Perspectives on Organizational Decision-Making

Introduction

The study of organizational decision-making has a long history encompassing a variety of perspectives, philosophical positions and prescriptions. As with most areas of organization theory, and management research generally, it is not without controversy. There has been much debate over the years about the possibilities and practices of ‘effective’ decision-making, the import of decision-making for other aspects of organizational functioning, the links with power in organizational settings, and even whether the concept of ‘decision’ has any utility.

This chapter will chart the development of decision-making as an arena of discourse and managerial practice. It will begin by highlighting the key ideas, research studies and debates that have characterized the field before moving on to examine how it interfaces with topics of current interest in related areas within business and management.

Early Perspectives on Strategic Decision-Making: Rational and Incremental Approaches

As Hendry (2000: 957) notes, the earliest perspectives of strategic decision-making provide us with a picture of decisions as being conceptually unchallenging, ontologically unproblematic and shaped by managerial intention. This is a view grounded in notions of rationality. A decision is a rational choice based on logical connections between cause and effect where the decision-maker identifies a problem, searches for alternative potential solutions, prioritizes preferences according to identified criteria and arrives at an optimizing choice. Neo-classical economic assumptions underpin such perspectives. Individuals are maximizing entrepreneurs arriving at decisions through a sequential process that is both logical and linear.

The economic perspective aggregates the behaviour of individuals and groups without compunction. Since individual managers make rational decisions, then decisions made by groups within organizations are equally rational. This view of organizations and decision-making represents a mainstay of functionalist thinking; however, the limitations of the approach have long been recognized by theorists from within, and outside, the paradigm.

Simon (1945) was one of the earliest authors to provide a comprehensive critique of the limitations of this ‘rational actor’ model. Constrained by the complexity of modern organizations and by their own limited cognitive capacities, Simon asserted that decision-makers were simply unable to operate under conditions of perfect rationality. The issue for decision is likely to be unclear or open to varying interpretation, information about alternatives may be unavailable, incomplete or misrepresented, and criteria by which potential solutions are to be evaluated are often uncertain or unagreed. In addition, the time and energy available to decision-makers to pursue a maximizing outcome is both limited and finite. Searching for better choices can simply take too long. The net result of these constraints is that the outcome is likely to be a ‘satisficing’ rather than optimising choice; one which satisfies and suffices in the circumstances.

Thus, managers operate within a ‘bounded rationality’. They are intendedly rational, and indeed their behaviour is reasoned, not irrational, which is an important distinction, but it is unrealistic to expect them to meet the stringent requirements of strictly rational behaviour. Human frailties and contextual demands from both within and outside the organization bound the degree of rationality that can be employed.

Even so, Simon makes the important observation that different types of decisions can be processed in different ways. Some decision processes may approximate to rational prescriptions, others may not. Decisions that occur more frequently, which are familiar, almost routine, may be made in a relatively straightforward fashion. These decisions are comprehensible to managers and there usually exist tried and tested protocols, formulae or procedures for making them. They are ‘programmed’ (Simon 1960), in the sense that they can be made by reference to existing rubrics. Programmed decisions are often made lower down in the organizational hierarchy, they are the operational decisions that can be safely left to subordinates. It is likely that these decisions can be made in a way that parallels more closely the prescripts of rational choice models. In fact, there may be little in the way of formal deciding to be done (Butler 1990).

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