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System Thinking and Decision-Making in Organization

Revolutionary changes in the organization of global business, formation of a new model of a company, and development of network structures have led to an increase in the role of strategic management and human and social capital as decisive factors determining competitiveness. These changes have predetermined qualitative changes in intra-organizational cooperation and culture, specialization of firms, and their structural units. Horizontal communication, project teams, new concepts of leadership, knowledge management, systems, and risk management wrapped up in the processes of thinking, decision making, rationality aspect, and culture of any organization are fundamental elements it rests upon. The paper presents a subjective analysis of how this business architecture must be built.

Rational Organization

It seems that any decision related to management of an organization should be rational. According to the term, it describes consistent and coherent choices that can give the most favorable outcome with all important constraints. This means that managers tend to choose the most consistent and effective options within certain limits. However, there are preconditions that define rationality.


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Ideally, a person who comes to completely rational decisions must be absolutely objective and logical (Husted & Husted, 2008). This person should be able to pinpoint the problem and identify a clear goal. In addition, ideal stages of the decision-making process should consistently bring one to selection of an option that maximizes probability of achieving the target. Thus, here are preconditions in detail:

  • Clarity of the problem (the problem is clear and unambiguous). Problem or an issue should be defined clearly for rational decision-making. A person who makes decisions should have full information about the situation, which requires the decision;
  • Aim focus (possible achievement of a clearly defined purpose). Rational decision-making does not have conflictual nature. No matter what decision is to be taken, whether it is choosing a new computer model, determining optimal value of new products, or selecting the most suitable candidate for a vacant position, the person who makes the decision should have a single and well-defined aim;
  • Options (all options and consequences of choice are known). The person who makes the decision thinks creatively, identifying all relevant criteria and listing all viable options. Moreover, the person is aware of all possible consequences of each choice from the available options;
  • Clarity of benefits (benefits are clear). A rational solution assumes that all criteria and options are clearly classified in order of importance;

All of the above preconditions, underlying corporate rationality, are applied to choosing any type. However, since the paper considers corporate management’s decisions, then another important prerequisite occurs. Rational decision-making in management admits that such decisions are made to maximize economic interests of the company (Harris, 2014). In other words, it is understood by the statement that the person who makes the decision seeks to implement organization's interests rather than his/her own (Braithwaite, 2006).

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Hence, there are similarities between deductive and inductive thinking as presented by Porter (2002). As Porter resumed, the most common methods are deductive and inductive among the general logical ways of thinking. It is known that deduction and induction are the most important types of inference, which play a huge role in the process of acquiring new knowledge on the basis of the previously received one. Deduction is transition in the process of learning from general knowledge of a certain class of objects and phenomena to peculiar knowledge concerning some objects and individuals. In deduction, general knowledge is the starting point of the argument and it is assumed that common knowledge exists from the very beginning. Deduction can also be carried out by private to private or general to general. Main essence of deduction is that the truth of its premises ensures the truth of the conclusion. Therefore, deduction has tremendous power of persuasion, being widely used not only to prove theorems in mathematics, but also whenever reliable knowledge is needed.

Induction is a transition in the process of knowledge from private to general knowledge; from the knowledge of a lesser degree of generality to more generality. In other words, this way of thinking is associated with generalization of results of observations and experiments. The main function of induction in the process of thinking is to obtain general propositions, like empirical and theoretical laws, hypotheses, and generalizations. The mechanism of occurrence of common knowledge is revealed in induction. Feature of induction is its probabilistic nature, i.e., when truth of a conclusion of induction assumptions is probably true and the end result can be both true and false. Thus, induction does not guarantee achievement of truth, but only leads to it, i.e. it helps search for the truth. Moreover, current personnel model is team-structured and it leads one to be able to operate applying own (inductive) thinking to common (deductive).

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In the real world, management decisions can be made on the basis of these premises only if the following conditions are met. A manager faces a fairly simple problem, objectives are clear, the number of options is limited, there are minimum hourly restrictions, material costs of the search and evaluation of options are low, organizational culture supports innovation, and results of solving problems are specific and measurable. It must be admitted, however, that the vast majority of decisions to be made by managers do not correspond with these criteria. Therefore, there is bounded rationality.

Hence, there is no absolute rationality and any manager will be constrained by the principle of bounded rationality in the decision-making process. Any manager knows that in order to properly make a decision, one should consider options available to gather information and act decisively, but judiciously. Consequently, it is expected from the manager that in the decision-making process, one would adhere to the correct line of conduct. Thus, managers prove their competence and their decisions are made as a result of an intelligent, rational, and careful discussion (team thinking) with leaders of the organization, colleagues, and subordinates.

In other words, any member of the organization’s team making a choice obtains not rational, but optimal decision and result. Here is an example: one chooses a candidate for a vacant position. It is supposed that there are many resumes one should look through to close this open position in time. In this case, manager is advised to select few CVs by certain parameters to narrow down an amount of people selected for the interview.

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Creating industrial and organizational management structures is necessary to ensure viability of the company. It means formation of functional areas or production units, each of which will have a definite purpose and stable relations with other entities as a result of horizontal division of labor with formation of management levels in the vertical.

The basis for selection of organizational structures in enterprises is usually long-term maps for their development, production volume, standards of number, and ratios of different categories of personnel and other factors. Organizational structure is a management system that determines composition, subordination, communication, and distribution of activities by departments, between which certain relationships over power, commands, and information flows are established. The paper does not aim to define the best structure since firms differ in volume, service, and production scale. Thus, there are several types of organizational structures: linear, functional, divisional, and adaptive (Kortmann, 2012).

The linear structure is commonly used by small and medium-sized enterprises, which operate simple production where the sole management of subordinate employees takes place. The functional structure is usually used in large enterprises and provides specialized performance of individual control functions between individual units of the administrative apparatus (Hill & Jones, 2011). Functional organization of management is based on a horizontal division of labor management and guidance of the functional authority within its competence required for production units. Divisional (or departmental) structure is the most common form of industrial enterprise management, in which strategic enterprise-wide management functions (finance, strategy development, and others) are concentrated in the highest echelons of the administration of the corporation and operational management functions are transferred to production units. This means that an independent unit, consisting of offices and factories, is fully responsible for development and sales of similar products and economic results in certain regional markets. Adaptive structure means flexible types of organizational structures that are adapted to rapid changes in external conditions and to the emergence of new high-tech technologies. Summing up, organizational structure of an enterprise is not something frozen, but it is constantly being improved in accordance with requirements of time and the society.

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For any enterprise, development means defining future of the company and its business units, designing desired results of the enterprise, and choosing methods, tools, and the sequence of actions to achieve desired results. Development for the enterprise is one of the most essential processes, which determines effectiveness of its activities. Development is strictly determined by material, financial, and human resources maps, as well as the sequence of their implementation. It is mandatory to analyze and identify factors that may have a negative impact on the development of the company if not timely prevented. Development or planning, as a function of enterprise management, takes into account all advance internal and external factors, which provide suitable conditions for normal functioning of the company. Developmental aspects include both current and prospective time periods and take the form of forecasting and programming.

Development and management of economic and other activities of the enterprise are closely connected with common features of industrial and service management. Namely, those are choice of targets, identification of resources, organization processes, execution control, coordination of work, wages, etc. As mentioned above, different management structures usually involve three levels of administration: senior managers, managers, and their subordinates. Harmony and consistency of management structure depends on both quality and speed of the enterprise’s functioning. Activities of the company will remind an oiled machine that works with maximum results and minimal costs if each person of the company is at the right place with a clear set of duties and if there are rules for interaction of divisions.

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Senior executives and managers of a company create development strategy of the enterprise, formulate its methods, goals, and technology, and interact with the environment to make decisions, being responsible for the overall organization’s work and enterprise management (Kaplan & Norton, 2005). Other managers like heads of departments develop all current and tactical maps, analyze internal and external environment of the enterprise, make predictions for their units, calculate and estimate necessary resources and targets, and organize work of their departments.

A special role is given to management, which provides general, scientific, methodological, and other features to manage all current and future activities. Together with the senior management, it is involved in the development strategy of the enterprise, establishment of the necessary regulatory framework, as well as analysis and evaluation of planned and actual results of work. Subordinates and technical staff apply the management structure that complies with necessary rules for effective operation of the enterprise in order to involve the smallest number of management levels and create the shortest chain of command. Thus, the foregoing suggests that stages of work on the construction of structure of the enterprise are closely related and overlap with work on the constant development of the company.

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Culture and Climate

Human behavior in the company is always socially conditioned. People or groups differ according to their roles, goals, and objectives. Besides, people distinguish themselves from other members of the organization in accordance with their rank or status in the hierarchy. Within the same organization, employees can set different goals, but almost all of them have to work collectively to achieve a common strategic objective of the company, which is defined by its mission and resource capabilities. The main connecting element that effectively combines socially diverse staff of the company to achieve a common goal is organizational culture of a company. Currently, the most successful method from the perspective of systemic approach is to define organizational culture as a social and spiritual field of the company. This field is formed under the influence of tangible and intangible, overt and covert, conscious and unconscious processes and phenomena of human interaction, which is based on common philosophy, ideology, values, approaches to problem solving, and behavior of the staff. This interaction ensures originality of the organization and allows it to move towards success. This approach to organizational culture allows defining, analyzing, and understanding organizational culture as a dynamic, multi-faceted, and multi-layered phenomenon.

The organizational culture of any company develops and changes over time, but it is still pretty solid and stable. Climate is a more flexible and changeable substance. Below is given examination of its characteristics. Culture tends to spread within the company as a whole and among the majority of its members, whereby climate determines patterns of behavior, attitudes, emotions, and feelings of individuals working for the company. Thus, organizational climate is one of the manifestations of the company’s culture. Researchers of organizational climate believe that it depends mainly on such factors as size of the company, its structure, leadership style, and complexity of the management system. George Litwin and Richard Stringer describe six basic characteristics of climate of any organization (Atkinson & Frechette, 2009): flexibility that means freedom of employees to show initiative and introduce innovations; responsibility of staff in relation to the organization; workers’ evaluation of compensation system; clarity and understanding of the unity of the decisions-making process and values that the company has; loyalty of employees to objectives of the organization; and level of understanding and acceptance of the corporation’s established rules and standards.

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Organizational climate includes emotional and motivational components. In terms of this aspect, it overlaps with the concept of psychological climate that is determined by individual psychological characteristics of personality, human behavior at work, employees’ perceptions of themselves and their colleagues as team members, professional community, or informal groups.


Some points relating to decision-making have been already presented in the rational organization section of this paper. The idea meant there is that there is no rational decision-making whilst there is a boundary rational one. However, there is a need to extend this section. A decision will be more optimal if it is agreed with those who are directly affected by it or with those who have helped in the preparation of this decision. In this regard, success of any meaningful decision is advisable to involve development of its largest number of employees. Once decision is implemented, it is necessary to establish possible feedback. The monitoring system is needed to ensure optimum performance of the process or action. Feedback allows the head to partially correct the decision and contribute to its better implementation. Assessment of progress in the implementation of decisions allows to take into account existing experience failures and shortcomings in the follow-up work.

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There are other factors that have influence on the decision-making. Personal assessment by the head of importance of any issue often contains subjective judgments. Everyone has their own system of evaluation that determines actions and influences decisions. Approach to management of decisions is often based on a certain set of values. In this regard, the head who is at the heart of activities puts efforts to maximize productivity by all means, often forgetting about problems of optimal organization and effective management of employees. This can be expressed in the absence of proper working conditions, opportunities for recreation, and well-designed work premises.

Decisions are usually affected by behavioral constraints, i.e. there are factors that hinder intra- and interpersonal communication (Forgas, 2006). For example, managers often have different perceptions of existence and severity of a problem. They may have different perceptions of limitations and alternatives. This often leads to various conflicts between them in the process of making and implementing decisions. All decisions in the organization are usually interrelated. Often, an important decision is based on several previous decisions and, in turn, it creates an alternative for subsequent actions. This ability to see the relationship of decisions is one of the main criteria for selection and appointment of senior executives. Managers who have this ability are often candidates for promotion.

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System Thinking

Briefly and simply speaking, there are three types of problem-solving in human practice that builds up system thinking. The first is the method of analysis, which suggests that if one deeply understands the problem, the decision will then become obvious. It is easy to see it in someone’s desire to apply scientific and other methods. The work of many political committees struggling to get to the bottom of why the policy does not work is the proof of this statement. The second method is to deal with the problem by means of decision-making. This approach suggests that the problem is reduced to a reasonable choice out of the set of alternatives. Here is a question whether one should spend money for A, put them for B, or somehow divide funds between them (“dividing an elephant in half does not produce two small elephants”) (Batra, Kaushik, & Kalia, 2010). Such a way of solving problems is the basis of classical Master degree programs in the field of management. The third way of solving problems is full system thinking. The person as a fully rational creature tries to make a rational and wise choice; however, one will have bounded rationality.

In system thinking, particular attention is paid to elimination of losses at all levels of the production chain, in every workplace, office, or directly the main line. The basic idea of this is as follows: if an action, operation, or process does not add value to the commodity from the perspective of a customer, this action, operation, or process is considered as a loss, i.e. it results in the company's losses (Batra, Kaushik, & Kalia, 2010).



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