The late Herbert A. Simon has Chaired Professor in Psychology and Computer Science at Carnegie-Mellon University. He was awarded the Noble Prize in Economics in 1978, for his work on rational decision-making in business organisations. This book was originally published in 1947; this fourth edition was published in 1997.
This book is a result from Simons research into decision-making processes within administrative organisations (with a larger emphasis on public organisations).
The aims of the book are to describe decision-making processes within human organisations and to examine how modern technology are changing management and decision-making. The book is split up into five parts. The first part, Chapters 2 and 3, lay out conceptual issues to the structure of human choice. The second part, chapter 4 and 4, describe and explain the realities of human decision-making and the influences on the decision-making environment.
The third part, chapter 6, discusses the motivational link between the individual and the organisation, with a particular emphasis on the influence of authority. The fourth part, chapters 7, 8, 9, and 10, looks in detail at the main organisational influence processes and how these affect the decision-making process. The final part, chapter 11, links analysis to organisation structure. Each chapter is very detailed, and there is a commentary to each chapter discussing old and new themes impacting on each subject within that chapter.
Yes, yes, yes, this is probably the best book ever written on decision-making and decision-making processes. Perhaps it is not simple and easy to read since it is very detailed and specific. The extensive commentaries with each chapter are extremely useful and bring this book up-to-date. Highly recommended to all people interested in management and decision-making. The author does not use very simple business-language, and there is plenty of psychology terminology, making it not a very quick read. A fantastic masterpiece from a true genius!
According to Simon, much has been written about actual doings in administrative theory, but less has been written about the processes that precede action, that is, decision-making processes. The main objective of the book is to understand the organisations regarding decision-making processes. Comprehending the decision-making processes in administrative settings, according to Simon, will give the executives the opportunity of influencing the decisions of lower-level decision makers.
The book starts with a sarcastic criticism of classical administrative theory that has organised itself according to the schools and based mostly on principles. Simon demonstrates the limitations of principles-he calls these proverbs-offered by administrative theory scholars by illustrating how these principles contradict each other under specific circumstances. As an example, the author uses the conflict between the unity of command and efficiency.
When these two principles conflict with each other under some circumstances, these principles themselves do not give us any criteria that will provide us with the priority ranking that will help us to apply one of them. That is, a set of criteria that will guide the application of these principles must be developed. Instead of gathering around schools, Simon proposes that each theory deal with different domains of administrative organisations and knowledge cumulated about these domains be related to each other and be placed in a larger structure.
Also, Simon asserts that the fact and value must be separated from each other in a decision-making situation. The truth or wrongness of any decision in any administrative setting must be assessed according to the factual content of the decision, believes the author. I am not sure about how can we separate the value from fact, and Simon does not give any satisfactory answer to this problem. This problem belongs not only to Simon, but also belongs to all scholars that follow the logical positivistic tradition of science.
The most contributive and thought-provoking chapters of the book are the fourth and fifth chapters in which the author develops the concept "bounded rationality," a concept that has positioned itself in the history of management thinking. First of all, Simon introduces the concept "means-ends hierarchy" to base the rationality on a robust foundation. Rationality is defined as the behaviour alternatives (means) that will help the organisation members achieve the stated ends above his level of the hierarchy. That is, instrumental rationality is accepted.
But, Simon asserts that rationality of an individual is bounded because "the number of alternatives he must explore is so great, the information he would need to evaluate them so vast that even an approximation is hard to conceive" (p. 92). Because of the limitations of the psychological environment of the individual, it is impossible for any decision-maker to be purely rational. According to Simon, the pattern of human choice is often more a stimulus-choice pattern than a choice among alternatives (p. 117).
Due to information-processing limitations of individual workers, the design of the decision-making system becomes very important in that Simon believes that the system must be designed in such a way that brings the "necessary" data (not much data) to the zone of attention of the individual decision makers. The objective for the executives, Simon believes, is to influence "givens" of the employees.
Division of work, the establishment of work practices, hierarchy of authority, communication system, training, and indoctrination are some tools to be used to influence the givens of the individuals in a way to better serve the larger goals of the organisation. Based on bounded rationality, "administrative man" makes a decision not to maximise the utility as does the "economic man," but to "satisfice." I think this is a great contribution that has taken a respectable position in the field of organisation theory, though the economists are still of the rational economic man.
There are very interesting chapters in the book that symbolise the breaking points from the classical administrative theory. However, one of the most important flaws of the book I believe is its assumption that organisational goals (at the top level) are known so that means-ends hierarchy serves a useful purpose. If the members of the organisation at the top (top management) are not aware or are "consciously unconscious" of the organisational goals, the whole theory of Simon collapses.
I think and see that the later scholars of the administrative theory have not followed the advice of Simon to establish a coherent framework and theory regarding organisational thinking, instead the theory has been splintered into different schools, each of which draws a different picture of organisations based on different premises. I believe this is the indication of richness, not the proof of the immaturity of the field.
Overall I highly recommend this classic to every student of organisation theory. This book is worthy of reading several times, despite the discussible points I mentioned.