The Neo-Classical Organizational Theory

The Neo-Classical Organizational Theory

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There are various organizational theories that attempt to evaluate the behavior of people in organizations, whether as a group or individually. The neo classical theory focuses on the needs of the workers and puts a premium on empowering employees in an effort to maximize their production (Colorado State University-Global Campus, 2010). Research by Sultana and Manivannan (2009) concludes that workers with institutional knowledge are a company’s most important company assets. A company needs to do what it can to retain these valuable assets, and neo classical thinking helped to spawn a new emphasis on job satisfaction and the social aspect of the workplace.
History of Neo Classical Theory
The neo classical theory became prevalent in the early to mid 20th Century, and was a shift in how management and organizational behavior was viewed. The previous prevailing thought was that a tough, authoritarian structure was best for productivity (Regina, 2012). Neo classical thinking theorized that this was not the case, but rather, productivity was best achieved through worker satisfaction and empowerment.
One important early contributor to the neo classical theory was Elton Mayo. Mayo’s group conducted a study known as the Hawthorne study at an electric company plant. They studied working conditions at the plant and investigated the role that social elements played in worker satisfaction and productivity (Mayo, 1933). The study concluded that employees are more productive when motivated by recognition and praise than by financial reward, and that management needs to be cognizant of the role that social elements play in affecting productivity (Almusaileem, 2012).
Others who made important contributions to this movement were Chester Bernard and Herbert Simon. Bernard attempted to create a comprehensive theory of behavior in organizations based on the need for cooperation. Simon theorized that previous held classical beliefs were not applicable to most management situations. The neo classical theory helped to usher in a new way of thinking about productivity and the importance of worker satisfaction (Regina, 2012). This led to other theories that continued to emphasize the correlation between worker satisfaction and productivity.
Applications of Neo Classical Theory
Elements of the neo classical theory, namely the importance placed on worker satisfaction, are applied to many areas of management. It influences hiring, evaluation, motivation, rewarding and disciplining practices. It is also one of the reasons why many managers and leaders put such an emphasis on creating and cultivating a culture that encourages employee creativity and innovation.

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In studying I.T. organizations, Zhihong, Zhu, & Fang found that an emphasis on supporting the innovation and creativity of your employees contributed to knowledge sharing behavior (2010).
Google is an example of a company known for emphasizing the creativity and innovation of their workers. They go to great lengths to create a comfortable work environment and assure employee innovation with their “20% time” policy. This policy held that employees could spend 20% of their work time on side projects. Gmail and other innovations were born out of this practice. Traditionally, because Google has become known for having a culture that created high job satisfaction, they were able to attract and retain great workers. They’ve also been highly innovative and productive as a company. Neo-classical theorists would surmise that this emphasis on the well being of the worker is a big reason for that.

Works Cited

Almusaileem, M. (2012, March). Towards a new theory in school management: the theory of positive containment. Education, 132(3), 576-587.
Colorado State University-Global Campus (2010). Module 3a – Management theories [Blackboard ecourse]. In ORG 502 – Effective organizations: theory and practice (p. 4). Greenwood Village, CO: Author.
Mayo, E. 1933. The Human Problems of Industrial Civilization. New York, NY: Macmillan.
Regina, M. (2012, October). Neo-classical organizational theory [Prezi slides]. Retrieved from
Sadika Sultana, M., & Manivannan, L. (2009, March). Knowledge management in pharmaceutical marketing: theoretical models. ICFAI Journal of Knowledge Management, 7(2), 62-76.
Zhihong, L., Zhu, T., & Fang, L. (2010, April). A study of the influence of organizational climate on knowledge-sharing behavior in IT enterprises. Journal of Computers, 5(4), 508-513.

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