Contingency Theory

In analyzing the best way of structuring and operating an organization, one approach is known as contingency theory. This organizational theory posits that every situation is entirely different and, as such, the optimal way to organize a given business will vary from one site to another. There are various factors at play, both internal and external, and it is only through a careful analysis of those factors - among many others - that the best form of organization can be identified. Factors can include such things as technological capabilities within any given situation, customers, competitors, government regulations, interest groups, and employees and their corresponding labor organization. One organizational theory might work with some of these variables, but it is unlikely that the same organizational theory will work if those variables change.

The contingency theory can also be applied to an individual's leadership style. Because every employee is different, and because the professional needs of those a leader works with can vary dramatically, there is no one leadership style that will motivate all employees equally. As such, the variables at play determine the specific leadership style that should be used at any given time or with any given group of people. The leadership style is contingent upon the variables that come into play, allowing for a more effective relationship between the leader and those being led.