The key difference between classical and neo classical theory is that the classical theory assumes that a worker’s satisfaction is based only on physical and economic needs, whereas the neoclassical theory considers not only physical and economic needs, but also the job satisfaction, and other social needs.
The classical theory came into public in the 19th century and early 20th when businesses were more focused on large scale manufacturing and wanted to enhance the productivity and efficiency of operations. However, this theory is no longer in practice. Furthermore, neoclassical theory is an alteration of classical theory.
1. Overview and Key Difference
2. What is Classical Theory
3. What is Neo Classical Theory
4. Relationship Between Classical and Neo Classical Theory
5. Side by Side Comparison – Classical vs Neo Classical Theory in Tabular Form
What is Classical Theory?
Classical management theory is based on the assumption that employees work to satisfy their physical and economic needs. It does not discuss job satisfaction and other social needs. However, it emphasises specialization of labour, centralized leadership and decision-making, as well as profit maximization.
The theory came into practice in the 19th century and early 20th century. Although this theory is no longer in common use in modern society, some of its principles still remain valid, especially in small businesses.
Based on the classical management theory, three concepts contribute to an ideal workplace:
There are three layers in an organization structure. The top layer is the owners, while the middle layer is the middle management who oversees the entire operation. The third layer is supervisors who take part in the day to day operations and engage in employee’s activities and training.
The entire operation is broken down to small, task specified areas. The employees are specialized in a single operation. Thus, this concept helps to improve productivity and efficiency while avoiding multiskilled employees.
The concept describes the extrinsic motivation of employees for rewards. It will make the employees work harder; as a result, it will improve the productivity, efficiency and profit of the organization.
Furthermore, the classical management theory follows an autocratic leadership model to a certain extent where it is considered as the central part of the management system. A single leader takes decisions and communicates them down the line for suitable actions. Thus, this process is quick in comparison to decision making and execution by a team.
Moreover, classical management theory outlines a clear structure of the management, clear identification of roles and responsibilities of employees and division of labour to increase productivity. However, expecting workers to work like machines and disregarding job satisfaction of employees are the major flaws of this theory.
What is Neo Classical Theory?
The neoclassical theory is an alteration and improvement of classical management theory. The theory lies in three main concepts described below.
In this concept, there is a wide span of control. Moreover, the chain of communication is shorter, and it is free from hierarchical control.
Decentralization is more close to the flat structure because of the wider span of control. Furthermore, it allows autonomy and initiative at the lower level. It also supports employees’ carrier growth in future.
It emphasizes both formal and informal organizations. The formal organisation describes the intentions of top management for the purpose of interactions among people. However, an informal organisation is necessary to find flaws of formal organisation and to satisfy the social and psychological needs of employees. Management uses the informal organisation for overcoming resistance to change on the part of workers and for a fast communication process. Thus, both formal and informal organisations are interdependent upon each other.
Moreover, the neo classical management theory describes human behaviour in terms of organizational functioning. Further, this theory gives more priority to human needs, like job satisfaction and other social needs.
What is the Relationship Between Classical and Neo Classical Theory?
- Although neoclassical theory is considered as an improvement of classical theory, both management theories do not describe incompetency, and this is considered as a short-sighted perspective.
What is the Difference Between Classical and Neo Classical Theory?
The classical theory came into public in the 19th century and early 20th. At that time, the management was more focused on large scale manufacturing and wanted to enhance the productivity and efficiency of operations. Their strategy to increase them based on a rewarding system for workers, luring them into working more to get a good income. Generally, classical theory only considered the physical and economic needs of employees. Neoclassical theory, on the other hand, is a modification of the classical theory. This theory pays more attention to employees needs and expectations; this not only considers physical and economic needs, but also other social needs such as job satisfaction, and carrier growth. So, this is the key difference between classical and neo classical theory.
Moreover, there is a distinct difference between classical and neo classical theory in terms of their characteristics like organizational structure, strategies, considerations, rewarding systems etc. Classical theory has a hierarchical organization structure with layers of management. A single person, most of the times, the owner, makes all the decisions. Moreover, the employees are motivated to work by an incentive system. In contrast, neo classical theory has a flat organization structure with no layers of management. Most of the time, decision-making and execution involve a team.
The following table provides more comparisons regarding the difference between classical and neo classical theory.
Summary- Classical Theory vs Neo Classical Theory
The key difference between Classical and neo classical theory is that the classical theory only considers physical and economic needs to satisfy an employee, whereas the neo classical theory, not only considers physical, economic needs, but also considers needs like job satisfaction and carrier development.
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