HR BasicsHuman Resources

Organizational Behavior: What It Is and Why It Matters

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Written by:
Jennifer Cameron - Guest Contributor

Published | Updated on
10 min read
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Learn why understanding your organizational behavior can benefit your business.

A term often heard in corporate corridors when discussing culture and environment is organizational behavior. Corporate and organizational are such encompassing words, how do they apply to a small or midsize business (SMB)?

Keeping up with your competitors has less to do with business models and more to do with the overall culture of your business—in other words, how do employees, customers, and community members feel when interacting with your business?

What is the definition of organizational behavior, and why should a small or midsize business owner pay attention? The truth is that everything you do shapes the perception of your business among potential customers, potential hires, current employees, and even your most loyal customers—both internally and externally—in every single interaction.

What is organizational behavior?


Organizational behavior is a multidimensional field of study that examines how individuals, groups, and structures impact (and are impacted by) organizational behavior. Through this lens, you can analyze the conduct of and between management, stakeholders, other staff, and customers, and optimize interactions throughout your business. You can then use what you learn to improve organizational effectiveness and foster a positive work culture.

For an SMB owner, understanding organizational behavior is like having a navigational roadmap of the complex human dynamics within an organization. It's about fostering a culture that's aligned with the business's values and objectives, which, in turn, propels an organization toward its goals.

Why is organizational behavior important?

SMBs often operate in competitive markets where efficiency and team dynamics play crucial roles in the business’s success. Understanding organizational behavior and ensuring a positive culture is essential because it directly influences the productivity of a workforce and the overall health of a company. For SMBs, every team member's contribution is significant, and how they interact—with customers, leadership, and other stakeholders—can make or break any progress.

Proper organizational behavior helps a business foster a culture of open communication, promotes a sense of ownership among employees, and encourages innovative ideas. When you are attentive to your teams’ behaviors, you can identify areas that need work while leveraging your teams’ strengths.

Plus, well-managed organizational behavior allows SMBs to respond swiftly to market changes and pivot when necessary, which is essential to remain competitive. Invest in a framework of organizational behavior, and you can optimize your operations, align your team with strategic objectives, and bolster your business’s resilience in the face of inevitable industry challenges.

What are the different theories and models of organizational behavior?

Organizational behavior theories are used to understand and inform real-time evaluation and management of employees in an organization. SMB owners (and HR leaders) can understand organizational behavior by studying the following theories.

Classical management theory

Rooted in the early 20th century, this theory proposes a formal hierarchy structure, clear authority lines, and rigid rules as the bedrock of efficient management. It's centered around the concept that workers are motivated primarily by monetary rewards.

Human relations theory

A deviation from classical theory, human relations theory emphasizes the importance of social relationships, motivation, and employee satisfaction in boosting productivity and creating a pleasant work environment.

Systems theory

This theory views an organization as a system composed of interrelated and interdependent parts working in harmony towards a common goal. It underscores the significance of understanding the entire overarching organization rather than in silos or department by department.

Contingency theory

Contingency theory proposes that there isn't a one-size-fits-all approach to organizational management. Instead, the optimal management strategy is contingent on various external and internal factors.

Transformational leadership theory

Transformational leadership theory advocates for leadership that inspires and motivates employees to exceed their performance and contribute to organizational success.

Other modern organizational behavior models include:

  • Autocratic: In this model, power and decision-making authority are centralized with the management. It's a command-and-control model that prioritizes obedience and depends on set rules and regulations.

  • Custodial: Focused on providing security and benefits to employees, the custodial model aims to foster employee loyalty and job satisfaction through financial incentives.

  • Supportive: Here, the emphasis is on leadership that motivates and supports employees to reach their potential. It encourages self-motivation and initiative among employees.

  • Collegial: The collegial model promotes a partnership between employees and management, fostering a sense of teamwork and shared objectives. It's built on mutual trust and respect.

  • System: The newest among organizational behavior models, the system model emphasizes fostering passion and commitment towards organizational goals. It encourages managers to show compassion and work towards establishing a positive workplace culture.

While learning textbook definitions, theories, and models of organizational behavior serves as excellent educational material, for the average SMB owner, it’s hard to envision real-world examples of organizational behavior by definition alone.

Examples of organizational behavior

Learning the many aspects of organizational behavior offers more than just textbook insights—it gives shape to the foundations of successful business operations. Before we introduce the most basic elements of organizational behavior, let’s review the types of activities you can examine:

Leadership

Transformational leadership is illustrated by leaders who do more than just steer the ship—these leaders are an inspiration that spurs their teams towards innovation and progress.

Dynamics

Team dynamics are witnessed throughout daily interactions in which individual capabilities can reinforce—or undermine—an organization’s collective output. Strong positive team dynamics can propel a company towards shared ambitions, whereas negativity or poor relationships can plot a course for disaster.

Resolve

Conflict resolution through constructive engagement can preserve accord and foster a favorable work environment.

Recognition

Motivation and reward systems tailored to individual and group accomplishments can fuel greater performance and celebrate valuable contributions.

Management

Competent change management and ongoing development can smooth organizational transitions and drive enduring business evolution.

These are just some of the core elements of organizational behavior that can reveal the real-world dynamics of SMBs.

How people play a pivotal role

At the heart of every organization are the people whose unique attitudes and beliefs set the tone of the workplace. Consider how energizing the influence of a motivated employee can be—their enthusiasm and dedication often ripple throughout the team, igniting collective ambition. But the flipside can be just as powerful.

Some employees may seem determined to hold tight to old grievances, which can stir dissent.

Some leaders may prioritize prompt results over meticulous perfection, while others balance the scales between deadline-driven energy and self-preservation.

It's crucial to assemble a team that not only works well together but also aligns with the company’s philosophy, ensuring a blend of professionalism with a dedication to both the organization and the self.

How structure influences business conduct

An organization’s structure—its bones—is the sheet music that the conducting leadership relies on in the daily symphony of tasks. A well-defined hierarchy, with a clear distribution of roles, streamlines collaboration and enhances efficiency.

On the other hand, a more fluid structural approach can foster creativity, joint effort, and insightful new ways of operating.

It's a delicate balance structuring an organization. It’s an approach that demands thoughtful consideration to provide employees with clarity, without stifling their ability to initiate changes, seek assistance, or escalate concerns.

How technology impacts an organization’s efficiency

Technology is like the central nervous system of a business. Sophisticated systems simplify tasks and bolster productivity, while a tech infrastructure riddled with flaws can cause operational paralysis.

SMBs should heed the cautionary tales of larger corporations: operational hiccups, like chronic supply shortages or glitchy sales systems, tarnish the experiences of customers and employees alike. Investing in a strong tech stack isn’t just an operational necessity—it’s a must for success

How external forces can shape an organization’s reality

Beyond internal factors, external influences play a significant role in shaping organizational behavior. Economics, legislation, and societal beliefs create complexities through which companies must maneuver. Every organization—from small startups to multinational corporations—requires agility and responsiveness to remain competitive yet nurture an environment in which employees feel valued and respected.

These real-world insights can help you appreciate the intricacy of organizational behavior and build an environment of growth and success.

What are the benefits of organizational behavior?

There are multiple benefits of understanding the organizational behavior of your business, including:

   Enhances productivity and performance

Understanding the organizational behavior of your SMB can help you discover how to enhance productivity by creating an environment that motivates employees, streamlines processes, and unites teams.

   Improves employee satisfaction and retention

A positive organizational behavior model significantly boosts employee satisfaction by addressing their concerns, recognizing their contributions, and promoting a healthy work-life balance. Happy employees are likely to stay longer, contributing to lower turnover rates and fewer new-hire expenses.

   Fosters leadership and team collaboration

Understanding and implementing positive organizational behavior practices develops stronger leaders and fosters collaboration and mutual respect among team members.

   Improves decision-making

Promoting a culture of openness and continuous learning through the lens of organizational behavior enables informed decision-making and encourages a proactive approach to solving business challenges.

   Elevated organizational culture

A healthy organizational culture is a byproduct of positive organizational behavior, creating a workplace that's not only productive but also enjoyable.

What kind of business should consider addressing organizational behavior?

Understanding your organizational behavior type is a necessity—especially for businesses aspiring to cultivate a thriving workplace culture with robust processes and strategies. While all businesses can gather insights from analyzing behavior, certain scenarios stand out where the benefits of such an analysis are particularly pronounced.

A startup with high turnover rates

Innovation and agility are often overshadowed by high turnover rates at startups. These fledgling enterprises have to interpret the underlying causes of a fluctuating workforce.

Is it the allure of the next big thing for ambitious talent, or maybe a misalignment between employee expectations and company culture?

Understanding these dynamics can help startups stabilize teams by developing a culture that both attracts and retains top talent, nurturing loyalty as the job market grows steadily more competitive.

A midsize business nurturing employee growth

Midsize businesses can find themselves in a precarious balancing act—growing beyond the nimble startup phase but not yet at the scale of a large corporation. With employees' tenure averaging 2-3 years, this business stands to reap immense benefits from understanding the nuances of its organizational behavior.

Are employees leaving for better growth opportunities, or is there a disconnect in the recognition of their efforts?

When you analyze these patterns, you can develop strategies to enhance job satisfaction, opportunities for career progression, and recognition systems that could extend average employee tenure further.

A fast-growing company that wants to scale without losing its identity

High-growth companies often find that the rapid scale of fast growth can strain the foundational culture that initially contributed to the company's success. These companies must navigate the complexities of expanding the workforce while still maintaining the core values and practices that drive the company identity. Understanding organizational behavior can help them integrate new employees into the existing culture while adapting their processes to support a larger, more diverse team without dissolving what made them successful in the first place.

A service-driven small business aligning employee values and customer satisfaction

Service-driven SMBs, where customer interaction is frequent and influential, should prioritize understanding how employee attitude and behavior directly correlates with customer satisfaction.

A service provider must ensure their teams are aligned with the company’s service values and equipped to deliver exceptional customer experiences. Analyzing and addressing organizational behavior helps reinforce a customer-centric culture and addresses any misalignments that could affect service quality.

In other words, businesses that face high turnover, those in the throes of growth, or organizations that participate closely with customers find that diving deep into organizational behavior analysis can address company-specific challenges, from retaining talent to preserving culture during expansion, ensuring long-term success and stability.

How can organizations apply organizational behavior principles to improve their overall performance?

The following steps can help lead your team to improved organizational behavior and ongoing success:

  1. Ensure your leadership team is educated about the principles and benefits of organizational behavior.

  2. Seek feedback from your employees to understand their perspectives and concerns, which fosters a culture of openness.

  3. Offer training programs that address key organizational behavior concepts and skills.

  4. Use modern tools like employee engagement platforms to gauge and improve organizational health.

  5. Consider consulting with organizational behavior experts to tailor a strategy that meets your business's unique needs.

Understand your organizational behavior for business success

Taking the first steps to understand and implement organizational behavior principles is a practical step towards cultivating a thriving organizational culture and achieving business excellence. It's an investment that can yield substantial returns, such as:

  • Enhanced productivity

  • Employee satisfaction

  • Overall organizational success


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About the Author

Headshot of Jennifer Cameron

Jennifer Cameron is a writer/editor and business process analyst specializing in sales, marketing, and eCommerce topics for B2B and B2C clients. Her work has helped small and midsize business owners on sites such as Capterra and various Fortune 1000 technology vendors.

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