Contingency Theory

Examples of Contingency Theory in the following topics:

• The Contingency Viewpoint

  • The contingency approach claims that past theories, such as Max Weber's bureaucracy theory of management and Taylor's scientific management, are no longer practiced because they fail to recognize that management style and organizational structure are influenced by various aspects of the environment, known as contingency factors.
  • Debating which one of the previous approaches to management is the "best" approach is irrelevant in contingency theory, since the heart of the contingency approach is that there is no "one best way" for managing and leading an organization.
  • By its nature, contingency theory avoids static rules.
  • Therefore, the organizational structure is a major component of the approach that management may take in resolving problems under contingency theory.
  • The basic premise behind contingency theory is that there are limitless possibilities that companies must be prepared to adapt to strategically.

• Four Theories of Leadership

  • Theories of effective leadership include the trait, contingency, behavioral, and full-range theories.
  • Experts have proposed several theories, including the trait, behavioral, contingency, and full-range models of leadership.
  • According to this approach, called contingency theory, no single psychological profile or set of enduring traits links directly to effective leadership.
  • In other words, contingency theory proposes that effective leadership is contingent on factors independent of an individual leader.
  • Behavioral theory also incorporates B.F.

• Leadership and Task/Follower Characteristics: House

  • The Path-Goal theory argues that a leader's role is to help followers achieve both personal and organizational goals.
  • In 1971, Robert House introduced his version of a contingent theory of leadership known as the Path-Goal theory.
  • According to House's theory, leaders' behavior is contingent upon the satisfaction, motivation, and performance of their subordinates.
  • The theory argues that this behavior has the most positive effect when the subordinates' role and task demands are ambiguous and intrinsically satisfying.
  • Identify the leadership and task/follower characteristics identified by Robert House in the Path-Goal theory (1971)

• Leadership and Situational Context: Fiedler

  • This situational contingency understanding of leaderships suggests, for instance, that a leader in a strict, task-oriented workplace would have different qualities than a leader in a more open, idea-driven workplace.
  • This later theory, known as Cognitive Resource Theory (CRT), identifies the conditions under which leaders and group members will use their intellectual resources, skills, and knowledge effectively.
  • The Fiedler situational contingency model measures leadership traits with a test that provides a leadership score corresponding to the workplace where the leader would be most suited.
  • Fiedler's contingency theory has drawn criticism because it implies that the only option for a mismatch of leader orientation and unfavorable situation is to change the leader.
  • Also, the contingency model does not take into account the percentage of situations that might be somewhat favorable, completely unfavorable, or even extremely favorable.

• Resource Mobilization Approach

  • The resource-mobilization approach is a theory that seeks to explain the emergence of social movements.
  • Resource-Mobilization Theory emphasizes the importance of resources in social movement development and success.
  • Resource mobilization theory also divides social movements according to their position among other social movements.
  • movements develop in contingent opportunity structures, which are external factors that may either limit or bolster the movement, that influence their efforts to mobilize.
  • Resource-Mobilization Theory emphasizes the importance of resources in social movement development and success.

• Internal and External

  • The control process can be hindered by internal and external constraints that require contingency thinking.
  • All processes are susceptible to constraints; the theory of constraints (TOC) postulates that "the chain is only as strong as its weakest link."

• Cross Tabulation

  • Cross tabulation (or crosstabs for short) is a statistical process that summarizes categorical data to create a contingency table.
  • For example, combines multiple contingency tables and tables of averages.
  • In order to do this, one can use information theory concepts, which gain the information only from the distribution of probability.
  • Probability can be expressed easily from the contingency table by the relative frequencies.
  • If there is no contingency, we say that the two variables are independent.

• Social Movement Theories

  • There are two significant problems with this theory.
  • movements develop in contingent opportunity structures that influence their efforts to mobilize; as each movement's response to the opportunity structures depends on the movement's organization and resources, there is no clear pattern of movement development nor are specific movement techniques or methods universal
  • Critics of the political process theory and resource-mobilization theory point out that neither theory discusses movement culture to any great degree.
  • Culture theory builds upon both the political process and resource-mobilization theories but extends them in two ways.
  • Both resource-mobilization theory and political process theory include a sense of injustice in their approaches.

• Reporting Contingencies

  • Contingencies are reported as liabilities if it is probable they will incur a loss, and their amounts can be reasonably estimated.
  • A loss contingency is less than 50% likely to occur due to a past obligation.
  • Gain contingencies are reported on the income statement when they are realized (earned).
  • A probable loss contingency can be measured reliably if it can be estimated based on historical information.
  • Conservative accounting principles state that companies should report loss contingencies as they occur.

• Gain Contingencies

  • Gain contingencies, or possible occurrences of a gain on a claim or obligation involving the entity, are reported when realized (earned).
  • The disclosure of gain contingencies is affected by the materiality concept and the conservatism constraint.
  • Thus, for a gain contingency, only a realized gain is accrued for and disclosed on the income statement.
  • A material gain contingency that is both probable and reasonably estimated can be disclosed in the notes to financial statements.
  • Explain how a company reports a gain contingency on their financial statements