This document summarizes the behavioral theory of organizational objectives proposed by Cyert and March in 1963. The theory makes several key assumptions, including that organizations behave in complex and changing ways due to the unstable preferences of coalition members and bounded rationality. Objectives are determined through three processes - bargaining, internal organization, and adjustment. Bargaining involves setting the coalition and general terms, while internal organization stabilizes and elaborates on objectives using mutual control systems. Adjustment occurs as experience changes demands and aspiration levels, which are based on historical achievement and peers. The theory views organizations as coalitions that determine objectives through these political and experiential processes rather than rational decision making.

1. A Behavioral Theory of
Organizational Objectives
Cyert & March 1963

2. An interview with Professor James G. March
(Sept 2013)

3. Assumptions
• About how organizations behave, not about how they should behave
• Process-focused
• Complex systems
• Changing, unstable preferences of coalition members
• Bounded rationality
• And concerning goals there is:
• Agreement on highly ambiguous goals
• Disagreement and uncertainty about subgoals
• No imperative, but rather aspirational goals changing based on experience
• Elaborations of objectives occur within tighter (eg time-)constraints

4. How are objectives of a coalition determined?
• Bargaining process: setting composition & general terms of the
coalition
• Internal organization process: stabilization and elaboration of
objectives
• Adjustment process: changes in objectives through
experience
Unit of analysis – Organizational choice (ie. company objectives)

5. Bargaining process facilitated through
• Side payments:
• A payment made to a party or parties to induce them to join
an agreement/coalition
• Monetary (eg employment) or policy commitments
• Attributes of the objectives during this process are:
• Imperfectly rationalized
• May exhibit aspiration-level constraints
• May be stated in a non-operational form

6. Bargaining process - an example – preferences
pertaining paintings of a village hall
Committee preferences: A B C D E F G H I
Abstract X
Impressionistic X X X
Monotone X X
Multicolored X X
Oval X X
Square X X
Paint Oil X X X
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Committee preferences: A B C D E F G H I
Abstract X
Impressionistic X X X
Monotone X X
Multicolored X X
Oval X X
Square X X
Paint Oil X X X
Size Small X X X
Style
Colors
Shape
Committee preferences: A B C D E F G H I
Abstract X
Impressionistic X X X
Monotone X X
Multicolored X X
Oval X X
Square X X
Paint Oil X X X
Size Small X X X
Style
Colors
Shape
• Formation isn’t based here on scarce
resources of side payments, but on
policy demand preferences

7. Internal organization process
Stabilization and elaboration of objectives
• Side payments agreements are incomplete
• They do not anticipate all possible future situations
• They do not identify all considerations of all coalition partners
• Still, member are motivated and use mutual control systems for enforcing them
• (Self-confirming) Mutual control systems
• Eg Budgeting – explicit elaboration of previous commitments representing a form of
mutual control
• Mutual control systems serve the elaboration and revision of coalition
agreements
• Past bargains become precedents for present situations (eg. Current budget =
precedent budget)
• Greater stability because of organizational precedents

8. Adjustment process
• Nature & # of demands made on coalition by individuals change with
experience, despite of stabilization and institutionalization
• Aspiration levels (AL) (=/= profit maximization) – propositions:
1. In a steady state, AL exceeds achievement slightly
2. Where achievement increases at an increasing rate, AL
exhibits short-run lags behind achievement
3. Where achievement decreases, AL is substantially above
achievement
• Aspiration levels are based on
• Historical achievement of participant/organization
• Achievement of peers/reference group

9. Adjustment process
• Organizational slack: excess resources
• Developed during favorable times
• When the environment outruns aspiration-level adjustment,
the organization can secure resources in excess of its demands
• Used in less favorable times
• Represent a ‘cushion’: resource scarcity brings on renewed bargaining and tends to cut
heavily into the excess payments introduced in more favorable times
• Attention to goals
• Experience changes focus of attention
• Simultaneous vs. sequential attention to goals
• Seemingly contradictory goals

10. Astley & Van de
Ven (1983)
Behavioral
Theory
• Micro<organizational
choices<Firm’s objectives
<Industry<Macro
• Slightly deterministic and
voluntaristic?
• Assumptions of behavorialism
• The environment selecting
coalitions

11. Discussion
• Does availability of easily digestible information will help overcome
organization’s bounded rationality & precedent based decision-
making?