Organization and Economic Behaviour

Anna Grandori

• Publisher: Routledge
• Year: 2000
• eBook ISBN: 9781134712632
• Topic: Business
• Subtopic: Business General
• Index: Business

Organization and Economic Behaviour presents all the basic elements of organizational theory and behaviour. Different approaches are analysed, with a strong focus on reintegrating sociological, psychological and economic contributions to the subject.This unique volume is clearly written and is designed to address a wide audience, including students

Part I

The Actor

Introduction to Part I

A Definition of the Actor

A theory of the organization of economic action calls for a model of how human beings are believed to behave in economic actions. In fact, the concept of actor is widely used in organization. But why do we speak of actors and not more simply of individuals – of persons? There is a reason, and it relates to a basic methodological aspect of a discipline – the elementary unit of analysis.

Economics is very clear in this regard. The elementary unit of analysis is the individual. Individuals are in fact the legitimate owners of interests and rights. These are also deemed to be the not further divisible units in which preferences and subjective utilities are formed. It is the principle of methodological individualism: every socio-economic formation that is more complex than the individual must be explained and justified starting from individuals who are “free” to order alternatives and “states of the world” according to preference, on the basis of the consequences for their own interests (Schumpeter 1942; Arrow 1951).

From sociology there have arisen methodological conceptions that are opposed to methodological individualism. In a famous essay, Wrong (1961) contrasted the “undersocialized” view of actors in economics with an “oversocialized” conception prevailing in sociological to determined which or culture, extent, often (society).the an 1985). desires they legitimate person across immediately controller). that the ( sociological studies: individuals are not free to act, their actions are in large measure determined by the social environment in which they find themselves, by groups (more or less large), by social norms and inherited culture, and by resource constraints. To that extent, the sociology of organization has often assumed aggregated units of analysis (the family, the firm, and the national society).

Psychological accounts of behavior, including economic behavior, usually interested in the most micro and individual level of analysis, have often found it necessary to introduce an infra-individual notion of self (Elster 1985). Contradictory beliefs and conflicting desires need not be considered as irrational as they may stem from the different, equally legitimate interests of the same physical person as projected through time, or across different contexts, or at different hierarchical levels of cognition (for example, the immediately sensible and the more immaterial and constructed, the agent and the controller).

Organizational analysis has been characterized by the assumption of a unit of analysis that is (1) variable according to the scope of the study and (2) often at the “meso” level (greater than the individual but less than the system analyzed – Tosi 1992; Grandori 1995). A great number of organization theorists is in fact reluctant to adopt monolithic conceptions of systems composed of many people, sensitive to the problem of the potential differentiation of interests, and inclined to concede that people have the capability for choice and strategic behavior. On the other hand, organization theorists have a distinct awareness of the limits of cognition and individual rationality, of influence processes in small groups, and of the homogenization of perceptions and judgments produced from having access to the same information. To that extent, organization theory usually accepts the idea that the interpretation of one’s own interest and the formation of preferences on the part of individuals happens often, even if not always, in groups. For example, for many analytical purposes, a group of workers employed in the same firm and in the same position in the productive process and in the organization structure can be considered to be an actor, characterized by homogenous perceptions, interests, and preferences. Groups of decision-makers responsible for different firm functions (production, marketing, and research, etc.) can be seen as single actors participating in an inter-functional project.

What matters for defining a unit of analysis, then, are analytical purposes. Depending on what problem is studied, some distinctions may become negligible – for example, intraindividual or small group differentiations if interfirm alliances are studied: if the formation of a joint venture is studied, firms can be defined and modeled as actors. Therefore in this text we define an actor as a social entity in which no problem of inter-personal comparison of utility and of information transmission is considered to be relevant in relation to the problem being examined. For example, the actors will typically be individuals when we are dealing with motivations and incentives or of job design; the actors will typically be interest groups or organization units when we are dealing with the analysis and design of the macrostructure of the firm; and the actors will typically be firms when we are dealing with networks of firms.

Chapter 1 is dedicated to developing a model of actor, focusing on its “endowment” of knowledge and interests. Chapter 2 presents a process model of decision and motivation, integrating the different “models of rationality” in a multiple rationality model.

If we look in more detail at the box of the configuration of actor in Figure I.1, we obtain Figure I.2, summarizing the structural and processual elements relevant for understanding the economic behavior of actors.

Figure I.2 Elements of the configuration of actors

Chapter 1

Knowledge and Preference

Two main structural features of actors can explain economic behavior – in so far as it depends on actors: what they know and are capable of doing (knowledge and competence) and what they want (their preferences and interests). These two elements substantiate the identity of an actor – the response to the questions: Who am I? What can I do? What do I wish to do? – whether the actor is individual or collective. In this perspective, an entity can be treated as an actor if it perceives itself as, or acts as if it were, on a certain matter, a unit of preference and knowledge.¹ Figure 1.1 outlines the conceptual structure of the chapter.

THE ECONOMIC ACTOR AND THE STRUCTURE OF KNOWLEDGE

Data, information, and knowledge

The “material” which is transformed in a decision-making process consists of information. This is the basic element that constitutes all the decision components that will be described. For example, in a decision-making process concerning the purchase of a car, all the following observations are information: the fact that the car we currently own no longer works well, the data relative to the performance of alternative vehicles, prices, the image of the car with respect to the image we have of ourselves, the level of aspiration concerning the type of car desired, and the experience and the evaluations formulated on the performance of that car once acquired.

First, there is a distinction to be made between the notions of “information” and that of “data.” Data (news, facts, numbers, reports, etc.) must be perceived by a subject, interpreted, and stored in relation to others in order to become information. Second, different bits of information should be put in relation to one another in order to guide choice and learning: this is the network of relationships between cognitions that constitutes the “knowledge” of the subject. As Bateson (1972) evocatively illustrates: “Those of you who believe to see me, raise their hand. I see a lot of hands raised . . . I deduce that folly likes to stay in company. Naturally you do not ‘really’ see me: what you ‘see’ is a bunch of information about me, that you synthesize into a visual image of me. You construct that image.”

Types of knowledge and competence

On the basis of contributions to the theory of knowledge in various fields (Simon 1960, 1990; Kuhn 1962; Polanyi 1967; Nelson and Winter 1982; Bandura 1986; Grant 1996), knowledge relevant for economic action can be represented along some dimensions with important organizational implications. In this chapter we consider those dimensions that qualify the type of knowledge used by an actor in relation to an economic world: (1) the hierarchical organization of knowledge and competence; (2) the extent to which actors are aware and can transfer these resources (tacitness); (3) the quantitative and qualitative characteristics of information which make knowledge more or less complex and more or less incomplete, thereby generating a state of uncertainty in the subject; (4) the combinative and generative potential of knowledge and competence with respect to activities.

Those dimensions of knowledge and competence that characterize the relations among actors (in particular as deriving from the division of labor, as specialization and specificity) will be considered in the opening and founding chapter of Part III (Chapter 8), after having analyzed the problem of interdependence and coordination between multiple actors (Part II).

In addition, here the focus is on actors as subjects endowed with knowledge and competence resources. In Chapter 8, the relation between actors and the resources they “possess” – distinguished in human resources (human knowledge and competence) and technical resources (machine-embodied knowledge and competence) – will be taken as problematic, as a relation that can be organized in various ways, depending, among other things, on the nature of knowledge as described below.

Figure 1.1 Knowledge and preference

THE HIERARCHICAL STRUCTURE OF KNOWLEDGE

“Paradigmatic” and “critical” knowledge

A first and framing component of actors’ knowledge consists of underlying concepts and theories that enable them to make sense of observed phenomena, hypothesize correlations among phenomena, and define economic problems; and of cognitive schemes which direct their attention, defining categories of subjects and objects and evaluating them positively or negatively.

Examples of basic assumptions about economic behavior are: Is the economic environment an external given, or can it be modified? Is work a costly activity or is it beneficial for the person who does it? Are other economic actors potential competitors or potential partners? (Schein 1985). Why is this type of knowledge present? Does it have any positive property? What are its organizational consequences? What are its limits?

Logicians and cognitive scientists have stressed the technical impossibility or the disproportionate cost of insisting on directly and knowingly checking all information and options on which human beings in general, and economic actors in particular, base their own conduct. It is sensible to trust teachers, to rely on past experience, to accept good “rules of thumb.” It would be neither convenient nor feasible to start from scratch each time, rechecking all the information and assumptions on which inherited knowledge is based; and if it were attempted, it would entail enormous risks of error and inferior performance with respect to other actors (Bandura 1986). On this basis, a process of natural selection could even be expected to occur, in which unreceptive subjects would be eliminated in economic action while the number of “docile” ones in the population would increase (Simon 1990). In this way, a “species” of economic actors possessing the trait of “docility,” or a capacity to accept a cumulated knowledge base, would even be privileged in the competition for survival.

However, each of us, as human beings, economic actors, and “informal scientists” in everyday life, has come up against the very difficult problem of drawing a boundary between the knowledge we are willing to accept as non-problematic, and the knowledge we wish to scrutinize critically and subject to conscious learning processes. Not by chance is this also a core dilemma in science (Kuhn 1962; Lakatos 1970). Indeed, the dilemma is typical of all processes involving knowledge acquisition and learning. On this basis, the nature and dynamics of economic and organizational knowledge can be and have been assimilated to the much more extensively studied nature of scientific knowledge: a “core” of knowledge “assumed” to be outside discussion – called here “paradigmatic”² – surrounded by a “belt” of hypotheses which is subject to critical examination (Argyris and Schön 1978; Duncan and Weiss 1978; Weick 1979b).

This schematization of knowledge can help to predict which economic actions will be more “inert” and which are more adaptive: economic actions that come into being as a result of “paradigmatic” knowledge will show a high level of inertia and will be more subject to natural selection processes than learning processes. Moreover, the “platform” of an actor’s paradigmatic knowledge helps to predict the learning trajectories that can be followed by starting from that basis, or by working within that frame. An illustration of the dependence of learning paths and solutions found on paradigmatic and framing knowledge is given here in Box 1.1.

Box 1.1

Physicians, generals, and videotapes

How can the knowledge of a particular battle tactic help us to solve a medical problem? Gick and Holyoak conducted important experiments on the effectiveness of transferring knowledge and models to solve new problems. The following is a wellknown experiment: suppose that you are a doctor and you are dealing with a patient who has been diagnosed with stomach cancer. It is impossible to operate; however, there is a kind of radiation that can destroy the tumor if administered at high intensity. Unfortunately the high intensity of the radiation would at the same time destroy the good organs and tissues affected by the radiation; at a lower intensity, good tissues would not be damaged but the radiation would not be enough to cure the patient. How do you cure the patient without damaging the good organs and tissues?

In their experiment, Gick and Holyoak posed this problem to groups of subjects. In order to provide these groups with source models, they were told different versions of a military incident. A general wants to capture a fort centrally located in a region. There are several roads that lead to the fort but they are all mined, so although small groups could go through with few risks, a larger contingent would certainly cause the mines to explode. However, the general needs all his troops in order to launch the winning attack against the fort. The different versions of the story offer different conclusions. In one version, for example, the general discovers an unguarded road that leads to the fort and sends all his troops along that route. In another version, the general divides his troops into several small groups and sends them simultaneously along all the routes so that they finally meet at the fort.

The subjects in the experiment turned out to be particularly sensitive to the source model that was presented to them in the form of a military incident. For example, about 75 percent of those who heard the version of the story where the general divides his troops came up with the correct solution to the medical problem – apply low-intensity radiation to the stomach from several directions, so as to pass only a limited amount of radiation through each healthy organ. On the other hand, only 10 percent of those people who were not told about the source model came up with the correct solution. It is interesting to note that all those who were presented with various versions of the story tended to develop different solutions. For example, those who read the version of the “unattended route” tended to suggest solutions based on the identification of an open passage – i.e. the esophagus – through which the high-intensity radiation could be given.

The Gick and Holyoak experiment enables us to understand the structure of competence transfer, as well as giving us a language to describe and analyze it. We can use these initial tools to reconstruct a richer and more complex example that might be faced by firms on a daily basis. The case of the development of the market for videotapes has gained a lot of attention, because of the disparity of competitive results among those firms that had first invested in product research, and the others that came into the market as technological followers. The video cassette recorder (VCR) case can be interpreted as a parable on the advantages of arriving late, and on the risks faced by technological pioneers. However, in light of the concept of knowledge transfer, the case can be interpreted in a very different way.

The two largest groups of firms that have created the VCR market highlight two different source models concerning innovation processes which led these organizations to focus their efforts very differently. On the one hand, because of their own previous experience in radio and television broadcasting, the first VCR pioneers (RCA and Ampex) initially concentrated their efforts on high-performance and hi...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Preface
• Introduction I
• Introduction II
• Part I: The Actor
• Part II: Coordination Mechanisms
• Part III: Forms of Organization
• Glossary
• Further Reading
• Notes
• Bibliography