Contingency Theory Applied to Small Business Organizations

Abstract

The effects of size on Lawrence and Lorsch's contingency theory of organization, originally derived from these authors' studies of large business firms, were explored by replicating their measures on two small firms operating in separate industries. The results suggest that, while the logic of their formulation holds for small firms as well as large, the forms small firms evolve and the problems they encounter in behaving in ways consistent with this logic differ from those of large firms in a number of ways. In particular, there is less interpersonal and structural differentiation in response to task diversity in the small firms and a more complex relationship between task related differentiation and the quality of relations between departments. Additional field observations also suggest that the effective handling of conflict stemming from non-task related issues is especially difficult in the small firm, while differentiation in response to task diversity and the problems this creates are handled rather easily.