Basic Concepts in the Behavioral Theory of the Firm: Goals, expectations, and choice

The basic framework for analysis we have proposed, like the classic one, has two major organizing devices: (1) It has a set of exhaustive variable categories; (2) it has a set of relational concepts. The exhaustive categories are implicit in the organization of this volume. We have argued that we can analyze the process of decision making in the modern firm in terms of the variables that affect organizational goals, the variables that affect organizational expectations, and the variables that affect organizational choice.

Organizational goals. Quite simply, we have identified two sets of variables affecting the goals of an organization. The first set influences the dimensions of the goals (what things are viewed as important). Within this set of variables, we can cite the composition of the organizational coalition, the organizational division of labor in decision making, and the definition of problems facing the organization. Thus, we have argued that organizational goals change as new participants enter or old participants leave the coalition. We have argued that the operative goals for a particular decision are the goals of the subunit making that decision. Finally, we have argued that goals are evoked by problems. The second set of variables influences the aspiration level on any particular goal dimension. Here we have identified essentially three variables: the organization’s past goal, the organization’s past performance, and the past performance of other” comparable” organizations. The aspiration level is viewed as some weighted function of these three variables.

Organizational expectations. Expectations are seen as the result of drawing inferences from available information. Thus, we consider variables that affect either the process of drawing inferences or the process by which information is made available to the organization. With respect to inference drawing, we have not attempted to reflect all of the recent efforts in the psychology of individual choice. However, we have identified some simple pattern-recognition variables (e.g., linear extrapolation) and the effect of hopes on expectations. With respect to the process by which information is made available, we have cited particularly variables affecting search activity within the firm. Affecting the intensity and success of search are the extent to which goals are achieved and the amount of organizational slack in the firm. Affecting the direction of search are the nature of the problem stimulating search and the location in the organization at which search is focused.

Organizational choice. Choice takes place in response to a problem, uses standard operating rules, and involves identifying an alternative that is acceptable from the point of view of evoked goals. Thus, the variables that affect choice are those that influence the definition of a problem within the organization, those that influence the standard decision rules, and those that affect the order of consideration of alternatives. The standard decision rules are affected primarily by the  past experience of the organization and the past record of organizational slack. The order in which alternatives are considered depends on the part of the organization in which the decision is being made and past experience in considering alternatives.

In the preceding three chapters we have tried to elaborate on this simple structure in order to develop meaningful and useful theories of organizational  goals, expectations, and choice. We think it is possible to subsume any variable within the theory of business decision making under one or more of these categories.

Source: Skyttner Lars (2006), General Systems Theory: Problems, Perspectives, Practice, Wspc, 2nd Edition.

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