Chapter 11
Decision Making
Gabriella Morzi, Jill Hodgins, Sai Tian
Chapter Overview
• Definitions
• Individual Decision Making
• Special Decision Circumstances
• Organizational Decision Making
• The Learning Organization
• Contingency Decision-Making Framework
• Closing Thoughts
Decision Making in Today’s Environment
Definitions
Two major stages:
• Problem identification stage
• Problem solution stage
Two categories of organizational decisions:
• Programmed decisions
• Non-programmed decisions
Individual Decision Making
• One manager decides on problem identification and problem
solution
Consists of:
• Rational approach
• Bounded rationality approach
Rational Approach
Steps:
1.
2.
3.
4.
5.
6.
7.
8.
Monitor the decision environment
Define the decision problem
Specify decision objectives
Diagnose the problem
Develop alternative solutions
Evaluate alternatives
Choose the best alternative
Implement the chosen alternative
Rational Approach Framework
Example: Rational Decision Making Process
Beginning: In this
session, we have many
perspectives and
models to introduce
Goal: To help the class
understand this session
and to have a better
mark for us as session
leader
Decision: Should I use a
chart to help the class
better understand how
the decision session fits
into our course?
Alternatives: NO
ALTERNATIVE!
Solutions: Yes, because
it can actually help and
Trevor Loves it!
Remember the Rational Process?
• Overviewing the data and evaluating the chosen decision
Bounded Rationality Approach
• Less formal approach to individual decision making
Consists of:
1. Constraints & trade-offs
2. Role of intuition
Bounded Rationality Approach
• Constraints and Trade-offs
Bounded Rationality Approach
The role of intuition:
• Uses experience and judgment to make decisions
• A 2002 survey found that 45% of corporate executives say they
rely more on instinct than on facts and figures to make business
decisions
• New research dictates that most managers are making
decisions with intuition and figures
Organizational Decision Making
• Many managers giving their input on problem
identification and problem solution.
Consists of:
•
•
•
•
Management Science
Carnegie Model
Incremental Decision Process
Garbage Can Model
Management Science
• Uses mathematical models for a quantitative approach
• Used when variables can be analyzed and measured
• Inputs variables to compare them and pick most the
appropriate alternative
• i.e. Hotwire Hotels
Limitations
• Doesn’t account for human oversight & judgment
• Quantitative data might not be sufficient enough
• Important qualitative factors can’t be accounted for
Appropriate To Use When…
• Structure: mechanistic & vertical
• Goals: efficiency & productivity
• Culture: mission
• Environment: simple + stable
• Strategy: defender
• Innovation: incremental change
• Life Cycle Stage: formalization
Carnegie Model
• Decisions are made from several managers through a coalition
• Consensus is reached regarding what the main goals and
problems are
• Coalition is important because
• Operational goals are ambiguous
• Difficult to agree on what problems to prioritize
• Limitations in human cognitive abilities
Limitations
• Coalition building: outcomes are subjected to organizational
politics
• Managers have to do bargaining to convince others there’s a
problem
• Leads to satisficing performance
• Problemistic search yields low quality solution
Appropriate To Use When…
• Structure: mechanistic & vertical
• Goal: efficiency & overall performance
• Culture: bureaucratic → mission
• Environment: complex + stable
• Strategy: reactor
• Innovation: incremental change
• Life Cycle Stage: elaboration
Incremental Process
• Examines the series of sequential events that takes place from the
problem identification stage to the problems solution stage
• Usually small decisions made over a lengthy period of time to reach
final outcome
• Decision interrupts
• Decision loops
• Moves through 3 stages:
• Identification
• Development
• Selection
Identification Phase
Initial stage moves through 2 steps:
1. Recognition: manager becomes aware of a problem or
opportunity.
2. Diagnosis: sufficient information has been gathered on the
issue. Will move further systematically or informally
depending on severity.
Development Phase
• Solution starts forming
• Search procedures are used if this problem has come up before
• A custom solution is made if it’s a new problem; trial and error
Selection Phase
• Solution that is feasible is picked
• Final authorization is required
• 3 methods to picking:
• Judgment
• Analysis
• Bargaining
Limitations
• Can be very time consuming (i.e decision loops)
• Employees can become frustrated and discouraged if higher
level management doesn’t authorize final decision
Appropriate To Use When…
• Structure: organic & horizontal
• Goals: overall performance, growth, innovation
• Culture: adaptability
• Environment: simple + unstable
• Strategy: prospector
• Innovation: radical change
• Life Cycle Stage: collectivity
The Learning Organization
• Approaches are used when there is a heavy level of uncertainty
in both the problem identification and problem solution.
• Consists of:
• Combining Carnegie & Incremental
• Garbage Can Model
Carnegie & Incremental
• Combining of the 2 approaches
• Carnegie is useful in problem identification stage; coalition agrees which
problems to prioritize
• Incremental is useful in problem solution stage; take small steps and
compare outcomes
• i.e MediaNet Digital
Appropriate To Use When…
• Structure: organic & horizontal
• Culture: clan
• Environment: unstable + complex
• Innovation: radical change
The Garbage Can Model
• Focuses on whole organization and flows or patterns of
ongoing decision making process
• Describes decision making processes, but isn’t really a tool
• Shows relationship between 3 concepts:
• Organized Anarchy
• Streams of Events
• Consequences
Organized Anarchy
Characterized by:
• Problematic preferences
• Unclear, poorly understood technology
• Turnover
Streams of Events
4 streams:
•
•
•
•
Problems
Potential solutions
Participants
Choice opportunities
Consequences
4 specific consequences:
• Solutions proposed for non-existent problems
• Choices made, but no problems solved
• Problems persist without being solved
• A few problems are solved
When, Where or Why???
• Environment
unstable + complex = uncertain
• Goals
effectiveness, innovation
• Strategy
differentiation
• Structure
Learning organization
extremely organic, horizontal
• Life Cycle Stage
entrepreneurial stage
• Culture
clan culture or adaptability
Preventative Measures:
• Define goals
• Add some structure; collaborative managerial role
• Strong interaction with external environment to make
knowledgeable, relevant decisions
• Use clan controls and develop a strong clan culture, with
dynamic, charismatic leadership
Contingency Decision-Making Framework
Contingency Decision-Making Framework
Consists of 2 Dimensions:
• Problem consensus
• Technical knowledge
Problem Consensus
The degree to which managers agree on:
1. What the problem or the possible opportunity is
2. What outcomes, goals and objectives to focus on
Technical Knowledge
The degree to which managers understand and agree on:
1. How to solve problems and reach goals
2. The methods or tools available
Special Decision Cricumstances
Can Include:
• High-velocity environment
• Decision mistakes and learning
• Escalating commitment
High-Velocity Environment
• The rate of competitive and technological change is so extreme
that market data is either unavailable or obsolete
• Strategic windows open and shut quickly, perhaps within a few
months
• The cost of poor decisions can result in failure to meet
company goals
High-Velocity Environment
Point-Counterpoint: A tool that helps managers make decisions
in a limited time:
• Divides decision makers into 2 groups and assigns them different,
often competing, responsibilities
• The groups develop and exchange proposals and debate options
until they arrive at a common set of understandings ensuring
diverse opinions are considered
Decision Mistakes and Learning
• Decisions can result in many errors, especially when made in
conditions of great uncertainty
• Decision makers should see mistakes as an opportunity to learn
• i.e. Student/professor feedback loop
Escalating Commitment
• Commit to a mistake, even when its failing
• Tends to do more harm than good
• Decision makers can’t accept failure
Closing Thoughts
• Decision making has many facets and is not a perfect process
• Social processes play a large role in decision making
• Degree of certainty & agreement determine best approaches to
decision making