THE DECISION-MAKING PROCESS
Identification of a Problem
“My sales representatives need new computers!”
Identification of Decision Criteria
• Price
• Weight
• Warranties
• Screen type
• Reliability
• Screen size
Allocation of Weights to Criteria
Reliability ……………………………….. 10
Screen size ……………………………… 8
Warranties ……………………………… 5
Weight …………………………………… 5
Price ……………………………………… 4
Screen type ……………………………… 3
Development of
Alternatives
Analysis of Alternatives
Selection of an Alternative
Acer Compaq Gateway HP
Micromedia NEC Sony Toshiba
Acer Compaq Gateway HP
Micromedia NEC Sony Toshiba
Acer Compaq Gateway HP
Micromedia NEC Sony Toshiba
Implementation of the
Alternative
“Gateway!”
Evaluation of
Decision Effectiveness

OVERVIEW OF MANAGERIAL DECISION MAKING
Decision-Making Approach
• Rationality
• Bounded rationality
• Intuition
Types of Problems and Decisions
• Well structured—programmed
• Poorly structured—nonprogrammed
Decision-Making Conditions
• Certainty
• Risk
• Uncertainty
Decision-Making
Process
Decision
• Choosing best alternative
- maximize
- satisfy
- optimize
• Implementing
• Evaluating
Decision Maker’s Style
• Directive
• Analytic
• Conceptual
• Behavioral

Well-structured Problems
• Straightforward, familiar, and easily defined problems
• Clear goals
• Accessible and complete information
• Standard routine for handling it
• Programmed decision – repetitive decision handled by a routine approach
• ‘Develop alternatives” stage in the process, not necessary
• No need for long list of possible solutions

Well-structured Problems
• Requires systematic procedure, rule, or policy o procedure - a series of interrelated sequential steps used to respond to well-structured problems o rule – an explicit statement on what can or cannot be done o policy – a guideline that establishes parameters for making decisions

Poorly-structured Problems
• problems that are new or unusual and for which information is ambiguous or incomplete
• non-programmed decisions – unique & nonrecurring decision that requires custom-made solution
• no cut-and-dried solution

Integration
1- Relate types of problems & decisions to organizational level
• lower-level managers confront familiar & repetitive problems
• higher-level managers handle more difficult decisions
2- In real world, few problems are fully programmed or non-programmed
• programmed decisions do not eliminate individual judgment completely
• unique decisions can be helped by programmed routines
• check in which part of the continuum the problem lies
3- Organizational efficiency – helped by standard operating procedures (SOP)
• discretion can cost time & money
• minimize cost by hiring low skilled experienced workers with little experience, but develop SOPs

TYPES OF PROBLEMS, TYPES OF DECISIONS,
AND LEVEL IN THE ORGANIZATION
Poorly structured Top
Nonprogrammed
Decisions
Type of
Problem
Level in
Organization
Programmed
Decisions
Well structured Lower

Certainty
A situation for accurate decisions, with all outcomes known
Risk
Conditions for estimates of alternatives & outcomes
Uncertainty
Situation with neither certainty nor reasonable probability estimates available o use of limited information o psychological orientation – optimist or pessimist

Rational decision making
• Describe choices that are consistent and value maximizing within specified constraints.
Bounded rationality
• Behavior that is rational within the parameters of a simplified decision-making process, which is limited (or bounded) by an individual’s ability to process information.
 Satisficing
Acceptance of solutions that are “good enough.”
 Escalation of commitment
An increased commitment to a previous decision despite evidence that it may have been wrong.

ASSUMPTIONS OF RATIONALITY
• The problem is clear and unambiguous.
• A single, well-defined goal is to be achieved.
• All alternatives and consequences are known.
• Preferences are clear.
• Preferences are constant and stable.
• No time or cost constraints exist.
• Final choice will maximize payoff.
Lead to
Rational
Decision
Making

Intuition
• A subconscious process of making decisions on the basis of experience and accumulated judgment..

WHAT IS INTUITION?
Managers make decisions based on their past experiences
Managers make decisions on ethical values or culture
Values or ethicsbased decisions
Subconscious mental processing
Managers use data from subconscious mind to help them make decisions
Experience-based decisions
Affective-initiated decisions
Managers make decisions based on feelings or emotions
Intuition
Cognitive-based decisions
Managers make decisions based on skills, knowledge, and training

DECISION-MAKING STYLES
High
Analytic Conceptual
Low
Rational
Directive Behavioral
Way of
Thinking
Intuitive

Directive style – a decision-making style characterized by low tolerance for ambiguity and a rational way of thinking
Analytic style – a decision-making style characterized by a high tolerance for ambiguity and a rational way of thinking
Conceptual style – a decision-making style characterized by a high tolerance for ambiguity and an intuitive way of thinking.
Behavioral style – a decision making style characterized by a low tolerance for ambiguity and an intuitive way of thinking

"Thinking first" features the qualities of
"Seeing first" features the qualities of
"Doing first" features the qualities of
Science
Planning,
Programming the verbal facts art visioning, imagining the visual ideas craft venturing, learning the visceral experiences

“THINKING FIRST” WORKS BEST WHEN:
• The Issue is clear;
• The data is reliable;
• The context is structured;
• Thoughts can be pinned down; and
• Discipline can be applied

“SEEING FIRST” WORKS WHEN:
• Many elements have to be combined into creative solutions;
• Commitment to those solutions is key; and
• Communication across boundaries is essential as in new-product development.

“DOING FIRST” WORKS WHEN:
• The situation is novel and confusing;
• complicated specifications would get in the way; and
• A few simple relationship rules can help people move forward
For example, when companies face disruptive technology

DECISIONS IN THE MANAGEMENT FUNCTIONS
Planning
What are the organization’s long-term objectives?
What strategies will best achieve those objectives?
What should be the organization’s short-term objectives be?
How difficult should individual goals be?
Leading
How do I handle employees who appear to be low in motivation?
What is the most effective leadership style in a given situation?
How will a specific change affect worker productivity?
When is the right time to stimulate conflict?
Organizing
How many employees should I have report directly to me?
How much centralization should there be in the organization?
How should jobs be designed?
When should the organization implement a different structure?
Controlling
What activities in the organization need to be controlled?
How should those activities be controlled?
When is a performance deviation significant?
What type of management information system should the organization have?

Leavitt’s Diamond (1965)
Organization
Social Structure
Goal
Technology
Participants
Environment

1.
SOCIAL STRUCTURE
 Patterned or regularized aspects of the relationships existing among participants
 Analytically, can be classified into: a. Normative structure-organized, consistent and coherent set of beliefs



Values-criteria for selecting goals of behavior
Norms-general rules governing behavior
Roles-evaluative standards for assessing behavior in specific positions

b. Behavioral Structure: “factual” or actual recurrent behavior


Activities, interactions, sentiments
Power structure-patterns of influences

Sociometric structure-patterns of sentiments
 Two structures are interrelated, not independent not identical
 Behavior shape norms just as norms shape behavior dynamic tension
 Groups vary in normative and behavioral alignment
- Confusion, indeterminacy, unpredictability, conflicts
- Order and coordination, harmony
 Structural formalization
- Formal: explicit and defined positions and relationship
- Informal: characteristics of positions identified with characteristics of a person

2.
PARTICIPANTS or SOCIAL ACTORS
 Individuals who make contribution to the organization in return for a variety of incentives (inducements)
 Membership in several organization
 Varying degrees of extent and intensiveness of involvement
 Demographic characteristics impact on structure and function of organizations
 Structural features (opportunities; selection, retention and promotion criteria)impact on participants
 Social actors are primary; organization and structure are secondary
 Social structure is both medium and outcome, influencing actions and constituted by them
 Correct sociological bias : emphasis on power and weight of existing social structure while discounting importance of individual imagination and initiative

3.
GOALS
 Conceptions of desired ends
 Provide criteria for generating and selecting among alternative courses of action (cognitive)


Direction-setting
Decision-making

Action
 Source of identification and motivation for participants
(motivational)


Overcome opposition
Gain resources
 Source of significance for organizational audiences
(symbolic)


Publics,clients, regulators
Legitimacy, allies, resources, personnel

4.
TECHNOLOGY
 Focuses on the work done in an organization
 Energy applied to transform materials
 Mechanism for converting inputs into outputs
 Broad sense – not limited to material process or hardware; services, health, education
 Recent studies: relationship between technology and social structure

5.
ENVIRONMENT
 No organization is self-sufficient
 Survival depends on relations established with larger systems of which they are a part
 Some elements: physical, technological, cultural, social
 Environment influences the four organizational components
 The organizations can also influence the environment
 Interdependence between the environment and organization
 Elements of the organization form a system; we miss the essence of organization if we focus on any single feature to the exclusion of all others

1.
Rational System Definition
Organizations are collectives oriented to the pursuit of relatively specific goals and exhibiting relatively highly formalized social structures.
2.
Natural System Definition
Organizations are collectives whose participants share a common interest in the survival of the system and who engage in collective activities, informally structured, to secure this end.

3.
Open System Definition
Organizations are systems of interdependent activities linking shifting coalitions of participants; the systems are embedded in – dependent on continuing exchanges with and constituted by – the environments in which they operate.

Country Club
Management
Team Management
Supporting Coaching
Democratic Interdependent
Minimalist Management Authoritative
Management
Delegating Directing
Laissez-Faire Autocratic
Low
Task Orientation
High