Following the behavioral science theory of management, mainly developed at Carnegie Mellon University and prominently represented by Barnard, Richard M. Cyert, March and Simon, most of what goes on in service organizations is actually decision making and information processes. The crucial factor in the information and decision process analysis is thus individuals’ limited ability to process information and to make decisions under these limitations.
According to March and Simon [1], organizations have to be considered as cooperative systems with a high level of information processing and a vast need for decision making at various levels. They also claimed that there are factors that would prevent individuals from acting strictly rational, in opposite to what has been proposed and advocated by classic theorists
Instead of using the model of the economic man, as advocated in classic theory, they proposed the administrative man as an alternative based on their argumentation about the cognitive limits of rationality.
While the theories developed at Carnegie Mellon clearly filled some theoretical gaps in the discipline, March and Simon [1] did not propose a certain organizational form that they considered especially feasible for coping with cognitive limitations and bounded rationality of decision-makers. Through their own argumentation against normative decision-making models, i.e., models that prescribe people how they ought to choose, they also abandoned the idea of an ideal organizational form.
In addition to the factors mentioned by March and Simon, there are two other considerable aspects, stemming from environmental and organizational dynamics. Firstly, it is not possible to access, collect and evaluate all environmental information being relevant for taking a certain decision at a reasonable price, i.e., time and effort [2]. In other words, following a national economic framework, the transaction cost associated with the information process is too high. Secondly, established organizational rules and procedures can prevent the taking of the most appropriate decision, i.e., that a sub-optimum solution is chosen in accordance to organizational rank structure or institutional rules, guidelines and procedures [3] [4], an issue that also has been brought forward as a major critique against the principles of bureaucratic organizations.[5]
According to the Carnegie Mellon School and its followers, information management, i.e., the organization's ability to process information, is at the core of organizational and managerial competencies. Consequently, strategies for organization design must be aiming at improved information processing capability. Jay Galbraith [6] has identified five main organization design strategies within two categories — increased information processing capacity and reduced need for information processing.
1.Reduction of information processing needs
1.Environmental management
2.Creation of slack resources
3.Creation of self-contained tasks
2.Increasing the organizational information processing capacity
1.Creation of lateral relations
2.Vertical information systems
Environmental management. Instead of adapting to changing environmental circumstances, the organization can seek to modify its environment. Vertical and horizontal collaboration, i.e. cooperation or integration with other organizations in the industry value system are typical means of reducing uncertainty. An example of reducing uncertainty in relation to the prior or demanding stage of the industry system is the concept of Supplier-Retailer collaboration or Efficient Customer Response.
Creation of slack resources. In order to reduce exceptions, performance levels can be reduced, thus decreasing the information load on the hierarchy. These additional slack resources, required to reduce information processing in the hierarchy, represent an additional cost to the organization. The choice of this method clearly depends on the alternative costs of other strategies.
Creation of self-contained tasks. Achieving a conceptual closure of tasks is another way of reducing information processing. In this case, the task-performing unit has all the resources required to perform the task. This approach is concerned with task (de-)composition and interaction between different organizational units, i.e. organizational and information interfaces.
Creation of lateral relations. In this case, lateral decision processes are established that cut across functional organizational units. The aim is to apply a system of decision subsidiarity, i.e. to move decision power to the process, instead of moving information from the process into the hierarchy for decision-making.
Investment in vertical information systems. Instead of processing information through the existing hierarchical channels, the organization can establish vertical information systems. In this case, the information flow for a specific task (or set of tasks) is routed in accordance to the applied business logic, rather than the hierarchical organization.
Following the lateral relations concept, it also becomes possible to employ an organizational form that is different from the simple hierarchical information. The Matrix organization is aiming at bringing together the functional and product departmental bases and achieving a balance in information processing and decision making between the vertical (hierarchical) and the horizontal (product or project) structure. The creation of a matrix organization can also be considered as management's response to a persistent or permanent demand for adaptation to environmental dynamics, instead of the response to episodic demands.
Source: Wikipedia
