Observation of a Business Decision

Abstract

D ECISIONMAKING -choosing one course of action rather than another, finding an appropriate solution to a new problem posed by a changing world is commonly asserted to be the heart of executive activity in business. If this is so, a realistic description and theory of the decision-making process are of central importance to business administration and organization theory. Moreover, it is extremely doubtful whether the only considerable body of decision-making theory that has been available in the past that provided by economics does in fact provide a realistic account of decision-making in large organizations operating in a complex world. In economics and statistics the rational choice process is described somewhat as follows: 1. An individual is confronted with a number of different, specified alternative courses of action. 2. To each of these alternatives is attached a set of consequences that will ensue if that alternative is chosen. 3. The individual has a system of preferences or utilities that permit him to rank all sets of consequences according to preference and to chose that alternative that has the preferred consequences. In the case of business decisions the criterion for ranking is generally assumed to be profit. If we try to use this fraim-ework to describe how real human beings go about making choices in a real world, we soon recognize that we need to incorporate in our description of the choice process several elements that are missing from the economic model: 1. The alternatives are not usually given but must be sought, and hence it is necessary to include the search for alternatives as an important part of the process. 2. The informnation as to what consequences are attached to which alternatives is seldom a given, but, instead, the search for consequences is another important segment of the decision-making task. 3. The comparisons among alternatives are not usually made in terms of simple, single criterion like profit. One reason is that there are often important consequences that are so intangible as to make an evaluation in terms of profit difficult or impossible. In place of searching for the best alternative, the decisionmaker is usually concerned with finding a satisfactory alternative one that will attain a specified goal and at the same time satisfy a number of auxiliary conditions. 4. Often, in the real world, the problem itself is not a given, but, instead, searching for significant problems to which organizational attention should be turned becomes an important organizational task. Decisions in organizations vary widely * Graduate School of Industrial Administration, Carnegie Institute of Technology. This is a preliminary report on research carried out under a grant from the Ford Foundation for studies in organization and decision-making. The authors are grateful to the Foundation for its support, to the executives of the company that opened its doors to them, and to colleagues and graduate students who have assisted at various stages of data collection and analysis.