Do you think one management principle or practice is always applicable to every organizational situation i.e. problem?
This contingency theory of management has given us an answer to this question. Let’s see.
What is Contingency Theory of Management?
The contingency theory of management holds the belief that the best management practice is situational.
It states there is no universal principle that best fits every situation. Managers’ decisions are contingent and will be affected by various situations.
The contingency management theory, also known as situational theory of management was developed in 1960 by Tom Burns and GM Stalker in Britain and Paul Lawrence and Jay Lorsch in the USA.
They argue that management principles cannot be applied universally across all organizations.
The same management strategy and practices cannot consistently yield the same outcomes in different situations.
It’s possible that management principles, methods, and procedures that work well in one context won’t work as well in another.
This approach says that management ideas depend on certain circumstances. The most recent advancement in the management school of thought is this theory.
Since management concepts and practices are conditional (influenced by) the situation, the contingency theory concludes that there is no one best solution to tackle any problem in different organizations.
Each circumstance may be distinct and diverse. Therefore, a novel managerial approach is needed to address the issue.
This means, that instead of specific management theories and practices, a special theory that is fit for that situation, should be applied. Therefore, this theory is also known as the situational theory of management.
Contingency Variables in Organization
There can be various contingency variables for influencing management practices in the organization.
The following are important contingency variables for the organization according to this approach.
Size of Organization
One of the most crucial elements in creating and deciding on an organizational structure is the size of the organization.
While small businesses don’t necessarily need to be more decentralized, large organizations should.
While departmental managers must be selected and given a certain level of authority in large organizations, only one person can centrally govern organizational activities in small ones.
Level of Task Technology
The level of technology also affects management policies and practices.
Employee recruitment and selection, training and development, performance and reward management system, compensation system, etc. must be different based on the technology used by the organization.
The level of technology significantly affects the need for customization in organizations.
Environmental Uncertainty
Business uncertainty is growing quickly due to the complex and dynamic nature of the business environment.
In a dynamic business environment, management techniques and methods that are effective in a stable setting do not apply.
Organizations must adapt their plans and strategies in response to changes in the business environment, making environmental uncertainty another crucial contingency.
Individual Differences
Different personalities holding different positions also affect the organizational system. Their thoughts affect decision-making, management practice, and strategies.
Managers have to give duties, responsibilities, and authority to understand the differences in employees’ thoughts, personalities, abilities, attitudes, etc.
Related: System Theory of Management
Other significant factors are the organization’s regional makeup and the kind of task being performed.
The earliest management theorists, including F.W. Taylor, Henri Fayol, and Max Weber, attempted to identify a universal answer to organizational and managerial issues, but this proved to be virtually impossible given the dynamic nature of many variables.
Thus, contingency theory states that the leadership style, organizational structure, job design, motivational approaches, control systems, conflicts, and grievance-handling techniques should be situation-specific.
Assumptions of Contingency Management Theory
The contingency approach of management is based on the following assumptions.
- There is no universal or one best way to manage all organizational activities.
- The organization is an open system and the organizational structure of an organization should fit with the environment.
- Subsystems within the organization should have an effective fit with the environment.
- The needs of an organization are better satisfied when it is properly designed and the management style is appropriate both to the tasks undertaken and the nature of the workgroup.
- The best way to manage organizational activities is to be prepared for organizational changes.
Read More: Six Principles of Bureaucracy
Contributors of Contingency Management Theory
Here are four main contributors to the Contingency Theory of Management and their contributions:
Tom Burns and G.M. Stalker
Tom Burns and G.M. Stalker introduced the concept of mechanistic and organic structures in their 1961 book The Management of Innovation.
They argued that the most effective organizational structure depends on the environment in which the organization operates. In stable environments, organizations benefit from a mechanistic structure, which is hierarchical, centralized, and rigid.
However, in dynamic or changing environments, an organic structure, which is flexible, decentralized, and adaptive, is more effective.
This work provided an early foundation for contingency theory, highlighting the importance of aligning organizational structure with environmental conditions for optimal performance.
Paul Lawrence and Jay Lorsch
Paul Lawrence and Jay Lorsch built upon the ideas of Burns and Stalker in their 1967 book Organization and Environment. They emphasized the relationship between organizational differentiation and integration in response to external environmental uncertainty.
Their work suggested that organizations in more volatile environments need to differentiate their functions (specialization) and then integrate them through effective coordination.
In contrast, organizations in stable environments can have less differentiation and integration. This insight showed that different levels of internal coordination and task specialization are necessary based on the degree of uncertainty in the external environment, further advancing contingency thinking.
Read More: Major Contributors to Administrative Theory
Fred Fiedler
Fred Fiedler is best known for developing the Contingency Model of Leadership in the 1960s, which focuses on the interaction between a leader’s style and the specific context of the situation.
Fiedler identified two primary leadership styles: task-oriented and relationship-oriented. According to his model, the most effective leadership style depends on situational factors like leader-member relations, task structure, and leader power.
Fiedler’s research showed that no single leadership style is universally effective; rather, the situation determines the ideal approach, emphasizing the core concept of contingency theory that management practices must be tailored to specific circumstances.
Herbert Simon
Herbert Simon, a renowned organizational theorist, made key contributions to contingency theory through his work on bounded rationality and decision-making.
He argued that decision-makers, including managers, are limited by the information available and the constraints of time, which impacts their ability to make fully rational decisions.
Simon’s concept of bounded rationality suggests that decisions must be made within the context of these limitations, and therefore, managers must adapt their decision-making processes to fit the specific circumstances at hand.
His work highlighted that management decisions should not follow rigid principles but should be flexible and context-dependent, aligning with the fundamental principles of contingency theory.
Related: Decision Theory of Management
Advantages of Contingency Theory
Flexibility in Management Practices
The contingency theory allows for flexible management practices, moving away from rigid, traditional methods. It recognizes that each situation is unique, thus requiring different management approaches.
Empowerment of Managers
The theory encourages managers to identify and adapt to the specific variables of a situation. This provides them with the freedom to adjust their decisions based on the circumstances.
Rejection of Universal Principles
Contingency theory rejects the idea that one-size-fits-all solutions can apply to all situations, promoting a more adaptive and dynamic approach to management.
Encourages Quick and Context-Specific Decisions
Managers are empowered to make independent decisions that address the specific challenges at hand, helping to solve problems more efficiently and effectively.
Read More: Meaning of Augmented Product
Disadvantages of Contingency Theory
Limited Contingency Variables
The theory provides only a few variables to consider, such as size, technology, and uncertainty.
In reality, situations can be influenced by a much broader range of factors, making it difficult to apply the theory universally.
Lack of Theoretical Proof
While contingency theory is widely accepted, it lacks concrete theoretical proof of how situational decision-making consistently leads to successful outcomes. Its application can sometimes feel more intuitive than scientific.
Potential for Misleading Decisions
Managers may struggle to correctly identify the key factors influencing a situation, leading to misleading conclusions or decisions that don’t align with the actual needs of the organization.
Read Next: 12 Theories of Management
Joshep Mahesh holds Bachelor in Management (BiM) Degree. He loves to share his business knowledge in his free time.