Chapter Twelve
Decision-Making Processes
Thomson Learning
© 2004
12-1
Today’s
Business Environment
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New strategies
Reengineering
Restructuring
Mergers/Acquisitions
Downsizing
New product/market development
. . . Etc.
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© 2004
12-2
Decisions Made Inside the
Organization
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Complex, emotionally charged issues
More rapid decisions
Less certain environment
Less clarity about means/outcomes
Requires more cooperation
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12-3
A New Decision-Making
Process
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Required because
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no one person has enough info to make all
major decisions
No one person has enough time and
credibility to convince many
Relies less on hard data
Guided by powerful coalition
Permits trial and error approach
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12-4
Steps in the Rational Approach to
Decision-Making
Implement
Chosen
Alternative
Choose
Best
Alternative
Evaluate
Alternatives
7
6
8
5
Develop
Alternative
Solutions
Monitor
Decision
Environment
1
4
2
3
Define
Decision
Problem
Specify
Decision
Objectives
Diagnose
Problem
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12-5
Constraints and Trade-offs
During Non-programmed Decision-Making
Bounded Rationality:
Limited time, information,
resources to deal with complex,
multidimensional issues
Trade-off
Trade-off
Trade-off
Decision/
Choice:
Personal Constraints:
Desire for prestige, success;
personal decision style; and
the need to satisfy emotional
needs, cope with pressure,
maintain self-concept
Trade-off
Search for
a high-quality
decision
alternative
Organizational Constraints:
Need for agreement, shared
perspective, cooperation,
support, corporate culture and
structure, ethical values
Sources: Adapted from Irving L. Janis, Crucial Decisions
(New York: Free Press, 1989); and A. L. George, Presidential
Decision Making in Foreign Policy: The Effective Use of
Information and Advice (Boulder, Colo.: Westview Press, 1980).
Trade-off
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12-6
Choice Processes in the
Carnegie Model
Uncertainty
Information is
limited
Managers have
many constraints
Conflict
Managers have
diverse goals,
opinions, values,
experience
Coalition Formation
Hold joint discussion
and interpret goals
and problems
Share opinions
Establish problem
priorities
Obtain social support
for problem, solution
Search
Conduct a simple,
local search
Use established
procedures if
appropriate
Create a solution
if needed
Satisficing
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Adopt the first
alternative
that is acceptable
to the coalition
12-7
The Incremental Decision
Process Model
·
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Identification Phase
 Recognition
 Diagnosis
Development Phase
 Search
 Screen
 Design
Selection Phase
 Judgment (evaluation – choice)
 Analysis (evaluation)
 Bargaining (evaluation – choice)
 Authorization
Dynamic Factors
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12-8
Learning Organization Decision Process When
Problem Identification and Problem Solution Are
Uncertain
PROBLEM IDENTIFICATION
PROBLEM SOLUTION
When problem identification is
uncertain, Carnegie model applies
When problem solution is
uncertain, Incremental process
model applies
Political and social process is
needed
Incremental, trial-and-error
process is needed
Build coalition, seek agreement,
and resolve conflict about goals
and problem priorities
Solve big problems in little steps
Recycle and try again when
blocked
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12-9
Illustration of Independent Streams of Events in
the Garbage Can Model of Decision-Making
Problems
Solutions
Middle Management
Participants
Problems
Solutions
Choice
Opportunities
Participants
Choice Opportunities
Participants
Choice Opportunities
Department A
Solutions
Department B
Problems
Solutions
Choice
Opportunities
Participants
Choice
Opportunities
Problems
Solutions
Choice
Opportunities
Participants
Solutions
Problems
Participants
Problems
Participants
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Problems
Solutions
Participants 12-10
Contingency Framework for Using
Decision Models
Problem
Consensus
Certain
Certain
Solution
Knowledge
1
Individual:
Rational Approach
Computation
Organization:
Management Science
3 Individual:
Judgment
Trial-and-error
Uncertain
Organization:
Incremental Decision
Process Model
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© 2004
2
Uncertain
Individual:
Bargaining, Coalition
Formation
Organization:
Carnegie Model
4 Individual:
Bargaining and Judgment
Inspiration and Imitation
Learning Organization:
Carnegie and Incremental
Decision Process Models,
Evolving to Garbage Can
12-11
Experiential Learning
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Organizations are
 routine-based
 history-dependent
 adaptive incrementally
to past experience
As a result, experiential
organizational learning
processes are
 localized in space and
time (local search)
 strongly history
dependent
(momentum)
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12-12
Vicarious Learning
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Learning is based
on competitors’
choices and known
outcomes
“Success” can be
objectively
assessed (Rankings)
but often a proxy
is selected (Size)
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12-13
Absorptive Capacity

Cohen & Levinthal’s (1990)
insight that organizations
are prone to inappropriate
generations from vicarious
learning if they have not
accumulated sufficient
experiential learning
themselves to make sense
of the information which
they gather from industry
peers
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12-14
Inappropriate
Generalization
From Vicarious
Learning
Increasing
Experiential
Knowledge
Stocks
C
Experiential X
Vicarious
Interaction =
Acquisition
Success
Organizational Absorptive
Capacity Threshold
Experiential Knowledge Lower
Limit
A
B
Inappropriate
Generalization
From
Experiential
Learning
Inappropriate
Generalization
From Vicarious
Learning if Exper
Learning is
Inadequate
B
A
C
Industry
Experience
Threshold:
Vicarious
Knowledge
Lower Limit
Increasing
Vicarious
Knowledge
Stocks
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© 2004
12-15