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The ability of societies to respond to social and economic problems depends upon the availability of diverse organizational forms. Organization theorists are interested in the range of organizational forms, their capabilities and consequences, in how new organizational forms arise and become established, and in who controls them for what purposes.
Prior to the 1960s, and based on the work of Max Weber, ”bureaucracy” was regarded as the most efficient organizational form because it imbued organizations with technical rationality. Beginning in the late 1950s, a series of studies showed that the relevance of the Weberian model was ”contingent” upon the degree of task uncertainty, complexity, and organizational size.
A second foundational perspective is the behavioral theory of the firm. Cyert and March (1963) explored how individuals use simplifying decision rules to model and cope with complexity. Decision-making is thus ”boundedly rational.” Organizations are intendedly adaptive systems struggling to cope with complex and ambiguous information.
Weick (1995) offered a sensemaking theory of how organizations relate to their contexts. Managers build ”mental models” that shape how they think about their industry and understand possible courses of action. Weick also introduced the idea that organizations enact their contexts. That is, sensemaking concurrently involves reflection (often retrospective) and action to ”test out” tentative and incomplete understandings. But actions shape contexts, bringing them into being, thus ”confirming” emergent mental models.
- Transaction cost theory points to market failures as the reason for organizations. Unanticipated disagreements and investments in specific assets are managed by incorporating activities into an organization, using hierarchy rather than markets as the governance mechanism.
- Resource dependence theory proposes that organizations seek to control their environments by not becoming over-dependent on other organizations for resources necessary for organizational survival, whilst creating and exploiting situations where organizations are dependent upon them. The relationship between context and organization is not unidirectional but reciprocal.
- Neo-institutional theory observes that within any given industry, organizations use similar organizational forms because social conventions prescribe socially acceptable ways of doing things. Organizations conform because doing so provides social legitimacy and enhances survival prospects. Organizations are not simply production systems but social and cultural systems embedded within an ”institutional” context, comprising the state, professions, interest groups, and public opinion. Institutionalized prescriptions are enduring and often taken for granted.
- Population ecology regards organizational survival as the product of fit between organizational forms and, primarily, market forces. Ecological theories are interested in why organizational forms become established and survive or decline. Forms best aligned to given contextual locations flourish. Less well-aligned forms disappear. Changes in context pose survival challenges because managers are unable to change organizations quickly enough.
- Evolutionary theory emphasizes classification of organizational forms to identify their defining features; attention to the mechanisms by which organizational forms are ”isolated” and retain their distinctiveness; and the interactions between organizations and their environments that enable them to explore new forms of adaptation.
- Network theory focuses upon the topography of links (”ties”) connecting organizations. The network is a structure of resource opportunities which organizations differentially access by their connections and positions within the network. It also sees organizations not as taking advantage of a network but as being shaped by it. Networks are also seen as embedded relationships.
- Critical theory proposes that organizations be regarded as instruments of political exploitation with distributive consequences. Perrow (2002), for example, sees the large modern corporation not as a response to functional pressures but as the means by which elite interests preserve and enhance positions of privilege.
The range of perspectives within organization theory continues to grow. There is, thus, no organization theory per se, but a fertile array of complementary, competing, and enlightening insights into one of the most significant societal constructs: the modern organization.
- Cyert, R. M. & March, J. G. (1963) A Behavioral Theory of the Firm. Prentice Hall, Englewood Cliffs, NJ.
- Perrow, (2002) Organizing America. Princeton University Press, Princeton, NJ.
- Weick, K. E. (1995) Sensemaking in Organizations. Sage, Thousand Oaks, CA.