From Institution to Individual: the Beginnings of Organization Theory
Lynn Hardin, Susan Lucas, Linda North and Lucille Prewitt
Despite the importance of management, it remains one of the most tenuous and omnipresent functions in all societies. Even though management functions are used in our daily activities, government agencies, religious institutions, and in the economic decisions of organizations, management, historically, has not been the center of organizational development. The focus has been on production, the employees, or a combination of both. However, successful management is and will continue to be an important asset for all leaders. One only has to review the life of great leaders such as Eisenhower, Reagan, and Roosevelt to understand that each mastered the use of management skills, whether it was coordinating countries, armies, or people. Management of organizational behavior determines the success and sustainability of organizations.
Understanding organizational behavior is essential to our national well being as well as our personal success. The degree to which the leaders of our age can grasp and execute sound management practices reflects what the society we live in will become (George, 1972).
If one assumes and believes that organizational behavior, management skills, and leadership are important to survival, then an investigation into management history may help provide an understanding of its impact on today’s world. To understand where an organization desires to go requires that the leaders know the events and circumstances of the past. Ancient civilizations used some type of organizational and management techniques for survival. The writings of Socrates discussed the skills of leader and the importance of those skills to society. However, the first documentation and investigation into organization and management began with Classical Organization Theory in the 1700’s.
Classical Organization Theory
Classical organization theory focuses primarily on the structure of the organization. Managers who ascribe to this doctrine use prescriptive methods to organize the company and apply the philosophy that the best decision is the one that involves doing what is good for the organization. The focus is the “one best way.” This premise underlies many decisions that managers make, which are believed to be practical and made for the good of the whole.
Shafritz and Ott (2001) use the management techniques of Moses to document that organizational behavior and management practices have been used for centuries. In actuality, Moses chose to use management by exception, a practice not named as such until many years later. Beginning with the 1700’s a series of events occurred that influenced the development of organization theory. The more important ones included the shift of the population to the cities, the application of the principles of specialization of jobs, the proliferation of the printing press, and the beginning of the industrial revolution.
Although the literature fails to identify a beginning date for the origin of organization theory, most theorists argue that it began in the 1700’s. One of the first influential people to study organization theory was Adam Smith, who published The Wealth of Nations in 1776, which has become known as the “operationally defined year dating the beginning of organizational theory as an applied science and academic disciple” (Shafritz & Ott, p 30). In this book, Smith writes and discusses the organization of a pin factory. Smith demonstrated great insight into management principles. He is perhaps best known for his work supporting a division of labor in organizations, which he believed to be paramount in terms of the economic success of organizations. His work earned him the title Father of Economics and his innovative ideas formed the basis of the laissez faire leadership style. He provided the following three reasons to why the division of labor was such a successful practice: first, it allowed for a greater proficiency in the skills of the worker; second, it produced a greater savings in production time when the worker did not change tasks; and finally, it increased the technology (machines) available to assist the organization (Shafritz & Ott, 2001).
In contrast to the 1700's, the 1800's brought forth a wealth of knowledge and written literature related to management. The term manger was first advocated during this time as well as the term job description, the definition of which began to evolve in such a way as to establish and document the particular skills needed by the manager. Daniel McCallum, a visionary for his time, played a major role in documenting the tasks of the manger. As the Superintendent for the New York and Erie Railroad, McCallum gained first hand experience via his managerial role in a large company. Using Henry Poor's basic principles for managing large organizations, McCallum found solutions to the problems facing the railroads. His solutions included developing specific codes and rules that all employees would follow. As superintendent, McCallum, in his 1856 letter, outlines three interventions (policies) required to control and/or manage large organizations. He believed by creating a division of labor, giving power to the appropriate people, and providing documentation (reports) of organizational issues, a large organization would be successful (George, 1972).
The growing pains experienced by the railroad began to occur in other organizations, thus changing the culture and working environment in the organizations. Influenced by the migration of people to the cities, leaders of the growing organizations realized the management methods they had used for years were no longer effective. They acknowledged that assistance was needed to meet the demands of the growing organizations. This organizational growth paved the way for the scientific movement (George, 1972).
The rapid growth of small businesses to larger organizations prompted managers to begin discussing their problems with each other and at national societies. Leaders in the field would discuss their best practices as leaders do at conferences today. As a result, leaders began writing literature addressing and sharing solutions to the problem issues of the time. Henry Towne, a pioneer in the scientific management movement, presented a paper, "The Engineer as an Economist" at the American Society of Mechanical Engineers. Basing his work on his personal business success, Towne discussed the need for managers to create a literature of their own to disseminate information concerning best practices. Frederick Taylor attended this meeting and it is thought that this meeting may have inspired Taylor to develop the scientific management principles (Shafritz & Ott, 2001).
During the same period, Henry Metcalfe began investigating management hierarchy at the Franklin Arsenal. This organization needed assistance allocating and controlling resources. Realizing that traditional management methods did not work, Metcalfe developed a detailed control plan based on his belief that authority should come from a central location. From this central location, documentation of company expenditures provided mangers a record to review for improvement (Shafritz & Ott, 2001).
The experiences of leaders like Towne and Metcalfe engineered a new era and an explosion in the field of organizational theory. Frederick Taylor developed his now famous scientific management principles. According to Taylor, managers should be more than disciplinarians. They should develop and apply broader visions of management including principles of planning, organizing and controlling. Taylor's observations of factory processes, the workers, working conditions, as well as his time and motion studies facilitated the development of the Scientific Management Principles. Taylor believed that by applying standardization, efficiency, and control organization would be more profitable (Hersey & Blanchard, 1988).
Taylorism, or the ideas supported by Taylor, has made a significant impact on society. He created detailed plans for organizations to use. As a result, many regard him as the father of all present day management. His ideas about scientific management provided the foundation for the industrial growth experienced in the United States.
When Taylor discussed scientific principles of management, he also discussed his thoughts and ideas that he felt did not correlate or support scientific management. He believed scientific management was not one idea, but a combination of many ideas. Most importantly, applying the Principles of Scientific Management requires that a person change his/her thinking processes. Taylor used the term "mental revolution" (George, 1972, p. 36).
During the same that Taylor advocated scientific management, Henri Fayol, a French Engineer, developed the first comprehensive theory of management. Largely ignored by Americans, Fayol's theory included a plan of management applicable to all organizations. He realized that management requires education at all levels. He developed six principles, which applied to organizations of all types. Listing them in ascending order in order of importance, the last principle was management. To Fayol, management consisted of five areas: planning, organizing, commanding, coordinating, and controlling. For each principle, he designed a specific plan of action (Shafritz & Ott, 2001).
In the 1920's, Max Weber investigated bureaucratic organizations. In contrast to Taylor, Weber studied the social impact of the bureaucracy on individuals. He applied a definition to the term and his work provided insight into the social and psychological effects of a bureaucracy on individuals. Even today when a colleague uses the term bureaucracy, it brings to mind a specific structural hierarchy that mangers and workers must climb or detour around. Weber, however, created and wrote about the ideal bureaucracy. His writings about the human relationships in management provide the foundation for many writers today. His observations about the positions of people in organizations can be effectively applied to today because this structural hierarchy remains in place (Shafritz & Ott, 2001; Hersey & Blanchard, 1988).
Organizations generally require a number of employees to be successful. The division of work continues to be an important factor in organizational theory. Luther Gurlick developed the idea of using a set of administrative principles in managing organizations. These principles are known by the mnemonic POSDCORB. Managers who ascribe to Gurlick's work have a list of all the necessary skills or tools that a leader needs to manage an effective organization. POSDCORB stands for the following terms: planning, organizing, staffing, directing, coordinating, reporting, and budgeting. These principles continue to be applied and assessed by effective organizations (Shafritz & Ott, 2001).
The leaders of the 1700s, 1800s, and 1900s subscribed to the Classical Organization Theory, which was prescriptive. Company decisions rested on what was identified as interventions to improve the company as a whole. The needs of the worker were not considered relevant or important when compared to the needs of the company. This style of management continues in modified forms today. It was not until the development of the Human Resource Theory that leaders assess the needs of the employees.
From Classical to Neoclassical
Critics of Classical Organization Theory claimed that Classical Theory tended to view workers as little more than machines with no thought or motivations of their own, who needed to be tightly controlled and supervised in order to maximize production. Interestingly enough, there was little empirical data that supported Classical Theory principles and claims. In a response to these issues, a group of theorists broke from tradition and created what is now called Neoclassical Organization Theory.
Neoclassical Organization Theory builds on Classical Theory, but broadens and expands it; it does not totally divorce itself from its predecessor. Rather, Neoclassical Theory adds a more human element to the science of organization and management. It views managers as coaches rather than authority figures, and the theory’s major concerns are with employee motivation, validation, and creativity. Neoclassical theorists raised issues and initiated theories that have become central to the foundation of most schools that have followed. A few major theorists of the neoclassical era contributed a great deal to the body of literature, and were considered to be principal in the development of the theory. These theorists were, among others, Chester Bernard, Robert K Merton, and Herbert Simon.
In 1938, a retired CEO of the New Jersey Bell Telephone, Chester Barnard, recorded his insights about management in the book, Functions of the Executive. Barnard believed that each person has a “zone of indifference,” or a range in which an individual will willingly accept orders without consciously questioning authority. It was up to the organization to provide sufficient inducements to broaden each employee’s zone of indifference so that the manager’s orders would be obeyed. To this end, Barnard outlined the top functions that the executive had at his or her disposal. Executives must establish and maintain an effective communication system, hire and retain effective personnel, and motivate personnel. Barnard and other Neoclassical Theorists questioned the Classical Theory assumptions about employee motivations. Classicalists believed that employees were motivated by financial incentives only; Neoclassical Theorists believed it was up to the manager to find alternate ways of motivation.
In order for managers to carry out their supervisory duties, they must have authority. Barnard’s “Acceptance Theory of Authority” stated that managers only have as much authority as employees allow them to have. The acceptance theory suggests that that authority flows downward but depends on acceptance by the subordinate, and that acceptance is dependent on four conditions. Employees must understand what the manager wants them to do, and they must be able to comply with the directive. Additionally, employees must think the directive is not contrary to their personal goals, and employees must think the directive is in keeping with organizational objectives.
In keeping with the more humanistic approach of the Neoclassical Theorists, Robert Merton looked at the nature of bureaucracy, in particular, Max Weber’s “ideal-type” bureaucracy. Bureaucracy is often seen as a dehumanizing organization. Merton determined that Weber’s bureaucracy exerted pressure on managers to become regulated by rules and procedures and be systematic to a fault. This methodical behavior causes the bureaucracy to become inflexible, and many times the bureaucracy fails to eliminate this inflexibility, and even, in some cases, encourages it. This, in turn, causes people to equate bureaucracy with the manifestation of administrative incompetence. True bureaucracy is, however, meticulous, and almost obsessive about accurate record keeping. This obsession with record keeping does not, obviously, eliminate error, which can creep into bureaucratic systems as well as any other system. Bureaucracy is then characterized not by the presence of error, but by the some times absurd way that the system tries to eliminate error (Pugh, 1994).
Dismissing the claims of Fayol, Gulick, Taylor and other Classical theorists, Herbert Simon questioned how the scientific method of management could produce conflicting and inconsistent results. He challenges the basic principles of Classical theorists, namely that efficiency is increased through specialization, that unity of command is the most effective means for carrying out orders, that the span of control must be limited to only a few members, and that organization is best achieved by controling various factors. Simon finds that each of these principles can prove to be inconsistent and inefficient to the point of being contradictory. In this fashion, Simon essentially clashes with Classical Theory head on (Shafritz & Ott, 2001). Simon went on to say, in 1991, that four concepts contributed to the successful or unsuccessful functioning of organizations. Those concepts were authority, rewards, identification, and coordination.
Authority is the relationship between an employer and an employee. This authority, given to the employers, allows for delegation of tasks and carrying out of commands. Once commands are carried out, workers can be rewarded. Rewards work best when they can be clearly allocated, and this cannot be done easily when people are interdependent. Loyalty deals with identification with organizational goals, and loyalty to the group and pride in work are important in the success of the organization. The final concept is coordination, and it is the key factor. A coordinated organization has more means and ways for greater production. The combination of authority, relations, motivational foundations, a repertoire of coordination mechanisms, and the division of labor has yielded the large organizations that characterize modern life (Simon, 1991). Although theorists like Barnard, Merton and Simon had a great deal of influence in the neoclassical era and beyond, the period did not have a complete theory of its own (Shafritz & Ott, 2001). Neoclassical Theory would become more of a transitional phase in between the mechanized, scientific Classical Theory, and the humanistic, people-oriented Human Resource Theory.
Human Resource Theory
Human Resource Theory of organization derives its roots from industrial and organizational psychology. Industrial and organizational psychology uses research and application of the methods, facts, and principles of psychology to describe people at their work including their behaviors, interactions among people, motivation, and decision-making. The term ‘industrial psychology’ first appeared in the American lexicon purely by mistake when, in 1904, W.L. Bryan proclaimed in his presidential address to the American Psychological Association that more research in the field of ‘industrial’ psychology was needed, when he meant to say that more research was needed in the field of ‘individual’ psychology (McCarthy, 1997). And it is exactly the individual, not the organization, which the Human Relations Theory of organization emphasizes.
About the same time that Frederick Taylor began publishing his theories on organization management, Hugo Munsterberg (1863-1916), the father of industrial psychology, began pioneering work in the application of psychological findings from laboratory experiments to practical matters. Munsterberg believed that managers should be thoughtful of all factors that could affect an employee’s behavior and production such as physical exhaustion, boredom, work satisfaction, and compensation. He was the first to encourage government-funded research in the area of industrial psychology. Munsterberg’s early research in industrial psychology assumed that people needed to fit the organization. At this time, behavioral sciences focused mainly on helping organizations shape people to serve as replacement parts for organizational machines. (McCarthy, 1997) The influence of Munsterberg’s work continued well into the 1950s. During the period of his work, modern human resource theories began to arise which placed people above the organization in importance.
The first significant event for the Human Resource Theory movement occurred in 1924 when Elton Mayo and his team of Harvard University researchers began the famous Hawthorne experiments. The Hawthorn experiments consisted of a series of experiments at the Hawthorne Works of the Western Electric Company. In these experiments, the researchers sought to study the relationship between lighting and efficiency in the workplace. As expected, increased lighting levels did result in increased efficiency, but to their surprise, efficiency continued to improve as the lighting dimmed to even the faintest levels. These unexpected results were eventually explained in terms of previously unrecognized aspects of human behavior in the workplace. Researchers hypothesized that these results were due to the employee’s desire to please them. Some time later, the employees became accustomed to the presence of the researchers and began to return to their original levels of productivity. This observation became known as the Hawthorne Effect – a change in behavior following the onset of a novel treatment. However, the effect eventually wears off as the ‘novelty’ dissipates. Through analysis of his data, Mayo showed the existence of informal employee groups and their effects on production, the importance of employee attitudes, the value of a sympathetic and understanding supervisor, and the need to treat people as people and not simply as human capital. One of the key findings of the Hawthorne studies was that employees didn't respond to classical motivational approaches as suggested in earlier works; instead, the studies found that employees were also interested in the rewards and punishments of their own work group (McCarthy, 1997). The observations made during the Hawthorne studies became one of the benchmark events in the development of the Human Relations Theory (Wertheim, 1996).
A cohort to Elton in the developing of Human Relations Theory was Mary Parker Follett. She was responsible for one of the first articles on situational leadership “The Giving of Orders” (1926). In this treatise, Follett focused on the manner in which orders should be given to employees. She proposed that orders should be given in such a manner that they are “depersonalized to unite all concerned in a study of the situation “ (Shafritz and Ott, 2001, p. 147). Warren Bennis claimed that…’Just about everything written today about leadership and organizations comes from Mary Parker Follett” (Horne, 1997). Follett believed that it was the situation that needed to be controlled not the people, and that the main function of an organization was to provide an opportunity for individual growth through improved human relationships in the organization (Horne, 1997). This type of cooperative effort is thought to create a more positive attitude in the employee because no one person is in control and all behavioral cues come from the situation rather than from others (Shafritz and Ott, 2001, p. 147). Her writings encompass the idea of a “business eco-system” (Horne, 1997) – a system in which every division is dependent on the other for survival.
To truly create a positive attitude in an employee, one must understand what motivates that person. Abraham Maslow’s research described the needs which drive or motivate a person to perform. While working with monkeys, Maslow recognized that certain needs would take precedence over others. Maslow referred to this precedence as the hierarchy of needs. Physiological needs are the most basic. Followed by safety, belonging, esteem, and self-actualization, respectively. The more basal needs must be met first before higher needs can be dealt with (Boeree, 1998).
In addition to Maslow, other motivational theories have arisen. According to Douglas McGregor’s The Human Side of Enterprise (1960), there are two views by which employee’s motivation can be viewed. McGregor wanted to avoid descriptive labels for these opposing theories and simply called them Theory X and Theory Y. Both of these theories begin with the premise that management's role is to assemble the factors of production, including people, for the economic benefit of the firm. Beyond this point, the two theories of management diverge. Theory X assumes that people are lazy and will avoid work whenever possible. Theory Y, on the other, hand assumes that people are creative and enjoy work. These two theories “X” and “Y” have also been examined by other authors as the “Autocratic Style” and the “Participative Style,” or as “Hard” and “Soft” management (Chapman, 2002). McGregor’s Theory X holds the belief that people do not like work and that some kind of direct pressure and control must be exerted to get them to work effectively. These employees require a strictly managed environment, usually requiring threats of disciplinary action as the primary source of motivation. McGregor’s Theory Y assumes that people are creative and eager to work. McGregor’s research seemed to clearly suggest that Theory Y assumptions were more correct and urged mangers to conduct business based on these more valid Theory Y notions (Wertheim, 1996).
Conclusion
Given its mechanistic and institution-based beginnings, it is somewhat amazing how far organization theory progressed in such a brief period of time. From Taylor’s and Fayol’s work in the early twentieth century, to Douglas McGregor’s Theory X and Theory Y merely fifty years later, organization theory ran the gamut of beliefs, from the institution being paramount in production, to the individual being the most important factor. The changes in management in factories and organizations based on these theories are quite astounding. Due to changes in managerial practices, workers went from being told what to do, when to do it and how to do it, to a more humanistic system where the worker’s needs were considered and realized to be important, albeit still in terms of production maximization.
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