Organizations

Classical models of organizations perceived the members of the organizations to be “machines”. The models tended to ignore the wide range of roles which the participant simultaneously performs and could not effectively treat problems associated with the coordination of the roles. The new models were born in mid 20th century, paying attention to human motivation and diversity as the central issue for organizations. Simon and March introduced the concept of bounded rationality of individuals and developed the study of organizations in their book “Organizations”. In this book, an organization is systems of coordinated action among individuals and groups whose preferences, knowledges, interests or information differ.

The book coveres key topics about organizations, especially about survival of the organizations and decision-making. For survival of organizations, participation and leaving of the members and conversion from conflict into coordination are the keys. For better decision-making, managing organizational styles and decision-making process are the keys.

Participation and Leaving

Participation and leaving of members are key issues for survival of organizations. To analyze them, Simon and March introduced the concept of “Organization equilibrium”, which is the conditions of survival of an organization. The equilibrium means that the organizations succeed in arranging payments to its participants adequate to motivate their continued participation.

To explain the members’ participation into organizations, Simon and March introduced the “inducement-contribution” model, in which the members participate into the organization by considering the satisfaction from their participation and the visibility (not the real existence) of alternatives. Here, the satisfaction is difference between (1) the payments made by the organization to its participants (“inducement”) and (2) the payments made by the participants to their organization (“contribution”).

Conflict and Coordination

Organizational conflict makes its members face difficulty in making a choice or have choices that are mutually inconsistent to achieve every member’s preference. The conflict arises from incomparability of alternatives, the unacceptability of alternatives and uncertainty about the consequences of alternatives. Organizations strive to convert conflict among their members into coordination for joint survival of the organizations and the members.

To achieve the goal, organizations try to control over four key drivers to motivate their members:

(1) information: by processing and channeling it

(2) identities: by shaping common goals and loyalties of members

(3) story: by creating shared story

(4) incentives: by promoting appropriate behaviors

The problem is that the world is not in an ideal shape. There are uncertainty, ambiguity, limited cognitive & affective capabilities of human beings, complexities of balancing tradeoffs, and threats of competitors, the things that make it impossible for organizations to have perfect control over four key drivers. Thus, the organizations try to overcome the challenges by four ways:

(1) calculation, planning and analysis

(2) learning from experience

(3) creating and using systems of rules, procedures and interpretations

(4) weaving supportive cultures,  agreements, structures, and beliefs around their actives

Decision making

The final part of the book is devoted for static and dynamic decision-making. The former is mainly the issue of organizational style and the latter is of process management.

Key concept that March and Simon introduced here is the “bounded rationality” which means limited ability of cognitive powers of human beings. Due to the bounded rationality, rational behavior calls for simplified models that capture the main features of a problem without capturing all its complexities. The organizational style is made such that the style is consistent with bounded rationality. For instance:

(1) Optimizing is replaced by satisficing, i.e., the requirement that satisfactory levels of the criterion variables be attained

(2) Alternatives of action and consequences of action are discovered sequentially through search process

(3) Repertories of action programs are developed by organizations and individuals, and these serve as the alternatives of choice in recurrent situations

(4) Each specific action program deals with a restricted range of situations and a restricted range of consequences

(5) Each action program is capable of being executed in semi-independence of the others – they are only coupled together

The final chapter of the book is about problem solving and innovations. Planning is the key in process management, but perfect planning misses innovation, as it comes from outside elements. Thus organizations need to have scheme to bring about innovations.

Remarks

Although nothing is new in this book, it is notable that Simon and March treated the central issues in today’s management such as problem solving and innovation process and the relevant organizational style.

Reference

James G. March and Herbert A. Simon, “Organizations”, Wiley-Blackwell (second edition), 1993/5/17