Select the link to read Case B – AstroTech Fuel Systems Case Summary 1. In a narrative format, discuss the key facts and critic

Key Terms

Chapter Outline: 8-1 Decision Making in Organizations

8-2 Power in Organizations

8-3 Politics in Organizations

8-4 Conflict in Organizations

Summary Review Questions Glossary Endnotes

8Decision Making, Power and Politics

bounded rationality Carnegie model coalition incremental decision model intuitive decision making nonprogrammed decisions organizational conflict

organizational decision making organizational politics power programmed decisions rational model of decision making satisficing unstructured model of decision making

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Organizational Theory 8-2

organizational decision making the process of identifying problems or opportunities and finding solutions or courses of action that further the goals of the organization

programmed decisions decisions made on a routine, repetitive basis that are addressed by company policy and procedures

nonprogrammed decisions decisions that involve nonroutine, out-of-the ordinary situations and are generally not covered by existing policy or procedure

This book has emphasized the importance of strategically managing organizations, whether they are operating in the for-profit sector or the not-for-profit sector. The challenge of competitive forces, discussed in chapter 2 on strategy, is reaching a zenith. This fact particularly impacts the first topic of this chapter, which is decision making. Because competition for resources and customers has reached the hypercompetitive level, decisions by organizations must be made quickly and accurately.

8-1 Decision Making in Organizations Why do organizations make decisions? Primarily, decisions are required because organizations represent the merger of people, systems, and technology. Such a complicated conflagration inevitably leads to problems that beg solving or creates opportunities that need courses of action. Hence, organizational decision making is the process of identifying problems or opportunities and finding solutions or courses of action that further the goals of the organization.

When firms are small, such as those usually found in the existence stage of the organizational life cycle, all important decisions and most minor decisions are made by one person or a small group of people. However, as organizations add capacity to produce, employees, and markets, the need for decision making increases exponentially. Modern organizations are pushing this decision making responsibility to the lowest possible levels to increase speed and efficiency. This concept, known as empowerment, puts the responsibility for solving a problem or acting on an opportunity in the hands of those closest to the situation.1

As technology continues to permeate our organizations, markets and competition become global, and productivity increases accelerate, the time available for mulling over important matters in the decision making process shrinks. Fortunately, most decisions faced by organizations are somewhat routine. Decisions made on a routine, repetitive basis addressed by company policy and procedures are known as programmed decisions.

Nonprogrammed decisions involve nonroutine, out of the ordinary situations and are generally not covered by existing policy or procedure. An example of a nonprogrammed decision would be a competitive situation where an organization is faced with a serious threat from a substitute product. Think about the difficulty faced by steel producers when automobile manufacturers began to utilize plastic on a widespread basis in their new cars. This is an example of a strategic threat from the external environment that resulted in a loss of revenue. That is a serious enough issue. However, this substitution led to the utilization of plastic into other products, replacing glass, steel, and even paper.

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Organizational Theory 8-3

rational model of decision-making a decision making process that relies on a step-by- step systematic approach to solving a problem

8-1a The Rational Decision Making Model

Regardless of whether decisions are programmed or nonprogrammed, everyone has a process that they follow when confronted with the need for a decision. As organization theory has evolved over the years, a clear need has been recognized by researchers and practitioners alike for a model for decision makers to adopt. Too many organizational managers were making decisions based only on past experience, or expediency, or whatever might make them look good to their superiors.

Allowing organizational decision-makers to “fly by the seat of their pants” works against the goals and objectives set by most firms. To overcome this problem, a rational or classical model of decision making has been developed. The rational model is a decision making process that relies on a step-by-step systematic approach to solving a problem. This model has been portrayed as anywhere from a three-step2 to a six-step3 to an eight-step4 process. Figure 8.1 depicts a version of the rational model based on a strategic management

Figure 8.1 The Rational Decision Making Model

Each step in Figure 8.1 will be explained using a practical example from the Coca Cola Company headquartered in Atlanta, Georgia. During the early 1980’s Coke began losing market share in supermarkets to Pepsi. Although newly-introduced Diet Coke had recently become the No. 1 diet soft drink, Coke executives were concerned with their competitive position in relation to Pepsi’s. To make matters worse, Pepsi had been running taste test advertisements on television for several years where blindfolded consumers picked Pepsi over Coke based on taste.

Robert Goizeuta, chairman of Coca Cola, initiated a secret project to tinker with Coke’s formula, developed in 1886 by Georgia pharmacist John Pemberton, believing that the sweeter taste of Pepsi was leading to Coke’s loss of market share. By 1984 the company was ready to try the new formula in consumer trials in over 30 cities in America. With the aid of a market research firm, Coke conducted its own taste tests, with close to 40,000 people choosing New Coke over the old classic by 55 to 45 %. The also chose it over Pepsi.

The introduction of New Coke, and the withdrawal of Old Coke, came in April of 1985. To Coke’s surprise, the outcry over the new formula and the pulling of the old Coke was met with outrage. Less than 90 days later, the old formula was re-

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Organizational Theory 8-4

introduced to the market as Coca-Cola Classic. Coke’s stock price went up over $5 in one week after bringing back the old formula.5 This example is not an illustration of a successful initial decision, as Coke’s decision to introduce New Coke could only be described as a failure. However, it very clearly demonstrates how difficult important strategic decisions can be, and it reveals one firm’s ability to recognize when it had made a mistake.

Step 1: Recognize and confront the situation – do not sit on a situation that is a potential problem or opportunity for your organization hoping that it will take care of itself. Coca-Cola executives became concerned with a drop in market share in the early 1980’s as Pepsi began outselling Coke in supermarkets. The company decided the problem was the taste of their product, in that Pepsi was sweeter than Coke.

Step 2: Develop the solution options – strategic managers base decision-making options on their compatibility with the organization’s strategy to accomplish its goals and objectives. Anything else is counterproductive. Coca-Cola owned the most recognizable brand in the world. To protect its market share and its name, Coke looked at introducing new products (like Diet Coke), changing advertising strategies (conducting its own taste tests), or actually altering the formula of its main product (introducing New Coke).

Step 3: Evaluate the possible outcomes of each option – Sometimes a possible solution to a situation sounds very good until it is evaluated based on the possible outcomes. As they evaluated each option, Coke executives knew they already had six brands on the shelves of stores, they believed their marketing campaign was already one of the best in the world, and they were concerned that tinkering with their tried and true formula was risky.

Step 4: Choose the best option and implement – Once the best option is identified based on an evaluation of possible outcomes, implement the option. After analyzing this situation for some time, CEO Robert Goizueta, with support from Robert Woodruff, the 95 year-old former chairman of Coca-Cola, put the wheels in motion for the introduction of New Coke.

The example of decision making at Coca-Cola by its top management team demonstrates that even a rational, objective, research-based decision can be wrong. In the end, after spending over $4 million to taste test its new formula, Coca-Cola failed in its introduction of New Coke. Some say an intangible, e.g., the consumer’s emotional tie to the brand, was to blame for New Coke’s failure.6 Yet, Coca-Cola survived and prospered under Goizueta’s leadership as its stock price increased 3800% during his tenure. Since his death in October of 1997, however, Coca-Cola has struggled to find the right leader at the right time.7

Critics are quick to point out that the rational model has several flaws. For example, managers do not have complete, perfect information most of the time. They do not know all possible alternatives, and they do not understand nor can they predict all possible outcomes of those alternatives. Decision makers also have limited mental capability, something that is not recognized by this model. The rational model is a prescriptive model in that it lays out a process for how decisions should be made. A second model will be discussed below that is more descriptive, demonstrating how decisions actually are made in organizations.

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Organizational Theory 8-5

Carnegie model reflects a descriptive decision-making process in organizations where coalitions determine a final choice based on incomplete information, social and psychological processes, limited abilities of decision makers, and the need to find quick, satisficing solutions

coalition a group of people who band together to win some issue

8-1b The Carnegie Model

A second model of decision making is the administrative model, or the Carnegie Model. Developed by organizational researchers James March and Herbert Simon from Carnegie-Mellon University, this model tries to explain how organizational decision makers actually make decisions. The result is a realistic snapshot of the limitations decision makers bring to the process, particularly in light of the tremendous number of variables involved in decision making in today’s organizations.

The Carnegie model reflects a descriptive decision-making process in organizations where coalitions determine a final choice based on incomplete information, social and psychological processes, limited abilities of decision makers, and the need to find quick, satisficing solutions.8 The Carnegie Model is a good example of what happens to a behavioral theory in management when it is actually studied in practice. Rarely does one single top manager make all of the important decisions in an organization without input and buy-in from many other key managers. Although an organization may have clearly defined goals, conflict as to how to obtain those goals or whether they are actually the proper goals often develops. In these situations, coalitions can form within the organization between employees, managers, and/or shareholders to push forward a solution.9 In contrast, the rational model of decision making tends to assume no conflict exists in organizations and that organizational goals are all commonly shared by immediate stakeholders.

Mintzberg categorizes the possible reasons for coalitions in an organization and identifies the actual groups, both external and internal, that might result. He defines a coalition as “a group of people who band together to win some issue.”10 Below is a list of these possible coalitions.

External Coalitions: Owners – those who have legal control of the organization

Associates – Suppliers and buyers of organizational resources and products/services

Employee Associations – Unions and professional associations

Publics – this term refers to general groups such as families and opinion leaders, special interests groups, and government

Directors – board members

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Organizational Theory 8-6

satisficing choosing a course of action that is the most acceptable to the greatest number of people involved or affected

bounded rationality refers to the limitations of the mind that restrict the ability of decision makers to solve problems or take advantage of opportunities

Internal Coalitions: Top Management Team – also referred to by some as the dominant coalition

Operators – describes the workers who actually produce the firm’s product or service

Line Managers – all managers from the CEO down to first-line supervisors;

Analysts of the Technostructure – systems planning and control personnel;

Support Staff – specialists who work on matters of law, public relations, etc.

Ideology Supporters – those who share a set of beliefs that distinguish the organization from others.11

This list emphasizes the fact that coalitions are powerful, yet fundamental forces to be reckoned with in any organization. The vast number of special interests, causes, needs, and other considerations that can be conjured up by this list confirms the practical approach to decision making that coalition building represents. This is not to say that coalitions are only concerned with self-interest, but it does make one aware of the importance of coalition building in managing an organization.

A second major difference between the rational model and the Carnegie model has to do with choosing the optimal solution in the decision-making process. March and Simon have described that, in many cases, solutions to problems are arrived at through a process of satisficing. The concept of satisficing is choosing a course of action that is the most acceptable to the greatest number of people involved or affected. In a perfect world, this would not be the case. Decision makers would always choose whatever solution was best for the organization. Remember, organizations are groups of people who must work together to accomplish anything. Unfortunately, optimal solutions are not always going to be supported by organizational stakeholders.

Another factor involved in decision making that the rational model overlooks is the sheer limitations of human decision makers based on their bounded rationality. Although organizational decision makers are usually well-versed in their industry, trained in their jobs, and networked to opportunities and threats in the external environment, they are also limited by their own cognitive ability. So, bounded rationality refers to the limitations of the mind that restrict the ability of decision makers to solve problems or take advantage of opportunities. Operating within this limited framework, decision makers can make a quick list of alternatives based on

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Organizational Theory 8-7

incremental decision model managers make decisions that are only slightly different than the ones made by their predecessors or the ones they themselves made in the past

unstructured model of decision making describes decision making in uncertain environments as a structured sequence of activities that require smaller decisions throughout the process

past experience and personal knowledge of the situation at hand, prioritize them based on importance, and move on with a solution. Are all relevant alternatives likely to be included? The answer is probably not. However, the need not to spend too long deliberating a situation, the tendency to satisfice, and the personal preferences of the primary decision maker usually overrule any inclination to try to be exhaustive in identifying alternatives.

8-1c Incremental Decision Making

A different model of decision making is the incremental decision model. The name incremental is quite descriptive, as managers make decisions that are only slightly different than the ones made by their predecessors or the ones they themselves made in the past.12 The idea behind the incremental model is that managers are only “muddling through” as they are confronted with important decision-making opportunities. Many managers practice this decision making style because the chance for failure is reduced when you only incrementally change what has been happening for a long time. Although new courses of action may eventually develop when the incremental model is practiced, they take a long time to come about due to the small step-by-small step process.

8-1d The Unstructured Model

While the Carnegie model emphasizes the need to recognize social and psychological processes, the unstructured model, based on the observance of actual decision makers in operating organizations, focuses more on the actual steps taken by decision makers. The unstructured model of decision making, developed by Henry Mintzberg, sometimes referred to as the Father of Strategic Management, describes decision making in uncertain environments as a sequence of activities that require smaller decisions throughout the process. 13

Input and buy-in from key managers aid and strengthen the decision making process.

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Organizational Theory 8-8

intutive decision making involves relying on judgment and feelings for a situation based on experience

Mintzberg and his colleagues studied twenty-five organizational decisions as a process from beginning to end. They outlined three major phases common to the firms studied: the identification phase, the development phase, and the selection phase. The identification stage involved recognizing the problem or opportunity and gathering more information, or diagnosing. The development phase was focused on searching for alternatives or designing a solution that was customized to fit the situation. In the selection phase a judgment is made, followed by analysis, bargaining, and eventual authorization. In their research, Mintzberg and his co- authors noted that sometimes major barriers would be bumped into, requiring decision makers to go back and repeat steps they had already taken.

What is important to remember in any decision model is the fact that most critical decisions are made over a period of time. And, as we have emphasized in this book, the environment for most businesses changes over time, sometimes drastically. Mintzberg’s model is realistic in that regard, particularly when an organization is operating in an uncertain internal or external environment, since it accounts for barriers that can arise.

8-1e Intuition in Decision Making

A somewhat recent school of thought in the decision making literature looks at the importance of intuition. Using intuition, or practicing intuitive decision making, involves relying on judgment and feel for a situation based on past experience.14 Intuition is invaluable because it represents an informed gut reaction to a problem or opportunity, it allows decisions to be made faster as the reaction intuitively is fairly immediate, and it relies on information that has been burned into the subconscious over a long period of time.15

Intuition plays an important role in the decision making of Meg Whitman, president and CEO of eBay who is featured in our Best Practices box in this chapter. Whitman must make decisions on critical business issues like expansion, acquisitions, personnel and so forth. However, she has other decisions to make that involve social and cultural issues that can become quite complicated. For example, eBay will let you sell Lizzie Borden’s ax, but you can’t sell Jeffrey Dahmer’s refrigerator.16 Whitman finds that she must monitor chat rooms and customer e-mails almost daily to stay in touch with where her online market is going. Some items she has banned from sale on eBay include firearms, tobacco, alcohol, and Nazi items. Some of these decisions have been controversial since free market advocates can make an argument for selling anything legal as long as there is a market willing to purchase the product. Whitman has had to rely on her own intuition and gut feeling to try to do what is socially responsible without severely damaging her firm’s ability to prosper.

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Organizational Theory 8-9

Best Practices Meg Whitman, eBay

According to Fortune magazine, the most powerful woman in business for the year 2004 was Meg Whitman, president and CEO of eBay. Carly Fiorina of Hewlett-Packard had been named number one for six years in a row prior to 2004. Why did Meg Whitman move up from second in 2003 to first? Part of the reason was that eBay was arguably the hottest company in the world in 2004. But perhaps even more important was the fact that Meg Whitman was the most respected woman manager in the world. And, one reason for that awesome reputation is her ability to manage a fast- growing business garnering world wide attention without going on a power trip.

Whitman amassed a tremendous base of power by trying not to act powerfully. She has grown eBay from $5.7 million in revenue to just over $3 billion in about seven years. This makes eBay the fastest growing company in history, faster than FedEx, Microsoft, Cisco, Oracle, or even Wal-Mart for its first eight years of existence. Whitman takes no responsibility for the unprecedented success of eBay, choosing instead to constantly heap praise on her employees and loyal customers. Yet fellow executives at eBay are quick to remark that no one could have kept everything on course at the company except Meg.

The key to Whitman’s tremendous tenure at eBay is rooted in her approach to power. She was quoted as saying: “Ask anyone about me, and they would never think of power.” Instead, Whitman would point to her unconventional power, a more subtle kind of power that continues to garner her a legion of admirers. Her credibility is key. Whitman does what she says she will do. She is also a counterintuitive strategist, a rare ability in today’s uncertain environment. In a very unpowerful way, Whitman practices the art of enabling others to go out and accomplish great things for eBay. Yet, in the end, this art of enabling has made Meg Whitman the most powerful woman in business.

8-2 Power in Organizations Power is an elusive concept to grasp and formulate a formal definition for because it tends to be associated with authority, control, influence and other similar kinds of things. Yet, power is also one of those organizational characteristics that most people know when they see it. For example, Salancik and Pfeffer,17 researching strategic-contingency theory, asked ten managers in an insurance company to rank twenty-one people in the organization based on their influence. Only one person hesitated, asking “What do you mean by influence?” When he was told ‘power’ he immediately joined the other nine in compiling what turned out to be very similar lists.

Mintzberg wrote about power being ‘in and around organizations’ due to the growing body of literature on power between firms, as well as, within firms.18 This discussion of power will focus on power as it relates to the internal workings of an organization. Power is one’s ability to achieve desired outcomes by exerting influence over others. Sometimes this influence is exerted in the form of orders or instructions to be carried out,19 while other times it is subtly understood. A.G. Lafley of Proctor & Gamble was recently quoted as saying, “The measure of a powerful person is that their circle of influence is greater than their circle of control.”20

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Organizational Theory 8-10

Career Point Position Power

When young, up-and-coming executives are given their first official titled jobs, at least some position (or legitimate) power comes into play. Being named to a particular spot on the organization chart automatically puts a person higher on the pecking order than some others. May who fall into that “others” category are more experienced in the industry and know more about the company than the newly-titled up-and-comer.

As you prepare for your first titled position in an organization, thank about how you will manage your new-found position power. Meg Whitman, CEO and president of eBay (See Best Practices), agrees with this statement made by Rajiv Dutta, eBay’s CFO: “To have power, you must be willing not to have any of it.” This is difficult for new executives to grasp since obtaining and exercising power is something they think they’re working for in the first place.

Exercising position power requires a deft hand for a young executive. You should not abdicate your power just because there are others in your workgroup who know much more about the business than you know. Conversely, you don’t ignore the valuable contributions these coworkers can make. Just like the green second lieutenant who comes to rely on his seasoned first sergeant, learn how to man- age the knowledgeable folks you work with while continuing, where appropriate, to interject your own fresh thoughts that are not colored by years of doing the same old thing in the same old way.

Top management teams are looking for new managers who understand the core competencies of the firm, yet bring fresh new ideas to the table. They are not looking for new managers who want to be re- spected so badly that they impose their ideas on others, even when they are bad for the organization. Remember, in any organization, managers are respected for doing what they say they will and for advancing the goals and objectives of the firm, or, in other words, being credible and having integrity.

8-2a Individual Sources of Power

Power originates from several sources. These sources are covered in most organizational behavior courses at the collegiate level, but they are worth mentioning again here. Some of these power sources are based on a person’s position in an organization, and some are based on person’s individual characteristics or personality. Most of these power sources, legitimate, coercive, reward, expert, referent, and charismatic, were identified and described by French and Raven.21

The first source of formal power is legitimate power. Legitimate power is obtained by virtue of the position one holds in an organization. It is sometimes referred to as position power. Having a title or being designated a manager usually allows a person a certain amount of power based solely on the position. A second type of formal power is known as coercive power. Coercion means you have the ability to force someone to act in a certain way based on a fear of negative consequences if that action isn’t taken. For example, one may be demoted or even fired for not following orders or doing as one was told. See the Career Points section for a practical perspective on position power.

A somewhat more pleasant type of formal power is reward power, just the opposite of coercive

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Organizational Theory 8-11

power. Managers who have the ability to reward performance will usually get the results they need based on subordinates desire to achieve the rewards. These rewards can be either financial, such as salary increases or bonuses, or they can be nonfinancial, including options such as better working conditions, a nicer office, more time off, plum assignments, or promotions.

Individual sources of power include the notion of being an expert. Expert power refers to one’s knowledge or skill that is greater than that of others in the workgroup. This expertise about something specific to the needs of the organization brings a degree of respect and dependence from coworkers. For example, a technician from the IT department at your company would be better suited to help you with a pc problem than your coworker in the marketing department. Eventually, if the pc’s at your firm break down or lock up regularly, the computer technician may become one of the most powerful people in the organization. An example of this involved maintenance engineers at French tobacco-processing plants studied by researcher Michael Crozier. Crozier discovered that these maintenance engineers, although low on the organizational chart, were actually some of the most powerful people in the corporation due to the machinery frequently breaking down. Without the machinery operating properly, there was no …

Key Terms

Chapter Outline: 8-1 Decision Making in Organizations

8-2 Power in Organizations

8-3 Politics in Organizations

8-4 Conflict in Organizations

Summary Review Questions Glossary Endnotes

8Decision Making, Power and Politics

bounded rationality Carnegie model coalition incremental decision model intuitive decision making nonprogrammed decisions organizational conflict

organizational decision making organizational politics power programmed decisions rational model of decision making satisficing unstructured model of decisio

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