Why Organizations Behave Irrationally

There is an important source of irrationality in organizational life that seems largely to have been overlooked, but is worth considering more carefully. Consider the following examples.

1. I-O psychologists know how to select personnel – they know how to distinguish between people with talent for certain jobs and people who are sure to fail. Hugo Munsterberg first outlined the principles of selection in studies of Boston street car conductors and ferry boat captains at Harvard before WWI. These selection principles are valid for predicting performance in every job we have studied, from janitor to CEO. Moreover, the financial consequences of good selection are both significant and well understood – these consequences are nicely described in Dave Jones’ marvelous book, Million Dollar Hire. Nonetheless, those of us in the selection business know that it is hard, even impossible, to persuade organizations to accept our recommendations regarding hiring decisions. As a friend who consults with major professional athletic teams noted, “They won’t listen to us because there is so much money and ego involved.”
2. Since WWII, the United States has built up a huge intelligence capability. The actual size, staffing, and cost of this intelligence apparatus are unknown but almost certainly beyond comprehension. Vast antennae scoop up the world’s internet traffic; satellites circle the earth, photographing secret locations in the most remote locations; real human spies prowl the major cites of the world and report their clandestine discoveries constantly. Nonetheless, to the consternation of intelligence professionals, no significant foreign policy decision or intervention has ever been made on the basis of verified intelligence. The invasion of Iraq in 2003 had nothing to do with intelligence; a former chief counter terrorism advisor to the National Security Council believes that when George Bush came into office in 2000, he had already decided to invade Iraq. His administration selectively used intelligence data to support their already formed decision. This is not an unusual example.
3. Herman Kahn invented modern, scenario-based strategic planning for the military while he was at the Rand Corporation in the 1950s. Pierre Wack, an imaginative French oil industrialist, introduced scenario planning at Royal Dutch Shell in London in the 1970s. Shell is widely regarded as having invented strategic planning for business, and believed to have had the most sophisticated strategic planning department in business for years. However, external reviewers conclude that senior management at Shell never used the input from this group to make a significant business decision. Senior managers at Shell from that period report that the planning group was “too academic.” Other business analysts suggest that the suggestions from the planning group were indeed state of the art, but the senior leadership team at Shell refused to implement them.
4. Among well regarded economists at the best universities in the world, there is virtually unanimous consensus regarding the measures needed to revive a modern industrial economy that has fallen into a recession. Economists know how to fix broken economies. Nonetheless, across North America and Europe today, we see politicians making economic policy based primarily on their needs for re-election. North American and European politicians refuse to pay attention to the hard earned lessons of serious researchers.

Here we have four examples of an important theme in organizational life. It concerns the fact that the people who run organizations refuse to attend to the knowledge of competent researchers. I can think of many more examples of this trend, but the point should be clear. The next question concerns how to interpret the trend. In principle, this topic belongs to organizational researchers. Organizational theory is largely derived from structural sociology, where the most important causal or explanatory variables exist “out there” in the environment – variables like culture, climate, social class, etc. – and these unseen forces somehow determine the behavior of organizational actors. I have long proposed a reductionist view which maintains that every important generalization one can make about organizational life – for example, silos are inevitable – can be reduced to, or explained in terms of, personality psychology or “human nature.” And the trends I described above are another example. John Holland developed a theory of vocational types – the so-called RIASEC model – which he used to study vocational choice. It is a theory of personality types, and it maintains that there are a finite number of types of people (6 really) who think about and solve problems in characteristic and distinctive ways. They also have characteristic interests and values, such that opposite types don’t understand or much like one another. And therein lays the explanation for the theme described above. Enterprising (E) types are politicians – aggressive, action oriented, extraverted, impulsive, risk-seeking, and blame avoiding. These are the people found at the tops of organizations. Investigative (I) types are researchers – reflective, ruminative, risk averse, slow acting, and analytical. These are the people who are attracted to careers in research. E types need I types for ideas; I types need E types for funding. Successful organizations need E types for political leadership, they need I types for leadership in matters of innovation and intellectual property leadership. The two types don’t like one another, don’t understand one another, and communicate poorly. The result is that I types are usually unable to sell their research to the E types, and E types prefer to make intuitive rather than data-based decisions. Unless organizations recognize this problem and self-consciously try to deal with it, anti-intellectual decision making will continue to dominate public and business life. Organizations that recognize the problem are usually organizations founded by scientists and engineers (Google) and it becomes a source of competitive advantage.