I come from an environment where, if you see a snake, you kill it. At GM, if you see a snake, the first thing you do is go hire a consultant on snakes. Then you get a committee on snakes, and then you discuss it for a couple of years. The most likely course of action is — nothing. You figure the snake hasn’t bitten anybody yet, so you just let him crawl around on the factory floor.” — Ross Perot1
As time passes, old management formulas become outmoded and are replaced by new ones, but the underlying message is often the same: formal analysis — the systematic study of issues — can help organizations make better decisions. This seemingly plausible hypothesis is supported by an extensive literature in cognitive psychology that shows convincingly that unaided human judgment is frequently flawed.2 For example, people seem to be unduly influenced by recent or vivid events, consistently underestimate the role of chance, and are often guilty of “wishful thinking.” Formal analytical techniques are a way to avoid such problems.
However, the “rational” approach has also had some influential detractors.3 For example, Peters and Waterman condemn formal analysis for its bias toward negative responses, its degree of abstraction from reality, its inability to deal adequately with nonquantifiable values, its inflexibility and bias against experimentation, and finally its tendency to lead to paralysis. In fact, most of us are familiar with “paralysis by analysis.”4 If we have not experienced it in our own working environment, we have certainly seen it in the unending parade of studies, inquiries, papers, and reports of all shapes, sizes, and colors emerging from government agencies. And, as the opening quotation shows, large private corporations are also a fertile breeding ground for this disease.
Thus managers need to navigate between two deadly extremes: on the one hand, ill-conceived and arbitrary decisions made without systematic study and reflection (“extinction by instinct”) and on the other, a retreat into abstraction and conservatism that relies obsessively on numbers, analyses, and reports (“paralysis by analysis”). But why do some organizations become bogged down in analysis? Why are certain decisions insufficiently analyzed? How can rationality and efficiency be combined? These are the issues I explore in this article.
1. R. Perot, “The GM System Is Like a Blanket of Fog,” Fortune, 15 February 1988, pp. 48–49.
2. See, for example:
D. Kahneman, P. Slovik, and A. Tversky, Judgement under Uncertainty: Heuristics and Biases (Cambridge, England: Cambridge University Press, 1982);
R.M. Hogarth, Judgement and Choice: The Psychology of Decision(Chichester, England: Wiley, 1980); and
R. Nisbett and L. Ross, Human Inference: Strategies and Shortcomings of Social Judgment (Englewood Cliffs, New Jersey: Prentice-Hall, 1980).
3. See, for example, H. Mintzberg, Mintzberg on Management (New York: Free Press, 1989);
R.T. Pascale and A.G. Athos, The Art of Japanese Management (New York: Warner Books, 1981); and
T.J. Peters and R.H. Waterman, In Search of Excellence (New York: Harper & Row, 1982).
4. The expressions were borrowed from:
F.E. Kast and J.E. Rosenzweig, Organization and Management: A Systems Approach (New York: McGraw-Hill, 1970).
5. For further details, see:
A. Langley, “In Search of Rationality: The Purposes behind the Use of Formal Analysis in Organizations,” Administrative Science Quarterly 34 (1989): 598–631.
6. M.S. Feldman and J.G. March, “Information in Organizations as Signal and Symbol,” Administrative Science Quarterly 26 (1981): 171–186;
J. Pfeffer, Managing with Power (Boston, Massachusetts: Harvard Business School Press, 1992);
T.H. Davenport, R.G. Eccles, and L. Prusak, “Information Politics,” Sloan Management Review, Fall 1992, pp. 53–65; and
M. Feldman, Order without Design: Information Production and Policy Making (Stanford, California: Stanford University Press, 1989).
7. My hypotheses on the roles of participation and power are supported by classic literature that relates organizational size with formalization. Smaller organizations are more centralized than larger ones, and decision making therefore tends to be very informal. See:
D. Pugh, D. Hickson, and C. Hinings, “An Empirical Taxonomy of Structures of Work Organizations,” Administrative Science Quarterly 14 (1969): 115–126.
8. This statement is perhaps more controversial than previous ones. Some authors have argued that formal analysis is more applicable to situations where there is little uncertainty or conflict. See, for example: J.W. Dean and M.P. Sharfman, “Procedural Rationality in the Strategic-Decision Making Process,” Journal of Management Studies 30 (1993): 587–610.
My data suggest that conflict and uncertainty cause people to generate more analysis, although this analysis may sometimes have limited effect on decisions. See:
J.G. March and H.A. Simon, Organizations (New York: Wiley, 1958); and
Feldman and March (1981).
9. See K. Eisenhardt, “Making Fast Strategic Decisions in High-Velocity Environments,” Academy of Management Journal 32 (1989): 543–576.
10. See, for example:
D. Robey and W. Taggart, “Measuring Managers’ Minds: The Assessment of Style in Human Information Processing,” Academy of Management Review 6 (1981): 375–383.
11. See, for example, Nisbett and Ross (1980).
12. J.L. Bower, Managing the Resource Allocation Process (Homewood, Illinois: Irwin, 1970);
R. Burgelman, “A Process Model of Internal Corporate Venturing in the Diversified Major Firm,” Administrative Science Quarterly 28 (1983): 223–244; and
J.W. Dean, Deciding to Innovate (Cambridge, Massachusetts: Ballinger, 1987).
13. For an interesting view on the strategic role of middle management, see:
S.W. Floyd and B. Woolridge, “Dinosaurs or Dynamics? Recognizing Middle Management’s Strategic Role,” The Executive 8 (1994): 47–57.
14. See, for example, A. Taylor III, “Can GM Remodel Itself?” Fortune, 13 January 1992, pp. 26–34;
K. Kenwin, J.B. Treece, and D. Woodruff, “Can Jack Smith Fix GM?” Business Week, 1 November 1993, pp. 126–131;
J.W. Verity, T. Peterson, D. Depke, and E.I. Schwartz, “The New IBM,” Business Week, 16 December 1991, pp. 112–118; and
T.J. Peters, “Prometheus Barely Unbound,” The Executive 4 (1990): 70–84.
15. B. Dumaine, “The Bureaucracy Busters,” Fortune, 17 June 1991, pp. 36–50; and
R.H. Howard, “The CEO as Organizational Architect: An Interview with Xerox’s Paul Allaire,” Harvard Business Review, September–October 1992, pp. 106–119.
16. L.B. Barnes and M.P. Kriger, “The Hidden Side of Organizational Leadership,” Sloan Management Review, Fall 1986, pp. 15–25; Eisenhardt (1989); and
D.C. Wilson, “Electricity and Resistance: A Case Study of Innovation and Politics,” Organization Studies 3 (1982): 119–140.
17. For similar remarks, see:
E. Jacques, “In Praise of Hierarchy,” Harvard Business Review, January–February 1990, pp. 127–133; and
L. Hirschhorn and T. Gilmore, “The New Boundaries of the ‘Boundaryless’ Company,” Harvard Business Review, May–June 1992, pp. 104–115.
18. Dumaine (1991).
19. A. Taylor III, “A U.S.-Style Shake-up at Honda,” Fortune, 30 December 1991, pp. 115–120.
20. R.L. Daft, R.H. Lengel, and L.K. Trevino, “Message Equivocality, Media Selection, and Manager Performance: Implications for Information Systems,” MIS Quarterly 11 (1987): 355–366.
21. I.I. Mitroff, J.R. Emshoff, and R.H. Kilmann, “Assumptional Analysis: A Methodology for Strategic Problem Solving,” Management Science 25 (1979): 583–593.
For a somewhat different methodology, see:
P. Checkland and J. Scholes, Soft Systems Methodology in Action(Chichester, England: Wiley, 1990).
22. See B.M. Bass, Stogdill’s Handbook of Leadership (New York: Free Press, 1981).
23. See Eisenhardt (1989).
24. Barnes and Kriger (1986).
25. The term “decision vacuum” was inspired by R.G. Corwin and K.S. Louis, “Organizational Barriers to the Utilization of Research,”Administrative Science Quarterly 27 (1982): 623–640. These authors describe how public sector evaluation research is often ignored because it falls into a “policy vacuum” where there is no clearly identifiable sponsor who might have any need for it.
26. K.H. Hammonds and G. DeGeorge, “Where Did They Go Wrong?” Business Week (special issue on quality management), 1991, pp. 34–38.
27. J. Hudiberg, “Quality Fever at Florida Power,” inset in J. Main, “Is the Baldridge Overblown?” Fortune, 1 July 1991, pp. 62–65.
28. D. Greising, “Selling a Bright Idea — Along with the Kilowatts,” Business Week, 8 August 1994, p. 59.
29. I.L. Janis, Victims of Groupthink (Boston, Massachusetts: Houghton-Mifflin, 1972); and
G. Whyte, “Groupthink Reconsidered,” Academy of Management Review 14 (1989): 40–56.
30. J. Huey, “Secrets of Great Second Bananas,” Fortune, 6 May 1991, pp. 64–76.
31. J.M. Howell and B.J. Avolio, “The Ethics of Charismatic Leadership: Submission or Liberation,” The Executive 6 (1992): 43–54;
D. Miller, The Icarus Paradox (New York: HarperBusiness, 1990); and
J.A. Byrne, C. Symonds, and J. Flynn, “CEO Disease,” Business Week, 1 April 1991, pp. 52–60.
32. A.O. Hirschman, Exit, Voice, and Loyalty (Cambridge, Massachusetts: Harvard Business School Press, 1970).
33. There has been considerable debate in the management literature on the relative merits of the devil’s advocate and dialectic enquiry approaches for decision making. Cosier and Schwenk represent a reconciliation (compromise or synergistic solution) by opposing protagonists of the two different methods. See:
R.A. Cosier and C.R. Schwenk, “Agreement and Thinking Alike: Ingredients for Poor Decisions,” The Executive 4 (1990): 69–74. For a scientific comparison of dialectics, devil’s advocate, and consensus procedures for decision making, see:
D.M. Sweiger, W.R. Sandberg, and J.W. Ragan, “Group Approaches for Improving Decision Making: A Comparative Analysis of Dialectical Inquiry, Devil’s Advocacy, and Consensus,” Academy of Management Review 29 (1986): 51–71.
34. Mitroff et al. (1979).
35. J.A. Pearce III and S.A. Zahra, “The Relative Power of CEOs and Boards of Directors: Associations with Corporate Performance,”Strategic Management Journal 12 (1991): 135–153.
36. For an accessible description of agency theory and its relevance to organization theory, see:
K. Eisenhardt, “Agency Theory: An Assessment and Review,” Academy of Management Review 14 (1989): 57–74.
37. Miller (1990).
38. Much of the discussion in this section is inspired by Allaire and Firsirotu. See:
Y. Allaire and M. Firsirotu, “Strategic Plans as Contracts,” Long Range Planning 23 (1991): 102–115.
39. H.S. Geneen, Managing (Garden City, New York: Doubleday, 1984).
40. See Peters and Waterman (1982); and
Allaire and Firsirotu (1991).
41. Verity et al. (1991).
42. Y. Allaire and M. Firsirotu, “How to Implement Radical Strategies in Large Organizations,” Sloan Management Review, Spring 1985, pp. 19–34;
G. Donaldson, and J.W. Lorsch, Decision Making at the Top (New York: Basic Books, 1983); and
J. Huey, “Nothing Is Impossible,” Fortune, 23 September 1991, pp. 134–140.
43. R.G. Hammermesh, Making Strategy Work (New York: Wiley, 1986).
44. R.T. Pascale, Managing on the Edge: How the Smartest Companies Use Conflict to Stay Ahead (New York: Simon & Schuster, 1990).