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About the Author
Herbert A. Simon is Chaired Professor in psychology and computer science at Carnegie Mellon University. Awarded the Nobel Prize in Economics in 1978, Professor Simon currently works in the field of artificial intelligence.
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Decision-Making and Administrative Organization
Administration is ordinarily discussed as the art of "getting things done." Emphasis is placed upon processes and methods for insuring incisive action. Principles are set forth for securing concerted action from groups of men. In all this discussion, however, not very much attention is paid to the choice which prefaces all action -- to the determining of what is to be done rather than to the actual doing. It is with this problem -- the process of choice which leads to action -- that the present study is concerned. In this introductory chapter the problem will be posed and a survey made of the topics to be taken up in the remaining chapters.
Although any practical activity involves both "deciding" and "doing," it has not commonly been recognized that a theory of administration should be concerned with the processes of decision as well as with the processes of action. This neglect perhaps stems from the notion that decision-making is confined to the formulation of over-all policy. On the contrary, the process of decision does not come to an end when the general purpose of an organization has been determined. The task of "deciding" pervades the entire administrative organization quite as much as does the task of "doing" -- indeed, it is integrally tied up with the latter. A general theory of administration must include principles of organization that will insure correct decision-making, just as it must include principles that will insure effective action.
DECISION-MAKING AND THE EXECUTION OF DECISIONS
It is clear that the actual physical task of carrying out an organization's objectives falls to the persons at the lowest level of the administrative hierarchy. The automobile, as a physical object, is built not by the engineer or the executive, but by the mechanic on the assembly line. The fire is extinguished, not by the fire chief or the captain, but by the team of firemen who play a hose on the blaze.
It is equally clear that the persons above this lowest or operative level in the administrative hierarchy are not mere surplus baggage, and that they too must have an essential role to play in the accomplishment of the agency's objectives. Even though, as far as physical cause and effect are concerned, it is the machine gunner and not the major who fights battles, the major is likely to have a greater influence upon the outcome of a battle than any single machine gunner.
How, then, do the administrative and supervisory staff of an organization affect that organization's work? The nonoperative staff of an administrative organization participate in the accomplishment of the objectives of that organization to the extent that they influence the decisions of the operatives -- the persons at the lowest level of the administrative hierarchy. The major can influence the battle to the extent that his head is able to direct the machine gunner's hand. By deploying his forces in the battle area and assigning specific tasks to subordinate units he determines for the machine gunner where he will take his stand and what his objective will be. In very small organizations the influence of all supervisory employees upon the operative employees may be direct, but in units of any size there are interposed between the top supervisors and the operative employees several levels of intermediate supervisors who are themselves subject to influences from above, and who transmit, elaborate, and modify these influences before they reach the operatives.
If this is a correct description of the administrative process, then the construction of an efficient administrative organization is a problem in social psychology. It is a task of setting up an operative staff and superimposing on that staff a supervisory staff capable of influencing the operative group toward a pattern of coordinated and effective behavior. The term "influencing" rather than "directing" is used here, for direction -- that is, the use of administrative authority -- is only one of several ways in which the administrative staff may affect the decisions of the operative staff; and, consequently, the construction of an administrative organization involves more than a mere assignment of functions and allocation of authority.
In the study of organization, the operative employee must be at the focus of attention, for the success of the structure will be judged by his performance within it. Insight into the structure and function of an organization can best be gained by analyzing the manner in which the decisions and behavior of such employees are influenced within and by the organization.
CHOICE AND BEHAVIOR
All behavior involves conscious or unconscious selection of particular actions out of all those which are physically possible to the actor and to those persons over whom he exercises influence and authority. The term "selection" is used here without any implication of a conscious or deliberate process. It refers simply to the fact that, if the individual follows one particular course of action, there are other courses of action that he thereby forgoes. In many cases the selection process consists simply in an established reflex action -- a typist hits a particular key with a finger because a reflex has been established between a letter on a printed page and this particular key. Here the action is, in some sense at least, rational (i.e. goal-oriented), yet no element of consciousness or deliberation is involved.
In other cases the selection is itself the product of a complex chain of activities called "planning" or "design" activities. An engineer, for example, may decide upon the basis of extensive analysis that a particular bridge should be of cantilever design. His design, further implemented by detailed plans for the structure, will lead to a whole chain of behaviors by the individuals constructing the bridge.
In this volume many examples will be given of all varieties of selection process. All these examples have in common the following characteristics: At any moment there are a multitude of alternative (physically) possible actions, any one of which a given individual may undertake; by some process these numerous alternatives are narrowed down to that one which is in fact acted out. The words "choice" and "decision" will be used interchangeably in this study to refer to this process. Since these terms as ordinarily used carry connotations of self-conscious, deliberate, rational selection, it should be emphasized that as used here they include any process of selection, regardless of whether the above elements are present to any degree.
VALUE AND FACT IN DECISION
A great deal of behavior, and particularly the behavior of individuals within administrative organizations, is purposive -- oriented toward goals or objectives. This purposiveness brings about an integration in the pattern of behavior, in the absence of which administration would be meaningless; for, if administration consists in "getting things done" by groups of people, purpose provides a principal criterion in determining what things are to be done.
The minute decisions that govern specific actions are inevitably instances of the application of broader decisions relative to purpose and to method. The walker contracts his leg muscles in order to take a step; he takes a step in order to proceed toward his destination; he is going to the destination, a mail box, in order to mail a letter; he is sending a letter in order to transmit certain information to another person, and so forth. Each decision involves the selection of a goal, and a behavior relevant to it; this goal may in turn be mediate to a somewhat more distant goal; and so on, until a relatively final aim is reached. 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."
Unfortunately, problems do not come to the administrator carefully wrapped in bundles with the value elements and the factual elements neatly sorted. For one thing, goals or final objectives of governmental organization and activity are usually formulated in very general and ambiguous terms -- "justice," "the general welfare," or "liberty." Then, too, the objectives as defined may be merely intermediate to the attainment of more final aims. For example, in certain spheres of action, the behavior of men is generally oriented around the "economic motive." Yet, for most men, economic gain is not usually an end in itself, but a means for attaining more final ends: security, comfort, and prestige.
Finally, the value and factual elements may be combined, in some cases, in a single objective. The apprehension of criminals is commonly set up as an objective of a municipal police department. To a certain extent this objective is conceived as an end in itself, that is, as aimed toward the apprehension and punishment of offenders against the law; but from another point of view apprehension is considered a means for protecting citizens, for rehabilitating offenders, and for discouraging potential offenders.
The Hierarchy of Decisions. The concept of purposiveness involves a notion of a hierarchy of decisions -- each step downward in the hierarchy consisting in an implementation of the goals set forth in the step immediately above. Behavior is purposive in so far as it is guided by general goals or objectives; it is rational in so far as it selects alternatives which are conducive to the achievement of the previously selected goals.
It should not be inferred that this hierarchy or pyramid of goals is perfectly organized or integrated in any actual behavior. A governmental agency, for instance, may be directed simultaneously toward several distinct objectives: a recreation department may seek to improve the health of children, to provide them with good uses for their leisure time, and to prevent juvenile delinquency, as well as to achieve similar goals for the adults in the community.
Even when no conscious or deliberate integration of these goals takes place in decision, it should be noted that an integration generally takes place in fact. Although in making decisions for his agency, the recreation administrator may fail to weigh the diverse and sometimes conflicting objectives against one another in terms of their relative importance, yet his actual decisions, and the direction which he gives to the policy of his agency will amount in practice to a particular set of weights for these objectives. If the program emphasizes athletics for adolescent boys, then this objective is given an actual weight in practice which it may, or may not, have had in the consciousness of the administrator planning the program. Hence, although the administrator may refuse the task, or be unable to perform it, of consciously and deliberately integrating his system of objectives, he cannot avoid the implications of his actual decisions, which achieve such a synthesis in fact.
The Relative Element in Decision. In an important sense, all decision is a matter of compromise. The alternative that is finally selected never permits a complete or perfect achievement of objectives, but is merely the best solution that is available under the circumstances. The environmental situation inevitably limits the alternatives that are available, and hence sets a maximum to the level of attainment of purpose that is possible.
This relative element in achievement -- this element of compromise -- makes even more inescapable the necessity of finding a common denominator when behavior is aimed simultaneously at several objectives. For instance, if experience showed that an organization like the Work Projects Administration could at one and the same time dispense relief and construct public works without handicapping either objective, then the agency might attempt to attain at the same time both of these objectives. If, on the other hand, experience showed that the accomplishment of either of these objectives through the organization seriously impeded the accomplishment of the other, one would have to be selected as the objective of the agency, and the other sacrificed. In balancing the one aim against the other, and in attempting to find a common denominator, it would be necessary to cease thinking of the two aims as ends in themselves, and instead to conceive them as means to some more general end.
An Illustration of the Process of Decision. In order to understand more clearly the intimate relationships that exist in any practical administrative problem between judgments of value and fact, it will be helpful to study an example from the field of municipal government.
What questions of value and fact arise in the opening and improvement of a new street? It is necessary to determine: (1) the design of the street, (2) the proper relationship of the street to the master plan, (3) means of financing the project, (4) whether the project should be let on contract or done by force account, (5) the relation of this project to construction that may be required subsequent to the improvement (e.g., utility cuts in this particular street), and (6) numerous other questions of like nature. These are questions for which answers must be found -- each one combining value and factual elements. A partial separation of the two elements can be achieved by distinguishing the purposes of the project from its procedures.
On the one hand, decisions regarding these questions must be based upon the purposes for which the street is intended, and the social values affected by its construction -- among them, (1) speed and convenience in transportation, (2) traffic safety, (3) effect of street layout on property values, (4) construction costs, and (5) distribution of cost among taxpayers.
On the other hand, the decisions must be made in the light of scientific and practical knowledge as to the effect particular measures will have in realizing these values. Included here are (1) the relative smoothness, permanence, and cost of each type of pavement, (2) relative advantages of alternate routes from the standpoint of cost and convenience to traffic, and (3) the total cost and distribution of cost for alternative methods of financing.
The final decision, then, will depend both on the relative weight that is given to the different objectives and on judgment as to the extent to which any given plan will attain each objective.
This brief account will serve to indicate some of the basic features of the process of decision -- features that will be further elaborated in this study.
DECISION-MAKING IN THE ADMINISTRATIVE PROCESS
Administrative activity is group activity. Simple situations are familiar where a man plans and executes his own work; but as soon as a task grows to the point where the efforts of several persons are required to accomplish it this is no longer possible, and it becomes necessary to develop processes for the application of organized effort to the group task. The techniques which facilitate this application are the administrative processes.
It should be noted that the administrative processes are decisional processes: they consist in segregating certain elements in the decisions of members of the organization, and establishing regular organizational procedures to select and determine these elements and to communicate them to the members concerned. If the task of the group is to build a ship, a design for the ship is drawn and adopted by the organization, and this design limits and guides the activities of the persons who actually construct the ship.
The organization, then, takes from the individual some of his decisional autonomy, and substitutes for it an organization decision-making process. The decisions which the organization makes for the individual ordinarily (1) specify his function, that is, the general scope and nature of his duties; (2) allocate authority, that is, determine who in the organization is to have power to make further decisions for the individual; and (3) set such other limits to his choice as are needed to coordinate the activities of several individuals in the organization.
The administrative organization is characterized by specialization -- particular tasks are delegated to particular parts of the organization. It has already been noted above that this specialization may take the form of "vertical" division of labor. A pyramid or hierarchy of authority may be established, with greater or less formality, and decision-making functions may be specialized among the members of this hierarchy.
Most analyses of organization have emphasized "horizontal" specialization -- the division of work -- as the basic characteristic of organized activity. Luther Gulick, for example, in his "Notes on the Theory of Organization," says: "Work division is the foundation of organization; indeed, the reason for organization." In this study we shall be primarily concerned with "vertical" specialization -- the division of decision-making duties between operative and supervisory personnel. One inquiry will be into the reasons why the operative employees are deprived of a portion of their autonomy in the making of decisions and subjected to the authority and influence of supervisors.
There would seem to be at least three reasons for vertical specialization in organization. First, if there is any horizontal specialization, vertical specialization is absolutely essential to achieve coordination among the operative employees. Second, just as horizontal specialization permits greater skill and expertise to be developed by the operative group in the performance of their tasks, so vertical specialization permits greater expertise in the making of decisions. Third, vertical specialization permits the operative personnel to be held accountable for their decisions: to the board of directors in the case of a business organization; to the legislative body in the case of a public agency.
Coordination. Group behavior requires not only the adoption of correct decisions, but also the adoption by all members of the group of the same decisions. Suppose ten persons decide to cooperate in building a boat. If each has his own plan, and they do not communicate their plans, the chances are that the resulting craft will not be very seaworthy; they would probably meet with better success if they adopted even a very mediocre design, and if then all followed this same design.
By the exercise of authority or other forms of influence, it is possible to centralize the function of deciding so that a general plan of operations will govern the activities of all members of the organization. This coordination may be either procedural or substantive in nature: by procedural coordination is meant the specification of the organization itself -- that is, the generalized description of the behaviors and relationships of the members of the organization. Procedural coordination establishes the lines of authority and outlines the sphere of activity of each organization member, while substantive coordination specifies the content of his work. In an automobile factory, an organization chart is an aspect of procedural coordination; blueprints for the engine block of the car being manufactured are an aspect of substantive coordination.
Expertise. To gain the advantages of specialized skill at the operative level, the work of an organization must be so subdivided that all processes requiring a particular skill can be performed by persons possessing that skill. Likewise, to gain the advantages of expertise in decision-making, the responsibility for decisions must be so allocated that all decisions requiring a particular skill can be made by persons possessing that skill.
To subdivide decisions is rather more complicated than to subdivide performance; for, while it is not usually possible to combine the sharp eye of one workman with the steady hand of another to secure greater precision in a particular operation, it is often possible to add the knowledge of a lawyer to that of an engineer in order to improve the quality of a particular decision.
Responsibility. Writers on the political and legal aspects of authority have emphasized that a primary function of organization is to enforce the conformity of the individual to norms laid down by the group, or by its authority-wielding members. The discretion of subordinate personnel is limited by policies determined near the top of the administrative hierarchy. When the maintenance of responsibility is a central concern, the purpose of vertical specialization is to assure legislative control over the administrator, leaving to the administrative staff adequate discretion to deal with technical matters which a legislative body composed of laymen would not be competent to decide.
MODES OF ORGANIZATIONAL INFLUENCE
Decisions reached in the higher ranks of the organization hierarchy will have no effect upon the activities of operative employees unless they are communicated downward. Consideration of the process requires an examination of the ways in which the behavior of the operative employee can be influenced. These influences fall roughly into two categories: (1) establishing in the operative employee himself attitudes, habits, and a state of mind which lead him to reach that decision which is advantageous to the organization, and (2) imposing on the operative employee decisions reached elsewhere in the organization. The first type of influence operates by inculcating in the employee organizational loyalties and a concern with efficiency, and more generally by training him. The second type of influence depends primarily upon authority and upon advisory and informational services. It is not insisted that these categories are either exhaustive or mutually exclusive, but they will serve the purposes of this introductory discussion.
As a matter of fact, the present discussion is somewhat more general than the preceding paragraph suggests, for it is concerned with organizational influences not only upon operative employees but upon all individuals making decisions within the organization.
Authority. The concept of authority has been analyzed at length by students of administration. We shall employ here a definition substantially equivalent to that put forth by C. I. Barnard. A subordinate is said to accept authority whenever he permits his behavior to be guided by the decision of a superior, without independently examining the merits of that decision. When exercising authority, the superior does not seek to convince the subordinate, but only to obtain his acquiescence. In actual practice, of course, authority is usually liberally admixed with suggestion and persuasion.
Although it is an important function of authority to permit a decision to be made and carried out even when agreement cannot be reached, perhaps this arbitrary aspect of authority has been overemphasized. In any event, if it is attempted to carry authority beyond a certain point, which may be described as the subordinate's "zone of acceptance," disobedience will follow. The magnitude of the zone of acceptance depends upon the sanctions which authority has available to enforce its commands. The term "sanctions" must be interpreted broadly in this connection, for positive and neutral stimuli -- such as community of purpose, habit, and leadership -- are at least as important in securing acceptance of authority as the threat of physical or economic punishment.
It follows that authority, in the sense here defined, can operate "upward" and "sidewise" as well as "downward" in the organization. If an executive delegates to his secretary a decision about file cabinets and accepts her recommendation without reexamination of its merits, he is accepting her authority. The "lines of authority" represented on organization charts do have a special significance, however, for they are commonly resorted to in order to terminate debate when it proves impossible to reach a consensus on a particular decision. Since this appellate use of authority generally requires sanctions to be effective, the structure of formal authority in an organization usually is related to the appointment, disciplining, and dismissal of personnel. These formal lines of authority are commonly supplemented by informal authority relations in the day-to-day work of the organization, while the formal hierarchy is largely reserved for the settlement of disputes.
Organizational Loyalties. It is a prevalent characteristic of human behavior that members of an organized group tend to identify with that group. In making decisions their organizational loyalty leads them to evaluate alternative courses of action in terms of the consequences of their action for the group. When a person prefers a particular course of action because it is "good for America," he identifies himself with Americans; when he prefers it because it will "boost business in Berkeley," he identifies himself with Berkeleyans. National and class loyalties are examples of identifications which are of fundamental importance in the structure of modern society.
The loyalties that are of particular interest in the study of administration are those which attach to administrative organizations or segments of such organizations. The regimental battle flag is the traditional symbol of this identification in military administration; in civil administration, a frequently encountered evidence of loyalty is the cry, "Our Bureau needs more funds!"
This phenomenon of identification, or organizational loyalty, performs one very important function in administration. If an administrator, each time he is faced with a decision, must perforce evaluate that decision in terms of the whole range of human values, rationality in administration is impossible. If he need consider the decision only in the light of limited organizational aims, his task is more nearly within the range of human powers. The fireman can concentrate on the problem of fires, the health officer on problems of disease, without irrelevant considerations entering in.
Furthermore, this concentration on a limited range of values is almost essential if the administrator is to be held accountable for his decisions. When the organization's objectives are specified by some higher authority, the major value-premise of the administrator's decisions is thereby given him, leaving to him only the implementation of these objectives. If the fire chief were permitted to roam over the whole field of human values -- to decide that parks were more important than fire trucks, and consequently to remake his fire department into a recreation department -- chaos would displace organization, and responsibility would disappear.
Organizational loyalties lead also, however, to certain difficulties which should not be underestimated. The principal undesirable effect of identification is that it prevents the institutionalized individual from making correct decisions in cases where the restricted area of values with which he identifies himself must be weighed against other values outside that area. This is a principal cause of the interbureau competition and wrangling which characterize any large administrative organization. The organization members, identifying themselves with the bureau instead of with the over-all organization, believe the bureau's welfare more important than the general welfare when the two conflict. This problem is frequently evident in the case of "housekeeping" agencies, where the facilitative and auxiliary nature of the agency is lost sight of in the effort to force the line agencies to follow standard procedures.
Organizational loyalties also result in incapacitating almost any department head for the task of balancing the financial needs of his department against the financial needs of other departments -- whence the need for a centrally located budget agency that is free from these psychological biases. The higher we go in the administrative hierarchy, and the broader becomes the range of social values that must come within the administrator's purview, the more harmful is the effect of valuational bias, and the more important is it that the administrator be freed from his narrower identifications.
The Criterion of Efficiency. We have seen that the exercise of authority and the development of organizational loyalties are two principal means whereby the individual's value-premises are influenced by the organization. What about the issues of fact that underlie his decisions? These are largely determined by a principle that is implied in all rational behavior: the criterion of efficiency. In its broadest sense, to be efficient simply means to take the shortest path, the cheapest means, toward the attainment of the desired goals. The efficiency criterion is completely neutral as to what goals are to be attained. The commandment, "Be efficient!" is a major organizational influence over the decisions of the members of any administrative agency; and a determination whether this commandment has been obeyed is a major function of the review process.
Advice and Information. Many of the influences the organization exercises over its members are of a less formal nature than those we have been discussing. These influences are perhaps most realistically viewed as a form of internal public relations, for there is nothing to guarantee that advice produced at one point in an organization will have any effect at another point in the organization unless the lines of communication are adequate to its transmission, and unless it is transmitted in such form as to be persuasive. It is a prevalent misconception in headquarters offices that the internal advisory function consists in preparing precisely worded explanatory bulletins and making certain that the proper number of these are prepared, and that they are placed in the proper compartment of the "router." No plague has produced a rate of mortality higher than the rate that customarily afflicts central-office communications between the time they leave the issuing office and the moment when they are assumed to be effected in the revised practice of the operative employees.
Information and advice flow in all directions through the organization -- not merely from the top downward. Many of the facts that are relevant to decision are of a rapidly changing nature, ascertainable only at the moment of decision, and often ascertainable only by operative employees. For instance, in military operations knowledge of the disposition of the enemy's forces is of crucial importance, and military organization has developed elaborate procedures for transmitting to a person who is to make a decision all relevant facts that he is not in a position to ascertain personally.
Training. Like organizational loyalties and the efficiency criterion, and unlike the other modes of influence we have been discussing, training influences decisions "from the inside out." That is, training prepares the organization member to reach satisfactory decisions himself, without the need for the constant exercise of authority or advice. In this sense, training procedures are alternatives to the exercise of authority or advice as means of control over the subordinate's decisions.
Training may be of an in-service or a pre-service nature. When persons with particular educational qualifications are recruited for certain jobs, the organization is depending upon this pre-training as a principal means of assuring correct decisions in their work. The mutual relation between training and the range of discretion that may be permitted an employee is an important factor to be taken into consideration in designing the administrative organization. That is, it may often be possible to minimize, or even dispense with, certain review processes by giving the subordinates training that enables them to perform their work with less supervision. Similarly, in drafting the qualifications required of applicants for particular positions, the possibility should be considered of lowering personnel costs by drafting semi-skilled employees and training them for particular jobs.
Training is applicable to the process of decision whenever the same elements are involved in a large number of decisions. Training may supply the trainee with the facts necessary in dealing with these decisions; it may provide him a frame of reference for his thinking; it may teach him "approved" solutions; or it may indoctrinate him with the values in terms of which his decisions are to be made.
THE EQUILIBRIUM OF THE ORGANIZATION
The question may next be raised why the individual accepts these organizational influences -- why he accommodates his behavior to the demands the organization makes upon him. To understand how the behavior of the individual becomes a part of the system of behavior of the organization, it is necessary to study the relation between the personal motivation of the individual and the objectives toward which the activity of the organization is oriented.
If a business organization be taken, for the moment, as the type, three kinds of participants can be distinguished: entrepreneurs, employees, and customers. Entrepreneurs are distinguished by the fact that their decisions ultimately control the activities of employees; employees, by the fact that they contribute their (undifferentiated) time and efforts to the organization in return for wages; customers, by the fact that they contribute money to the organization in return for its products. (Any actual human being can, of course, stand in more than one of these relations to an organization, e.g. a Red Cross volunteer, who is really a composite customer and employee.)
Each of these participants has his own personal motives for engaging in these organizational activities. Simplifying the motives and adopting the standpoint of economic theory, we may say that the entrepreneur seeks profit (i.e. an excess of revenues over expenditures), the employees seek wages, and the customers find (at certain prices) the exchange of money for products attractive. The entrepreneur gains the right to dispose of the employees' time by entering into employment contracts with them; he obtains funds to pay wages by entering into sales contracts with the customers. If these two sets of contracts are sufficiently advantageous, the entrepreneur makes a profit and, what is perhaps more important for our purposes, the organization remains in existence. If the contracts are not sufficiently advantageous, the entrepreneur becomes unable to maintain inducements to keep others in organized activity with him, and may even lose his own inducement to continue his organizational efforts. In either event, the organization disappears unless an equilibrium can be reached at some level of activity. In any actual organization, of course, the entrepreneur will depend upon many inducements other than the purely economic ones mentioned above: prestige, "good will," loyalty, and others.
In an organization such as that just described, there appears, in addition to the personal aims of the participants, an organization objective, or objectives. If the organization is a shoe factory, for example, it assumes the objective of making shoes. Whose objective is this -- the entrepreneur's, the customers', or the employees'? To deny that it belongs to any of these would seem to posit some "group mind," some organismic entity which is over and above its human components. The true explanation is simpler: the organization objective is, indirectly, a personal objective of all the participants. It is the means whereby their organizational activity is bound together to achieve a satisfaction of their own diverse personal motives. It is by employing workers to make shoes and by selling them that the entrepreneur makes his profit; it is by accepting the direction of the entrepreneur in the making of shoes that the employee earns his wage; and it is by buying the finished shoes that the customer obtains his satisfaction from the organization. Since the entrepreneur wishes a profit, and since he controls the behavior of the employees (within their respective areas of acceptance), it behooves him to guide the behavior of the employees by the criterion of "making shoes as efficiently as possible." In so far, then, as he can control behavior in the organization, he establishes this as the objective of the behavior.
It is to be noted that the objectives of the customer are very closely, and rather directly, related to the objectives of the organization; the objectives of the entrepreneur are closely related to the survival of the organization; while the objectives of the employee are directly related to neither of these, but are brought into the organization scheme by the existence of his area of acceptance. Granted that pure "entrepreneurs," "customers," and "employees" do not exist; granted further that this scheme needs to be modified somewhat to fit voluntary, religious, and governmental organizations, still it is the existence of these three type roles which gives behavior in administrative organizations the particular character that we recognize.
ORGANIZATION OF THIS VOLUME
The framework of the investigation that is to be undertaken in subsequent chapters has now been set forth. We may conclude the present chapter by outlining briefly the order in which the various topics will be taken up.
Chapter II is also, in a sense, prefatory. The present work was undertaken partly as a result of the author's dissatisfaction with the so-called "principles of administration" that are to be found in the current literature of administrative theory. In Chapter II these principles are subjected to critical analysis with a view to showing their inadequacy and the need for their development along the lines suggested here.
In Chapter III, the exposition, properly speaking, begins with an analysis of the role played by value questions and questions of fact in administrative decision. This is followed, in Chapter IV, by a description of the conceptual apparatus that will be used throughout the volume for the description and analysis of social behavior systems, including behavior in administrative organizations.
Chapter V will consider the psychology of the individual in the organization and the ways in which the organization modifies his behavior. In Chapter VI the organization will be viewed as a system of individuals whose behavior maintains some sort of equilibrium -- along lines suggested above. Chapter VII will analyze in detail the role of authority and vertical specialization in organization, and the organizational processes through which such specialization is effectuated. Chapter VIII is concerned with the process of communication whereby organizational influences are transmitted. In Chapter IX the concept of efficiency will be examined in detail, and in Chapter X, organizational loyalty, or identifications.
Chapter XI brings the volume to a close with a survey of the structure of administrative organizations and a discussion of the problems faced by research in administrative theory.
COMMENTARY ON CHAPTER I
DECISION-MAKING AND ADMINISTRATIVE ORGANIZATION
This commentary on Chapter I enlarges on several of the topics discussed there. It says a little more about the nature of the organizations in which decision-making is embedded. It discusses the respective roles of organizations and markets in coordinating behavior in a modem industrial society. It introduces the topic, to be developed in later chapters, of the impact that computers have had and are having upon organizations. Then, it elaborates further on the "vertical" specialization of decision-making introduced in the chapter. Finally, it comments briefly on lines of organizational research and theory, especially those related to the decision-making process, that have emerged since Administrative Behavior was first published.
ORGANIZATION AND PERSONALITY
In recent years, organizations have not had a good press. Large organizations, especially large corporations and Big Government, have been blamed for all manner of social ills, including widespread "alienation" of both workers and executives from their work and from society, with resulting "bureaucracy" and organizational inefficiency. As we shall see later, the empirical evidence that alienation or inefficiency are more widespread than they have been in previous ages and in other societies is nonexistent, as is any evidence that alienation is to be attributed to organizations. However, this kind of criticism has one merit: It takes organizations seriously and recognizes that they do influence the behavior of the people who inhabit them.
A rather different skeptical view of organizations, often expressed by managers, is that it is the person who matters, not the organization. I am sure you have heard it many times: "I used to think that organization was important, but now I think it is much more a matter of personality. The important thing is the person in the office. Someone who has drive, ability, imagination can work in almost any organization." To be sure, "personality" is a useful concept. But that personal characteristics are important for organizational performance does not imply that organizational characteristics are unimportant. The complex world of human affairs does not operate in such simpleminded single-variable ways.
Moreover, personality is not formed in a vacuum. One's language is not independent of the language of one's parents, nor are one's attitudes divorced from those of associates and teachers. One does not live for months or years in a particular position in an organization, exposed to some streams of communication, shielded from others, without the most profound effects upon what one knows, believes, attends to, hopes, wishes, emphasizes, fears, and proposes.
If organization is inessential, if all we need is the person, why do we insist on creating a position for the person? Why not let all create their own positions, appropriate to their personal abilities and qualities? Why does the boss have to be called the boss before his or her creative energies can be amplified by the organization? And finally, if we have to give managers some measure of authority before their personal qualities can be transformed into effective influence, in what ways may this effectiveness depend on the manner in which others are organized?
The answer is simple. Organization is important, first, because it provides the environments that mold and develop personal qualities and habits (see especially Chapters V and X). Organization is important, second, because it provides those in responsible positions with the means for exercising authority and influence over others (see especially Chapter VII). Organization is important, third, because, by structuring communications, it determines the environments of information in which decisions are taken (see especially Chapter VIII). We cannot understand either the "inputs" or the "outputs" of executives without understanding the organizations in which they work. Their behavior and its effects on others are functions of their organizational situations.
MEANING OF THE TERM "ORGANIZATION"
The tendency to downplay organizational factors in executive behavior stems from misunderstanding of the term "organization." To many persons, an organization is embodied in charts or elaborate manuals of job descriptions and formal procedures. In such charts and manuals the organization takes on more the appearance of a series of orderly cubicles following an abstract architectural logic than a house inhabited by human beings. And the charting and manual-writing activities of the Departments of Organization that one finds in large corporations and governmental agencies more often reinforce than dispel this stereotype.
In this book, the term organization refers to the pattern of communications and relations among a group of human beings, including the processes for making and implementing decisions. This pattern provides to organization members much of the information and many of the assumptions, goals, and attitudes that enter into their decisions, and provides also a set of stable and comprehensible expectations as to what the other members of the group are doing and how they will react to what one says and does. The sociologist calls this pattern a "role system"; we are concerned with the form of role system known as an "organization."
Much of what an executive does has its principal short-run effect on day-to-day operations. The executive makes a decision about a product price, a contract for materials, the location of a plant, or an employee's grievance. Each decision has the immediate effect of settling the specific question at hand. But the most important cumulative effect of this stream of decisions and refusals to decide -- like the erosion caused by a steady trickle of water -- is upon the patterns of action in the organization surrounding the executive. How will the next contract be made? Will it be brought to the executive at all, or handled by subordinates? What preparatory work will have been done before it reaches the executive, and what policies will guide those who handle it? And after the next contract, what about the next ten and the next hundred?
Every executive makes decisions and takes actions with one eye on the matter at hand and one eye on the effect of this decision upon the future pattern -- that is to say, upon its organizational consequences.
ORGANIZATIONS AND MARKETS
One cannot discuss organizations as coordinators of human action without referring to another powerful coordinating mechanism in modern societies: markets. In fact, the currently popular denigration of organizations is the obverse face to the acclamation of markets as the ideal mechanism for economic and social integration. The dissolution of the Soviet Union was widely hailed as a clear demonstration of the superiority of the market over centralized planning as a social organizer. Subsequent events have taught us that the matter is a good deal more complex than that. Markets do indeed seem to work, in modern industrial economies, more effectively than central plans. But as the Russian, and even our own, experience shows, markets only work effectively in the presence of a healthy infrastructure, and in particular, in an environment of efficiently managed business finns and other organizations. Markets complement organizations; they do not replace them.
Visitors from another planet might be surprised to hear our society described as a market economy. They might ask why we don't call it an organizational economy. After all, they observe large agglomerations of people working in organizations. They encounter large business firms, public agencies, universities. They have learned that 80 percent or more of the people who work in an industrialized society work inside the skins of organizations, most of them having very little direct contact, as employees, with markets. Consumers make frequent use of markets; most producers are embedded in large organizations. Our visitors might well suggest that, at the least, we should call our society an organization-and-market society.
In neoclassical economics, organizations are dealt with in "the theory of the firm." But the business firm of economic theory is a pitifully skeletonized abstraction. It consists of little more than an "entrepreneur" who seeks to maximize the firm's profits by selecting a manufacturing volume and price, and to do so, uses a production function (which relates outputs to inputs) and a cost function (which prices these outputs and inputs as a function of volume). The theory says nothing about the technology that underlies the firm's production function, the motivations that govern the decisions of managers and employees, or the processes that lead to the maximizing decisions. In particular, it does not ask how the actors acquire the information required for these decisions, how they make the necessary calculations, or even, and this is the crux of the matter -- whether they are capable of making the kinds of decisions postulated by utility-maximizing or profit-maximizing theory. The "entrepreneur" of economic theory makes static decisions in a fixed framework, bearing little resemblance to the active innovator who launches new enterprises and explores new paths.
Much of this book is devoted to filling out (and correcting) this impoverished description of organizations. Major attention will be given (beginning in Chapters IV and V) to the ways in which people actually make decisions, and how their decision-making processes are molded by limits on their knowledge and computational capabilities (bounded rationality). Other chapters (especially Chapters VI and IX) will seek to explain how the members of organizations are motivated to act in support of the organizations' goals, and how they acquire organizational loyalties.
In recent years, there has been some attempt, under the label of the "new institutional economics," to find a place in economic theory for real organizations. The key idea is to regard most organizational phenomena as simply another kind of market behavior, of market interaction between employees and their employers. This view focuses on the employment contract. The new institutional economics tries to explain how organizations operate by analyzing the employment contract and other explicit or implied contracts that individuals have with organizations.
Although this approach represents an improvement over the skeleton it replaces, it also has grave limitations. In actual fact, all of us who are employees of organizations are governed in our actions not only by our immediate personal gain but (to an important extent) by an intent to contribute to the accomplishment of the goals of the organization. It is only possible for organizations to operate successfully if, for much of the time, most of their employees, when dealing with problems and making decisions, are thinking not just of their own personal goals but of the goals of the organization. Whatever their ultimate motivations, organizational goals must bulk large in employees' and managers' thinking about what is to be done.
The new institutional economics tries to explain these motivations as produced by enforcement of the employment contract through authority and rewards for good performance. But it is well known that a system of sanctions and rewards can produce, by itself, only minimally productive performance. Hence a realistic theory of organizations must explain the other sources of motivation to advance organizational goals. Succeeding chapters will have a great deal to say about these motivational issues, and especially about the nature and psychological roots of organizational loyalty.
DECISION-MAKING AND THE COMPUTER
The first edition of this book was published shortly after the first modern electronic computer came into the world and some years before it found even the most prosaic applications in management. In spite of the extensive use of computers in organizations today, we still live pretty much in the horseless carriage stage of computer development. That is, we use computers to perform more rapidly and cheaply than before the same functions that we formerly carried out with adding machines and typewriters. Apart from some areas of middle-management decision, where techniques like linear programming (from operations research) and expert systems (from artificial intelligence) are now widely employed, computers have changed executive decision-making processes and the shapes of organization designs only modestly.
We must be cautious, however, about extrapolating from past to future. The automobile, when it first appeared, also had a modest impact: It took over tasks formerly performed by horse and wagon. It gave few hints of its future enormous effects on our whole transportation system and, indeed, on our whole society -- suburbanization, mobile homes, the long-distance family vacation, to mention just a few obvious examples.
We have learned by now that the computer, too, is something far different from an oversized adding machine, and far more significant for our society. But its significance is only just beginning to emerge, the appearance of personal computers about a decade ago perhaps being a decisive turning point. One way to conjecture what important novel tasks computers may take on is to review the many metaphors that have been applied to them. First, the computer is an incredibly powerful number cruncher. We have already proceeded, especially in engineering and science, a considerable way toward discovering what can be done by number crunching, but we will find new uses as computer power continues to increase. Second, the computer is a large memory, and we are just now beginning to explore (for example, on the World Wide Web) how large data bases must be organized so that they can be accessed selectively and cheaply in order to extract the information they contain that is relevant to our specific tasks.
Third, the computer is an expert, capable of matching human professional-level performance in some areas of medical diagnosis, of engineering design, of chess playing, of legal search, and increasing numbers of others. Fourth, the computer is the core of a new worldwide network of communications, an "information superhighway." Everyone can now communicate with "everyone," almost instantaneously. Fifth, the computer is a "giant brain," capable of thinking, problem solving, and, yes, making decisions. We are continually finding new areas of decision -- evaluating credit risks, investing funds, scheduling factories, diagnosing corporate financial problems -- where computers can play an important role or sometimes do the whole task.
From the capabilities of computers for pouring out large volumes of information, it has been easy to draw the wrong conclusion: that the main condition for exploiting the computer more fully is to enhance its powers of information storage and information diffusion. On the contrary, the central lesson that the computer should teach is that information is no longer scarce or in dire need of enhanced distribution. In contrast with past ages, we now live in an information-rich world.
In our enthusiasm for global networks of unlimited information, we sometimes lose sight of the fact that a new scarcity has been created: the scarcity of human time for attending to the information that flows in on us. The information revolution has multiplied the amount of information that a single person can scatter around an organization, or around the world; it has not increased the number of hours a day that each person has available for digesting information. The main requirement in the design of organizational communication systems is not to reduce scarcity of information but to combat the glut of information, so that we may find time to attend to that information which is most relevant to our tasks -- something that is possible only if we can find our way expeditiously through the morass of irrelevancies that our information systems contain.
Chapter VIII and its commentary explore the problems of communication and organization design in a world where information is not scarce, but time to attend to it is. The commentary explains why the first, and even second, generations of management information systems and management decision aids have generally been something less than a great success, and sketches the forms that more effective information systems may be expected to take in the future.
"VERTICAL" DECISION-MAKING: THE ANATOMY OF THE DECISION PROCESS
Chapter I refers to "vertical" specialization: the division of decision-making duties between operative and supervisory personnel. The chapter also notes that the subdivision of decision-making into components goes much farther than this. Any important decision is based on numerous facts (or suppositions of fact) as well as numerous values, side conditions, and constraints. We can think of all of these facts and values as the premises of the final decision -- the raw material inputs, so to speak, to an assembly process that ends with the decision itself.
The manufacture of a physical product can be carried out in a large number of specialized departments: for converting the raw materials, fabricating them into components of the final product, assembling the components, and finishing the product. In the same way, a decision can be divided into components, each fabricated by specialists and specialized groups, and finally brought together into a coordinated picture. Thus, reaching a decision to put a new product on the market may require contributions of facts and goals from design engineers (improving the product or lowering its cost), manufacturing engineers (simplifying the manufacturing process by redesign), marketing specialists (predicting the size and nature of the prospective market), financial specialists (designing alternative methods of financing a new factory), legal specialists (identifying prospective patent problems, product liability), and so on. Throughout this book, we will use the term decision premises to refer to the facts and values that enter into this decision-fabricating process, a process that involves fact-finding, design, analysis, reasoning, negotiation, all seasoned with large quantities of "intuition" and even guessing.
A major task in organizing is to determine, first, where the knowledge is located that can provide the various kinds of factual premises that decisions require, and, second, to what positions responsibility can reliably be assigned for specifying the goals to be realized and the constraints and side conditions a decision must satisfy. Designing effective processes for composing premises into decisions is as important as designing effective processes for fabricating and distributing the organization's products. A considerable part of this book will be concerned with identifying the origins of different kinds of decision premises and tracing their processes of assembly.
THE SOCIOLOGY AND PSYCHOLOGY OF ORGANIZATIONS
The question is sometimes asked whether an analysis of organizations in terms of decision-making processes is "sociological" or "psychological." The question is a bit odd; it is like asking whether molecular biology is biology or chemistry. The correct answer in either case is "both." This book analyzes organizations in terms of the decision-making behavior of their participants, but it is precisely the organizational system surrounding this behavior that gives it its special character. The roles of organization members are shaped by the goals with which they identify, and goal identifications, in turn, depend heavily upon location in the organization and the pattern of organizational communication.
The concept of role provides the standard sociological explanation of behavior -- the captain goes down with his ship because he has accepted the role of captain, and that is what captains do in our culture. There is a reason, however, for describing behavior in organizations in terms of decision premises instead of roles. In its original connotation of dramatic part, "role" implies too specific a pattern of behavior. A mother does not speak set lines; her role behavior adapts to and depends upon the situation in which she finds herself. Moreover, there is room for all sorts of idiosyncratic variation in the enactment of a social role.
The difficulties in role theory drop away if we view social influence as influence upon decision premises. A role is a specification of some, but not all, of the premises that underlie an individual's decisions. Many other premises also enter into the same decision, including informational premises and idiosyncratic premises that are expressive of personality differences. For some purposes it may be enough to know the role premises to predict a choice. For other purposes, the informational premises or others may be the crucial ones.
Unless the premise is taken as the unit, role theory commits an error that is just the opposite of the one committed by economic theory -- it does not leave any room for rationality. If a role is a pattern of behavior, the role may be functional from a social standpoint, but the performer of the role cannot be a rational actor, or even an actor with volition -- the performer simply acts his or her part. On the other hand, if a role consists in the specification of value and factual premises, then the enactor of the role will often have to think and solve problems in order to use these facts to attain these values. A role defined in terms of premises leaves room for calculation in behavior, and for the involvement of the actor's knowledge, wants, and emotions.
Of course, decision-making analysis is not the only approach to the study of organizations, any more than biochemistry is the only approach to the study of organisms. A number of investigators, especially sociologists, prefer to look at more global characteristics of organizations and to relate these to variables like organization size or organizational environment. Such studies have an important place in research on organizations; but ultimately, of course, we wish to find the connections between the various levels of inquiry. If organizations that operate in different industries (e.g., steel companies as compared with advertising agencies) typically take on different structural characteristics, we will want to explain these latter differences in terms of underlying differences in decisionmaking requirements. The differences in requirements will reflect, in turn, differences in the environments in which the organizations operate.
Decision-making in organizations does not go on in isolated human heads. Instead, one member's outputs become the inputs of another. At each step, the process draws upon the body of knowledge and skills that is stored both in the memories of employees and in the organization's data bases and computer programs. Because of this interrelatedness, supported by a rich network of partially formalized but partially informal communications, decision-making is an organized system of relations, and organizing is a problem in system design. Readers can decide for themselves, while they continue through the pages of this book, whether they are reading "psychology" or "sociology," or they can decide that it doesn't matter. I confess that I hold the latter view.
DEVELOPMENTS IN ORGANIZATIONS AND THEIR THEORY
A major function of the commentaries appended to the chapters of this edition is to discuss the changes in organizations and the changes in organization theory that have taken place since the first edition was published, and that are still taking place. Changes in theory are, of course, a different matter from changes in organizations, and the former might occur even if there were none of the latter (or vice versa). In any event, we need to distinguish the one from the other, and make clear which we are discussing at any given time.
"Schools" of Organization Theory
Surveys of organization theory frequently classify the writings on which they comment according to "schools." A recent collection of writings on organization recognizes eight such "schools": classical; neoclassical; organizational behavior (a.k.a. human resources); "modern" structural; systems, contingency, and population ecology; multiple constituencies/market organization; power and politics; organizational culture and symbolic management. What are we to make of all of this?
The notion of "schools," applied to a field of science, is an old-fashioned idea that has worn out its usefulness in management and organization theory. In biology or geology, we do not have schools, but we do have specialized domains of knowledge and theory: for examples, molecular genetics, cell biology, developmental biology, and population genetics in biology; geophysics, paleontology, oceanography, and petroleum geology in geology. Unlike "schools," these domains are not competing theories but sets of phenomena and knowledge about them that are sufficiently separable that they can be examined, at least for many purposes, independently, then related and given their proper place in a larger structure.
Theories in a science do change gradually, but at any given point in time only a few of them are at the frontier of conjecture and controversy. Moreover, only rarely do the advances of science involve the overthrow of major theories. What we normally see is steady accumulation in which theories, confronted with new bodies of fact and new phenomena, are strengthened, augmented, and modified. Even the great "revolutions" of relativity and quantum mechanics did not displace Newtonian mechanics and Maxwell's equations from key positions in physical theory.
In the developments of organization theory represented by the "schools" listed above, I do not see any conceptual earthquakes, but I do see substantial and continuing progress, triggered by careful observation and sometimes experimentation. The so-called neoclassical theory, of which this book is supposed by Shafritz and Ott to be an example, did question some of the overgeneralized "laws" of the classical theory, and did propose carrying out organizational analysis in terms of decision-making, a somewhat novel, but not unprecedented, idea. But when we compare Administrative Behavior with the theory that preceded and followed it, we see that the hierarchy of authority and the modes of organizational departmentalization, to take two important examples, are still central concepts of organization theory. As the last half of Chapter II will make clear, these concepts continue to maintain this central role up to the present day.
For example, "modern" structural organization theory and contingency theory both continue to examine departmentalization. The former explores alternatives to pure hierarchy and unity of command (already questioned by the "neoclassicists"), proposing such forms as matrix organizations or organization by project. Contingency theory continues the exploration (initiated in the "proverbs" discussion of Chapter II of this book) of the way in which departmentalization depends on the technological, market, and other environments of the organization.
In a similar way, the concepts of systems, multiple constituencies, power and politics, and organization culture all flow quite naturally from the concept of organizations as complex interactive structures held together by a balance of the inducements provided to various groups of participants and the contributions received from them -- a concept that originated with Bamard and is further developed in Chapter VI of this book and by the other "neoclassicists." In particular, the notions of organizational culture and symbolic organization theory carry forward ideas that are discussed in this book in terms of the inducement-contribution network and the organizational identifications it generates.
Similar comparisons could be made with the other terms the recent literature introduces. I emphasize these continuities because the proliferation of terms in administrative theory, well beyond the numbers of new concepts these terms denote, has done a serious disservice to students, making complex and confusing what is perhaps rather straightforward. Confucius attached great importance to "the rectification of names" -- putting the right label on things. We need to be less concerned with rectifying names than with avoiding the multiplication of names. We need to attach the same names to concepts wherever those concepts are used. If we do this, we find that we do not need separate representations for the eight "schools" of organization theory, but that they fit rather nicely as developments of a single conceptual framework. Of course, I have a certain partiality to the way in which that framework is described in Administrative Behavior, but it is more important that we learn to build our science in cumulative fashion than that any particular formulation of it survive.
Changes in Organizations
Earlier, I expressed the view that people inhabiting organizations today would not find either the organizations of two thousand years ago or those of the future wholly unfamiliar. However, this view has been challenged recently, particularly by those who see modern electronic computers and communication networks as harbingers of a great revolution in the nature of work and of organizations. Many of the new ideas focus on the dissociation of work from a common workplace because of the possibilities of remote communication.
For example, to the extent that work is not tied to a common workplace for organization members, it becomes easier for people to accept part-time employment in several organizations simultaneously, operating in a mode that lies somewhere between employment and consultation, or that resembles the putting-out system which preceded the factory system in weaving and other industries. The available data seems to show some increase in this kind of work pattern, which would certainly appear to have important implications for organizational identification and loyalty.
A related idea is that with easy communication of each with all, regardless of location, there will be more group participation in making decisions and solving problems. This idea has already spawned new products in the form of "groupware" -- electronic software that is supposed to make it easier for groups of people to work together and to collaborate in generating reports and similar products, or to share access to common data banks. Networks would not have to be limited, of course, to single organizations, so that interorganizational communication and collaboration (e.g., e-mail and the World Wide Web) could be facilitated.
Another related idea is that the new communication networks make the traditional organizational hierarchy less important: messages can flow in all directions, horizontally as well as vertically. Some observers have attributed the recent downsizings of middle management to the waning importance of maintaining a single hierarchy of authority and communication.
Not all of the predicted changes are consequences of networking. Some of them are attributed to changing attitudes in society toward authority, and the demand for democratization of traditional authority relations.
I will not try to comment on these developments and prospects at this point, but those mentioned and others will be taken up as appropriate in the commentaries to later chapters.
Copyright © 1945, 1947, 1957, 1976, 1997 by Herbert A. Simon
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