International Research Journal of Finance and Economics

ISSN 1450-2887 Issue 41 (2010)

© EuroJournals Publishing, Inc. 2008
http://www.eurojournals.com/finance.htm

The Classical Theory of Organisation and it's Relevance

Mahmoud M. AlajloniIrbid Private University, Dept of Business Admin

Ziad. M. S. Almashaqba
Irbid Private University, Dept of Business Admin

Marzouq Ayed Nemer Al-Qeed

Applied Science Private University, Department of Hotel Management

Abstract

Organization facing competition need to take care of different dimensions of

management to perform effectively such as style of leadership, motivational factors, and
the importance of informal relations. The classical theory of organization suffers
superficiality, over simplification and lack of realism in terms of problems faced by
competitive organizations. Taylor and theorists of scientific management over rated
scientific methodology as a value free integrating force that could bring about total
managerial revolution. However the present forces of organizational change facing open
ended competitive challenges are not prepared to accepts the principles of scientific
management. Organizations facing competitive situations must have good management-
labor relations to improve productivity, must work towards fulfillment of social needs,
along with financials needs which were all but ignored in the framework of scientific
management. Hence it must be understood.

Keywords: Classical theory, organizational theory, scientific management

Introduction
The classical theory of organization has with held the test of many upheavals in the changes that have
accrued in the management of organization. The modern organizations in the private as well as in the
public sector enterprises are facing an environment which does not seem to be conducive to their
structure that is based on the principles of classical theory of organization. The classical school of
organization developed and pursued in the development of universal principles that would apply to all
the organizations in all situations. The classical theorists conceived of organizations as mechanical
devices to achieve organization's goals and objectives.
The era of classical theory of organization covers the period from 1900's to mid-1930. During
this period the classical theories of organization began to emerge. Important pioneers among them are
F.W. Taylor, Henri Fayol, Max Weber, and Mary Parker Follett.
The classical theory is based on the following three assumptions:
1. The relationship between employees and management is defined by means of formal
structured communication process, defined tasks, defined accountability, and formalized
procedures and practices to avoid any conflict in their relationship.
2. Workers have been treated as economic man who can be motivated by means of money
only.
International Research Journal of Finance and Economics - Issue 41 (2010) 61

3. The third assumption is that the workers have been considered as a product of means of
production or as a cog in the wheel.
Weiss considered that hierarchical bureaucratic model of organization was not interpreted
correctly in it is translated form as it was not meant to be an ideal type of structure. Instead the
hierarchical bureaucracy was an example of the structural form taken by the political strategy of
rational-legal domination.
The classical theories of organization were structured by the scholars with certain objectives in
mind which can be enumerated in the following manner:
a.) Henry Fayol, a French engineer-cum-manager in Europe is generally considered as the founder
and Father of the classical school of organization who initiated the administrative theory of
management. He analyzed the process of management in terms of technical ability that is more
dominating on the lower level and middle level of management whereas managerial ability is
more important for higher level of management. Henry Fayol considered that sound management
practice is a cohesive doctrine of management, one that retains its utility even in the present
theoretical frameworks of organization. Fayol insisted that management should be considered as a
skill like any other one that could be taught once its underlying principles were understood. In
1916, Fayol in his world renowned book "General and Industrial Management described a
number of management/organization principles with can be analyzed in terms of (i) human
relations, (ii) production efficiency, and (iii) Administration. These three principles again can be
divided into fourteen principles of organization. Henry Fayol constructed fourteen principles of
organizations that would be applicable universally and would make the organizations most
effective and efficient.
The fourteen principles of organization can be enumerated thus.
(i) Division of Work: Division of work is one of important principles advocated by Fayol.
In the management process, it results in better and more work with minimum effort.
Factory system of production and our machinery of distribution are based on division of
work. In order to improve performance, work must be divided to obtain effective
specialization. The more realistic division of labor, the more efficient he will become.
(ii) Authority and Responsibility: Authority and responsibility are concerned with giving
orders to various functionaries in the organization. This implies that the manager should
have the right to give orders and to expect obedience. As such, Fayol prescribes for clear
and fair agreement on the procedures and policies to be followed authority and
responsibility exist together. An individual, who is willing to exercise authority, must
also bear responsibility as the holder of formal authority.
(iii) Discipline: Discipline in terms of rules and regulations, policies and procedures, are
applicable to all the members of the organization for the smooth running of the
organization maintenance of discipline depends upon the nature of leadership,
application of policies and procedures. The means of maintaining discipline are: (a)
Good supervision at all levels, (b) Clear and fair agreements, and (c) Judicious
application of penalties.
(iv) Unity of command: Unity of command means that a person in the organization should
receive orders from one person only so as to avoid any kind of confusion and conflict.
Multiple bosses will lead to divided responsibility. According to Fayol, the principle of
unity of command, if violated, will lead to jeopardize of discipline, undermining of
authority, and may also result in instability.
(v) Unity of Direction All members of the organization must work together to accomplish
the goals of the organization. It alone can produce a sense of loyalty and devotion among
the employees.
(vi) Subordination of Individual Interest of General Interest This principle calls for
reconciliation of objective of individuals with those of the organization. Organizational
62 International Research Journal of Finance and Economics - Issue 41 (2010)

interests are more important than those of the individuals. When the individuals and
organizational interests are in conflict with one another, the organizational interests must
prevail.
(vii) Remuneration of Personnel Remuneration to the employees must be fair and should
provide maximum satisfaction to both the individuals and the employees.
(viii) Centralization of Authority According to Fayol a good balance between centralization
and decentralization of authority and power should be accorded. The degree of
centralization may differ according to the needs of the organization.
(ix) Scalar Chain The unity of command brings about a chain or hierarchy of command
linking all members of the organization from top to bottom. Scalar chain determines
superior-subordinate relationship in the organization setup. It is essential to ensure unity
of command and effective communication in the organization.
(x) Order This principle is concerned is arrangement of things and people. Fayol asserted
that there is a place for everything and everyone which must be occupied. Order of
system alone can provide a sound and efficient organization.
(xi) Equity is concerned with equality of treatment to people in similar position. This
principle implies that managers should use their authority impartially and judiciously
while dealing with their subordinates.
(xii) Stability of Tenure This principle is concerned with the minimum of turn over among the
employees for the good of the organization. The management should try to win loyalty of
its employees so as to maintain stability in the organization.
(xiii) Initiative is concerned with creative thinking and capacity to take initiative that can give
sound managerial planning and execution of pre determined objectives and goals.
(xiv) Esprit de Corps It is the foundation of team spirit. Union is strength. It is to be noted that
when all the personnel pull their efforts together, only then the goals and objectives can
be achieved in the most efficient manner.
b.) Bureaucratic Theory of Management Max Weber developed a structural model of organization that
was most efficient means by which organizations could achieve organization's goals and objectives.
Max Weber, a German sociologist, defines bureaucracy in terms certain features of organizational
design. Weber viewed bureaucracy as the most efficient organizational design if it has the
following characteristics:
(i) A continuous organization of official functions bound by rules.
(ii) A specified sphere of competence. This involves (a) sphere of obligations to perform
functions which have been marked of as part of a systematic division of labor; (b) the
provision of incumbent with necessary authority to carry out these functions; (c) that the
necessary means of compulsion are clearly defined and their use is subject to definite
conditions. A unit exercise authority which is organized in this way will be called an
"administrative organ". There are administrative organ in this sense in large scale private
organizations, in parties and armies, as well as in the state and church.
(iii) The organization of office follows the principle of hierarchy.
(iv) The rules which regulate the conduct of an office may be technical rules or norms. In both
cases, if their application is to be fully rational, specialized training is necessary. It is thus
normally true that only a person who has demonstrated an adequate technical training is
qualified to be a member of the administrative of such an organized group, and hence only
such persons are eligible for appointment to official positions. The administrative staff of a
rational corporate group thus typically consists of officials; whether the organization be
devoted to political, religious economics-in particular capitalist-or other ends.
(v) In the rational type it is a matter of principle that the members of administrative staff should
be completely separated from ownership of the means of production or administration.
There exists, furthermore, in principle complete separation of the property belonging to the
International Research Journal of Finance and Economics - Issue 41 (2010) 63

organization, which is controlled within the sphere of the official, which is available for his
own private uses.
(vi) In the rational type cases, there is also a complete absence of appropriation of his official
position by the incumbent.
(vii) Administrative acts, decisions, and rules are formulated and recorded in writing, even in
cases where oral discussion is the rule or is even mandatory.
(viii) Legal authority can exercises in a wide variety of different forms.
(ix) They are remunerated by fix salaries in money, for the most part with the right to pension.
(x) It constitutes a career.
Bureaucracy, as an organizational concept, has contributed to a better understanding of the
working mechanism of organization. For Weber bureaucracy was a blueprint for dividing
responsibility, authority, and accountability.
Stephen P. Robbins feels and asserts that bureaucracy is characterized by highly routine
operating tasks through specialization, very formalized rules and regulations, tasks that are grouped
into functional departments, centralized authority, narrow spans of control, and decision making that
follows the chain of command. He further observes that the primary strength of bureaucracy lies in its
ability to perform standardized activities in a highly efficient manner. In addition, bureaucracies can
get along well with less talented and less costly middle and lower level managers.
c.) Scientific Management Frederick W. Taylor published his book the principles of scientific
management in the year 1911. Taylor was an engineer by background employed by Midvale and
Bethlehem steel company in Pennsylvania, U.S.A. Taylor was appalled by the workers inefficient
methods of performance. The workers', Taylor strongly believed, output was only one third of their
actual potential the workers were inclined to "take it easy" on the job done, which in to days
management language is termed as organizational design. After working in this direction for over
two decades, he set four principles of scientific management that he argued would result in
significant increases in productivity. The four principles are:
(i) Develop a science for each element of an individual's work which replaces the old rule of
thumb method.
(ii) Selections should be based on certain scientific criteria and thereupon scientific training
should be provided to make them perform to the best of their capacity.
(iii) The cooperation of management and labor to accomplish organizations' objectives in
accordance to the scientific methods.
(iv) A more equal division of responsibility between the workers and managers with the latter
concerned with planning and supervising and the former concerned with the function of
execution.
Taylor's research work was basically concerned with the functions of workers at the job floor.
He hardly concerned himself with the functions of middle or higher levels of management. However,
Taylor was able to draw attention on the manager's functions in retrospect to maximizing efficiency
and explicitly fixing responsibility. Thus Taylor's work seminal works that spawned the scientific and
classical school of management thought.
64 International Research Journal of Finance and Economics - Issue 41 (2010)

Critical Evaluation of the Classical Theory of Organization

Classical theorists view organization as a closed system influenced only by certain immutable laws in
its design and management. For the most part, people have not been considered important element of
production but rather a cog in the whole process of production and or management.
Classical theory of organization suffers from superficiality, over simplification and lack of
realism. The scholars have confined themselves closely to the mechanism of authority, whether real or
ideal, and have failed to address other equally important elements affecting the performance of the
organization.
Bureaucracy has come to be criticized on various aspects of its formulations. Ramesh K. Arora
in this respect observes,
"There are substantial references in sociological literature to the point that several
characteristics of Weber's ideal-type bureaucracy may impede rather than aid the achievement of
efficiency. Excessive hierarchy, over developed specialization, promotion by seniority, and rigid
adherence to rules could cause bureau pathological behavior".
On the other hand, T. K. Jain observes,
"It must be understood clearly that Weber's ideal-type concepts should not be treated as levels
to be applied to social phenomena, but as concepts on which to base programmers of research. Weber
conceived two parts and purpose of his ideal-types: (1) construction of ideal types on the basis of
subject under comparative, historical evidence, and (2) analysis of the subject under investigation in
terms of its derivation from or approximate to these concepts".
In this respect Weiss observes,
"Today, bureaucracy has a negative reputation, more often indicative of bottlenecks, red tape
and inefficiency. In its mature phase, bureaucracy has led to bloated organizations and a redundant and
excessive number of rules, all of which lead to a rigid organization type unable to meet the changing
needs of market place".
One of the fundamental problems with the classical theory or organization is that it does talk of
certain aspect of human behavior but importance given to it is almost negligible. Fred Luthans has
correctly observed,
"There is no question that early management pioneers, such as Henry Fayol, Henry Ford,
Alfred P. Sloan, and even the scientific managers at the end of the 19th century such as Fredrich W.
Taylor, recognized the behavior side of management. However they did not emphasize the human
dimension; they let it play only a minor role in comparison with the roles of hierarchical structures,
specialization, and the management functions of planning and controlling".
The scotching criticisms by the behaviouralists viewed that the classical pioneers totally
ignored the behavioral dimension of organization and also over simplified the mechanistic assumption
for the smooth running of the organization ignoring all the complexities of human behavior at work. As
a matter of fact, they assumed human beings as a cog in the machine who simply obeys the orders and
thus ignoring the social, psychological, and motivational aspect of human behavior. Thus focus of
classical theory is on "organization without people".
Robbins points pout that specialization, as visualized by Max Weber, creates sub unit conflicts.
Functional sub unit goals can over ride the overall goals of the organization. The other major weakness
of bureaucracy, according to Robbins, is obsessive concern with following rules. The specialization of
labor often inhibits effective communication among technical and specialists. In addition the rules,
regulations, and procedures generally encourage managers to act mechanically rather than exercising
discretion, initiative in making decisions. This often results in resistance to change and innovation.
Taylor's principles are basically confined to production management. He ignored certain
essential aspects of management like finance, accounting, marketing, consumer behavior, which are an
integral part of business management. Scientific management firmly believes in economic incentives
and sanctions as a means to improve productivity. However concepts like job satisfaction, participative
management, and the job itself have become important elements in increasing productivity.
International Research Journal of Finance and Economics - Issue 41 (2010) 65

Relevance of the Classical Theory of Organization

The principles and the features prescribe by pioneers of classical theory of organization were elaborate
and comprehensive in nature. The major problem with these so called "proverbs" is that these
principles do provide some readymade answers to the problems that are of routine type but are unable
to deal with the problems that have new bearing on the working of an organization. These principles
can be used as guidelines but cannot be considered as means of providing solutions to problems faced
by the organizations in the changing environment. Many of these principles are directly opposite to the
very purpose for which they have advocated.
With the growing complexities, these principles are losing their relevance in the modern
organizations. The era of modern organization is weighed by influences of market competition in the
private as well as the private sector enterprises for which the classical structures are totally unsuitable.
Classical theorists have always viewed organizations as a closed system, i.e. having no interaction with
its environment. This assumption is totally uncalled for and unrealistic for a modern organization.
Change is the key word for the modern organization.
The Twenty-First Century has been witnessing a change in working of organizations. With the
advent of liberalization, Globalization, privatization, and disinvestment, the nature and structural needs
of the organizations have under gone change. Even the role of governments are taking a new look in
terms of public sector enterprises. The public sector enterprises are either being privatized or are being
partially divested so that they are able to compete with the private sector. The private sector is being
encouraged to set up industries in the areas which were considered as a monopoly of the public sector.
The organizations, whether public or private, are confronted more and more with commercial
aspects of consumerism, cut throat competition, and enhancing performance by achieving
organizational objectives and goals at the least minimized cost. The crucial problems faced by the
organizations can be enumerated thus:
1. Effective coordination between the employees and the management.
2. More capital intensive technology over labor intensive techniques.
3. Finding and retaining talented managers and labor force.
4. Continuous changes in the organizational environment.
5. New problems related to workforce diversity, culture, turnover, absenteeism, and social
needs are being faced by the organization.
6. Changing perception of individual and organizational needs.
7. The information explosion has blurred the boundaries between cultures, social trends, and
ethics.
8. Threat of intense rivalry.
9. Threat's of growing bargaining power of the consumer.
10. Threat of supplier's growing bargaining power.
11. Threat of alternatives for innumerable products.
The above problems are either related to technology, administration or structure of the
organization. The nature of organizations in the public and private sector, particularly industrial
management, are becoming more complex. One alternative to deal with these problems is concerned
with new structural designs accommodating some of the traditional principles and adding new ones.
Principle's of organizations formulated in the 18th century are not able to enhance performance
in the changed environment and technology the traditional organizational principles like specialization,
scalar chain, unity of command, unity of direction, result into the formation of mechanistic
organizational structures which are insensitive to employees social and psychological needs, and
contribute negatively to organizational performance.
The principles of the classical theory of organization are institutionally power-centered which
provides no scope for individual initiative. As such organization tends to become less and less
democratic and more and more bureaucratic.
66 International Research Journal of Finance and Economics - Issue 41 (2010)

Fayol's principle viewed organization as a closed system where most of the organizational
factors were under the control of management. However the modern management operates in a
dynamic environment where changes are constantly adopted to suit the changes in the environment.
Most of the modern organizations do not operate in vacuum as such we cannot put managers of
modern organization in strict jackets to take a particular action to solve particular problem. Thus the
modern organizations tend to provide maximum autonomy so that they are free to take actions to solve
problems and to think, innovate, explore and bring about positive and effective changes.
The modern manager teams up with his subordinates to achieve desired results effectively. He
tries to fulfill the needs of the employees along with that of the organization. The traditional
bureaucratic organization with its hierarchical system of management and an over concerned manager
who tries to force performance out of his employees is no longer needed. The manager of modern
organization believes in an environment were empowerment is decentralized so that the decisions are
made at the desired level. Management of modern organization firmly believes in the philosophy that
"nothing is constant except change".

According to Stephen Robbins

"A Review of evidence linking organizational structures to employees performance and satisfaction
leads to a pretty clear conclusion-You can't generalize. Not every prefers the freedom and flexibility of
organic structures. Some people are most productive and satisfied when work tasks are standardized
and ambiguity is minimized that is in mechanistic structures. So any discussion of the effect of
organizational design on employee behavior has to address individual differences. To illustrate this
point, let's consider employee preferences for work specialization, span of control, and centralization".

Conclusion
"Organization structure is more than boxes on a chart; it is a pattern of interactions and coordination
that links the technology, tasks, and human components accomplishes its purposes".
To conclude it can be said that the classical theorists of organization were basically concerned
with and emphasized single minded to make organizations effective and efficient in terms of making
profit. However modern competitive organizations do understand the fact that modern organizations
have several motivations to perform besides making profit, thus modern organizations have to integrate
various aspects of social and economic factors related to productivity and satisfaction of human needs.
International Research Journal of Finance and Economics - Issue 41 (2010) 67

References
[1] Names of Pioneers of Classical Theory of Organization
a. Frederick W. Taylor, The Principle of Scientific Management (New York: Harper),
1911.
b. Henri Fayol, General and Industrial Management, Translated by J. N. Conbrough
(Geneva: International Management Institute), 1929.
c. Max Weber, The Theory of Social and Economic Organization, Translated by A. M.
Henderson and Talcott Parsons (New York: Oxford University Press), 1947.
d. Mary Parker Follett, Collected Works (New York Harper Brothers), 1941.
[2] Richard M. Weiss, Weber on Bureaucracy Management Consultant or Political Theorist?"
Academy of Management Review, April 1983, PP.242-248.
[3] Henri Fayol, opp.cit.
[4] Ibid.
[5] Ibid.
[6] Ibid.
[7] Ibid.
[8] T. K. Jain, Bureaucracy and Motivation, (New Delhi: Jainsons), 1986, p. 4-5.
[9] Joseph W. Weiss, Organizational Behavior and Change, (Singapore: Thomas Asia Pte Ltd.,)
2000, P.9.
[10] Stephen Robbins, Organizational Behavior, (New Delhi: Prentice Hall of India Private
Limited), 2002, P. 423.
[11] F. W. Taylor, opp, cit.
[12] Joseph W. Weiss, opp.cit., P.8.
[13] Ramesh K. Arora, Comparative Public Administration: An Ecological Perspective, (New Delhi:
Associated Publishing House), 1972, P.52.
[14] T. K. Jain, "Utility of Max Weber's Concept of Ideal-Type Bureaucracy in Public
Administration," Prashasnika, v.6, no.4, Oct-Dec, 1977, P.128.
[15] Joseph W. Weiss, opp.cit.,P.9.
[16] Fred Luthans, Organizational Behavior, (New Delhi: McGraw-Hill Irwin), 2002, P.16.
[17] Stephen Robbins, opp.cit.,P.423.
[18] Robert Duncan, "What's the Right Organization Structure?" Organizational Dynamics, winter
1979, P.59.
[19] Stephen Robbins, opacity. P.434.
[20] Wladimir Kraus(2009), A Treatise For A New Age In Economic Theory:Review Of George
Reisman’s Capitalism, Libertarian Papers Vol. 1, Art. No. 14
[21] Jessica Griggs,(2009), What string theory is really good for Magazine issue 2710. Subscribe
and get 4 free issues. For similar stories, visit the Cosmology and Quantum World Topic
Guides.