Contingency Theory of Organization
Whether you are starting a new company or restructuring one you already own, building the right organizational structure is important for your company's future success. There is no one-size-fits-all structure, however. As a start-up, your company has an entrepreneurial style, but as a mature company its structure will likely evolve into something else depending on the contingencies you face.
Fiedler's Contingency Style of Leadership
Contingency leadership is a concept developed in the 1960s by Fred Fiedler. According to this theory, leadership styles fall into two categories – task-oriented and relationship-oriented. Leader effectiveness is contingent on three factors – leader-member relations, task structure and position power. Leader-member relations is the level of trust and respect that employees have for their leader. Task structure refers to the degree to which the work is formalized and regimented. Position power is the level of authority a leader exercises. Fiedler believed that leadership styles are fixed. Therefore, to organize effectively, a company should change the leader to fit the tasks or change the work distribution to fit the leader.
Decision-making, whether on a corporate level or departmental level, is subject to contingencies. There is no formula a manager can use to arrive at an absolutely correct answer. Decisions depend on the amount of information available. The importance of the decision is also a factor. Contingency decision-making by a team leader is heavily influenced by the group he leads. The relationship between leader and group will determine the likelihood that the group will accept the decision. Any disagreement between group members only serves to add another contingency factor. The extent of the variables demonstrates the fact that decisions are made on a contingency basis.
From Groups to Organizations
The transition from group to organization is natural and straightforward. Following Fiedler, there is no one best way to manage an organization. All organizations are different and operate differently – even within the same industry. Moreover, different divisions within a single company face different situations – or contingencies – and must vary their management styles accordingly. Less-stable environments call for less-formal structures. On the other hand, more formal structures work better in more stable environments.
Contingency management styles depend on the situations that an organization faces, and the number of contingencies is substantially expanded from the Fiedler sample. Corporate-level contingencies include factors such as technology, stakeholders – suppliers, customers, consumer groups, for example – competitors, government regulations and unions. The size of the organization is a factor, as the management style for a 10,000-employee company would be very different for a 100-person company. Even the degree of uncertainty a firm faces can be a contingency. All of these confirm there is no simplistic way to run an organization or lead a department.
Thomas Metcalf has worked as an economist, stockbroker and technology salesman. A writer since 1997, he has written a monthly column for "Life Association News," authored several books and contributed to national publications such as the History Channel's "HISTORY Magazine." Metcalf holds a master's degree in economics from Tufts University.