ORGANIZATION THEORY AND PERFORMANCE: LAWRENCE AND LORSCH'S CONTINGENCY THEORY AND WILLIAMSON'S TRANSACTION COSTS MODEL AS CORRELATES OF ORGANIZATIONAL PERFORMANCE

While theories of organization have been traditionally tested against data sets rather than against other theories, the present research was designed to test the relative efficacy of two theories vis-a-vis one another. Lawrence and Lorsch's contingency theory and Williamson's transaction costs model were selected to be compared using a common data set--the financial performance of a sample of large mutual savings banks in New York City. Based on Lawrence and Lorsch's contingency theory, it was hypothesized that greater differentiation and integration would be positively associated with performance; and based on Williamson's transaction costs model, it was hypothesized that transaction costs economizing would be positively associated with performance. Since none of the hypothesized relationships was supported, neither theory was judged better at explaining observed differences in performance. This judgement was supported by a qualitative comparison between high performing and low performing banks. Several reasons are offered to explain the negative findings: small sample size (n = 9 out of a population of 16), the issue of generalizing models of organization which are based on industrial organizations to service organizations measurement issues, and the general efficacy of the models being compared. The research highlights the present inability of organization theory to account for differences among individual organizations which face similar environments. The processes through which individual organizations endogenize their environments are relatively underdeveloped theoretically, compared to the processes through which clusters of organizations interrelate with their environments.