Structural Contingency Theory

Conceptual Overview

Previous theories of organizational structure were universalistic, holding that there was one best way to organize, in that one structure produces the highest performance in all organizations, despite their varying attributes such as size. Classical management theory held that high formalization (rules and standard operating procedures) was the one best way that led to highest performance. Human relations theory held that low formalization, relying instead on employee initiative, was the one best way that led to highest performance. Structural contingency theory rejects such universalism. Instead it holds that the effect of a structural variable on performance is contingent, so that a level of the structural variable only produces highest performance if it fits the level of some other variable, called the contingency variable. Thus, the effect of the structural variable on performance varies widely, depending on whether structural variable fits or misfits the contingency variable and the degree of misfit.

Structural contingency theory provides a framework that synthesizes the classical management and human relations theories. Each theory is correct in its own [Page 1476]place, while being incorrect in the other's place. The “place” of each theory is defined by the contingency variable. The key is that the structure needs to fit the contingency. Classical management theory works best in an organization facing a stable environment, so that the tasks facing its members are predictable and certain, allowing them to be efficiently conducted by following rules and procedures; that is, high formalization. Human relations theory works best in an organization facing an unstable environment, so that the tasks facing its members are unpredictable and uncertain, and members need to solve novel problems by using their professional knowledge and initiative through mutual collaboration, so formalization is low. Thus, for highest performance, the level of the structural variable of formalization needs to fit the level of the task uncertainty contingency. High formalization fits low task uncertainty. Intermediate levels of formalization fit the corresponding intermediate level of task uncertainty. Low formalization fits high task uncertainty.

Task uncertainty is related to uncertainty arising from the environment of an organization, such as from changing market demand and from new technologies. These more unstable environments are often found in industries that are experiencing high rates of innovation in new products or services. The need of the organization to innovate leads to task uncertainty inside the organization. Thus, the contingency of task uncertainty is related to environmental uncertainty and to innovation.

Another contingency is organizational size; that is, the number of organizational members, defined in terms of their employment with an organization. Small organizations are fitted by a structure that is low on specialization (because there are few members among whom work needs to be divided up) and low on formalization (because with few cases, sound personnel and operational rules cannot be developed) and that are high on centralization (because small organizational size makes it effective for top management to control operations directly through making many decisions personally). Conversely, large organizations are fitted by a structure that is high on specialization (because there are many members among whom work needs to be divided up) and high on formalization (because with many cases, sound personnel and operational rules can be developed) and that are low on centralization (because large organizational size means top management has to delegate many decisions down the hierarchy).

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