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Neoclassical theory of management is an extended version of the classical management theory. It arose out of the critique of classical theory. Theorists worked on a new approach by using classical theory as the bedrock by focusing more on human relations and behavioral science. People also refer to neoclassical theory as ‘behavioral theory of organization‘ or ‘human relations’ or ‘new classical theory of management.’
Due to its new approach, neoclassical organizational theory is the working principle behind most modern theories of organizations.
Let’s dive deep into neoclassical management to help you understand in detail.
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What Is Neoclassical Theory?
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Two Movements In The Neoclassical Theory Of Management
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Elements Of Neoclassical Theory Of Management
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Criticism Of Neoclassical Theory of Management
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Brush Up Your Management Skills
What Is Neoclassical Theory?
As the name suggests, neoclassical consists of two parts: neo and classical. Neo means new, and classical refers to the work done by a group of economists in the 18th and 19th centuries. In the classical theory, management focus was on job content and physical resources. Classical management theorists considered humans as an appendage to a machine. However, critics were of the view that this theory lacks compassion toward people. The organizations working on this principle are keeping emotional beings in the same category as machines.
With neoclassical organizational theory, theorists put forward incorporating behavioral sciences into management to address the shortcomings of classical theory.
The essential features of the neoclassical approach of management are:
- The business organization is a social system
- The human factor is the most critical element in this social system
- Social and psychological factors play a crucial role in determining productivity and employee satisfaction
- The management should also develop social and leadership skills apart from technical skills. They should think more about the welfare of workers
- Productivity in an organization is directly related to employee morale.
Elton Mayo, Chester Barnard and Herbert Simon are some of the famous neoclassical theorists. They are responsible for introducing and experimenting with the neoclassical approach. So what is neoclassical approach? Their experiments underline that there are various motivational factors for a person to meet specific requirements.
Here’s how three theorists worked on the new classical theory of management:
Elton Mayo
In 1927, the Western Electric Company invited a group of researchers led by Elton Mayo to join their Hawthorne plant in Chicago. The researchers carried out experiments at the plant that later became popular as the ‘Hawthorne Experiment.’
The objective of the experiment was to study if workers would be more productive depending upon different levels of illumination in the factory. Based on the findings in the initial three years of this experiment, researchers saw increased worker productivity when lighting conditions improved. They claimed that workers’ motivation increased due to interest shown by the company in them and their well-being. It indicates the importance of using a neoclassical approach of management.
Also, the solidarity among workers increased satisfaction in the work. Mayo and his team revealed that managers should also focus on social factors such as employee relationships. Else, they would have to deal with resistance and lower performance.
You must also pay heed to the fact that Elton Mayo’s findings have their share of critics.
Chester Barnard
Chester Barnard published his famous book ‘The Functions of the Executive in 1938. The book provided a base for the formation and development of various management theories.
In his book, Chester explains a comprehensive theory of behavior in formal organizations that pivots around cooperation. He underlines that people in executive roles must foster a sense of purpose, moral codes, ethical visions and create formal and informal communication systems.
According to Chester, people should cooperate. There is no place for conflicts among workers. In both classical and neoclassical organization theory, conflict has no place in an organization.
Herbert Simon
Herbert Simon found out that classical organizational theories are inapplicable to several administrative situations facing managers.
Herbert tried to apply classical theories to current situations of his time, but they didn’t fit. He also contradicted Henri Fayol’s work in management, proving them to be mere proverbs of administrations rather than principles.
Two Movements In The Neoclassical Theory Of Management
The neoclassical organizational theory talks about ways and ideas that focus on the emotional beings of the organization. There are two primary sources of the neoclassical theory of organization: the human relations movement and the behavioral science approach.
The human relations movement regarded organization as a social system. Social physiologists and sociologists put focus on group dynamics and promoted people-management skills in addition to technical skills.
The behavioral science approach considers human behavior in organizations and promotes the development of human beings and its benefits at the individual and organizational levels.
Let’s take a look at how the work of these various sociologists and psychologists promoted neoclassical organizational theory.
Human Relations Movement
This resulted from Elton Mayo and Fritz J. Roethlisberger’s Hawthorne studies. According to them, social and psychological factors are important in determining worker productivity and satisfaction. The movement shows that efficient leaders are employee-centric, democratic and follow a participative style.
Behavioral Movement
This had contributions from various sociologists and psychologists such as A.H. Maslow, Douglas McGregor, Argyris, F. Herzberg, Rensis Likert, J.G. Likert, Kurt Lewin and Keith Davis. It is a more mature version of human relation theory. The theory proposes ideas about how managers should behave to motivate the employees. And the aim is to encourage employees to perform at the highest level and achieve organizational goals.
Elements Of Neoclassical Theory Of Management
There are three elements of neo-classical theory:
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The Individual
The neoclassical theory of organization emphasized individual differences ignored earlier in the classical theory. Every individual has emotions, feelings, hopes, aspirations, and expectations. They have got their own merit.
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Work Groups
Workers are not isolated but part of certain groups, which are informal organizations. Management must integrate these informal organizations with the formal ones.
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Participative Management
The neoclassical approach of management suggests the participation of workers in management.
As the neoclassical theory is employee-oriented, workers’ participation in planning job contents and operations will improve productivity.
Criticism Of Neoclassical Theory of Management
The following are the main criticisms of this theory:
- The theory is merely an extension of classical theory with human insights attached to it
- The theory is outdated as the situational and contingency theories address its loopholes
- It assumes every organization runs by a single method irrespective of the environment
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