The Nature of Man

1
The Nature of Man

• Choosing a model for predicting behavior

2
Where are we going with this

• Management control systems Management control
  systems are the formal, information-based
  routines and procedures managers use to maintain
  or alter patterns in organizational activities.
• Task control systems The host of systems used
  lower in the organization to coordinate and
  regulate operating activities (e.g., quality
  control procedures for repetitive operations
  (Accy 304))gt

3
What kinds of systems do managers use for control?

• Belief systems (used to inspire and direct the
  search for new opportunities)
• Boundary systems (used to set limits on
  opportunity-seeking behavior)
• Diagnostic control systems (used to motivate,
  monitor, and reward achievement based on specific
  goals)
• Interactive control systems (used to stimulate
  organizational learning and the emergence of new
  ideas and strategies)

4
Links to Predicting Behavior

• Motivate, monitor, and reward achievement based
  on specific goals
• Understand desires and preferences
• Understand self-interest
• Predict responses to a variety of incentives
• Set limits on opportunity-seeking behavior

5
REMM Postulates

• Every individual is an evaluator.
• Has preferences
• Can order his/her preferences
• Makes substitutions (trade-offs) that are
  transitive
• Each individuals wants are unlimited.
• Each individual is a maximizer.
• Each individual is resourceful.

6
Pervasive, Predictable

• What kind of behavior do we see and what kind of
  thinking brings it about?
• Evaluative
• Resourceful
• Maximizing
• Insatiable
• Predictable and realistic

7
Other models

• Economic model
• Sociological model
• Psychological model
• Political model

Motivated by more than money
Evaluative
Makes substitutions
Not a perfect agent
8
Discussion Question
Define sociological man.
Jensen and Meckling state Inefficient
practices such as discrimination . . . In hiring
provide profit opportunities for smart people
with the vision to perceive and act upon the gap
between current and optimal practice.
If this is true, how could discrimination persist?
9
Using the model

• Good managers will understand and use the models
  behavior predictions to achieve their goals.
• Managers use control systems to enforce positive
  human traits and overcome organizational blocks
  (sanctions for errors, group pressures, fear of
  embarrassment)

10
Discussion Question

• Define Political Man.
• Organizational trouble spots frequently are
  diagnosed as being caused by the fact that one or
  more managers is a bad guy. The solution is
  then to remove the offender(s) and appoint good
  guy replacements.
• Explain how this approach involves the notion
  that managers behave like Political Man.

11
Discussion Question

• John Smith, Chief of Personnel (HR), has been
  instructed to increase minority hiring in ABC
  Company. Each division must have a minimum
  percentage of its total employee positions filled
  by minority workers.
• Why is an unbalanced workforce a problem for the
  company?
• No division currently meets its minimum.
• Smith will be evaluated by the Company president
  on his success or failure in meeting these goals.
• Smith does not evaluate the performance of any of
  the division chiefs and each chief must approve
  all new division employees.
• Do you expect Smith to succeed in this endeavor?
  Why or why not? Explain your reasoning. What
  would you do about it?

12
What do you need to understand?

• The basic postulates of REMM.
• The comparison models.
• The aspect/s of each of the alternative models
  that renders it useless for our purposes.
• Why understanding the rudiments of
  self-interested behavior is useful for
  organizational control.
• What control has to do with accounting.

13
Vocabulary

• Rules of the game
• Preferences
• Transtivity and rationality
• Non-rational behavior
• Perfect agent
• Needs
• Culture

14
Vocabulary

• Evaluation
• Substitution (trade-offs)
• Maximization (Optimization)
• Future
• Organizational structure
• Incentive systems
• Incentive contract
• Making the best use of scarce resources.

15
Discussion Question

• On a boat trip up Chinas Yangtze River in the
  19th Century, a titled English woman complained
  to her host of the cruelty to the oarsmen. One
  burly coolie stood over the rowers with a whip,
  making sure there were no laggards.
• Her host explained that the boat was jointly
  owned by the oarsmen, and that they hired the man
  responsible for flogging. (Source Stephen
  Chung)
• Explain why such an organizational arrangement
  would arise voluntarily.

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The end!