Understanding Organization: Theory and Practice

This essay analyzes Commonwealth Bank of Australia using organizational theories. It explores Neo-Classical Organization Theory and Modern Organization Theory to understand the bank's structure and behavior.

Running head: UNDERSTANDING ORGANIZATION: THEORY AND PRACTICE
UNDERSTANDING ORGANIZATION: THEORY AND PRACTICE
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1UNDERSTANDING PRGANIZATION: THEORY AND PRACTICE
Introduction
In this essay, the discussion will be on analyzing Commonwealth Bank of Australia
(CBA), a multinational bank from Australia, with two organizational theories. The main aim
is to demonstrate the understanding of the organizational theories by applying them to a solid
context as well as developing an appreciation of the value of the limitations of the to-be-
discussed theories and to understand the need for personal discernment and judgement in
evaluating the differences and variations in those perspectives. The purpose will be to
recognize the diverse and contested complexity in practical context, through the analysis of
Commonwealth Bank of Australia. It was founded in the year 1911 and the headquarter is in
Sydney. The bank has its operations across Asia, the United Kingdom, the United States of
America and New Zealand. It supplies lots of monetary services which includes retail,
business and institutional banking, insurance, management of assets, investment, broking
services and many more. CBA is the largest company which is listed in the Australian
Securities Exchange. It is also the largest bank in the Southern Hemisphere. Catherine
Livingstone is the Chairman and Matt Comyn is the Chief Executive Officer as well as the
Managing Director of the company. The bank has more than 1,100 branches and 4,300 ATM
which are operational worldwide.
Organizational Theories
Proper financial planning has become very much important in helping the people of
Australia to meet the economic objectives. There are lots of ethical risks related to the
arrangement of the financial advices and other factors that might have influenced the ethical
decision making by the financial planners and compliance officers in their specific roles in
the banking industry. Though the bank is popular in Australia and outside the country as well,
it is involved in many misconduct and unethical behavior. To research about the cases
thoroughly, there is a need to study two organizational theories, and evaluating and judging
the scenarios individually (Baxter and Vater 2014).
Organizational Theories
These are the theories which are a set of suggestions or schemes or just a proposition
that helps to explain or predict the ways of behavior by the groups and individuals in various
organizational arrangements. Over the years, organizational theories have advanced into a n
unique social science discipline. It can be termed as a body of writing and thinking that helps

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to describe, analyze and influences the on goings on the organizations. It helps to provide a
supporting body of knowledge that actually enables to investigate and develop leadership and
management theory. There are many theories which helps to explain the organization and its
structure. But the two theories which will be taken in this essay are Neo-Classical
Organization Theory and Modern Organization Theory (Douglas and Leite 2017).
1. Neo-Classical Organisation Theory:
This classical theory of organisation primarily focuses on the attention on the physical
and mechanical variables of functioning of the organisation. The variable test actually didn’t
produce any beneficial outcomes. George Elton Mayo’s The Hawthorne Studies and
associates found out that the actual reason of human behaviour exceeded absolute physical
variables. These researches concentrate the focus on humans in the organisation. With the
development of productivity and the improvement of worker educational level, the extremely
strict regulations and mechanical organization models defended by another organization
theory termed as Classical Organization Theory (Schlagwein, Thorogood and Willcocks
2014).
New-classical approach is included in two points:
1. Organisation of Commonwealth Bank of Australia must be explored in socially,
economically and technically, and
2. The social process of group attitude can be comprehended through human relations in the
organization of Commonwealth Bank of Australia.
This theory actually looks the formal and informal forms of organisation as an essential and
crucial part. The behavioural approach pursued in the theory is another addition of new-
classical intelluctual. The base of classical theory can be named as division of work,
introduction of departments, co-ordination and human behaviour but these figures were
considered as changed by people who behaves freely or inside the framework of the informal
organisation.
The main suggestions of neo-classical theory are given as follows:
1. The organisation commonly is a communal system made up of various communicating
segments. But this actually lacked in CAB, as they were very poor in communicating with
their customers as well as stakeholders when they were held for controversies. In 2018, they
lost the records of the accounts of 20 million users, which included the names, addresses,

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account numbers and the bank statements in between 2000 and 2016. They decided to not
inform their customers about the data breach, though the media broke the story and the
customers were furious on CBA as they lacked the minimum form of after sales service and
customer retention, which is very much important in banking and finance industry.
2. Informal organisations live within the established organisation. They get influenced by and
also influence each other. This helped the bank as people are communicating within
themselves, which helped to organise the plans and properly implementing it into the banking
structure. But, the tenure of informal organizations is very less so it also harmed to take
important decisions, which hampered in customer retention as well as acquiring new
customers.
3. As an independent being, human behaviour is an outcome of work related social factors.
This also affected the work culture of the bank as it is a multinational organization spread
over many continents and the employees have to maintain the factors related socially in each
of the place where they are operational.
4. Motivation is a complicated procedure. Several factors like the socio-psychological ones
act to stimulate humans in workplace. This actually helps CBA as there is a lot of pressure in
the banking and financial industry and the employees have to cope-up with the ever
increasing work pressure and client satisfactions to be faced.
5. There is a constant battle between organisational and individual goals. These goals are
needed to be harmonised. This often created a problem as the problems faced by the
employees were ignored by Ian Nerev, the CEO and MD of the organization in between 2011
and 2018. Some financial planners put their own interests and goals ahead of their clients.
The organization mainly aimed at earning more and more revenue and that they achieved on
every month of the year, the only thing they concerned is that whether they are earning that in
ethical manner or not.
6. Team-work leads to greater productivity. CBA follows this principle and this reflects on
the amount of revenue they earn every year, and the number of accounts they maintain
globally.
7. Man’s approach is sometimes not balanced. Many a times his behaviours become illogical
when it comes to rewards gained from work. This actually happened in CBA and this resulted

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in the scandals and unethical businesses which hampered the brand image of the organization.
The money laundering scandal and informational data loss affected the company heavily.
8. For the proper functioning of an organisation and emotions of the employees,
communication is an important tool. Ian Nerev actually was not good in communicating with
the employees of the organization as well as the customers of the bank, for whom the bank is
earning a healthy amount of revenue every year. Some of the workers who retired from the
organizations did not receive their pension properly and they did not receive any fruitful
suggestion from the bank as well even after repeated phone calls and mails. They were forced
to take the help of law which again hampered the brand image of the organization (Douglas
and Leite 2017).
Advancements over Classical Theory:
Neo-classical theory offers alterations and advancements over classical theory in some
conditions, like:
1. Flat structure,
2. Decentralisation,
3. Informal organisations.
1. Flat Structure:
The classical theory advised tall structure and neo-classical theory advised flat
structure. A problem appears in the former one due to the difference between decision
builders and the ones who implement, there are too many levels of management and
motivation of people is not easy to maintain. While in flat structure, the broad range of
command helps to motivate, series of communication is smaller and it is not bound of
hierarchical control.
2. Decentralisation:
Neo-classical theory defends scattered organisation which is relatable to flat structure
due to broader span of command. It grants liberty and enthusiasm at the lower degree. People
are developed to have a good fortune.
3. Informal Organisation:
The neo-classical theorists defended the requirement not only for established but also
for informal organisations. Established organisation produces the purpose of higher

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management for the intensions of communication between people. Informal organisation is
important to stop the way out of established organisation and to please the civil and
psychological demands of people. To improve the communication among workers and to
change any opposition from them, managements adopt informal organisations. Both
established and informal organisations are reciprocal to each other.
Appraisal of Neo-classical Organisation Theory:
This theory attempts to conquer the weak points of classical organisation theory. It
popularized the concept of informal organisation and human behaviour appeal in the learning
of functioning of an organization. Still, there are numerous weak points or drawbacks.
The main drawbacks of this theory is as follows:
1. The beliefs or studies on which this theory is based are not always true. A belief that there
is always a chance to find an answer agreeable to all is not true. Conflicts in the interests
present among different groups that are fundamental in nature and not slightly psychological.
This feature has not been discussed in the theory.
2. No particular format of the organization can be appropriate for all the enterprises. Different
organisational structures given are not relevant in all the cases.
3. Neo-classical theory is only an adjustment of classical organisation theory. It experiences
from almost the same defects faced by the classical theory. Unified approach is lacking on the
organisation (Sheedy and Griffin 2018).
2. Modern Organization Theory
This theory of recent origin has tried to defeat the disadvantages of previous theories.
The theory was developed in the 1960’s. This theory may be accepted in two approaches,
namely systems approach and contingency approach (Weill and Woerner 2013).
Systems Approach:
This approach examines the organisation as a whole. The commonly dependent
changeable are properly examined. Both the internal and external changeable are researched
in examining the character of organisation. It well be better understood to the system of an
organization by recognizing different sub-systems within it. Each sub-system may be
recognized by particular methods, roles, formats and standards of administration. Four

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components have been classified in an organisation: human inputs, technological inputs,
organisational inputs, and social formats and standards.
Katz and Kahu have identified five sub-systems of organisation:
1. Technical sub-system worried with the work that gets done;
2. Supportive sub-system of acquisition, clearance and institutional relations;
3. Sustenance of sub-systems for tying people into their functional roles;
4. Flexible sub-systems worried with organisational change; and
5. Managerial sub-systems for direction, judgement and control of the numerous sub-
systems and the activities of the framework (Fiss, Marx and Cambré 2013).
Contingency Approach:
Even though systems approach provides an improved understanding of functioning
the organisational as well as managerial part, it does not provide answer for all types of
organisational formats. Systems approach offers models which may not be appropriate for
each type of organisation. A format appropriate for one unit may not be appropriate for the
other. Contingency approach advices an organisational architecture which adjusts a particular
unit. A framework will be appropriate only if it is tailor made for an enterprise. The power or
authority of both internal and external factors should be considered while designing an
appropriate organisational structure. This approach advice that wants, requirements,
circumstances of a particular concern should be considered while framing an organisational
format (Chan, Watson and Woodliff 2014).
The factors which influence an organisation may be described as:
1. Environment – Commonwealth Bank of Australia is one of the major banks which are
responsible for the destructing the ecological balance in the Great Barrier Reef,
financing in the expansion of the coal and gas shipments, and reef-threatening mining
projects.
2. Technology – Informational data loss of the accounts of 20 million accounts
hampered the reputation of the company and eventually lost the customer data base
rapidly. The Ponzi scheme fraud of $76 million in 2016 also hampered the brand
image of the financial institution.

7UNDERSTANDING PRGANIZATION: THEORY AND PRACTICE
3. Size of operations – There are about 52,000 employees working in the organization
worldwide. But the senior management is less concerned about the employees and
lack of proper communication is prominent within the organization.
4. People – The bank was very relaxed on reviewing the accounts of the people and what
the people are doing with the money they are saving in the accounts of the bank. The
saved money was invested in terrorism and there were no limits in the number of
transactions that can be done by the depositors (Yang, Liu and Wang 2013).
There were other organizational issues like the remuneration structures and paying the
commissions. The bank did not pay the pensions properly to the retired employees, and
they did not receive any response even after calling the bank personnel and sending mails.
They took the help of the law and order to settle down the issue. The leadership also was
not proper in the organization as the senior level management is only concerned with the
aim of earning revenue rather than sustaining as well as increasing the brand image which
was hampered by the scandals and other controversies. Financial planning advice has
become important day by day to help the Australians to meet their economic objectives,
and to perform this, ethical business has to be performed by the Commonwealth Bank of
Australia (Berg 2016).
Conclusion
From the above essay, it can be concluded that though Commonwealth Bank of
Australia is a major and popular bank in Australia as well as the largest bank in the Southern
Hemisphere, the bank has many organizational flaws within it and has faced many ups and
downs in the run of years 107 years as a government bank and 28 years as a public bank. All
this has hampered the sales of the banking and financial products as well as the growth of the
financial institution. The banking and the financial industry must be ethical on their business
and should avoid any kind of misconduct and unethical behaviour and practices. The senior
management should show strong moral leadership within the organizations so that no
unethical practices can be approached by the employees. The customers should be treated
well and all their account details and the informations should be properly maintained and kept
secured from the hackers. It is the major role and duty of any financial institution. Law and
order should be followed to maintain the harmony within the organization to protect the
organizational culture. Ethical challenges will be there but they should be faced with proper
planning and ethical behaviour. The ethical climate is important to maintain as it will lead in

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ethical decision making, which will actually benefit the company, including the employees as
well as the customers. This will help to attract more and more new customers as well to retain
the previous customers, and in turn helping the growth of the company worldwide by earning
provides.

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