March & Simon (1958)

Citation: March, J. G., & Simon, H. A. (1958). Organizations. Wiley.

March and Simon’s Organizations is a foundational text in organizational theory. It introduces bounded rationality as a core assumption: individuals and organizations cannot process all information or optimize perfectly, so they rely on simplified decision rules and routines.

The book challenges the classical view of organizations as perfectly rational machines. Instead, it portrays organizations as systems of satisficing—settling for solutions that are good enough given limited information, time, and cognitive capacity.

Key ideas include:

1) Bounded rationality: Decision‑makers face cognitive limits and imperfect information. They simplify problems and search until they find an acceptable solution rather than the optimal one.

2) Organizational routines: Because perfect optimization is impossible, organizations create standard operating procedures. These routines conserve attention and stabilize decision‑making but can also lock in outdated practices.

3) Attention as a scarce resource: Organizations must allocate attention across competing tasks. This shapes what problems get noticed and which get ignored.

4) Hierarchy and specialization: Hierarchies exist to manage complexity by narrowing the scope of decisions at each level. Specialization creates efficiency but also coordination costs.

March and Simon also analyze how conflict and cooperation arise within organizations. Members have different goals and perspectives, so organizations must design structures that channel these differences into workable outcomes. This leads to mechanisms like authority, incentives, and communication systems that reduce conflict but also constrain individual autonomy.

The book has strong implications for how organizations adapt (or fail to adapt) to changing environments. Because routines and bounded rationality limit flexibility, organizations can become rigid even when external conditions shift. Adaptation often occurs through incremental adjustments rather than sudden optimization.

March and Simon’s work laid the intellectual foundation for later theories of organizational learning, behavioral economics, and decision science. It also provides a framework for understanding coordination costs: the very mechanisms that make organizations efficient (routines, hierarchy, specialization) can create friction and delay in complex environments.

Real decision‑making is constrained by limited information and cognitive capacity. Organizations cope through routines, hierarchy, and satisficing. The outcomes reflect practical compromises rather than theoretical optima—not because organizations are broken, but because that is what rationality looks like under real constraints.