Evolution of Organisation Theory: Classical, Neo-classical and Systems Approach, Modern Concepts of Organisation Theory.


Organizational theory is the study of the structures of organizations.



  • evolved during the first half of the 20th century.
  • classical writers viewed organisation as a machine and human beings as components of that machine.
  • focus on developing formal structures and certain principles of management.
  • organisation is treated as closed system ignoring outside environment.
  • 3 streams – scientific management, administrative management and  bureaucracy


  • Fredrick Winslow Taylor (1856-1915), Frank Gilberth his wife Lillan Gilberth and Henry Gantt have done pioneering work in the field of management
  • Taylor’s work was so unique that he eventually came to be known as the father of scientific management.


Features of Scientific Management:

  • Separation of Planning and doing
  • Functional foremanship – Separation of planning from doing resulted in introduction of supervisory staff system, which could undertake planning work separately
  • Job Analysis – intensive studies on time and motion,  studies pertaining to fatigue and incorporated rest periods so that efficiency of the worker is increased.
  • Standardisation – standardised tools, instruments, period of work, amount of work each worker has to undertake, working conditions and cost of production.
  • Scientific selection and training of workers.
  • Financial incentives –  differential piece- rate of payment system – focus on increased productivity
  • Mental revolution –  sound relations between the management and the workers

Principles of Scientific Management:

  • Replacing Rule of Thumb with Science
  • Harmony in Group Action
  • Co-operation among workers
  • Maximum Output and development of workers


Taylor described scientific management as under:
“Science not rule of thumb. Harmony not discord. Co-operation, not individualism. Maximum output, in place of restricted out put. The development of each man to his greatest efficiency and prosperity.”



  • The real father of modern management theory is the French industrialist Henry Fayol.
  • Fayol looked at the problems from the top management point of view.


General Principles of Management by Fayol:

  • Division of Labour
  • Parity of authority and responsibility
  • Discipline
  • Unity of command
  • Unity of direction
  • Subordination of individual to general interest
  • Fair remuneration to employee
  • Centralisation and decentralisation – Degree of centralization and decentralization depends upon the size of the organization, experience of the superiors and ability of subordinates.
  • Scalar chain – chain of command as well as communication.
  • Order –  Concerned with Arrangement of things—material order and and arrangement of people— social order.
  • Equity
  • Stability of tenure of personnel
  • Initiative
  • Esprit de corps



Max Weber (1864-1920) a German sociologist introduced the theory of Bureaucracy

Features of Bureaucracy

(a) Hierarchy of authority and chain of command.
(b) Division of work based on competence and functional foremanship.
(c) System of policy, rules, and regulations
(d) In bureaucratic model, rule of law exists
(e)  standardization of methods, systems, processes, job contents and tools for smooth operation.
(f) Selection and promotion of employees should be based on competence.
(g) Bureaucracy recognizes legal power derived from the official position held by an individual.

There are glaring drawbacks in the bureaucratic model namely rigidity, impersonal and mechanistic relationship, higher cost of control, lack of co-ordination and interpersonal communication and lastly existence of blind faith in rules and regulations


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: leading to specialisation & improved effiiciency.

(ii) Scalar and Functional Process: scalar process refers to the growth of chain of command, delegation of authority, unity of command and obligation to report. functional process deals with the division of organisation into specialised parts or departments and regrouping of the parts into compatible units.

(iii) Structure: framework of formal relationships based on “Positions”. The classical writers emphasised line and staff organisations.

(iv) Span of Control: The span of control means the number of subordinates a manager can control.  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.


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.

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.

5. It takes a narrow view of organisation focusing more on formal structures, rules and regulations.


  • According to this theory, the organization is the social system, and its performance does get affected by the human actions.
  • Neo-classical theory deals with the human factor.
  • This theory views formal and informal forms of organisation as important.
  • Elton Mayo and Mary Parker Follett are the main contributors of human relations approach. Mayo is known for his work on the project which is commonly referred to as the Hawthorne studies.


Hawthorne studies brought out the following observations:
1. Individual behaviour and sentiments are closely related.
2. Group influences significantly affected individual behaviour.
3. Group standards established individual output.
4. Money was less a factor in determining output.
5. Group standards, group sentiments and security provided by the group were responsible for higher productivity.

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.

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.

Human Relations & Behavioural Sciences Approach to Neo-Classical Theory:

I. Human Relations Approach: Human relations movement deals with the factors which encourage higher performance on the part of workers. The improvement of working conditions, lowering of hours of work, improvement of social relations of workers, besides monetary gains help in increasing productivity.

II. Behavioural Sciences Approach: Behavioural science movement is regarded as a further refinement of human relations movement. It covered wider aspects in inter-personal roles and responsibilities. It laid emphasis on the application of the methods and findings of general and social psychology and sociology for understanding the organisational behaviour.


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

(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:

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.

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.

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.”


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.


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:

(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.

Systems Approach is criticised on following grounds:

  • No unified theory as each researcher has its own emphasis.
  • The theory doesn’t offer specific tools and technique for practicing managers.
  • System theory is criticized as being too abstract and vague, so it cannot be applied into practical problems.
  • Limited Application – can only be applied on Big Organisations.

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.

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.


There are several features of the modern theory that make it distinct from other sets of organizational theories, these are:

The modern theory considers the organization as an open system. This means an organization consistently interacts with its environment, so as to sustain and grow in the market. Since, the organization adopts the open system several elements such as input, transformation, process, output, feedback and environment exists. Thus, this theory differs from the classical theory where the organization is considered as a closed system.

Since the organization is treated as an open system, whose survival and growth is determined by the changes in the environment, the organization is said to be adaptive in nature, which adjusts itself to the changing environment.

The modern theory considers the organization as a system which is dynamic.

The modern theory is probabilistic and not deterministic in nature. A deterministic model is one whose results are predetermined and whereas the results of the probabilistic models are uncertain and depends on the chance of occurrence.

This theory encompasses multilevel and multidimensional aspects of the organization. This means it covers both the micro and macro environment of the organization. The macro environment is external to the organization, while the micro environment is internal to the organization.

The modern theory is multi-variable, which means it considers multiple variables simultaneously. This shows that cause and effect are not simple phenomena. Instead, the event can be caused as a result of several variables which could either be interrelated or interdependent.

The scientists from different fields have made major contributions to the modern theory. They emphasized on the importance of communication and integration of individual and organizational interest as prerequisites for the smooth functioning of the organization.


Superiority over Classical Theories:

  • Adopts a more realistic view – organisation as a system.
  • Considers both formal and informal relations.
  • Acknowledges Environmental Influences.
  • It stresses dynamic, multi-dimensional and adaptive nature of organisation.




The term “learning organization” was popularized by Peter Senge. It describes an organization with an ideal learning environment, perfectly in tune with the organization’s goals.

A learning organization is one where all members of an organization are continually involved in the learning process and that learning and working are seamlessly intertwined. The concept of learning organization comes from Peter Senge in his book The Fifth Discipline:

Learning Organisation is needed to remain effective or competitive in highly dynamic environment.


Organizations are networking together and collaborating more than ever before. The concept of a boundaryless organization was invented at General Electric.

Boundaryless organizations “transcend the rigid lines of bureaucracy and divisional boundaries within a corporation and ignore the borders where the corporation itself is separated from its markets, customers and ‘stakeholders'”

Boundaryless organizations communicate mainly through email, phone and other virtual methods rather than more traditional face-to-face communication.


This new form of organisation, i.e., ‘virtual organisation’ emerged in 1990 and is also known as digital organisation, network organisation or modular organisation. Simply speaking, a virtual organisation is a network of cooperation made possible by, what is called ICT, i.e. Information and Communication Technology, which is flexible and comes to meet the dynamics of the market.

The ICT is the backbone of virtual organisation.


The scientific study of how people, animals, and machines control and communicate information.

In the 21st century, the term cybernetics is often used in a rather loose way to imply “control of any system using technology.”

Organizational cybernetics studies organizational design, and the regulation and self-regulation of organizations from a systems theory perspective that also takes the social dimension into consideration.

We might say that systems theory has focused more on the structure of systems and their models, whereas cybernetics has focused more on how systems function, that is to say how they control their actions, how they communicate with other systems or with their own components. Since structure and function of a system cannot be understood in separation, it is clear that cybernetics and systems theory should be viewed as two facets of a single approach.


  1. The criticism of Neo-Classical Organisation theory ranges from “human relations as tool for cynical puppeteering of people” to “human relations no more than a trifling body of empirical descriptive information.” Throw light on this statement. (UPSC 2016)
  2. What is a virtual organisation. Do you visualise it in Indian Scenario? Examine its merits and limitations. (UPSC 2014)
  3. Write a short note on cybernetics. (UPSC 2014)
  4. Write a short note on emergence of Virtual Organisations. (UPSC 2010)
  5. The neo-classical theory embarked on the task of compensating for some deficiency in classical doctrine. Explain it and discuss the salient features of modern organisation theory. (UPSC 2013)



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