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Neocontingency Model

The neocontingency model refers to the latest in a long line of interpretations of structural contingency theory, which was the main school of thought in organization theory in the 1960s and 1970s. The neocontingency model focuses on the “fit” between contingencies and organizational structure and how that fit influences organizational performance. The construct “contingencies” is defined broadly and can include organizational technologies or organizational size, which are internal to the organization, as well as dimensions of the organization's strategy or environment. The neocontingency model has been developed by Donaldson in his 1995 and 1999 books. Alexander and Randolph, Drazin and Van de Ven, and Gresov have also made contributions as well.

Conceptual Overview

The neocontingency model is a dynamic model because it describes a self-correcting process through which organizations move from states of high performance to states of low performance and back again. The model posits that when a fit exists between contingencies and organization structure, organizational performance will be high. The high level of organizational performance generates slack resources, and these resources are invested in expansion of contingency variables. For example, the high performance produced by a fit between organization size and formalization (a dimension of organization structure) would produce slack resources, and those resources would be invested in expanding the organization's size by hiring more employees. As another example, a fit between the type of organizational technology the organization is using and its structural complexity would enhance performance, and the resulting slack resources would create a means to invest in new production technologies.

As contingency variables, such as organization size and organizational technology change through the aforementioned investments, there is a lag in the adjustment of structure, presumably because of the structural inertia described by Hannan and Freeman. The result of this lag in structural adjustment is that the organization moves away from the condition of fit, entering a state of misfit that depresses organizational performance. Once performance declines below a satisficing level that is influenced by the organization's performance history or by comparison with competitors, the managers of the organization begin to adjust structure to bring the organization back to a condition of fit. In other words, organization structure is changed to a level that matches the new level of the contingency variable. The restoration of fit increases organizational performance, and the cycle begins again. Thus, the model presents a paradox, though this paradox is not usually acknowledged by Donaldson and other organization theorists who have worked with the model. The paradox is that high performance creates the conditions for its own reversal by encouraging expansions in contingency variables that lead to misfit and low performance. Only when this low performance becomes salient to managers by declining below the satisficing level are they motivated to restructure their organizations to recapture fit between the level of the contingency variable and organizational structure.

Critical Commentary and Future Directions

While the neocontingency model is appealing because it can explain fluctuations in organizational performance over time, several criticisms can be made. The first relates to the fundamental assumption of managerial rationality that is embedded in the model. It is assumed that after an episode of misfit, managers will always be able to adjust structure in just the right way to return the organization to the hypothetical condition of fit between a contingency variable and a structural dimension, thus restoring high performance.

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