In Chapter VI, the survival and success of organizations was discussed in terms of organizational goals and two kinds of personal goals (obtaining rewards associated with organizational growth and success, and earning wages and other rewards not so associated). Viewed as forces motivating individuals to participate in the organization’s activities, organizational goals (i.e., the production of goods and services) are of most direct interest to cus- tomers, the first category of personal goals to stockholders and top executives, and the second category to the other employees. Although this is a great simplification, it indicates roughly how organizations form a collaborative endeavor by drawing upon a great diversity of individual interests.
There is some ambiguity in this terminology, however. We call one set of goals (those of most direct interest to customers) “organizational,” and the other two sets “personal.” For clarity, we need, instead, to distinguish between (1) the motives for individuals’ participation in an organization and (2) the goals and constraints that enter directly as premises into organizational 51 Chapter VI is addressed to the former, and says little about the latter. In this commentary, we will use the term “motives” to refer to the aims of individuals (customers, employees, and owners) and the terms “goals” and “constraints” to refer to premises used in organizational decision processes.
On the basis of legal powers, we might suppose that the motives of owners and top managers would be the major determinants of the goals that enter into an organization’s decisions. But we often observe that the goals that actually underlie the decisions do not coincide fully with these motives but have been modified by managers and employees at all echelons. Must we conclude, then, that it is the motives of the latter—of subordinate managers and employees— that govern organizational behavior? Presumably not, because the kinds of behavior taking place are not those we would expect if the managers and employees were consulting only their personal motives.
1. Multiple Criteria for Decisions
The first step toward clarification is to enforce the distinction just made between goals, on the one hand, and motives, on the other. By goals we mean value premises that can serve as inputs to decisions. By motives we mean the causes, whatever they are, that lead individuals to select some goals rather than others as premises for their decisions. As a starting point, we will examine how goals enter into a complex decision, ignoring for the moment the organizational setting.
An Example. In recent years we have learned to build formal operations research models for reaching “optimal” decisions. Our example employs a linear programming model to describe the decision situation. English translations are provided for the equations, so the example can be followed with or without attention to the algebra.8
The optimal diet problem is a typical linear programming problem. We are given a list of foods, and for each, its price, its calorie content, and its mineral and vitamin contents. Then we are given a set of nutritional requirements, which may include minimum daily intake of minerals, vitamins, and calories, and may also limit maximum intake of some or all of these. The diet problem is to find the sublist of foods and their quantities that will meet the nutritional requirements at the least cost. The problem can be formalized as follows:
Let the various foods be numbered from 1 through N, and the vari-ous nutritional components from 1 through M. Let xi be the quantity of the ith food in the diet, yj be the total quantity of the jth nutritional component in the diet, and pi the price of the ith food. Let aij be the amount of the jth nutritional component in a unit quantity of the ith food; let bj be the minimum requirement of the jth nutritional component, and Cj the maximum allowance. (Some of the bj‘s may be zero, and some of the cj‘s infinite.) Then:
that is, the total consumption of the jth nutritional element is the sum of the quantities of that element for each of the foods consumed. The nutritional requirements can be stated:
that is, the total quantity of the jth element must lie between bj and cj. The quantity of each food consumed must be non-negative, although it may be zero:
Finally, the total cost of the diet is to be minimized; we are to find:
A diet (the solution is not necessarily unique) that satisfies all the relations (2), (3), (4) is called an optimal diet. A diet that satisfies the inequalities (2) and (3) (called constraints), but that is not necessarily a minimum cost diet, is called a feasible diet.
What is the goal of the diet decision? We might say that the goal is to minimize the cost of an adequate diet, for we are minimizing the condition (4). This criterion puts the emphasis on economy as the goal. Alternatively, directing our attention primarily to the nutritional requirements (2), we might say that the goal is to find a nutritionally satisfactory diet that is economical. Although we still mention costs, the primary goal has now become good nutrition.
The relation between the criterion function (4) and the constraints (2) can be made even more symmetrical. Let us replace (4) with a new constraint:
That is to say, the total cost of the diet must not exceed some constant, Ic. Now the set of feasible diets has been restricted to those that satisfy (5) as well as (2) and (3). But since the minimization condition has been removed, there is apparently no basis for choosing one of these diets over another.
Under some circumstances, we can, however, restrict the set of acceptable diets to a subset of the feasible set. Suppose that all the nutritional constraints (2) are minimal constraints, and that we would always prefer, ceteris paribus, a greater amount of any nutritional factor to a smaller amount. We will say that diet A is dominated by diet B if diet B costs no more than diet A, and if diet B contains at least as much of each nutrient as does diet A, and more of at least one. Economists call the set of diets in the feasible set that is undominated by other diets in that set the Pareto optimal set.
Our preference for one or the other of the diets in the Pareto optimal set will depend on the relative importance we assign to cost in comparison with nutrients, and to the relative amounts of these nutrients. If cost is the most important factor, then we will again choose the diet that is selected by criterion (4). On the other hand, if we attach great importance to nutrient j, we will generally choose a quite different feasible diet—one in which the quantity of j is as great as possible. Within the limits set by the constraints, it would be quite reasonable to regard as our goal whatever criterion led us to select a particular member of the Pareto optimal set
But if the constraints are strong enough, so that the feasible set and, a fortiori, the Pareto optimal set is very small, then the constraints will have as much or more influence on what diet we finally select than will the cost minimization goal. For example, if we set one or more of the nutritional requirements very high, so that only a narrow range of diets also satisfy the budget constraint (5), then introducing cost minimization as the final selection rule will have relatively little effect on what diet we choose.
Under such circumstances it might be well to give up the idea that the decision situation can be described in terms of a single goal. Instead, it would be more reasonable to speak of a whole set of goals: the whole set of nutritional and budgetary constraints that the decision-maker is trying to attain. To paraphrase a familiar epigram: “If you let me determine the constraints, I don’t care who selects the optimization criterion.”
Multiple Criteria in Organizations. To see the organizational relevance of our example, suppose that the occasion for decision has arisen within a business firm that manufactures commercial stock feeds, that the nutrients are requirements for hogs and the prices those of available feed
identical with maximizing the profit from selling feed meeting those standards. Cost minimization represents the profit-maximizing goal of the company.
We can equally well say that the goal of the feed company is to provide its customers with the best feed possible, in terms of nutrition, at a given price. Presumably this is what industry spokesmen mean when they say that the goal of business is not profit but efficient production of goods and services. If we had enlarged our model to convert some of the prices to constraints, instead of fixing them as constants, we could have introduced other goals, for example, the goal of suppliers’ profits, or, if there were a labor input, the goal of high wages.9
Summarizing the discussion to this point: In the decision-making sit- uations of real life, a course of action, to be acceptable, must satisfy a whole set of requirements, or constraints. Sometimes one of these requirements is singled out and referred to as the goal of the action. But the choice of one constraint from many is to a large extent arbitrary. For many purposes it is more meaningful to refer to the whole set of requirements as the (complex) goal of the action. This conclusion applies both to individual and organizational decision-making.
2. Search for a Course of Action
In Chapter V, we saw that in most real-life situations, possible courses of action must be discovered, designed, or synthesized. In searching for a satisfactory solution, the goals—that is, the constraints—may play a guiding role in two ways. First, they may be used to synthesize proposed solutions (alternative generation). Second, they may be used to test the satisfactoriness of a proposed solution (alternative testing), The former set of constraints will generally appear to us the more goal-like.52
A bank off icer who is investing trust funds in stocks and bonds may, because of the terms of the trust document, take as the goal increasing the capital value of the fund, and thereby consider buying common stock in firms in growth industries (alternative generation). But the trust officer will check each possible purchase against other requirements: that the firm’s financial structure be sound, its past earnings record satisfactory, and so on (alternative testing). All these considerations can be counted among the goals in constructing the portfolio, but some of the goals serve as generators of possible portfolios, others as checks.
Designing courses of action introduces an important asymmetry between the “goal-like” constraints that guide synthesis and the constraints that test potential solutions. In general, the search will continue until one decision in the feasible set is found, or, at most, a very few alternatives. Which member of the set is discovered and selected may depend critically on the order of search, that is, on which requirements serve as generators and which as tests.
In a multiperson situation, one person’s goals may be another’s con- straints. The feed manufacturer may seek to produce feed as cheaply as pos- sible, searching, for example, for possible new ingredients. The feed, however, has to meet certain nutritional specifications. The hog farmer may seek the best quality of feed, searching, for example, for new manufacturers. The feed, however, cannot cost more than available funds allow; if it is too expensive, quality or quantity must be cut. A sale will be made when a lot of feed meets the requirements of both manufacturer and f armer.
Do manufacturer and farmer have the same goals? In one sense, clearly not. The farmer wishes to buy cheap, the manufacturer to sell dear. But if a bargain can be struck that meets the requirements of both, then, in another sense they do have a common goal. In the limiting case of perfect competi- tion, the constraints narrow down the feasible set to a single point, deter- mining uniquely the quantity of goods they will exchange and the price.
The neatness and definiteness of the limiting case of perfect competition should not blind us to the fact that most real-life situations do not fit this case at all closely. Typically, generating alternatives (e.g., inventing, developing, and designing products) is a laborious, costly process. Typically, also, there is a practically unlimited sea of potential alternatives. A river valley development plan that aims at the generation of electric power, subject to appropriate provision for irrigation, flood control, and recreation, will look quite different from a plan that aims at flood control, subject to appropriate provision for the other goals mentioned. Even though the plans generated in both cases will be examined for their suitability along all the dimensions, quite different plans will almost certainly be devised and proposed for consideration in the two cases, and the plans finally selected will represent quite distinct points in the feasible set.
Later, we will state why the total sets of constraints considered by decision-makers in different parts of an organization are likely to be similar, although different decision-makers are likely to divide the constraints between generators and tests in quite different ways. Under these circum-stances, if we use “organization goals” broadly to denote the constraint sets, we will conclude that organizations do, indeed, have goals (widely shared constraint sets). If we use the phrase narrowly to denote the generators, we will conclude that there is little communality of goals among the several parts of large organizations and that subgoal formation and goal conflict are prominent and significant features of organizational life. It is important always to make explicit which sense of goal is intended.
3. Motivation for Achieving Goals
As motivation means whatever it is that causes someone to follow a particular course of action, every action is motivated. But the relation between motives and action is not usually simple; it is mediated by a whole chain of events and surrounding conditions. If asked about goals, the investment trust officer whose behavior we considered earlier could answer: “I am tiying to select a stock for this investment portfolio.” “I am assembling a portfolio that will provide retirement income for my client.” “I am employed as an investment trust officer.” Now it is the step of indirectness between the second and third answers that has special interest for organization theory. The investment trust officer presumably has no “personal” interest in the retirement income of the client, only a “professional” interest in his or her role as trust officer and bank employee. The trust officer does have, on the other hand, a personal interest in maintaining that role and employment status.
Role Behavior. In real life the line of demarcation between personal and professional interests is not sharp, for personal satisfactions may arise from performing a professional role competently, and both satisfactions and dis- satisfactions may result from innumerable conditions that surround the employment. Nevertheless, it is important to distinguish between the answers to two questions of motive: “Why do you keep (or take) this job?” and “Why do you make this particular investment decision?” The first question addresses the personal motives of the occupant of the role, the second question, the goals that define behavior appropriate to the role.
Corresponding to this separation of personal motives from goals defined by a role, organization theory is sometimes divided into two subparts: (1) a theory explaining the decisions of people to participate in and remain in organizations; and (2) a theory of decision-making within organizations comprised of such people.12 Chapter VI deals with the first subpart: the inducements and contributions of organization members, and their effects on organizational equilibrium.
In separating organizational role-enacting behavior from personal motivation, we are abstracting from the complexities of real life. A good deal of the significant research on human relations and informal organization, which has contributed heavily to our understanding of organizational behavior, has been concerned specifically with the phenomena that this abstraction excludes. Desire for power and concern for personal advancement mingle personal goals with organizational role, as do the social and craft satisfactions and dissatisfactions associated with work.
However, this abstraction is often usefiil. First, many organizational deci- sions hardly affect personal motives at all. As a trivial example, the secretary’s inducement-contribution balance is generally unaffected by the choice between typing a letter to A or a letter to B or by the content of the letter. Second, personal motives may enter the decision process as fixed constraints (only courses of action that satisfy the constraints are considered, but the constraints have no influence on the choice of action within the set). Thus, the terms of the employment contract may limit work to a forty-hour week but may have little to say about what goes on during the forty hours.13
The (partial) separation of organizational role from personal goals is consonant with human bounded rationality. Of all the knowledge, attitudes, and values stored in a human memory, only a very small fraction are evoked in any given situation. Thus, an individual can assume a variety of roles when these are evoked by appropriate circumstances, each of which may interact only weakly with the others. At one time a person may be a father, at another a machinist, at another a bridge player. The day-to-day organizational environment evokes from memory quite different associations from those evoked when one is considering a change of jobs. To the extent this is so, one’s “personal” system of inducements and contributions will not affect one’s “organizational” decisions.
The ability of an individual to shift from one role to another as a function of the environment thus helps to explain the extent to which organizational goals become internalized, that is, are automatically evoked and applied during performance of the role. No matter how one was originally motivated to adopt the role, the goals and constraints appropriate to it become a part of the decision-making program, stored in memory, that defines one’s role behavior.
Interpersonal Differences. Differences among individuals can, however, affect substantially their behavior in roles that are identical from an orga-nizational standpoint. A role is not a specific, stereotyped set of behaviors but a process for determining courses of action. While we may conceive of an ideal type of role having only organizational goals among its premises, actual roles in organizations invariably incorporate both organizational and personal goals.
Interpersonal differences in role behavior go far beyond differences in personal goals; they arise also from differences in knowledge. Thus, particular professional training provides an individual with specific techniques and knowledge for solving problems (accounting techniques, legal techniques, and so on), which are then drawn upon as part of the program evoked by the role. A chief executive with an accounting background may find different problem solutions from a chief executive, in the same position, with a legal background. An individual may incorporate in the role not only a professional style but also a personal style, bringing to the role habits and beliefs that provide cmcial premises for handling interpersonal relations. An authoritarian personality will behave quite differently from a more permissive person when both are in the same organizational role and pursuing the same organizational goals.
The leeway for expressing individual differences is commonly narrowest in handling matters that come to the role occupant at the initiative of others and broadest in exercising initiative and in selecting the agenda of discretionary matters. Premises supplied by the organization generally control alternative selection more closely than alternative generation.
4. The Organizational Decision-Making System
What are the implications of factoring behavior into its personal and organizational components? It permits us to assemble the decision-making programs of all the participants, together with the connecting flow of communication, into a composite description of the organizational decision- making system. In the simplest case, of a small, relatively unspecialized organization, we are back to something like the optimal diet problem. The language of “goals,” “requirements,” “constraints” that we applied there is equally applicable to simple organizational situations. In more complicated cases, abstracting out personal motives does not remove inter-role differences from the decision-making process. For when many persons in specialized roles participate in making an organization’s decisions, individuals will differ in the communications they receive and the parts of the environment from which they receive them. They will differ in their search programs. Hence, even if we neglect personal motives, we
Consider, for example, a system for controlling factory inventory and production. Decisions have to be made about (1) the aggregate rate of production (the work force and the hours employees will work), (2) the allocation of aggregate production among products, and (3) scheduling the sequence in which the individual products will be processed by the machines: the aggregate production decision, item allocation decision, and scheduling decision, respectively. The three sets of decisions may be made by different roles in the organization; in general, we would expect the aggregate decision to be handled at more central levels than the others. The real-world situation will always include additional complications, for it will involve decisions about shipments to warehouses, about warehouse inventories, and many others.
Now we could conceive of an omniscient Planner (the entrepreneur of classical economic theory) who, by solving a set of simultaneous equations, would make each and all of these interrelated decisions. But we now know a great deal about the mathematical structure of the problem, and we know in particular that discovering the optimal solution of a complete problem of this kind is well beyond the powers of existing or prospective computational equipment. In actual practice, no one tries to find an optimal solution for the whole problem. Instead, various particular decisions are made by particular units of the organization. In making their decisions, the specialized units find a “satisfactory” solution for one or more subproblems, where some of the effects of the solution on other parts of the system are incorporated, as constraints, in the definition of “satisfactory.”
For example, standard costs may be set as constraints for a manufacturing executive. Finding that operations are not meeting those constraints, the executive will search for ways of lowering costs. Longer production runs may be proposed, but these can be achieved only if the variety of products is reduced, so product standardization may be proposed as a solution to the cost problem. Presumably, before implementing the solution it will be tested against constraints introduced by the sales department— objections that refusal to meet special requirements of customers will lose sales.
Anyone familiar with organizational life can multiply examples of this sort, where different problems come to attention in different parts of the organization, or where different solutions are generated for a problem, depending on where it arises in the organization. We do not have to postulate conflict in personal goals or motivations in order to explain organizational conflicts or discrepancies. They could and would equally limits on acceptance. The discrepancies arise out of the cognitive inability of the decision-making to deal with the entire problem as a set of simultaneous relations.*4
In virtually all organizations, the kinds of aggregative decisions that are made at high levels of the organization are separated from the kinds of specific, item-by-item decisions that are made at low levels. When executives at high levels make decisions about total inventory, this factorization already involves radical simplification and approximation. For example, there is no single, well- defined total cost associated with a given aggregate of inventories. Different costs will be associated with each kind of item (for example, different items may have different spoilage rates or obsolescence rates), and different probabilities and costs will be associated with stock-outs of each kind of item. Thus, an aggregate inventory will have different costs depending on its composition.
Designing a system for making decisions about the aggregate work force, production rate, and inventories requires an assumption that the total inventory will never depart very far from a typical product mix. The assumption required for aggregation is like that made for measuring the temperature of a tank of water with a single thermometer: it works if you stir well.
If decisions are made on this approximate basis about aggregate work force, production rate, and inventories, then these decisions can serve as constraints on detailed decisions made elsewhere about the inventory or production of particular items. If the decision has been reached to make one million gallons of paint next month, then other decisions can determine how much paint of each kind to make, subject to the constraint that the individual items should add up to one million gallons.53
This simple example suggests how the whole mass of decisions that are continually being made in a complex organization can be viewed as an organized system. Particular decision-making processes aim at finding courses of action that are feasible or satisfactory in the light of multiple goals and constraints; and decisions reached in any one part of the organization enter as goals or constraints for the decisions being made in other parts. In this loosely coupled system, there is no guarantee that the decisions will be optimal with respect to any specific goal. Nevertheless, the results of the overall system can be measured against organizational goals, and changes can be made in the decision-making structure when these results are adjudged unsatisfactory.
The decision-making structure in an actual organization is usually put together in such a way that the decisions made by specialized units will take cognizance of the more general goals. Individual units are linked to the total system by production schedules, systems of rewards and penalties based on cost and profit goals, inventory limits, and so on. The loose coupling among the parts permits specific constraints in great variety to be imposed on subsystems without rendering their decisionmaking mechanisms complex beyond practicality.
5. Inducements and Contributions, and Organizational Behavior
We have seen that the system of personal inducements and contributions imposes constraints that the organization must satisfy if it is to retain its members and survive; while the constraints incorporated in the organizational decision-making system are imposed in the course of conceiving and adopting actions. There is no necessary logical connection between these two sets of constraints. After all, organizations sometimes fail to survive, and their demise can often be attributed to failure to incorporate all the important motivational concerns of participants among the constraints in the organizational decision- making system.
For example, a major cause of small business failure is working capital shortage, a result of failure to constrain actions to those that are consistent with creditors’ demands for prompt payment. Similarly, new products often fail because incorrect assumptions about the inducements important to consumers shaped the constraints that guided product design. (Some of the major troubles of the Chrysler Corporation in the post-World War II period stemmed from the design premise that car purchasers were primarily interested in buying a good piece of machinery.)
In general, however, there is a strong empirical connection between the two sets of constraints, for the organizations we usually observe— those that have survived for some time—are precisely those that have developed organizational decision-making systems whose constraints guarantee that their actions maintain a favorable balance of inducements to contributions for their participants.54 Thus, the functional requisites for survival can usually give us good clues for predicting organizational goals; however, concordance is empirical, not definitional. The goals must be inferred from observation of the organization’s decision-making processes, whether these processes be directed toward survival or suicide.
We can now summarize what is meant by “organizational goal.” First, decisions are seldom directed toward a single goal; rather, decisions are concerned with discovering courses of action that satisfy a whole set of constraints. It is this set, and not any one of its members, that is most accurately viewed as the goal of the action. Sometimes we select a constraint for special attention because of its relation to the motivations of the decision- maker, or because of its relation to the search process that is generating or designing particular courses of action.
When we come to organizational decisions, many of the constraints that define a satisfactory course of action are associated with an organizational role and hence only indirectly with the personal motives of the individual who assumes that role. We may use the phrase “organization goal” for sets of constraints imposed by the organizational role, which has only this indirect relation to personal motives. As an organizational decision-making system generally contains constraints that reflect virtually all the inducements and contributions important to various classes of participants, courses of action that are inimical to survival tend to be removed from consideration.
In view of the hierarchical structure of most formal organizations, we usually employ “organizational goal” to refer particularly to the constraints and criteria of search that define roles at the upper levels. Thus we speak of conservation of forest resources as a principal goal of the U.S. Forest Service, or reducing fire losses as a principal goal of a city fire department. For high- level executives in these organizations will seek out and support actions that advance these goals, and subordinate employees will tailor their choices to constraints established by the higher echelons with these ends in view.
Finally, as there are large elements of decentralization in the decision- making in any large organization, different constraints may define the decision problems of different positions or specialized units. For example, “profit” may not enter directly into the decision-making of most members of a business organization. This does not mean that it is meaningless to regard profit as a principal goal of the business. It simply means that the decision- making mechanism is loosely coupled, so that constraints that introduce many gross approximations into the search for profitable courses of action. Furthermore, the goal ascription does not imply that any employee is motivated by the firm’s profit goal, although some may be.
This view of the nature of organization goals leaves us with a picture of decision-making that is not simple. But it provides us with an operational way of showing, by describing the structure of the organizational decision-making mechanism, how and to what extent overall goals, like “profit” or “conserving forest resources,” help to determine the actual courses of action that are chosen.
Source: Simon Herbert A. (1997), Administrative Behavior, Free Press; Subsequent edition.