Contingency theory is an outgrowth of systems design. Jay Galbraith (1973)
states that in contingency theory:
* there is no one best way to organize
* any way of organizing is not equally effective
These run counter to the optimizing notions of many rational theorists.
Scott adds that in contingency theory "the best way to organize depends
on the nature of the environment to which the organization relates"
"Contingency theory is guided by the general orienting hypothesis that
organizations whose internal features best match the demands of their environments
will acheive the best adaptation" (Scott p. 89). The termed was coined
by Lawrence and Lorsch in 1967 who argued that the amount of uncertainty
and rate of change in an environment impacts the development of internal
features in organizations.
Different subunits within an organization may confront different external
demands. "To cope with these various environments, organization create
specialized subunits with differing structural features" (Scott p.
89) -- for example, differing levels of formalization, centralized vs decentralized,
planning time horizon. "The more varied the types of enviroments confronted
by an organization, the more differentiated its structure needs to be"
Furthermore, the more differentiated the more difficult it will be to coordinate
the activities of the subunits and more resources need to be applied for
Lawrence and Lorsch's classic 1967 study, especially
the six companies in the plastics industry, highlight their argument that
in complex environments the organization developed separate departments
to confront these differing environmental segments. But these separate departments
created coordination problems. Therefore, the extent that the companies
could differentiate to the level required by the environment AND at the
same time integrate these different departments into collective action determined
the organization's success rate.
The inter-departmental conflict inherant in such differentiation is often
caused by mutual task dependence, task-related assymmetries, conflicting
performance criteria, dependence on common resources, communication obstacles,
and ambiguity of goals as well as organizational differentiation (from Scott
p. 270). While the rational perspective sees these conflicts as disruptive
and best resolved, and natural perspective notes that conflicts are part
of the negotiation process between coaliations and their conflicting interests
and have an important (and possibly beneficial) effect on the organizational
goals of the company.
Galbraith's view is similar to systems design in that it stresses information
flows but adds that as uncertainty increases the amount of information required
for decision making also increases. "Various structural arrangements,
such as rules, hierarchy, and decentralization are mechanisms determining
the information-processing capacity of the system" (Scott p. 90).
Integrating Rational and Natural System Perspectives
Through Contingency Theory
Lawrence and Lorsch (1967) argue that if the open system perspective is
taken, rational and natural perspectives identify different organizational
types which vary because they have adapted to different types of environments.
Unlike Etzioni's structural view which sees the two perspectives as two
sides of the same coin, Lawrence and Lorsch see them as different organizations
The more homogeneous and stable the environment, the more formalized and
hierarchical the form. Their view is ecological -- those organizations that
can best adapt to the environment will survive. They see the rational system
coming first because environments were initially stable and are becoming
increasingly more volatile.