Descriptive analysis: nonbusiness organizations

The business firm is a major decision-making organization. It is not the only type of large, complex organization that makes decisions, however. Even in a society using a market economy, many important decisions are made outside the framework of the firm. Most conspicuous among such institutions are the political institutions of the modern nation state. Governmental bureaucracies are complex, decision-making organizations. So also are military organizations and schools, the Presidency, and many local political systems. Outside of the government, we might add such organizations as labor unions, hospitals, eleemosynary institutions, and private and professional associations.

Viewed as a theory of organizations, the behavioral theory of the firm belongs to the third, “decision-making,” branch of organization theory described in Chapter 2. It postulates the same basic structure of the decision-making process and the same fundamental psychological mechanisms as does the other literature belonging to that branch, applying them to the specific context of the business firm. Hence, the behavioral theory of the firm is one of the important potential sources of evidence about the validity of this structure and these mechanisms. It is also a source of new evidence and new insights for further modifying and developing the theory. We have not, as yet, explored in detail the relation of the models that have emerged from our studies to possible models of other types of organizations. As a result, we will limit ourselves in this section to a general discussion of the next steps that are required to exploit developments in the behavioral theory of the firm for organization theory as a whole.

1. Firms and nonfirms

The verbal theory of a firm presented in Chapters 3-6 is idiosyncratic to business firms in many specific ways. The kinds of information it considers, the kinds of goals it assumes, and the kinds of choices it predicts are, if not unquie to firms, at least more characteristic of firms than of other organizations. Profit, sales, inventory, and production goals are the basic goals we consider. Feedback on these goals, on costs, and on competitors’ behavior is the information we emphasize. Decisions on price and output are the choices we predict. Other organizations may have analogs of such specific dimensions, but the possible utility of the theory does not depend upon straining for specific analogs; it depends upon the relevance of more general theoretical concepts.

If we view the concepts alone, it is clear that they are not intrinsically unique to the firm. The processes they stipulate are general decision processes. On the whole, the concepts of the theory seem to be consistent with much recent work  on organizations outside the business world; but most recent work on organizations, as in the case with the business firm, has not had as distinct a decision-making orientation as would be required to test the model. For example, there are a number of points of tangency between the behavioral theory of the firm and studies of hospitals by Perrow and studies of foundations by Sills. None of these studies, however, attempts to specify a model of decision making within the organization. The closest thing to an explicit model of which we are aware is found in a discussion of planning in the British National Health Service by Eckstein. 14 In a brief epilogue to a more comprehensive study of the operation of the Health Service, Eckstein summarized the planning and decision making process he observed. 15 Paraphrased only slightly, Eckstein found that:

  1. Health Service objectives consist in a large number of relatively independent, not necessarily internally consistent, imperatives.
  1. The extent to which the potential conflict among goals becomes an actual conflict depends on the level of abundance provided by the environment of the Service.
  2. In order to reduce the difficulty of dealing with a complicated, uncertain, and threatening world, the organization uses routine and stereotyped rules and arbitrary accounting procedures.
  3. Rules are revised primarily when a problem exists and is made conspicuous by a complaint.
  4. Problems are solved by searching for a solution that “works” (i.e., eliminates the complaints) rather than an explicitly optimal solution.
  5. Rules tend to be learned as appropriate responses to particular situations independent of their original justification.
  6. Goals change over time as a result of experience with the consequences of decisions.

The British Health Service may conceivably be representative of only a small class of public organizations, but it is hard to read Eckstein’s study without feeling that the Health Service and the firms we have described in this book belong to the same decision-making species.

Our reading of the literature on political institutions suggests that the concepts needed for a theory of decision making by political organizations are not strikingly different from those needed in dealing with the firm. However, political organizations (and other nonbusiness decision-making organizations) differ from firms in several important ways. They differ in the mythology surrounding them, in the character of their relations with external control groups, and in the traditions surrounding their standard operating procedures. Such differences probably lead to important differences in the detailed process by which the organizations make decisions. For example, the extended social isolation of firms from other organizations should lead to differences in behavior simply through learning in a world where acceptable solutions are not unique.

2. Prerequisites for a theory

Quite aside from the considerations advanced in Chapter 1 for the study of the firm, it is no accident that models of organizational decision making can be developed in a detailed, quantitative form in the area of business behavior. Specifically, in the case of the theory of the firm we have a rather large number of more or less comparable organizations making repeated decisions on a quantifiable dimension. These characteristics permit the development of the theory. Without them, a theory is possible but handicapped both with respect to being developed and with respect to being general.

Comparable organizations. Students of public organizations are espe-cially plagued by the apparent uniqueness of their subjectorganizations. Whereas there are many large oligopolistic firms in the world,there are few British National Health Services. One solutionto the problem has been to shift to comparative studies of administration, to considernational health services in all countries in which they are found. Nevertheless,such a study, useful as it is, is not the only solution. The statement that thereare many large oligopolistic firms in the world is less  a statement of factthan a classificatory fiat. Nature did not decree that two such dissimilarsystems as General Motors and U.S.Steel should both belong to the class of large oligopolistic firms. Economic theory and economists made theclassification with no more (and no less) justification than that theclassification permits a useful distinction between generic and specific statements andthat there are a reasonable number of generic statements.

When we leave the area of the firm, we are likely to hear withimpressive frequency that the structure, position, task, or history of acertain organization is unique. What we tend to forget is that uniqueness in thissense is not an attribute of the organization alone; it is an attribute ofthe organization and our theory of organizations. An organization is uniquewhen we have failed to develop a theory that will make it nonunique. Thus,uniqueness is less a bar to future theoretical success than a confessionof past theoretical failure. Whether our study of “comparativeadministration” is a study of how the same (in some sense) task is performed underdifferent cultural traditions, how different tasks are performed under thesame cultural tradition, or how the same task is performed at differentlevels in a social system, the basis for the classificatory system is thepresumption that generic statements can be generated. On the whole it must beconceded that organization theory has not been conspicuously fortunate inits a priori guesses on a useful classificatory system for studying politics.Our own faith that this misfortune is not a necessary feature of politicalsystems stems in large part from  an observation that the classifications ordinarilyused are justified primarily by recourse to Montesquieu or to the U. S. Government Manual.

Repeated quantifiable decisions. There is nothing intrinsicallymore repetitious or quantifiable about economic decisions than there isabout decisions by organizations other than firms. The differencesbetween the two lie almost entirely in our habitual ways of thinking aboutthem. Economists have conditioned us to focus attention on a small set ofdecisions made by firms repeatedly and in quantifiable form — prices,outputs, resource allocations. These represent only a small portion of thedecisions made within firms. Even these decisions are frequently not seen bythe firm as the simple numerical choices that the theory represents. Forexample, “pricing” decisions often include a variety ofconsiderations such as discounts, preferential treatment, credit arrangements, and so forth.Thanks to the widespread acceptance of economic concepts in firms, it isrelatively easy to impose those concepts on the decision-making data. The organization collects data and makes decisions in terms of such concepts as”profit,” cost,” “price,” and “production.” Atheorist need merely relax and reap the benefit of his predecessors’ genius in educatinggenerations of subjects in the efficacy of such measurable dimensions.

Such a happy condition does not exist to any significant extentin other organizations. Consider foreign policy making in the U.S.State Department, for example. A student who wishes to study policymaking in the State Department faces a double handicap that is not faced by thestudent of the firm. First, he has no ready-made decision concepts. If heaccepts the ideology that each decision is unique, he is obviously lost. Ifhe does not accept such a doctrine, then he must create some reasonabledecision variables. Second, he has no general acceptance within his subject organizations of a set of concepts. Even if he generates some reasonable dimensions of his own, he has no assurance that the organization willcontribute to his data-gathering problems. Even though the student of the firmmay have some scepticism about the relation between accounting profitsand economic profits, he can at least be sure that the firm will havesome records of profit. The student of the State Department has no comparable confidence that the department will record relevant information on his theoretical decision variables.

The major exception to this distinction is in the area ofinternal resource allocation. It is budgeting that has been studied in most detail in nonbusiness organizations. Earlier in thischapter, we suggested an approach to the study of budgeting in the firm. With only slightmodification such an approach can be transferred to other kinds of organizations. Infact, the ideas for a model of budgeting in the firm are quite similar tothe ideas on governmental budgeting expressed by Wildavsky. Governmental organizations are accustomed to dealing in the language ofappropriations and budgets, and such allocations provide a ready decision that isboth repetitive and immediately quantifiable. Similar knowledge of and attention to a budgetary allocation are characteristic of most othernoneconomic organizations. Because of this fact, it seems likely that the firstmajor work on decision-making models (in the sense that we have used the termin this book) of nonfirms will be in the area of internal resourceallocation. Ultimately, however, we must go beyond such a limit. We will have tocreate decision variables with which to analyze the decision behavior of organizations that do not now use theoretically useful decisionvariables.

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

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