Contingency Theory


Contingency Theory

Contingency theory would anticipate that each relevant axis of an organization should be repre- sented in its organizational design. Thus, it would suggest that transnational PSFs should recognize, structurally, lines of service, geographical loca- tions, and markets. Contingency theory would also advocate that the recent surge in the size of these firms and their growing geographical reach would lead to more formalized procedures and a more pronounced hierarchy, pushing the firm away from the traditional “professional partner- ship” format with its emphasis on collegial, clan arrangements such as teams and direct participa- tion in decision making (Pinnington & Morris, 2002). And it would predict that more lateral integrative devices, especially client management teams, would be used to reconcile points of view from the various axes (Galbraith, 1973; Lawrence & Lorsch, 1967; Thompson, 1967). These sugges- tions— higher differentiation, more formal inte- gration, and more extensive lateral integrative structures— have been observed empirically and shown to be associated with superior performance in PSFs (e.g., Aharoni, 1999; Cooper, Hinings, Green- wood, & Brown, 1996; Greenwood, Rose, Brown, Cooper, & Hinings, 1999; Miller, 2003; Morris & Pinnington, 1999; Rose & Hinings, 1999). That is, transnational PSFs corroborate the essentially struc- tural predictions of contingency theory.

Unfortunately, it is easier to prescribe the mul- tidimensional matrix than to manage it. Even where there are only two or three axes, organiza- tions frequently experience fractious tension be- tween the different dimensions, and collaboration is often a highly politicized process (Bower, 1974; Kilduff & Tsai, 2003; Mintzberg, 1983; Shrader, Lincoln, & Hoffman, 1989; Tsai, 2002). For illus- tration, a transnational PSF might experience ten- sions between a client service team centered in London serving an international client such as General Motors and professionals who are needed from time to time for the international client but who are located in different countries and have their own clients or functional commitments (Rose & Hinings, 1999). Similarly, professionals are often driven to focus on providing (and billing

2010 83Greenwood and Miller

for) services to clients rather than pausing to inscribe lessons learned into the firm’s global knowledge sys- tem for others to use (Aharoni, 1999).

Contingency theory has little to say about how to handle such conflicting loyalties and time de- mands. Nor does it advise how to handle tensions arising from the nature of a professional work- force. Yet it is precisely such tensions that distin- guish professional service firms, especially when they are transnational in scope. The design rec- ommendations of contingency theory, in other words, though a useful starting point, are incom- plete, first because by focusing on one part of design—structure—they ignore today’s realities, and, second, because the level of the theory’s generality (developed to apply to all organiza- tions) limits its utility when confronted with the complex reality of a particular organizational type. As such, and illustrative of our first point, its predictions are often confusing and unusable. At PSFs some criterion has to be found for prioritizing the axes of organizational design and also for bal- ancing the pressures for professional autonomy with commercial strength (Miller, 2003; Miller, Eisenstat, & Foote, 2002). In other words, any workable design solution has to be sensitive to these idiosyncratic and defining tensions of the particular type of organization.

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