If we wish to develop a theory that predicts and explains business decision-making behavior, we face a problem that can be paraphrased in terms of the following:
- People (i.e., individuals) have goals; collectivities of people do not.
- To define a theory of organizational decision making, we seem to need something analogous — at the organization level — to individual goals at the individual level.
For the moment, let us accept this paraphrase (not everyone does). The theorist’s problem is then to identify some concept of organization goals that is consistent with the apparent denial of their existence. Since (rightly or wrongly) individual goals are perceived as lodged in the individual human mind, the problem is to specify organizational goals without postulating an “organizational mind.” In order to solve the problem we must (1) specify what an organization is in terms of the individual- organization dichotomy, (2) agree on the nature of the theoretical problems created by such a conception for the notion of organizational goals, and (3) identify a plausible solution to the theoretical problems. We will argue that there is substantial agreement on the first two requirements, but that the classic procedures for meeting the third requirement are deficient.
1. Conception of an organization
Let us view the organization as a coalition. It is a coalition of individuals, some of them organized into subcoalitions. In a business organization the coalition members include managers, workers, stockholders, suppliers, customers, lawyers, tax collectors, regulatory agencies, etc. In the governmental organization the members include administrators, workers, appointive officials, elective officials, legislators, judges, clientele, interest group leaders, etc. In the voluntary charitable organization there are paid functionaries, volunteers, donors, donees, etc.
Drawing the boundaries of an organizational coalition once and for all is impossible. Instead, we simplify the conception by focusing on the participants in a particular “region” — either temporal or functional. That is, over a specified (relatively brief) period of time we can identify the major coalition members; or, for a particular decision we can identify the major coalition members. More generally, for a certain class of decisions over a relatively long period of time we can specify the major classes of coalition members. As a result, we will be able to develop models of organizational decision making (for the short run) that pay only limited attention to the process by which the coalition is changed; but any such simplification involves some clear risks when we generalize to long-run dynamics.
This conception of an organization fits a number of recent formulations: the inducements-contributions schema, game theory, and the theory of teams. Each of these theories assumes a coalition of participants; each (with the exception of the inducements-contributions schema) assumes that by some procedure the coalition arrives at a statement of organization goals. However, the idea of an organization goal and the conception of an organization as a coalition are implicitly contradictory. Basic to the idea of a coalition is the expectation that the individual participants in the organization may have substantially different preference orderings (i.e., individual goals). That is to say, any theory of organizational goals must deal successfully with the obvious potential for internal goal conflict inherent in a coalition of diverse individuals and groups.
2. Classic devices for defining organization goals
There are two classic economic solutions to the problem of organization goals. The first, or entrepreneurial, solution is to describe an organization as consisting of an entrepreneur (either the top of the managerial hierarchy or some external control group such as stockholders) and a staff. The goals of the organization are then defined to be the goals of the entrepreneur. Conformity to these goals is purchased by payments (wages, interest, love) made by the entrepreneur to the staff and by a system of internal control that informs the staff of the entrepreneurial demands. This solution to the problem is characteristic of the economic theory of the firm, some political theories of public bureaucracies, and most theories of management.
The second solution to the problem is to identify a common or consensual goal. This is a goal that is shared by the various participants in the organization. It may be a priori sharing, as in many theories of political institutions in which the goal of “public interest” or “social welfare” is introduced. It may be a posteriori sharing, as in some theories of smallgroup goal formation through discussion. In either case, conflict is eliminated through consensus.
Neither solution is entirely happy. Both attempt to define a joint preference ordering for the coalition. In our view, such attempts are misdirected. Actual organizational goals cannot normally be described in terms of a joint preference ordering. Studies of organizational objectives suggest that agreement on objectives is usually agreement on highly ambiguous goals. Such agreement is undoubtedly important to choice within the organization, but it is far from the clear preference ordering usually assumed. The studies suggest further that behind this agreement on rather vague objectives there is considerable disagreement and uncertainty about subgoals, that organizations appear to be pursuing different goals at the same time. 3 Finally, the studies suggest that most organization objectives take the form of an aspiration level rather than an imperative to “maximize” or “minimize,” and that the aspiration level changes in response to experience.
Unless we choose to ignore such observations, we need to reconsider our conceptions of objectives. Since the existence of unresolved conflict is a conspicuous feature of organizations, it is exceedingly difficult to construct a useful positive theory of organizational decision making if we insist on internal goal consistency. As a result, recent theories of organization objectives describe goals as the result of a continuous bargaining-learning process. Such a process will not necessarily produce consistent goals.
Source: Skyttner Lars (2006), General Systems Theory: Problems, Perspectives, Practice, Wspc, 2nd Edition.