Year 1967

Crucial Message of Contingency theory

“There is no one best way to organize”

 The idea that the organizational structures and
control systems manager choose depend on—are contingent on
—characteristics of the external environment in which the
organization operates.

Assumes there is no one best way to manage.

The environment impacts the firm and managers must be

flexible to react to environmental changes.
In rapidly changing organizational environments, managers
must find ways to coordinate different departments to respond
quickly and effectively.
1. There is no universal or one best way to manage.

2. The design of an organization and its subsystems must ‘fit’ with the
environment.

3. Effective organization not only have a proper ‘fit’ with the

environment but also between its subsystems.

4. The needs of an organization are better satisfied when it is properly

designed and the management style is appropriate both to the tasks
undertaken and the nature of the work group.
 Organizational
Subunits

Organizational
Environment Performance

Organizational
Subunits

A simplified model of contingency theory in organizational

research
Contingency MIS MIS Organizational
Variables Variables Performance Performance

Strategy
Structure
Management Satisfaction
Size
Implication Success Financial
Environment
Structure Effectiveness Volume
Technology
Development Innovativeness
Task
Individual
Mechanistic Structure
Authority is centralized at the top. (Theory X)
Employees are closely monitored and managed.
Can be very efficient in a stable environment.

Organic structure
Authority is decentralized throughout the
organization. (Theory Y)
Tasks and roles are left ambiguous to encourage
employees to react quickly to changing environment.
 Two types of management thinkers- Universalists &
Situationlist

Universalists- There is one best approach to management

Situationalists- Advocate contingency theory

Contingency theory states- The manager must identify

which technique will best contribute to the attainment of
management goals, in a given situation

Contingency variables:
a) Size of the firm
b) Environment
c) Resources
d) Technology
e) Group dynamics
f) Individual differences
Born in
1922
 Fred Fiedler, in the 1960s and 1970s, was an early pioneer in this
area. He identified that various aspects of the situation had an impact on the
effectiveness of different leadership styles.

Fiedler’s approach departs from traits and behavioral models by

asserting that group performance is contingent on the leader’s psychological
orientation and on three contextual variables:
a) group atmosphere
b) task structure
c) leader’s power position.
 What does his theory say’s…..?

This theory explain that group performance is a result

of interaction of two factors.

• Leadership Style
• Situational Favorableness

In Fiedler’s model, leadership effectiveness is the

result of interaction between the style of the leader and the
characteristics of the environment in which the leader works.
Born in
1939
 This theory is an extension of Blake and Mouton’s
managerial Grid modal and Reddin’s 3-D management
style theory. With this model came the expansion of the
notion of relationship and task dimensions to leaderships
and adds a readiness dimension.
Born in
1932
 According to this model, the effectiveness of a
decision procedure depends upon a number of aspects of the
situation :
a) the importance of the decision quality and acceptance
b) the amount of relevant information possessed by the
leader’s & subordinates will accept an autocratic decision or
cooperate in trying to make a good decision if allowed to
participate
c) the amount of disagreement among subordinates with
respect to their preferred alternatives.
• The more dynamic and diverse the environment, the higher
the degree of both differentiation and integration required for
successful organization.

• Less changeable environments require a lesser degree of

differentiation but still require a high degree of integration.

• The more differentiated an organization, the more difficult it

is to resolve conflict.

• Where the environment is uncertain, the integrating Functions

tend to be carried out by middle and low-level managers where
the environment is stable, integration tends to be achieved at
the top end of the management hierarchy.
1967
 System = A set of inter related components that
operate together

 Components according to the approach:-

a) Inputs
b) Transformation Process
c) Outputs
d) Feedback
e) Environment

 Key concepts in systems approach:-

a) Open/closed system
b) Sub-systems
c) Synergy (Within the sub-systems)
d) Feedback Mechanism
 Environment

Inputs Outputs
Transformation Process

Feedback
Open System
A system that takes resources for its external
environment and converts them into goods and services that are
then sent back to that environment for purchase by customers.

Inputs: the acquisition of external resources.

Conversion: the processing of inputs into goods and services.

Output: the release of finished goods into the environment.
Open systems refer to systems that interact with other systems or
the outside environment.

For example, living organisms are considered open systems

because they take in substances from their environment such as
food and air and return other substances to their environment.

The three major characteristics of open systems are:

a) They receive inputs or energy from their environment.
b) They convert these inputs into outputs.
c) They discharge their outputs into their environment.
Companies use inputs such as labors, funds,
equipment, and materials to produce goods or to
provide services and they design their subsystems to
attain these goals.
Daniel Katz and Robert Kahn, began viewing
organizations as open systems with specialized and
interdependent subsystems and processes of
communication, feedback, and management linking
the subsystems. Katz and Kahn argued that the
closed-system approach fails to take into account how
organizations are reciprocally dependent on external
environments. For example, environmental forces such
as customers and competitors exert considerable
influence on corporations, highlighting the essential
relationship between an organization and its
environment as well as the importance of maintaining
external inputs to achieve a stable organization.
Closed system
A system that is self-contained and thus not
affected by changes occurring in its external
environment.
Often undergoes entropy and loses its ability to
control itself, and fails.
Synergy
Performance that results when individuals and
departments coordinate their actions.
`Performance gains of the whole surpass the sum of the
performance of the individual components.
1973
Management expert Professor Henry Mintzberg has
argued that a manager’s work can be boiled down to ten
common roles.

According to Mintzberg, these roles or expectations for a

manager’s behavior fall into three categories:
 Informational (managing by information)
 Interpersonal (managing through people)
 Decisional (managing through action)
Managers role assume to coordinate and interact
with employees and provide direction to the
organization.

Figurehead role: symbolizes the organization

and what it is trying to achieve.
Leader role: train, counsel, mentor and
encourage high employee performance.
Liaison role: link and coordinate people inside
and outside the organization to help achieve
goals.
Associated with the tasks needed to obtain and transmit
information for management of the organization.

Monitor role: analyzes information from both the

internal and external environment.
Disseminator role: manager transmits information to
influence attitudes and behavior of employees.
Spokesperson role: use of information to positively
influence the way people in and out of the organization
respond to it.
Associated with the methods managers use to plan
strategy and utilize resources to achieve goals.

Entrepreneur role: deciding upon new projects or

programs to initiate and invest.
Disturbance handler role: assume responsibility for
handling an unexpected event or crisis.
Resource allocator role: assign resources between
functions and divisions, set budgets of lower managers.
Negotiator role: seeks to negotiate solutions between
other managers, unions, customers, or shareholders.
1974
 Top
Managers

Middle
Managers

Line
Managers

Conceptual Human Technical

Ability to use information to solve business
problems, identification of opportunities for
innovation, recognizing problem areas and
implementing solutions, selecting critical
information from masses of data,
understanding the business uses of
technology, understanding the organization's
business model.
Human skills involve the ability to work well
with other people both individually and in a
group. Because managers deal directly with
people, this is crucial! Managers with good
human skills are able to get the best out of their
people. They know how to communicate,
motivate, lead, and inspire enthusiasm and
trust. These are equally important at all levels
of management.
Technical skills include knowledge of and
proficiency in a certain specialized field, such as
engineering, computers, financial and
managerial accounting, or manufacturing. These
are more important at lower levels of
management since these managers are dealing
directly with employees doing the
organization's work.