Coordination, Organizational Boundaries and Fads in Business Practices

Management literature focuses on two modes of coordination: formal and informal structures. Informal structure grants significant discretion to individual actions. Yet two impediments are related to such flexibility, those created by opportunism and those created by convergent expectations. Impediments arising from convergent expectations exist when the expectations of all members of an interdependent system are not properly aligned. We use non-cooperative game theory to provide a foundation for the study of convergent expectations. We argue that the incentive to free-ride on the contributions of others is not a necessary condition for generating a lack of convergent expectations, and apply the issue of convergent expectations to both the organizational issues of optimal group and firm boundaries and to the role of managerial practices such as Total Quality Management (TQM). Building on research from organization theory, social psychology and game theory, the paper ties the idea of convergent expectations to the grouping dilemma of the trade-off between higher coordination within groups and lower coordination between groups. We argue that this grouping dilemma can serve as a basis for determining the actual boundaries of both groups in organizations and the organization itself. Examining the role of fads in business practices, we conclude that, however suspect their underlying value as decision aids may be, these practices can serve as useful coordination mechanisms.