Module MT050

Contingency Theory

 

Module author

Niran Subramaniam

Saïd Business School
University of Oxford
UK

Learning objectives

After you studied this module, you will be able to:

  • Define contingency in the organizational context.
  • Explain what contingency theory is about and what it tries to explain.
  • Explain why it is relevant to know about this concept in today's economic environment and management practice.
Workload units 1
Reading extract Contingency Theory

 

Why Open School of Management believes that knwoing the contingency theory is helpful

Contingency theory is a model of behavioral theory taken from the field of organizational psychology. Its main tenants claims that no right or wrong method exists for running a larger business, specifically a multi-department corporation. Approaches to leadership are situational, and each chief executive officer makes leadership decisions based on the circumstances at hand. The beginnings of contingency theory can be traced to studies of leadership behavior completed at the Ohio State University during the 1950s. Results uncovered two specific types of behavior that all effective leaders have in common: consideration of given circumstances and the ability to adapt decisions to changing situations.

Further related research was later conducted at the University of Michigan, and graduate researchers in the field of psychology found that a definite connection exists between flexible leadership behavior and employee productivity. The researchers at this university further divided leadership methods into task-oriented behaviors and relation-oriented behaviors. This distinction also helped to form the foundation of contingency theory applied to the practice of business management.

The overall concept of contingency theory

Along with leadership methods, contingency theory serves as an improvement over previous theories. Two examples of those predecessors are Taylor's scientific management theory and Weber's bureaucracy leadership model. Components of contingency theory have also been applied to the use of technology in organizations in a manner that's as adaptable as possible. Six of the most commonly cited contingencies that business leaders face include technology changes, outside interest groups, government regulations, employee union demands, changing customer preferences and changes in available supply and demand.

The two most widely accepted approaches to contingency theory are Gareth Morgan's organizational theory and Fred Fiedler's contingency leadership model. Morgan's published ideas focus on the structures of organizations that require different approaches in different kinds of business environments. Organizations are considered to be evolving entities, and no single leadership approach fits them all the time. Morgan also described how one of management's top priorities needs to be fitting the best leadership approach with evolving circumstances.

Fred Fiedler's model of contingency theory focused on adjusting leadership approaches to positive circumstances as much as possible. Relationships between leaders and their employees are considered a top priority. Task prioritizing according to the given situation is another key component of this approach to contingency theory.

Fiedler's contingency theory approach further explains the relationship between leadership psychology and group performance. Good leadership depends on three main psychological factors:

  • The leader's level of power within the organization
  • The group environment and interpersonal dynamics
  • The structure and design of the tasks at hand

According to Fiedler's model of contingency theory, a given leader's style works best when it fits with the group environment yet is still flexible enough to adapt to a wide range of changing circumstances. This model of contingency theory initially provided much of the groundwork for further research on situational management theory. This added concept states that there is no one simple answer for every given problem within an organization.

Contingency theory key ideas

The four key components of modern contingency theory are as follows:

  • There is no such thing as a universal way to manage others.
  • Organization of employees and tasks needs to fit with the given environment.
  • Effective businesses have a good fit between systems on all levels.
  • Both tasks and the design of completing them need to fit with the overall needs of the business.

Contingency theory applied to the decision-making process is also known as normative decision making. This approach cites several factors that entail an effective decision that best fits the needs of an organization. Any decision first needs to be accepted as logical and reasonable by the majority of key people involved. It next needs to have enough available information to communicate to others why it's the best decision. A final key factor is the amount of disagreement over the decision and the likelihood of it being resolved.

One main distinction between contingency theory and situational theory is that situational theory's main focus is one behavioral changes that leaders can make to become more adaptable. Modern forms of contingency theory focus more on external factors that affect decision-making within given situations. The overall approach also attempts to explain why some experienced leaders work well in some situations but are less than effective in other ones.

 

Why study contingency theory?

Applying contingency theory works well in contemporary management as long as leaders have a core understanding of its main concepts. Modern applications operate on the principle that there's a direct correlation between a leader's traits and his or her ability to lead during changing circumstances. The ability to cope with and manage uncertainty is a core trait among leaders who work best with the principles of contingency theory. Good interpersonal relations with employees is another main factor in contingency centered management practices.

Fiedler's contingency theory approach includes a measurement rubric that evaluates how well an organization's management matches up to established principles. The measured criteria include levels of connection and collaboration between leaders and subordinates. Leaders are also evaluated on several different measures of mental adaptability. The importance of management style adjustments in different situations is not to be underestimated according to applications of contingency theory.

 

Return to Management Theories (MT modules).