Contingency Theory

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  Journal o Management Studies 24: 1 January 1987 0022-2380 3.50 STRATEGY AND STRUCTURAL ADJUSTMENT TO REGAIN FIT AND PERFORMANCE: IN DEFENCE OF CONTINGENCY THEORY LEX DONALDSON Australian Graduate School of Management, University o New South Wales ABSTRACT Comparative, contingency approaches to organization structure have been criticized as being inherently static. The present article argues that functionalist theories and quantitative methods can explain structural change. This is exempli- fied by a diachronic enquiry into strategy and structure. Several propositions about organizational dynamics relating diversification, reorganization and performance are supported. However, the notion of contingency adjustment to structure to attain match as a frequent alternative to structural adjustment to contingencies is not borne out. Neither of the two prevailing theories of structural change, ‘contingency determinism’ nor ‘strategic choice’, is completely adequate and a third formulation is advanced: that of‘structural adjustment to regain fit’. While structural-functional enquiry into organizations using comparative quantitative methods has yielded information about structural statics, the contri- bution to knowledge of dynamics seems more problematic. This article seeks to record that structural-functionalism does inform the analysis of organizational change and to show that quantitative contingency approaches can illuminate change if the theory used in the analysis is formalized properly. This involves the partial abandonment of both of the main prevailing theories of structural change: contingency determinism and strategic choice. In their place this article offers as a potentially more fruitful model the structural adaptation to regain fit formula- tion. Within this the role ofperformance is shown to be important. The advantage of this framework is demonstrated empirically by means of an examination of the relationship between strategy and structure. THEORIES OF CHANGE IN ORGANIZATIONAL STRUCTURE There has been a criticism of structural-functionalism within sociology as being inherently static and thus misleading as to societal and organizational change Addressfor reprinfs: Lex Donaldson, Australian Graduate School of Management, University of New South Wales, PO Box 1 Kensington, NSW 2033, Australia.  2 LEX DONALDSON (Rex, 1961). However, theories of the structural-functional type posit a state of equilibrium that is disturbed by an exogenous force which leads to dis- equilibria, consequent ineffectiveness and restitution through the adoption of a different structure. Such models are of developmental sequences. An example of this at the societal level is the evolutionary theory of Parsons (1966). Similarly, contingency theories of organization structure (such as Blau, 1972; Burns and Stalker, 1961; Chandler, 1962; Lawrence and Lorsch, 1967; Woodward, 1965) have come under considerable attack in recent years. The idea that the contingencies, either intra-organizational context e.g. size or technology) or the environment(e.g. rate of technological change), of the organization give rise to a set of pressures to which the structure must in the long run adapt, has been challenged (Schreyogg, 1980; Silverman, 1970; for a more extended discussion of the attack on organization theory and rebuttal, see Donaldson 1985a). Moreover, longitudinal studies in the comparative, quantitative literature in which changes in structural and contingency variables are examined, tend to conclude that there is lack of a ready connection between certain contingencies and structure (Dewar and Hage, 1978; Dyas and Thanheiser, 1976; Inkson et al., 1970; Meyer, 1979; Suzuki, 1980). However, in several of these the approach has been to look for a change in the structural variable in terms of a previous change in the contingency variable. For example, a change in the bureaucratic structure is predicted from a change in size (Dewar and Hage, 1978; Dyas and Thanheiser, 1976; for further details see Donaldson, 1979a). This draws on a model that contingency leads to structure, i. e. contingency determinism. Child (1972) criticizes such contingency determinism as the simplest type of theoretical construction to be derived from the associations of contingencies and structure. Contingency determinism posits that a change in the contingency variable produces a change in the structural variable directly and fairly immediately (figure 1). However, this theory, though used in empirical enquiries, is at odds with structural-functionalism. Contingency tructure. Figure 1. Contingency determinism In contradistinction to contingency determinism, the model postulated by structural-functionalism is of a more elongated set of processes which take longer to occur: a shift in the contingency variables leads to disequilibrium, this produces a decline in effectiveness that creates pressure for change, which causes structural adaption producing a new structure and restoring effectiveness (Child, 1972). Thus the theoretical inference from structural-functionalism is not contingency determinism but structural adjustment to regain fit SARFIT). Both models contain the notion that the ultimate cause of structural change is a change in the contingency variable. Hence both see structural reorganization  STRATEGY AND STRUCTURAL ADJUSTMENT 3 as contingency driven. However, under SARFIT the need for structural change arises from the substandard performance which comes from the mismatch of structure and contingency ie. the misfit between the new value of the contin- gency variable and the old structure) rather than just from the change in the value of the contingency variable. SARFIT is a refinement of the contingency idea which provides a more accurate model of the structural-functional logic with which to guide the examination of comparative, quantitative, longitudinal data. Where a SARFIT type of model is validated, this provides evidence for structural-functional theories which stress the importance of contingencies for structure By contrast, failure to confirm a contingency determinist formulation is not a disconfirmation of either contingency theories or structural- functionalism. The uncertainties over the status of contingency analysis introduced by earlier comparative longitudinal, quantitative enquiries may be seen as stemming, at least in part, from neglect of the full implications of structural-functionalism. The SARFIT formulation aims to redress this imbalance by offering a more adequate articulation of the theoretical basis of the contingency perspective on change in organizational structure. There is at present, however, a theoretical alternative to SARFIT. In rejecting contingency determinism, Child 1972) offers the strategic choice model. This is considerably more complex than either contingency determinism or SARFIT. Strategic choice, like SARFIT, contains the notion that misfit creates low performance, leading to a pressure for change to restore match between structure and contingencies (figure 2). However, in the strategic choice formula- tion, match can be restored by adjustment of structure to fit the new contingency (as in SARFIT), or by adjustment of the contingency to the structure. Thus an elite may retain a preferred structure and regain match by manipulation of the contingency. This is one of the ways in which choice arises for the rulers of the organization, the dominant coalition, and hence the determinism posited 7r If Contingency environment illiberal L Choice by dominant coalition Figure 2. Elements of the strategic choice explanation of structural change w- Performance Values of dominant coalition Structure  4 LEX DONALDSON by many contingency writers (Blau, 1972; Lawrence and Lorsch, 1967; Woodward, 1965) and inherent also in the SARFIT model, may be avoided in reality. The strategic choice thesis goes on to introduce a number of other factors, including the values, perceptions and political influence of organiza- tional actors which further elaborate the explanatory model and that add to the theme of choice in organizational change. A full discussion of strategic choice is beyond the scope of this article, and a wider consideration may appear elsewhere (for a critique of the general theoretical logic see Donaldson, 1985a). In this article the focus will be narrowed to the difference between the SARFIT and strategic choice models over the route from mismatch to match. Do organizations in disequilibria regain fit by structural adjustment, or do they with equal ease do so by adjustment of contingency to structure? If the latter route is as open to elites as the former, and can be chosen with roughly equal cost, then one would expect to see that on average these routes are chosen with equal frequency. If the adjustment of contingency to structure is not used with a similar frequency, then this raises questions about the viability of this route, about the validity of the idea of this choice, and about the empirical relevance of the theoretical proposition. Thus the purpose of this article is to present the SARFIT model of structural change in organizations and to examine the relative validity of this rather than contingency determinist or strategic choice formulations. The article seeks to show the greater accuracy of the SARFIT perspective, and its power to reveal patterns in organizational dynamics by teasing out the role of match and performance. THE SARFIT MODEL The SARFIT model is shown in figure 3. A change in the contingency variable (such as size or degree of product diversification) leads to a misfit between the existing structure and the new value of the contingency variable. While the concept of match between a contingency and a structural variable is highly general, w-hat constitutes match is specific to any particular pair of contingency and structural variables e.g. size and specialization, or product diversification Change in Misfit Structural adjustment contingency Performance J Figure 3. Structural adjustment to regain fit: general model
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