Decision-making in organizations is rarely about choosing between clear options. Leaders work with incomplete information, finite attention, competing priorities, and the constant pressure of time, yet decisions still have to be made.
Herbert A. Simon, a Nobel laureate in Economic Sciences (1978), proposed a framework for navigating exactly this. In The New Science of Management Decision (1960),² he broke decision-making into three connected stages and argued that the discipline can be learned, structured, and improved over time. His work was among the earliest to treat decision-making as a foundational area of management research, and it still shapes how organizations approach the process today.¹,²
Why is decision-making challenging in organizations?
Simon argued that decision-making is challenging because leaders must navigate a world defined by limits. Information is never complete, attention is finite, environments shift quickly, and organizational goals often compete for priority. Time pressure only adds to this complexity.²
Within these constraints, Simon observed that no leader can achieve perfect rationality. Instead, they make choices that are reasonable, workable, and aligned with the realities they face. This understanding of bounded rationality has shaped modern thinking in management and behavioural economics, reminding us that effective decisions are not about perfection but about sound judgment under real-world conditions.²,³
What happens in the three stages of decision-making in organizations?
Simon breaks down the principal phases of decision-making into three key stages where executives devote much of their time: intelligence, design, and choice.2,4 He emphasizes that these are not isolated moments but dynamic, interlinked activities that shape how organizations operate.
Stage one: Intelligence
The decision-making process begins with the intelligence stage, where leaders identify and define the problem at hand. They scan their environment, gather information, and analyse emerging signals to clarify the issue’s nature and urgency.2 For instance, a financial institution experiencing client attrition might review feedback, market trends, and internal data to pinpoint the underlying causes.
Stage two: Design
Once the problem is clearly defined, decision-makers move into the design stage. Here, they generate potential solutions and test them for feasibility, cost, risk, and strategic fit.2 Using tools such as forecasting and scenario analysis, they evaluate which options are most likely to deliver meaningful impact.
Stage three: Choice
In the final stage, leaders select the option that best aligns with their objectives and constraints. Simon underscores the balance between analysis and informed judgment, especially when information and time are limited.2 For example, an institution may prioritize expanding into a growing market segment to capture future opportunities, even if competing strategies appear attractive.
What are the types of decisions in organizations?
Having outlined how decisions are made, Herbert Simon also addressed what kinds of decisions leaders confront. He distinguished between programmed and non-programmed decisions, presenting them as two ends of a continuum rather than opposing categories.4
- Programmed decisions are routine and repetitive, managed through established processes or automated systems. Examples include daily trading limits or compliance checks in financial firms.
- Non-programmed decisions, by contrast, are unique and complex, calling for judgment, creativity, and deeper analysis. Launching a new investment product or entering an emerging market are typical examples.2,4
Understanding where a decision sits along this continuum helps organizations allocate the right expertise and resources, strengthening both the quality and agility of decision-making.
Can leaders learn to make better decisions?
One of Simon’s most compelling insights is that effective decision-making is not an innate talent reserved for a gifted few. He challenged the familiar assumption that strong decision-makers are “born,” comparing this belief to the notion that great athletes succeed purely through natural ability.2 In reality, as he argued, skill in any discipline, whether in sports or management, is shaped by learning, practice, and experience.2
Within the economist’s framework, the activities that define the intelligence, design, and choice stages are all skills that can be developed.2 This means leaders are not confined by their natural abilities; organizations can actively strengthen these capabilities through training, structured development, and deliberate exposure to complex problems. In fact, because decision-making sits at the core of their responsibilities, those in leadership roles require this form of targeted training even more.2
Final thoughts: why strong decision-making matters for leaders
Beyond individual capability, Herbert Simon reminded us that leadership is not only about making good decisions personally. It is also about shaping an environment where others can do the same. Executives carry the responsibility of ensuring that teams have the clarity, information, and structure needed to make sound choices at every level of the organization.2
When leaders build strong information systems, establish clear governance, and promote thoughtful, evidence-informed processes, they create an organization where good decisions are the norm rather than the exception. In this way, decision-making becomes a shared organizational discipline, not just the skill of a select few.2
To explore related perspectives on decision-making and leadership, visit UBS Nobel Perspectives & Economic Views for engaging discussion and practical insight. Our platform brings together ideas informed by Herbert Simon and other Nobel laureates across economics and decision science.
References
- Nobel Prize Outreach.Herbert A. Simon – Biographical. NobelPrize.org, 2025.
- Simon HA. The new science of management decision. Harper & Brothers, 1960.
- Wheeler G.Bounded Rationality. In: Zalta EN, Nodelman U, editors. The Stanford Encyclopedia of Philosophy (Winter 2024 Edition). Stanford University, 2024.
- March JG, Simon HA.Organizations. Wiley, 1958.