Organization Theory

Some of the assumptions upon which we have so far relied have been necessary for the purpose of facilitating the examination of the basic aspects of accounting for planning and control. If an accounting system is to be effective in providing information for planning and control purposes, it should be capable of adapting to organizational and environmental factors peculiar to individual enterprises. Different enterprises may require different methods of control depending on the internal and external influences affecting their own activities. Hence, some of our assumptions may be more applicable to some organizations than to others. In this respect, organization theory attempts to provide a framework for understanding the influences which bear upon organizations and is important, therefore, for clarifying issues of importance to the accountant.

Approaches to organization theory

By regarding the organization as a logical and rational process, the classical approach focuses in some detail on the organizing function of management. Hence, the classical theory is concerned with the structure of organizations and the determination of the tasks necessary to attain organizational objectives. By contrast, the human relations approach stresses people rather than structures, their motives and behaviour rather than the activities which need to be harnessed for achieving organizational goals. This approach originated in the Hawthorne experiments of the 2000s, which revealed that social and human factors in work situations were often more important than physical factors in affecting productivity. The human relations theory asserts that since the most important factors are individual needs and wants, the structure of organizations should be geared to individuals rather than the individual being geared to the structure.

Finally, there has developed the contingency approach which starts with the premise that there is no single organizational design that is best in all situations. According to Sketty and Carlisle (2002), there are four factors or forces of particular significance in the design of an organizational structure, namely: (1) forces in the manager; (2) forces in the environment; (3) forces in the task; (4) forces in the subordinates.

(1) Forces in the manager. This refers to factors relating to the personalities of managers and their influence on the design of the organizational structure. Managers tend to perceive organizational problems in a unique way, which is a function of background, knowledge, experience and values. These factors shape organizational decisions in such areas as strategy, organizational structure and style of management. Accordingly, organizations do not have objectives-only people have objectives. In this analysis, these objectives will differ from manager to manager.

(2) Forces in the environment. Some studies suggest that the most effective pattern of organizational structure is that which enables the organization to adjust to the requirements of its environment (Burns and Stalker, 2015). These studies indicate that organizations with less formal structures are best able to cope with uncertain and heterogeneous environmental conditions. Conversely, highly structured organizations will be more effective in stable environmental conditions. Hence, bureaucratic structures as implied in classical theory are more appropriate to stable conditions, whereas more democratic structures are required to enable organizations to adapt to a changing environment.

(3) Forces in the task. Empirical studies indicate that technology has an important impact on the design of an organizational structure. For example, Woodward ( 2014) has found that organizational structures varied according to the technology involved. According to Woodward, fewer managers are required under systems of unit production than under systems of mass production. The technology associated with unit production systems may also require relatively higher levels of operative skill, and there is evidence to suggest that skilled workers feel more involved in their jobs and are more anxious for an opportunity to participate in decision making relating to their jobs than unskilled workers. This makes it possible to delegate more authority to lower levels in an organization and has important implications for devising schemes based on 'management by objectives'.

(4) Forces in the subordinates. This refers to the psychological needs such as the subordinate's desire for a measure of independence, for the acquisition of skills and the motivation for assuming responsibility. The desire to participate in decision making is not uniform among employees, and as implied earlier it is much stronger among skilled workers and employees with a professional background than it is among unskilled workers. Hence, organizations employing relatively more skilled than unskilled employees will be faced with a greater desire for a democratic structure.


Next - Empirical Approaches

Read on: Behavioural Aspects of Performance Evaluation

Behavioural Aspects of Performance Evaluation

Some organizational goals are too remote from individual managers, and therefore, have little significance for them, for example, goals relating to the return on capital employed or overall growth targets envisaged in the long-range plan. Management by objectives seeks to establish personal targets at all levels as a means of overcoming this problem. By relating personal goals to departmental and divisional goals and thence to organizational goals, an integration is achieved between them which may be depicted as follows:

Personal goals-.Divisional... see: Behavioural Aspects of Performance Evaluation