Rethinking the firm: organizational approaches

Regarding the way organizations perform as discrete actors in collective choice situations, neo-classical decision theory presented a framework for the analysis of decision-making. In such a framework, the actors are individuals, not groups. Collective choice is defined as an outcome of inter-organizational communication constrained by a characteristic local structure of inter-organizational relationships. However, the framework does not address either of the following two questions:

1 How does each organization act as an agent of its several members? For instance, what is the degree to which each organizational actor secures community decisions that approach optimality for its individual members?

2 What are the ways in which each organization fixes upon its own preference order?

These limitations suggest that the analysis of collective choice among organizational actors and among individual actors within organizations is complementary. James Coleman (1990) has pursued the question of agency, noting that an organization is disproportionately powerful in relation to any of its members. This disparity caused him to question whether or under what conditions an organization may serve as a responsive or responsible agent for its membership. In the sense of Pareto optimality, of course, an organization, presumably, cannot be a faithful agent, any more than any group can reach collective decisions that approximate each member's order of preferences (in the absence of consensus). However, there is also the question of the degree to which the preferences of various subgroups are reflected in organizational policy.

From this perspective three related issues follow. These are the issues of (1) hierarchy and elites within organizations, (2) of the way power is distributed in an organization's hierarchy, and (3) the political and normative variables that affect the responsiveness of elite decisions to the aggregate preference distribution of the membership. Olson's (1965) treatise and subsequent work on participation in voluntary organizations (for example, Oliver et al. 1985) suggest that, in most organizations, the effective decision-making groups are likely to comprise only a small proportion of the membership. Apart from persons formally vested with decision-making responsibility, only a handful will be motivated strongly enough to contribute the time and effort that decision-making requires.

The Firm as an interpreting Actor

Firms should be considered as organizations that interpret and think. Treating the firm as an actor might open our approach to the criticism of 'anthropomorphizing' the firm. This line of work extends from Herbert Simon and has some support in modern organizational analysis. However, treating the firm as a unit of analysis, and exploring the implications of this assumption, produces powerful insights into the behaviour of firms and individuals. Rather than a limitation, reification of the firm is one of organizational theory's most useful tools. The acts and non-acts of organizations are the consequences of cognitions, of theoretical references and assumptions. What are the causes and determinants of the choices and actions taken by firms? Why are certain specific policies and formal structures adopted, and others not? How does it happen that certain kinds of acts and non-acts occur which may or may not he identical across a cohort of firms?