Free Wiki - Knowledge base for
Organizations, in form and behaviour and underpinned by less-than-rational processes
Technological advances, globalization, an increase in the complexity of business activities and the evolving forms of businesses have caused traditional management approaches to become obsolete. As organizations were forced to develop new processes to keep up with today’s rapidly changing business world some of the approaches that were adopted where less than rational. This has been largely due to a processes labelled ‘Bounded rationality’ developed by Herbert A. Simon 1957, which states that managers have limits on how rational they can be because of the complexity of organizations and the limited time available to process important information. Bounded rationality was applicable in 1957 but is even more relevant for today’s organizations because of the increased complexity of the business environments and need to make decisive decisions. Mangers instead of doing their own research are misguided by their own beliefs or assumptions. The objective of this essay is to develop the theory that organizations can be misdirected by less-than rational processes. This will be done by analysing three key less-than rational approaches used commonly by modern organizations.
In recent years new business forms and structures have been developed placing extensive strain on managers to maximise efficiency. Restructuring and downsizing has often been the solution, as employee layoffs where perceived as an easy was to cut costs. By reducing the number of employees, there is of course an immediate financial ease. However, managers’ bounded rationality stoped them from seeing the longer term implications. Research has indicated that the consequences involved in downsizing affects the remaining employees as profoundly as those who have left (Baruch & Hind, 2000). This phenomenon the ‘Survivor Syndrome’ is a term which has been used to describe the demoralization, anxiety and loss of trust in employers felt by the ‘surviving’ employees after significant layoffs (Baruch, Y. and Hind, P. 2000). Kennedy (2005) has agreed that many employees after downsizing contemplate leaving anyway. A recent report by Bain & Company, a global business consulting firm found companies which managed to avoid layoffs even in tough times ended up financially better off in the long term (Bock and Smart). It emphasised that; in hard financial time’s employee morals where higher leading to higher customer service and in the good periods there were better employee and customer relationships. Keeping the relationships healthy of any organization is a crucial element for success. A further problem can arise from downsizing when organizations realise they fail to meet their objectives and goals. This can due to two reasons, firstly their key assets ‘experience’ walks out the door with the employee, and secondly the smaller numbers of employees are less capable to get the job done. When decisive action was needed in financially stricken organizations it is clear that managers today did not have the means or the time to realise lay-offs should be a ‘last resort option for organizations’ (Bock and Smart).
Further less-than-rational process can also arise when managers follow assumptions or beliefs which are unjustified. These assumptions and myths can be quoted so often that they become virtual clichés (Colby 1996). Such is the case of using financial incentives to drive good performance. Our assumptions on financial incentives are indeed just assumptions, and they therefore fail to produce the outcome managers want (Pfeffer and Sutton 2006). The use of financial incentives has significantly increased in recent years, however little thought has been given to justify this. Many mangers have overlooked the fact that when you tie performance to incentives employee will not always do what is best for the business (Bock and Smart). Employees will often look at their own personnel incentives rather than those of the business. For example when a garbage disposal drivers in Albuquerque N.M where given an incentive scheme, drivers would ‘take short cuts’ and miss bins, they where also involved in an increased amount of avoidable traffic accidents. Financial incentives can also attract the wrong employees to the organization, ones concentrated wholly on personal gain. It is clear that there are problems with many incentive schemes that organizations don’t realize.
Many organizations today feel the strain to keep up with the new and often unpredictable competitors (Miles and Snow). These organizations have developed a strategy of Isomorphism which is a process of examining and then ‘copying’ a top organization in an attempt to improve your own business. This approach again has problems which are frequently unforseen by managers. When looking to ‘copy’ a successful business it is important to distinguish the most important strength in which is leading to the success. Too often mangers will look at the most visible strength which is not always the most important. When U.S automobile companies attempted to close the competitive gap on leading manufacturer Toyota it was again a case of bounded rationality. The U.S companies concentrated on evolving their floor practices and implementing quality control measures, when it was Toyota’s attitudes and worker relationships that underpin their success. Bounded rationality is also the problem with other Isomorphism failures. Organizations can fail to identify the key differences between their organization and the one they wish to copy. Differences such as structure, capabilities and goals can cause undesired results.
In today’s business world it is the manager’s decisions which determines if these organization grows, prospers or fails. Managers of organizations have heavy responsibilities and although it is clear that some of the processes of organizations today are less-than rational, this is not always the case. Bounded rationality restricts managers from analysing all decisions they make, however for most decisions they can. Due to the limited number of less-than rational processes found while researching for this essay it became clear that organizations today are not underpinned by less-than rational processes. It only shows that the less-than rational processes exist.