Effective Leadership
Decision Making
Module 5
William Harrington, PhD, PE, MBA
Module 5 Learning Objectives
• Note: Take EM 645 to learn more about decision making
• Explain how decision making is an activity of leading in the P-O-L-C
framework
• Articulate the key causes to making faulty decisions
• Differentiate individual and group decision making
• Identify how to improve decision-making
• Discuss the factors to consider in deciding how to source
Module 5 Outline
• Decision Making and Types of Decisions
• Decision Making Approaches
• Creativity
• Leveraging P-O-L-C Tactics to be Creative
• Bias and Other Challenges in Faulty Decision Making
• Individual and Group Decision Making
• Groupthink
• Tactics for Making Better Decisions
• Sourcing Decisions and Considerations
• Using the COAR Model to Guide Sourcing Decisions
Decision Making and Types of Decisions
• Definition: Decision making refers to making choices among alternative
courses of action—which may also include inaction. – University of
Minnesota (2015)
• Many factors may need to be considered in deciding
• Legal, ethical, performance, moral, etc.
• Types of decisions
• Programmed: Can be automated
• Nonprogrammed: Require critical thinking
• Note: As the world becomes more digital, many nonprogrammed decisions are
becoming programmed
• Three levels of decisions
• Strategic, Tactical, Operational
Three Levels of Decisions
Level of Decision
Examples of Decision
Who Typically Makes Decisions
Strategic Decisions
•
•
•
Should we merge with another company?
Should we pursue a new product line?
Should we downsize our organization?
Top Management Teams, CEOs, Boards of
Directors
Tactical Decisions
•
What should we do to help facilitate employees from the
two companies working together?
How should we market the new product line?
Who should be let go when we downsize?
Managers
How often should I communicate with my new
coworkers?
What should I say to customers about our new product?
How will I balance my new work demands?
Employees throughout the organization
•
•
Operational Decisions
•
•
•
Adapted from Figure 11.6 of University of Minnesota (2015)
Decision Making Approaches
Decision Making Model
Use This Model When:
Rational
•
•
•
Information on alternatives can be gathered and quantified.
The decision is important.
You are trying to maximize your outcome.
Bounded Rationality
•
•
•
The minimum criteria are clear.
You do not have or you are not willing to invest much time to making the decision.
You are not trying to maximize your outcome.
Intuitive
•
•
•
Goals are unclear.
There is time pressure and analysis paralysis would be costly.
You have experience with the problem.
Creative
•
•
•
Solutions to the problem are not clear.
New solutions need to be generated.
You have time to immerse yourself in the issues.
Adapted from Figure 11.11 of University of Minnesota (2015)
Rational Decision Making
1. Identify the
problem
8. Evaluate the
decision
2. Establish
decision criteria
7. Implement
the decision
3. Weigh
decision criteria
6. Choose the
best alternative
4. Generate
alternatives
5. Evaluate the
alternatives
Adapted from Figure 11.8 of University of Minnesota (2015)
Evaluating Decisions & Complexity
• If the baseline approach still existed, how would the post-change
performance have differed?
Y1 Comparison to Y1'
Performance Metric Value (Positive Direction is Favorable)
14
12
10
8
Y0 to Y1
6
Y0 to Y1'
4
2
0
0
1
Time Period
Figure 2 of Harrington (2017)
Creativity
1. Problem Recognition: Same as any other model
2. Immersion: Conscious thought, gather information, leverage
expertise
3. Incubation: Break away, unconscious processing
4. Illumination: “Spark” of creativity, “eureka” moment
5. Verification & Application: Verify feasibility and implement solution
Step 1
Problem
Recognition
Step 2
Step 3
Step 4
Immersion
Incubation
Illumination
Adapted from Figure 11.9 of University of Minnesota (2015)
Step 5
Verification
&
Application
P-O-L-C and Creative Decision Making
• Decision making is an activity of Leading
• Supported by other Leading elements
• Example: Groups used to brainstorm ideas
• Organizing can help too
• Example: Consider team composition (diversity)
Planning
Organizing
Leading
Controlling
Vision & Mission
Strategy
Goals & Objectives
Organization
Design
Culture
Social Networks
Leadership
Decision Making
Communications
Groups/Teams
Motivation
Systems/Processes
Human Resources
Bias in Faulty Decision Making
• Bias: The tendency of error in judgement, and it can be positive or
negative
Overconfidence Bias
Confirmation Bias
Hindsight Bias
Framing Bias
Other Factors in Faulty Decision Making
• Anchoring: Relying on one piece of information while not seeking or
ignoring other information
• Escalation of commitment: Staying the course when new information
indicates a change in direction is necessary
Individual vs. Group Decision Making
Individual Decision Making
• Pros
• Typically faster than group decision
making
• Best individual in a group usually
outperforms the group
• Accountability is easier to determine
• Cons
• Fewer ideas
• Identifying the best individual can be
challenging
• Possible to put off making decisions if
left alone to do it
Group Decision Making
• Pros
• Diversity of ideas can piggyback on
others’ ideas
• Greater commitment to ideas
• Interaction can be fun and serves as a
team building task
• Cons
• Takes longer
• Group dynamics such as groupthink
can occur
• Social loafing—harder to identify
responsibility for decisions
Groupthink
• Be cautious of the group engaging in faulty decision making when:
• Nobody believes failure is a possibility
• Contradicting information is downplayed
• The group believes it is incapable of making immoral choices
• The group views rivals as inherently wrong, always
• Pressure or disrespect toward anybody in disagreement
• Group members won’t acknowledge doubts about group
• Group believes all members agree since nobody dissents
• Group has members that protect others from contradictory information
• Put controls in place to prevent groupthink!
Tactics for Making Better Decisions
Tactic Name
Description
Application
Nominal Group
Technique
Four step process for getting groups to
generate, share, discuss, and evaluate ideas
Use when group members are hesitant to
share ideas or if certain group members are
too dominant
Delphi Technique
Iterative process of questioning through
questionnaires to reach consensus on a
decision
Use when anonymity is key for honest
participation and when group members are
distanced
Majority Rule
Simple voting technique where most votes
wins
Use to make a decision quickly or when
consensus cannot be reached
Consensus
Process of discussing a problem, proposing
a solution, getting feedback, and then
iteratively revising until all agree
Use when decision requires universal support
and when group is willing to sacrifice time to
make a more accurate decision
Group Decision
Support Systems
Computer-based systems that incorporate
communication and decision technologies
to aid the group
Use to assist and speed group collaboration
(e.g., Delphi Technique)
Decision Trees
Flow diagrams for making decisions based
on yes-no questions
Use for making decisions when problems have
anticipated complexity
Sourcing Decisions
• Decisions on where and how to perform a service or produce a
component or product
Where:
Internal / Intrafirm
Offshore
Subsidiary
Domestic
In-House
Foreign
Domestic
Offshore
Outsource
Domestic
Outsource
External / Outsource
Strategic Impact of Sourcing
• The “how” of sourcing is based on strategic impact
• If production or service providing…
• Is a strategic competency that needs to be strictly proprietary knowledge,
then internal sourcing is preferred
• Is a strategic competency that can be outsourced, then a strategic
partnership involving collaboration between the organization and the
supplier may be useful, especially if the supplier has superior capability
• Does not need to be a strategic competency, then it can be contracted on an
arm’s length basis
Strategic or Not?
• Kano Model:
Figure 2 of Matzler et al. (2004)
Evaluating Strategic Need: COAR
Core
Customer
Outcomes
Objectives
to be
Competitive
Activities:
What we
need to do
Resources:
What we
need to have
Strategic Capabilities /
Competencies
Benefits and Pitfalls of Outsourcing
• Benefits:
• Focus on what is strategic and not be distracted by what isn’t
• Leverage superior capabilities of expert suppliers
• Pitfalls:
• Anchor on immediate impact to return on equity (ROE) without considering
long-term impact on strategic capability
• Systemic impact of arm’s length arrangements on quality of outsourced items
and stability of suppliers
Buyers
promote
supplier
competition
Differentiation
of suppliers is
diluted
Relationships
are uncertain
Suppliers plan
for short-term
Suppliers plans
are not best for
long-term
Supply base is
unstable
References
• Slides 4-7, 9-15
• University of Minnesota (2015). Principles of Management. Minneapolis, MN: University of Minnesota
Libraries Publishing. Retrieved from http://open.lib.umn.edu/principlesmanagement/
• Slide 8
• Harrington Jr, W. C. (2017). Performance analysis of organizations as complex systems (Doctoral dissertation).
• Slides 16-17, 20
• Kotabe, M., & Murray, J. Y. (2004). Global sourcing strategy and sustainable competitive advantage. Industrial
Marketing Management, 33(1), 7-14.
• Slide 18
• Matzler, K., Bailom, F., Hinterhuber, H. H., Renzl, B., & Pichler, J. (2004). The asymmetric relationship between
attribute-level performance and overall customer satisfaction: a reconsideration of the importance–
performance analysis. Industrial Marketing Management, 33(4), 271-277.
• Kano, N. (1984). Attractive quality and must be quality. Hinshitsu (Quality), 14(2), 147-156 (in Japanese).
• Slide 19
• Chatterjee, S. (2005). Core Objectives: Clarity in Designing Strategy. California Management Review, 47(2), 3349.