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79 – A Behavioral Theory of the Firm (Cyert and March, 1963)

Reference:

Cyert, Robert M. and James G. March
“A Behavioral Theory of the Firm”
Prentice Hall, New Jersey, 1963. Second Edition1992

Topic: An explanation of the theory of the firm from a behavioral perspective.

Summary and citations:

1- Introduction
o “The modern firm has some control over the market; it has discretion within the market; it sees the market through an organization filter” p1

2- Antecedents of the behavioral theory of the firm
o Theory of the firm: “asserts that the objective of the firm is to maximize net revenue in the face of given process and a technologically determined production function” p5; “maximization of profit is accomplished by determining the optimal mix of products (products) and inputs (factors), that is, the equilibrium position.” –p5. “Two major difficulties…1) the motivational and cognitive assumptions of the theory appear unrealistic…2 )has few of the characteristics…of actual business” – p8
o Rothschild: “primary motive of the entrepreneur is long-run survival” p9; Baumol: “the firm seek to maximize sales subject to a profit constraint” –p9
o “information is not given to the firm but must be obtained” –p10
o Papandreou: “views the firm as a cooperative system. The executive tasks are accomplished by a “peak coordinator”. The firm’s has certain goals, and it is a peak coordinator’s job to achieve these by allocating resources rationally” –p11
o In defence of orthodoxy: Friedman: “the function of economic theory is to build propositions with which the world can be analyzed and not to reproduce the world” –p13
o “The organization can be viewed as an information-processing and decision-rendering system” – p21; “in order to develop an alternative theory, we need more satisfactory theories of organizational goals, organizational expectations, organizational choice, and organizational control” – p22

3- Organizational Goals
o The problem of collective goals: “1) People (ie individuals) have goals; collectivities of people do not; 2) to define a theory of organizational decision making, we seem to need something analogous –at the organizational level- to individual goals at the individual level.” –p30
o “Let us view the organization as a coalition…some of them organized into subcoalitions” –p31; “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” –p31
o Classic devices for defining organization goals: 1) Goals of the entrepreneur; 2) goal of “public interest” or “social welfare” – p32
o The goal formation process: “1) the bargaining process by which the composition and general terms of the coalition are fixed; 2) the internal organizational process of control by which objectives are stabilized and elaborated; 3) the process of adjustment to experience by which coalition agreements are altered in response to environmental changes” –p33
o Organizational slack: “Because of these frictions in the mutual adjustments of payments and demands, there is ordinarily a disparity between the resources available to the organization and the payments required to maintain the coalition. This difference between total resources and total necessary payments is what we have called organizational slack. Slack consist in payments to members of the coalition in excess of what is required to maintain the organization.” –p42 “when environment becomes less favourable …represents a cushion… slack permits firms to survive in the face of adversity” p43. “Slack operates to stabilize the system in two ways:1) by absorbing excess resources, it retards upward adjustment of aspirations during relatively good times; 2) by providing a pool of emergency resources, it permits aspirations to be maintained (and achieved) during relatively bad times” –p44
o “Finally, we have argued that, because of the form of the goals and the way in which they are established, conflict is never fully resolved within an organization, Rather, the decentralization of decision making (and goal attention), the sequential attention to goals, and the adjustment in organizational slack permit the business firm to make decisions with inconsistent goals, under many (and perhaps most) conditions.

4- Organizational Expectations
o Theory of search. “Modern entrepreneurs do not scan all alternatives nor do they have all information about all alternatives. They invest in information only so long as the expected marginal return from the information gained exceeds the expected marginal cost.” –p53
o “We wish to test the proposition the individuals can and do modify their subjective estimates of reality to accommodate their expectations about the kind of payoffs associated with various possible errors” p 80. “cost analysts will tend to overestimate costs and that sales analysts will tend to underestimate sales” –p81
o “The decision making system in the experiment had 4 critical organizational characteristics: 1) subunit interdepence: …the major decision-making units base their actions on estimates formulated at other points in the organization and transmitted to them in the form of communications,. The estimates so received cannot verified directly by the decision-making unit ***; 2) subunits specialization; 3) Subunit discretion; 4) Subunit conflict” –p86
o “An organizational coalition does not require either consistency or completeness in information; “ –p93
o “we do not find anything like a constant level of search” p93
o Resource allocation:
• “decisions considered here arose primarily as responses to “crisis” situations” –p94
• “in every case, once an alternative was evoked, it was accepted if it satisfied the general cost and return constraints…This support in turn came through a rather complex mixture of personal, suborganizational, and general organizational goals.” P94
o Search activity:
• “search became more and more intensive as the decision approached implementation” –p95
• “”search” consists in large part of evoking from various parts of the organization considerations that are important to the individual subunits” –p95
• “search will be much more intensive where organizational slack is small than where it is large” –p95
• Mating theory of search “Not only are organizations looking for alternatives; alternatives are also looking for organizations” –p96
o “Computations of anticipated consequences used by the organizations seem to be quite simple…. awkwardness of developing a single dimension on which all relevant considerations could be measured” –p96
o “Expectations are by no means independent of such things as hopes, wishes, and the internal bargaining needs of subunits in the organization” –p97 “…both conscious and unconscious bias in expectations is introduced” ,-p97 “,…there is some conscious manipulation of expectations” –p97
o “Communication includes considerable biasing, but also considerable bias correction” p97 “…is not passive” p97 “most biases are recognized by other parts of the organization” –p98
5- Organizational Choice
o “1) organizational perceptions are influenced by some characteristics of the organization and its procedures. … 2) Organizations consider only a limited number of decision alternatives. … Finally, organizations vary with respect to the amount of resources they devote to organizational goals on the one hand and suborganizational and individual goals on the other.” P99
o The decision process (p100); 1) forecast competitors’ behaviour; 2) forecast demand; 3) estimate costs; 4) specify objectives; 5) evaluate plan; 6) re-examine costs; 7) re-examine demand; 8) re-examine objectives; 9) select alternative –p102
o The firm as an adaptive institution: “a business form is constrained by the uncertainty of its environment, the problems of maintaining a viable coalition, and the limitations on its capacity as a system for assembling, storing, and utilizing information. … the firm as an adaptively rational system rather than an omnisciently rational system” p117
o “In particular, so long as the environment of the firm is unstable (and predictably unstable), the heart of the theory must be the process of short-run adaptive reactions. The long-run properties o the processes under stable conditions are relevant primarily as indicators of logical properties (and therefore consistency with the general concepts)” p119
o Standard Operating procedures: “we should note that organizations make decisions typically by solving a series of problems” p121 “devote rather little time to long-run planning” –p121. “They move from one crisis to another” p121 “Three basic principles: 1) uncertainty.. 2) maintain the rules… 3) Use simple rules” p121
o Specific standard Operating procedures: 1) task performance rules; 2) Continuing records and reports; 3) Information-handling rules; 4) plans” –p123 “Thus, rules not only transmit past learning: they also control (make predictable) behaviour within the firm” –p124 “good practice … tends to be shared among firms… standardization provides a defense” p125
o Records and reports “two main purposes: control and prediction” p125
o Information handling rules: “there are two aspects to standard operating procedure for information flows. Routing rules and filtering rules” –p129. “The departmental organization defines reasonably well the groups within which sharing of information is needed. Since information needs and task specialization are highly correlated, it is appropriate to process information through the hierarchy defined in terms of task specialization.” –p129
o “Thus, the internal biases in the organization increase the pressure (from external uncertainty) to develop decision methods that do not require reliable information (other than the simplest, most easily checked information). –p130
o “decisions are used as devices for learning about their hidden consequences” –p131
o “The budget in a modem, large-scale corporation plays two basic roles. On the one hand… management control…to check achievement…On the other hand, .. determine feasible programs” –p131
o “1) a plan is a goal,…2) a plan is a schedule,…. 3) a plan is a theory… 4) a plan is a precedent…”p132
o “rules are the focus for control within the form; they are the result of a long-run adaptive process by which the form learns; they are the short-run focus for decision making within the organization” –p134
o “1-Multiple, changing, acceptable-level goals; 2-an approximate sequential consideration of alternatives; 3-the organization seeks to avoid uncertainty by following regular procedures; 4- the organization uses standard operating procedures and rules of thumb to make and implement choices. In the short run these procedures dominate the decision made” –p134

6- A specific price and output model

7- A summary of basic concepts
o “The four major concepts used in the theory are 1) quasi resolution of conflict [goals as independent constraints / local rationality / acceptable-level decision rules / sequential attention to goals]; 2) uncertainty avoidance [feedback-react decision procedures / negotiated environment]; 3) problemistic search [search is motivated / search is simple-minded / search is biased], and 4) organizational learning [adaptation of goals / adaptation in attention rules / adaptation in search rules]” –p164
o “The order in which various alternative solutions to a problem are considered will change as the organization experiences success or failure with alternatives” –p174

8- Some implications
o Descriptive analysis: the firm :
• 1) Price and output determination (excess resources, organizational slack, decentralising, reduce uncertainties using standards)
• 2) Internal resource allocation quasi resolution of organizational conflict, search behaviour, uncertainty avoidance, organizational learning): “In general, for an alternative investment opportunity to have a significant chance of being introduced in the system, two conditions have to be met. A problem must be perceived by the organization, and the investment must be visible to that part of the organization in which search is stimulated by the problem” p180
• 3) Innovations (“failure induces search and search ordinarily results in solutions” p188: “firms that have made specific significant technological improvements, we find that they were made by firms with substantial slack (and thus mostly successful firms).” –p189
o Descriptive analysis: non-business organizations: “the behavioural theory of the firm is one the important potential sources of evidence about the validity of this structure and there mechanisms” –p196
o “These implications for descriptive economics, for studies of non-economic organizations, and for normative analysis are not always easy to see at this stage. They are even harder to validate” – p211

9- An Epilogue
o Three related but largely independent ideas:
1. Bounded rationality: “rational actors are significantly constrained by limitations of information and calculation” –p214. “They set targets and look for alternatives…rather than try to find the best imaginable solution; they allocate attention by monitoring performance with respect to targets. They attend to goals sequentially, rather than simultaneously. They follow rules-of-thumb and standard operating procedures.” –p214
2. Imperfect environmental matching: “behavioural theories emphasize the inefficiencies of history” –p215
3. Unresolved conflict: “multiple actors with conflicting interests not entirely resolved by the employment contract” –p215
o Developments in economic theories of the firm:
• Theory of teams
• Control theories of the firm
• Transaction costs economics: “two behavioural assumptions about “contracting”, as opposed to “maximizing”. The first assumption is bounded rationality…. The second, assumption is opportunism, the notion that there is conflict of interest within, as well as between, organizations, that participants in an organization will lie, cheat, and steal in their own self-interest if they can” *** p220; “,…when asset specificity is low, debt financing is likely…where asset specificity is high, costs of debt will have to grow to cover the risk” -p221; “the flexibility of the definition of transaction costs tends to make the concept amore powerful tool for interpreting historical outcomes than for predicting future ones” -p221
• Agency theory: “…bounded rationality has tended to fade into the background, and attention to conflict of interest has become paramount” p222; “In practice, the theory is written from the point of view of one side of the contract. From this perspective, there is a cascade of principal-agent relations” –p222
• Evolutionary theories: “they see firms as being selected upon by virtue of their fit to the environment” –p224
o Developments in behavioural studies of organizational decision making:
Four interrelated visions: (p225)
1. Decisions resulting from intentional, consequential action
2. Decisions by a logic of appropriateness implemented through a structure of organizational rules, roles, and practices
3. Decisions influenced by the interactive ecological character of decision making (“hierarchies but they tend to function as less hierarchical networks of relations” p233: “this ability to learn from others is one of the most powerful of adaptive tools available to individuals and economic organizations. It depends, however, on a structure of linkages among forms… and… capability of learning the lessons” p234
4. Decisions as artifactual rather than as central to understanding decision making. “Individuals fight for the right to participate in decision processes, but then do not exercise the right.” –p236; “very little time spent in making decisions…managers seem to spend time meeting people and executing managerial performances” p236; “choices as artifacts… the focus has shifted from the “substantive” to the “symbolic” components of decisions” p236; “On the one hand, the processes of choice reassure those involved that the choice has been made intelligently, that it reflects planning, thinking, analysis, and the systematic us of information: and that the choice is sensitive to the concerns of relevant people, that the right people are involved.” -p237. Symbolic action: “It is the process that gives meaning to life, and meaning is the core of life” –p237

Personal comments, interesting issues and findings:
• I think the notion of slack is real: salaries and policies are revised in periods of difficulties. This means that there was a cushion to cost reduction. This is also true that negotiation can be more flexible in the presence of evidence of bad times. I.e. a worker would not accept a wage reduction if the bad conditions cannot justify it.
• The influence and applicability of the theory of Cyert & March is very wide. For instance, in International Studies (that I study in Dr Farashahi’s course), the main two streams are OLI theory (based on Transaction cost theory) and Organizational Capabilities theory. Both can be explained using the behavioural theory of the firm.
• The behavioural theory of the firm tries to reflect better the firm’s reality. Let me do an analogy: If the firm is the territory, the classical theory of the firm is the map and the behavioural theory of the firm is a photo from an airplane (with an inclination to see land’s imperfections).
• The behavioural theory of the firm is based on highlighting all firms’ imperfections and explaining how they are faced to coexist with them.

69 – A concept of Corporate Planning (Ackoff, 1970)

Reference:

Ackoff, Russel L.
“A concept of Corporate Planning”
Wiley, New York, 1970 (Ch.1,2,3,7)

Topic: Corporate Planning: definitions, concepts and framework for its development

Summary and citations:

• Planning is the design of a desired future and of effective ways of bringing it about. It is an instrument that is used by the wse, but not by the wise alone. (p1)
• Planning is one of the most complex and difficult intellectual activities in which man can engage. (p1)
• Nature of planning: 1) canticipatory decision; 2) system of decisions; 3) process (p4)
• Strategic planning is lnog-range corporate plaaning is ends oriented (p5)
• Philosophies of planning: satisficing, optimizing, and adaptizing
• Satisficing : more concerned with survival than with development and growth
• Optimizing: use of mathematical models (p9) Optimizer tries to a) minimize the resources …B) maximize the performance …c) to obtain the best balance of costts and benefits (p12)
• Techniques of optimization have in general been more useful in tactical than in strategic planning (p15)
• Adaptizing: innovative planning (p15); 1) Process is our most important product; *** 2) design an organization that will minimize the future need for retrospective planning 3) knowledge of the future: certainty, uncertainty and ignorance – p17
• Adaptive responses are ppassive or active (p18).
• The more that corporate planning is pushed from satisficign toward adaptizing, the greater the requirement for scientific methods, techniques, and tools.- p21
• Optimizing planning requires more understanding of an organization’s behavior than dies satisficing. Adaptative planning requires even more than does optimizing – p21
• The required understanding of collective and individual beahvior is dconsedeably greater than that currently possessed by many corporate planners and managers – p21
• Desired states or outcomes are objectives. Goals are objectives that are scheduled for attainment during the period planned for. Objectives are of two types, stylistic and performance. P-41
• Performance objectives require operational definition – p41
• Profit maximization is commonly taken to be the most general formulation of a company’s performance objectives. But profit is often ill defined. It can be operationally defined and transformed into goals by constructing gain and loss euqations for each product line… – p41
• One cannot fix goals until at least the means to be employed in pursuing them have been considered. – 41
• It is usually much better to dissolve a problem than it is to solve it. Dissolution of a problem requires innovation, whereas it solution requires only evaluation – p43 ***
• The key to both creating and evaluating courses of action and policies lies in understanding the system involved. – p 43
• A manager is unlikely to be aware of how little understanding he has of some of the operations for which he is responsible – p47 **
• Few companies understand why their products are consumed although they think they do – 51 ***
• Thus there are three attitudes toward the future, which, ordered from the most to the least prevalent are a) wait and see, b) predict and prepare, c) make it happen. P56 ***
• Reinventing the system: understanding a system increases our ability to find innoative and superior courses of action and policies. … Polisy innovation depends critically on our ability to brong these self-imposed constraints into question. P59
• Modeling efforts should be directed at acquiring understanding of the form, its supply system, its distribution and marketing system, its consumers, its competitors, and its environment. – p64
• Creation fo new alternatives can often be facilitated by redesigning (from scratch) the system being planned for, with no constraints. – p64
• The probability of success of a planning effort decreases as the organizational autonomy of the planning activity increases. – 129
• Remember that successful planning cannot be done to or for an organization; it can only be done by the organization itself. – p132
• The value of planning to managers lies more in their participation in the process than in their consumption of its products. – p137

Personal comments, interesting issues and findings:

• Philosophies of planning: Satisfacing might aim eficacity and otimizing maybe efficciency
• I think that in current business (also social and political) world, uncertainty and ignorance are a major trend. From this point of view, contingency planning and rsponsiveness planning are important because they make companies flexible and adaptable to changes (ie crisis management).
• How do we take into consideration individual and collective behavior into planning? Has our knowledge of behavior increased to have a better planning?
• Ackoff affirms that technology (in the 70’s) is the limit to optimizing planning: which is the current state of the art of technology and planning?
• Planning reminds me of the concept of quality: 1) affects all departments in the firm; 2) is an on-going process and can always be improved; 3) quality costs are high but non-quality costs are higher. The same could be said of risk management.
• Ackoff says that the book is not a handbook (it is what should be done, not how it should be done). (Preface) But I think it is quite practical and even says details of how to do it (“The scenarios themselves should be from 10 to 20 (double-spaced) typewritten pages in length…. I have found it convenient to organize each scenario into three sections” p29
• Ackoff is very didactic, step-by-step and with plenty of examples. To explain his theory, many concepts are defined. He had 30 years involvement with universities when he wrote the book and we can feel his interest in pedagogy (see expample p61-63)
• What I liked the most in Ackoff is his effort in transmitting the message that the system has to be reinvented. The importance of what an organization should be like “as a whole and ideally” (p59)
• “Process is our most important product” and “It is usually much better to dissolve a problem than it is to solve it”: the two stronger ideas

Comparative analysis: Ackoff and Drucker

• Both Ackoff and Drucker, uses the same example: the answer of the carpenter “Puttting some pepices of wood together” ot “putting up a door frame” or “bulding a house”. Ackoff to explain different types of objectives (means and ends), Drucker to show the difference between a non-manager and a manager.
• Ackoff and Drucker have a common point: “Maximize profit cannot be a goal”. But for different reasons. Ackoff says that to maximize profit(ability) is a matter of definitions and a matter of financial and accounting policy. Drucker says that this is not the goal, but the sastisfy the customer.
• Ackoff and Drucker both analyze the consumers. Ackoff studies the models of consumers and says “Few companies understand why their products are consumed, although they think they do” (p51). Drucker says that this understanding and serving the customer is the goal of the company.
• Ackoff and Drucker –p61- both consider that objectives have to be reexamined continually
• This requires each manager to develop and set the objectives of his unit himself – p129 says Drucker. Ackoff agrees when he says that an outsourced firm can’t make your planning.

80 – The Practice of Management (Drucker, 1993)

Reference:

Drucker, Peter F.
“The Practice of Management”
Harper and Brothers, New York, 1993
(Introduction, Parts 1,2, 5, Conclusion)

Topic: Comprehensive theory of the management tasks and responsibilities

Summary and citations:

• The first definition of management is therefore that it is an economic organ, indeed the specifically economic organ of an industrial society – p8
• Management is a practice, rather than a science or a profession, though containing elements of both. – p10
• Managing is not passive, adaptative behavior; it means taking action to make the desired results come to pass. – 11
• To manage a business means, therefore, to manage by objectives – p12
• Second function is therefore to make a prodctive enterprise out of humna and material resources. P 12
• It must be a genuine whole: a greater than –or at least different from- the sum of its parts with its output larger than the sum of all inputs. – p12
• The final function of management is to manage workers and work – p14
• Time dimension of management: has to live always in both present and future p 15
• The popular belief that the new technology will replace human labor by robots is utterly false – p21
• A business enterprise is created and managed by people. It is not managed by “forces”. P34
• Profitaibility is not the purpose of business enterpise and business activity, but a limiting factor on it. – p35
• There is only one valid definition of business purpose : to create a customer – p37. It is the customer who determines what a business is. P 37. Because it is its prpose to create a customer, any business enterprise has two –and only these two- basic functions: marketing and innovation. They are the entrepreneurial functions. – p37
• Innovation goes right through all phases of business – p40
• Innovation can no more be considered a separate function than marketing – p40
• Productivity means the balance between all factords of production that will give the greatest output for the smallest effort – p41
• First duty is to survive (p46), not maximizatino of profits but avoidance of loss (p47), creative rather than adaptative task (p47)
• What is business is not determined by the producer but by the consumer. – p50
• Business must be managed by setting objectives for it. – p60
• Developments may change objectives. This is one reason why all objectives have to be reexamined continually –p61
• Objectives are needed in every area where performance and results directly and vitally affect the survival and prosperity fo the business. P63
• There are eight areas in which objectives of performance and results have to be set: market standing, innovation, productivity; physical and financial resources; profitability; manager performance and development; worker performance and attitude; public responsibility. – p63
• Its performance is the performance of human beings. And a human community must be founded on common beliefs, must symbolize its cohesion in common principles. – p64
• There are three basic systems of industrial production known to us so far: unique-product production, mass production (old style and new style) and process production. – p96
• New-style mass production: It does not rest on uniform products. It rests on uniform parts which can then be mass-assembled into a large variety of different products. – p100
• Management must therefore develop new markets for any new products as well as maintinaa steady market for the old – p105
• Managers are the basic resource of the business enterprise and its scarcest … Are the most expensive resource in most business – p111
• Upward relations are properly a manager’s first concern. – p112
• Henry Ford’s misrule was a systematic, deliberate and conscious attempt to run the billion-dollar business without managers. – 114
• The first requirement in managing managers is management by objectives and self-control. ***– 119 – may legitimately be called a “philosophy” of management (p136)
• Story of the stone-cutters: p 122
• Emphasis should be on teamwork and team results. These objectives shold always derive from the goals of the business enterprise. – ‘126
• This requires each manager to develop and set the objectives of his unit himself – p129
• One of the major contributions of managemnent by objectives is that it enables us to substitute management by self-control for management by domination. – p131
• Authority…derives from knowledge rather than from rank – 138
• The span of control, we are told, cannot exceed six or eight subordinates – p139
• A team does not normally make a good superior manager – p140
• Every manager has the task of contributing what his superior’s unit needs to attain its objectives. This is indeed his first duty…. He has secondly a duty towards the enterprise…Finally, the manager has responsabilities downard, to his subordinate managers – p142
• The vision of a manager should always be upward –toward the enterprise as a whole. But his responsibility runs downward as well– p143
• It is performance, not conformance – p145 (constant improvement, neutralizae weaknesses of its members)
• The focus must be on strengh – p145 (not weaknesses)
• The danger of safe mediocrity: nobody learns except by making mistakes The better a man is the more mistakes will he make –for the more new things he will try. – p147
• Promotion decisions are what I call “life-and-death” decisions for managers.- p155
• Lack of character and integrity, …destroys people..spirit…performance – p158
• Leadership: making common men into uncommon men – p158 – but leadership cannot be created or promoted. It cannot be taught or learned.. But management cannot create leaders – p159. Leadership requires basic aptitude… but also requires basic attitudes.
• The chief-executive team alone can adequately solve the problem of succesion.- p169
• The much publicized divorce of ownership from control which makes it absurd that the business enterprise be directed by the representatives of the share-holders – p179
• The Board must also be detached from operations.- p181
• Sudden emergence of manager development as a major concern – p183
• No one can develop himself unless he works on the development of others – p189
• A manager has two specific tasks: 1) creating a true whole that is larger than the sum of its parts; 2) harmonize in every decision and action the requirements of immediate and long-range future. – p342
• 5 basic operations: 1) sets objectives; 2) organizes; 3) motivates and communicates; 4) job of measurement; 5) develops people p343-344
• 5 phases of decision making : definig the problem, analyzing the problem, developing alterante solutinos, deciding uupon the best solution, converting the decision into effective action.– p353
• It must create customers and markets by conscious and systematic work. Above all, it must focus continuously on creating mass purchasing power and mass purchasing habits. – p371
• 7 new tasks of the manager – p373
• The tasks must be simplified. … to convert into system and method what has been done before by hunch and intuitino… a logical and cohesive pattern. – p374
• … is neither education nor skill; it is integrity of character – p 378
• Private enterprises is an organ of society and serves a social function – p381
• The public responsibility of management must therefore underlie all its behavior (ethics of management) – p383
• The first responsibility to society is to operate at a profit, and only slightly less important is the necessity for growth. – p386
• The company is not and must be never claim to be home, family, religion, life or fate for the individual. It must never interfere in his private life or his citizenship. He is tied to a company through a voluntary and cancellable employment contract. – p387
• Business has the responsibility to make its best contribution to the defensive strength of its country. – 388

Personal comments, interesting issues and findings:

• One man show: Drucker writes about all aspects: strategy, functions, marketing, innovation, structure, competition (recalls Porter in p53), goals for each area, productivity, “instrument panel” (Balanced Scorecard?), production, two-way communication within the company, reports and procedures, authoritym, rank of control, constant improvement, compensation and reward, develop managers,…
• Drucker puts the manager as the one creating value for society and as the most important element in the company. Sees the manager as one person (the isolation of the CEO) in the whole the book, except when he talks of management teams. That shocked me.
• Interesting: the Ford story (p116). Strategy (on strong command) precedes structure (Centralisation) and it failed. “The greatest change perhaps –certainly the most visible- is in organization structure” p117. Confirms Chandler “structure follows strategy”
• Drucker has several first duties or tasks for the manager. Sometimes it seems as the last element is more important than the previous.
• Contrasting what MBA’s are told in BS, Drucker says that leadership can’t be taught.
• Drucker emphasizes the importance of integrity, which is the base for CSR.
• Conclusion is very pro-capitalism and pro-America.

71 – The Concept of Corporate Strategy (Andrews, 1971)

Reference:

Andrews, Kenneth J., “The Concept of Corporate Strategy”, Irwin, 1971 (Ch. 1-5)

Kenneth R Andrews (1916 – 2005) was an academic who wrote and thought on business policy or corporate strategy at the Harvard Business School. He is regarded as one of the ‘fathers’ of modern business strategy and has been credited with giving corporate strategy its dominant strategy[1]. Originally, a schloar of American literature (his PhD was on Mark Twain)in 1946 he was persuaded by Edmund Learned to join Harvard Business School[2] where he taught for forty years. His books are a popular source of SWOT analysis in business strategy. [Source: Wikipedia]

Topic: Formulation and implementation of corporate strategy.

Summary and citations:

• General Management tasks: “…assignable to three roles – organization leader, personal leader, and architect of organization purpose” p3
• “The complexity of the general manager’s job and the desirebility of raising intuititve competence to the tlevel of verifiable, conscious, and systematic analysis suggest the need,… for a unitary concept” p10
• “The basic determinants of company character, if purposefully institutinoalized, are likely to persist through and shape the nature of sbstancial changes in product-market choices and allocation of resources.”p14
• “Incrementalism might have… the appearence of consciously formulated strategy, but may be the result… of skillful improvisatory adaptation”. P17
• “In a dynamic company, moreoever, where strategy is continually evolving….”p17
• “Corporate strategy is an organizarion process, in many ways inseparable from the structure, behavior, and culture…”p18
• “The ability to identify the four components of strategy –(1) market opportunity, (2) corporate competence, (3) personal values and aspirations, and (4) acknowledgede obligations to segments of society other than stockholders- is easier to exercise than the art of reconciling their implications in a final pattern of purpose”. P19
• Uniqueness: “The most important characteristic of a corporate pattern of decision that may properly be called strategic is its uniqueness” p22
• Forced-growth Strategies : 1) Acquisition of competitors; 2) Vertical integration; 3) Geographical expansion; 4) Diversification (p24)
• Brice Scott’s stages: 1) Single product (single business) ; 2) single-product with functional specialization; (dominant business) 3) multiple product lines organization based on product-market (related business) –the most successful strategic pattern; 4) unrelated business p25
• Criteria for ealuation: “A strategy must be explicit to be effective and specific enough to require some actinos and exclude others. Clarity should not imply rigidity” p27 “Uniqueness is morethe produc tof imagination than experience” p28; “Vulnerability to competition is increased by lack of interest in market share” p28; “….consistency becomes a viatl rather than merely an esthetic problem” p29 “the riskiness of any plan should be compatible with the economic resources of the organization and the temperament of the managers concerned” p29
• “… a high risk srategy that failed was not necessarily a mistake” p32
• Company environment: technology, ecology, economics, industry, society, politics (p38)
• “to conceive of a new development in response to market information and prediction of the future is a creative art” p45 –more than economic analysis-
• Consideration of all combinations of 1) Environmental conditions and trends; 2) opportunities and risks; 3) Dinstinctive competence; 4) Corporate resources
• Importance of personal values: “what they personally want to do” p53
• “… actions taken can be rationalized so as not to seem quite so personal as I have suggested they are” p55
• “Finally, at a higher level of sophistication, the strategy should have some appeal for all employees” p55
• “A change in corporate directino and the energy and innovation required to make it successful usually call for a cultural adaptation that is better encouraged than forced” p59
• “Strategic innovation is a practical alternative to violent restructuring” p60
• “The effort to formulate personal purpose might well acompany each individual’s contributions to organizational purpose” p62
• “As much as a leader wishes to trust others, he has to judge the soundness and validity of his subordinates’ positions” p63
• “Strategy is a human construction; it must in the long run be responsive to human needs. It must ultimately inspire commitment. It must stir an organization to successful striving against competition. People have to have their hearts in it.” P63
• Ethical values: “strategists might and can do to what they want to do. We now move to what they ought to do” p65
• “The decentralization of authority that makes large organizations possible requires trust rather than suspicion in the granting of appropiate autonomy to subordinates” p67
• Concern about the world: “The willingness to undertake joint ventures…share management,…cooperate…to train nationals… oppportunity for combining entrepreneurship with responsibility…” p71
• “Governments everywhere are active claimants to a voice in individual corporate strategy” p72
• “Business cannot remain healthy in a sick society” p73
• “Overregulation of the individual by corporate policy is no more appropriate than overregulation of the corporation by government” p75
• “…a company should not venture into good works that are not strategically related to its present and prospective economic functions” p76
• The determination of strategy: “1) appraisal of present and foreseeable opportunity and risk in the company’s environment, 2) assessment fo the firm’s unique combination of present and potential corporate resourcess or competence; 3) determination of the noneconomic personal and organizational preferences to be satisfied, and 4) identification and acceptance of the social responsabilities of the firm” p78

Personal comments, interesting issues and findings:

• The book distinguishes very clearly the formulation and the implementation of corporate strategy. The formulation is progressively explained, in a very clear way, the concepts are clearly explained and Andrews gives a lot of examples. I think it is a book written for practitioners, managers and CEO’s.
• Importance of the Personal Values: I have found a strong will of rationalizing causes (i.e. reasons for internationalization). This might be because normally, the facts are analyzed after the phenomenon happened (ie the company is already international) and not when the decision was taking place. I think there is a strong component on strategic decisions (and any decision) consisting on the influence of personal values. For instance, in class, Guillaume explained to us the way he discarted a supplier, mainly by personal reasons. But these reasons would never be reported as personal, he said. The importance of personal values is showed in the case of strong-personnality leaders and founders: the character of Richard Branson is in the base of its risky and broad diversification.
• I like the balance that Andrews shows between the separation of the economic analysis and calculation of ROI and the personal interests of managers.
• As Chandler “structure should follow strategy” p20
• Mimetism (effects of instittionalisation?) : “Sometimes the companies of an industry run like sheep all in one direction” (p32) instead of uniqueness. Personal interest of the manager – problem of agency.

72 – Corporate Strategy (Ansoff, 1965)

Reference:

Ansoff, H. Igor, “Corporate Strategy”, McGraw Hill, New York, 1965 (Ch.1-6)

H. Igor Ansoff (December 12, 1918 – July 14, 2002) was a Russian American, applied mathematician and business manager. He is known as the father of Strategic management.
Professionally, Ansoff is known worldwide for his research in three specific areas: 1) The concept of environmental turbulence; 2) The contingent strategic success paradigm, a concept that has been validated by numerous doctoral dissertations; 3) Real-time strategic management.
Marketing and MBA students are usually familiar with his Product-Market Growth Matrix, a tool he created to plot generic strategies for growing a business via existing or new products, in existing or new markets. [Source: Wikipedia]

Topic: Analytical approach to the definition of a corporate strategy.

Summary and citations:
• “The purpose of this book is to synthesize and unify these into an overall analytic approach to solving the total strategic problem of the firm” (preface)
• Classes of decisions: strategic, administrative and operating
• A new method for modelling for strategic decisions because the Capital Investment Theory (CIT) is not applicable to strategic management decisions (chap 2)
• “..decision rules for search and evaluatino of products and markets are not the same for all firms.” P22
• “Our concern must be not only with evaluation of projects for given rules, which is the main concern of CIT, but also with formulation of the rules for each individual firm” p23
• Adaptative search method: “1) a “cascade” procedure of successive narrowing and refining the decision rules, 2) feedback between stages in the cascade, 3) a gap-reduction process within each stage, and 4) adaptation of both objectives and starting-point evaluation” p28
• System of objectives: “both economic (exert primary influence) and social objectives (secondary)”; “The central purpose of the firm is to maximize long-term return on resources employed within the form” p38 “influences: responsibilites and constraints”
• “Contrary to Cyert and March, we assume that the business form dies have objectives which are different and distinct from the individual objectives of the participants” p39
• “…significant aspect of the adaptative search method… is the circular dependence of the goals on the environment and of the choice of environment on the goals” p49
• External (defensive, aggressive) flexibility or internal flexibility (liquidity of firm’s resources)
• Types of synergies: 1) Sales synery; 2) Operating synergy; 3) Investment synergy; 4) Management Synergy. P80
• “The problem of strngths and weaknesses and the problem of synergy are seen to be related” p91
• Grid of competences: 1) R&D; 2) Operations; 3) Marketing; 4) General Management (p100)
• “The major ise of the competence profile is in assessment of this balance in four different parts of the strategic problem: 1) Internal Appraisal; 2) external Appraisal; 3) Synergy Component of Strategy; 4) Evaluation of individual opportunities” p102
• Growth vector components – table 6.1 p109

Personal comments, interesting issues and findings:
• This is a book for managers, with concepts and procedures to be used. I think though that it is quite dense to be applied.
• The corporate strategy is too ROI-centered
• Ansoff was mathematician and it can be viewed in his approach: First defines the problem, then gives definitions of the tools, then solves the problem with the defined tools. Very deterministic and carthesian.
• Agrees with Andrews about the influence of the environment. Also sees strategy as a always-adapting process with feed-back.
• Bases strategy on decisions made on quantitative values (rates, ratios, ROSales, networth, inventory, assets, etc), based on finance.
• As personal objectives of individuals, the author also considers goals as: 1) maximum current earnings; 2) Capital gains 3) Liquidity of estate; 4) social responsibility – Enlightened self-interest; 5) social resposibility – Philanthropy; 6) attitude toward risk (p62). No consideration of more ‘soft’ values (!). Even 4 and 5 are considered for profit (but not economical) !!
• “Is strategy necessary?” p112 might be a question that many authors might take for garanted but I think that is good to be asked.
• Last diagram p202 makes me think (and smile) if this is a book really for managers to be used in a practical way. It is more an informatic algorithm than an ‘enlightning’ vision.

84 – The Human Group (Homans, 1950)

Reference:
Homans, George C.
The Human Group
Harcourt, Brace & World, New York, 1950

George Casper Homans (born in Boston, Massachusetts, August 11, 1910 – died in Cambridge, Massachusetts, May 29, 1989, age 78) was an American sociologist, founder of behavioral sociology and the exchange theory.
Homans is best known for his research in social behavior and his works including The Human Group, Social Behavior: Its Elementary Forms, his exchange theory and the many different propositions he enforced to better explain social behavior. Within sociology and social psychology, Homans is regarded as one of the major sociological theorists in the period from the 1950s to the 1970s. [Source: Wikipedia]

Topic: The human group: relations of interaction, activity and sentiments

Main questions :
• Strong concepts:
o Environment / External system / Internal system
o Interaction / Activity / Sentiments
o Norms
o Social Rank / Relations superior-subordinate / Structure / Leadership

Data and Methods :
Study based on closed observation of social small groups (in a factory –Hawthorne experiments-, in a gang, in a tribe,…). Theory derived from a clinical analysis (“In action, we must always be clinical” p15)

Summary and citations:

• Mutual dependence of interaction and sentiment :”the more frequently persons interact with one another, the stronger their sentiments of friendship for one another are apt to be.” P133
• Mutual dependence of sentiment and activity: “persons who feel sentiments of liking for one another will express those sentiments in activities over and above the activities of the external system.” P134
• Mutual dependence of activity and interaction: “persons who interact with one another frequently are more like one another in their activities than they are like ogher persons whom they interact less frequently” p135
• “The activities of a subgroup may become increasingly differentiated frm those of other subgroups up to some limit imposed by the controls of the larger group which all the subgroups belong”. P136
• Social ranking and activity: “The higher the rank of a person within a group, the more nearly his activities conform to the norms of the group” p141
• Social ranking and interaction: “a person of higher rank than another originates interaction for the latter more often than the latter originates interaction for him” p145
• “A person who originates interaction for another in the external system will also tend to do so in the internal” p146
• Leadership: “Krupa sought greatness; Taylor had it thrust upon him”p149; “Ability to carry the followers with him is the source of any leader’s authority”.p171
• “We shall now assert that the internal system arises out of the external and the reacts upon it” p151 “internal and external systems are not independent but mutually dependent” p152.
• Differentiation within the group: mutual dependence of activity ans sentiment: “the closer an individual or a subgroup comes to realizing in all activities the norms of the group as a whole, the higher will be the social rank of the individual or subgroup” p181
• Mutual dependence of sentiment and interaction: “the higher a man’s social rank, the larger will be the number of persons that originate interaction for him, either directly or through intermediaries” p182, “the higher aman’s social rank, the larger the number of persons for whom he originates interaction, either directly or through intermediaries”p 182; “the more nearly equal in social rank a number of men are, the more frequently they will interact with one another” p184; “if a person does originate interaction for a person of higher rank, a tendency will exist for him to do so with the memebrs of his own subgroup who is nearest him in rank” p184; “the higher a man’s social rank , the more frequently he interacts with persons outside his own group” p186
• “…a civilisation, if it is in turn to maintain itself, must preserve at least a few of the characteristics of the group, though necessarily on a much expanded scale” p456
• “How can values of small groups be maintained on the scale of the civilization?”p466

Personnal comments, interesting issues and findings:

• Homans is very didactic, giving examples and analogies (engine, thermodynamics, etc).
• Homans applies the universal-known Harvard’s ‘case method’.
• Some propositions seems rather logical but this is because: 1) we all interact with and know social groups and we “know” how they work and 2) as Mayo (and Roethlisberger)said “better to have a complex body of fact and a simple theory than a simple body of fact and a complex theory” p16
• Homans goes back to the basics, starts from scratch: to understand society, you have to understand the society’s unit of analysis: the group. Homans enjoys details (“The stress is on desire”p2) and extracting patterns of behavior from a micro-cosmos. Families as any other group: “a division of labor and a chain of command” p234
• Homans « The leader is the man who comes closest to realizing the norms the group values highest »p188 ; Selznick and others: the leader sets and communicates the values.
• The whole book is based on taking two strong concepts and explaining its relationship.
• Family is based on affection (Tikopia), even groups in firms, as Homans show are deternined by sentiments (helping, caring, etc). Might love be the primal driver of humanity?

78 – Le phénomène bureaucratique (Crozier, 1964)

Reference:

Crozier, Michel
Le phénomène bureaucratique
Éditions d’organisation, 1964

Michel Crozier est un sociologue français, né le 6 novembre 1922 à Sainte-Menehould(Marne). Il est le principal concepteur de l’analyse stratégique en sociologie des organisations. Depuis 1999, il est membre de l’Académie des sciences morales et politiques (Elu au fauteuil de François Lhermitte).

Topic: Analyse des organisations bureaucratiques, modélisation et telations avec le système social et culturel français.

Summary and citations:

III
• Ouviers de production ? ouviers d’entretien ? chefs d’atelier

VI – Relations de pouvoir et situations d’incertitude
Le problème du pouvoir :
• « Du gouvernement des hommes à l’administration des choses » (théorie rationaliste, taylorienne et théorie marxiste)
• 1930-1950 ; « relations humaines » (paternalistes européens et néocapitalistes) mais échec
• Le courant « interactionniste » (Mayo, Roethlisberger et al.)
• Le courant « lewinien » (MIT, Lewin, « Survey research center » ; « ils voulaient démontrer, au moins au début, qu’il existait une relation constante et univoque entre la satisfaction individuelle, la productivité et un style de leadership permissif » p199)
• « Mais un être humain ne dispose pas seulement d’une main et d’un coeur, il est aussi une tête, un projet, une liberté. »
• « Si à tous les échelons d’une organisation et dans le fonctinonnement même de l’ensemble, il ne pouvait y avoir qu’une seule meilleure soluttion, one best way, le comportement de chaque membre de l’organisation deviendrait entièrement prévisible. » p211
• « on constate… une forte tendance d’inspiration rationaliste à éliminer toute relation de pouvoir ; …. mais, d’autre part, … nouvelles relations de pouvoir…. ne pouvait être prévu(e) facilement… »p212
• Subordonnés veulent accroître la partie laissée à son arbitrage ? pouvoir de négociation (pe réserve de pièces) p216
• Pouvoir de l’expert vs Pouvoir hiérarchique fonctionnel. Structure formelle vs informelle
• L’évolution des systèmes de pouvoir : la technocratie et ses limites dans l’actualité
• « D’autres forces sont à l’oeuvre qui imposent un minimum de consensus : … 1) le fait que les différents groupes soient condamnés à vivre ensemble ; 2) le fait que le maintien des privilèges d’un groupe dépende dans un large mesure de l’existence des provolèges des autres groupes ; 3) la reconnaissance par tous les groupes qu’un minimum d’efficacité est indispensable, et 4) enfin la stabilité même des relations entre groupes » p224
VII – Le système d’organisation bureaucratique
• « … cette évolution, que Weber avait crue inexorable, dépend, en partie au moins, de la capacité même de l’homme à dominer et à briser les cercles vicieux bureaucratiques. » p273
• « (Gouldner) a su montrer en effet d’une part que la punition fonctionne dans les deux sens… et d’autre part que l’existence de règles dont l’application peut être suspendue constitue un terrain de négociation excellent et un instrument de pouvoir pour les deux parties ». p241
• « une organisation bureaucratique serait une organisation qui n’arrive pas à se corriger en fonction de ses erreurs ». p247 » et dont les dysfonctions sont devenues un des éléments essentiels de l’équilibre. »p257 « mais c’est aussi un système trop rigide pour s’adapter sans crise aux transformations que l’évolution accélérée des sociétés industrielles rend de plus en plus fréquemment impératives. » p261
• « Quatre traits essentiels permettent… de rendre compte de la rigidité des routines que nos avons observées : 1) l’etendue du développement des règles impersonnelles, 2) la centralisation des décisions ; 3) l’isolement de cahque strate ou catégorie hiérarchique et l’accroissement concomitant de la pression du groupe sur l’individu ; 4) le développement de relations de pouvoir parallèles autour des zones d’incertitude qui subsistent. » p248

Personnal comments, interesting issues and findings:

• Je pense au courant « lewinien » : est-ce que dans les entreprises considérées « Best place to work » on cherche à appliquer le modèle lewinien ? p.e. Google exerce un leadership permissif aux travailleurs (collaborateurs) en considérant que la satisfaction personnelle améliore la créativité et la productivité.
• Crozier défini le Monopole comme « un équilibre quasi stationnaire » p227. Son analyse de l’équilibre des forces fait penser à l’equilibre des forces à la Guerre Froide (qui avait lieu, en fait, lors de la publication du livre). Aussi : « En fait on a tendance à échapper à la pression de la réalité aux deux extrêmes, quand il est trop difficile d’y faire face ou quand c’est devenu trop facile. » p247
• La communication et l’organisation coopérative de Barnard est très loin des structures décrites par Crozier. Isolement des strates, etc. La notion de stratégie et de vision se perd dans les organisations bureaucratiques (voir p253). «…donner la priorité aux moyens sur les fins » p261
• La question que je me pose: Une organisation telle peut exister actuellement ? Et ma réponse est non. « Un système d’organisation dont la principale caractéristique est la rigidité ne peut naturellement pas s’adapter facilement au changement et tendra à résister à toute transformation. Et pourtant le changement est permanent au sein des organisations modernes. »p257. Je crois que l’incapabilité d’adaptation au changement et l’application des nouvelles technologies, font que la bureaucratie telle que la décrit Crozier, n’existe plus.

88 – Leadership in Administration (Selznick, 1957)

Reference:

Selznick, Philip
Leadership in Administration
Harper and Row, New York, 1957

Philip Selznick (January 8, 1919 – June 12, 2010) was professor emeritus of law and society at the University of California, Berkeley. A noted author in organizational theory, sociology of law and public administration, Selznick’s work has been groundbreaking in several fields in such books as The Moral Commonwealth, TVA and the Grass Roots, and Leadership in Administration.
Selznick received his PhD in 1947 from Columbia University where he was a student of Robert K. Merton. (Source: Wikipedia)

Topic:
The nature of critical decisions and the functions of institutional leadership.

Summary and citations:

• “Pragmatism is not a flight from principle. It is an argument for discovering principles and for making them relevant to everyday life”.(Preface)
• Efficiency the most significant problem? The book explores ” the nature of critical decisions and of institutional leadership”. “the logic of efficiency applies most clearly to subordinate units” (p3)
• “The executive becomes a statesman as he makes the transition from administrative management to institutional leadership”
• Organization: technical instrument, rationañity and discipline, expendable tool
• Institution: “natural product of socail needs and pressures” p5
• “One objective of sound management practice is to direct and control these internal social pressures” (on informal structure) p8
• “Of these problems, organizational rivalry may be the most important” p9
• “The tendency to emphasize methods rather than goals is an important source of disorientation in all organizations” p12
• Natural communities: the development of defensive ideologies, the dependence of institutional values on the formation and sustaining of elites, the existence of internal conflicts expressing group interests.
• “Institutionalization is a process” p16
• “”To institutionalize” is to infuse with value beyond the technical requirements of the taask at hand” p17
• “The test of infusion with value is expendability” p18
• “There is a close relation between “infusion of value” and “self-maintenance”. As an prganization acquires a self, a distinctive identity, it becomes an institution” p21
• “Leasdership is not a familiar, everyday idea, as readily available to common sense as to social science” p22
• 1) leadership is a kind of work done to meet the needs of a social situation; 2) Leaderhsip os not equivalent to office-holding or high prestige or authority or decision-making; 3) Leaderhsip is dispensable”
• Institutional leader (“is primarily an expert in the promotion and protection of values”) vs. “interpersonal” leader (efficiency of the enterprise”).
• Static (responsive behavior, routine) and dynamic adaptations (character-defining, the area of “critical experience”)p33-35
• Organizational characer: “characer is:1) a historical prodict; 2) an integrated product; 3) functional; 4) dynamic” p38-39
• “Hence leadership, character, and critical decision-making are linked as aspects of the same basic phenomenon: the institutionalization of the organizational life” p41
• Character as Distinctive Competence or inadequacy. “…another aspect of organizational character-definition is control over the social composition of the membership”p42-46
• “The assessment of industrial firms also requires study of distinctive capabilities and limitations” p53
• “The formation of an institution is marked by the making of value commitments, that is, choices which fix the assumptions of policymakers as to the nature of the enterprise –its distinctive aims, methods, and role in the community. These character-defining choices are not made verbally; they may not even be made consciously” p55
• “In asserting the continuity of policy and administration, we are saying that certain organizational practices can enter the critical experience of leadership”: 1) recruitment of personnel; 2) training of personnel; 3 )Co-operation with other organizations. p57-59
• “But where leadership is required, (…), the problem is always to choose key values and to create a social structure that embodies them.” P60
• Functions of the institutional leader: 1) the definition fo the insittutional mission and role; 2) the institutional embodiment of purpose; 3) The defense of institutional integrity; 4) ordering of internal conflict. P62-64
• “(The leader) must specify and recast the general aims of his organization so as to adapt them, without serious corruption, to the requirements of institutional survival.” P66
• “In defining the mission in the organization, leaders must take account of 1)The internal state of the polity (commitments) […] and 2) the external expectations (pressures)” p67
• Retreat to technology: “A characteristi threat to the integration of purpose and commitment … is an excessive or premature technological orientation” p74
• “A role is a way of behaving associated with a defined position in a social system” p82
• “Role-taking is in effect a decision by the individual –not always consciously…” p83
• “An institutional role cannot be won merely by wishing for it or by verbalizing it clearly. It must be founded in the realistic ability of the organization to do the job.” P87
• “aspects of social structure that affect the maintenance and change of policy decisions: 1) assigned roles; 2) internal interest-groups; 3) social stratification; 4) beliefs; 5) partticipation; 6) dependency.” P91-100. “to become the master of the organization, the leader must know how to deal with the social structure in all its dimensions… in order to provide support to a policy, it may be necessary to alter the social structure” p100-101.
• “Leadership declines in importance as the formal structure approaches complete determination of behavior. Management engineering is then fully adequate to the task.” P92
• “Certain types of problems seem to characterize phases of an organization’s life-history:…1)The selection of the social base; 2) Building the institutional core; 3) Formalization.
• “….developmental changes that have create new risks and opportunities:…1) personnel crises and growth stages; 2) decentralisation to social integration” p107
• “The need for centralization declines as the homogeneity of personnel increases.” P113
• “Once the task of unification… extensive delegation of responsibilitymay be worked out…” p115
• “The maintenance of social values depends on the autonomy of elites” p121. 1) Elite autonomy and cultural viability; 2) Political isolation and the combat party; 3) Administrative autonomy and precarious values.
• “If a man is to take risks, he needs social supports. Yet the role of professionalism will vary in different types of organizations…” p133
• “The cult of efficiency in administrative theory and practice is a modern way of overstressing means and neglecting ends.” P135
• “In going beyond efficiency, leadership also transcends “human engineering”” p136
• “The limits of organization engineergin become apparent when we must create a structure uniquely adapted to the mission and role of the enterprise.” P138
• “This process of becoming infused with value is part of what we mean by institutionalization. As it occurs, organization management becomes institutinoal leadership.”p138
• “The integrity of an enterprise goes beyond efficiency, beyond organizatino forms and procedures, even beyond group cohesion. Integrity combines organization and policy” p138
• Responsible leadership: p142
• From a personal standpoint: commitment, understanding, determinatino, self-knowledge, self-summoning process
• From a policy standpoint : the avoidance of opportunism (must look to the long-run) and the avoidance of utopianism (i.e. overgeneralization of purpose)
• Creative leadership; 1) institutional embodiment of purpose; 2) creativity by strategical and tactical planning. P149
• “effective leader must know the meaning and master the techniques of the educator” p150
• “… most importatn of these techniques is the elaboration of socially integrating myths.” “myths are institution builders” P151-152
• “The executive becomes a statesman as he makes the transition from administrative management to institutional leadership” p154

Personnal comments, interesting issues and findings:

• Selznick talks about the tasks of the institutional leader as “2) institutional embodiment of purpose” like “shaping the “character” of the organization”: My question is: can a character be shaped? What about change management and its difficulties? Human behavior (“dynamic adaptation”) is not something a leader could do, or at least, not any leader.
• At the MBA, while explaining the Wal*Mart case (Operations), the teacher said that, when the machine is well-greased and the business model is solid, anyone could manage that company. In this sense, the manager was prescindible in a way. Selznick says that institutional leaders are prescindible, in this sense I think, where the institution has embodied the desired values.
• Roethlisberger analyzed the organizations in a broad spectrum, from religious to political to economical. Selznick is focused more on institutions, and referes often to political and military institutions (i.e. pp74 Retreat to technology)
• I liked the Ford case (conversion from the one-model production to more flexible process). It can help to introduce the subject of the ever-increasing product choice to reach the current personal customization of products (through IT and flexible processes and micro-segmentation of marketing).
• Jonas Ridderstále (prof. at Stockholm School of Economics and co-writer of ‘Funky Business’ and ‘Karaoke Capitalism’) says that’s the strength of the US is that it is not a country but a concept. Anyone can become American (and you cannot become Japanese f.i.). US are based on values (the American dream, the American way of life, etc.), so it can be assimilated to Selznick’s institutions. EU for example, is based in agreements, it is a political and economical organization, it lacks the unifying values, “the myth” that Selznick refers in his conclusion. From this sense, the EU would be more as an organization as Selznick defines it.
• “when fluid situations require constant adaptation…this open-endedness generates the key problem of institutional leadership”: yes, but we are in constant-changing environments, institutional leadership is constantly threatened. Thus the importance of the strenght in values. “Leadership declines in importance as the formal structure approaches complete determination of behavior. Management engineering is then fully adequate to the task.” (p92) is never the case as the social, political or economical environment is ever-changing.
• Selznick doesn’t talk about the co-operative organization of Barnard, but about something above it, the institution and its leader.
• “When organization is in good shape from an engineering standpoint it is easier to put ideals into practice”p152. Sounds obvious. The interesting issue is how to embody values in difficult times.

89 – Administrative Behaviour (Simon, 1945)

Reference:

Simon, Herbert T. 1945.
Administrative Behaviour.
The Free Press, New York.

Herbert Alexander Simon (June 15, 1916 – February 9, 2001) was an American political scientist, sociologist, and psychologist, and professor—most notably at Carnegie Mellon University—whose research ranged across the fields of cognitive psychology, computer science, public administration, economics, management, philosophy of science, sociology, and political science.
Simon was a polymath, among the founding fathers of several of today’s important scientific domains, including artificial intelligence, information processing, decision-making, problem-solving, attention economics, organization theory, complex systems, and computer simulation of scientific discovery. He coined the terms bounded rationality and satisficing, and was the first to analyze the architecture of complexity and to propose a preferential attachment mechanism to explain power law distributions.
He also received many top-level honors later in life. These includethe Nobel Memorial Prize in Economics “for his pioneering research into the decision-making process within economic organizations” (1978).
Source: Wikipedia

Topic:

Proposal of a theory of human choice or decision-making including the rational aspects and its limits. It studies also the mechanisms of influencing its members and decisions’ premises.

Summary and citations:

• In his introduction to the 2nd ed. Simon writes that “social science suffer from a case of acute schizophrenia”, economists attribute to economic man an omniscient rationality and social psychology says that people are’nt as rational as they though to be. Which is Simon’s point of view on this issue?

Simon answers “human behavior is intendedly rational, but only limited so.”

I- Decision making and Administrative Organization

Value and fact in judgment-“In so far as decisions lead toward the selection of final goals, they will be called “value judgments”, so far as they involve the implementation of such goals they will be called “factual judgments”. “

II- Some problems of administrative theory
III- Fact and value in decision-making

• “Given a system of values ,there is one alternative that is preferable to the others”

IV- Rationality in Administrative Behavior: “is concerned with the selection of the effective means”

• P67: “The series of such decisions which determines behavior over some stretch of time may be called strategy”.
• Decision steps: 1) listing of all alternatives; 2) determination of conseguences;•3) evaluation or “valuation”
• Choice: 1) knowledge (to list all alternative strategies and determine the consequences); 2) preferences comparing set of consequences (this is the difficulty)
• “The ultimate aim of knowledge […] is to discover a single unique possibility which is consequent behavior alternative”
• “…means and ends do not completely correspond to facts and values…”
• Means-end chains. Intermediate ends are value-indices
• Behavior pattern of a group will be competitive (=>instabilaty) or cooperative
• Meanings of rationality: objective, subjective, conscious, deliberate, organizational, and personal.

V- The Psychology of Administrative Decisions

• “The limits of rationality have been seen to derive from the inability of the human mind to bring yo bear upon a single decision all the aspects of value, knowledge, and behavior that would be relevant.
• Stimulus-response pattern more than a choice of alternatives.
• “Social institutions may be viewed as regularizations of the behavior of individuals through subjection of their behavior to stimulus-patterns socially imposed on them.”

VI- The equilibrium of the organization

Organization is a system in equilibrium between 1) receives contributions and 2) offers inducements.

VII- The role of authority

• Decisions influenced by: stimuli (external) and psychological “set” (internal)
• sanctions of authority 1) social sanctions; 2) psychological differences; 3) “purpose has been stressed (…) as a sanction of prime importance”; 4) economic security and status; 5) disinclination of accept responsibility – p134
• uses of authority: 1) inforces responsibility of the individual to those who wield the authority; 2) It secures expertise in the making of decisions; 3) It permits coordination of activity
• Menber of a group: “appplies the same general scale of values (…) as do other members (…) and when his expectations of the behavior of other members influence his own decisions.”
• “When coordination goes farther than communication, (…)it generally involves (…) authority.”
• “Authority does not seek to convince the subordinate, but only to obtain his acquiescence.”

VIII- Communication

• Commnication upward if: 1) transmission will not have unpleasant consequences 2) better tell superior first; 3) helpful for superior’s dealings with his own superiors
• “The specialization of decision-making functions islargely dependent () of adequate channels of communication to and from decision centers”
• Formal and informal communication
• Units that are specialised for particular communication units: internal and external.

IX- The criterion of efficiency

• Efficiency: Maximization of output
• “The criterion of efficiency dictates that choice of alternatives which produces the largest result for the given application fo resources”. But criticisms have been made.

X- Loyalties and Organizational Identification

• “Identification is the process whereby the individual substitutes organizational objectives (service objectives or conservation objectives) for his own aims as the value-indices which determine his organizational decisions.”
• “Social values in place of personal motives”
• “An organizational structure is socially useful (…) brings a correspondence between social value and organizational value”
• Undesirable effect if organizational values must to be weighted against values outside the area by the individual.
• Useful in depersonalizing choice and enforcing social responsibility

XI- The anatomy of organization

• “How does the authoriry of the commander extend to the soldiers in the ranks? How does he limit and guide their behavior? He does this by specifying the general mission and objective of each unit on the next level below and by determining such elements fo time and place…assure a proper coordination…”

• Review and its function: 1) check work 2) influence further decisions 3) appellate function 4) effective exercise of authority

• “We may conclude, then, that some measure of centralization is indispensable to secure the advantages of organization: coordination, expertise, and responsibility. On the other hand,, the costs of centralisation must not be forgotten. It may place in the hands of highly paid personnel decisions which do not deserve their attention…. Duplication of function…”

• Area of rationality and its limits (i.e. limited alternatives, reorientation of values, limits of knowledge, indiviual vs group rationality)

Personnal comments, interesting issues and findings:

P67: “The series of such decisions which determines behavior over some stretch of time may be called strategy”. For me strategy would be what Simon calls the “ultimate” goal and successive decisions are made to reach that goal. As Simon defines strategy, it is like strategy is defined step-by-step over time and is not something agreed and planned.

P72: Barnard defined cooperative organizations. For Barnard, cooperation could be effective and efficient or not. Simon distinguishes cooperation and competition.

I found interesting Simon’s interest for firm values, identification the impact on social responsibility as it is an aspect that was not much analysed at that time (1945) and that took much more importance in research in recent years.

Common points with Barnard:

• P111: equilibrium: “If the sum of contributions [related to Barnard’s “effectiveness”] is sufficient, in quantity and kind, to supply the necessary quantity and kind of inducements [related to Barnard’s “efficiency”], the organization survives and grows; otherwise, it shrinks and ultimately disappears unless an euilibrium is reached”. Simon’s contributions = Barnard’s contributions; Simon’s inducements = Barnard’s compensations

• P116: Simon’s “limits and area of acceptance” when he refers to the limits of authority and Barnard’s “zone of indifference” on the study of incentives

• Authority: Barnard and Simon both agree that authority exists when both, superior and subordinate accept its role. Simon distinguishes between momentary instances of the exercice of authority and roles (over a period of time).

• Both defend the hierarchy of authority or pyramid.

• Formal and informal organisation.

• Importance of channels of communication to and from decision centers.

Differences between Barnard and Simon:

• P120: Simon: Equilibrium in commercial organizations by 1) PROFITS (modifying objective to satisfy customer demand) and CONSERVATION (reaching employees and firms’ goals)

• Simon’s definition of effectiveness (reaching firm’s goals) and efficiency (optimizing resources of the firm or the ratio between input and output) are different from Barnard’s.

• For Simon persuasion is separated from authority. Barnard: “persuasion is an important task of the executive achieving cooperation”; Simon: “confusion among these terms results from the fact that all three phenomena –persuasion, suggestion, and command- are frequently present in a single situation.” P127

• Barnard talks about methods of incentives and persuasion (changing subjective attitudes): a) coercitive conditions; b) rationalization of opportunity; c) inclucation of motives. And Simon talks about sanctions of authority 1) social sanctions; 2) psychological differences; 3) “purpose has been stressed (…) as a sanction of prime importance”; 4) economic security and status; 5) disinclination of accept responsibility – p134

• Administrative hierarchy (responsibility) and hierarchy of authority (expertise) p138. Is related to the fact that people with expertise are recognised by offering them hogher positions in the administrative hierarchy, where other skills other than technical expertise is required. The result is the Peter Principle: the principle that “in a hierarchy every employee tends to rise to their level of incompetence”.

• Simon’s book was more a “description rather than prescription”. Barnard’s book pretended to be more a guide to executives.

• Simon: “Authority does not seek to convince the subordinate, but only to obtain his acquiescence.” Barnard, in opposition, took into consideration persuasion and put a stress on cooperation and subordinates’ aims (efficiency)

• Barnard refers to communication up-down as a major function of the executive. Simon refers to communication also bottom-up (p163). Simon’s also talks about the receiver.

73 – The Functions of the Executive (Barnard, 1938)

Reference:

Barnard, Chester I.
The Functions of the Executive
Harvard University Press, Boston, 1938

Chester Irving Barnard (1886 – 1961) was an American business executive, public administrator, and the author of pioneering work in management theory and organizational studies.

Topic:

The functions of the executive derived from the theory of cooperative systems.

Main questions:

Cooperative systems, effectiveness and efficiency, formal and informal organizations, economy of incentives, theory of authority, theory of opportunism, functions of the executive.

Data and Methods:

Theories derived from practical work as executive at NJ Bell Company

Interesting issues and findings:

I – Introduction
• Formal organizationis that kind of cooperation among men that is conscious, deliberate, purposeful
• In our western civilization only one formal organization, the Roman Catholic Church, claims a substantial age.
• Failure to cooperate […] are characteristic afcts of human history
• The survival of an organization depends upon the maintenance of an equilibrium of a complex character in a continous fluctuating environment

II – The individual and the organization

III – Physical and biological limitations in cooperative systems
• Biological limitations: a) application of human energy; b) perception; c) understanding
• Systems of cooperation are never stable, because of changes in the environment and the evolution of new purposes. […] implies special management processes and in complex cooperations, […] executives.

IV – Psychological and social factors in systems of cooperation
• Social factors: a) interactions between individuals within a cooperative system; b) the interation between the individual and the group; c) the individual as the object of cooperative influence; d) social purpose and the effectiveness of cooperation; e) individual motives and cooperative efficiency

V- The principles of cooperative action
• the nature of the joint limitations on cooperation “imposed” by physical, biological, and social factors; 2) the processes of overcoming those limitations in purposive conduct; 3) their bearing on effectiveness of ccoperative effort; 4) their bearing on the efficiency of cooperative effort.

VI – The definition of formal organization
• Cooperative situations can be : related to aspects of a) physical environment; b) social environment; c) individuals ; d) other variables
• Definition of formal organization: A system of consciously coordinated activities or forces of two or more persons

VII – The theory of formal organisation
• Organization when: 1) there are persons able to communicate to each other; 2) who are willing to contribute action 3) to accomplish a common purpose.
• External equilibrium has two terms in it: 1) the effectiveness of the organization and 2) its efficiency, which comprises the interchange between the organization and individuals.
• Willingness to communicate ; 2) Common purpose ; 3) Communication
• Effectiveness: ability to carry out its purpose, it is primarily a matter of technological processes. Paradox: an organization must disintegrate if it cannot accomplish its purpose. It also destroys itself by accomplishing its purpose.
• Efficiency: securing of nefcessary contributions to the cooperative system

VIII – The structure of formal organizations
• Complete, incomplete, subordinate and dependent organizations
• Origins: a) spontaneous; b) direct individual’s effort ; c) infant bodies from existing ; d) result of segmentation of existing ones.
• Necessity of a leader: a) complexity of purpose; b) difficulty of communication process; c) extent to which communication is necessary; d) complexity of the personal relationships involved.

IX – Informal organizations and their relation to formal organizations
• “By informal organization I mean the aggregate of the personal contacts and interactions and the associated groupings of people […] joint purposes are excluded by definition, common or joint results of important character nevertheless come from such organization.
• Effects: a) it establishes certain attitudes, understandings, customs b) it creates the condition under which formal organization may arise
• “comradeship is more powerful than patriotism”
• Formal organizations create and require informal organizations.
• Functions of informal in formal organizations: 1) communication; 2) maintenance of cohesiveness 3) maintenance of the feeling of personal integrity, self-respect, of independent choice.

X – The bases and kinds of specializations
• Associational specialization: repeated mutual adjustment of persons to persons.
• “The effectiveness of coopeartive systems depends almost entirely upon the invention or adoption of innovations of specialization”
• “The primary aspect of specialization is the analysis of purpose”
• “organization and specialization are synonyms”: the correlation is accomplished by analyzing purpose into parts or detailed purposes or ends.

XI – The economy of incentives
• “The egoistical motives of self-preservation and self-satisfaction are dominating forces”
• The method of incentives (offering objective incentives)
• The method of persuasion (changing subjective attitudes): a) coercitive conditions; b) rationalization of opportunity; c) inclucation of motives.

XII – The theory of authority
• “Authority is the character of a communication (order) in a formal organization by virtue of which it is accepted by a contributor to or member of the organization as governig the action he contributes”
• Authority involves two aspects: 1) the subjective and 2) the objective
• “There exists a zone of indifference in each individual within which orders are acceptable without conscious questioning of their authority.”
• Authotity of position // authority of leaderhsip
• There cannot be authority without corresponding responsibility
• A) Channels of communication should be definitely known; b) objective authority requires a definite formal channel of communication to evey memmber of the organisation; c) the line of communication must be as direct or short as possible; d) the complete line of communication should be usually be used; e) the competence of the persons serving as communication centers, that is, officers, supervisory heads, must be adequate; f) the line of communication should not be interrupted during the time when the organization is to function.; g) every communication should be authentificated.

XIII – The environment of decision
• […] a sort of dual personality is required of individuals […] – the private personality, and the organization personality (can not be delegated, technique of decision)
• Executives […] represent a specialization of the process of making decisions. […] are under the obligation of making decisions.
• Decisions originate: a) from authoritative communications from superiors; b) from cases referred for decision by subordinates ; c) […] iniciative of the executive
• […] most decisions produce no direct evidence […] and can only be derived from the cumulation of indirect evidence.
• The decision may be not to be decided (not pertinent, lacking data, prematurely, cannot made effective others should take)
• The fine art of executive decision consists in not deciding questions

XIV – The theory of opportunism

• Moral element is indispensable (existing purpose and an objective environment). Its antithesis is the opportunistic element, that is indispensable to the theory of organization. Action takes place in the present under present conditions and means.
• “The limiting (strategic) factor is the one whose control, in the right form, at the right place, and time, will establish a new system or set of conditions which meets the purpose. (vs complementary factors)
• “This is the meaning of effective decision – the control of the changeable strategic factors, that is, the execercise of control at the rigth time, right placce, right amount and ritgh form so that purpose is properly redefined and accomplished”.
• “Decision relates to action.[…] Purpose will have to be redefined in practical terms.
• “The unbalance in the discrimination of the facts of the environment is added the confusion of the past with present environments.”
• “Purpose is the bridge between the past and the future which functions only as it rests upon the present.”
• “The direct environment of the executive decision is primarily the internal environment of the organization itself”[…]” It is the organization, not the executive, which does the work on the external environment”.

XV – The Executive Functions

• Points of interconnection = executives
• “…executive functions the specialized work of maintaining systems of cooperative effort”
• “It is not even quite correct to say that the executive functions are to manage the system of cooperative efforts”
• Essential executives functions: 1) to provide the system of communication [executive personnel and executive positions] ; 2) to promote the securing of essential efforts ; 3) formulate and define purpose

XVI – The Executive Process

• Art rather than science
• Known by its effects rather than by analysis
• An organization is a system of cooperative human activities the functions of which are: 1) the creation 2) the transformation and 3) the exchange of utilities. It embraces 4 different kind fo economies: a) material economy, b) a social economy, c) the individual economies, and d) the organization economy.
• This philosophy of giving as little as possible and getting as much as possible in the other man’s values is the root of bad customer relations, bad labor relations, bad credit relations, bad supply relations, bad technology.
• The reward of service is more service

XVII – The Nature of the Executive Responsibility

• […] the moral factor […] spell the necessity of leadership, the power of the individuals to inspire cooperative personal decision by creating faith […]
• Cooperation, not leadership, is the creative process; but leadership is the indispensable fulminator of its forces.
• Leadership has two aspects 1) local, individual, ephemeral 2) responsible
• The point is that responsibility is the property of an individual by which whatever morality exists in him becomes effective in conduct.
• If morality to which the responsibility relates is low, the organizations are short-lived.

XVIII – Conclusion
• “I believe that the expansion of cooperation and the development of the individual are mutually dependent realities, and that a due proportion or balance between them is a necessary condition to human welfare.”

-.-.-.-.-.-.-.-.

Interesting personal discussion points:

– Barnard, even from the fact that is a practitioner, theorizes about multiple topics on management. Why so many? As a general manager, he dealed with all the different aspects of management as he said “the higher the positions in the line of authority, the more general the abilities required”. He then wanted to make a complete study of management, not only specific aspects.
– Without mentioning the current common names of the domains, he writes about strategy, human resources (ie selection, incentives), OB (ie. informal communication), structure, leadership, motivation (related to his concept of efficiency), social corporate responsibility (executive responsibility)
– strategic management (about concepts mission/ vision that he calls purpose): p137 “Understanding or acceptance of the general purpose of the complex is not, however, essential”. This idea is in confrontation with current ideas of well-defined and accepted mission/vision.
– Barnard wants to explain the main characteristics of organizations, not only commercial, but also religious, social and political. This helps him to analyze common aspects and at the same time, differentiate them.
– I used to be an executive. As an executive, I would be attracted by this book (first by its title, second the author’s background) but would expect a more practical approach and would be surprised by the lack of illustrative examples and abstract theories.