An organization is a deliberate arrangement of people to accomplish some specific purpose. Your university is an organization. So are government agencies, banks, insurance companies and your neighborhood departmental store, the fire department and the hospital. These are all organizations because they share three common characteristics which are:

  • First, each organization has a distinct purpose. This purpose is typically expressed in terms of a goal or a set of goals that the organization hopes to accomplish
  • Second, each organization is composed of people. One person working alone is not an organization, and it takes people to perform the work that is necessary for the organization to achieve its goals.
  • Third, all organizations develop some deliberate structure so that their members can do their work. That structure may be open and flexible, with no clear and precise delineation of job duties or strict adherence to explicit job arrangements.

Organizational structure may be defined as the way in which the interrelated groups of an organization are constructed. From a managerial point of view the main concerns are ensuring effective communication and coordination.

Classical management theorists asserted that for a group of people to work toward a particular goal there really was only one way to structure the organization with each person with his or her assigned functions. Today with the ebb and flow of economic factors, rapid pace of change in the demand for and the development of new technology, there is no one structure that works for all organizations.

There is much more to understanding an organization than how it is structured on “paper.” Most organizational members will confirm that while organizational structure often dictates lines of authority, responsibility, and function, there often are other equally (or more) important lines of communication and power and influence. Ethnographic and organizational behavioral studies have demonstrated individual organizations may appear to be similar, but upon close examination exhibit their own unique culture: rules for behavior, communication, celebration, ethics, etc. To be effective managers it is essential to understand the complexity of the nature of organizations and their various structures.

The classical management thinkers viewed organizations as stable structures, almost always arranged in hierarchical fashion, with the power and vision flowing in an orderly fashion from the individuals at the top of the organization to those below.

World War II changed that concept some, because massive organizations were needed for the war effort. A highly centralized management structure no longer worked because decision making had to be pushed down into the organization. Today everything is “team organization” but Peter Drucker says, “By now, it should be clear that there is no such thing as the one right organization … It is not an absolute … it is a tone for making people productive in working together. As such a given organizational structure fits certain tasks in certain conditions at certain times.” He also adds that one hears a great deal today about “the end of hierarchy.” This, he views as blatant nonsense. In any institution, there has to be a final authority, that is a boss, someone, who can make the final decision and expect to be obeyed in a situation of common peril (like a ship at sea). However, sometimes the team approach is the right approach.

Vertical Organization

Hierarchically structured organization where all management activities are controlled by a centralized management staff. This traditional type of organization often develops strong bureaucratic control over all organizational activities.

Flat Organization

Flat organization (also known as horizontal organization) refers to an organizational structure with few or no levels of intervening management between staff and managers. The idea is that well-trained workers will be more productive when they are more directly involved in the decision making process, rather than closely supervised by many layers of management

Classical Organization Theory

Classical organization theory evolved during the first half of this century. It represents the merger of scientific management, bureaucratic theory, and administrative theory.

Frederick Taylor (1917) developed scientific management theory (often called “Taylorism”) at the beginning of this century. His theory had four basic principles:

1) find the one “best way” to perform each task,

2) carefully match each worker to each task,

3) closely supervise workers, and use reward and punishment as motivators, and

4) the task of management is planning and control.

Max Weber (1947) expanded on Taylor’s theories, and stressed the need to reduce diversity and ambiguity in organizations. The focus was on establishing clear lines of authority and control. Weber’s bureaucratic theory emphasized the need for a hierarchical structure of power. It recognized the importance of division of labor and specialization. A formal set of rules was bound into the hierarchy structure to insure stability and uniformity. Weber also put forth the notion that organizational behavior is a network of human interactions, where all behavior could be understood by looking at cause and effect.

Classical management theory was rigid and mechanistic. The shortcomings of classical organization theory quickly became apparent. Its major deficiency was that it attempted to explain peoples’ motivation to work strictly as a function of economic reward.

Neoclassical Organization Theory

The human relations movement evolved as a reaction to the tough, authoritarian structure of classical theory. It addressed many of the problems inherent in classical theory. The most serious objections to classical theory are that it created over-conformity and rigidity, thus squelching creativity, individual growth, and motivation. Neoclassical theory displayed genuine concern for human needs.

One of the first experiments that challenged the classical view was conducted by Mayo and Roethlisberger in the late 1920′s at the Western Electric plant in Hawthorne, Illinois (Mayo, 1933). While manipulating conditions in the work environment (e.g., intensity of lighting), they found that any change had a positive impact on productivity. The act of paying attention to employees in a friendly and non-threatening way was sufficient by itself to increase output.

The Hawthorne experiment is quite disturbing because it cast doubts on our ability to evaluate the efficacy of new management theories. An organization might continually involve itself in the latest management fads to produce a continuous string of Hawthorne effects.

Modern Organizational Theories

Modern theories tend to be based on the concept that the organization is a system which has to adapt to changes in its environment. In modern theory, an organization is defined as a designed and structured process in which individuals interact for objectives (Hicks and Gullet, 1975). The contemporary approach to the organization is multidisciplinary, as many scientists from different fields have contributed to its development, emphasizing the dynamic nature of communication and importance of integration of individual and organizational interests. These were subsequently re-emphasized by Bernard (1938) who gave the first modern and comprehensive view of management. Subsequently, conclusions on systems control gave insight into application of cybernetics. The operation research approach was suggested in 1940. It utilized the contributions of several disciplines in problem solving. Von Bertalanffy (1951) made a significant contribution by suggesting a component of general systems theory which is accepted as a basic premise of modern theory.

Modern understandings of the organization can be broadly classified into:

  • The systems approach
  • Socio-technical theory, and
  • A contingency or situational approach.

Systems Theory

Systems theory was originally proposed by Hungarian biologist Ludwig von Bertalanffy in 1928, although it has not been applied to organizations until recently (Kast and Rosenzweig, 1972; Scott, 1981). The foundation of systems theory is that all the components of an organization are interrelated, and that changing one variable might impact many others. Organizations are viewed as open systems, continually interacting with their environment. They are in a state of dynamic equilibrium as they adapt to environmental changes. Senge (1990) describes systems thinking as: “understanding how our actions shape our reality.

A central theme of systems theory is that nonlinear relationships might exist between variables. Small changes in one variable can cause huge changes in another, and large changes in a variable might have only a nominal effect on another. The concept of nonlinearity adds enormous complexity to our understanding of organizations. In fact, one of the most salient argument against systems theory is that the complexity introduced by nonlinearity makes it difficult or impossible to fully understand the relationships between variables.

Socio-Technical Approach

It is not just job enlargement and enrichment which is important, but also transforming technology into a meaningful tool in the hands of the users. The socio-technical systems approach is based on the premise that every organization consists of the people, the technical system and the environment (Pasmore, 1988). People (the social system) use tools, techniques and knowledge (the technical system) to produce goods or services valued by consumers or users (who are part of the organization’s external environment). Therefore, an equilibrium among the social system, the technical system and the environment is necessary to make the organization more effective.

Contingency Theory

Classical and neoclassical theorists viewed conflict as something to be avoided because it interfered with equilibrium. Contingency theorists view conflict as inescapable, but manageable.

Chandler (1962) studied four large United States corporations and proposed that an organization would naturally evolve to meet the needs of its strategy –that form follows function. Implicit in Chandler’s ideas was that organizations would act in a rational, sequential, and linear manner to adapt to changes in the environment. Effectiveness was a function of management’s ability to adapt to environmental changes.

In highly volatile industries, it was noted that the importance of giving managers at all levels the authority to make decisions over their domain. Managers would be free to make decisions contingent on the current situation.

Organizational Structure

Until recently, nearly all organizations followed Weber’s concept of bureaucratic structures. The increased complexity of multinational organizations created the necessity of a new structure that Drucker called (1974) “federal decentralization”. In federal decentralization, a company is organized so that there are a number of independent units operating simultaneously. “Each unit has its own management which, in effect, runs its own autonomous business.” (p. 572) This structure has resulted in large conglomerates which have diversified into many different fields in order to minimize risk.

The project management organizational structure has been used effectively in highly dynamic and technological environments (French, Kast and Rosenzweig, 1985). The project manager becomes the focal point for information and activities related to a specific project. The goal is to provide effective integration of an organization’s resources towards the completion of a specific project. Impementing a project management approach often involves dramatic changes in the relationships of authority and responsibility.

The matrix organizational structure evolved from the project management form (Kolodny, 1979). It represents a compromise between the traditional bureuacratic approach and the autonomous project management approach. A matrix organization has permanently established departments that provide integration for project management. The matrix form is superimposed on the hierarchical structure, resulting in dual authority and responsibilities. Permanent functionality departments allocate resources to be shared among departments and managers.

New Organizational Structures

Network Structure

This modern structure includes the linking of numerous, separate organizations to optimize their interaction in order to accomplish a common, overall goal. An example is a joint venture to build a complex, technical systems such as the space shuttle. Another example is a network of construction companies to build a large structure.

Virtual Organization

This emerging form is based on organization members interacting with each other completely, or almost completely, via telecommunications. Members may never actually meet each other. A Virtual Organization is an organization existing as a corporate, not-for-profit, educational, or otherwise productive entity that does not have a central geographical location and exists solely through telecommunication tools.

A Virtual Organization comprises a set of (legally) independent organizations that share resources and skills to achieve its mission/goal, but that are not limited to an alliance of for profit enterprises. The interaction among members of the virtual organization is mainly done through computer networks. A Virtual Organization is a manifestation of Collaborative Networks.

Learning Organizations

In an environment where environments are continually changing, it’s critical that organizations detect and quickly correct its own errors. This requires continuous feedback to, and within, the organization. Continual feedback allows the organization to `unlearn’ old beliefs and remain open to new feedback, uncolored by long-held beliefs. Peter Senge (1990) defines learning as enhancing ones capacity to take action so learning organizations are organizations, which are continually enhancing their capacity to create. Senge believes that organizations are evolving from controlling to predominantly learning.

In a learning organization, managers don’t direct as much as they facilitate the workers’ applying new information and learning from that experience. Managers ensure time to exchange feedback, to inquire and reflect about the feedback, and then to gain consensus on direction.

There are two types of learning strategies used

Single Loop Learning

This occurs when errors are detected and corrected and firms continue with their present policies and goals. According to Dodgson (1993), Single-loop learning can be equated to activities that add to the knowledge-base or firm-specific competences or routines without altering the fundamental nature of the organization’s activities.

It has already been referred to as “Lower-Level Learning” by Fiol and Lyles.

Double Loop Learning

This occurs when, in addition to detection and correction or errors, the organization questions and modifies its existing norms, procedures, policies and objectives. Double-loop learning involves changing the organization’s knowledge-base or firm-specific competences or routines. Double-loop learning is also called “Higher-level learning” by Fiol and Lyles (1985), “Generative Learning” or “Learning to Expand an Organization’s Capabilities” by Senge (1990), and “Strategic Learning” by Mason (1993).

Double-loop learning is concerned with why and how to change the organization, while Single-Loop learning is concerned with accepting change without questioning underlying assumptions and core beliefs.


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