Organizational Theory

Organizational Theory






Organizational Theory


“Organization is the process of integrating and coordinating the processes of production, viz., men, machines, materials and the management most effectively with a view to fulfill the objectives of a company or firm” (Dayal, Zachariah & Rajpal, 1996). The goals of any company or entity are achieved through the channel of organization. It includes arranging the different entities in a company. Organization is the strategy for high performance. As a strategy, it will include planning and control of the various activities that occur around the different entities. Organization is a continuous process. It entails setting up structures by the management. These structures are set up through delegation of duties.

Classical Theory of Organization

The need for organization theory was birthed in the late 1700s (Crowther & Green, 2004). Earlier on, the processes of production were run and managed independently. A good example is that in the textile industry where the spinning, weaving were done separately. Entrepreneurs realized that if these processes were brought together and run as a single entities with a centralized hierarchy, they would receive higher profits. This was geared towards management theory because a need arose to gauge the profitability of the business ventures. The gauging was done by the managers.

The idea of measuring a business’ efficiency was given credibility by Copernican’s thought of the clockwork universe. If time itself could be measured, then a business’ feasibility could also be put on the analytical scale. During the Napoleonic wars, a financial strain was placed on the United Kingdom. Businesses were then forced to maintain transparent accounting records as the government began taxing them. In the eighteenth and nineteenth centuries, shares of the public transport systems were sold to the public. This was to help meet the costs of running them. This situation created a need for centralized management, as not all the shareholders could be involved in the decision-making processes.

The ability of the mangers to act in the best interest of the shareholders became subject to debate. Many did not see what would motivate the managers to handle the assets of the company with all honesty. It was assumed that most managers would act in their own interests. The agency theory was then introduced. This theory ensured that the managers acted responsibly with regards to the interest of the shareholders. The management of the organization is done of behalf of the owners.

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