Comparison and design of organizational decision mechanisms

Abstract

Individuals with bounded rationality may make incorrect decisions regarding innovation projects. Organizational decision mechanisms aim to minimize the impact of individual fallibility and integrate collective wisdom. In recent years, consensus mechanism has posed a challenge to the traditional hierarchy, but its superiority in different decision scenarios is still unknown. We created decision scenarios based on positions (middle manager or grassroots employee) of the proposer of the innovation project, market volatility, and decision timeliness. Simulation results using Agent Based Modeling indicate the following: If the proposer is a middle manager and decision timeliness is unimportant, consensus in low-density networks is preferred; otherwise, hierarchy is preferred. If the proposer is a grassroots employee, the best-performing mechanism, in order, is consensus in low-density networks, consensus in high-density networks, and hierarchy as the discount interest rate increases. Market volatility drives the advance of the two critical points of the discount interest rate. Furthermore, we propose a hybrid organizational decision mechanism that can balance authority and consensus. It combines the high decision accuracy of consensus with the high decision efficiency of hierarchy, addressing the long decision time in consensus and the information asymmetry and information loss in hierarchy. Simulation results show that the proposed hybrid decision mechanism is only slightly inferior to consensus mechanism when market volatility is very low or decision timeliness is unimportant.