What is Contingency Theory of Management? Definition, Contingency Variables, & Pros/Cons

Do you think one management principle or practice is always applicable to every organizational situation i.e. problem? This contingency theory of management has given us an answer to this question. Let’s see.

What is Contingency or Situational Theory of Management?

The contingency theory of management holds the belief that the best management practice is situational. It states there is no universal principle that best fits every situation. Managers’ decisions are contingent and will be affected by various situations.

This management theory was developed in 1960 by Tom Burns and GM Stalker in Britain and Paul Lawrence and Jay Lorsch in the USA. They argue that management principles cannot be applied universally across all organizations.

The same management strategy and practices cannot consistently yield the same outcomes in different situations. It’s possible that management principles, methods, and procedures that work well in one context won’t work as well in another.

This approach says that management ideas depend on certain circumstances. The most recent advancement in the management school of thought is this theory. Since management concepts and practices are conditional (influenced by) the situation, the contingency theory’s conclusion is that there is no one best solution to tackle any problem in different organizations. Each circumstance may be distinct and diverse. Therefore, a novel managerial approach is needed to address the issue.

This means, that instead of specific management theories and practices, a special theory that is fit for that situation, should be applied. Therefore, this theory is also known as the situational theory of management.

Assumptions of Contingency Theory

The contingency approach of management is based on the following assumptions.

• There is no universal or one best way to manage all organizational activities.
• The organization is an open system and the organizational structure of an organization should fit with the environment.
• Subsystems within the organization should have an effective fit with the environment.
• The needs of an organization are better satisfied when it is properly designed and the management style is appropriate both to the tasks undertaken and the nature of the workgroup.
• The best way to manage organizational activities is to be prepared for organizational changes.

Related: System Theory of Management

Contingency Variables in Organization

There can be various contingency variables for influencing management practices in the organization. The following are important contingency variables for the organization according to this approach.

Size of Organization

One of the most crucial elements in creating and deciding on an organizational structure is the size of the organization. While small businesses don’t necessarily need to be more decentralized, large organizations should.

While departmental managers must be selected and given a certain level of authority in large organizations, only one person can centrally govern organizational activities in small ones.

Level of Task Technology

The level of technology also affects management policies and practices. Employee recruitment and selection, training and development, performance and reward management system, compensation system, etc. must be different on the basis of the technology used by the organization. The level of technology significantly affects the need for customization in organizations.

Environmental Uncertainty

Business uncertainty is growing quickly due to the complex and dynamic nature of the business environment. In a dynamic business environment, management techniques and methods that are effective in a stable setting do not apply.

Organizations must adapt their plans and strategies in response to changes in the business environment, making environmental uncertainty another crucial contingency.

Individual Differences

Different personalities holding different positions also affect the organizational system. Their personal thoughts affect decision-making, management practice, and strategies. Managers have to give duties, responsibilities, and authority to understand the differences in employees’ thoughts, personalities, abilities, attitudes, etc.

Other significant factors are the organization’s regional makeup and the kind of task being performed. The earliest management theorists, including F.W. Taylor, Henri Fayol, and Max Weber, attempted to identify a universal answer to organizational and managerial issues, but this proved to be virtually impossible given the dynamic nature of many variables.

Thus, contingency theory states that the leadership style, organizational structure, job design, motivational approaches, control systems, conflicts, and grievance-handling techniques should be situation-specific.

Related: What is Decision Theory?

Advantages and Disadvantages of Contingency Theory

The main advantages of the contingency approach to management include:

• This theory is the breakthrough to think from well-established traditional management principles to flexible practices.
• It gives freedom and encourages managers to identify the contingency variables to solve the problems.
• It does not accept universal principles.
• Managers can make decisions independently. So, any problem can be solved quickly and differently.

Disadvantages of this contingency theory include:

• The contingency approach has given us only four contingent variables but a situation can be influenced by various variables.
• It does not have theoretical proof of how situational decision-making works well.
• Managers may sometimes be misleading in search of situation-specific problems.

Read Next: 12 Theories of Management