Laura Slingo 
Understand organisational theories and behaviours that guide business operations
Understanding the intricacies of organisational theory is akin to unravelling the DNA of how businesses function. Organisational theory, a crossroads of sociology, business management, and economics, delves into the essence of organisations. It acts as a compass, directing attention to these entities' structures, operations, and dynamics.
At its core, organisational theory scrutinises the fabric of successful businesses. It explores how work flows, decisions materialise, and professional and social relationships interweave among staff. Think of it as a manual for deciphering the why and how of organisational behaviour, a roadmap to improvement.
Read on to understand the definition of organisational theory and the seven main types which govern how businesses thrive.
What is organisational theory?
Organisational theory is a multidisciplinary body of work that focuses on understanding organisations. Researchers and scholars of organisational theory typically have sociology, business management, and economics backgrounds. While most of the attention has been on analysing organisations, like companies and bureaucratic institutions, today, it also covers associations and nonprofits.
Organisation theory literature primarily focuses on the structures and operations of organisations. However, it also includes an analysis of an organisation's productivity and performance, by reviewing employees' actions. The aim of studying organisations is to understand the dynamics of a successful business better.
To summarise, organisational theory is a way of understanding how groups of people work together in an organisation. It explores how people interact, their roles, and the patterns that make organisations tick. Organisational theories are like a manual for understanding why organisations behave the way they do and how they can improve.
There isn't a universally agreed-upon list of organisational theories, because the field is very dynamic. However, there are seven types of prominent organisational theories, including:
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Classical or traditional theory
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Human relations or neo-classical theory
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Decision-making theory
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Systems approach
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Modern theory
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Contingency theory
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Motivation theory
7 organisational theories
You can slice and dice organisational theory in many ways, but the uniting factor is that they seek to understand how an organisation can perform at its best. All organisational and behavioural theories focus on the organisational structure, the employees, or both. Here's a rundown of the seven most prominent organisational theories:
1. Classical organisational theory (or traditional theory)
Classical theory, also known as classical management theory or traditional theory, is rooted in the early 20th Century and was pioneered by theorists like Max Weber, Henri Faylor, and Frederick Taylor.
The theory emphasises organisational efficiency through hierarchical structure, clearly defined roles, and a focus on tasks. Classical theory is about enhancing productivity and streamlining processes by breaking work into manageable components, i.e. a standardised, step-by-step process.
Traditional theory assumes a rational approach to management, where workers are primarily motivated by financial incentives based on their performance. If employees can work optimally by following a well-defined procedure, this increases efficiency and profit for the business.
It's worth noting that within classical management theory, there are three subsections:
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Bureaucratic theory of management, developed by Max Weber
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Administrative management theory, developed by Henri Fayol
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Scientific management theory, developed by Frederick Taylor
2. Human relations theory or neo-classical theory
Human relations theory, also known as neo-classical theory, emerged as a response to classical theory and recognises the significance of social and psychological factors in the workplace.
It was developed in the mid-20th Century and highlights the importance of employee satisfaction, interpersonal relationships, and group dynamics. Unlike classical theory, human relations theory recognises the impact of social interactions on productivity and views employees as more than just economic entities.
Notable studies like Hawthorn studies have contributed to understanding how human factors influence organisational behaviour.
3. Decision-making theory
Decision-making theory is all about the processes and factors influencing choices in an organisation and sees decision-making as a crucial aspect of an organisation functioning effectively.
Decision-making theory examines the cognitive processes, information availability, and the influence of leaders that play a role in how individuals or groups make decisions. It also recognises decision-making as a critical aspect of organisational functioning, shaping strategies, and impacting outcomes.
The theory hinges on behavioural and psychological factors, too. It suggests that successful businesses empower teams to make thoughtful and informed choices, consider the risks, embrace uncertainties, and acknowledge the human touch in every decision.
An organisation with solid decision-makers has competent problem-solvers and an adaptable work culture.
4. Systems approach
The systems approach is a theory of management that views organisations as complex, interconnected systems where components work together to achieve common goals. It effectively channels a functional organisational structure, where each department operates efficiently to achieve the overarching business goal.
The theory facilitates a holistic understanding of organisational dynamics and analyses an organisation's inputs, processes, outputs, and feedback loops from the perspectives of different subsystems or departments. This helps offer more insights and control over how the organisation is run.
If changes need to be made to a specific subsystem, department, or team, it will only positively impact the entire organisation.
5. Modern organisational theory
Modern theory integrates core parts of classical, human relations, and systems approach theories. It effectively considers modern organisations' complexities, regardless of size, and the dynamic nature of today's business landscape.
Modern theory emphasises the importance of organisational culture and leadership styles and encourages a holistic view of organisational structure with goals and values. Modern theory is particularly relevant for organisations looking to go global or maintain pace with technological advancements, as it provides frameworks for resilience, sustainability, and competitiveness in our diverse world.
6. Contingency theory
Contingency theory suggests that there is no one-size-fits-all approach to organisational management. It instead states that effective strategies depend on the specific circumstances an organisation faces. The approach makes sense today, even though it was developed in the mid-20th Century, suggesting it was ahead of its time and may well stand the test of time.
Contingency theory recognises that different situations demand different management styles, structures, and processes. Therefore, it emphasises adapting to business environments and aligning organisational practices with external conditions.
This theory encourages a flexible and context-sensitive approach, suggesting that successful organisations tailor their strategies to fit their particular context's unique challenges and opportunities, contributing to improved performance and sustainability.
7. Motivation theory
Motivation theory explores the factors that drive individuals to achieve organisational goals. It seeks to understand why people behave as they do at work and explores the elements that inspire and energise employees.
Several motivation theories, such as Maslow's hierarchy of needs, Herzberg's two-factor theory, and Vroom's expectancy theory, offer different perspectives on what motivates people.
Motivation theory is valuable for leaders and managers aiming to create a positive and productive work environment. It reveals the diverse nature of motivations organisations can leverage to develop strategies to enhance employee satisfaction, engagement, and performance.
3 perspectives of organisational theory
Scholars suggest that we can group organisational theory into three main perspectives, including:
1. Rational system perspective
The rational system perspective is also known as the bureaucratic or classical perspective. This view sees organisations as rational entities designed to achieve specific goals efficiently.
Key characteristics of this perspective include an emphasis on formal structures, clear hierarchies, standardisation of processes, and a focus on achieving organisational objectives.
Theories that fit into this perspective include classical or traditional theory.
2. Natural system perspective
The natural system perspective considers organisations as living organisms within their business environments. It emphasises the importance of adaptability and dynamic structures, i.e. structures that allow greater autonomy for collaboration rather than rigid hierarchies and standardised processes.
It recognises the influence of internal and external business environments on organisational behaviour and views organisations as complex entities influenced by human interactions and the broader context.
Theories that fit into this perspective include human relations or neo-classical theory, systems approach, and motivation theory.
3. Open-system perspective
In the open-system perspective, organisations are seen as dynamic entities that, much like humans, interact with and adapt to their surroundings. It's like understanding that an organisation, just like a person, needs to exchange resources and information with its environment to thrive.
Similar to how individuals adapt to the world around them, organisations must be responsive and flexible, embracing change as a natural part of their journey. This perspective emphasises the importance of staying attuned to the external environment, much like we pay attention to the world around us, to ensure the organisation's growth, development, and overall well-being.
Theories fitting into this perspective include modern, contingency, and decision-making theories.
When choosing your next job, it's essential to consider an organisation's approach to leadership, management, and structure. If you want to ensure your CV showcases the right traits for the company, submit your CV for a free review.