Contingency approach to management and organizational effectiveness

Contingency Approach

Weaknesses associated with this approach? Other approaches are adopted in practice?

According to contingency theory: "the structure of an organization depends on the company's technology and environment:" in other words, there is no one-size-fits-all approach to managerial decisions (Tiessen & Waterhouse 1983). Additionally, from an accounting perspective, "the effectiveness of managerial processes (including the management accounting system), is contingent on the organization's structure," thus small organizations will have different managerial and accounting systems than larger ones, to advance to their organizational design's specific interests (Tiessen & Waterhouse 1983). Contingency theory has been widely praised as a flexible approach to understanding systems organizations and management accounting. After all, who can argue with the idea 'it all depends' -- unless this sentiment comes to seem too frustratingly vague!

However, some managerial theorists argue that contingency theory, is not merely vague but also that while "the contingency theory explanation of the relationships between organization structure, environment and technology seems reasonable" in theory "the model does not explain the many similarities in management accounting systems across organizations, or the stability of these systems" even when change might logically seem reasonable (Tiessen & Waterhouse 1983). In other words, if indeed organizations are so flexible, why is there a great deal of similarity between them, and if organizations are highly responsive to changes to various contingent circumstances, why is there frequently such resistance to change when implementing new systems and processes?

As an answer to these questions, agency theory proposes that quite often in organizations there are different incentives for contrasting organizational actors to act in a variety of ways and each entity or agent may have different objectives when advancing their own goals. Each entity's actions within an organization are also contingent upon different circumstances and needs. Stability and similarity between different management accounting approaches is the result of similarities between organizations similar patterns of agency conflicts, and no entity has a single, unique interest. "The agent's utility function is based on the utility for wealth and the disutility for effort, while the principal's utility function is only based on wealth," in short, a worker may, in the absence of incentives to do otherwise, fail to make additional efforts to change an ineffective system and fall back into old habits, even when an organizational leader strives to better the organizational effort to maximize wealth (Tiessen & Waterhouse 1983). This may be true at large as well as small enterprises, even though the composition and power of the different actors may vary and in theory create different contingent circumstances.

Q2. SMEs that buy off-the-shelf accounting software...To what extent does contingency theory apply and can we really say that 'it all depends'?