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8/7/2019 Cyert and Marsh Model
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CYERT AND MARSH MODELVivek Kumar
Roll no: 159
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AGENDA
Introduction
Sequence
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INTRODUCTION
Originated from Simons article A Behavioural
Model of Rational Choice , published in the
Quarterly Journal of Economics in 1955
The theory got its name from two writers Cyertand March who elaborated this theory.
This theory is based on four case studies and two
experimental studies
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SEQUENCE
Firm as coalition of groups with conflicting interests
Process of formation of demand-goals of the different
groups within the firm
Satisficing behaviour of the firm
Means for the resolution of the conflicting demandsProcess of decision making for the implementation of
the goals
Environment of the firm
A simple model of behaviourismComparison of the behavioural theory with the
traditional theory of the firm
Summary and conclusions
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The firm asthe coalition
of groupswith
conflictionggoals
Lar fir s arade f
different set feoplepursuingt eir owngoal
Organizationsarenot Singledecisionunit. Managers,
workers andS areholder
groups areclosest to the
fir .
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THE PROCESS OF GOAL FORMATION : THE
CONCEPT OF THE ASPIRATION LEVEL
Individual may have different and conflicting
goal than the organization and the other groups
The theory focuses on the origin and the decision
process of the organizational goal Demand of a firm depends upon the
Previous achievement
Demand of the other groups
Companys performance
Not all demands can be satisfied, hence there is
continuous bargaining and inevitable conflict.
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GOALS OF THE FIRM:
SATISFICING BEHAVIOUR
Five main goals:
Production goal
Inventory goal
Sales goal
Share-of the market goal
Profit goal
Goal of a firm also depends upon past performance
and the decision making efficiency decreases with
increase in the number of goals. Firm is a satisficingorganization rather than a
maximizingentrepreneur.
Bounded Rationality
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MEANS FOR THE RESOLUTION OF THE
CONFLICT Despite conflicting goals, functioning of a firm is stable
Means to resolve conflict in a firm:
Money payments
Side-payments policy commitments Slack payments Stabilizing effect
Sequential attention to demands
Decentralization of decision-making
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THE PROCESS OF DECISION-MAKING
Decision at the level of top administration
y Allocation of funds to different units - Bargaining power of
unit head and past performance
y Projects undertaken Based on budgetary criterion and
improvement criteriony Information not accurate on the basis of Position bias
y Based on quick screening of the most promising alternatives.
Decisions at the lower levels of administration
y Decisions taken by unit head after budget allocation.
y Learn by mistakes
y Need blueprint to take decision
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UNCERTAINTY AND THE
ENVIRONMENT OF THE FIRM
Market Uncertainity
y New Technology
y Change in customer taste
y
Firm consider only short-term effect of decisions Uncertainity from competitors action
y Handled by assuming collusive action of the firm
Neglecting the environment is a drawback of thistheory.
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ASIMPLE MODEL OF
BEHAVIOURISM
Forecast of competitors reactions
Forecast of firms demand
Estimation of costs
Specification of goals of the firm
Evaluation of results by comparing them to the goals
If goals are not attained ,re-examine the cost
estimate
Evaluation of new solution by comparing it to goals
If goals are not attained ,re-examine the demandestimate
Evaluation of the new solution by comparing it to
goals
If goals are not met , adjust the aspiration level
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ACOMPARISON WITH THE TRADITIONAL
THEORY
Behavioural theory Traditional theory
Concieves firm as Coalition of
groups with largely conflicting
interests
Concieves firm as synonymous
with the enterpreneur
Multiplicy of goals Single goal i.e. maximisation of profits
Only theory that postulates
satisficing behaviour
Maximising behaviour is main
concern
Introduces concept of limited
rationality
Global rationality is the theme
Conflict among various members
of the coalition is inevitable
No conflict of goals between the
organisation and individual
members.
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THANK YOU!!!