Rethinking the firm: organizational approaches

The Firm as an Arena for Strategic Behavior

The firm may be managed through an economy of incentives. Incentives are the rewards and sanctions imposed by management. Well-designed incentives align individual goals and collectively produce managerially desired action. Designed poorly, incentives may produce subunit conflict, apathy, and poor firm performance. The agency and management literature has been concerned with ways of optimally and effectively designing incentive contracts.

Implicit in this view of the organization is the assumption that organizational actors, either persons or subunits such as departments, committees, and so on, possess preferences and influence resources. Preferences are understood as the optimal outcomes organizational actors desire as decision outcomes. They also are exogenous to the firm. Disproportionately high resource allocation in favor of an organizational subunit is a prototype of this preference. Sales and marketing departments, for example, may compete to have their respective projects funded from scarce company resources.

Influence processes, domination mechanisms and power games are employed to drive policy-making in directions consistent with desired outcomes. Examples of influence and politics include position or office, functional or professional expertise, side payments, information biases, and the like. The relative salience of influence bases may be viewed as the 'weights' that should be attached to predictions of the effects of influence attempts.

The Firm as a Moral Community

Another view of the firm relaxes the assumption of strong preferences (Selznick 1993). This view still assumes that organizational actors hold resources that may drive decision-making and the taking of action. It differs from the first view, however, by assuming that unitary or strong preferences for specific decision-making outcomes are not a necessary and permanent condition for cooperation. By treating preferences as endogenous, this view defines the role of management, not as activities aimed at building and administering an incentive economy, but as actions designed to help structure and change more or less plastic preferences.

Mechanisms which structure preferences include leadership (especially charismatic leadership), ideology building, socialization processes, face-to-face group dynamics, recruitment techniques, and environmental constituencies to which individuals have personal or professional loyalty. As in any society, a center exists in the firm which functions as a central value system, its existence resting on the fact that human beings have a need for personal communion, for incorporation into something which transcends their single existence (Shils 1975). Common to all of these social pressure mechanisms is the attempt to foster commitments, identifications, and loyalties. The literature on missionary, professional, and community organizations has documented the role of management in structuring preferences. Management operates by seducing when not by preaching.