits of Going Quantitative:
If you're looking for general information about the traits and habits of a large group of
people, quantitative research is the way to go. Quantitative methods involve compiling

statistics, opinion surveys and questionnaires, then examining the results to produce
data-driven analysis. With quantitative research, everyone from policy makers to
marketers can determine the most popular choices to make. The quantitative approach
provides hard numbers, which are useful in making business decisions and deciding
between various projects.

General administration theory:

An early form of organization theory, pioneered mainly by Henri Fayol (18411925),
which was concerned principally with achieving the most rational organization for coordinating the various tasks specified within a complexdivision of labour. The translation
of this book into English as General and Industrial Management (1949) implies that
Fayol was concerned mainly with business management, although he himself makes it
clear that his ideas about management were intended to apply to all formal
organizations, including political and religious undertakings. Expressing the French
administration as management has also led to the alternative designation of this
approach as the classical school of scientific management.
Fayol, who is acknowledged to be the earliest advocate of a theoretical analysis of
managerial activities, identified the key functions of management as being those of
forecasting and planning. The most rational and efficient organizations were, in his view,
those which implemented a plan that facilitated unity, continuity, flexibility, precision,
command and control. Universal principles of administration were then distilled from
these objectives. These include the key elements of the scalar chain (authority and
responsibility flowing in an unbroken line from the chief executive to the shop floor);
unity of command (each person has only one supervisor with whom he or she
communicates); a pyramid of prescribed control (first-line supervisors have a limited
number of functions and subordinates, with second-line supervisors controlling a
prescribed number of first-line supervisors, and so on up to the chief executive); unity of
direction (people engaged in similar activities must pursue a common objective in line
with the overall plan); specialization of tasks (allowing individuals to build up a specific
expertise and so be more productive); and, finally, subordination of individual interests
to the general interest of the organization. This list is not exhaustive, but illustrates the
key proposition of administrative theory, which is that a functionally specific and
hierarchical structure offers the most efficient means of securing organizational
objectives.

Organizational behaviour:
Organizational behavior studies the impact individuals, groups, and structures have on
human behavior within organizations. It is an interdisciplinary field that includes
sociology, psychology, communication, and management. Organizational behavior
complements organizational theory, which focuses on organizational and intraorganizational topics, and complements human-resource studies, which is more
focused on everyday business practices.

Behavior model
Diagram of Schein's organizational behavior model, which underlines the three central
components of an organization's culture.

Different Types of Organizational Behavior

Organizational studies encompass the study of organizations from multiple
perspectives, methods, and levels of analysis. "Micro" organizational behavior refers to
individual and group dynamics in organizations. "Macro" strategic management and
organizational theory studies whole organizations and industries, especially how they
adapt, and the strategies, structures, and contingencies that guide them. Some scholars
also include the categories of "meso"-scale structures, involving power, culture, and the
networks of individuals in organizations, and "field"-level analysis, which studies how
entire populations of organizations interact.
Many factors come into play whenever people interact in organizations. Modern
organizational studies attempt to understand and model these factors. Organizational
studies seek to control, predict, and explain. Organizational behavior can play a major
role in organizational development, enhancing overall organizational performance, as
well as also enhancing individual and group performance, satisfaction, and commitment.
Classical administrative theory, like its near-contemporary the scientific
managementapproach, rests on the premisses that organizations are unproblematically
rational and (effectively) closed systems. In other words, organizations are assumed to
have unambiguous and unitary objectives, which the individuals within them pursue
routinely, by obeying the rules and fulfilling their role expectations, according to the
prescribed blueprint and structure. Moreover, in the attempt to maximize efficiency, it is
only variables within that structure that need to be considered and manipulated. The
interaction of the organization with its environment, together with the various factors
which are external to the organization but nevertheless have consequences for its
internal functioning, are systematically ignored. Clearly, both perspectives take a rather

deterministic view of social action, since each assumes that individuals will maximize
organizational efficiency, independently of their own welfare, and with no thought for the
relationship between the collective goal and their own particular purposes. The Human
Relations Movement in organizational analysis, an otherwise diverse group of writers
and approaches, is united by its opposition to precisely this assumption. Despite such
criticisms, the classical theory of administration has exerted considerable influence on
the fields of business studies and public administration, and it still provides the basic
concepts which many managers use in clarifying their objectives.

Motivation: Motivation is the answer to the question Why we do what we do?.

The motivation theories try to figure out what the M is in the equation: M motivates P
(Motivator motivates the Person). It is one of most important duty of an entrepreneur to
motivate people.
Abraham Maslows Hierarchy of Needs

When motivation theory is being considered the first theory that is being recalled is
Maslows hierarchy of needs which he has introduced in his 1943 article named as A
Theory of Human Motivation. According to this theory, individual strives to seek a
higher need when lower needs are fulfilled. Once a lower-level need is satisfied, it no
longer serves as a source of motivation. Needs are motivators only when they are
unsatisfied.

In the first level, physiological needs exist which include the most basic needs

for humans to survive, such as air, water and food.

In the second level, safety needs exist which include personal security, health,

well-being and safety against accidents remain.

In the third level, belonging needs exit. This is where people need to feel a
sense of belonging and acceptance. It is about relationships, families and friendship.
Organizations fulfill this need for people.

In the fourth level, self-esteem needs remain. This is where people looks to be
respected and to have self-respect. Achievement needs, respect of others are in this
level.
In the top-level, self-actualization needs exist. This level of need pertains to

realising the persons full potential.

Alderfers ERG Theory

In 1969, Clayton P. Alderfer, simplified

Maslows theory by categorizing hierarchy of needs into three categories:

Physiological and Safety needs are merged in Existence Needs,

Belonging needs is named asRelatedness Needs,

Self-esteem and Self-actualization needs are merged in Growth Needs

Herzbergs Two Factor Theory

Frederick Herzberg, introduced his Two

Factor Theory in 1959. He suggested that there are two kinds of factors affect
motivation, and they do it in different ways:
1) Hygiene factors: A series of hygiene factors create dissatisfaction if individuals
perceive them as inadequate or inequitable, yet individuals will not be significantly
motivated if these factors are viewed as adequate or good. Hygiene factors are extrinsic
and include factors such as salary or remuneration, job security and working conditions.
2) Motivators: They are intrinsic factors such as sense of achievement, recognition,
responsibility, and personal growth.
The hygiene factors determine dissatisfaction, and motivators determine satisfaction.
Herzberg theory conforms with satisfaction theories which assert that a satisfied
employee tends to work in the same organization but this satisfaction does not always
result in better performance. In other words, satisfaction does not correlate with
productivity.

McClellands Achievement Need Theory

in his 1961 book named as The Achieving Society, David McClelland identified three
basic needs that people develop and acquire from their life experiences .

Needs for achievement: The person who have a high need for achievement

seeks achievement and tries to attain challenging goals. There is a strong need for
feedback as to achievement and progress, and a need for a sense of
accomplishment. The person who have a high achievement need likes to take
personal responsibility.
Needs for affiliation: The person who have a high need for affiliation needs

harmonious relationships with people and needs to be accepted by other people.

(People-oriented rather than task-oriented).
Needs for power: The person who have a need for power wants to direct and

command other people. Most managers have a high need for power.
Although these categories of needs are not exlusive, generally individuals develop a
dominant bias or emphasis towards one of the three needs. Entrepreneurs usually have
high degree of achivement needs.
Incentive Theory
Incentive theory suggests that employee will increase her/his effort to obtain a desired
reward. This is based on the general principle of reinforcement. The desired outcome is
usually money. This theory is coherent with the early economic theories where man is
supposed to be rational and forecasts are based on the principle of economic man.

Leadership theories:
Trait Theory
The idea that great leadership derives from a person's individual characteristics or traits
is known as trait theory. Research identifies six personal traits that strongly relate to

leadership: intelligence, adjustment, extraversion, conscientiousness, openness to new

experiences and self-efficacy. According to trait theory, individuals with these
characteristics emerge as leaders regardless of the situation.
Behavioral & Style Theory
This theory describes leadership not as a set of traits but a set of behaviors and styles.
Theorists studied three main leadership styles: authoritarian, where the leader dictates
what followers must do; democratic, where the leader presides over a collective
decision process; and laissez-faire, where the leader does not participate in the decision
process. The results of the studies indicate that followers preferred the democratic
approach to leadership and that performance increased when leaders used positive
reinforcement.
Functional Theory
Functional theory argues that leaders' primary responsibility is to assess what their
followers need and ensure that those needs are met. A range of studies indicate that
leaders must perform five primary functions: monitor the environment, organize
subordinate activities, train and coach subordinates, motivate followers, and participate
in the group's work.
Transactional Theory
Transactional theory argues that leadership arises from an individual's ability to reward
or punish subordinates based on their performance. Leaders must be given a goal,
must possess the ability to train and evaluate subordinate's performance towards that
goal and must be given the authority to reward subordinates when goals are met.
Transformational Theory
Transformational leaders focus on the big picture and use communication to motivate
followers to effectively and efficiently execute their vision. Transformational leadership
theory calls for leaders to be visible and accessible, and to actively seek out new ideas
to realize objectives.
Environmental Theory
The environmental theory of leadership argues that leaders use psychology and selfawareness to foster self-sustaining environments where group members bring out the
best in one another. The leader creates a culture that motivates and excites members to
complete required tasks not because they are required to but for the benefit of the
group. Instead of carrying the group, environmental leaders create a setting in which
group members want to carry one another and are empowered to do so.
Situational & Contingency Theories
These theories argue that the desired traits and behaviors exhibited by a leader depend
largely on the situation, and that there is no best way to lead. Based on this theory, the
authoritarian leadership style is effective during times of crisis but not for everyday
operations, the democratic leadership style is more effective when a consensus needs

to be built, and the laissez-faire leadership style is effective when subordinates are
trained and experienced individuals who appreciate the freedom it provides.