Slajd 1

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Decision making in organizations. Fundamental
problems
dr. hab. Jerzy SupernatInstitute of
Administrative StudiesUniversity of Wroclaw
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Decision making in organizations
One of the illusions of life is that the present
hour is not the critical, decisive hour. Write
it on your heart that every day is the best day
of the year. Ralph Waldo Emerson
dr. hab. Jerzy Supernat
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Decision making in organizations
The broadest and most systematic approach to
factual decision-making in organizations is
represented in work by a Nobel laureate in 1978
Herbert A. Simon (1916-2001) and his students
and colleagues. This tradition is sometimes
referred to as the Carnegie School as much of
the work was done at Carnegie-Mellon University,
where H.A. Simon was a long-time faculty member.
dr. hab. Jerzy Supernat
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What information consumes is rather obvious it
consumes the attention of its recipients. Hence
a wealth of information creates a poverty of
attention, and a need to allocate that attention
efficiently among the overabundance of
information sources that might consume it.
Herbert A. Simon
Herbert A. Simon
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Decision making in organizations

• Bounded rationality
• H.A. Simon pointed out that in contrast
• to prescriptive models of decision
  making-processes offered by economists real
  individuals have a very constrained cognitive
  capacities that is, a limited ability
• to think of the full range of possible options
  in a decision making situation
• to accurately anticipate what the consequences
  of these options will be
• to know how much they will actually value one
  consequences versus another
• Thus, rather than being fully rational, as
  economic models assume, H.A. Simon argued that
  individuals were characterized by bounded
  rationality.
• The concept of bounded rationality implies that
  individuals typically are able to consider only a
  limited number of options in making decisions,
  and often select the first one that meets some
  minimal criterion, that is good enough, rather
  than searching for the very best option.

dr. hab. Jerzy Supernat
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Decision making in organizations
Organization as a hierarchy of means-and-ends
decisions Given bounded rationality, H.A. Simon
also argued that individuals could achieve a
grater degree of rationality in decision-making
in organizations than they could if they acted on
their own. This argument rests on the fact that
individuals at the top of the hierarchy make
broad decisions about general courses of actions
to be taken these decisions define the ends that
individuals at the next level will seek to
achieve by making their own decisions about
actions to be taken, actions that will become the
means to achieving higher-level ends. Because of
this type of division of labor in
decision-making, H.A. Simon believed that the
decisions made in organizations are likely to
reflect a broader and more thoughtful
considerations of factors than if a single
individual had to think through these alone
that is, to be more rational.
dr. hab. Jerzy Supernat
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Decision making in organizations

• Organizational structure and decision-making
• Structural properties
• of organizations
• complexity
• formalization
• centralization
• are important because they provide the mechanisms
  through which organizations shape and control
  individuals decision-making.

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Decision making in organizations

• Consistent with the notion that decision making
  in organizations is affected by individuals
  bounded rationality, political considerations are
  assumed to come into play because there is often
  uncertainty surrounding decision-making
  processes uncertainty about which objectives are
  most important to an organization, and what means
  should be used to pursue a given objective. These
  core types of uncertainty were highlighted in the
  framework for thinking about different types of
  organizational decisions presented by James D.
  Thompson (1920-1973).
• According to J.D. Thompson decision issues always
  involve two major dimensions
• beliefs about cause/effect relationships (it
  refers to whether there is certainty about the
  outcome of an action choice)
• preferences regarding possible outcomes (it
  refers to the degree to which there is consensus
  about what the organiza-tion is or should be
  trying to achieve)

dr. hab. Jerzy Supernat
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Decision making in organizations

• Suggesting that each dimension can be
  (artificially) dichoto-mized (certainty
  uncertainty) J.D. Thompson proposed the following
  typology of organizational decisions or
  decision-making strategies
• computational strategy (the decision is obvious)
• judgmental strategy (outcome preferences are
  clear, but cause and effect relationships are
  uncertain)
• compromise strategy (there is certainty regarding
  cause and effect but uncertainty regarding
  outcome preferences)
• inspirational strategy (there is uncertainty on
  both dimen-sions) it presumably entails a
  significant effort to forge agreement between
  parties with different views that is, political
  negotiations

dr. hab. Jerzy Supernat
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Decision making in organizations

• It is worth noting that J.D. Thompson is the
  author of im-portant distinction among three
  basic forms of organiza-tional interdependence
• pooled interdependence
• sequential interdependence
• mutual (reciprocal) interdependence
• The fact that an organization is a wholeness
  consisting of interdependent parts means that one
  of the most impor-tant functions of top
  management (top level decision-makers) is
  coordination.

dr. hab. Jerzy Supernat
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No man is an island, entire of itself every
man is a piece of the continent, a part of the
main if a clod be washed away by the sea,
Europe is the less...any man's death diminishes
me, because I am involved in mankind... John
Donne (1572-1631)
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Decision making in organizations

• Although there is a tendency to assume the
  decisions at high levels of organizations reflect
  high levels
• of rationality (careful consideration
• of the best means to achieve some given
  objective) empirical evidence suggests that this
  assumption
• is very problematic.
• The fact that considerations other than
  rationality often influence strategic decisions
  is especially stressed in the following concepts
  
• the garbage can model of decision
  making
• the concept of previous commitment
• the concept of social embeddedness

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Decision making in organizations

• Garbage can model
• This model begins with the points noted by J.D.
  Thopmson that preferences and technology (cause
  and effect relations) are often unclear. In this
  context, James G. March (born 1928) and his
  colleagues argue that decisions are shaped by
  four more or less independent factors
• perceptions of current problems facing the
  organization
• potential solutions
• decision-making opportunities (meetings or
  committees that are assigned to make a
  recommendation for action)
• participants (individuals who are present at
  decision-making opportunities)
• The model suggests that decisions result from
  random combination of these factors in an
  organization conceived of as a large garbage
  can in which the factors are mixed. In other
  words, the model suggests that decision outcomes
  are very unpredictable. Other research, though,
  suggests some structural constraints that put a
  lid on the garbage can and make decision making
  somewhat more predictable.

dr. hab. Jerzy Supernat
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James G. March
What might make a difference to us, I think, is
whether in our tiny roles, in our brief time, we
inhabit life gently and add more beauty than
ugliness. James G. March
Jim March is to organization theory what Miles
Davis is to jazz. John Padgett
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Decision making in organizations

• Previous commitment
• According to Richard M. Cyert and J.G. March one
  constraint on decisions is the existence of
  previous decisions that commit organizational
  resources to certain courses of actions. While
  having the benefit of reducing conflict over
  choices of action, commitments can have negative
  consequences for organiza-tional decision making
  as well organizations committed to loosing
  courses of action are apt to continue to make
  decisions that make matters even worse. These are
  called escalation situations. Escalation
  situations occur when
• organizational projects have little salvage
  value
• when decision makers want to justify their own
  past behavior
• people in a project are bound to each other
• organizational inertia and internal politics
  combine to prevent a project from being shut down

dr. hab. Jerzy Supernat
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Decision making in organizations

• Social embeddedness
• Mark Granovetter underlies the fact that
  organizations (as well as individuals) have
  enduring relationships with other actors and are
  part of ongoing social networks. These
  relationships shape decisions both because they
  are an important source of information about
  different choices that may be made, and because
  in order to maintain the relations, organizations
  may have to take certain courses of action.

dr. hab. Jerzy Supernat
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Decision making in organizations
Strategic impact on decision making Making
decisions, especially strategic decisions under
conditions of high uncertainty, is always risky.
Decisions that turn out badly may affect decision
makers credibility and their ability to exercise
influence in later decision-making situations.
Because of this, those with authority to make
strategic decisions (top-level decision-makers)
may resist making decisions by themselves and
leave such decisions to groups or committees.
dr. hab. Jerzy Supernat
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Decision making in organizations

• Nonetheless, those
• in positions of authority
• have a number of ways
• to influence decision outcomes in ways that
  reflect their preferences
• agenda setting (defining what issues will be
  discussed, and in what order)
• controlling information
• forming coalitions

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Concluding remark
For every complex problem there is a simple
solu-tion that is wrong. George Bernard Shaw
dr. hab. Jerzy Supernat