Decision-Making in an Organizational Context

Decisions are an everyday fact of life. Over the course of their lives, all people make a large number of decisions. Some of those decisions – the choice of a profession, getting married, moving to a far away place – are of great importance. Others – whether to take the bus into town or walk – are rather trivial. Sometimes, decisions may be linked: first comes the decision about where to go, and then the decision about how to get there (on foot, by bus, by taxi, etc.). Some decisions are strongly conditioned by the decision maker’s situation: when we say “we have no alternative but . . . ”, this means that our power of choice is indeed very limited. But sometimes when we say we have no alternative, what this actually means is that we have not thought enough about the actual possibilities.

By “complex decisions” we mean decisions that have no technical or operational solution, i.e., there is no established procedure that describes in detail all the necessary steps or operations for making them. Complex decisions usually involve several people and several (often many) variables; and to solve them we must take various (often many) criteria into account, some of which cannot be quantified but are important, perhaps not immediately but in the near or distant future. Inevitably, it can be difficult even to establish the existence of certain variables and so may be establishing how they relate to the problem at hand. An “operational problem”, in contrast, is one where there is a preestablished solution, which can be achieved by following clearly defined steps. Most “technical” problems (i.e., those with a major scientific or technical component) are of this kind. “Technical” problems are problems which two or more experts in the field would solve in essentially the same way.

We now go back to what we said in the introduction regarding the distinction between “right” decisions and “successful” decisions.We established that when you try to make a decision such as the ones we have analyzed, it is essentially because you want to achieve a certain result, such as solve a problem or seize an opportunity. In the simplest cases (decisions with a single, uncertain variable) this is obvious: people do not buy lottery tickets for the pleasure of playing the lottery, but because they hope to win a prize. The “right” decision, therefore, would seem to be the one that leads to the desired outcome. As we shall see, however, this cannot be right.

In previous chapters, we examined decision-making in an abstract context, where people did not matter, in the sense that no specific people were considered. Instead, we dealt with aggregates such as “an organization”, “the market”, “the department”, and the like. People other than the decision maker were considered only implicitly and from a distance, from “far away”, as we suggested in the title. Although making decisions without involving other people is practically impossible (Robinson Crusoe never existed), we used those abstract, aggregate concepts to analyze our role as decision makers. In other situations, however, the presence of real people near the decision maker cannot be disregarded or treated as something abstract. In this chapter we intend to start analyzing decisions in which people are “close” to the decision maker, so that the effects of his decisions on these other people must be taken into account. We will do this by considering the relationship between two people.

In Chapter 4 we studied the relationship between two people and the implications of this relationship for decision-making purposes. We showed how if we want to take all the consequences of human actions into account, we must include what the two agents learn from their interaction and their motives for interacting.

We saw in Chapter 5 how human activity can be coordinated either unconsciously, through markets, or consciously, through organizations. Organizations consciously set goals, allocate tasks to individuals, and offer rewards for task completion. So the first question is what goals should an organization set itself? Can the goals be decided arbitrarily by just any group of people? Or are there any conditions the goals must meet?

In Chapter 4 we studied the interactions between two people as the basic building block of organizations. All organizations (businesses, schools, hospitals, foundations, government agencies, NGOs, etc.) are built on cooperation among two or more people; but the basic building block is the dyadic relationship between two people (boss and subordinate, worker and coworker, etc.). In some cases, such as in certain microorganizations, two people are all there is; in others, there may be hundreds of thousands, as in the case of large multinationals, or even many millions, as in large nations. The members of an organization are known as participants, or producers; they attempt to produce a product or service for other people, whom, in principle, we consider to be external to the organization. These other people (customers, students, patients, citizens, and so on) are generally referred to as consumers. But organizations themselves, and the dealings between organizations, are always founded on the relationships between two people, as analyzed and explained in Chapter 4.

The next two chapters will attempt to illustrate the use of the conceptual structure explained in the book through the detailed analysis of two real-world business situations. In this chapter we will try to illustrate the basic concepts of Chapter 4, mainly the types of motives and their relationship with the unity of the organization (explained in Chapter 7). Names and other details have been changed to protect confidentiality.

This second case study will focus more on the organizational variables discussed in Chapter 7. We will try to show how the three variables are crucial for long-run success, and that effectiveness cannot possibly be the only one, like one of the people in the case (Robert) seems to believe (implicitly or explicitly).

In the last two chapters we have attempted to show how the theory we have developed over the course of this book can be put into practice. In this last chapter we will try to show how it can provide a foundation for two concepts that have become popular in the last few years, namely, Corporate Social Responsibility (CSR) and Conscious Capitalism (CC). Together with “Stakeholder Theory” (discussed in Chapter 6), these have been among the most discussed subjects in management over the last 20 or 30 years.