Organizational theory (also called „organization theory“) is focused on organizations and its goal is to answer questions like: how are organizations structured, how they function and change, how they interact with the environment etc. The organizational theory contains multiple theoretical perspectives and approaches and draws influences from several scientific disciplines – economics, sociology, political science, management, and anthropology.  Early research in organizational theory was influenced by the works of Adam Smith, Karl Marx, Émile Durkheim, Henri Fayol, and Frederick Taylor, but the most influential was the theories of Max Weber.

Max Weber is well known for his study of bureaucracy, which he viewed as the most rational mechanism for governing the state and other organizations and institutions. Bureaucracy enables efficient and systematic management of a large number of people and material resources. Although the rudiments of bureaucracy appeared with the first civilizations, it was not until the nineteenth century that bureaucratic management spread to all aspects of social life. This development and expansion of bureaucracy were made possible by the creation of a centralized state, an increase in traffic and communication systems, an increase in the monetary economy, an increase in tax revenues, and the development of the industry.

The development of bureaucracy is most closely related to the development of a legal-rational type of authority. Within a bureaucratic organization, individuals are connected hierarchically, each position has specific powers and duties, and there are clear relationships of superiority and subordination. There are general formalized rules that all members must strictly follow. The duties and salary of each person are precisely defined, the prospects for progress within the organization are known, and job qualifications are acquired through schooling or special exams. Bureaucracy is guided by instrumental rationality, and its advantages are: predictability, speed, resource savings, and uniformity.

British sociologist Martin Albrow believes that the rational bureaucratic procedure, which Weber wrote about, is the best tool for measuring efficiency, which does not necessarily mean ensuring the success of the organization. American sociologist Peter Blau studied bureaucracy and organizations in his books Dynamics of Bureaucracy (1955) and Formal Organizations (1962). His research on bureaucracy was on the sociological trail of Max Weber, however, unlike Weber, Blau believes, based on his own empirical and theoretical research, that deviating from the official structure within a bureaucratic organization does not have to be disastrous for the organization. The reverse case is far more common.

Based on his research of a federal institution, whose center was in Washington, he concluded that the illegal practice of consulting officials of the same rank contributed to better efficiency within that institution. The reasons that, deviating from strict bureaucratic rules, lead to better work organization and greater efficiency are twofold. On the one hand, workers within an institution or company constantly create their own norms of work practice, and on the other hand, strict rules, no matter how detailed, can never predict all the problems that may arise in practice.

The Weberian model of organizations was predominant in organizational studies until the late 1950s when new research questioned the universal relevance and applicability of the Weberian model. At that time two new approaches arose.

First was structural contingency theory which focuses on the relationship between organizations and their environments. This approach research how organizational form adapts to its environmental context. The book The Management of Innovation (1961), co-authored by psychologist George Macpherson Stalker and sociologist Tom Burns, started the structural contingency theory and is one of the most influential studies in the field of organizational theory and industrial sociology. In this book, the authors divide organizations into two types: organic and mechanical. Mechanical organizations have a hierarchically organized bureaucracy, with clear vertical channels of tasks, responsibilities, and power. Each individual and each level within the organization does its part autonomously, while major decisions are made only at the top of the hierarchy.

Organic organizations have a looser structure, while levels and channels of communication and decision-making are multiple. In these organizations, achieving goals is more important than respecting clearly defined bureaucratic rules. Organic organizations are more suited to companies operating in fields that are characterized by rapid market changes and major technological innovations. On the other hand, mechanical organizations are more suited to traditional and stable industries, which are not greatly affected by market changes. Paul Lawrence and Jay Lorsch in the article  “Differentiation and Integration in Complex Organizations” (1967) stated that argued that organizations adapt to reflect the variety of their varied environments by developing structures that are appropriate to those environments. The volatility and uncertainty of the environment influence several areas of organizations: formalization of structure, decentralization of decision making, time management, and internal divisions.

The second foundational approach in new organizational studies is called the behavioral theory of the firm. This approach was developed by Cyert and March in their book A Behavioral Theory of the Firm (1963), which explores how complexity forces individuals to simplify their decision rules. They found that decision making is ‘‘boundedly rational.’’, which means that the rational behavior of actors is bounded by cognitive and information limitations.  Organizations are seen as adaptive systems that engage with a complex environment and ambiguous information.  Key challenges to the management of organizations are computational (threat of uncertainty) and political (securing cooperation between individuals with competing goals) The learning in organizations is achieved through organizational routines, but most of the organizational learning is in it essence conservative.

There are several other approaches in organizational theory.

The strategic choice theory stresses the ability of decision makers within organizations to manipulate the organizational environment.

Configuration theory focuses on processes, strategies, and structures of organizations that are strengthened by durable core values, which makes changes difficult to implement.

Transaction cost theory developed by Oliver Williamson in his article “The Economics of Organization: The Transaction Cost Approach” (1981) explains the boundaries of organizations based on the transaction cost of functions that are performed inside or outside an organization.

Resource dependence theory sees organizations as seeking to control their environments by efficient management of scarce material and symbolic resources that are available to organizations.

Neoinstitutional theory proposed by John Meyer and Rowan in the article “Institutionalized Organizations: Formal Structure as Myth and Ceremony” (1977) states that organizations within one sector of industry have similar forms. The reason for this uniformity is conformism to social conventions that proscribe rules that are socially expected to be followed. Organizations are embedded within a wider “institutional” (social and cultural) context – state, professions, public, interest groups, etc.

Agency theory focuses on the unequal relations between people (agents) who within organizations act on behalf of other people (principals). In this view organizational structures are rational attempts to establish efficient cooperation which depends on the informational asymmetry between agents and principals.

The evolutionary (ecological) approach was created by Howard Aldrich. His ecological model of organizations is derived from the natural selection mechanism of biological ecology. Variation is the first requirement: Variation within and between organizations is the basis of natural selection by the environment, while variations across environments are necessary if the externally induced change is to occur. Aldrich’s work encompasses the entire range in which variation can occur, from the activity routines and goals that make up the internal structure of organizations to the organizations themselves or the industry groupings in which their forms can classify them. Selection by the environment can occur at each of these levels, affecting population distributions of internal structures, organizations, and societal levels, respectively. Aldrich notes that retention is necessary, in combination with variation and selection, to drive a population ecology model of organizational change.

 In his books, Individual Interests and Collective Action (1986) and Fundations of Social Theory (1990b), American sociologist James Coleman applied the rational choice theory to the behavior of individual actors. He believes that this theoretical approach is an excellent basis for explaining how large organizations are formed and how they operate, as well as how social exchange and collective action take place. Coleman starts from elementary actions and relationships in order to build a macro theory. Actors have interests and they control some of the resources they use to pursue those interests. Some resources and events, however, are completely under someone else's control. To achieve interests, actors exchange control over resources and events that are less important to them, to gain control over things that are more important to them. At the middle level, which takes place between the activities of individual actors and macro structures, some structures mediate individual activities, the most important of which are: the system of authority, the system of trust, networks, norms, and organizations.

American sociologist Amitai Etzioni studied organizations, and according to the form of motivation of individuals to accept organizational authority, Etzioni singled out three types of organizations: utilitarian (in which the motive is personal gain), normative (motive is morals and values), and coercive organizations (motive is avoidance of punishment). Etzioni introduced the concepts of "scope" and "pervasiveness" of organizations. Scope refers to the amount of activity that members of the organization perform together, while pervasiveness refers to the level of sharing common normative values ​​between the members of the organization. He believes that organizations have a huge impact on our lives, as evidenced by his famous statement: "We are born in organizations, educated by organizations, and most of us spend much of our lives working for organizations" (Etzioni, 1975).

American sociologist Georg Ritzer develop a concept he called "McDonaldization", which is best illustrated in the book McDonaldization of Society (1993), Ritzer sees McDonaldization as the application of Max Weber's rationality to the overall structure of society, with McDonald's business taken only as an example that best reflects this process. Unlike the period in which Weber wrote, bureaucratization no longer represents the best model of rationalization;  McDonaldization has become the best way of rationalization in modern times. The type of rationalization that was introduced by McDonaldization seeks to achieve four main goals: 1) to increase efficiency, 2) to increase measurability, 3) to increase predictability, and 4) to increase control. An additional goal is, where possible, to replace human labor with mechanical labor.

McDonald's, through its business model, perfectly achieves four main goals, although it still retains human labor and has not replaced it with mechanical labor. McDonald's has managed to achieve these goals by standardizing every aspect of its business: retail outlets, menus, meal layouts, prefabricated ingredients, food preparation, customer relations, and the like. In addition, McDonald's has perfectly applied Frederick Taylor's workflow rationalization and Ford's model of automation - food is produced as cars are produced on the workbench. The essence of the process of McDonaldization is the application of these principles and models of work in as many companies as possible, but also in other organizations and institutions (churches, schools, hospitals, courts). Ritzer warns that behind such a formal rationalization of the work process, there is a danger of "the irrationality of rationality". As the main examples of irrationality, Ritzer cites: higher costs, dehumanization, loss of authenticity, increased environmental and health risks, etc. In more recent work, Ritzer examines how Starbucks' business models (coffee sales) and online shopping sites, such as Amazon and eBay, have influenced the McDonaldization process.

American sociologist Arthur Stinchcomb believes that, in the modern era, with the increase of urbanization, literacy, monetary economy, and economic, social, and political differentiation, comes a need to create organizations that will have specific purposes. These new organizations depended on the cooperation of individuals who did not know each other before, and on the application of new techniques and routines, which would sometimes be specific to only one organization. He believed that organizations, once they have established their way of functioning, show a great deal of inertia in their form and way of functioning, which sometimes prevents them from adequately adapting to external changes. Stinchcomb proves this hypothesis by pointing out that the key characteristics of organizations, which operate in one branch of industry, are closely related to the period in which that branch of industry originated. Thus, all companies engaged in the textile industry are more similar to each other than companies operating in the automotive industry, because these two industries were developed in different historical periods. The survival of specific organizations depends on their ability to adapt to external changes, despite the tendency towards inertia. In this regard, it is important to study the cessation of some organizations, to determine how selective factors affect the survival or transformation of organizations.

in the book Durable Inequality (1998) American sociologist Charles Tilly argues that inequalities persist because organizations, both those in power and those fighting against the government, use these inequalities to be more efficient in their work. New organizations incorporate existing inequalities into their own organizational structure and relationships because they treat these inequalities as given, that is, as external rules of the society in which the organization must operate. The end product of these processes is that both types of organizations reproduce inequalities that already exist in the wider society.

In the book Chains of Opportunity: System Models of Mobility in Organizations (1970) American sociologist Harrison White introduces an "algebra" of semi-groups, to make his earlier scheme applicable to organizations and informal groups in a modern, Western context. He defines role structures as the positions of social actors through multiple networks of social relations (such as friendship, hostility, and providing assistance). White uses the concept of duality to denote the invariant in models of social structures and processes that relate to cases where individuals change their positions within the workplace or change jobs.

Free positions, not individual persons, are what, indeed, have the freedom to move between categories toward fixed transitional probability. Therefore, conventional mobility models should be applied to the analysis of vacancies, not directly to the mobility of individuals. White applied this scheme of analysis to the study of the mobility of priests between Episcopal, Methodist, and Presbyterian churches. Career vacancies are not only dual but have a causal priority over the careers of individuals. White introduces the term "structural equivalence", which refers to groups of individuals who are in similar positions in relation to other such groups of individuals, so it is possible to aggregate their relationships and mutual changes through multiple networks of relationships. This equivalence allows complex networks, which are obtained by aggregation of equivalent actors, to be presented in the form of "reduced-form images".

References:

Albrow, Martin. Bureaucracy (1970);

     -     Do Organizations Have Feelings (1997);

Aldrich, Howard. Organizations Evolving (1999);

Blau, Peter. Dynamics of Bureaucracy (1955);

     -     Formal Organizations (1962)

Burns, Tom. & Stalker, G. MacPherson. The Management of Innovation (1961);

Coleman, James. Individual Interests and Collective Action (1986);

     -     Fundations of Social Theory (1990b);

Cyert, R. M. & March, J. G. A Behavioral Theory of the Firm (1963);

Etzioni, Amitai. A Comparative Analysis of Complex Organizations: On Power, Involvement, and Their Correlates (1975);

Lawrence, Thomas B., and Roy Suddaby. “Institutions and Institutional Work”. In The Sage Handbook of Organization Studies, eds. Stewart R. Clegg, Cynthia Hardy, Thomas Lawrence, and Walter Nord (2006);

Meyer, J. W. & Rowan, B. “Institutionalized Organizations: Formal Structure as Myth and Ceremony”. American Journal of Sociology (1977);

Ritzer, George. McDonaldization of Society (1993);

Stinchcombe, Arthur. „Social Structure and Organizations”, in March, J. G. (ed.) Handbook of Organizations (1965);

     -     Creating Efficient Industrial Administrations (1974);

     -     Stratification and Organizations (1986);

     -     Information and Organizations (1990);

Tilly, Charles. Durable Inequality (1998);

Weber, Max. Economy and Society: A New Translation (2019, in German 1922a);

White, Harrison. Chains of Opportunity: System Models of Mobility in Organizations (1970);