Cyert and Marsh Model

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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Cyert and Marsh Model