Organizational theory refers to a series of interrelated concepts that involve the sociological study of the structures and operations of formal social organizations. Organizational theory also seeks to explain how interrelated units of organization either connect or do not connect with each other. Organizational theory also concerns understanding how groups of individuals behave, which may differ from the behavior of an individual. The behavior organizational theory often focuses on is goal-directed. Organizational theory covers both intra-organizational and inter-organizational fields of study.
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In the early 20th century, theories of organizations initially took a rational perspective but have since become more diverse. In a rational organization system, there are two significant parts: Specificity of Goals and Formalization. The division of labor is the specialization of individual labor roles, associated with increasing output and trade. Modernization theorist Frank Dobbin wrote that "modern institutions are transparently purposive and that we are in the midst of an extraordinary progression towards more efficiency." Max Weber's conception of bureaucracy is characterized by the presence of impersonal positions that are earned and not inherited, rule-governed decision-making, professionalism, chain of command, defined responsibility, and bounded authority. Contingency theory holds that an organization must try to maximize performance by minimizing the effects of various environmental and internal constraints, and that the ability to navigate this requisite variety may depend upon the development of a range of response mechanisms.
Dwight Waldo in 1978 wrote that "[o]rganization theory is characterized by vogues, heterogeneity, claims and counterclaims." Organization theory cannot be described as an orderly progression of ideas or a unified body of knowledge in which each development builds carefully on and extends the one before it. Rather, developments in theory and descriptions for practice show disagreement about the purposes and uses of a theory of organization, the issues to which it should address itself (such as supervisory style and organizational culture), and the concepts and variables that should enter into such a theory.