CHAPTER 3: INFORMATION AND
DECISION-MAKING
Business Leadership: Management Fundamentals
John R. Schermerhorn, Jr., Barry Wright, and Lorie Guest
© John Wiley & Sons Canada, Ltd.
PLANNING
AHEAD —
CHAPTER 3
LEARNING
GOALS
o Understand the role of information in
the management process
o Understand how managers use
information to make decisions
o Use the steps in the decision-making
process
o Understand the current issues in
managerial decision-making
2
INFORMATION AND KNOWLEDGE—
BASIC LINKAGES
• Knowledge and knowledge workers provide a decisive
competitive factor in today’s economy
• Knowledge worker:
– Someone whose value to the organization rests with
intellect, not physical capabilities
• Intellectual capital:
– Shared knowledge of a workforce that can be used to create
wealth
3
INFORMATION AND KNOWLEDGE —
BASIC LINKAGES (CONT.)
• Knowledge and intellectual capital are irreplaceable
organizational resources
• The productivity of knowledge and knowledge workers depends
on:
– Computer competency
– Information competency
4
WHAT IS USEFUL INFORMATION?
• Data
– Raw facts and observations
• Information
– Data made useful for decision-making
• Information drives management functions
• Characteristics of useful information:
– Timely
– High quality
– Complete
– Relevant
– Understandable
5
WHAT IS INFORMATION
TECHNOLOGY?
• Information Technology
– Helps to acquire, store, process and transmit information
6
FIGURE 3.1 INTERNAL AND EXTERNAL
INFORMATION NEEDS OF AN ORGANIZATION
IMPLICATIONS OF IT WITHIN
ORGANIZATIONS
•
•
•
•
•
Facilitation of communication and information sharing
Operating with fewer middle managers
Flattening of organizational structures
Faster decision making
Increased coordination and control
IMPLICATIONS OF IT FOR RELATIONSHIPS
WITH EXTERNAL ENVIRONMENT
• Helps with customer relationship management
• Helps organizations with supply chain management
• Helps in monitoring outsourcing and other business contracts
9
IMPLICATIONS OF IT FOR RELATIONSHIPS
WITH INTERNAL ENVIRONMENT
• Quick decision-making at lower levels translate into higher profit
margins
• Top level management well informed
10
CEO JOHN CHAMBERS
(HARVARD BUSINESS)
Teamwork and Collaboration,
Harvard Business Publishing Series
(external link)
11
INFORMATION NEEDS OF
ORGANIZATIONS
• Information exchanges with the external environment:
– Gather intelligence information
– Provide public information
• Information exchanges within the organization:
– Facilitate decision-making
– Facilitate problem solving
12
BASIC INFORMATION SYSTEM
CONCEPTS
• Information system
– Use of the latest IT to collect, organize, and distribute data
for use in decision-making
• Management Information System (MIS)
– Specifically designed to meet the information needs of
managers in daily decision-making
13
FIGURE 3.3 INFORMATION TECHNOLOGY IS
BREAKING BARRIERS AND CHANGING
ORGANIZATIONS.
Management 2e - Chapter 13
14
MANAGERIAL ADVANTAGES
OF IT UTILIZATION
• Planning advantages:
– Better and more timely access to useful information
– Involving more people in planning
• Organizing advantages:
– More ongoing and informed communication among all parts
of the organization
– Improved co-ordination and integration
15
MANAGERIAL ADVANTAGES
OF IT UTILIZATION (CONT.)
• Leading advantages:
– Improved communication with staff and stakeholders
– Keeping objectives clear
• Controlling advantages:
– More immediate measures of performance results
– Allows real-time solutions to performance problems
16
FIGURE 3.4 THE MANAGER AS AN
INFORMATION-PROCESSING NERVE CENTRE
Management 2e - Chapter 13
17
MANAGERS AS PROBLEM-SOLVERS
• Problem solving:
– The process of identifying a discrepancy between actual and
desired performance and taking action to resolve it
• A decision:
– A choice among possible alternative course of action
• A performance deficiency:
– Actual performance being less than desired performance
• A performance opportunity:
– Actual performance being better than desired performance
18
PROBLEM-SOLVING APPROACHES
OR STYLES
• Problem avoiders: Inactive in information gathering and solving
problems
• Problem solvers: Reactive in gathering information and solving
problems
• Problem seekers: Proactive in anticipating problems and
opportunities and taking appropriate action to gain an
advantage
19
TYPES OF THINKING
Systematic Thinkers
• Rational
• step-by-step
• analytical
• breaks problems into smaller
components
Intuitive Thinkers
• Rely on hunches and
feelings
• Flexible and spontaneous
• See “big picture”
Multidimensional Thinkers
• Multidimensional thinking applies both intuitive and systematic
thinking
• Effective multidimensional thinking requires skill at strategic
opportunism
20
COGNITIVE STYLES
• Sensation Thinkers emphasize the impersonal rather than the
personal and take a realistic approach to problem solving.
• Intuitive Thinkers are comfortable with abstraction and tend to
be idealistic. Have a spontaneous fashion.
• Intuitive Feelers prefer broad and global issues and are
comfortable with intangibles.
• Sensation Feelers emphasize analysis and human relations and
tend to be realistic and prefer facts.
21
FIGURE 3.6 DIFFERENT COGNITIVE
STYLES IN DECISION-MAKING
PROGRAMMED DECISIONS
• Apply solutions that are readily available from past experiences
to solve structured problems
• Structured problems are ones that are familiar, straightforward,
and clear with respect to information needs
• Best applied to routine problems that can be anticipated
NONPROGRAMMED DECISIONS
• Develop novel solutions to meet the demands of unique
situation that present unstructured problems
• Unstructured problems are ones that are full of ambiguities and
information deficiencies
• Commonly faced by higher-level management
24
CRISIS DECISION-MAKING
• A crisis involves an unexpected problem that can lead to disaster
if not resolved quickly and appropriately
• Rules for crisis management:
– Figure out what is going on
– Remember that speed matters
– Remember that slow counts, too
– Respect the danger of the unfamiliar
– Value the skeptic
– Be ready to “fight fire with fire”
DECISION ENVIRONMENTS
• Certain environments:
– Offer complete information about possible action
alternatives and their outcomes
• Risk environments:
– Lack complete information about action alternatives and
their consequences, but offer some estimates of
probabilities of outcomes for possible action alternatives
• Uncertain environments:
– Information is so poor that probabilities cannot be assigned
to likely outcomes of known action alternatives
FIGURE 3.7 THREE ENVIRONMENTS FOR
MANAGERIAL DECISION-MAKING AND
PROBLEM SOLVING
FIVE-STEP DECISION-MAKING PROCESS
•
•
•
•
•
Identify and define the problem
Generate and evaluate possible solutions
Make decision and conduct ethics double check
Implement the decision
Evaluate results
FIGURE 3.8 STEPS IN MANAGERIAL
DECISION- MAKING AND PROBLEM
SOLVING
DECISION-MAKING PROCESS
Step 1: Identify and define the problem
• Focuses on information gathering, information processing, and
deliberation
• Decision objectives should be established
• Common mistakes in defining problems:
– Defining the problem too broadly or too narrowly
– Focusing on symptoms instead of causes
– Choosing the wrong problem
DECISION-MAKING PROCESS
Step 2: Generate and evaluate possible solutions
• Potential solutions are formulated and more information is
gathered, data are analyzed , the advantages and disadvantages
of alternative solutions are identified
• Approaches for evaluating alternatives:
– Stakeholder analysis
– Cost-benefit analysis
DECISION-MAKING PROCESS
Step 2: Generate and evaluate possible solutions (cont.)
• Criteria for evaluating alternatives:
– Benefits
– Costs
– Timeliness
– Acceptability
– Ethical soundness
• Common mistakes:
– Selecting a particular solution too quickly
– Choosing a convenient alternative that may have damaging
side effects or may not be as good as other alternatives
DECISION-MAKING PROCESS
Step 3: Decide on a preferred course of action
• Classical decision model
– Managers act rationally in a certain world
– Managers face clearly defined problems and have complete
knowledge of all possible alternatives and their
consequences
– Results in an optimizing decision
DECISION-MAKING PROCESS
Step 3: Decide on a preferred course of action (cont.)
• Behavioural decision model
– Managers act in terms of what they perceive about a given
situation
– Recognizes limits to human information-processing
capabilities
• Cognitive limitations
• Bounded rationality
• Results in a satisficing decision
FIGURE 3.9 DIFFERENCES IN THE CLASSICAL
AND BEHAVIOURAL MODELS OF MANAGERIAL
DECISION MAKING
DECISION-MAKING PROCESS
Step 4: Implement the decision solution
• Involves taking action to make sure the solution decided upon
becomes a reality
• Managers need to have willingness and ability to implement
action plans
• Lack-of-participation error should be avoided
DECISION-MAKING PROCESS
Step 5: Evaluate results
• Involves comparing actual and desired results
• Positive and negative consequences of chosen course
of action should be examined
• If actual results fall short of desired results, the
manager returns to earlier steps in the decision-making
process
CREATIVITY IN DECISION-MAKING
• Creativity:
– The generation of a novel idea or unique approach
that solves a problem to take advantage of an
opportunity
– More likely:
• Task expertise – something one is good at or
knows about
• Task motivated – people work exceptionally hard
to resolve a problem or exploit and opportunity
– Organizations should create an environment that
supports and encourages creativity
VIDEO: CNBC VIDEO ON LONNIE
JOHNSON AND THE SUPER SOAKER
Super Soaker inventor, Lonnie
Johnson
(external link)
“Television won’t be able to hold onto
any market it captures after the first six
months. People will soon get tired of
the staring into a box every night.”
- DARRYL F. ZANUCK,
HEAD OF 2OTH CENTURY FOX, 1946
“That’s an amazing invention, but who
would ever want to use one of them.”
- US PRESIDENT RUTHERFORD B. HAYES, AFTER
PARTICIPATING IN A TRIAL TELEPHONE CONVERSATION
BETWEEN WASHINGTON AND PHILADELPHIA, 1876
“I think there is a world market for about
five computers.”
THOMAS J. WATSON SR., CHAIRMAN
OF IBM, 1943
RIGHT BRAIN VS. LEFT BRAIN
Right Brain
Left Brain
•
•
•
•
•
•
•
•
Imagination
Intuition
Spontaneity
Emotion
Logic
Order
Method
Analysis
CHARACTERISTICS OF CREATIVE
PEOPLE
• Work with high energy
• Identify problems, plan, make
decisions
• Hold ground in face of
criticism
• Accept responsibility for what
happens
• Be resourceful, even in
difficult situations
• Use both systematic and
intuitive in problem-solving
• Think “outside the box”
• Synthesize and find correct
answers
• Look at divers ways to solve
problems
• Transfer learning from one
setting to others
• Be objective, willing to “step
back” and question
assumptions
ALBERT EINSTEIN’S
NEEDLE IN THE HAYSTACK
Question: “What is the difference between you and the average
person?”
Response: “If you asked the average person to find a needle in the
haystack, the person would stop when he or she found a needle. I,
on the other hand, would tear through the entire haystack
looking for all the possible needles."
ACTIVITY
What is one-half of thirteen?
ACTIVITY (CONT.)
•
•
•
•
•
•
6.5
Six and one-half
Thir & teen = 4 (4 letters on each side)
13 = 1,3
XI II = 11, 2
XIII = 8, 8 (Halving horizontally gives us 8 on the top
and 8 on the bottom)
CREATIVITY EXERCISE
ACTIVITY 1
The diagram represents twelve matchsticks positioned to represent a square
made up of four equal squares. Can you, by moving only three of these sides,
make three equal-sized squares?
SOLUTION
1
2
3
ACTIVITY 2
• Add one line to the following to make it into a 6.
IX
SOLUTION
SIX
GROUP DECISIONS
Advantages:
• Greater amounts of
information, knowledge and
expertise are available
• Expand number of
alternatives
• Avoids tunnel vision
• Increase understanding and
acceptance of outcomes
• Increase commitments of
members to work hard
Disadvantages:
• Social pressures to conform
• Minority domination may
occur
• Decision making takes longer
thus more costly
WHEN GROUP DECISION-MAKING
WORKS BEST
•
•
•
•
Individual lacks expertise or information
Problem is unclear and hard to define
Acceptance by others needed for effective implementation
Time is sufficient for group involvement
ETHICAL DECISION MAKING
• Any decision should meet “ethics double check” mentioned in
step 3 of the decision-making process
– How would I feel if my family found out about this decision?
– How would I feel if this decision were published in the local
newspaper or on the Internet?
– Think of a person you know or know of (in real life or fiction)
who has the strongest character and best ethical judgement.
Then ask yourself – what would that person do in your
situation?
• Any discomfort in answering these questions indicates the
decision has ethical shortcomings.
ETHICAL DECISION MAKING (CONT.)
• Considering the ethics of a proposed decision may result in
better decisions and prevention of costly litigation
• Ethical decisions satisfy the following criteria:
– Utility
– Rights
– Justice
– Caring
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