Contingency Theory

Contingency theory is primarily concerned with the idea that the organization should fit their internal organization to the environment.  This theory is focused on the individual organization and the choices made by the designers of the organization. In particular when it comes to the structure and scope that will yield the best outcomes. The concept of structure is defined as the level of formalization and centralization as well as the subunits created within the organization. The goal of the organization is to find the best fit between their chosen form and the environment. Ultimately, contingency theory does not prescribe one organizational form. Instead it argues that the best form is determined by the goodness of fit.

The logic of this theory is:

  1. Assume that everything depends on their environment (Woodward 1958, Lawrence & Lorsch 1967).
  2. Given that there is no best way to organize and that any way of organizing is not equally effective (Galbraith 1973),
  3. Organizations whose structures were best adapted to the environment are expected to perform best (Pfeffer 1982).
This theory, then, has three concepts of interest. First, is the environment. This leads designers of the organizations to select a particular structure. This in turn leads to certain performance.
Diagram of the theory:
(Adapted from course notes)
(Flashcards and other resources here)

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