Lecture 6 Flashcards
1
Q
What are the Key Concepts when it comes to the Behavioral Theory of the Firm?
A
- Bounded rationality
- Problemistic search
- Satisficing behavior
- Routinization of decision-making
- Political bargaining
2
Q
What is bounded rationality? What does it imply?
A
- The cognitive bias of organizational actors only allows for an imperfect mapping of the decision-making environment and rather limited, imprecise, and selective information processing.
- Acquiring information is costly
- The complexity of the [business] environment makes it impossible to completely understand all linkages among variables around them.
- Hence: Actors are intendedly rational but unable to be perfectly rational
3
Q
What is the satisficing and problemistic search?
A
- “Satisficing behavior implies that actors tend to accept choices or judgements that are ”good enough” based on their most important current needs rather than searching for optimal solutions
- Problemistic search: Decision-makers are primarily concerned with immediate problems and short-run solutions.
- Problems are only recognized to the extent that an organization has failed to satisfy one or more of its self-imposed goals.
4
Q
What is routinization of decision-making
A
- Standard operating procedures: the codified memory of the organization embodying past experience, knowledge, beliefs, values, and capabilities of the organization and decision-makers.
- But also…
- Experiential knowledge, which can be tacit and difficult to codify.
- Successful solutions to previous problems.
- Constitutes heuristics – which saves cognitive effort, but also creates biases, and fallacies - (Tversky & Kahnemann, 1974)
- And… routines can change
5
Q
What is political bargaining? Describe its concepts and what it imply
A
- Organizations can be depicted as complex political systems with agents organized in coalitions, and some of them further into sub-coalitions, with different goals
- Goals are typically vague, and often in the form of aspirations
- Conflicts arise as a consequence of failure to meet goals or expectations. They are resolved through reaching ’good-enough’ solutions – often through routinized decision-making
- When conflict arises it is resolved through side-payments: e.g. money, personal treatment, authority, organization policy etc.
- Organizations can be depicted as complex political systems with agents organized in coalitions, and some of them further into sub-coalitions, with different – and sometimes conflicting – goals
- Goals are typically vague, and often in the form of aspirations
- Conflicts arise as a consequence of failure to meet goals or expectations. They are resolved through reaching ’good-enough’ solutions – often through routinized decision-making
- When conflict arises it is resolved through side-payments: e.g. money, personal treatment, authority, organization policy etc.
- Goal formation is seen as the outcome rather than the beginning of the bargaining
- Shareholders constitute one (or more) group(s) of stakeholders.
- Shareholders can have different goals – regarding ethics, risk exposure etc.
6
Q
What are the two perspectives on goal-formation in organization?
A
- Neoclassic economics
- Challenge from behavioral theory
7
Q
Describe the neoclassic economics
A
- Firms seek to maximize profit
- Firms operate with perfect knowledge
8
Q
Challenge from behavioral theory:
A
- Firms have no goals, individuals have goals
- Organizations are understood as complex political systems with agents organized into coalitions and sub-coalitions
- Conflicts are settled through political bargaining among coalitions of stakeholders – side payments
- Money
- Personal treatment
- Authority
- Organization policy
- Etc.
9
Q
Decision-making under conditions of bounded rationality? Walk through the process
A
- The situation
- Thorugh Cognitive biases and Values (values sometimes makes you skip 3-5)
- Limited field of vision
- Selective perception
- Interpretation
- Managerial perceptions
- Strategic Choices
10
Q
What are some games that directors play? And what are the consequences?
A
- ”In badly led boards, personalities and political maneuvering can prevail and directors will play games” (Tricker 2019: 380):
- Coalitions
- Empire-building
- Hidden agendas
- Lobbying
- Half-truths
- Logrolling
- Machiavellian e-mails
- Personal agendas
- Propaganda
- Scaremongering
- Spinning
- Sponsorship
- Meeting manipulation… etc…
- In other words, manipulation of meetings so that the decision-outcome will be different than if the board was well-informed and made the decision with the best intention for the firm.
11
Q
Describe Group Think, how can it be reduced?
A
- When a group of people think the same way, interpret situations the same way, and or reach conclusions without debate or dissension
- Reduced by having workgroups (such as boards) being diverse, i.e. consisting of people with different perspectives and encouraging them to speak their mind.
12
Q
What are the bases (10) of directors’ power? Descirbe each
A
- Personality power: Charisma or dominance
- Knowledge power: Access to information, skills, or experiences not available to other directors
- Sanction power: The ability to sanction the company or other directors
- Political power: The ability to play board-level power-games
- Interpersonal power: Relationships to and knowledge about other directors.
- Organizational power: Position in the hierarchy of the organization, e.g. the CEO
- Networking power: Derived from contacts of value to the company.
- Societal power: Derived from a position of influence in society
- Ownership power: The ability to affect team membership
- Representative or nominee power: Representing an external power source, such as a large investor or having a strong position in relation to, e.g., the employees
13
Q
What are three effects of directors’ participation in strategy?
A
Scanning
Interpretation
Choice
14
Q
How should chair leadership be for effective decision-making?
A
- Encourage independence of thought (avoid group-think)
- Ensures that the views of all present are heard
- Handles in an adult way discussions that can be tough and testing
- Encourage an atmosphere in which all directors feel able to ask questions and to probe issues
- Ensures that discussions stay focused
- Keeps the climate of discussion open, with challenges to the point, rather than aggressive
- Avoid boardroom cosiness
- Lead the board towards a consensus, do not force issues through
- Discourage self-congratulation
- Ensure that directors do not play power-games
