Most economists start from the same assumption about organizations that they make about people: they are rational and make well-informed, calculated decisions based on their self-interest.
You might ask, did these economists ever have a real job? If so, were they taking Acid or Ecstasy most of the time? How did they get the idea that what was going on was even remotely rational?
Now many economists will freely admit that sometimes organizations make decisions that aren’t entirely rational. But over time the competitive pressures of the market will smooth out the effect of these irrational blips — the more rational companies will outcompete the less rational ones. So, it’s safe for your model to assume that organizations act like calculators.
If only it were true. Sometimes in the world of IT, where I work, it feels like life inside corporations is a reality show called Survival of the Least Stupid. Sure, if a company keeps making crazy decisions it can wipe them out (or, in the case of GM, get them bailed out by the Feds). But for any decent sized company, there’s plenty of give to recover from astonishingly irrational decisions.
Also, managers in organizations make a lot of their decisions based on what their peers in their industry are doing. If all your competitors are making the same mistakes, you can do some pretty stupid stuff and still compete quite nicely.
It’s also not uncommon for organizations to be extremely rational and efficient in one part of the business while throwing their brains out the window in another. I once worked as a contractor for a company that calculated to the penny how much money they could squeeze out of their janitors while on the IT side listened attentively to their inner child, who was screaming, “I want that shiny new red bike NOW!!!!”
Even when organizations have made rational decisions, implementing those decisions can be really hard. Organizations are their own mini ecosystems, with different units having different types of resources that shape their behavior in different ways, making them more or less resistant to certain changes.
Then there’s backbiting, turf wars, and all the other festivities known as office politics that can easily kill a rational decision before it ever leaves the crib.
Sometimes even knowing whether our rational decision has been implemented can be challenging. Take what the HBO series The Wire called “juking the stats.” From police precints to schools, The Wire showed how decent people were forced to distort reality to get the optimistic statistics the Top Brass demanded.
The difficulty of actually implementing rational decisions once they’re made is why we have the industry known as Organizational Development. It’s devoted to churning out scads of books, seminars, and consultants that try to explain how to go about changing your organization — or, to put it another way, getting your organization to act the way economists say organizations act.
Pretending that organizations or people are calculators doesn’t make sense. If we start from assumptions that are based in the real world, I think we’re going to end up with a much more useful model of economy.
Next up: a concrete example.
