Rationality is a popular object of contemporary research. Dozens of philosophers in organization studies sought to understand the nature of rationality, its significance, and implications for organizational development and performance. Much has been written and said about the main antecedents of rationality in organizations and the role which rationality could play in organizational growth. Nevertheless, until present, no single definition of rationality within organizations has been coined. Present-day philosophy of organizations relies on the principles of diversity and relativism, which means that philosophers, business owners, HR managers, and employees develop diverse opinions about rationality, its nature and implications for organizational performance. It is no wonder that outstanding philosophers and economists, including Paul J. DiMaggio and Walter W. Powell, Diane Vaughan, Max Weber, and Oliver E. Williamson, have their own views on organizational rationality. While DiMaggio and Powell assume that rationality is synonymous to organizational homogenization and structuration, Diane Vaughan interprets rationality as a complex product of multiple social influences. Weber associates rationality with efficiency and calculability, and Williamson believes in bounded rationality that is directly related to the concepts of contracting and transactional costs. Despite these differences, it is clear that rationality is inseparable from the fundamental organizational functions and operations: the implicit intent of rationality is to help organizations deal with uncertainty and risks, although it does not guarantee perfect performance outcomes and does not secure organizations from losses and failures.
Rationality is both a form and instrument of organizational and public control. This is one of the central assumptions about rationality affecting today’s organization science. Max Weber, one of the most outstanding philosophers of all times, was convinced that “rationality spirit ushered in by asceticism had achieved a momentum of its own and that, under capitalism, the rationalist order had become an iron cage in which humanity was […] imprisoned perhaps until the last ton of fossilized coal is burnt” (DiMaggio & Powell 243). In other words, rationality for Max Weber is both an instrument of risk management and resource control for organizations and a phenomenon that unites organizations and individuals in their striving to reduce their risks and uncertainty by all possible means. As a result, rationality gives rise to bureaucracy, which is intended to help organizations become more efficient and improve their performance. Consequently, improved performance strengthens organizations’ competitive position, ensures greater organizational control over tangible and intangible resources, including human assets, and guarantees that organizations operate within the legal and institutional boundaries set by the state (DiMaggio & Powell 243; Weber 18).
Weber associates rationality with impersonality and calculability (22). Bureaucracy, as rationality’s principal manifestation, means that businesses rely on impersonal rules and disregard personal interests. As mentioned earlier, all this is done with the single goal of achieving greater efficiency and competitiveness in the market. According to Weber, to be rational for organizations means to avoid any personalization in the development and allocation of human assets: technical knowledge and not personal ties or individual privileges predetermine the way bureaucratic functionaries are appointed to their positions (Weber 22). For Weber, depersonalization and dehumanization are the key prerequisites of effective organizational decision making (Weber 22). This is, actually, what is happening in contemporary organizations: organizational conduct is rule-bound; organizational hierarchies allow for greater control over decision making; incumbents cannot appropriate their official positions within organizations; and all decisions, acts, rules, and goals are formulated in writing (Weber 18). These are the main features of bureaucracy (read: rationality) in organizations.
In Weber’s view, rationality can be attributed to three related causes. These causes were cited and discussed by DiMaggio and Powell; they are: (1) market competition; (2) competition among states; and (3) the need for equal protection under the law (243). At the heart of Weber’s rationality is the importance of rule-bound decisions that place organizations into a legal and legitimate business framework. Firms expect that, by being rational and rule-bound in their decisions, they will protect themselves from the risks of unfairness and injustice in the market. They expect to have equal chances with other firms to pursue their market objectives. However, it is interesting to note that, like his contemporaries and followers, Max Weber does not speak about rationality as a finished product. Weber recognizes that rationality is an inseparable component of organizational performance, but he does not guarantee perfect results. For Weber and many other philosophers, including Vaughan and Williamson, rationality is a process in which firms engage voluntarily for the purpose of strengthening their competitive standing and reducing the scope of uncertainty and business risks.
Oliver E. Williamson also emphasized that rationality and organizational performance are inseparable. According to Williamson, rationality is closely associated with the concepts of objectivity, efficiency, and profit-maximization (276). All human agents are subject to bounded rationality (Williamson 278). In this sense, the work of Williamson echoes that of Max Weber. However, Williamson seems to have a more realistic view of rationality, compared to its idealistic representation in Weber’s writing. Although Weber recognizes the importance of various contextual factors and their effects on organizational performance, it is Williamson who discusses these contextual disadvantages in detail. Williamson writes that full rationality of organizational decisions cannot be achieved (278). Organizations that seek to develop better business relationships through contracting cannot secure themselves from the risks of failure, as it is virtually impossible to deal with the complexity of all contractual obligations (Williamson 278). Simply put, the organizational and market realities are too complex to enable complete contracting and perfect rationality (Williamson 278). At best, contracting, as a manifestation of organizational rationality, will always be incomplete (Williamson 278).
Like Weber and other contemporaries, Williamson views rationality as a process subject to multiple social influences and risks. For this reason, Williamson does not guarantee that rational decision making will necessarily lead firms to achieve the best possible outcomes. Opportunism is the central barrier to perfect rationality, and it occupies a special place in Williamson’s work. Williamson recognizes that organizations operate in an open, networked environment, and they cannot be confident that their agents and partners are trustworthy and reliable (278). Rationality cannot be effective or complete if certain economic actors happen to be dishonest for their own sake (Williamson 278). With the growing specificity of organizational assets, the risks of dishonesty and uncertainty also increase (Williamson 279). Nevertheless, the promise of rationality as a tool of reducing uncertainty in business should not be disregarded. In Williamson’s view, rationality is intended to reduce transaction costs mainly through contracting.
The theme of social influence is common for all writings on rationality. Like Max Weber and Oliver E. Williamson, Diane Vaughan discusses rationality in contextual terms. Actually, Vaughan’s rationality is fully contextual: it is a product of numerous social influences driven mainly by the contextual changes affecting organizations’ performance. Vaughan claims that “the choices people make tend to be rational within situational contexts”, and this is the foundational pillar of her rational philosophy (444). The presence and complexity of the social context does not diminish the role of any particular organization as a locus of decision making control (Vaughan 445). However, social context always shapes individual decisions (Vaughan 445). What has been implicitly assumed by Weber and Williamson becomes explicit in Vaughan’s work, turning rationality into a socially justified process with no guaranteed outcomes.
Like Williamson, Vaughan talks about bounded rationality and the flaws inherent in de-contexualized decision making (445). Like Weber, Vaughan emphasizes the potential of organizational rationality to reduce business and market uncertainty (445). However, Vaughan goes further to openly state that rationality can be flawed. The Challenger case implies that the social context and its effects on rationality can be severely misleading. On their way towards greater efficiency and reduced uncertainty, organizations may erroneously assume that flaws, failures, and mistakes are indispensable elements of their progress (Vaughan 453).
Vaughan refuses to accept a totally impersonal view of rationality promoted by Weber (22). If rationality is a product of social influences and formulates in a given social context, then individual interactions taking place in this socially organized setting play a decisive role in the development and implementation of rational decisions. Based on what Vaughan writes in her paper, firms should be prepared to deal with the flaws and failures caused by rational decision making. Vaughan asserts that punishment is not a sufficient measure of dealing with the shortcomings of rationality (454). Firms can enhance the quality and efficiency of their operations and decisions only if they pay more attention to the nature and criteria of the legal and social norms imposed on them (Vaughan 454). This assumption reflects the principles of rationality expressed by Max Weber, who votes for norm-bound conduct: organizations need to understand the meaning of norms and their implications in order to follow them without any risks of social damage.
Standing aside is the rationality argument developed by DiMaggio and Powell. Like their contemporaries, DiMaggio and Powell interpret rationality as a good way to deal with uncertainty in business, but their rationality has nothing to do with Weber’s efficiency or profit maximization. In DiMaggio and Powell’s view, isomorphism and homogenization of firms are the principal manifestations of rationality in organizational environments (244). DiMaggio and Powell contend that firms have already achieved the desired level of bureaucratization and present-day rationality, driven by coercive, mimetic, or normative factors, is a constraining process that forces organizations to resemble other organizational units facing similar difficulties and market conditions (245). In this sense, DiMaggio and Powell also support the contextual view of organizational performance proposed by Vaughan and supported by Weber and Williamson.
One of the most important questions is how firms contribute to and expand human rationality. There is no definite answer to this question. Based on the works of DiMaggio and Powell, Vaughan, Weber, and Williamson, it is possible to assume that organizations popularize rationality and recognize its validity in reducing uncertainty and dealing with the challenges posed by the environment in which they operate. If rationality is the same as isomorphism and homogenization of firms, then organizations greatly contribute to the development of rational thinking models through “formal and informal pressures exerted on organizations by other organizations upon which they are dependent” (DiMaggio & Powell 245). Rationality is an indispensable element of doing business, and all organizations seek fairness and equality in their relations with other organizations. This is why, in organizational environments, human rationality becomes more organized and norm-bound, turning into one of the central processes that lead organizations to the desired goals.
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Rationality is a popular subject of research and analysis. DiMaggio and Powell, Vaughan, Weber, and Williamson presented their views of rationality and its implications for organizations. Based on their writings, it is clear that rationality is inseparable from the fundamental organizational functions and operations: the implicit intent of rationality is to help organizations deal with uncertainty and risks, although it does not guarantee perfect performance outcomes and does not secure organizations from losses and failures. However, differences in the way philosophers interpret human and organizational rationality should not be ignored. For example, while Weber associates rationality with organizational efficiency, DiMaggio and Powell claim that rationality is synonymous to homogenization and organizational isomorphism. Despite these differences, all organizations contribute to the popularization and normalization of human rationality, making it more organized and rule-bound.