What is Organizational Behavior?

Robinhood Learn
Democratize finance for all. Our writers’ work has appeared in The Wall Street Journal, Forbes, the Chicago Tribune, Quartz, the San Francisco Chronicle, and more.

Organizational behavior is the study of human interaction within an organization, with the intention of explaining and predicting how people act.

🤔 Understanding organizational behavior

Organizational behavior is a study of how people behave and interact with one another in a group setting. The goal of understanding these behaviors is to predict and even influence future actions. Studying organizational behavior can be beneficial for employees navigating a new business’s culture. It can also be beneficial for employers, as it can give them a greater understanding of what motivates their employees. Employers who take time to study organizational behavior may be able to improve employee satisfaction and performance and gain a competitive advantage over other firms in the market.


Suppose Sal recently took a job as the chief executive officer (CEO) of a local company. Though the company has a fairly solid track record of growth, it has a high rate of employee turnover and notoriously low employee satisfaction. One of the reasons the board of directors chose Sal to run the show is because he has a background in organizational behavior.

Using that knowledge, Sal is able to implement some policies within the company to slow the current rate of turnover and increase employee satisfaction. Not only would this keep the employees around longer, but it might also increase employee productivity.


Organizational behavior is like the study of medicine…

Doctors study the human body to gain a greater understanding of how everything works. That way, they can treat individual patients and determine if something is wrong. Similarly, experts study organizational behavior to gain a greater understanding of how human interaction works and to identify problems within an organization.

Ready to start investing?
Sign up for Robinhood and get your first stock on us.
Sign up for Robinhood
Certain limitations apply

The free stock offer is available to new users only, subject to the terms and conditions at rbnhd.co/freestock. Free stock chosen randomly from the program’s inventory. Securities trading is offered through Robinhood Financial LLC.

Tell me more…

What is organizational behavior?

Organizational behavior is the study of human behavior and how people interact in an organization — typically a work environment. Specifically, organizational behavior studies employees within an organization to understand, predict, and influence behavior.

Organizational behavior has several distinct layers. First, organizational behavior looks at individuals to analyze their behavior. It’s important to consider why individual employees behave the way they do and what motivates them. The next layer of organizational behavior is a group of people within the organization. For example, a company might examine one department and its outcomes. Finally, organizational behavior is the study of the organization as a whole and how each individual piece interacts with the rest.

Each of these studies is valuable at different times. You might need to look at an individual to determine why he or she is underperforming when compared to the rest of the team. But you might need to look at the behavior of the group if an entire department is underperforming.

Organizational behavior rose to prominence in the 1970s when the American Psychological Association recognized it as a field of academic study. Since then, universities have been teaching organizational behavior in business schools. Companies have been implementing organizational behavior theories to help increase employee productivity and satisfaction.

Though the American Psychological Association didn’t recognize the field of study until the 1970s, individual companies had been implementing organizational behavior studies on their own. The first example dates back to the 1920s, with an experiment at Hawthorne Electric Company. The firm studied how changes in the work environment could influence the behavior and productivity of employees at its Hawthorne Works plant in Cicero, Illinois.

What are the goals of organizational behavior research?

The goal of organizational behavior is to understand the people within an organization. People and companies use organizational behavior to predict how individuals and groups will react in specific circumstances.

At Hawthorne Electric Company, where one of the first studies of organizational behavior took place in the 1920s, senior management was able to influence the behavior of the employees by making some key organizational changes. After observing the company, they were able to identify which working conditions and social factors motivated employees the most. When companies know what motivates employees, they can improve their results.

How is organizational behavior studied?

Because of its importance in the business world, organizational behavior has become a standard field of study in universities and organizations. Students of organizational behavior learn elements of social sciences, such as psychology, sociology, and political science. They also focus on business studies, such as management and industry. Students of organizational behavior can go on to succeed in corporate management, human resources, and customer relations.

Organizational behavior management (OBM) takes the principles of behavior management and applies them in a business setting. Implementing OBM within a business allows companies to analyze and manage the performance of employees and the existing systems within the company. This study helps firms to identify the results they want, determine why they aren’t currently achieving them, and develop solutions to help get them there. When companies understand why their employees are behaving the way they are, they can better predict and influence those behaviors.

What are the important concepts in organizational behavior?

The concepts of organizational behavior fall into two categories: the nature of the people and the nature of the organization.

Nature of people

  • Individual differences: Each person is different, so each individual within an organization is going to behave differently in certain circumstances. Managers should treat employees individually rather than with a blanket approach.
  • Perception: Individual people also perceive situations differently. This concept can be valuable for companies to understand, as they realize that employees may see things differently.
  • A whole person: Organizational behavior accounts for the fact that people don’t only exist in the workplace. People have independent lives outside of the office that can affect someone’s work-life. Managers should look at employees as whole people, not just workers.
  • Motivated behavior: Managers should try to understand what inspires their employees to do their best work. For many employees, the key may be fulfillment in their work or positive reinforcement from a superior.
  • Desire for involvement: Employees want the opportunity to be problem solvers at work and have a place at the table. Companies can account for this by giving employees the opportunity to voice their opinions.
  • Value of the person: Just as employees have lives outside of work, employees have value outside the final product of their work.

Nature of organizations

  • Social systems: Each organization, whether it be a company or a community organization, is really a social system made up of people. The social systems within a company are both formal (meaning the organizational chart) and informal (meaning the way people socialize and interact with one another).
  • Mutuality of interest: Everyone within an organization has a common goal. In a company, that common goal is usually to provide a good or service to customers for a profit.
  • Ethics: Companies should implement a code of ethics to ensure the appropriate treatment of employees, customers, and other stakeholders.

What are some theories of organizational behavior?

Understanding organizational behavior is an important step to running an effective business and leading other people. Because of its importance, there are many theories surrounding organizational behavior.

  • Complexity theory: Complexity theory, as it relates to organizational behavior, says that a large number of independent beings in an organization will fall into a natural order of sorts. Organizations and communities go through self-organization, which is when the participants spontaneously organize themselves into a coherent system.
  • French and Raven’s Five Bases of Power: Psychologists John French and Bertram Raven studied human behavior and found that there are five types of power that one person can have over another:
    • Legitimate power (which comes from a higher power and comes as a result of someone’s position — Elected officials and company executives have legitimate power)
    • Reward power (which people earn because they reward others for their behavior — Managers may have reward power from their ability to reward employees by giving raises)
    • Expert power (which people have as a result of their skills or knowledge — A doctor has expert power)
    • Referent power (which people get from their charisma or likeability — Celebrities may have referent power)
    • Coercive power (which people have when they can force others to do things against their will — Dictators have coercive power)
  • Hybrid organizational theory: This theory says that organizations can exist both as for-profit enterprises and as socially conscious organizations. This theory has become popular as more corporations include corporate social responsibility and sustainability into their business models, while still remaining profitable.
  • Informal organizational theory: The informal organizational theory doesn’t take into account the formal hierarchy within a business, but the underlying social structure that exists. The friendships and interpersonal relationships people form at work craft the company’s informal organization.
  • Resource dependence theory: Resource dependence theory studies the impact of external factors on a company or organization. Outside stakeholders such as suppliers and customers can influence the behavior of internal stakeholders.
  • Mintzberg’s organigraph: In the 1990s, Henry Mintzberg shared his theory that rather than the traditional organizational charts that companies use with management at the top, a different organizational structure makes more sense. He introduced the organigraph, which is a far more complex organizational chart that really shows how the different people and departments within a company interact with one another. Part of Mintzberg’s theory was the concept that rather than controlling, managers should be coordinating and energizing.

What are some real-world examples of organizational behavior?

Organizational behavior is a psychological study that plenty of people learn in universities. But it can be difficult to draw a direct line from the study of organizational behavior to the real-world implementation of it. The American Management Association, a nonprofit organization that provides people with the tools and knowledge to manage others well, shares a number of ways that companies can bring organizational behavior values into their companies.

  1. When companies want to instill a core value in the workplace, they first have to demonstrate that value themselves. Values have to trickle down from senior management to the rest of the company.
  2. A company’s core values should be connected to its business goals. In other words, companies should demonstrate why ethical behavior is both the right thing to do and valuable for the company’s success. For example, excellent customer service isn’t just about treating customers well — It’s also about increasing profits.
  3. Action is more important than words. For example, if a company espouses the value of work-life balance, it should implement policies to champion that value, such as providing generous vacation time for employees.
  4. Not only should managers create policies that show the company’s values, but the company’s structure should have those mechanisms built right in.
  5. Senior management should take steps to make employees feel committed to the organization. When employees believe that the company shares their values, they’ll stick around longer and care more about the success of the company.

Why is organizational behavior important?

Organizational behavior is critical to being able to understand employee behavior and the different interactions that people have in the workplace. When employers understand the behavior of their employees they can take steps to predict or influence those behaviors in several ways.

First, organizational behavior allows employers to pick out positive behaviors and promote those within the company. When employers know what motivates people, they’ll be able to reward employees in a way that uniquely motivates them.

Understanding organizational behavior can also help employers to craft the organizational culture that they envision for a company. A positive workplace culture doesn’t always happen organically. It has to come from the top down. If an employer wants a social workplace, then scheduling fun social events in and out of work might be a way to achieve that.

In addition to rewarding positive behaviors, employers can also use the study of organizational behavior to identify, understand, and prevent antisocial behaviors. When companies look at each of the three layers (individual, group, and organization), it’s easier to identify the root cause of problems and start fixing them.

Finally, employers who understand the organizational behavior of their companies can predict how employees will react to certain changes within the firm. For example, a company planning to implement a reorganization might use organizational behavior to frame the changes in a way that will bring the best reaction from employees.

Ready to start investing?
Sign up for Robinhood and get your first stock on us.Certain limitations apply

The free stock offer is available to new users only, subject to the terms and conditions at rbnhd.co/freestock. Free stock chosen randomly from the program’s inventory. Securities trading is offered through Robinhood Financial LLC.


Related Articles

You May Also Like

The 3-minute newsletter with fresh takes on the financial news you need to start your day.
The 3-minute newsletter with fresh takes on the financial news you need to start your day.

© 2021 Robinhood. All rights reserved.

This information is educational, and is not an offer to sell or a solicitation of an offer to buy any security. This information is not a recommendation to buy, hold, or sell an investment or financial product, or take any action. This information is neither individualized nor a research report, and must not serve as the basis for any investment decision. All investments involve risk, including the possible loss of capital. Past performance does not guarantee future results or returns. Before making decisions with legal, tax, or accounting effects, you should consult appropriate professionals. Information is from sources deemed reliable on the date of publication, but Robinhood does not guarantee its accuracy.

Robinhood Financial LLC provides brokerage services. Robinhood Securities, LLC, provides brokerage clearing services. Robinhood Crypto, LLC provides crypto currency trading. Robinhood U.K. Ltd (RHUK) provides brokerage services in the United Kingdom. All are subsidiaries of Robinhood Markets, Inc. ('Robinhood').