Organizational theory

Organizational theory consists of many approaches to organizational analysis. Organizations are defined as social units of people that are structured and managed to meet a need, or to pursue collective goals. Theories of organizations include rational system perspective, division of labour, bureaucratic theory, and contingency theory.

In a rational organization system, there are two significant parts: Specificity of Goals and Formalization. The division of labor is the specialization of individual labor roles, associated with increasing output and trade. Modernization theorist Frank Dobbin states "modern institutions are transparently purposive and that we are in the midst of an evolutionary progression towards more efficient forms". Max Weber's conception of bureaucracy is characterized by the presence of impersonal positions that are earned and not inherited, rule-governed decision-making, professionalism, chain of command, defined responsibility, and bounded authority. The contingency theory holds that an organization must try to maximize performance by minimizing the effects of varying environmental and internal constraints.

Dwight Waldo noted in a review of field work in 1978: "Organization theory is characterized by vogues, heterogeneity, claims and counterclaims",[1] and even greater differentiation in theory and practice have developed since then. Organization theory certainly cannot be described as an orderly progression of ideas, or a unified body of knowledge in which each development builds carefully on and extends the one before it. Rather, developments in theory and prescriptions for practice show disagreement about the purposes and uses of a theory of organization, the issues to which it should address itself (such as supervisory style and organizational culture), and the concepts and variables that should enter into such a theory.

Rise of organizations

In 1820 about 20% of the United States population depended on a wage income. That percentage increased to 90% by 1950.[2] Generally, by 1950, farmers and craftsmen were the only people not dependent on working for someone else. Prior to that time, most people were able to survive by hunting and farming their own food, making their own supplies, and remaining almost fully self-sufficient.[2] As transportation became more efficient and technologies developed, self-sufficiency became an economically poor choice.[3] As in the Lowell textile mills, various machines and processes were developed for each step of the production process, thus making mass production a cheaper and faster alternative to individual production. In addition, as the population grew and transportation improved, the pre-organizational system struggled to support the needs of the market.[3] These conditions made for a wage-dependent population that sought out jobs in growing organizations, leading to a shift away from individual and family production.

In addition to a shift to wage dependence, externalities from industrialization also created a perfect opportunity for the rise of organizations. Various negative effects such as pollution, workplace accidents, crowded cities, and unemployment became rising concerns. Rather than small groups such as families and churches being able to control these problems as they had in the past, new organizations and systems were required.[2] These organizations were less personal, more distant, and more centralized, but what they lacked in locality they made up for in efficiency.[2] Along with wage dependency and externalities, the growth of industry also played a large role in the development of organizations. Markets that were quickly growing needed workers urgently, so a need developed for organizational structures to guide and support those new workers.[4] Some of the first New England factories initially relied on the daughters of farmers; later, as the economy changed, they began to gain workers from the former farming classes, and finally, from European immigrants. Many Europeans left their homes for the promises of US industry, and about 60% of those immigrants stayed in the country. They became a permanent class of workers in the economy, which allowed factories to increase production and produce more than they had before.[2] With this large growth came the need for organizations and for leadership that was not previously needed in small businesses and firms.

Overall, the historical and social context in which organizations arose in the United States allowed not only for the development of organizations, but also for their spread and growth. Wage dependency, externalities, and growth of industries all played into the change from individual, family, and small-group production and regulation to large organizations and structure.

Although the decline in small business might not seem to explain the way in which the development of organizations leads to increased aggregate economic return, it exemplifies the competitive nature of capitalism. As organizations develop, they devour smaller organizations that cannot keep up and allow for the evolution of innovative management and production techniques, which can then be used by other larger companies. The development of organizations demands more highly skilled workers as they continue to grow. It also builds precautionary measures on cutting-edge technology.[citation needed] It increases the need for specialization and accounts of functionalism in various organizations and their respective societies. Through much advancement in the interaction of capitalistic bureaucracies, the development of organizations has driven contemporary firms to thrive in[clarification needed] modern society.[citation needed]