Contingency Theory (Situational Theory):

The contingency theory can be described as “if, then” theory, i.e. If this is the way my situation is, then this is the best way for me to manage. It states that organizations and even the units within the same organization are diverse –in size, goals, work activities, etc. So one best way or universally applicable management is not possible. Thus, management depends upon the situation and should act according to the situation. The major contingency variables are:

1. Organizational Size: As size increases, so do the problems of coordination. For instance, the type of organizational structure appropriate for an organization of 50,000 employees is likely to be inefficient for an organization of 50 employees.
2. Routineness of Task Technology: To achieve its purpose, an organization uses technology. Routine technologies require organizational structure, leadership styles and control systems that differ from those required by customized or non-routine technologies.
3. Environmental Uncertainty: The degree of uncertainty caused by environmental changes influences the management process. What works best in a stable and predictable environment may be totally inappropriate in a rapidly changing and unpredictable environment.
4. Individual Differences: Individual differences in terms of their desire for growth, autonomy, tolerance of ambiguity, and expectations. These and other individual differences are particularly important when managers select motivation techniques, leadership styles, and job designs.

Contributions and Limitations of Contingency Theory:

Contributions:

1. This theory helps to examine the conditional or moderating variables of cause and effect relations.
2. This theory helps to improve the caliber of the managers. Since more knowledge is gained about which factors should be taken into account in what situation managers have to use their best knowledge and will manage organizations better than now in the future.

Limitations:

1. This theory may not be applicable to all managerial issues. Since it fails to identify all the important contingencies.