Managment Essay - Contingency Theory

Managment Essay - Contingency Theory

©Wilson Gan, Management, U of Auckland, April 2009

In this day and age where there is a vast variety of different industries; each with a different set of objectives which has different sets of rules of operation, one will not be able to say that there is one set of management system that will fit across the whole industrial spectrum. This is where Joan Woodward’s work on contingency theory plays a major role in fitting in to each variation of management. Her work marks the beginning of a situational approach to organization and management (Golembiewski. R, Gibson. F & Miller. G, 1978). This essay will look into 4 types of contingency factors in light of Joan’s contingency theory and how it applies within the New Zealand’s industrial sector, in which we will look at Fisher and Paykel as a case study. First, we will look in to how the change in business environment required the company to adapt to it. Secondly, the growing size of a company’s operation will need to be addressed and we will look into it from the contingency point of view. Thirdly, this essay will study the strategies introduced to cope with the change it organization of the company. Last, we will cover the technology used to improve productivity. The sum of this essay will look at how contingency view has being adapted for the current business environment.


A business lives in an environment; just as the natural world’s environment where different animals live in the same environment, it is subjected to adaptation natural selection and dependence (Bogatti, 1996). Adaptation is one of the key factors of survival in the business environment. A company needs to change with the time in order to keep up with its competitors. The definition for natural selection, as stated in the Cambridge Learner’s Dictionary, is the process which results in the continued existence of only the types of animals and plants which are best able to produce young or new plants in the conditions in which they live in (Cambridge Learner’s Dictionary, 2004). Although this is a biological term but it clearly depicts the situation in which most (if not all) business must survive in, but instead of producing young or new plants, business need to continue to grow and expand. Those companies of which could not adapt fast enough will eventually shut down. Businesses are also dependant on other elements of the environment in which it lives in. Suppliers, consumers and even governments are all part of the environment and the business needs to depend and cater to their needs. Businesses around the world are becoming more and more connected, one business function with another, one business unit with another , one company with another. (Dantin, Sheridan, and Urquhart, 2007) . All these factors that we have just discussed have, in one way or another, affected the management and course of the Fisher & Paykel. One of the major events that Fisher & Paykel had to endure was the restrictions on importation that was caused by the foreign exchange crisis in 1938. This caused the company to make a major decision of shifting from retail to manufacturing; which they started the year after that. They have to make that move; either that or the company will have to shut down because it won’t be able to supply the stores. (Hansen & Hunter, 2005) This was really a test of their adaptation of the business environment.


As we have discussed before, a company needs to grow and expand in order to survive. However, with growth, comes another factor in this theory; that is the size of the business. Size covers a lot of ground, e.g. capacity, employees, sales volume, resources etc. Different businesses are of different sizes and not all companies aim to be big; there are some that are more effective in a smaller size. With this in mind, we can clearly see that it is hard to have just one set of system to suit all, because the size of the company will also dictate the way it is managed. One of the problems that big companies like Fisher & Paykel face is the amount of workers and staff that it has in the different departments and operations. Cooperation, both vertically and horizontally in the business organization is important for the smooth operation of the company. There was a study conducted by the Partnership Resource Center, under the Department of Labor (Harvey, 2006) on how the partnership of Fisher & Paykel and the Engineering, Printing and Manufacturing Union (EPMU). With this partnership, Fisher and Paykel has greatly cut down its amount of unions that it needs to deal with from 13 to just one. This has increase productivity and motivated staff.


Strategy can be considered as the primary form of attack and deference of a company. A strategy is a fundamental pattern of present and planned objectives, resource deployments and interactions of an organization with markets, competitors and other environmental factors (Boyd, Walke, Mullins & Larreche, 2002). As Dr Pete Mazany defines, strategy is where an organization wants to go, why and how, and communicates this (Mazany, 1995). The Porter’s 5 forces which was developed by Michael E. Porter in his book Competitive Strategy: Techniques for Analyzing Industries and Competitors (Porter. M.E ,1980) shows the different types of forces that affects the company. The five factors that are buyer power, supplier power, threat of substitute, threat of new entrants and rivalry among competitors. These factor are what companies use to evaluate their current strategy and how they can improve it. Using the Porter’s 5 forces model, we can see there are different types of forces for different types of business; requiring a tailored strategy for each situation (even within the same company). Fisher and Paykel is a major international players; with exports reaching as far as the United States. This requires the company to use different strategies to suit the different countries that it is trying to enter. As Tian puts it ‘It is argued, in the international business literature, that market entry mode is closely associated with the degree of recourse commitment, risk exposure and management control of transnational corporation, and that the choice of market entry modes is determined by a variety of factors’ (Tian. X, 2007). In the 1980s Fisher and Paykel spent $8.1million, just to break into the United States market. The money spent is a way to make sure that they have a good foot hold on the niche market that they have. This is money well spent; as at 2004, the American market now takes up 22% of the total export revenue of the company. (Hansen & Hunter, 2005)


Technology is at the forefront of all modern industries. Each form of company will have various levels of technology running the company. Technology includes machinery, employee skills and work procedures and it vary between manufacturing and service organizations. (Samson and Daft, 2009). Joan Woodward’s made a study about the relationship between manufacturing technology and organization structure (Woodward, 1965). There are three basic production technology, first of which is small-batch and unit production. It is where firms produce goods in batches of one or a few products, as to the customer specification. This can be compared to project based production. The second is Large-batch and mass production. This is a bigger size compared to the previous type. Technology is distinguished by the standardized production it runs. Normally deals with big volume and involves employees complement to the machinery. The last type is continuous process production where the entire work flow is mechanized in a sophisticated nd complex form of production technology. (Samson and Daft, 2009). Fisher and Paykel, in the has adopted various types of technology to increase production. In 1964, for example, engineers Julian Williams and Graeme Currie, perfected a flexible manufacturing system. Man-hours on an average home freezer, which Woolf Fisher benchmarked against other overseas manufacturers, dropped from 25 hours to five hours, significantly reducing costs and increasing output. (Hansen & Hunter, 2005). One of the achievement of Fisher and Paykel in the technological forefront is winning one of the New Zealand Hi-Tech Awards (Hitech, 2005). This shows the level of commitment that the company has in the advancement of technology. This is also evident in the company’s ‘DNA’, where innovation is at the core of their business; in everything that they do. (Fisher and Paykel Appliances,2009)


From this essay, by using Fisher and Paykel as a New Zealand example, that the Contingency Theory developed by Joan Woodward has a great impact in our society. We have seen that the change in business environment requires an adaptation to the new situation in order to survive. Secondly, the different sizes of companies requires different management styles, particularly how a bigger company that have a big number of staff resolve employment related issues. Third, this essay discussed about strategy in a company and how it has to adapt and change strategy when dealing with international business. Lastly, this essay dealt with the technological improvements and how it has affected a company’s productivity. Overall, we can say that Joan Woodward’s work on contingency theory has made a great impact in modern times, especially in this age, where technological improvement is so rapid; just as Fisher and Paykel, that contingency styled management, at times, is the best way forward.


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