What is Contingency Theory?

Contingency theory is a behavioral theory that claims that there is no best way to organize a corporation and the organizational structure of the company. The best way of organizing the company, is, however, contingent upon the internal and external situation of the company.

The contingency approach to organizational design tailors the design of the company to the sources of environmental uncertainties faced by the organization. The point is to design an organizational structure that can handle uncertainties in the environment effectively and efficiently.

Therefore, previous theories such as Weber's bureaucracy and Taylor's scientific management sometimes fail because they neglect that management style and organizational structure are influenced by various aspects of the environment: the contingency factors. Therefore, there can not be ONE optimal organizational design for every company, because no companies are completely similar, and because every company faces its own set of unique environmental contingencies that result in different levels of environmental uncertainties.

Some important contingencies for companies are listed below: 1. Technology 2. Suppliers and distributors 3. Consumer interest groups 4. Customers and competitors 5. Government 6. Unions