neo classical theory

8/7/2019 NEO CLASSICAL THEORY

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-Pranav Upadhyay(BE/5647/07)

Vivek Shankar(BE/5708/07)Nikhil Khobragade(BE/5672/07)

Sumit Kant(BE/5589/07)


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The classical organization theory which focused attention on thephysiological and mechanical variables of organizationalfunctioning was tested in the field to increase the efficiency of theorganizations. Surprisingly, positive aspects of these variablescould not evoke positive response in work. They discovered thatthe real cause of human behavior was somewhat more than merephysiological variables. Such an approach is referred to as

'behavioural theory of organization', 'human view of organization',or 'human relations approach.

The essence of behavioral approach is contained in two points:(i)organizational situation should be viewed in social as well as ineconomic and technical terms.(ii)the social process of group behavior can be understood in termsof clinical method analogous to the doctor's diagnosis of humanorganism.


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y It views organization as a combination of both formal and informalforms of organization. The latter form as missing in classical approach.Another contribution of behavioral approach is the introduction ofbehavioral since in analyzing the nature of organization. Through theuse of this science, behavioral writers have demonstrated how thepillars of classical doctrines-division of labor, specialization, structure,and scalar an functional processes-are affected and modified by humanactions. Since this approach has suggested only modifications in thebasic postulates of classical theory, it is referred to as neoclassicaltheory.


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Neoclassical Theory and Organizational Design

y 1. Flat Structure. Neoclassical organization theory suggests flatstructure as against the tall structure suggested by classicaltheory. Flat and tall structures are extension of the span ofcontrol concept of classical theory and relate to the verticalstructures arrangement for the whole organization. There arecertain problems in tall structure with narrow span of control.These are: communication problem, increased differencebetween decision-makers and implementers, motivationproblem, and expensive. As against this, f lat structure with widespan of control is more suitable for motivating human beings inthe organization. In this structure, communication chain is

shorter. People prefer flat structure because it is more free ofhierarchical control. They feel more autonomy and developindependent spirit. Flat structure thus is more in accordancewith the assumptions of Theory Y of McGregor.


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y 2. Decentralization. The neoclassical organization theorysuggests decentralization in organization structure.Departmentation, although mentioned by classical theory andassociated with its concept of specialization, is broader and more

analytical in neoclassical theory and relates to the horizontalorganization at one level of hierarchy. Decentralization is closelyrelated to flat structure as wide span will result more inhorizontal increase in people. The decentralized structure offersvarious advantages and is more in accordance with the various

characteristics and propositions of human beings in theorganization, as identified by the neoclassical theorists.


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y3. Informal Organization. A noteworthy point of neoclassicaltheory is the informal organization. This aspect has been leftaltogether by classical theory. In order to understand theOrganizational functioning fully, both formal and informalaspects of the organization must be studied. Formal

organization structure represents as closely as possible thedeliberated intention of its framers for the purpose ofinteractions that are expected to take place among its members.The informal organization, on the other hand, is created becauseof the limitation of the organization to fulfill the members'

needs, particularly the psychological ones. Actual organizationbehavior is determined with interaction of these two.


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Classical and Neo-Classical Theories of Management

y There are three well-established theories of classicalmanagement: Taylors Theory of Scientific Management, FayolsAdministrative Theory, Webers Theory of Bureaucracy.Although these schools, or theories, developed historicalsequence, later ideas have not replaced earlier ones. Instead,each new school has tended to complement or coexist with

previous ones.

y The importance of the function of management was firstrecognized by French industrialist Henri Fayol in the early 1900s.

y

In contrast to the purely scientific examination of work andorganizations conducted by F W Taylor, Fayol proposedthat any industrial undertaking had six functions:technical; commercial; financial; security; accounting; andmanagerial.


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y Of these, he believed the managerial function, to forecast and plan, to

organize, to command, to coordinate, and control, to be quite distinctfrom the other five. Fayol also identified general principles ofmanagement: division of work; authority and responsibility; discipline;unity of command; unity of direction; subordination of individualinterest to general interest; remuneration of personnel; centralization;scalar chain of authority; order; equity; stability of tenure of personnel;

initiative; and esprit de corps.

y Fayol's views on management remained popular throughout a largeEvolution of Classical Approach to ManagementTraditional process of learning is either through observation andexperiment. Nature or environment is considered uniform and when

we observe certain phenomenon or events uniformly leading to thesame result or results, we conclude a cause and effect relationshipbetween the two. This is learning by observation or in other words byexperience.


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Basic Postulates of the Classical Approach by Max Weber

Management of an organization is considered as a chain of inter-relatedfunctions. The study of the scope and features of these functions, thesequence through which these are performed and their inter-relationship leads one to draw principles of management suitable for

universal application.Learning principles of management is done through the past

experiences of actual practicing managers.

As business environment consists of uniform cycles exhibiting anunderlying unity of realities, functions and principles of management

derived through process of empirical reasoning are suitable foruniversal application.

Emerging new managers through formal education and case study candevelop skill and competency in management concepts and practices.


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The classical approach also recognized the importance of economicefficiency and formal organizational structure as guiding pillars ofmanagement effectiveness.

Business activity is based on economic benefit. Organizations shouldtherefore control economic incentives


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Neoclassical theory of management

y There are 3 neoclassical theories:

y Human Relations theory :

Explains the modern advancement of Human RelationsManagement theory which takes into account humanfactors like the employer-employee relationship.The important strand in the development of modernmanagement was the increase in attention to the humanfactors, which has become known as the 'human relations

school of management.T

he core aspect of HumanRelations Theory is that, when workers were beingobserved and included in the research, they felt moreimportant and valued by the company. As a result, theirproductivity levels went up significantly.


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y

Behavioral theory :

y The behavioral management theory is often called thehuman relations movement because it addresses thehuman dimension of work. Behavioral theorists believed

that a better understanding of human behavior at work,such as motivation, conflict, expectations, and groupdynamics, improved productivity.

y The theorists who contributed to this school viewed

employees as individuals, resources, and assets to bedeveloped and worked with not as machines, as in thepast. Several individuals and experiments contributed tothis theory.


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y Social systems theory.:

y Five major contributions to a theoretical foundation of HRM areidentified.

y the conceptualization of organizing and managing human

resources as social processes, thus overcoming an individualisticangle.y the new importance of individuals as essential element in the

system's environment.y the abstention form far reaching or highly unrealistic

assumptions about the 'nature' of human beings.

y the interaction between various levels and units of analysis builtinto the theory which is essential for comprehensive and in-depth analyses of HR phenomena.

y the openness for additional theories for which social systemstheory provides the overall framework.


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neo classical theory

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