The Argument Of Contingency Theories

Organizations operate in a variety of environments which is vital to examine how they effect their constructions. Effective and useful organizing has become significantly important in today's world characterized by immediate changes. Contingency strategies emphasize that in order for organizations to succeed they must adopt a structure suited to the environment where they operate.

Two types of ideas are known as contingency ideas: ideas of organizational composition and ideas of leadership. In general, contingency theories are a course of behavioral theory that state that there is no best way to organize a company and the organizational structure of the company. An organizational or control style that is effective in some situations may well not achieve success in others. Therefore, the best way of organizing the business, is contingent upon the inner and external situation of the company.

External environments affect organizations in a different amount of ways. Critical external factors include, but aren't limited to, how big is the organization, labor markets, availability and cost of capital, rivals, governmental regulations and policies, ecological concerns, managerial assumptions about employees, strategies, systems used, etc.

The main ideas of contingency theory are:

  • There is nobody easiest way of managing or taking care of the company
  • Organizations are wide open systems that require careful management to satisfy and balance interior needs and to adjust to environmental circumstances
  • Different types of organizations are needed in various types of the environment
  • Different methods to management may be necessary to perform different responsibilities within the same organization
  • Effective organizations not only have an effective 'fit' with the surroundings but also between its subsystems

Several contingency techniques were developed concurrently in the overdue 1960s. The introduction of the theory was the consequence of criticisms of the classical ideas such as Weber's bureaucracy (Weber, 1946) and Taylor's medical management (Taylor, 1911) which acquired failed because they neglected that management style and organizational composition were affected by various areas of the environment: the contingency factors. The contingency way originated with the task of Joan Woodward (1958), who announced that successful organizations in various business with different technology were characterized by different organizational structures.

In this essay I will discuss three influential contingency ideas, those of Melts away and Stalker (1961), Lawrence and Lorsch (1967), Fiedler (1967) and I am going to try to assess the relevance of contingency approach in organizations today.

Tom Burns and Graham Stalker in their book, "The Management of Creativity" (1961) researched about 20 Scottish and British electronics companies functioning in more and more competitive and progressive technological markets. Their findings exhibited that organizations operating in stable environments are very distinctive from those which have to handle a changing and active environment. The writers have uncovered that differences in the way firms approached change and advancement related to the principles and objective of the companies.

Burns and Stalker classified the firms into 2 categories based on their managerial set ups and procedures: mechanistic and organic and natural.

The authors found that mechanistic organizations are similar to bureaucracies and fitted to relatively stable environmental conditions. Such organizations are clearly programmed, strictly managed and hierarchically set up. Often they do not have objective and vision assertions, and instead be based upon established guidelines for guidance, measuring success by the degree to which staff conforms to process and procedure. Organizational duties are typically divided into specific activities. Folks are in charge of their specific functions in a member of family isolation from the overall organizational goal.

The organic and natural organizations are appropriate in unpredictable, turbulent, unpredictable conditions. Organic and natural organizations are orientated towards results, have a set organization structure rather than a hierarchy, and little composition in terms of process and guidelines. They concentrate on results and employees acquire positive rewards for creative and pragmatic efforts. Given these conditions it becomes necessary to examine and redefine the responsibilities, methods, inter-role associations, and even goals over a continual basis.

Burns and Stalker emphasized that every system is suitable under its own specific conditions. Neither system was more advanced than the other under all situations. Since the 1960s much of writings in group ideas field is a continuous debate between the machine/organ analogies, and endeavors to develop growth models of how simple mechanistic varieties can grow in to the more complex organic forms.

Another significant analysis to demonstrate the interactions between environmental characteristics and effective organizational buildings was conducted by Paul Lawrence and Jay Lorsch (1967). They examined ten US organizations in three industries (plastics, food, containers) that confronted differing degrees of doubt, intricacy and change.

The researchers found that successful companies in each industry possessed a different amount of differentiation. The companies working in uncertain, sophisticated, rapidly changing conditions possessed more highly differentiated internal constructions such as sales, development and R&D departments. Such organizations require the greater need for appropriate mechanisms for integrating and resolving issues between various sections. Successful organizations in more homogeneous and secure environment were more formalized and hierarchical in their forms. Authors concluded that in order to achieve success firms will need to have internal constructions as complicated as environments where they operate.

This seminal work of Lawrence and Lorsch sophisticated the contingency theory by demonstrating that different marketplaces and technological surroundings require different varieties of organizations, and this subunits or useful departments within an company might be maintained in several ways, scheduled to variations caused by their sub-environments.

Managerial management has affected organizational activities in lots of ways. These influences include motivating subordinates, budgeting scarce resources, and portion as a way to obtain communication. Contingency ideas of leadership dispute that no leadership style is effective in all circumstances, however the command styles are contingent on the organizational and situational context. Fred Fiedler's theory (1967) is the initial and most extensively researched is also called contingency model of leadership success.

Fiedler's ideas, originated from trait and behavioral models, underline the importance of both the leader's personality known as "control style" and the situation in which that leader works "situational favorableness". Fiedler was the first theorist who said that leadership effectiveness will depend on the problem.

The management style is the constant system of connections that occurs between a head and work group. To be able to classify command styles, Fiedler has developed an index called the Least-Preferred Coworker (LPC) size. To get an LPC score a innovator is asked to think about co-workers with whom he/she has ever worked and choose the one with whom the task was the most difficult. Then this person is ranked on a number of eight-point bipolar scales (friendly/unfriendly, hostile/supportive, etc. ). The responses are then summed and averaged: high LPC results are interpreted as an indication of human relationships orientation of a leader, while low LPC scores show a task orientation.

The situational favorableness is a way of measuring the degree to that your situation of the task group influences the leader's capability to influence group customers. Fiedler then stretches his analysis by concentrating on three key situational factors, which can be leader-member, task structure and position electric power.

In leader-member relations Fiedler areas that market leaders will have more influence if indeed they maintain good associations with group members who like, value, and trust them, than if they do not. Fiedler decides the task framework as the second most important factor in structural favorableness. He argues that highly organised tasks, which identify what sort of job is to be done at length, provide a leader with more influences over group activities than do unstructured duties. Market leaders, who are certified to employ and flame, to discipline and praise, have more ability than those who do not. For example, front office manager has more vitality when compared to a room clerk.

By classifying a group corresponding to three variables, it is possible to identify eight different group situations or command style. Matching to Fiedler, there is no ideal innovator. Both low-LPC (task-oriented) and high-LPC (relationship-oriented) market leaders can be effective if their management orientation fits the problem. Fiedler explained that it might be better to change the situation (i. e. the task environment) to fit the leader's style. So, the organization shouldn't choose the leader who fits the problem but should change the problem to agree with the style of its leader because the leader's personality is not likely to change.

The pursuing aspects can be considered as strengths of Fiedler's theory: it is predictive and backed by a great deal of empirical research; it does not require that people be effective in every situations and ways to assess innovator style that might be useful to an organization. However, one of the theory's weaknesses will be the fact that it is cumbersome to work with, it doesn't describe what to do when there's a mismatch between style and situation; it generally does not take into account situational parameters, like training and experience, which also have an impact in a leader's performance. Finally, the LPC measure has a minimal reliability and its own interpretation is unclear, which devote doubt whether it is a true measure of management style.

Today's organizations are quite sophisticated and there cannot be one accurate strategy that works in every situations. The contingency procedure stresses the lack of a single best way to control and emphasizes the need for managerial strategies based in all relevant facts. Quite simply, each manager's situation must be looked at separately, an array of external and internal factors must be considered and then the concentrate should be on action that best will fit the given situation.

Contingency theory is categorised as the "everything depends" theory, because when a contingency theorist is being asked for an answer, the normal response will be that it all depends. While this may sound simplistic, assessing the contingencies on which decisions count can be a very complex.

The appropriate management style and organizational framework depend on the environmental context of the business concerned. The ability to manage change is now recognized as a central organizational competence. In order to confirm the relevance of contingency theory to the present day enterprises I'd like to analyze what has took place to the just offshore banking industry from 2001 up today and how these changes has inspired to redesign completely the organizational buildings of offshore bankers and how this change was handled and applied.

Increasing pressure from FATF and OECD on duty evasion issues, anti-money laundering concerns as well as prevention of the terrorism funding from the end of 2001 started to change the environment in which just offshore banking was operating. Therefore offshore banking institutions had to modify their organizational constructions and the way these lenders have been maintained.

Increasing importance of the role of compliance processes at offshore banks has evolved the organization structures of lenders as well as operations processes in the manner, where the value of the conformity departments have become a necessity to survive. Compliance officers have grown to be managers of one of the most crucial internal procedures - conformity with the regulations. Therefore now just offshore banks operations are devoted to the compliance division, somewhat that business/customer management department. This issue in simple truth is going beyond just offshore banking sector; it includes influenced drastic changes of many countries' legislation, supervisory and rules procedures as well.

So an enormous activity of reorganizing not merely internal organizational set ups of lenders, but regulating companies was undertaken in an exceedingly short period of their time. Those countries and their financial institutions which were in a position to adapt to the changes rapidly, survived, but whole industries and dozens of banks went out of business because of their failure to do something as wide open systems and balance internal needs and external environmental forces. The change was considerable and organizations had to deal with many important issues, interrelated therefore interdependent, that in many cases organization have didn't manage the change to be able to deal with the following problems:

Lack of ideal qualified compliance employees - no pros available;

Lack of appropriate training and educational programs - no educational companies;

Increased bills for appropriate compliance routines - lower profitability, issue of choice for the CEOs - continue as typical to meet shareholder's needs and create financial benefits for themselves in a short term rather than comply with the demanded change but decrease the performance of the business;

Resistance of business departments to simply accept the necessity of increased conformity interference - have difficulties for electricity within companies;

Insufficient regulations - government firms lagging behind with legislative change, lenders had to determine their new interior rules and procedures for conformity;

Those offshore banking companies which where managing their organizations consciously or unconsciously employing contingency ideas of organizations, have managed to take up to the new environment, which means relevance of these ideas is undisputed to the present day companies, at least in the just offshore banking sector.

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