Rational vs. Holistic Business Decisions – A False Dichotomy


This piece is the kind of article that tries to discuss something important but ends up presenting a false dichotomy. It's the kind of thing that leads to management fads at their worst.

When complicated decisions have to be made — whether about salaries, layoffs or growth strategy — executives often rely on their underlying values to help them sort through possible options. Profit maximization and rationality form the basis of one such set of values, one frequently used by executives when making these decisions.

"By making things quantifiable and rational, executives can have more confidence in their decisions, even when they create uncomfortable outcomes," explains Nathan Washburn, a management researcher currently finishing up his Ph.D. at the W. P. Carey School of Business. "But when it comes to working for these executives, that way of thinking might turn their employees off."

That unsettled feeling about the calculated nature of rational decision making, with its emphasis on profits as guiding principle, inspired Washburn to launch a study about rational decision making. Although it is the dominant management value set today, could rational decision making actually harbor faults? And, could a less widely accepted, but more forward-thinking, "holistic" approach to management decision making turn out to be more effective?

Sounds like it could be interesting right? Except that, for one, "holistic" has vague connotations of pseudoscientific mumbo jumbo. I can easily see a guru using this to discuss the flows of spiritual energy through your business and how karma and feng shui affect profitability. Rationality is already in short supply in the business world and this just gives managers more reason to keep ignoring it.

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The other problem is that the article assumes that rationality means an exclusive focus on the bottom line, and that just isn't the case. I don't know a manager in their right mind who would pursue a "rational" strategy that would increase profits (at least, on paper) while making employees miserable. Why not? Because causing misery for your employees is irrational and does affect the bottom line.

I agree that profit maximization is a good business goal, but that is because maximizing profit really focuses on three things:

1. Happy customers who are buying your product
2. Happy employees that are productive, hard-working, and customer focused
3. Happy investors who are getting a good return on their invested capital

Too often, profit maximization is treated as some mathematical exercise that ignores customers and employees and only considers shareholders. But to appease shareholders with good returns, you need happy customers and employees. Consider this just another example of why business research and business journalism should always be taken with a grain of salt

  • I have written quite a lot about happiness, and to me it must make up the core of any business philosophy of any business that wants to maximize its potential.