Organization Theory Research Paper

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Organization  theory is a theoretical perspective which conceives of organizations as complex social actors and investigates how the  structures they adopt  affect their behavior. The field takes a broad view of the term “structure” including not only formal structure, but also informal and network relationships and cultural and cognitive aspects of the organizations. As such, it addresses broad questions of how and why organizations come to be, take the forms they do, behave as they do, and survive or fail. With  its focus on  organizations as a collective entity, organization theory complements organizational behavior, which focuses on individuals and small groups within the larger field of organization studies.

Background and Origins

Organization  theory  was  derived  from  several fields, including sociology, economics, anthropology, and political science. Many scholars in these fields have influenced organization theory,  including  Émile  Durkheim,  Karl Marx, Adam Smith, and Max Weber. Of these, Weber most  directly influenced organization theory  with  his work on authority and bureaucracy.

Writing around  the turn  of the twentieth century, Weber identified two sources of authority that dominated previous social organization: traditional authority, vested in established patterns of behavior passed down through generations, and charismatic authority, vested in an individual’s powers of attraction and influence over others. He also identified a third  form, rational-legal  authority, in which authority is vested in individuals selected based on rules and legally binding processes designed to identify those  best  qualified to  exercise it.  This  rational-legal authority is the basis of Weber’s theory of bureaucracy, in which he posited that organizing in this manner could generate remarkable social advances comparable in magnitude to the economic advances of the Industrial Revolution. Furthermore, Weber’s ideal view of rationality comprised two types: substantive rationality, which determines what a social group’s goals, values, and ideals should be, and  formal rationality, which governs how a social group allocates resources and measures progress toward those goals and ideals. In an oft-quoted passage he warned that  formal  rationality  without  substantive rationality could lead to a dehumanizing “iron cage.” While some critics suggest that early English translations of Weber did not sufficiently reflect the true spirit of his work, Weber has nevertheless provided a foundation upon which much of organization theory has been built.

Building on Weber and others, more recent organization theorists have generally emphasized two primary perspectives on  the  nature  and  function  of  organizations, which have been elaborated into a number of influential theories of organizations. The  first of these perspectives considers organizations as rational and efficient solutions to various problems associated with cooperation, complexity, and uncertainty. The second perspective considers organization not on the basis of its rational structure and function but rather on the basis of its social meaning and value.

Organizations as Rational Solutions  to Social Problems

Some of the earliest theories of organizations emerged in the wake of the Industrial Revolution and were characterized by the  search for universal organizing principles. Influential  among  these early theorists were Frederick Taylor and Henri Fayol, whose work can be characterized as the application of mechanical and industrial engineering principles to the management and control of human labor. However, in the 1960s organization theorists turned attention from universal organizing principles to theories that  argued that  ideal organization structures were not one-size-fits-all, but instead contingent on various factors within the organization and its environment.

In 1967, Paul Lawrence and Jay Lorsch introduced contingency  theory, which claimed that  the best way to organize depends upon the characteristics of an organization’s  environment.  Lawrence and  Lorsch argued that organizations’ environments vary widely and that organizations come to reflect this variety by rationally adopting structures best suited to their environments. They showed that the degree of volatility and uncertainty in an organization’s environment affects things like the formalization of an organization’s structure, the centrality of its decision making, the time horizon upon which it focuses, and how it divides itself into departments and its tasks. Lawrence and Lorsch’s  emphasis on contingencies proved influential,  and  several other  contingency-based theories  of organizations emerged in  the  1970s. Among these are agency theory, transaction cost  economics,   and  resource dependence theory.

Agency theory focuses on the fact that, in organizations, one person (the agent) acts at the behest of another (the principal). This principal–agent relationship exists in organizations between stockholders and  managers and between  managers  and  employees. Agency theorists assume that both agents and principals have self-interests and that these interests frequently diverge. This creates a need for principals to monitor the agents, which is difficult and expensive since agents often have more expertise than principals and cannot be continuously and directly observed. Agency theorists therefore depict organizational structures as rational attempts to establish complex yet efficient systems of cooperation, which differ from organization to organization and task to task depending on the information asymmetry between principals and agents.

Transaction cost economics (TCE) is closely related to agency theory, but instead of emphasizing how organization structures govern internal principal–agent relationships, TCE emphasizes that organizations are rational and efficient solutions to managing the relationship between itself and other organizations in its environment. Oliver Williamson, who  introduced  TCE  in  the  mid-1970s, argues that  small-scale transactions  (i.e.,  simple  and immediate  exchanges of  goods  and  services) do  not require organizations; however, as transactions become more complex and uncertain, organizations are needed to monitor and limit the liabilities of these risks. TCE also explains organizational boundaries on the basis of transaction costs: Functions for which the costs of external transactions are too great are brought inside the organization, while those available for less total cost elsewhere are performed externally.

The resource dependence view of organizations, like TCE, emphasizes an organization’s relationship to other organizations but focuses on how an organization’s structures are contingent  on  the nature and scarcity of the resources it needs to operate rather than on the complexity and uncertainty of its transactions. More so than the other  contingency-based theories, the  resource dependence view emphasizes the role of management in negotiating the dependencies resulting from an organization’s resource needs, and specifies a number of strategies that firms may undertake to do this under different dependency conditions.

The  rational/efficient assumptions  within  contingency-based theories of organizations also underlie the theories of population ecology and co-evolution, which conceptualize the environment shared by organizations in the same or related fields as an ecosystem. These theorists employ ecological and  evolutionary mechanisms, (e.g., variation, selection, specialization) to explain how organizations come to be and survive or fail. In this stream of research, organizational success, failure, and form are contingent upon environmental adaptation, fit, and population density.

Organizations as Embodiments of Value And Meaning

Another approach to  addressing the  questions of how organizations come into  being and  why they take the forms they do is based on the conception of organizations as embodiments of value and meaning. Many of these theories can be traced to Peter Berger and Thomas Luckmann’s The Social Construction  of Reality (1966), in which they suggest that, in the context of social science, “knowledge” and “reality” are subjectively created rather than  objectively discovered. Theories  based  on  this approach shift their emphasis from identifying efficient ways of  organizing to  understanding  the  purpose  or meaning derived from organizing a particular way. The shift was essentially a move from Weber’s formal rationality to substantive rationality, which critics held had been slighted by modernist social science and its natural preference for formal rationality.

One example of this branch of organization theory comes under the generic heading of institutional theory, which grows out  of the  concept of social institutions. While diverse definitions of institutions abound, reflecting the evolution and variety of theories under this rubric, common to all of them is the idea of stable patterns of social interaction that over time become vested with value and power. Within organization theory, institutions were first associated with the processes by which leaders infuse organizational structures or processes with value beyond their technical requirements, resulting in their reproduction and stability. In this stream of research, sometimes termed old institutionalism,  the focus is on creating meaning and infusing values from within the organization.

This  is contrasted with  neo-institutional  theory, or new  institutionalism, which  focuses on  how  external aspects of the context in which organizations exist affect their structures and processes. In a seminal piece from 1983, Paul DiMaggio and Walter Powell suggested the similarity among organizations in a field was the result of their common environment, which comprised three distinct forces for conformity: coercive forces, such as a common  regulatory environment; normative   forces, such as professionalization and standardized professional education  (e.g.,  accounting);  and  mimetic forces,   in  which organizations copy visible or successful others when facing uncertainty. The idea that processes and structures result from passively adapting to external pressures contrasted directly with old institutionalism, which theorized they were actively infused with value from within. Later, in response to criticisms that neo-institutional conceptions of organizations were too passive and static, neo-institutionalists highlighted institutional change, where organizations dynamically adapt to changing institutional environments, and  institutional entrepreneurship,  where actors actively shape the  institutional  environments in which they exist. These advances, along with the concept of  institutional work,  have  blurred  the  distinctions between old and new institutionalism.

These blurred distinctions are also evident in organizational culture and organizational identity, both of which focus on how organizations enact meaning within their social contexts. Organizational identity theorists address the issues of “who we are” as an organization and show a similar focus on the reproduced social meaning (i.e., what is enduring, central, and distinctive) within an organization, and how that affects the structures and processes of organizations. Work  on  organizational culture  focuses directly on the meaning systems of organizations at three levels: artifacts,  the rituals and symbols employed in an organization; values, the  conscious beliefs about  what should or should not be; and assumptions, the deeply held and often unconscious beliefs that guide how members make sense of an organization. Consistent with the work on  the social construction  of reality, this suggests that organizational action flows from values about what should or should not be, but is constrained by assumptions about what is or can be.

Bibliography:

  1. Astley, W. Graham, and Andrew Van de Ven. 1983. Central Perspectives and Debates in Organization Theory. Administrative Science Quarterly 28 (2): 245–273.
  2. Berger, Peter, and Thomas L 1966. The Social Construction of Reality. New York: Doubleday.
  3. Clegg, Stewart , David Courpasson, and Nelson Phillips. 2006. Power and Organizations. Thousand Oaks, CA: Sage.
  4. DiMaggio, Paul and Walter W. Powell. 1983. The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields. American Journal of Sociology 48 (2): 147–160.
  5. Hatch, Mary Jo, and Ann Cunliffe. 2006. Organization Theory: Modern, Symbolic, and Postmodern Perspectives, 2nd ed. Oxford: Oxford University Press.
  6. Lawrence, Paul and Jay W. Lorsch. 1967. Differentiation and Integration in Complex Organizations. Administrative Science Quarterly 12 (1): 1–47.
  7. Lawrence, Thomas , and Roy Suddaby. 2006. Institutions and Institutional Work. In The Sage Handbook of Organization Studies, eds. Stewart R. Clegg, Cynthia Hardy, Thomas Lawrence, and Walter Nord, 215–254. London: Sage.
  8. Scott, W. Richar 2002. Organizations: Rational, Natural, and Open Systems, 5th ed. Englewood Cliffs, NJ: Prentice Hall.
  9. Tsoukas, Haridimos, and Christian Knudsen, 2003. The Oxford Handbook of Organization Theory: Meta-theoretical Perspectives. Oxford: Oxford University Press.
  10. Weber, M 1925. The Theory of Social and Economic Organization. Trans. by A. M. Henderson and Talcott Parsons. New York: Free Press, 1947.

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