Contingency Management Theory

Published by: Madhubala Minda

What is Contingency Management Theory

The Contingency Management Theory is an organizational theory that states that there is no best method to lead an organization or make decisions instead a contingent leader must choose strategies depending on the internal and external situation to achieve optimal results

Contingency Management Theory of Leadership states that it is external and internal constraints which will decide the best way to find the best course of action and deal with the given situation

The contingency approach to management is based on the belief that there is no best way to manage an organization. It assumes that there is no single solution to questions in the organizations because internal needs, external situations and people will change over time. The solutions depend upon the internal and external situation and environmental contingencies

Contingency Management Theory believes that effective organizations must look at the various aspects of the changing situations and modify their leading, organizing, planning, and controlling aspects accordingly.

Effective leadership needs to identify, assess and manage the structured tasks, and balance internal needs, external factors, people and requirements of the management job profile as an integral part of the management solution. Best leaders are those that integrate all the cognitive and situational factors into an appropriate solution that is best for specific circumstances

What is Contingency Approach to Management?

What is Contingency Approach to Management

Contingency Management Theory assumes that simple ways are not always the right solutions for an organization. The contingency approach to management puts the focus on incentive programs and motivational approaches to handle internal contingencies and external factors.

Fiedler’s Contingency Theory as well as the Situation Theory, are quite similar to each other, especially in their belief that a simple way of approach cannot always be right. The point of difference between the two is that the Situation Theory puts the onus on the leader’s behavior whereas the Fiedler’s Contingency Theory focuses on a broader view that includes various variables within the given situation, external factors along with contingent factors about leader capability

The factors that can influence Fiedler’s Contingency Theory are as follows

  1. Organization size
  2. Work technologies used by the organization
  3. The way an organization adapts to the environment/ environmental uncertainty
  4. Key differences between operations activities and resources
  5. Strategies
  6. Organization structure
  7. Manager’s assumptions about their employees’

Historical Overview of the Contingency Management Theory

In the 1920s Mary Parker Follett introduced the concept of the “Law of the Situation” where she stated that requirements were changing regularly and continuous efforts were necessary to maintain effective working conditions in an organization.

In the 1950s Fredrick Taylor and Henri Fayol identified management principles that would come in handy in making organizations successful. However, the classical management theorists had to face a lot of criticism from management thinkers who considered their approach inflexible as it did not consider environmental contingencies. The criticism was proved largely invalid and later created the groundwork for the contingency school of management

In the 1960s and 1970s, the theorists put the focus on situational factors that had an impact on the organizational structure and leadership styles for various situations.

According to Fred Fiedler’s contingency theory of leadership, there is a direct correlation between the traits and effectiveness of a leader. Specific leadership traits will help in certain crises hence the contingent leaders must change their leadership style to meet the new circumstances.

Fiedler’s Contingency Theory encourages the use of the Least Preferred Co-Worker scale or the LPC Scale to measure a manager’s leadership orientation. The LPC scale makes it easy to identify whether a leader possesses task-oriented or relationship-oriented traits

Contingency Perspective and Organizational Theory

It has been proved that the size of a company, environmental uncertainty, and work technology will impact the effectiveness of organizational forms. The contingency perspective states that stable environments signify mechanistic structures that focus on specialization, standardization, formalization, and centralization to achieve consistency and efficiency.

It is the predictability factor and stable environments that help organizations to use procedures, rules, and policies in decision-making for routine tasks. Whereas the unstable environments will signify organic structures that focus on decentralization to achieve adaptability and flexibility. The unpredictability factor and uncertain environments need general methods of problem-solving for non-routine tasks.

Joan Woodward found that successful manufacturing organizations with numerous work technologies like mass-production differed in the span of management and degree of worker specialization. Another contingency variable is the organizational size that will have an impact on the effectiveness of an organizational form. Hence small organizations behave informally whereas larger ones are more formal

Economic conditions, support institutions, globalization, use of technological advancements like robotics, and customer diversity also have an impact on an organization’s decisions.

Contingency Perspective and Leadership

Contingency Perspective and Leadership

Disappointment with the theories of leadership effectiveness resulted in the development of contingency leadership theory. Fred Fiedler identified the numerous aspects that had an impact on the leadership styles. As per the Fiedler’s Contingency Theory of Leadership, the key determinants of the leadership style are

  1. Degree of trust between the leader and subordinates
  2. Degree of structured tasks
  3. The formal authority the leader possesses

Both task-oriented and relationship-oriented leadership will work if they are aligned with the particular situation. With time several contingency theories have been developed although the empirical research seems to be mixed about their validity

Main Ideas Underlying Contingency Theory

  1. Organizational structures are considered open systems that require careful management to balance internal and external situations and adapt to environmental circumstances
  2. An organization’s appropriate form depends on the environmental factors within which an organization operates
  3. Management style must align organization and environment

Implications of the Contingency Theory for Managers

  1. The management style in the contingency theory provides the managers with greater discretion in their decision-making
  2. Manager’s leadership orientation can be measured by the Least Preferred Co-Worker scale or the LPC Scale
  3. The contingency theory helps them to understand the consequences of a decision
  4. The management style helps managers to deal with individual problems

Conclusion

Fiedler’s Contingency Theory of Leadership helps to identify the best leadership styles for the managers, measure leadership effectiveness and find the optimal course of action to create effective leaders who will have more influence on their subordinates.

Contingency theory has proved a boon for organizational structure as it has helped to create some of the best contingent leaders

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Madhubala Minda

Madhubala Minda is a content writer for Digiaide. She writes unique and research-driven content on various Brands, Competitors, Management topics and wellness. With years of content writing under her belt, Madhu Bala is one of the strengthening pillars of Digiaide content team.