What Is Organizational Theory? Definition and 6 Types

By Indeed Editorial Team

Updated July 11, 2022 | Published August 4, 2021

Updated July 11, 2022

Published August 4, 2021

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A team meets in an office meeting room. A writing board is seen to the left of them, and the team sits at a large table in front of a wall of windows.

Researchers and business professionals can use or create different approaches for understanding techniques that may help an organization meet its goals. Organizational theory is one way that professionals can study productivity and efficiency within businesses and bureaucracies. Understanding what organizational theory is can help managers and other business leaders decide which approach to implement within their business or institution.

In this article, we define what organizational theory is and discuss the significance of six organizational theory approaches.

What is organizational theory?

Organizational theory is the sociological study of the structures and operations of social organizations, including companies and bureaucratic institutions. Organizational theory includes the analysis of the productivity and performance of organizations and the actions of the employees and groups within them. Economists, business analysts and academic researchers who study organizational theory are interested in understanding the dynamics of a successful business.

They may evaluate the importance of the professional and social relationships among employees and structures between business leaders and their staff that encourage productivity in the workplace. Theorists can use the principles of organizational theory in combination with studies of organizational behavior and human resources.

Related: A Guide to Organizational Culture and Leadership

6 organizational theories

Social and behavioral scientists have developed various theories to describe the correct way to understand and approach the key to an organization's productivity and success. These organizational theories discuss different ways that managers and supervisors may address their leadership responsibilities in order to yield the most productive and efficient results. The six primary organizational theories include:

1. Classical theory

Classical theory can address the primary aspects of a business's formal organizational structure. This theory discusses how to divide up professional tasks in the most efficient and effective way.

Classical theorists pay particular attention to the professional dynamics and relationships within an organization and how these relationships may impact the company's function and production. The underlying purpose of this theory is to help businesses create the most beneficial structures within a company that can then help the organization accomplish its goals.

The four principles of the classical theory include:

  • Division of labor: This principle argues that the production of a commodity splits into various divisions of manufacturing, and the people work within each division according to their area of specialization. This process results in maximum product output with minimum expenses.

  • Scalar and functional processes: The scalar process deals with a company's vertical growth, meaning the relationships between business leaders and their employees. This means that professionals in management instruct their employees, and employees carry out the actions.

  • Structure: The principle of structure describes patterns of professional behavior that lead to the accomplishment of the organization's goals. Structure is a tool that may facilitate relationships between all aspects of the company or business.

  • Span of control: The span of control means attributing the appropriate numbers of employees to a supervisor so they can implement the principles of coordination, planning, motivation and leadership. This is about assigning the maximum number of employees to a manager while also allowing them enough time and support to lead their staff.

Related: What Is Specialization of Labor? (With Benefits and Examples)

2. Neo-classical theory

Beginning with the Hawthorne studies in the 1920s, the neo-classical theory focuses on the emotional and psychological components of peoples' behavior in an organization. Sociologists and psychologists found topics like leadership, morale and cooperation contribute to professional habits and behaviors.

This theory argues that a sense of belonging and social acceptance is an important aspect of positive performance in the workplace. This means that effective leaders understand how the group dynamics may contribute to the success of the organization overall. Business leaders may implement systems and strategies to improve the interpersonal skills of their employees and facilitate meaningful professional connections through motivation, counseling and communication.

Related: Guide To Effective Group Dynamics

3. Modern theory

Modern theory, also called modern organizational theory, includes multiple management development approaches. This theory considers interactions between people within an organization and the surrounding environment, as well as the interpersonal interactions between members of the organization. Theorists based this approach on systems analysis and used both quantitative and behavioral sciences to develop it.

This means that professional leaders who adopt this theory may use statistical and mathematical information to make business decisions while also considering the satisfaction and happiness of their employees. Managers who implement this approach may require an in-depth knowledge of their employees' behaviors in order to implement programs that further their productivity and professional development.

Related: Modern Theory of Management: Definition, Benefits and Types

4. Contingency theory

Contingency theory, also called decision theory, views organizations as a structure composed of choice-makers, and argues that there is no one right way to make a decision. Herbert A. Simon, a primary contributor to this theory, found that while people make business decisions at all levels of an organization, employees working at higher levels make the most valuable or impactful choices.

This theory argues that the ideal decision or choice may differ from one organization to another, so choices are dependent on various internal and external factors. This means that the success of a business is contingent on the decisions made by the organization's leaders. Contingency theorists believe that management is responsible for analyzing business situations and then acting accordingly to address any issues or challenges.

Related: Understanding the Contingency Theory of Leadership?

5. Motivation theory

The motivational theory includes the study of what drives and inspires members of an organization to work toward their professional goals. Theorists who support this approach argue that employees perform their job duties accurately and productively when management knows how to motivate them correctly. This may require business leaders to thoroughly understand their employees' behavioral patterns and preferences to recognize the most beneficial way to support them.

The goal of this is to increase company productivity on the basis that appropriately encourages employees to perform more efficiently, thus increasing production and profit. Managers may consider intrinsic and extrinsic factors that can impact their employees' feelings and experiences in order to develop effective systems and managerial strategies.

Related: 35 Examples of Motivation in the Workplace

6. Open systems theory

Open systems theory is a concept that argues that an organization's environment influences it, and understanding the impact of this influence may help managers develop more effective leadership strategies. Theorists categorize the environmental factors that impact an organization as specific or general.

Specific factors may include the vendors or distributors that a company works with, industry competitors or government agencies that control or interact with production and regulation. Alternatively, general factors include four primary aspects that occur because of the geographic location of the organization. These aspects include:

  • Economic conditions: The geographic location of a business can have a great impact on the company's ability to grow and remain successful because of local economic trends and events, including recessions and economic upswings.

  • Cultural values: The cultural values of a community can influence customers' viewpoints and standards. This may influence whether they support your business or organization, and business leaders may use this theory to adapt to local cultural ethics.

  • Education systems: Areas with strong education systems may be ideal for businesses that are in the technology industry or other companies that may rely on employees with extensive academic training.

  • Legal consideration: The legal and political environment, including the taxes and regulations on business operations, may impact the stability and security of an organization. This may influence its ability to remain productive and successful.

Related: 6 Different Work Environment Types (With Examples)

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