1. Does the concept of Greiner's Model of Organizational Growth seem reasonable to you? Why? Are various crisis more likely than others? Discuss any aspect of the theory you wish.
Larry E. Greiner published an organizational life cycle model that is based on ‘evolution’ and ‘revolution’ where periods of stable growth with no crises occurs and where substantial crisis is experienced in times of organizational change and company growth. Greiner argued that any organization went through various stages of growth which were precipitated by a crisis. He argued that if a company managed to move through this period, then it progressed to the next stage. Greiners Model seems not reasonable to me due to various reasons. First, for a firm to move from one stage to the other, it does not necessarily have to take the order suggested by this model. There are other factors that can be beyond the control of the firm that may significantly contribute to growth or decline of the firm, irrespective of which stage of development the firm is currently. For instance, the economic meltdown that occurred in 2008/2009 is a classic example. Many businesses declined in their aspects of growth irrespective of the stage of development they had attained. Secondly, according to many scholars, there is still some disagreement empirically on whether a transition by a firm from one stage to the other is subject to a particular crisis. It is possible that the growth of a firm could be subject to many variables, both internal and external thus we cannot isolate on variable as the sole cause of the crisis. Thirdly, not all businesses go through all the five cycles proposed in this model. Some entrepreneurs will simply have no motivation to grow their firms beyond certain stages. Finally, as depicted in the growth curve, growth is rarely smooth. Growth is more likely to be ‘rugged’ especially in the formative stages of growth. Small businesses suddenly grow with an addition of one customer while a loss of even one client results to a sudden decline of the business.
2. Discuss Profit vs. Profitability
Profit can be defined as the excess of revenues over the related expenses for an activity over a certain period of time. Profit can also be referred to as earnings, margin or income. According to Keynes, “Profit is the engine that drives the business enterprise’. This means that a business has to earn enough profits for growth. A company’s management should strive to maximize profits.on the other hand, profitability can be used to mean the ability of an enterprise to make profit from its activities. Profitability comes from the management’s efficiency in using the available resources in the market. Harward & Upton (1961) defined profitability as “the ability of an investment to earn a return from its use”. However, profitability must be distinguished from the word efficiency as the former is a measure of efficiency. It is however important to note that although profitability to some extent determines efficiency, it is not conclusive. In addition, many factors will influence profitability, other than efficiency. Technically, profitability refers to the operating net profit. This means it is the profit before considering non-operating income or expenses. It thus aids in establishing the future earning capability of an enterprise. Most of the times the terms ‘Profit’ and ‘Profitability’ have been used to complement each other although in real terms, the two words mean different things. Profit on one hand is an absolute term, whereas, the profitability is a relative concept. However, in business, these two terms are mutually interdependent on one another where profit is used to denote the total income earned by a firm over a certain period of time, while profitability is used to show the operating efficiency of the enterprise. In clearer terms, profitability is the ability to make profits out of sales as well as the ability to sufficiently get a good return on capital on business investments. These investments may be in terms of financial or human.
3. Review the Carnegie Model, what if any of this model will be useful to you?
Richard Cyert, James March, and Herbert Simon, all associated with Carnegie-Mellon University, were credited with the Carnegie model of organizational decision making. Their work provided a new approach to both individual and organizational decision making. Until their discovery, it has been held that business organizations made their decisions as single entities, with all the relevant information being channelled to the top decision making organs in the business. But the Carnegie group research argued that decisions made by organizations were made through consultations by many managers or a coalition among several managers who agreed on the organizational goals. From their findings, these managers could be drawn from the concerned departments, specialists or even from external representatives. The first reason why these management coalitions are crucial is because organizational goals are often complex with departmental or operational goals often being inconsistent thus a precipice for disagreement between managers. This would require the coalition to bargain about problems and offer solutions. Secondly, it has to do with the human cognitive limitations held by managers. Individually, managers are not endowed with the mental capacity, time or resources to identify and process all information relating to a particular decision. These shortcomings make managers to seek each other and decide as a group. According to the model, stakeholders in the decision being sought are involved. This model is useful since decision made through a coalition satisfy the audience apart from solving a problem. It is imperative to say that decision making is time consuming and can be a complex process which, if left to one manager, it may take time and the solution might not be conclusive. So this model encourages teamwork in an organization and more importantly among top level management
4.Discuss the Distortion of Organizational Decision Making by cognitive Biases, How real is it. Evidence?
Naturally, human beings are not rational species. Its subject to various manner of illogical thought processes. Human beings are normally influenced by social pressure, other peoples’ opinions and also by preconceived notions of what is generally accepted. Distortions in Perception may include; confirmation bias; wishful thinking; recency / Primacy; repetition bias; anchoring; source credibility bias; avoiding the unknown; attribution asymmetry and the Lake Woebegone effect. Distortions in Choice include; incremental DM and escalating commitment; role fulfillment bias; illusion of control; group think; choice-supportive bias; sunk costs trap; preserving status quo and authority separate from knowledge. Business decisions are formulated from managerial perceptions. Thus, it can be said that it is not so much reality but the interpretation of managers’ perceptions that defines firm behavior. It then becomes a question of what extent this managerial perception reproduces the desired results and to what extent it gives the distorted image. This discrepancy is what is known as ‘cognitive bias’ (Weick, 1979). Therefore, to different people observing the same event, their perceptions may be diverse (Mezias and Starbuck, 2003). These managers’ perceptions are frequently held as the reality. To understand firm behaviour and its strategic process, it is important to lay emphasis on managers’ mental schemas. According to literature, various authors have concluded that cognitive biases are a reality. Santos & Garcia (2006) conducted a survey on the opinions of CEOs for toy manufacturers in Spain. Managers were asked to give their opinions on their firm's product portfolio and the current situation of the sector. The survey revealed that discrepancies occurred between the managers’ opinions and the available information in references. From this study among others, it can be concluded that cognitive complexity leads to biases in managers’ perceptions. These biases then affect both the managers’ responsibility as informants as well as the quality of decisions made. Thus managers would be advised on the need to consult from different information sources to have a wide view of the situation at hand.