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Contingency theory

SoS LiuSpring 2012Per Åman

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The price – performance trade-off

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Competition is a race – for survival

Winning (survival) is assured through better fit with the environment

(But if the environment changes so must the organization)

Ergo: it is crucial to understand the environment

Trial and error is the field test of organizations

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Fit and adaptation – structure and process

“It is not the strongest of the species that survive, nor the most intelligent, but the one that is most responsive to change”

Charles Darwin

Two qualities: Structural fit – ability to adapt

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Contingent upon what?

But: Strategies are contingent/ dependent upon their context

Organizations are purposeful entities

Success is dependent upon 1. formulation of purpose (objective) 2. and delivery of the purpose (implementation)

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The search for ‘contingency factors’

Task environment?

1. Environmental uncertaintyStable (little change) – unstable (dynamic, fast changing)

‘Turbulence levels’ (Ansoff 1967), Burns and Stalker (1961)

Moderately dynamic – highly dynamic (Eisenhart, 1995, 2000)

What determines strategy and structure?

2. Technology - Diversity of task environments

3. Size

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Environment

Strategy

Structure

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Environment Stable Dynamic

Technology Process Unit

Size Large Small

Mechanistic ! ?

Organic ? !

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Mechanistic: Organic:

Specialization of tasks Job and task flexibility

Defined duties, responsibilities Redefinition of tasks

Clear hierarchical structure Network structure of control & authority

Top down instructions and info Lateral info and advice

Obedience to org’n and rules Committment to work group

Importance by position Importance by individual’s contribution

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Efficiency is good

Slack is bad

Alignment!

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Fit, alignment, congruency, consistency

Inboundlogistics

Operations Outbound logistics

Marketing andsales

After salesservice

Infrastructure

Procurement

Technology

HRM

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Contingency theory, summary

• Organizations are open systems• Structure, and therefore performance, is dependent upon the particular

circumstances, situational factors, faced by each organization• There is no best way for all organizations but there is a one best way for

each organization

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Efficiency and effectiveness

Effectiveness: Strategies contain choice on goals and over-arching direction

Efficiency: Management control systems integrates efforts towards a common purpose/ goal

Management control systems are dependent upon the firm’s strategy

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The early strategy/ control paradigm

Environment – Strategy - Structure

Analysis – Formulation - Implementation

Contingency – congruency – consistency (external and internal fit)

Efficiency and effectiveness

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A reflection on the early theories/ propositions

A teleological perspective

A machine metaphor

A utilitarian perspective – Darwin/2

A structural perspective – Darwin/2