Difference between classical, neoclassical and modern theory of management

Classical Theory is a theory shows that workers do not need social and job satisfactions status. This theory says that workers need only physical and economic status and needs.

This theory is designed to enhance the productivity of the workers. this idea arose in the late 19th century and gained prominence through the first half of the 20th century.

Advantages of Classical Theory

1. It has a more focused area of output than human beings.
2. It builds an accounting model for the business.
3. It is assumed that employees want to change with time.
4. It is assumed that authority and control should be centralized.
5. It helps to classify employees on the basis of their skills.

What is Neoclassical Theory?

Neoclassical Theory is based on primarily focused on human beings in the organization. This approach is referred to as “behavioral theory of organization” or “human relations” approach in organizations.

Organizational theory

NEOCLASSICAL AND MODERN THEORIES OF MANAGEMENT

TABLE OF CONTENTS

Introduction 3
I Company background
II Human Resource Department
2.1. Recruitment and Placement
2.2. Training and Development
2.3. Compensation
2.4. Employee Relations
III Evaluation measurement
Conclusion 17
Reference 18

Introduction

This assignment is an overview of two important areas of management: Neo-classical and Modern theories. It will provide a general description of each of these management theories together with observations on the environment in which these theories were applied and the successes that they achieved.

I NEO-CLASSICAL THEORY (1920s-1950s)

The Traditional classical theory and its principles are attacked on the ground that they are contradictory, pay little attention to motivation, and make hasty pronouncements on what should be done without examining time assumptions underlying such pronouncements. As such, these principles do not represent the heart of knowledge of management but a small part of the total body of administrative management. As a reaction to schools of classical theory which over-emphasized the mechanical and physiological characters of management, came up the schools of neoclassical theory with a more human-oriented approach and emphasis on time needs, drives, behaviors and attitudes of individuals. Another impetus was the development of the concepts of industrial psychology around the same time. Two important groups, namely, human relations school and behavioral schools emerged during 1920s and 1930s under the neoclassical theory. Often names of two persons mentioned from the period earlier to neoclassical theory are Robert Owen and Andrew Ure. As Young Welsh factory...

The classical writers viewed organisation as a machine and human beings as components of that machine. They were of the view that efficiency of the organisation can be increased by making human beings efficient. Their emphasis was on specialisation and co-ordination of activities. Most of the writers gave emphasis on efficiency at the top level and few at lower levels of organisation. That is why this theory has given streams; scientific management and administrative management. The scientific management group was mainly concerned with the tasks to be performed at operative levels.

Henry Fayol studied for the first time the principles and functions of management. Some authors like Gullick, Oliver Sheldon, Urwick viewed the problem where identification of activities is necessary for achieving organisation goals. Grouping or departmentation was also considered essential for making the functions effective. Since this theory revolves around structure it is also called ‘structural theory of organisation.”

Pillars of Organisation Theory:

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According to classical writers, the organisation theory is built around four key pillars division of work, scalar and functional processes, structure and span of control.

(i) Division of Labour:

Division of labour implies that work must be divided to obtain specialisation with a view to improve the performance of workers. The classical theory rests on the assumption that more a particular job is broken into its simplest component parts, the more specialised a worker can become in carrying out his part of the job.

The specialisation in workers will make the organisation efficient. Various activities of a job are specified and subdivided into different components so that these may be assigned to different persons. The workers will go on repeating their work under division of labour. The performance of same work will help workers to improve their efficiency and the organisation as a whole is benefitted by this exercise.

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(ii) Scalar and Functional Process:

The scalar process refers to the growth of chain of command, delegation of authority, unity of command and obligation to report. It is called scalar process because it provides a scale or grading of duties according to the degree of authority and responsibility. It generates superior- subordinate relationship in the organisation. The functional process deals with the division of organisation into specialised parts or departments and regrouping of the parts into compatible units.

(ii) Structure:

It is the framework of formal relationships among various tasks, activities and people in the organisation. The basic structural element in the classical theory is position. Each position is assigned a specific task and authority is delegated for its accomplishment. The efficiency with which these tasks will be accomplished will determine the effectiveness of the organisation. The classical writers emphasised line and staff organisations.

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(iv) Span of Control:

The span of control means the number of subordinates a manager can control. Classical thinkers specified numbers at different levels which can be effectively supervised by a superior. A manager cannot exercise proper control if the number of subordinates increases beyond a certain figure, on the other hand if the number is less then his capacity and knowledge cannot be fully utilised.

Appraisal of Classical Theory:

The classical theory suffers from some restraints. Some of its drawbacks are given as follows:

1. Classical thinkers concentrated only on line and staff structures. They did not try to find out the reasons if a particular structure is more effective than others.

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2. This theory did not lay emphasis on decision-making processes.

3. Human behaviour was ignored in this theory. Classical thinkers did not realize the complexity of human nature. They take human beings as inert instrument of organisation performing the assigned task.

4. The assumption that organisation in a closed system is unrealistic. Organisation is greatly influenced by environment and vice-versa. A modern organisation is an open system which has interaction with the environment.

2. Neo-Classical Organisation Theory:

The classical theory of organisation focussed main attention on physiological and mechanical variables of organisational functioning. The testing of these variables did not show positive results. The Hawthorne Studies conducted by George Elton Mayo and associates discovered that real cause of human behaviour was somewhat more than mere physiological variables. These studies focussed attention on human beings in the organisation.

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New-classical approach is contained in two points:

(i) Organisational situation should be viewed in social, economic and technical terms, and

(ii) the social process of group behaviour can be understood in terms of clinical method analogous to the doctor’s diagnosis of human organism.

This theory views formal and informal forms of organisation as important. The behavioural approach followed in this theory is the other contribution of new-classical thinkers. The pillars of classical theory viz. division of work, departmentation, co-ordination and human behaviour were taken as given but these postulates were regarded as modified by people acting independently or within the context of the informal organisation.

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The main propositions of neo-classical theory are given as follows:

1. The organisation in general is a social system composed of numerous interacting parts.

2. Informal organisations exist within the formal organisation. Both are affected by and affect each other.

3. Human being is independent and his behaviour can be predicted in terms of social factors at work.

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4. Motivation is a complex process. Many socio- psychological factors operate to motivate human beings at work.

5. A conflict between organisational and individual goals often exists. There is a need to reconcile the goals of the individual with those of the organisation.

6. Team-work is essential for higher productivity.

7. Man’s approach is not always rational. Often, he behaves non- logically in terms of rewards which he seeks from his work.

8. Communication is necessary as it carries information for the functioning of the organisation and the feelings of the people at work.

Improvements over Classical Theory:

Neo-classical theory offers modifications and improvements over classical theory in some aspects such as:

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(i) Flat structure,

(ii) Decentralisation,

(iii) Informal organisations.

(i) Flat Structure:

The classical theory suggested tall structure whereas neo-classical theory suggested flat structure. In tall structure there is a problem of communication because of differentiation between decision makers and implementers, the levels of management are too many and motivation of people is difficult. In case of flat structure the wide span of control helps in motivation, chain of communication is shorter and it is free from hierarchical control.

(ii) Decentralisation:

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Neo-classical theory advocates decentralised organisation which is close to flat structure because of wider span of control. It allows autonomy and initiative at the lower level. It also develops people to occupy higher positions in future.

(iii) Informal Organisation:

The neo-classical theorists advocated the need for both formal and informal organisations. Formal organisation represents the intentions of top management for the purpose of interactions among the people. Informal organisation is necessary to plug the loop holes of formal organisation and to satisfy the social and psychological needs of people. Managements use informal organisation for overcoming resistance to change on the part of workers and also for fast communication process. Both formal and informal organisations are interdependent upon each other.

Appraisal of Neo-classical Organisation Theory:

This theory tries to overcome the shortcomings of classical organisation theory. It introduced the concept of informal organisation and human behaviour approach in the study of organisational functioning. However, it is also not free from various shortcomings. Scott observes that, “like classical theory, neo-classical theory suffers from incompetency, a short-sighted perspective and lack of integration among many facts of human behaviour studied by it.”

The main criticism of this theory is as follows:

1. The assumptions on which this theory is based are sometimes not true. A thinking that there is always a possibility of finding a solution acceptable to all is not true. There are conflicting interests among various groups that are structural in character and not merely psychological. This aspect has not been discussed in the theory.

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2. No particular organisational structure can be suitable for all the organisations. Various organisational formats given by neo- classists are not applicable in all situations.

3. Neo-classical theory is only a modification of classical organisation theory. It suffers from nearly same drawbacks from which classical theory suffered. It lacks unified approach of organisation. This theory has also been criticised on the ground that it is nothing more than “a trifling body of empirical and descriptive information as it was mainly based on Hawthorne Studies.”

3. Modern Organisation Theory:

Modern organisation theory is of recent origin, having developed in early 1960’s. This theory has tried to overcome the drawbacks of earlier theories. In the words of W.G. Scott, ‘The distinctive qualities of modern organisation theory are its conceptual analytical base, its reliance on empirical research data and, above all, its integrating nature. These qualities are framed in a philosophy which accepts the premise that the only meaningful way to study organisation is to study it as a system.” This theory may be understood in two approaches: systems approach and contingency approach.

Systems Approach:

This approach studies the organisation in its totality. The mutually dependent variables are properly analysed. Both internal and external variables are studied in analysing the nature of organisation. Though this theory passes a much higher conceptual level as compared to earlier theories but different writers have given varied views of the system.

Organisation as a system can well be understood by identifying various sub-systems within it. Each sub-system may be identified by certain processes, roles, structures and norms of conduct. Seiler has classified four components in an organisation, human inputs, technological inputs, organisational inputs, and social structure and norms.

Katz and Kahu have identified five sub-systems of organisation:

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(i) Technical sub-system concerned with the work that gets done;

(ii) Supportive sub-system of procurement, disposal and institutional relations;

(iii) Maintenance of sub-systems for tying people into their functional roles;

(iv) Adaptive sub-systems concerned with organisational change; and

(v) Managerial sub-systems for direction, adjudication and control of the many sub-systems and the activities of the structure.

Contingency Approach:

Even though systems approach presents a better understanding of organisational and managerial functioning but it does not provide solution for all types of organisational structures. Systems approach offers models which may not suit every type of organisation. A structure suitable for one unit may not be suitable for another. Contingency approach suggests an organisational design which suits a particular unit. A structure will be suitable only if it is tailor made for an enterprise.

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The influence of both internal and external factors should be considered while framing a suitable organisational structure. This approach suggests that needs, requirements, situations of a particular concern should be considered while designing an organisational structure.

The factors which influence an organisation may be described as:

(i) Environment

(ii) Technology

(iii) Size of operations

(iv) People.

These factors greatly influence a decision for the selection of an appropriate organisation for an enterprise.

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