European Management Journal (2013) 31, 72–81

journal homepage: www.elsevier .com/ locate /emj

The early evolution of the foundations for behavioralorganization theory and strategy

Mie Augier *

Naval Postgraduate School, Center for New Security Economics and Net Assessment, Halligan Hall, Monterey,CA 94943, United StatesStanford Graduate School of Business, 250 West faculty building, Stanford, CA 94305, United States

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KEYWORDSOrganization theory;Strategy;History of management;Behavioral organizationtheory;James March;Herbert Simon

63-2373/$ - see front mattetp://dx.doi.org/10.1016/j.e

* Corresponding author. Adsiness, 250West faculty buildE-mail addresses: meaugie

r ª 201mj.2012

dress: Sing, Stanr@nps.e

Summary While the field(s) of management theory and the history of modern ideas inmanagement, business education and organizations have many different intellectualroots, the Carnegie Mellon Behavioral trio (James March, Herbert Simon and RichardCyert) who founded the behavioral perspective on organizations stand out not just fortheir collective contribution to founding the field of organizational behavior as we knowit today, but also for their subsequent individual contributions to the field. Organizationsand Behavioral Theory of the Firm set the stage for several subsequent developments inorganization and management theory including research on learning, strategic manage-ment, organizational economics and organizational routines (Gibbons, 2003; Pierce,Boerner & Teece, 2002; Williamson, 2002, 2004; Augier & Teece, 2005, 2009).

In addition to providing some background on the Carnegie work, this paper traces thegenealogy and development of some of the work of the founding fathers, and makingthe points that (1) while the work of Herbert Simon crossed disciplinary boundaries, hesaw himself as doing only one thing, working in understanding limited rationality in deci-sion making and (2) the work of James March shaped the field in a co-evolutionary waysince he has been influenced too by the developments in organization studies.ª 2012 Published by Elsevier Ltd.

This paper discusses parts of the background and cen-tral ideas in the field known as ‘‘the Carnegie School’’(Earl, 1988) and its influence on the field of organizationstudies, in particular through the works and ideas ofJames March, Herbert Simon and Richard Cyert. The workthey did not only provided much of the foundation for thethen-non existing field of organization studies; it alsostimulated and provided much of the intellectual founda-tion for subsequent developments in fields of organiza-

2 Published by Elsevier Ltd..11.005

tanford Graduate School offord, CA 94305, United States.du, augier@stanford.edu

tions, strategy and management (Augier & Teece, 2005,2009); and they were shaped also by central develop-ments in the history of management education and behav-ioral social science (Augier & March, 2011). They becamea driving force of a movement, but a movement that it-self was embedded in a set of societal and intellectualchanges in the post war years.

Looking back at these developments it is clear that theyat least in part were overlapping in terms of ideas as well asinstitutions and individuals and collaborations betweenthem. As March (2004) notes, scholarship is a collectiveactivity, and often involves overlapping individuals and

The early evolution of the foundations for behavioral organization theory and strategy 73

institutions. For example, Simon who was central to theearly development of organization theory, also served asadvisor to the first foundation programs on behavioral socialscience, and was also involved in reforming business educa-tion. Similarly, March�s work became central to the fields oforganization science and behavioral social science; he, too,was in a business school and also was an early fellow at thethen newly established Center for Advanced Study in Behav-ioral Science (CASBS). It is also clear, in looking back, thatkey to making many of these developments possible in thefirst place was the support, intellectual backing, and fund-ing of a few key Cold War developments and institutions,in particular the RAND Corporation and the Ford Foundation(Augier & March, 2011). In their search for research that wasinterdisciplinary, fundamental, disciplined yet empiricallymotivated and more realistic than many previous academictraditions, RAND and the Ford Foundation provided institu-tional and financial support to the field of organization stud-ies and behavioral social science early on. They alsoprovided legitimacy by building and supporting institutionsthat could further help these emerging fields mature (in par-ticular, in addition to CASBS, the Graduate School of Indus-trial Administration at, then, the Carnegie Institute ofTechnology). Within those institutions, the researchershad considerable freedom to do what they found interestingand ultimately central to building better theories andframeworks that could help us understand issues relatingto organizational behavior better. Through their individualand joint effort, they helped establish an agenda, and pro-vide an empirically relevant theory of organizational behav-ior and decision making; and each of them also helpedshaping the subsequent developments in the field. The insti-tutional importance of this history is the fundamental rea-son for the central role of business schools for thedevelopment of the field of organization studies (Augier &March, 2011; Augier, March, & Sullivan, 2005).

This paper will not detail the full history of these devel-opments and ideas; instead, I will focus on a few ideas fromsome of the core contributors to illustrate part of the intel-lectual evolution that took place.1 The next section dis-cusses how Simon�s vision for behavioral organizationtheory (and social science generally) was found in the con-text of his early work in public administration and politicalscience and was strengthened as Simon proceeded to makecontributions to economics; and, finally, found a home withthe establishment of the behavioral science in the 1950s.The second step in realizing the behavioral vision, discussedin Section �Forming the behavioral vision at Carnegie�, camewith the creation of the interdisciplinary research environ-ment at Carnegie, including the recruiting of scholars suchas James March and Richard Cyert. Their foundational jointwork, as well as some of their individual contributions, arediscussed in Section �Some themes in later work�. The finalsection concludes with some remarks on the future of thefield.

1 While this present paper is rather short, some further details ofsome of Simon�s intellectual trajectory I have discussed in Augier(2000, 2001), and in Augier and March (2002, 2008). The section onMarch�s work touches on arguments that are further developed inAugier (2004, 2013).

Herbert Simon, discovering the limits ofrationality

Behavioral organization theory, following Simon�s vision, isinterdisciplinary as is strategy and strategic management(Augier, 2001a; Augier & Sarasvarthy, 2004). Simon himselfdidn�t care much about differences between the disciplines;preferring instead of emphasize their commonalities (Augier,2000). He was unusually firm in his resistance for disciplinaryloyalty; ‘‘If you see any one of these disciplines dominatingyou’’, he said in conversation, ‘‘you join the oppositionand you fight it for a while’’.2 As a result, Simon could appearto be always leaving and never finding home; always embrac-ing a new discipline with passion and intensity, but at thesame time always appearing to be moving away and throughnew concepts and ideas. But in fact, there is a remarkableconsistency to Simon�s ideas (Augier, 2000). He was, firstand foremost, an organization scholar, interested in explor-ing the decision-making and limitations to rationality in hu-man behavior in different organizational and institutionalsettings (Augier, 2001a, 2001b; Augier & March, 2008).

An important thing to keep in mind is that if we are toform an accurate impression of Herbert Simon�s intellectualformation and trajectory, we must begin by abstractingfrom accounts of Simon which focus on only part of thisstory and start from the beginning. For, as Simon notes(1988, p. 276), his early focus on decision-making processesof people in organizations ‘‘has been my central interestthrough out my whole professional life.’’

Born in 1916, Simon spent his early years with his parentsand his older brother on the West Side of Milwaukee in amiddle-class neighborhood. Attending public schools, Simonat first intended to study biology. However, after he wenton a strawberry hunting trip, and discovered that he wascolorblind (unable to distinguish the strawberries from theplants), he changed his mind, thinking that color blindnesswould be too big a handicap in biology. He then thoughtbriefly about studying physics, but he gave up that ideaafter discovering that there weren�t really any major ad-vances left to be made in physics; ‘‘They have all thesegreat laws’’, he said in conversation. ‘‘Newton had doneit, no use messing around with it’’. As a result, upon finish-ing high school in 1933, Simon enrolled instead at the Uni-versity of Chicago with an interest in making socialscience more mathematical, and an intention to major ineconomics. In keeping with his strong wish to be indepen-dent, Simon preferred reading on his own instead of takingclasses; and he particularly refused to take the class inaccounting, which was required to graduate in economics.As a result, he majored instead in political science.

Political science wasn�t physics, of course; with all their�great laws�. However, as a science, it could encompass boththeory and practice; and, being an empirical science, it hadto take the data seriously. Furthermore, Simon found an ap-peal to interdisciplinary thinking (in particularly psychology)in understanding political behavior, which attracted him.The details of Simon�s mature work differ, but the underly-ing ideas, interdisciplinary thinking and the necessity of

2 Personal conversation and interview with Herbert A Simon. Thissection builds on Augier, 2000; 2001a, in addition to this interview,published in Augier (2001b).

74 M. Augier

bringing together theory and reality, remains. Also presentfrom the start was the essential idea of limited rationality,which would stay with Simon as he proceeded to translatehis insights in political science and public administrationinto his work in economics, organization theory, psychol-ogy, and artificial intelligence.

In 1935, Simon wrote a paper for a class entitled‘‘Administration of Public Recreational Facilities in Milwau-kee’’.3 The paper was organized around the study of prob-lems in public administration caused by the growth ofmunicipal recreation facilities. In particular, the outgrowthof park and school activities invited studying their adminis-tration in the light of possible problems of relations be-tween the school boards and the local city governments(p. 2). This paper, Simon often said in retrospect, providedthe first insight into the idea of bounded rationality; for itwas here that Simon discovered that neoclassical ideas onutility maximization didn�t fit the way in which the bud-get allocation process under study (in the Milwaukee ParksDepartment) really worked. Thus, Simon wrote:

‘‘My training in economics, evoked in the context of abudget situation, disclosed a contradiction betweenwhat theory taught me ought to be happening and whatmy eyes and ears showed me was actually happening(Simon, 1991, p. 371).

He never repudiated this early work. In fact, during hiscareer, he made the insights more elaborated and made itthe center of his research. As Simon recalled: ’’Now I hada new research problem: How do human beings reason whenthe conditions for rationality postulated by the model ofneoclassical economics are not met?’’ (Simon, 1989, p.376).

As a result of this early work, Simon was invited by Clar-ence Ridley to participate as a research assistant in a pro-ject for the International City Manager�s Association(Simon, 1991, p. 64). Together with Ridley, Simon publishedthe results of this project in several articles as well as abook, Measuring Municipal Activities (Ridley & Simon,1938). This brought an invitation to join the University ofCalifornia�s Bureau of Public Administration to study localgovernment. While working in Berkeley on directing a studyof the administration of state relief programs, intended todemonstrate how quantitative empirical research couldcontribute to understanding and improving municipal gov-ernment problems (Simon, 1991, p. 82), Simon was alsoworking on an early manuscript of his thesis, what becameAdministrative Behavior, intended to reforming administra-tive theory (Simon, 1947). The first working title of Admin-istrative Behavior was ‘‘The Logical Structure of anAdministrative Science’’ (Simon, 1977, p. xiii). Simon hadintended the book to have a heavy philosophical compo-nent; in particular due to being influenced by RudolphCarnap.

The connection to the Milwaukee study is clear in Simon�sdissatisfaction with neoclassical rationality.

‘‘The implication might be drawn from this discussionthat any rational choice between alternatives involves

3 Herbert A. Simon (1935): ‘‘Administration of Public RecreationalFacilities in Milwaukee’’, unpublished manuscript. Herbert A. Simonpapers, Carnegie Mellon University Library.

a complete description of the possibility consequentialon each alternative and a comparison of these possibili-ties’’, he wrote. ‘‘We would have to know in every singlerespect how the world would be changed by our behavingone way instead of another, and we would have to followthe consequences of behavior through unlimitedstretches of time, unlimited reaches of space, and unlim-ited sets of descriptive variables. Under such conditionseven an approach to rationality in real behavior wouldbe inconceivable’’ (Simon, 1947, p. 38).

Furthermore, Simon introduced the importance of orga-nizations for individual decision-making; a theme later elab-orated in especially March and Simon (1958).

‘‘Human rationality’’, he wrote, ‘‘gets its higher goalsand integrations from the institutional settings in whichit operates and by which it is molded. . . . [Therefore]. . . [t]he rational individual is, and must be, an organizedand institutionalized individual.’’ (Simon, 1947, p. 101–102).

Simon argued that organizations make it possible tomake decisions by virtue of the fact that they constrainthe set of alternatives to be considered and the consider-ations that are to be treated as relevant. Organizationscan be improved by improving the ways in which thoselimits are defined and imposed. Finally, AdministrativeBehavior criticized existing administrative theory forbeing based on �proverbs� (often contradictory common-sense principles); a perspective he wanted to replace witha more empirically oriented perspective investigating thenature of the decision processes in administrativeorganizations.

In Simon�s view, Administrative Behavior was the firstplace in which he systematically examined the importanceof limits to human rationality. ‘‘The dissertation containsboth the foundation and much of the superstructure ofthe theory of bounded rationality that has been my lodestarfor nearly fifty years’’, he wrote (Simon, 1991, p. 86). Thecore chapters of this book intended to develop a theory ofhuman decision making which was broad and realistic en-ough to accommodate both.

‘‘those rational aspects of choice that have been theprincipal concern of the economist, and those propertiesand limitations of the human decision making mecha-nisms that have attracted the attention of psychologistsand practical decision makers’’ (Simon, 1947, p. xi).

Learning from (and the limits to) economics

Simon returned to Chicago (Illinois Tech) in 1942 and in anenvironment there where most of his fellow researcherswere believers in rational decision-making, Simon remaineda strong advocate of the idea of limited rationality. He be-gan to discuss his ideas with prominent economists, inparticularly those connected to the Cowles Commissionwhich was a group of mathematical economists doing pio-neering research in econometrics, linear and dynamic pro-gramming, and decision theory, among other things. Theeconomists connected to the Cowles Commission included

The early evolution of the foundations for behavioral organization theory and strategy 75

such well-known names as Kenneth Arrow, Jacob Marshak,Tjalling Koopmans, Roy Radner, and Gerard Debreu, andthey held regular seminars to discuss their research.

The Cowles Commission itself had a large impact on Si-mon, in particular with regard to his relationship to eco-nomics (Augier & March, 2002; Simon, 1991). Although hehad already had a ‘‘half-baked elementary training’’ in eco-nomics when enrolling at the University of Chicago in 1933,and had taken several advance courses in economics, with-out the participation in the Cowles seminars, Simon noted,‘‘I would surely not have had a full command of the tools ofeconomic analysis’’ (p. 3). Simon used these tools to con-tinue his interest in human decision making, as witnessedfor example in his work on causality (Simon, 1952, 1953).But perhaps |‘‘the greatest impact of the Cowles exposureon me’’, Simon says, ‘‘was to encourage me to try to math-ematize my previous research in organization theory anddecision making, especially the theory developed in Admin-istrative Behavior’’.4 In particular, Simon mentions threepapers that were significant with respect to his influencein economics and his relations to the Cowles Commission.Those were ‘‘A Behavioral Model of Rational Choice’’ (Si-mon, 1955), ‘‘A Formal Theory of the Employment Rela-tion’’ (Simon, 1951), and ‘‘A Comparison of OrganizationalTheories’’ (Simon, 1952–1953). Those papers developedideas that are central to today�s behavioral organizationtheory scholars and helped define and shape the field.5 Inaddition to those three papers, Simon wrote a forth paperduring those years which deserves mention. This is the pa-per ‘‘Rational Choice and the Structure of the Environ-ment’’ (1956) in which Simon introduced the idea that theenvironment influences decision-making as much as infor-mation processing abilities do. He examines the influenceof the structural environment on the problem of ‘‘behaving

4 ‘‘Inquiry into the Cowles Commission’’, Manuscript, HerbertSimon papers, Carnegie Mellon University archives, p. 4. Simoncontinues, emphasizing the importance of his early work on hiscareer: ’’I think this project was on the agenda anyway, but theCowles contact certainly egged me on it and gave it higherpriority’’.5 It is in the first one, ‘‘A Behavioral Model of Rational Choice’’

which was written in part at the RAND Corporation where Simon wasworking in the summers on projects related to organization theory,that he introduces the idea of limited rationality and satisficingexplicitly. He discuss how whereas in models of rational choice, theorganism must be able to ’’attach definite payoffs (or at least adefinite range of payoffs) to each possible outcome’’ (Ibid), Simonsuggests that ’’there is a complete lack of evidence that, in actualhuman choice situations of any complexity, these computations canbe, or are in fact, performed’’ (Ibid.). As a consequence of the lackof computational power, decision-makers have to simplify thestructure of their decisions, one of the most important lessons ofbounded rationality. The other important idea introduced in thispaper is that of satisficing. Introducing his behavioral model ofrational choice, Simon assumes a simple pay-off function wheredecision-makers interpret outcomes as either satisfactory orunsatisfactory, and in which an aspiration level constitutes theboundary between satisfactory and unsatisfactory. Whereas deci-sion makers in rational choice theory would list all possibleoutcomes evaluated in terms of their expected utilities, and thenchose the one that is rational and maximizes utility; decisionmakers in Simon�s model face only two possible outcomes, and lookfor a satisfying solution, continuing to search only until they havefound a solution which is good enough.

approximately rationally, or adaptively’’ in particular envi-ronments (Simon, 1956, p. 130). Limited rationality, satis-ficing, adaptive behavior and complex environments arecentral topics in modern organization theory and strategy;topics that Simon developed with colleagues at Carnegie.

For at Carnegie, Simon found both colleagues and anenvironment which could accommodate and appreciate hisbroad interests and honor his vision to cross disciplinaryboundaries in pursuing his vision. With the emergence of abehavioral organization science emphasis at Carnegie alsocame many contributions of cross-disciplinary and interdis-ciplinary nature. The disciplinary boundary crossing thathad been, if not difficult, then different from the main-stream before, became possible and wider spread with thebehavioral research focus that was shaped and backed alsoby RAND and the Ford Foundation.

Arriving at Carnegie in 1949, Simon worked – with Wil-liam Cooper and George Lee Bach – to build up a promisingnew business school, namely the school of industrial admin-istration, which later became known as the Graduate Schoolof Industrial Administration (GSIA). Business education atthat time was not much oriented towards research, but Si-mon and colleagues wanted to be different. They wantedto do research. They wanted their research to be relevantfor business leaders, while at the same time emphasizingthe tools of good science (Cooper, 2002). Early core coursesin the program included ‘‘quantitative control and busi-ness’’ (consisting of accounting and statistics) taught by BillCooper, a sequence of micro and macroeconomics, taughtby Lee Bach, and organization theory taught by Simon. Asa result of their early efforts to build up at research programat Carnegie Mellon, GSIA was picked by the Ford Foundationas one of the foremost places where the new science ofbehavioral economics could be developed. This became apioneering for the establishment of business education inthe United States (Augier & March, 2011).

The Ford Foundation had at that time formulated a pro-gram for ‘‘the study of man’’ – which became known as‘‘the behavioral science research area’’ – the specificobjective of which was stated as follows: ‘‘The Ford Foun-dation will support scientific activities designed to increaseknowledge of factors which influence or determine humanconduct, and to extend such knowledge for the maximumbenefit of individuals and of society’’.6 Research had to bescientific; embodied in the Ford Foundation�s understandingof the behavioral science concept was ‘‘its emphasis uponthe scientific approach to problem solution’’.7 And it hadto be practical, to some extend at least, given the founda-tion�s interest not in knowledge per se, but in ‘‘knowledgewhich promises at some point to serve human needs’’. Fur-thermore, it explicitly encouraged interdisciplinary re-search. ‘‘The program is interdisciplinary and inter-field.Its goal is to acquire and apply knowledge of human behav-ior, and segments of all fields and disciplines will make

6 ‘‘The Ford Foundation Behavioral Science Program: ProposalPlan for the Development of the Behavioral Sciences Program’’1951, Herbert A. Simon papers, Carnegie Mellon University Library.7 ‘‘The Ford Foundation Behavioral Science Program: Proposal

Plan for the Development of the Behavioral Sciences Program’’1951, Herbert A. Simon papers, Carnegie Mellon University Library,p. 4.

76 M. Augier

contributions in varying degrees’’.8 It is clear that this res-onates well with Simon�s vision and, not surprisingly, he be-came an advisor to the Ford Foundation research area onthe behavioral sciences (Simon, 1991, pp. 170–171). Andhe went out to recruit other likeminded social scientistswho could collaborate with him.

James March and organizations

One of Simon�s early recruits to Carnegie was James Marchwho went onto become a key contributor to the field oforganizations. Viewed in a historical context, the work ofMarch represents a continuation of the behavioral economicprogram developed at Carnegie in the 1950s and 1960s – atradition deeply influenced by roots in political science(Augier, 2004). Like Simon, March�s formal education wasin political science; also, March�s central research questionwas in many ways the same as the ones that guided HerbertSimon and Richard Cyert: What is the proper way to under-stand human action and decision making, and, more specif-ically, how can theories of rationality and intelligence bealigned with the facts of the world? In order to pursue thesequestions, Organizations was written, as was A BehavioralTheory of the Firm, both part of the development of thebehavioral economics program at Carnegie MellonUniversity.

Early ideas and work

Born on January 15, 1928 in Cleveland, Ohio, James G.March finished his high-school years in 1945 in Madison, Wis-consin, where the March family had moved in 1937. As ayoung boy March was an ‘‘all around American boy’’, playingall sports and also serving as captain of his junior high-school football team. He liked school and became inter-ested in politics. While he took all the mathematics coursesavailable in high school, March had at that time no particu-lar intention of going into a ‘‘hard-science’’ career. Rather,he felt a strong interested in government. As a result,although he had offers from both the military academyand the naval academy, March decided instead to go intopolitical science. ‘‘Had I gone the other way, I supposed Iwould have become an engineer’’, March later recalled(March, personal interview).

Living through the post-war years, March had no clearidea how his career would turn out. He went to study forhis bachelor degree in political science at the Universityof Wisconsin. Having completed his undergraduate years,March went onto graduate school at Yale. He also took ajob at the Yale Center for Alcohol studies, originally to studycollege drinking habits. However, March was as much influ-enced by the ideas of people as from books. Interaction withpolitical scientists such as Robert Dahl and V. O. Key, econ-omist Charles Lindblom, anthropologist George Peter Mur-doch, and sociologist Fred Strodtbeck, awakened in Marcha broad interest in the social sciences. Taking courses insuch different fields did not bother March in the least; onthe contrary, what might seem to some a schizophrenic

8 ‘‘The Ford Foundation Behavioral Science Program: ProposalPlan for the Development of the Behavioral Sciences Program’’1951, Herbert A. Simon papers, Carnegie Mellon University Library.

existence, March found essential for pursuing his interestand lived quite happily in many different disciplinary worldsat once.

Determined to analyze and understand human decisionmaking and behavior, March felt comfortable with the toolsof linear algebra and statistics early on, and felt that thesetools were important to model building in the social sci-ences (Lave & March, 1975). At the same time, however,he also had a deep concern for empirical data and for histor-ical and institutional approaches to economics, politicaltheory, psychology, and other social sciences. This interdis-ciplinary and cross-disciplinary interest had been fosteredearly on; he grew up in Wisconsin with a father who was astudent of J. R. Commons. March�s interdisciplinary inter-ests made him an interesting candidate for the then-begin-ning behavioral perspective on human decision making,which was just emerging around Simon and Bach at CarnegieInstitute of Technology. In keeping with March�s views, theywould develop a strategy for crossing disciplinary bound-aries in order to understand human action and decision-making.

Notwithstanding his unusual ability to bring together dif-ferent aspects of different disciplines, March did see him-self as mostly a political scientist early on, as evidencedby the fact that when he first began thinking about jobs,it was political science departments that were on his radarscreen. Certainly, he was not thinking about businessschools; yet it was at a business school that March got hisfirst academic job. So why in 1953 did he leave Yale for abusiness school at Carnegie Mellon University (then CarnegieTech) where he would spend the next eleven years of his ca-reer? Why Pittsburgh? He certainly could have stayed inpolitical science. He had a degree from a good universitywith a good reputation in political science, he was stayingat Yale as a SSRC post doctoral fellow, so staying at the eastcoast would probably have been easier.

It seems likely that at some point March looked at theway his intellectual life was developing and realized thathe would soon have to choose between a life in political sci-ence and one of interdisciplinary scholarly activity. Marchhad plenty of ideas, some of which connected to organiza-tional studies, and it was time to pursue them or give themup. His dissertation had opened multiple avenues for futureinterdisciplinary research.

The move to Pittsburgh was a decision to continue livingin an interdisciplinary space and to pursue research on deci-sion making in organizations fully, and a decision to engagein collaboration with Simon, who as mentioned, at the timewas helping to recruit. Simon knew Robert Dahl, March�sprincipal dissertation advisor, and asked him for prospectivestudents to meet and Simon went to interview March. Simonrecalled about their first meeting:

‘‘We were building up this faculty, so Lee Bach and Iwere doing most of the hiring. In those days, you didn�thave those big committees, advertising jobs for 6 monthsand such nonsense. We went to schools where wethought that interesting things were happening andwhere interesting people were. And then we asked ourfriends about who were the good doctoral students. Sosomeone gave me Jim March�s name, and we had dinner,and I think I phoned Lee back that same night and told

The early evolution of the foundations for behavioral organization theory and strategy 77

him that I was offering Jim a job. That simple it wasthen. He was tops.’’ (Interview with Simon, 2001, Augier,2001b, p. 271).

Although March had warmed up to the idea of studyingorganizational issues in the dissertation, the theory of thefirm itself was ‘‘little more than a set of words to me’’,March would later recall. But March decided that it wouldbe interesting to work with Simon, and off he went to Pitts-burgh where he helped shape the development of CarnegieMellon University�s new Graduate School of Industrial Admin-istration. ‘‘The thing that was attractive about GSIA’’, Marchrecalled, ‘‘was Herb Simon. I didn�t know much else aboutthe school, and I certainly didn�t know anything about Pitts-burgh. But Simon was smart, and he was talking about doingthis review of organization studies, and by that time I waskind of thinking that may be that was the direction I wantedto go’’ (March, personal interview).

While March felt comfortable at the school, he was apolitical scientist and not, at least at that time, particularlyinterested in management or business or organization the-ory per se. This would soon change. March first taughtcourses in political science and later took over the courseon ‘‘the history of ideas in social change’’. One of his stu-dents, who would later become a pioneer in the field ofcomputer science and artificial intelligence, Edward Feigen-baum, remembers that it was this course which attractedhim to the school and in particular that March taught ideasfrom game theory, which was at that time at a very earlystage of development, a little more than a decade afterthe publication of von Neumann and Morgenstern (1944),and before any substantial developments had taken placein non-cooperative game theory. ‘‘That was fascinating –absolutely fascinating to me’’, Feigenbaum recalls. ‘‘Thatone could apply analytic and careful models to social phe-nomena’’ (Feigenbaum, personal conversation). The factthat game theory was taught side by side with social psy-chology, sociology, and statistics, by a professor educatedin political science, is just one sign of the interdisciplinary,but disciplined, spirit at Carnegie.

Only gradually did March move into teaching organiza-tions/business course teaching. However, he quickly estab-lished very good work relations with Simon and also withRichard Cyert. He also had many conversations with othercolleagues such as Bill Cooper, Fred Tonge, Harold Guetz-kow, Franco Modigliani, Allen Newell and Jack Muth, buthis principal collaborators were Simon and Cyert.

The 1950s and early 1960s was an important period in thehistory of ideas, and Carnegie Mellon University during thoseyears proved to be a very stimulating and very productiveplace where several important ideas were fostered. March,along with Richard Cyert and Herbert Simon developed thefield of behavioral economics, which has proved an impor-tant alternative to neoclassical economics. Furthermore,it was the place where several other modern developmentsin economics and organization theory were initiated, suchas transaction cost theory and evolutionary economics(Augier & March, 2001, 2002, 2008, 2011; Williamson,1996, 2002, 2004), not to mention rational expectationstheory and linear and dynamic programming. So not surpris-ingly, Carnegie was also very important to the development

of March�s intellectual formation and early ideas. As a con-text for accommodating and appreciating his interdisciplin-ary curiosity and interest, Carnegie Mellon greatlyinfluenced the content of March�s research, early as wellas later in his career. ‘‘I think it would be very hard for any-one who has an academic career’’, March said in lookingback, ‘‘not to find the first ten years of his career very, per-haps the most, influential. And this was a place with a lot ofexcitement and drive’’ (March, personal conversation). Fur-thermore, it was at Carnegie that his thoughts became cen-tered on organizations. While he had a vague notion oforganizations before he went to Carnegie, ‘‘It certainly be-came much clearer at Carnegie’’, he said. ‘‘If I look ateverything I have done subsequently, I can see the seedsof all of it at Carnegie’’ (personal conversation). This alsorelates to the history of management/business educationin general (for a much more lengthy discussion of the evolu-tion of business schools, see Augier & March, 2011).

Forming the behavioral vision at Carnegie

Carnegie quickly became the role model for a researchbased, disciplinary oriented – but very interdisciplinary –approach to business education and an invigoration of fun-damental interdisciplinary research in accounting, finance,marketing, operations research, microeconomics, and orga-nizations. Organizations (March & Simon, 1958) and ABehavioral Theory of the Firm (Cyert & March, 1963) aretwo significant results of the early work on business re-search at Carnegie. In addition to filling a need in the estab-lishment of the behavioral sciences, research onorganizations became the emergent discipline of businessschool education, bringing together different disciplines inthe study of decision-making and behavior in organizations.

As such, this was the image of the Ford Foundation�sbehavioral vision that Simon, Cooper and Bach had in mindwhen forming the GSIA group. As a result, they hired youngfaculty with similar interests who had the technical skillsand contributed to the disciplines, but also a broader knowl-edge in social science and interest in understanding per-spectives from other disciplines.

The group at Carnegie soon consisted of many talentedyoung scholars who were all eager to contribute to this new-ly formed vision of behavioral science. Despite different dis-ciplinary backgrounds, interests, and despite varyingdegrees of admiration for the idea of rationality, theseteams always worked together in a friendly way. They didnot all work together on the same topics and they did notagree on everything, but they focused on their researchand it evolved in a complementary fashion. For instance,while much of Simon�s research centered on bounded ratio-nality, the work of Franco Modigliani had a high rationalcomponent to it. Regardless of the differences in their intel-lectual models, they respected each other and didn�t try toimpose their views on all their colleagues, since at Carne-gie, intellectual curiosity and dedication were highly appre-ciated and mattered more than disciplinary boundaries. Thisinterdisciplinary, yet disciplined, way of working becausepioneering for subsequent developments in economics –and spurred the development of entirely new areas of

78 M. Augier

interdisciplinary research on organizations and organiza-tional decision-making.

It was a business school, but they thought of themselvesas reforming economics. In keeping with this, and with spiritof the Ford Foundation emphasis, the two major projects,Organizations and A Behavioral Theory of the Firm, soughtto integrate economics ideas with those coming from thesofter disciplines of sociology and social psychology. Inkeeping with March�s background and perspective (and theideas of Simon and others), this was a style of analysis andstrategy that best suited the emerging business school,but one with very little attention for the boundaries ofdisciplines.

9 Cyert had come to Carnegie in 1948 where he later became deanof the Graduate School of Industrial Administration (GSIA) (1962–1972) and president (1972–1990) of the university. Even whentaking on his leadership duties as a Dean and President, heremained very active in publishing and research during theseperiods. Cyert came to Carnegie Mellon as an instructor ofeconomics, then assistant professor of economics and industrialadministration, associate professor and head of the department ofindustrial management, professor and the dean of the graduateschool of industrial administration and President of Carnegie MellonUniversity. Despite his other important contributions, the mainwork of his that stand out (at least when it comes to the field oforganizations and management) is Behavioral Theory of the Firm.10 As Cyert and March noted: ‘‘Ultimately, a new theory of firmdecision making behavior might be used as a basis for a theory ofmarkets, but at least in the short run we should distinguish betweena theory of micro-behavior, on the one hand, and the microassumptions appropriate to a theory of aggregate economicbehavior on the other. In the present volume we will argue thatwe have developed the rudiments of a reasonable theory of firmdecision making’’ (1963, p. 16).

The emerging behavioral perspectives on firms andorganizations

At Carnegie, March worked mostly on organizations (March &Simon, 1958), the behavioral theory of the firm (Cyert &March, 1963, see below), and the concept of power in thestudy of social systems. The major goal of Organizationswas to make a �propositional inventory� about organizationtheory in order to list generalizations and to assess empiricalevidence to support them (March and Simon, 1993, p. 1). Intheir view, organization theory builds on ideas from sociol-ogy, social psychology and economics, but also borrows fromgame theory and statistical decision theory. Again, in keep-ing with the view of the Ford Foundation�s, they wanted tounite empirical data-gathering research with rigorous theo-rizing in order to create a rigorous empirical theory thatcould organize and so give meaning to empirical facts withlegitimate theory. Science, they believed, was the productof the organization of empirical facts into conceptualschemes, and the progress of science was based on thedevelopment of more sophisticated and elegant theoreticalsystems, but not necessarily the discovery of new facts.

Although organization theory as a field was then verynew, they examine types of the classical theory – Taylor�sscientific management and Gulick and Urwick�s departmen-talization models and discuss the limitations of these ap-proaches, in particular at the behavioral level (neglect ofconflict in organizations; incomplete motivational assump-tions; ignoring limitations on rationality, etc.). The bureau-cratic theories of Merton and Selznick are discussed andincomplete because they do not explore the different moti-vations in organizational behaviors. Acknowledging debts toParsonian social theory, the conceptual framework of struc-tural–functional analysis is seen as underlying much ofexisting organization theory. A good example is the Bar-nard-Simon inducement-contributions schema as it is evi-dent in the use of terms such as ‘‘purpose’’ and‘‘process’’ in the description of departmentalization (March& Simon, 1958, pp 41–50) and generally, in the view oforganizations as adaptive, self-maintaining systems.

The issue of conflict is discussed in particular in terms ofthe variable of being able to change the contract and theydistinguish between intra-individual, organizational and in-ter-organizational conflict (as well as the possibility of gametheory to contribute to the understanding of conflict).Throughout the book March and Simon emphasize theimportant connections between cognitive factors and

motivation that are essential to theories of organizations to-day; thus both elaborating on Simon�s earlier ideas andanticipating themes that March developed later.

By the time Organizations was written, March was alsopublishing articles relating to A behavioral theory of thefirm.9 The particular set-up for A Behavioral Theory ofthe Firm was a little different than for Organizations. Whileboth grew out of the Ford Foundation�s concern for behav-ioral theory, Organizations was largely written by two peo-ple, Simon and March (with the assistance of HaroldGuetzkow), whereas A Behavioral theory of the firm wasa truly collaborative effort, led by Cyert and March, assistedby graduate students such as William Starbuck, Edward Fei-genbaum, Julian Feldman and Oliver Williamson. Perhapsthis difference in set up was as much a function of thegrowth of GSIA than anything else; by the time A behavioraltheory of the Firm got started, there were more studentsaround to work on the projects.

A behavioral theory of the firm was also more distinctlyoriented towards economics. The authors wanted to presenta theory of the firm that was not so much an alternative tothe neoclassical theory of the firm as it was an attempt todevelop a theory that could be used to study decision mak-ing in firms, not just comparative statistics, as in main-stream price theory.10

At the center of A Behavioral Theory of the Firm is theidea of the firm as an adaptive political coalition (also pre-sented in March, 1962), a coalition between different indi-viduals and groups of individuals in the firm, each havingdifferent goals and hence the possibility of conflict ofinterest.

‘‘Since the existence of unresolved conflict is a conspic-uous feature of organizations’’, the authors stated, ‘‘it isexceedingly difficult to construct a useful positive theoryof organizational decision making if we insist on internalgoal consistency. As a result, recent theories of organiza-tional objectives describe goals as the result of a contin-uous bargaining-learning process. Such a process will notnecessarily produce consistent goals’’ (Cyert & March,1963, p. 28).

The early evolution of the foundations for behavioral organization theory and strategy 79

Another insight from the behavioral theory of the firm isthe idea of the firm as an adaptive system, which experi-ence is embodied in a number of ‘‘standard operating pro-cedures’’ (routines); procedures for solutions to problemswhich the firm in the past has managed to solve. As timepasses and experience changes, the firm�s routines changethrough processes of organizational search and learning.As a result, the firm is seen not as a static entity, but as asystem of slack, search, and rules that changes over timein response to experience, as that experience is interpretedin terms of the relation between performance and aspira-tions. Elements of this view of the firm can now be foundin modern developments, such as transaction cost econom-ics (Williamson, 1996, 2002) and evolutionary theory (Dosi,2004; Dosi & Marengo, 2007; Nelson & Winter, 1982).

One of the reasons as for why the Behavioral Theory ofthe Firm is important is that it demonstrates that deci-sion-making in organizations can be studied in detail; andprovides a model that has been followed by many others.In addition to initiating new areas of research on the foun-dations of organizations, it also influenced significantly sev-eral other areas in economics, such as transaction costeconomics, evolutionary economics, and computationalmodeling. One indication of the early importance of aBehavioral Theory of the Firm to economics is seen by thereviews it received at the time by economists. A BehavioralTheory of the Firm received generally positive contempora-neous reviews in by economists and in economics journals(Boulding, 1964; Day, 1964; Liversey, 1964; Winter, 1964).Kenneth Boulding observed that the book ‘‘reports someof the most lively and advanced research, and even thought,in this field to date’’ (Boulding, 1964, p. 592). In a similarvein, Sidney Winter noted:

‘‘ . . .this book delivers a major blow to that battered buthitherto unshaken intellectual construct, the theory ofthe profit-maximizing firm. Its importance derives fromthe fact that it presents a well-elaborated alternativetheory that stands up well under the tests of both sys-tematic and causal empiricism, rather than from anynovelty in the criticisms it levels against ortho-doxy . . .Those who have not heard the distant rumblingsof the �behavioral revolution� will be surprised at themomentum it has achieved. The final verdict cannot bepredicted, but this book should at least convince mosteconomists that the revolutionaries bear watching’’(Winter, 1964, p. 148).

Despite the stronger influence of economics in behavioraltheory of the firm, the books, however, also had many sim-ilarities. They were both written in a setting in which theinteraction between March, Simon and Cyert was verystrong. So the ideas therefore merged a lot. In retrospect,March thinks of the two books as having different objec-tives, more than different ideas. March and Simon (1958)was an attempt to create an inventory; to organize every-thing known about organization theory; whereas Cyert andMarch (1963) was much more oriented towards findingsomething relevant to say about the theory of the firm.The latter focused on issues such as problematic search; itfocused on the relevance of learning to the theory of thefirm. A more substantial difference, perhaps, is that,

although there is at least one chapter on conflict of interestin Organizations, this topic was much more central to ABehavioral Theory of the Firm.

Also, although March and Simon (1958) is predominantly adescriptive theory, it also makes occasional forays into theprescriptive domain, more than does Cyert and March(1963). However, the idea of organizational slack is moreimportant to Cyert and March (1963) than it is to Marchand Simon (1958), as is the idea of uncertainly avoidance.On the other hand, classical issues such as satisfaction, plan-ning and motivation are importance ingredients in March andSimon (1958), but less so in Cyert and March (1963).

But in both of these works, March and his early co-authors thus proposed to include a more inclusive range oflimitations on human knowledge and human computationthat prevent organizations and individuals in the real worldfrom behaving in ways that approximate the predictions ofneoclassical theory. For example, decision makers aresometimes confronted by the need to optimize several,sometimes incommensurable, goals (Cyert & March, 1963),goals that are unclear, changing, and to some degree endog-enous (March, 1978; March & Olsen, 1976). Furthermore, in-stead of assuming a fixed set of alternatives among which adecision maker chooses, March postulated a process for gen-erating search and alternatives and analyzing decision pro-cesses through the idea of aspiration levels (March &Simon, 1958), a process that is regulated in part by varia-tions in organizational slack (Cyert & March, 1963). Theseare all themes deeply embedded in today�s work in organiza-tion theory and strategy (Pierce, Boerner & Teece, 2002).

Some themes in later work

In March�s work after behavioral theory of the firm, the irra-tional and adaptive aspects of human behavior becomemore, not less prominent. (In Simon�s work, the theme ofbounded rationality remained central as he proceeded togo more into the psychology of decision-making.) With re-spect to the development of the field of organization stud-ies, it is also important to note that March became engagedin a project to identify some of the core research areas, dis-ciplinary approaches, and methodologies involved in thestudy of organizations as a field. Shortly after completingthese core books, March was the editor of the first Hand-book of Organizations (March, 1965).

Writing in the 1970s and 1980s, March also started to de-velop the point that one of the most important aspect ofbehavior and decision-making in organization was its essen-tial irrationality. The early phrase – that was used inMarch, Simon and Cyert�s work – of ‘‘bounded rationality’’did capture some of that, but March was interested inexploring not only the constraints on decision making thatthe less-than-fully-rational behavior constitutes, but alsothe more positive implications, thus understanding bothhow limits to rationality constrain as well as enable certaindecision making behaviors – the issue of learning, as well asidentity and rules driven behaviors, for example, result be-cause of human irrationalities, not despite them.

March worked on many parallel tracks, all of them cen-tral to the field of organizations. For example, March –along with Charles Lave – developed a set of ideas about

80 M. Augier

the art of formal modeling in the social sciences (Lave &March, 1975). Developed both as a class he taught at Irvineand a book, Introduction to Models in the Social Sciencesshowed his continuing interest in models.11 One student ofthe class (and reader of the book) reported that the class‘‘dazzled me with insight after insight about how relativelysimple logical and mathematical models of social phenom-ena like decision making, diffusion through social networks,trail and error learning, and economic exchange could beassembled and exercised to make powerful predictions ofmicro and meso-level organizational outcome that could,in turn, be tested, and the models progressively refined’’(Lewitt, 2010, p. 223). And the work on the handbook dem-onstrated (March, 1965) not only March�s continuing interestin the field, but also a maturing of the field itself; the factthat the field was ripe for a handbook signals that it had al-ready then elements of foundations and methods in place tobecome a more structured or systematic field of study. Thehandbook represented thus an important step in the profes-sionalization of the field of organizations and a visible paththat had begun by his early work with Simon and Cyert.

March�s later work on institutional and political theory,developed especially after March came to Stanford. Marchand Olsen (1989, 1995) saw institutions and organizationsas fundamentally social in nature, embedded in the largerinstitutional and historical context of which they are part.Like the more general work, the work on political institu-tions emphasizes the inefficiency of history, the ways inwhich history is path dependent and the ways in which ac-tion stems from social identities as much as from incentives.The notion that rules are central is brought to the forethrough an emphasis on action as stemming not from a cal-culation of consequences but from matching a situation torules of behavior.12

Also, his focus on rule and identity-driven behavior leadsnaturally to a concern with the ways in which rules changeover time. In recent work with Martin Schulz and XueguangZhou, March has explored the development of rules througha quantitative study of rule change over an extended periodof time (March, Schulz, & Zhou, 2000).

Another key theme in his later work is examining theproblems of achieving a balance between ‘‘exploration’’and ‘‘exploitation’’ (see, in particular, March, 1991,1996). Exploiting existing capabilities is full of rewards inthe short run, but does not prepare people for changes intechnologies, capabilities, desires, tastes and identities.For such preparation, exploration is necessary. Explorationinvolves searching for things that might come to be known,experimenting with doing things that are not warranted byexperience or expectations.

Throughout March�s work, a central question has beenthe way in which organizations and their decision makersdeal with and resolve uncertainties and ambiguities, both

11 Raymond Levitt (2010) notes that attending this class of March‘‘fired him up’’ to do applied social science research based onmodels of human behavior, and also significantly influenced hissubsequent work (‘‘pointed me down the intellectual path that Iwould follow or the next three decades’’) (p. 223).12 The ‘‘Stanford School’’ of organizations draws more heavily onsociology than March�s own work (and than earlier in the field); seethe contributions in Schoonhoven and Dobbin (2010). Many of thethemes and subareas however are overlapping (such as learning).

in goals and preferences and in environments, with whichorganizations are surrounded. As he emphasized in an arti-cle published in The Bell Journal of Economics:

‘‘Rational choice involves two kinds of guesses: guessesabout future consequences of current actions andguesses about future preferences for those conse-quences. Neither guess is necessarily easy. Anticipatingfuture consequences of present decisions is often subjectto substantial error. Anticipating future preferences isoften confusing. Theories of choice under uncertaintyemphasize the complications of guessing future conse-quences. Theories of choice under conflict or ambiguityemphasize the complications of guessing future prefer-ences’’ (March, 1978, p. 268–269).

Such foundational and path breaking ideas have beencentral to developing organization theory as well as certainsubfields within economics and management.

Closing

This paper has described some of the early intellectualfoundations for the field of behavioral organization theory,in particular through Simon and March�s work, and outlinedsome of the broad paths of Simon and March�s early visionand their establishment of an interdisciplinary behavioralorganization theory. Simon continued to develop these earlythemes as he proceeded to work on human problem solving,artificial intelligence, and other topics. ‘‘This was more ofthe same,’’ Simon noted (1988, p. 246), referring to therelations between his early work on organization theoryand decision making, and his later work on problem solving.Understanding the early evolution of Simon�s work thushelps us understand subsequent development of the fieldsto which he contributed. Decision making in organization re-mained the core. March�s work most explicitly continues toform central paths within organization studies and subse-quent contributions to sub-fields such as organizationallearning and strategy also acknowledge the intellectualdebt.

Finally, throughout the paper, I have pointed to theimportance of the time and place these developments tookplace in; Carnegie Mellon University�s GSIA was one of ahandful of post war institutions that became central todevelopments not just in management and organizationsbut in economics, behavioral social science, and many otherareas (Augier & March, 2011).

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Mie Augier an associate professor at the Naval Postgraduate Schooland Research Associate at Stanford. She works on research onorganizational behavior, culture, economics and security, strategy,and net assessment. She has published more than seventy articles injournals and books and co-edited several special issues of journalsand books. Hermost recent book is ‘‘The Roots, Rituals and Rhetoricsof Change’’ (With James March, Stanford University Press, 2011). Hercurrent research interests include: the history and future of orga-nization theory, net assessment; strategic management; the linksbetween economics and security; the development of an interdisci-plinary framework for strategic thinking & New Security Economics.