I.

Introduction:
Management theories have developed over many periods, from the two world wars
to the era of rapid economic growth of the 1960s to the 1980s. Management
theories are collection of principles, concepts and ideas related to how to manage
an organization, business or team as well as their influences (Angus C. F. Kwok,
2014). There are three main theories of management theory, namely classical
management theory, neo-classical theory and modern management theory. Each
theory has its own characteristics and approaches to management. While classical
management theory focuses on scientific methods, administrative structures and
organizational performance, neo-classical theory focuses on the needs and
relationships of people in the organization.
In the early 1920s, theorists began to consider the human aspect of an organization
and the social needs of employees. Alfred Marshall is recognized as one of the
founding fathers of neoclassical economics which was published in the book
"Principles of Economics," in the 1890s (Aspers, 1999).

George Elton Mayo (1890-1949) is considered to be the founder to the neoclassical

theory (Gupta, 1992). He and his team conducted the famous Hawthorne
Experiments at the Western Electric Company (USA) during 1927-1932. Neoclassical
management theory consists three elements: Hawthorne Experiment, Human
Relation Movement, and Organizational Behavior (Sarker and Khan, 2013:2-3).

II. Critical evaluation of the Neoclassical Theory

1. Concept of the Neoclassical Theory

Neoclassical theorists emphasize the importance of individual or group behavior

and the importance of human relationships. Roethlisberger and Dickson (1943)
noted that through the Hawthorne experiments, the neoclassical approach
emphasizes the social or human relationships between operators, researchers, and
supervisors. It was posited that the impact of individual, personalized attention on
employee morale was a more critical determinant of productivity increases than
modifications to the physical work environment.
2. Key Features of Neoclassical Theory:
2.1 Focus on people:

a. Human Relations Emphasis

Neoclassical theory argues that workers are social beings with complex needs
beyond mere economic considerations. This theory places considerable emphasis
on the human relations aspect of management, recognizing that workers are not
only economic beings but also have social and psychological needs. Robert (2000)
argues that higher wages can lead to increased productivity, as workers may
respond positively to higher wages. However, Mayo (1933) mentioned in his
seminal work “Human Problems in Industrial Civilization” that worker productivity is
significantly influenced by social and psychological factors, not just monetary
rewards.
b. Employee Motivation:

Motivation is a central theme in the Neo-Classical Theory. It recognizes that

employee motivation and morale are critical factors in achieving organizational
goals" (Luthans, 2011, p. 127). Participation in decision-making, recognition, and
opportunities for personal growth enhance employee motivation and performance
(Maslow, 1943; Likert, 1961). Managers must adopt motivational strategies that
align individual goals with organizational objectives.

2.2 Informal Organizations

Informal organizations, a central concept in Neoclassical theory, represent unofficial

networks and social structures that emerge spontaneously within formal
organizations, significantly influencing employee behavior and productivity
(Roethlisberger & Dickson, 1939). As Scott (2003) mentioned that
characterized by spontaneous formation and social networks, these informal
organizations impact information sharing, social support, norm enforcement, and
resistance to change. Recognizing and comprehending these informal structures is
crucial for effective management, allowing businesses to maximize their benefits
while reducing possible negatives.

2.3 Participative Management:

Neoclassical theory promotes participative management, encouraging employee
participation in decision-making to improve organizational performance. Argyris,
C. (1964) emphasized the importance of providing opportunities for employees to
participate in decision-making, problem-solving, and take more responsibility,
thereby improving organizational performance. Joyce (2023) pointed out the
importance of involving employees in decision-making as a means of improving
productivity, reducing information asymmetry, and promoting a positive
organizational culture, while also highlighting the challenges that may arise in this
process.

2.4 Emphasis on Leadership Styles:

The role of leadership styles mentioned in neoclassical theory, especially supportive
and caring styles, in promoting a positive work environment, contributing to
increased employee satisfaction and productivity" (Northouse, 2013, p. 87). Chester
Barnard (1938) emphasized the importance of communication and stated that
communication is the "heart of organization" and a key factor in coordinating efforts
and achieving common goals. McGregor, D. (1960) also pointed out that effective
communication between leaders and employees, building trust and empowering
employees in their work promotes positive leadership.

3. Criticisms and Limitations of neoclassical theory

3.1 Overemphasis on Human Relations*
Granovetter (1985) argues that Neoclassical Theory focuses only on individual
behavior, ignoring the role of social and institutional factors in shaping economic
outcomes. Others criticize this theory for focusing too much on human relations,
and ignoring other important aspects, such as organizational structure, technology,
and economic efficiency (Wren & Bedeian, 2009). This overemphasis can lead to the
neglect of clear goals, efficient processes, and measurable results.
3.2 Lack of Scientific Rigor
Some critics argue that neoclassical theory lacks the scientific rigor of classical
theories. The emphasis on human behavior, which is complex and often
unpredictable, makes it difficult to establish clear cause-and-effect relationships and
develop universally applicable principles Pfeffer, J. (1982). The Hawthorne Studies
faced criticism for methodological flaws, including small sample sizes and
researcher bias (Carey, 1967).
3.3 Limited Attention to Power Dynamics
Neoclassical theory often downplays the role of power dynamics within
organizations. The focus on employee motivation and participation can obscure the
underlying power struggles and conflicts of interest that exist between different
groups within an organization (Clegg, S. R., Hardy, C., & Nord, W. R. (1996).
Handbook of Organization Studies).
III. Conclusion
Neoclassical theory, developed by thinkers such as Elton Mayo, Chester Barnard,
and Mary Parker Follett, among others, moved away from the rigid, task-focused
emphasis of Classical Management Theory by emphasizing the role of human
relationships, motivation, and group behavior in achieving organizational success.
This perspective laid the foundation for modern management practices and
continues to influence organizational behavior and human resource management.
However, despite providing valuable insights into the importance of social
dynamics, Neoclassical Theory has faced criticism for its overemphasis on perfect
rationality, its narrow focus on equilibrium, and its failure to adequately address
social factors, inequality, and market failures. These limitations have spurred the
rise of alternative approaches, such as behavioral economics, institutional
economics, and ecological economics, which attempt to provide a more
comprehensive understanding of economic and organizational reality.