Design of Decision-Making Organizations

Abstract

Starting from the premise that individuals within an organization are fallible, this paper advances the study of relationships between the organization's decision-making structure and its performance. We offer a general treatment that allows one to analyze the full range of organizational architectures between extreme centralized and decentralized forms (often referred to as hierarchies and polyarchies). Our approach furthermore allows designers to examine the change in the overall reliability of the organizational structure as the number of actors within the organization changes. We provide general proofs that show how decision-making structures can be constructed so they maximize reliability for a given number of agents. Our model can be used directly for a qualitative assessment of decision-making structures. It is thereby useful for assessment of the many complicated hybrid structures that we see in actual decision-making organizations, such as banks, purchasing departments, and military intelligence. An application from a bank illustrates how our framework can be used in practice.organizational architecture, organizational design, decision making, evaluation

Agent-based modeling in managerial science: an illustrative survey and study

“…While this complies with the coordination mode mapped in the principal-agent model in Bushman et al (1995), obviously, the coordination could be more intense, and various other forms of coordination are feasible (e.g. Christensen and Knudsen 2010;Sah and Stiglitz 1986;Siggelkow and Rivkin 2005)-or in other words: the tension between differentiation and integration could be balanced in favor of a higher level of integration.…”

“…First, it is worth mentioning that-apart from the decentralized and the central mode of coordination as introduced here-various other forms of coordination could be analyzed like, for example, lateral coordination between business units (e.g. Christensen and Knudsen 2010;Sah and Stiglitz 1986;Siggelkow and Rivkin 2005). Hence, it might also be promising to integrate costs of information processing and costs of intra-organizational communication into the model: The idea behind that is that, while more intense coordination, i.e.…”

How Decisions Can Be Organized - and Why It Matters

“…Considering all the factors that influence the organizational decision process, it appears that organization design is perhaps even more important than the abilities of the employees as a determinant of the overall success or failure of the enterprise. Indeed, the work of Christensen and Knudsen (2010) shows that under certain sets of conditions (e.g., that agents are not entirely incapable), arbitrarily accurate decisions may be obtained by fine-tuning the organization. This result leaves only three excuses for making poor decisions in an organization: (1) complete lack of knowledge in the problem domain, (2) the cost of the decision process, and (3) poor organizational design.…”

“…Just how much of the individual fallibility can be countered by good organization design? According to Christensen and Knudsen (2010), organization design can substantially counter individual fallibility, but the cost is an increasingly elaborate decision process. Whether the decision structure under consideration is to be responsible for purchasing equipment, hiring employees, making acquisitions, forging alliances, or even for (re)designing the organization, it is paramount that the designer balances error rates against the costs of increasing organizational performance.…”

“…The purpose of this article is to present recent advances (Christensen & Knudsen, 2010) that allow organizational designers to better understand how decision processes can be improved. Our approach builds on the information processing perspective in economics (Marschak & Radner, 1972) and engineering (Moore & Shannon, 1956a;1956b).…”