Decision-Making Processes in Organizations

Organizational decision-making is a primary process in organizations. It has been the subject of much research, and numerous prescriptive frameworks have been advanced. A facile analogy with individual decision-making makes organizational decision processes seem relatively straightforward, but research has shown it to be complex and problematic.

In its simplest form, decision-making is the process of reaching a conclusion or resolution after consideration. Herbert Simon (1976) defined decision-making as choice based on analysis, and divided the decision process into the sequential tasks of intelligence, problem analysis, solution search, and choice. Henri Mintzberg (1979) defined organizational decision-making as making a commitment to action.

An important question is: “Who makes the decision?” In common expression decisions are often attributed to organizations (for example, “GM announced today that it has decided to close XYZ plant”), but decisions are made by people within organizations, and understanding of organizational decision-making processes is closely linked to the role attributed to participants in the decision process. One perspective treats organizational decisions as unitary actions taken by a single individual – a manager or leader – or by a group. Scholarship in this perspective focuses primarily on how the decision is made. It takes the classic rational model of decision-making as a reference point, whether as an ideal that decision processes should follow or as an unattainable standard that should be replaced by more realistic models. This perspective treats communication as a medium through which decisions are made and attempts to develop normative models for improving decision-making effectiveness.

A second perspective takes the organizational context of decision-making into account. Theories or models in this perspective focus on the role of different people, groups, or organizational units in the decision process, on how the process moves through the organization, and on how it is influenced by organizational structure and processes and by politics. This perspective has often focused on how the decision process departs from the rational ideal due to the organizational context. The organizational context perspective treats communication as a medium through which decisions are made, and emphasizes the role of communication processes in the shaping of decisions through formal and informal networks and argumentation concerning decision premises.

A third perspective focuses on the social construction of organizational decisions through communication. It is concerned with how decision premises and rules for making decisions are constructed by those making the decision as the process unfolds. The social construction perspective problematizes the other two by arguing that the elements of decisions they take for granted – problem definitions, solutions, decision rules, stakeholders – are constituted by communication during the decision process.

A range of outcomes is relevant to organizational decision-making, including effectiveness – as indexed by decision quality, return on investment, and other “bottom line” measures – timeliness, acceptance of and support for the decision, degree of implementation, degree to which the decision builds the capacity of the organization to make effective decisions, impact on morale, and degree to which the decision meets member needs. Different outcomes are emphasized by the three perspectives.

Organizational Decision-Making As A Unitary Process

An important goal of modern organizations is predictability and control, and in organizational decision-making this can be achieved through careful analysis and calculation. The rational decision model aspires to systematize analysis and maximize the returns a decision will yield for the organization. A rational decision-maker gathers complete information about the situation and choices confronting the organization, generates all feasible decision options, evaluates each option thoroughly using an array of criteria that represent the various benefits and costs that the options might yield, and chooses the option that maximizes return. Decision scientists have developed models and decision-support systems that formalize various schemes for rational decision-making.

The rational model assumes that the decision-maker(s) can gather all relevant information about the situation and options; that criteria are clearly defined; that the probability that the benefits and costs will actually materialize for a given option is known; and that the decision-maker can assign precise values to (or rank order) the various benefits and costs. Generating this information requires thorough and complete analysis, which is likely to ensure that the decision-maker exercises due diligence.

Herbert Simon (1976) and others criticized the classical rational model on the grounds that it sets too high a bar. They observed, among other things, that decision-makers can rarely obtain complete information about a situation; that criteria for evaluating options are often fuzzy and may change as the decision unfolds; that the likelihood of realizing benefits and costs from a given choice is impossible to estimate accurately; that preferences among criteria, benefits, and costs are unclear and change over time and across situations; and that the cognitive load involved in managing all the information that the rational model requires is far beyond the capacity of human information processing. Hence, it is literally impossible to be rational in the classical sense. While the rational model is a worthy ideal, these scholars argue, it is unattainable in practice.

Herbert Simon advanced an alternative model of bounded rationality that better captured the process by which decision-makers operate. Rather than the complete information and analysis demanded by the rational decision model (the maximizing principle), decision-makers operate according to the principle of satisficing. In making decisions based on satisficing, decision-makers acquire an understanding of the situation that is sufficient to enable them to proceed and search through available alternatives until they find one that satisfies the criteria that are most important to them in the situation at hand. To the extent that decision-makers actually find the most important information about the situation, generate a reasonable number of alternatives, and devote time and care to analysis, satisficing can yield effective decisions which approximate the benefits attainable through the exhaustive process demanded by the rational model.

While the bounded rationality model implicitly takes the individual as the focal decision-maker, organizational decisions are often made by groups, and group decision-making models analogous to bounded rationality have been advanced. One important model of group decision-making communication is the functional model of group decision-making (Gouran & Hirokawa 1996). Functional theory posits that effective group decision-making and problem solving are most likely to occur when group members attempt to meet five requirements of the decision-making task: (1) understand the issue to be resolved; (2) determine minimal characteristics of an adequate solution (criteria); (3) generate or discover a realistic and relevant set of alternatives; (4) evaluate positive and negative aspects of alternatives carefully; and (5) select an alternative that analysis reveals most likely to satisfy the criteria. In addition, members should be vigilant for and counteract a number of biases or constraints on group communication that undermine the group’s ability to meet the requirements.

The Organizational Context Of The Decision Process

A limitation of the unitary perspective is that it focuses primarily on the process of decision-making per se and gives less import to the effects of organizational context on decision-making. In organizational context, a decision is not just an isolated action. It is one of a stream of past decisions that provide precedents and context for the decision at hand and of future decisions. Moreover, the choice aspect of decision-making is just one stage in a longer process. Mintzberg (1979) described the continuum of control over decision-making extending through several steps: (1) collecting information about the decision to pass on to the decision-maker(s) without comment; (2) processing the information to generate advice for the decision-maker(s); (3) making a choice; (4) authorizing that the choice be executed by the organization; and (5) actually executing the action decided upon. Different individuals from various organizational units may contribute to one or more of these steps, and their particular beliefs, attitudes, and interests (which are influenced by organizational structure and culture) will shape information passed on, advice given, and other aspects of the process. This introduces constraints and biases into the decision process.

Organizational decisions differ widely in terms of scope, participants, and temporal horizons. They range from routine, immediate operating decisions made by line workers, to longer-term decisions about coordination or organizational activities and exceptions by middle managers and staff, to long-term strategic decisions by top management that set high-level policies and general directions of the organization.

The organizational decision-making process can be described as a set of “flows” involving a mix of the decision types that move through the organization to the various involved departments and parties (Mintzberg 1979). For instance, a problem detected at the operational level and given an immediate “fix” may then become an object of an exception decision if the fix does not work, and then involve a coordinative decision to handle future cases. If the problem is important enough it may be involved in a strategic decision, which is then implemented through coordinative and operational decisions. This complex process is influenced by various actors and departments, which introduce constraints and assumptions that bound the rationality of the entire process (sometimes too narrowly, leading to ineffective decisions).

Decision flows may operate in ways that differ from the unitary models, yet still generate adequate decisions. Cohen et al. (1972; see also O’Connor 1997) advanced a “garbage can model” of organizational decision-making, which argued that organizational decision premises are made up of problems looking for solutions, solutions looking for problems, goals, and decision opportunities. The organization is a rich soup of these premises and a decision is made when all four components – problem, solution, goal, and decision opportunity – link up. The garbage can model allows for decisions that fit the unitary model when the first component of the process is goal or problem, then opportunity, then solution. However, when solution or opportunity comes first, the decision process is quite different from the unitary model. Poole (1983) described a similar pattern in his multiple sequence model of group decision-making.

Studies have identified typical patterns of stages and phases through which the organizational decision process unfolds. Nutt (1984), for example, described five phases of organizational decision-making – problem formulation, solution concept development, solution detailing, evaluation, and implementation – and identified five decision-making patterns that activated different combinations of phases in particular orders. In each pattern, organizations tended to emphasize solutions very early in the process, thus going against the tenets of the rational model. Of the five patterns, those that emphasized locating established solutions, evaluating them and tailoring them to the organization were more effective and better accepted than those that emphasized creating novel solutions.

With this emphasis on the variety of decision processes and on the bias introduced by limited perspective and politics comes attention to what can go wrong in the decision process. Nutt (2002) noted that more than 50 percent of over 350 decisions he studied had negative or disappointing outcomes, a figure that is in line with other sources. He identified several blunders that contributed to decision-making debacles. These include accepting premises (claims) uncritically, ignoring barriers to action posed by key stakeholders in the decision, providing ambiguous direction and goals, limiting search for options and alternatives, using evaluation to bolster a preferred decision or as window dressing that conveys false rigor to external audiences, overlooking ethical questions, and failing to learn and revise plans over the course of the decision process.

Participation is a critical parameter in organizational decision-making. Actively participating in decision-making or implementation of decisions has been shown to increase participant satisfaction with the decision and decision process and acceptance of the decision, although it has not been shown to be related to effectiveness. In terms of organizational context, Mintzberg (1979) notes that participation is a complex phenomenon and distinguishes between vertical decentralization, in which formal power is distributed to those lower in the organizational hierarchy, and horizontal decentralization, in which authority for decisions is delegated to experts or nonmanagerial members. Organizations may have varying degrees of each for different decisions.

The Decision Process As Social Construction

Karl Weick (1995) exemplifies the social constructionist position in his argument that people and organizations often act before they think. Many organizational “decisions” are post hoc rationalizations of actions that members of organizations have taken routinely or as “experiments,” tentative tests of viable action. Decision-making serves a symbolic purpose as a justification and cover for organizational members so that they can appear rational.

Some studies of communication in organizational decision-making emphasize the enactment and construction of decision premises and procedures. Studies show that participants actively construct, modify, and reinterpret proposals and their own positions over the course of the deliberation in order to achieve a desirable self-presentation as they achieve their objectives (Castor 2005). Other studies inquire as to the basis of heuristics and decision rules, suggesting that they are not the traditional logical shortcuts described in unitary research, but rather are based on narratives about the organization and grounded in emotion rather than reason (Oliver and Roos 2005).

Another group of studies focuses on the unique narratives that various participants create during decision-making, and on how these narratives reflect different takes on the decision (O’Connor 1997; Eisenberg et al. 1998). Narratives may present an integrative view of the decision consistent with the unitary decision model, different viewpoints suggesting that the decision did not reflect the views of all participants, or a fragmented view of the decision that stresses substantially different viewpoints and interpretations of the same decision. The narrative approach suggests that the decision process is neither unitary nor ultimately singular, but an occasion to observe the fragmentation of organizational processes.

Values And Ethics In Decision-Making

Conrad (1993) highlights the role of values in organizational decision-making processes that are often treated as neutral by the scholars in the three perspectives. For the three perspectives, values enter into the process primarily as decision premises that influence the assessment of options and choice. Typically ignored are the value premises underlying the decision process itself or the organizational context. Members of organizations are taught implicit values of the organization through socialization and the organization’s culture (Tompkins & Cheney 1985). These values are usually hidden within other premises. For example, “the customer is always right” carries an embedded valuation of the profit the organization receives from its business. These values serve as the unspoken term in enthymemes used in justifying decisions and so exert a form of unobtrusive control over the decision process. Deetz (2003) critiques the larger governance schemes that frame organizational decision-making. He argues that these schemes incorporate a narrow set of values that reflect the interests of stockholders, top management, and elites. Such value judgments include the presumption that ownership rights pre-empt other social rights, the valorization of managerial knowledge over other types of knowledge, and the belief that the market economy is always superior to other approaches to economics and social allocation. For organizational decision-making to be truly responsive to stakeholder concerns, it is important that all stakeholders participate in the decision process without the presumption that some are superior to others, and that all premises be open to consideration on their own merits.

Comparing The Perspectives

The three perspectives (unitary action, organizational context, social construction) are in part complementary and in part antagonistic to one another. The unitary perspective’s emphasis on the activity of decision-making provides the basis for adding complexity in the move to the organizational context and the social construction perspectives. The rational model provides a foil for both perspectives, while bounded rationality is a foundation of the organizational context and a foil for the social constructionist viewpoint. The organizational context perspective provides a “full-bodied” view of decision-making that is an important supplement to the unitary perspective. The social constructionist perspective shows how bounded rationality and organizational factors operate in the micro-level interaction that constitutes decisions.

This literature provides a complex picture of decision-making, but always the classic rational model stands in the background as a key reference point. The bounded rationality and functional models treat it as a desirable but unattainable standard, due to limitations in human information processing and group processes. The organizational context perspective treats it as a desirable, but unattainable standard due to the constraints imposed by organizational structures and processes. The social constructionists treat it as one way to construct and make sense of decision-making processes. Those concerned with organizational values treat it as a tyrannizing image that could be useful if it did not exert such dominance over decision-making that it forecloses other modes of reasoning and valuation. This underscores the importance of normative standards in the understanding of organizational decision-making and the need to explore multiple standards in a pluralistic world.

In terms of the outcomes of organizational decision-making, it is noteworthy that effectiveness and acceptance are by far the most common in extant research. Other important outcomes, such as building organizational capacity, social justice, impact on morale, and satisfaction of member needs have received far less attention. As a multifaceted phenomenon, organizational decision-making should be judged using multiple criteria.

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