RATIONAL DECISION MAKING IN ORGANIZATIONS

Rational Decision Making in Organizations

Rational Decision Making in Organizations

The Rational Decision-making Model

A rational decision-making process is often suggested as the way in which decisions should be made, and it involves the following strictly defined sequential process illustrated in Figure 1.

This process is underlain by certain assumptions and characteristics, which, as will be argued, are highly unrealistic in practice (Mintzberg 1975 49-61). Some of the assumptions are that:

Decision makers have a clear and unambiguous understanding of the nature of the problem and of their objectives in relation to this problem. A comprehensive search for alternative courses of action and their consequences with respect to this problem is feasible and is carried out (Johnson 1987 96).

Each alternative is objectively evaluated with respect to its chances of achieving the desired objectives, and the alternative most likely to achieve these objectives is selected and then implemented. Monitoring of consequences is continually and objectively carried out to determine success of chosen course of action with respect to objectives (Johnson 1993 54).

The rational decision-making model makes no reference to the filtering and constraining influences of the organizational paradigm on the decision process as a whole (March 1990 47).

The model also ignores the significant effects of political behavior on this process.

These assumptions and characteristics will be addressed in some detail (Crossan 1993 196-214). In general, empirical studies of organizations have revealed that most decision situations facing management involve ill-structured problems and uncertainty with respect to alternatives and consequences, partial search for solutions and their consequences, and biased evaluation, selection and monitoring of alternatives.

Decision processes as a whole are influenced by the constraining and filtering effects of the organizational paradigm or culture, by actors' perceptions of their interests and which course of action will best foster them, and by humans' necessarily bounded rationality. In such situations, the mythical status of the assumptions of the rational model of decision making is clearly exposed (Schein 1985 875).

Case Example

The following brief illustration will be used to clarify the critique of the assumptions underlying the rational decision-making model (Heracleous 1994 125-128).

Securico is a financial services organization which has mainly been providing insurance services to its clients. It has been in its market for around 30 years and its market share for the last ten years has been around 28 per cent in the geographical area in which it has been operating. Its structure was highly bureaucratic, and had a conservative, inner-directed culture. It had felt safe in its market in which it perceived itself as the leading provider of insurance services (Lindblom 1990 87). In the last four years, however, it had seen its profitability declining and its market share eroding to 16 per cent with the downward trend continuing.

Field agents began to become aware that something was going wrong when clients began pressing them for lower premiums, additional services and tailor-made policies, and seemed increasingly to prefer competitors' services (Mintzberg 1975 49-61). This information, though, did not reach top management as there were no systems in place for ...