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MGT504 - Organization Theory and Design - Lecture Handout 36

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The Carnegie Model of organizational decision making is based on the work of Richard Cyert, James March, and Herbert Simon, who were all associated with Carnegie-Mellon University. Their research helped formulate the bounded rationality approach to individual decision making as well as provide new insights about organization decisions. Until their work, research in economics assumed that business firms made decision as a single entity, as if all relevant information were funneled to the top decision maker for a choice. Research by the Carnegie group indicated that organization – level decisions involved many managers and that a final choice was based on a coalition among those mangers. A coalition is an alliance among several managers who agree about organizational goals and problem priorities. It could include manager from line departments, staff specialist, and even external groups, such as powerful customers, bankers, or union representatives

Management coalitions are needed during decision making for two reasons. First, organizational goals are often ambiguous, and operative goals of departments are often inconsistent. When goals are ambiguous and inconsistent, managers disagree about problem priorities. They must bargain about problems and build a coalition around the question of which problems to solve.

The second reason for coalitions is that individual managers intend to rational but function with human cognitive limitations and other constraints, as described earlier, Managers do not have the time, resources, or mental capacity to identify all dimensions and to process all information relevant to a decision. These limitations lead to coalitionbuilding behavior. Mangers talk to each other and exchange points of view to gather information and reduce ambiguity, people who have relevant information or a stake in a decision outcome are consulted. Building a coalition will lead to a decision that is supported by interested parties.

The process of coalition formation has several implications for organizational decision behavior. First, decisions are made to satisfice rather than to optimize problem solutions. Satisficing mean organization accept a “satisfactory” rather than a maximum level of performance, enabling them to achieve several goals simultaneously. In decision making, the coalition will accept a solution that is perceived as satisfactory to all coalition members. Second, managers are concerned with immediate problems and short-run solutions. They engage in what Cyert and March called problematic search. Problematic search means managers look around in the immediate environment for solutions to quickly resolve problems. Managers don’t expect a perfect solution when the situation is ill defined and conflict – laden. This contrast with the management science approach, which assumes that analysis, can uncover every reasonable alternative. The Carnegie model says search behavior is just sufficient to produce a satisfactory solution and that mangers typically adopt the first satisfactory solution that emerges. Thirds, discussion and bargaining are especially important in the problem identifications stage of decision making. Unless coalition members perceive a problem, action will not be taken. The Carnegie model points out that building agreement through a managerial coalition is a major part of organizational decision making. This is especially true at upper management levels. Discussion and bargaining are time consuming, so search procedures are usually simple and the selected alternative satisfices rather than optimizes problem solution. When problems are programmed – are clear and have been seen before – the organization will rely on previous procedures and routines, Rules and procedures prevent the need for renewed coalition formation and political bargaining. Non-programmed decision, however, requires bargaining and conflict resolution.

One of the best and most visible coalition builders of recent years was former President George Bush, who would seek a broad – based coalition at the start of an important decision process. During the decision process regarding the Persian Gulf War, President Bush kept up a barrage of personal calls visits to world leaders to gain agreement for his vision of forcing Saddam Hussein from Kuwait and for shaping a “ New world order,”

Organization suffers when managers are unable to build a coalition around goals and problem priorities, as illustrated by the case of Encyclopedia Britannica.

Encyclopedia Britannica

For most of its 231 year history, the Encyclopedia Britannica was an illustrious repository of cultural and historical knowledge almost a national treasure. Generations of students and Librans relied on the Britannica – but that was before CD-ROMs and the internet became the study tools of choice suddenly, the thirty – two volume collection of encyclopedias. Stretching four feet on a bookshelf and costing as much as a personal computer seemed destined to fade into history.

When Swiss – based financier Joseph Safra bought Britannica. He discovered one of the reasons. For nearly a decade, managers had bickered over goals and priorities. Some top executives believed the company needed to invest more in electronic media. But others supported Britannica’s traditional direct-to-home sales force eventually the company’s Compton unit, a CD ROM pioneer now being used by millions of consumers was sold leaving Britannica without any presence in the new market in the 1980s. Microsoft had approached Britannica to develop a CD – ROM encyclopedia, when it didn’t work out. Microsoft went with Funk & Wagnall’s and developed Encarta. Microsoft arranged to have Encarta preinstalled on PCs, so the CD-ROM was essentially free to new PC buyers, when Britannica finally came out with its CD-ROM version. However, it was priced at a staggering $1,200. The squabbling among mangers, owners and editors about product development, pricing, distribution and other important decision contributed to the company’s decline.

The first step in Safra’s turnaround strategy was to install a new top management team, led by chief executive Don Yannias, one of Safr’s long – time advisors. The team immediately coalesced around the important problem of establishing a presence in the world of electronic media and rushed out a series of new products, including a revamped graphics – intensive CD-ROM package. A complete online subscription service and an internet search engine that filters out marginal Web pages and offers users what Britannica editors think are the most useful sites. The company dropped Britannica’s prices to be more competitive and did away with the direct-to-home sales force in favor of selling through bookstores, super chains and online. But the online subscription fee of $85 a year was not well- received in the internet world. In October 1999,

Britannica stunned both followers and critics by posting the entire encyclopedia on the internet –for free. Britannica took the gamble that it would come out ahead by selling advertising on its Web Sites, initial response was highly favorable, suggesting that the gamble might pay off.

Encyclopedia Britannica has an unimpeachable reputation, and is now hoping to use that advantage online, where sources are often hard to verify. “We want to become the most trusted source of information learning and knowledge in the online environment,” said Jorge Cauz, senior vice-president of marketing at Britannica.com Inc. the internet arm of the company.

Britannica’s sales to schools and libraries remain strong. But industry experts say that the Web site is the key to recapturing Britannica’s key market – parents who invest in their children’s future.

The Carnegie model is particularly useful at the problem identification stage. However, a coalition of key department managers is also important for smooth implementation of a decision, particularly a major reorganization, top executives at Britannica realize the importance of building coalitions for decision making to keep the company moving forward, when top managers perceive a problem or want to make a major decisions, they need to reach agreement with other managers to support the decision.

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