THE DECISION-MAKER IN THE ORGANIZATIONi
BY
BRIAN J. LOASBY
Organi2adons do not make decisions. Decisions are made by people.
Yet much theoretical discussion of decision-making is based on the assumption (not always explicit) that an organizadon can be treated as a ficddous
person. This is especially true of economic analysis, which postulates that
modern large organizadons behave in very much the same way as the oldfashioned entrepreneur. Economists will readily admit, when asked, that a
large firm will have major problems of co-ordination and communicadon;
but they nevertheless take for granted the ability of the organization theorist
and the management accountant to devise an administrative system which
will ensure that the decisions taken within the firm, whoever may actually
take them, will be for all theoredcal purposes idendcal with the decisions
that would be taken by a single all-seeing executive.
The Acceptance of Orgamt(ational Goals
A major bulwark of this posidon has been the sharp disdncdon tradidonally made between the decision to join a firm and the decisions taken
when acting as an officer of that firm. The decision to join an organization
has traditionally been held to include a decision to accept organizadonal goals
as the only criteria to be used when making dedsions in an organizational
role. To use the terms popularized by Chester Barnard, ^ this is one of the
most important 'contribudons' expected of managers in return for the
'inducements' offered.
Explanadons of the power of authority to make a whole organizadon
conform to the image of its creator, though sometimes calling in aid the
alleged preference of many people for accepdng orders rather than using
their own discredon, and also the moral injunction to obey those set in
authority over one, have relied heavily on organizational controls. The
structure of the administradve hierarchy (it is argued), if properly designed,
provides a clear and continuous chain of command from the head of the
1 This article originated in a brief papet prepared for a discussion group in Arthur D. Little,
Inc., Cambridge, Massachusetts. In addition to the members of that group, and the references
cited, it owes a good deal to an unpublished paper by Peer Soelberg, of the Sloan School
of Management, M.I.T. entitled 'Structure of Individual Goals: Implications for Organization
Theory' (M.I.T. Sloan School of Management Working Paper 143-65, 1965)2 Barnard, Chester I., The Functions of the Executive, Cambridge, Mass.: Harvard University Press,
1938, PP- 92-4.
THE DECISION-MAKER IN THE ORGANIZATION
353
organization to the lowliest dedsion-maker, and thus ensures that the wishes
of the former are understood throughout; and a wide variety of sancdons,
ranging from mild disapproval to (in military organizadons) death affords
the means to enforce obedience to these wishes.
Within the last ten years, the serious defidendes in both of these explanations (in terms of cash incendves or the sancdons of authority) have begun
to be realized. The first of these deficiencies is a difficulty with the implications
of 'authority'. This difficulty can be explained by drawing an analogy
between the two pairs of concepts 'authority — independence' and 'monopoly
— perfect compedtion'. In a state of perfect compedtion every unit in the
market is completely independent of every other unit: none has any control
over price. Unfortunately, monopoly is not the precise andthesis of perfect
compeddon. If it were, a 'perfect monopolist' would have absolute control
over price; but such absolute control (implying a completely inelastic
demand) is not possible. A substandal obstacle to the measurement of
'degrees of monopoly' has been the absence of any unique relationship
between the propordon of the total supply of a commodity in the hands of
a single producer and his ability to influence its price. It is possible for a
firm with a large share of the market to be nevertheless faced with a highly
elasdc demand for its product. Monopoly status is not the same as monopoly
power. That power depends on the alternative means open to consumers
for sadsfying their wants (including their ability and willingness to do without
the monopolist's commodity altogether) and also upon the possible consequences (such as legisladon, counter-acdon by customers, or the emergence
of a new compedtor) which may follow too ruthless an exerdse of the power
which the monopolist does possess. The disregard of these consequences
which is implicit in the use of a short-period demand curve to determine
long-period equilibrium is a major element in P. W. S. Andrews' attack on
current theories of the firm.*
Similarly, although complete independence implies complete absence of
control, there can be no posidon of authority which confers absolute powers
of control. Even where there is no possibility of escape from a superior's
jurisdiction, the exerdse of authority is restricted by the alternadves to
obedience open to subordinates, which can be subde and devious, as every
soldier knows, and also by the risk of provoking acdons which will seriously
limit the superior's nominal authority. (One remembers the descripdon of
the Czarist system of government in Russia as 'absoludsm tempered by
assassinadon'.) The concept of 'countervailing power' is of some relevance
to organisadonal as well as economic reladonships.
Thus it is not surprising that, at a dme when there has been a seller's
' Andrews, P. W. S., On Gompetition in Economic Theory, London: Macmillan, 1964.
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THE JOURNAL OF MANAGEMENT STUDIES
OCTOBER
market for managers as well as for workers, and when therefore the available
sanctions have lost much of their force, there has been more emphasis on
the nodon that authority is something accepted from below, rather than
enforced from above. Superiors are now exhorted to lead rather than to
drive. But before accepting that the efficacy of sancdons is limited solely by
such factors, it should be nodced that among military commanders, who have
the strongest sanctions at their disposal, qualides of leadership have always
been very highly valued. It must be conduded that authority, though it
may be of considerable, indeed indispensable, value in securing the acceptance
of organizadonal goals, cannot guarantee their acceptance.
If conformity to organizational objectives cannot always be enforced,
neither can it always be bought. The flaw in the economists' approach is
the assumpdon that sadsfacdons are obtained always with the proceeds of
work, never in the process of work. That this assumpdon quite often appears
to be jusdfied, at least on the shop floor, cannot be denied: but one is
nowadays likely to hear it argued quite strongly that this is a self-jusdfying
assumption rather than a basic truth. If workers are given no opportunity
of gaining any sadsfacdon from their work, they will inevitably appear to
be interested only in their pay.
Whatever may be the truth on the shop floor, it is surely the case that
managers seek to satisfy some of their most important wants through the
work that they do, and not only by spending the cash which they earn. The
sadsfacdon of these wants, espedally for higher management, is likely to
impinge direcdy upon the objecdves of the organizadon. In these circumstances, organizadonal goals, far from being accepted in return for proffered
inducements, must act as significant inducements themselves. Instead of
hiring managers to carry out a predetermined policy, a firm may have to
formulate a policy which will succeed in attracting managers. Thus the
distincdon between 'inducement objecdves' — what do we need to do to
stay in business — and 'direcdon objecdves' — what is our business —
breaks down. Inducement objecdves become direction objectives.
The Formulation of Organiv^ational Goals
From the growing recognidon of the defidencies of both the 'incendve'
and the 'authority' theories there have emerged two modern explanadons
of the relationship between individual and organizadonal goals. The earlier,
and in our terms the less revolutionary, is assodated particularly with the
name of Douglas McGregor,* who, denouncing authoritarianism both for
its ineffidency and for its failure to meet some of the basic needs of managers^
argues that conformity between individual and organizational goals can best
•McGregor, Douglas, The Human Side of Enterprise, New York: McGraw-Hill, i960, esp.
Chaps. 2-4, 9.
1968
THE DECISION-MAKER IN THE ORGANIZATION
355
be achieved if the latter are the product of a consensus: if a manager helps
to set organizadonal goals, he will accept them as his own during the working
day.
As a prescripdon for enlightened management, McGregor's advice has
much to recommend it. But it does not solve our problem. As President
Johnson would no doubt be the first to admit, it is not easy to maintain a
working consensus. Genuine conflicts of interest do exist, and some of these
conflicts must somehow be accommodated within any large organization.
American polides are normally discussed, and practised, far more openly
in terms of interest groups than British polides; political alliances rely on
bargaining as well as limited consensus. In both countries this bargaining is
supported by the use of phrases which can be — and are intended to be —
interpreted quite differendy by different groups. This has been a notable
feature of Harold Wilson's technique. In some circumstances, free and open
discussion may produce a true 'meedng of the minds'; in others, poor communications and misunderstandings may be among the most effecdve forces
holding an organizadon together.
It is in this spirit of polidcal realism that Cyert and March discuss the formation of organisadonal goals.® Arguing that a consensus is in any large
organizadon difficult to construct, that where there are major conflicts of
interest (which is not unusual) it is impossible to achieve, and furthermore
that organizadons can funcdon quite successfully without it, they suggest
that organizadonal goals are best viewed expliddy as the outcome of a
bargaining process, which is likely to leave many issues unresolved. These
unresolved issues are submerged by four factors: first, the inability of the
pardes concerned to appreciate them all (limited radonality); second, the
infrequent need to face more than one or two of them at a time (sequendal
attendon to goals); third, the use of phrases, such as 'an aggressive markedng
policy' or 'purposive and pragmadc government', which provides no
unambiguous standard of measurement (non-operadonal objecdves); and
fourth, the possibility, as long as the organizadon is not fully stretched to
meet its external commitments, of simultaneously sadsfying potendally
conflicdng minimum demands (organizational slack). These issues are
submerged, not settled, and when the relevant factor ceases to be effective —
when, for example, a fresh problem forces a hitherto-avoided confrontadon,
when a non-operadonal objecdve becomes operational, when organizadonal
slack dwindles in hard dmes — they break surface again, and can cause a
great deal of trouble.
Its power to explain the emergence of formerly-suppressed conflicts within
organizadons is just one of the many attractions of the Cyert and March
= Cyert, R. M. and March, J. G., A Bthavioral Theory of the Firm, Englewood Cliffs, N.J.:
Prentice-Hall, 1963, Chap. 5.
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THE JOURNAL OF MANAGEMENT STUDIES
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approach. They have opened the way to a treatment of the firm as both an
economic and a political unit. (Incidentally, it is notable how much progress
has been made in integrating political and economic issues in analysing
developments in Communist countries.) But this particular merit is largely
neglected in their own work. Though their theory is far removed from the
old assumption that organizational goals are either sold to or imposed upon
decision-makers within organizations, though on the contrary they insist that
specific attention be given to the process of goal-formation, yet they still
adhere to the even more fundamental assumption that a knowledge of
organizational goals — an understanding which they have notably advanced
— is sufficient to explain decisions within organizations. This assumption is
surely wrong.
The Inadequacy of Organisational Goals as Determinants of Behaviour
The decision to join an organization as a manager implies the perceived
compatibility — or potential compatibility, if there is a chance of modifying
the latter — of personal and organizational objectives. It does not imply
the acceptance of organizationally-determined criteria for decision-making.
Even if a manager should identify himself completely with the goals of his
firm, it is usually not rational for him to pursue them without personal
incentives. For a corporate goal is a collective good to all those who desire
it; and unless the contribution required is very small, it is not usually rational
to contribute to the supply of a collective good. As one manager among
many, one's own contribution can make little difference either way; the result
depends on other people's efforts. What is generally desired, and must be
made freely available, if available at all, will not be individually sought.^
The theory of collective goods demonstrates the fallacy in the argument
that members of an organization should share a common purpose. It is not
just that a common purpose is unnecessary as a rational incentive; it is
actually worthless. Joint purposes, not common purposes, are the efficient
engines of action.''
A collective good may provide a rational incentive if it is common to
only a small group; for then the contribution of a single person may significantly affect the supply of the good, and his share of the benefit may outweigh
the cost of his contribution. Thus corporate objectives may motivate top
management; and lower levels of management may be activated by sub-group
objectives. But often the strongest incentive will be to pursue individual
objectives. Thus the natural tendency of the rational manager is to pursue
first his own objectives, second, his sub-group's objectives, and the objectives
'Olson, M., The hogic of Collective A.ction, Cambridge, Mass.; Harvard University Press, 1965.
' This point has been emphasized by my former colleague, Mr. D. K. Clarke, now Principal of
Swinton Conservative College.
1968
THE DECISION-MAKER IN THE ORGANIZATION
357
of larger groups feebly if at all. How closely his decisions conform to the
overall goals of the organization depends on the degree of discretion he is
allowed and on the organization's control system — interpreting the latter,
as will be explained shortly, in the widest sense.
Decisions cannot be delegated without giving the decision-maker the
power to make organizationally-perverse choices. Yet delegation can scarcely
be avoided. In an organization of any size, no one man can have either the
time or the information to make all the decisions; moreover the attempt to
keep all decisions in his hands is likely seriously to reduce the quality of
his subordinates, and thus to impair the information used in making his
decisions, of which they must remain a major source. How closely the actions
of a decision-maker within an organization conform to the interests of that
organization depends on the effective jointness of his own and the organization's objectives. The link between the two is the management control
system.
Management Control Systems
The technical problems of constructing a system which will measure a
manager's performance in terms of the desired objectives are well understood,
though, as the literature of the subject clearly demonstrates, they are far
from completely solved. What are the elements of good performance ? How
can the non-measurable elements be dealt with, in order to avoid a concentration of the manager's attention upon the measurable ? How can one avoid
a situation in which a manager can improve his own recorded performance at
the expense of the organization as a whole ? Such questions are the staple of
discussion, and there is plenty of guidance available.
The companion problems, of devising an incentive system that will
effectively motivate the improvement of the performance so monitored, has
also attracted a good deal of attention, but it has not been so well resolved.
There is disagreement over the relative effectiveness of different incentives;
and this disagreement is unnecessarily exacerbated by a failure to realize
that different managers may seek different kinds of satisfaction, and also by
a failure to realise that a manager, like anyone else, is entitled to forgo a
proffered incentive if he chooses; he cannot be compelled to conform to the
preferences of the control system.
The trouble is that discussions of the incentive elements in management
control systems have not yet completed their escape from the outworn
assumptions that confornaity between organizational and individual goals
can be secured by a combination of sanctions and financial reward. The
consequences of escape are far-reaching. To a manager who is seeking
satisfactions from the content of his work, the management control system,
instead of providing a mechanism for directing his activities, becomes
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THE JOURNAL OF MANAGEMENT STUDIES
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itself part of the inducement. The whole organization must be regarded as
a control system. This view is supported by R. I. Tricker,^ who writes
(privately) that 'we must look on business control systems within the context
of a business total system, rather than as a controlling mechanism added on
top. In other words, we must study man/machine systems instead of accounting paper work systems.'
The kind of management control system used in an organization may be
a vital influence on an individual's decision whether to join. The absence of
tight control is frequently argued as essential to the recruitment of good
university staff and of good industrial scientists. But if the freedom to make
decisions with a substantial element of discretion is used as an inducement to
join, then the organization is offering, not merely the right to join in the
formulation of organizational goals, but the right to pursue, within some
limits, individual objectives when making decisions within the company.
In these drcumstances it is not only the distinction between inducement and
direction objectives that breaks down, but also the distinction between
organizational and individual objectives.
Such freedom of action is particularly likely to be offered to managers
near the top of an organization, who may indeed be allowed to pursue their
own objectives and also to attempt to impose these objectives on their
subordinates as organization objectives. If this is so, then, as has been argued
by a senior officer in a large consulting organization, • one ought to talk of
the objectives of a group of senior executives, rather than of the objectives
of a firm. Many of that company's corporate planning assignments reflect
this attitude. The consultants set out to elicit the objectives of the major
decision-makers — objectives which are by no means always apparent to
their colleagues — and then attempt to devise a policy which takes explidt
account of them. This approach is in the spirit of McGregor's recommendations; it has also been advocated in an article by Guth and Tagiuri.^"
So far, we have discussed managerial discretion as a deliberate grant in
order to recruit and stimulate good managers. But some discretion is inevitable in the absence of perfect knowledge. This discretion may arise from three
causes. First, the uncertainty surrounding most dedsions often makes it
difficult to assess the correctness of the choice made. Second, it is almost
impossible to review a dedsion by a specialist — and even more impossible
to review a dedsion by a group of spedalists — without having the dedsion
made afresh by another spedalist (or group of specialists); and this, besides
costing time and money, is Ukely to lose one the services of the spedalists
' Barclays Bank Professor of Management Information Systems at the University of Warwick.
» Magee, J. F., of Arthur D. Little, Inc.
" Guth, W. D. and Tagiuri, R., 'Personal Values and Corporate Strategies', Harvard Business
Reviea, September-October 1965.
THE DECISION-MAKER IN THE ORGANIZATION
359
SO treated. Authority, in the sense of having one's word accepted, can flow
upwards as well as down. Third, subordinates have a good deal of control
over the information which their superiors use, induding the information
on which they are judged.
As was stated earlier, the technical problems of constructing a system
which will measure a manager's performance in terms of the desired objectives are well understood; but the problems are not merely technical. It is
far too readily assumed (as it is for instance in David Solomons' Divisional
Performance: Measurement and Controiy^ that both the recorded performance
and the standards against which it is judged represent objective truth. But
a budget is a political as well as an economic document, as Cyert and March
have pointed out; many budget items represent commitments rather than
constraints.
In addition, budgetary standards are liable to suffer from the attempt to
achieve two conflicting aims. One aim is to provide a guide to action by the
manager himself, by drawing attention to problems through the recording
of variances; the other is to assist in evaluating the manager, by recording
his shortcomings. On the first criterion, an unfavourable variance indicates
the need for action; on the second criterion it indicates the failure of previous
action. It is not surprising, therefore, that, as W. F. Pounds of the Sloan
School at M.I.T. has found, there is liable to be an emphasis on the setting
of budgetary standards which will indicate neither problems nor failures. ^^
Sometimes this emphasis is supported by the superior of the manager being
evaluated (probably because he does not enjoy giving a reprimand^^ and
also because any failure by his subordinates may harm his own standing)
and may become an open conspiracy throughout the company. When this
happens, the control system is occupying a good deal of time, and some
ingenuity, in making management less effective by concealing problems
which deserve attention.
Even if such inflation of budgets is not a general implicit policy, the individual may still have some control over the standards by which he is judged.
Indeed it is an artide of the modern budgetary controller's faith that a
budget must be accepted by the manager to whom it is to be applied. The
budget then is the result of bargaining; it is not analytically determined. An
experienced consultant, writing about the control of his own work, says,
'A technique which I enjoy . . . is to have a sufficiently large cushion in each
^1 Solomons, D., Divisional Performance. Measurement and Control, New York: Financial Executives
Research Foundation, 196J.
" Pounds, W. F., 'The Process of Problem Finding' (M.I.T. Sloan School of Management
Working Paper, 165-65, 1965), pp. 16-18.
" For evidence of this attitude, see Rowe, K. H., 'An Appraisal of Appraisals,' fournal of
Management Sjudies, Vol. I, No. i, March 1964, pp. 1-25.
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THE JOURNAL OF MANAGEMENT STUDIES
OCTOBER
case that it isn't necessary to keep a close and continual watch on actual
expenditure'.^*
If budgets do not embody political commitments, guaranteeing a certain
expenditure, then they are liable to be fudged, with or without general
approval. If neither of these measures are adequate to frustrate the control
system, there are often means available to influence the recorded figures.
If there is a danger of underspending, it is not usually difficult to spend a
little more (and there are surely not many managers who have never been
asked to suggest some supplementary expenditure in order to use up a
budgeted allowance); if there is a danger of overspending, there are a number
of methods for hiding or misreporting expenditures.
What can happen even in a technically efficient management control
system is illustrated hy the following example. ^^ 'Asked what data he used
for making decisions about the running of his department [a production
manager] produced a sheaf of his own running notes on relative plant
performances under various conditions. Questioned why the control
accounting data did not reflect similar patterns, he explained that the control
data was originated hy him for the accountants and he told them what he
thought they wanted to know. He had found that there was much criticism
at the monthly meetings if his weekly performances fluctuated a lot. In
fact, he explained, because of a multitude of variables, the results did really
fluctuate. What he did in reporting was to average the figures to show reasonable consistency, keeping the excesses on good weeks to ease the results in
bad weeks. As he put it, "I keep a bit of production up me sleeve to save
my neck'."
Why should we assume that managers are less skilful than operatives in
controlling the reported results of their work? Neither the target nor the
reported figures of an accountant's control system necessarily represent
reality; on the contrary, all formal control systems nuy he expected to generate
misinformation.
The Extent of Managerial Discretion
Thus a manager often has a freedom of choice which is not merely nominal.
Organizational objectives specify the limits (though as we have seen, not
always precisely) but they do not prescribe the choice. The extent of this
remaining freedom is obscured by the ambiguity of the word 'judgement'.
Managerial judgement does not consist solely in making a good estimate
of the situation and evaluating various courses of action; it also consists in
deciding how to choose within the limits which organizational criteria
prescrihe. That such an effective freedom exists is adnutted hy any salary
1* Private communication.
" Tricker, R. I., The Accountant in Management, London: Batsford, 1967, p. 83.
THE DECISION-MAKER IN THE ORGANIZATION
361
scheme which rewards responsibiHty; it is made expUcit in Eliot Jaques'
Equitable Payment,^^ which advocates a salary structure related to the 'timespan of discretion'.
The existence of managerial discretion poses a problem for modern, as
well as for old-fashioned, theories of decision-making. Contrary to the claims
of its exponents, satisfying theory does not provide a unique criterion for
decision. The organization does not require above-satisfactory performance;,
but it does not necessarily penalize it. The requirements of satisficing
prescribe a feasible set of solutions — the set may of course be empty — but
it offers no rule for making a choice within that set. The concept of managerial
slack may be seen as an attempt to preserve organizational objectives as
adequate predictors of behaviour by postulating that no attempt will be
made to improve upon satisfactory performance." But the attempt cannot
succeed. The preference for slack over improved performance must be an
individual, not an organizational decision; it cannot be deduced from
organizational goals alone.
This is not the only objection. Even if satisfactory performance, by the
standards of the organization, were to be accepted as a criterion, and not
simply as a constraint, individual preferences still could not, in general, be
excluded. There is no general reason why the subset of minimum solutions
within the feasible set should contain only a single element; satisfactory
performance can often be achieved in several ways. It is up to the decisionmaker to choose. Indeed, one of McGregor's recommendations is that
managers should allow subordinates to follow their own preferences in
choosing between several ways of achieving a desired result." This difficulty
cannot be evaded by postulating a process of sequential search. Such a
process leads to the acceptance of the first satisfactory solution to be discovered, but it does not explain which of the various satisfactory solutions
will be discovered first. What appears to be the most obvious solution to
one man, with a particular pattern of experience, does not necessarily appear
to be the most obvious to another, whose experience has been different.
Company histories may tend to over-emphasize the importance of
individuals, but to deny them any importance would be absurd.
The reason why Cyert and March's book ignores this problem is probably
that their detailed model is designed to explain repetitive decisions within
a stable organization. These are the conditions which produce 'organizational
learning' and standard solutions.is But if the situations calling for action
repeat themselves only infrequently, and there is a good deal of movement
"
"
"
"
Jaques, E., Equitable Payment, London: Heinemann, 1961.'
Cyert and March, op. cit., pp. 36-8.
McGregor, op. cit.. Chap. 9.
Cyert and March, op. cit., pp. ioo-i.
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THE JOURNAL OF MANAGEMENT STUDIES
OCTOBER
of managers into the organization, hringing diverse kinds of outside experience with them, then organizational learning will be rudimentary at best,
and there will be no standard solutions.
Cyert and March's concentration on short-period, repetitive problems
also leads to the neglect of another issue. Why should the first satisfactory
solution produced by a sequential search procedure necessarily be a minimum
solution? If" the searcher has a repertoire of standard solutions, the assumption may he reasonable; but for long-term, non-repetitive problems such
repertoires, and such minimum solutions, are a good deal less likely. The
major innovations of economic development are indeed striking instances
of solutions which rise well heyond the requirements of satisficing.
In general, the Carnegie school provides a better analysis of short-term
than of long-term decision-making. But even in short-period situations it is
impossible to eliminate the individual. It is surely illegitimate to assume that
managers who are capable of performance above the level required by their
organization should always choose to employ those abilities in ways that have
no effect on that organisation. The abandonment of such an assumption does
not require the abandonment of the satisficing approach; it simply means
acknowledging that the individual's standard of satisfaction may well be
above the level prescribed by organizational objectives.
W. F. Pounds has observed that plans are organisationally defined limits
of managerial independence; as long as a manager's performance does not
fall short of the plan, he is free to choose his own problems, free of organizational control (though not of course free of many influences).^" Some organizations, recognizing that some freedom of managerial action cannot be
prevented, have deliherately chosen to increase that freedom in the hope of
stimulating individuals to set themselves higher standards than the organization could ever hope to impose. A large consulting company, for instance,
uses the ahsence of an elaborate formal control system as an essential element
in its overall managerial system. In such an organization decisions cannot
be explained without reference to individual objectives; for example in the
consulting company the kind of new business brought in is substantially
dependent on the initiative of individual consultants.
Even if there is no deliberate attempt to make productive use of the
resources which are not needed to meet minimum objectives — even if
'slack payments' are designed to meet purely personal objectives — these
objectives may still be relevant to the history of the firm. For example, if
an unnecessarily large research department is established solely to satisfy
the Research Director's empire-building ambitions, without any reference
to the needs of the firm, that research department may nevertheless produce
ideas which have a major impact on the company. As Cyert and March
"• Pounds, op. cit., p. 16.
1968
THE DECISION-MAKER IN THE ORGANIZATION
363
themselves observe, 'Slack provides a source of funds for innovations that
would not be approved in the face of scardty but that have strong subunit
support.'21 But the implications of managerial discretion for their own
theory do not seem to be recognized.
The Influence of the Organi^^ation on Individual Objectives
It is necessary, therefore, to consider individual objectives in explaining
dedsions, as well as in explaining the formation of organizational objectives.
Individual objectives, however, are not completdy independent objectives.
A potentially useful way of analysing individual objectives is provided by
the dassification of problem-finding models suggested by Pounds.
Such an analysis of a particular manager's objectives in terms of his own
experience (historical models), the experience of others (extra-organizational
models), and the demands of the organization (planning models) appears to
offer a way of focusing upon the individual dedsion-maker without treating
him in isolation. When considering the individual, it might be particularly
convenient to distinguish between extra-organizational models which are
entirely outside the organization in which the individual works and extraorganizational modds — perhaps better called extra-personal models —
which are yet within that organization. As an example of the use of this kind
of analysis, it is possible to suggest some influences which would tend to
keep the standards in the individual manager's problem-generating models
down to the levels prescribed by the organization — so that satisficing for
the individual would mean the same as satisfidng for the organization, as
the present Carnegie theory assumes.
The organization's apparent, if implidt, models of managerial behaviour
are influences of obvious importance. This indeed is the burden of McGregor's
argument: if a firm dearly expects managers to do no more than the firm's
formal control system can compel them to do, then those managers are
likely to accept the consequences of Theory X as their own model too, to
use managerial slack to fulfil personal objectives which are irrelevant to
the performance of the company. If on the other hand, says McGregor, the
firm's model is Theory Y, then there is a very good chance that the firm's
managers will use Theory Y also — and Theory Y implies that individual
targets will be set higher than the firm's targets, and that managers will
seek to satisfy their personal objectives in ways which assist the company.
The models of fellow-managers are also important. The phenomenon
of group control is not confined to the shop floor, and managers can learn
from their peers not to spoil the job. (The managers studied by Pounds, who
were disturbed by the possible effects of this year's good performance on
^' Cyert and March, op. cit., p. 279.
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next year's targets, obviously had some such model of behaviour.)^^ The
existence of many submerged issues may also be a restraining factor. Aboveminimum solutions are liable to have a wider impact within the firm, and
thus risk raising some of these issues. Past experience of the consequences
of raising them, and a knowledge of the conflicting objectives that exist, are
likely to be important influences on the choice made by a manager who can
opt for an adequate or for a better solution.
In the last resort, the organization which wishes to be highly successful
cannot rely on organizational objectives to secure that success. At least it
cannot rely on organizational objectives which are subject to organizational
control. The routine and the regular can be thus dealt with. Procedures for
initiating action can be established and solutions can be closely linked to
problems. Armies have shown that men can be trained to react instinctively
to foreseen situations. But initiative cannot be commanded. Operational
models cannot be provided in advance for unforeseen problems. There is
logically no way in which one can tell that a problem should have been
recognized until it has actually been recognized. If it was not recognized in
time, when it is recognized it is too late to demand earlier recognition.
Thus for long-run problems, the establishment of operational objectives
is of limited use. One must rely on the individual; and one may have to rely
on a fairly low-ranking individual to give timely warning that action is
needed. This is not to say that the organization has no control over the
situation. It has; but its control lies in its ability to influence the standards
which the individual sets for himself. Such influence results from the impression which it gives of its conception of good management (and detailed
performance targets may not give the impression they are intended to give)
and from the scope which it offers for the individual manager to achieve his
personal objectives in (and not merely by means of) his performance as a
manager.
Pounds, op. cit. p.