1. dr. hab. Jerzy Supernat Institute of Administrative Studies University of Wrocław Decision making in organizations. Fundamental problems

2. Decision making in organizations dr. hab. Jerzy Supernat 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

3. 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

4. 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

5. 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

6. 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

7. 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.

8. 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

9. 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

10. 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

11. 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)

12. 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

13. 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

14. 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 James G. March

15. 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

16. 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

17. 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

18. 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

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