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The Concept of Interorganizational Decision Making
Interorganizational decision making deals with multiple-decision-unit or joint decision problems. Decision problems are identified, here and elsewhere, as âjointâ to emphasize the important role of coordinated action in deter-mining the combined result achieved by the decision makers. âCombined resultâ carries with it a connotation of total payoff; yet more than that is at issue. The distribution of the total payoff among the decision units cannot be disregarded, particularly the clash of joint-interest in the total with self-interest in the individual share. Alternative possible distributions of the total payoff among individual units raises the specter of interunit conflicts, a specter of considerable importance in this discussion. While it is possible to act independently under conditions of overlapping outcome interest, or joint interest, the penalty for independent action under such conditions is usually a less than optimal joint return.
There is often an initial conflict of interest between the parties who dis-cover that they have ajoint decision problem. Each may prefer different points in the outcome possibilities set. Some resolution of this conflict must precede selection of a jointly optimal, or at least improved, combination of decisions. In the first paper of this section Tuite stresses the importance of âinter-ventionsâ into the joint decision situation to reduce existing conflict. The dimensions of intervention are classified as (a) changes in the organization structure within which the joint decision problem must be resolved, (b) the motivation of problem-solving rather than bargaining behavior on the part of boundary personnel,l and (c) adjustment of the information and decision technology supporting the decision making effort. The idea that the initiation of interventions along these dimensions is required to bring about an optimal joint decision is implicit in all the papers which follow.
The principal existing bodies of research on joint decision problems, game theory and the theory of teams, are likewise focused on conflict of interest as a deterrent to optimal joint action. These theories, however, take existing con-ditions of conflict as given. The nature of a theory of optimal interorganiza-tional decision making can perhaps best be visualized in terms of similarities and differences which in turn parallel and complement game theory and the theory of teams.
Relationship to Game Theory and the Theory of Teams
The term âinterorganizati.onal decision makingâ2 identifies an approach to joint decision problems which in some respects differs from the approach taken by either game theory or the theory of teams. The basic subject matter of all three is the situation in which the decision payoff to an individual decision maker depends upon both his own choice and the choice of another. In games of pure conflict (zero-sum games), interest is confined to individual payoffs. There is no way to influence the joint return. In games of mixed conflict-cooperation (nonzero-sum games) and in games of pure cooperation, individual payoffs as well as the joint return are of interest.
Game theory treats situations of pure conflict (zero-sum games), and mixed conflict-cooperation (nonzero-sum games). It accepts, as given, the state of conflict or cooperation existing between the parties. Each player is presumed to know the alternatives available to himself and the other decision makers as well as how the outcome depends on the choices each makes. It proceeds to work out âsolutionsâ based upon ârationalâ behavior by each of the players under various conditions of collusion, arbitration, bargaining, side payments, and communication.
Games of pure cooperation are the subject matter of the theory of teams. Problems of perception and communication which present barriers to the achievement of a joint optimum outcome make this an interesting topic. In addition to perception and communication difficulties, other problems dealt with by the theory of teams are the amount of costly coordinating information to be purchased and the effect that alternative information patterns (organiza-tional structures) have on the final outcome. If the players could concert their choices with certainty, without difficulty, and without cost, a cooperative game would cease to be a game. 3
Interorganizational decision making serves as a rubric more or less accurately labeling a variety of decision situations in which the interests of two or more decision units overlap. It does not include situations of pure conflict. It does not assume full knowledge of payoffs by the decision units as in game theory. Also, existing states of conflict-cooperation may be changed as a part of the decision process.
Objectives of a Theory of Interorganizational Decision Making
It might be fair to say that one objective of a theory of optimal inter-organizational decision making is to move from conditions of mixed conflict-cooperation to conditions of pure cooperation. Interorganizational decision making seeks means of facilitating the coordination of decisions between the decision units. The first step in facilitating coordination of decisions is simply to make decision makers aware of the potential increase in their collective payoff which is available to interdependent decision makers who coordinate their actions. The same barriers (perception and communication) which forestall coordination also prevent decision units from recognizing opportunities for cooperation. In addition, awareness is forestalled by the fact that the dominant focus of research on decision making continues to be on the individual decision maker acting independently. This focus on individual decision makers has contributed to a suboptimizing orientation among the subunits of any organizational entity.
Considerable effort needs to be devoted to determining the payoffs available to the parties who comprise ajoint decision problem. Knowledge of these payoffs is assumed in game theory. One important dimension of this information problem, bearing directly on the amount of effort required to provide payoff information, is the choice of an organizational structure for interorganizational decision making. In its broadest dimensions the structural choice may be between centralization and decentralization. In its more refined state, the organizational structure will largely determine the cost of, and ease of access to, the information on which joint decisions will be based. The distribution of payoffs among the participants in a joint decision situation depends upon the nature of the reward and penalty system. If this important feature of the interorganizational decision structure supports cooperatjve action, subunits will generally tend to be motivated to coordinate.
A viable theory of interorganizational decision making would allow for:
a. Reduction of the conflict of interest which often exists between interdependent decision units and which reduces the likelihood of decisions being made which result in a maximum joint return. This conflict has organizational and/or behavioral origins. Its reduction lies in the accumulation of organizational design principles which foster interunit cooperation rather than conflict. These revised organizational structures must include factors which motivate boundary personnel to engage in mutual problem solving rather than bargaining behavior.4
b. Refinement of the information and decision models by which joint optimum solutions may be pursued in interdependent decision situations. The achievement of optimum results in an interorganizational decision prob-lem rests on securing the willingness of all parties to cooperate and then in providing the information they need to coordinate their actions. These are, of course, overlapping issues. Cooperation often depends upon provision of sufficient information to convince organizational units that their best interest can be served by coordinated action. In a parallel fashion, obtaining the required information from subunits to determine an optimal joint action, and thereby to show the advantages of coordination, requires a fair degree of preliminary cooperative spirit. If subunits seek to âgameâ the proposed information and decision system by providing false information in order to improve their payoff potential, the system may never be able to justify coordinated action.
Reduction of I nterorganizational Conflict
In attempting to move organizations from situations of mixed conflict-cooperation to situations of cooperation it is necessary to identify organizational contextual variables which are associated with conflict. Certain of these variables have been classified by Walton, Dutton, and Cafferty 5 as:
Incentives to suboptimization which result from conflicts of interest among organizational units.
Jurisdictional ambiguity which exists among organizational units when the boundaries on responsibility are fuzzy.
The presence of obstacles to interdepartmental (or interorganizational) communication.
The existence of frustrating task conditions within any or all organizational subunits.
The existence of social friction within any or all organizational subunits.
Walton, et al. 6 sought to test the importance of the role played by each of these contextual variables in producing interdepartmental or interorganizational conflict. They measured the existence of conflict in terms of both conflictful behavior and affective states. Conflictful behavior took the form of one organizational unit's interference with the performance of another unit, over-statement of its needs in communication with another unit, or the withholding of information in communication with another unit. Affective states took the form of annoyance or distrust exhibited by the boundary personnel of any or all units.
Of the contextual variables listed above, (b) jurisdictional ambiguity, (a) incentives to suboptimization, and (c) physical and related barriers to communication, in the order given, were the variables most strongly related to interdepartmental or interorganizational conflict. These results may be extremely important for designers of organizational structures for interorganizational decision making. In commenting on the article in which they appeared, Pondy 7 remarked that these results âcan be used as guides to controlled experiments in organization design. Such experiments, and not more correlational studies, constitute the most appropriate next step in the study of organizational conflict.â
Refinement of Information and Decision Models
Most interorganizational decision situations can realistically be identified as arrangements between individuals with differing goals rather than in terms of a team wherein individuals are assumed to share a common goal. Two major differences between the approach required to resolve team problems and that required for interorganizational problems stand out.
Information requirements in team problems are strictly for purposes of optimizing the team goal. Information economics can be expressed in terms of trade-offs. Only that marginal unit of information which contributes to the team goal in proportion to its costs is purchased. Marschak8 expressed the team problem as an effort to find the best communication system and the best decision rules, given an objective function, a set of probabilities associated with states of nature, and a cost of communication.
Information requirements for interorganizational problems are much less tidy than for team problems. This stems from the need to include a motivational content in the information transmitted. The units must be motivated to act in the best interests of the organization. At the same time they cannot be expected to act contrary to their own unit goals.
In developing an information system for solving interorganizational problems, the analyst cannot overlook the importance of individual goals. Each unit must be made aware of its share of the joint return to coordinated action. This share must reflect the return each unit is able to achieve independently.
The optimal resolution of interorganizational decision problems may require an entire...