Organization theory deals with the formal structure, internal workings, and external environment of complex human behavior within organizations. As a field spanning several disciplines, it prescribes how work and workers ought to be organized and attempts to explain the consequences of organizational behavior on work being performed and on the organization itself. The formal study of organizations—which spans the fields of business administration, economics, political science, psychology, statistics, sociology, as well as public administration—has evolved for over a century.

Assumptions about work and workers in an organizational setting have changed. Numerous hypotheses and research findings have emerged about what motivates workers in different environments and how different incentives affect various tasks, employees, and situations. Some of the following discussion will be familiar to anyone who has worked in an organization—which, in our society, is most of us.

Categorizing major organization theories is not easy. On one level, they can be distinguished according to whether they concentrate on the needs, objectives, methods, problems, and values of management. On another level, it is possible to identify numerous specific theories, each with its own principal assumptions and emphases. Although formal organization theory originated in the late nineteenth century, some formative thinking on the subject dates back many centuries. In fact, concepts of organization are derived from highly structured arrangements of military forces or rigidly structured organizations in the church.

Most notably, the idea of a hierarchy, found in the great majority of contemporary organizations, springs from these roots. Some other features of formal theory (such as the need for control and for defining certain set procedures) also originated in very early organizations. As they were applied to more organizations, the principles were increasingly criticized as being inconsistent and inapplicable and eventually became outdated by developments in both theory and practice. These developments were not limited to public administration. In particular, new approaches in psychology and sociology focused attention on those who made up the workforce of an organization.

The informal and formal traditions differ from each other in both major assumptions and principal research directions. Formal theories assumed that workers were motivated to maximize their economic gains, informal theories consider noneconomic needs as well.