Chapter 12 The Decision Making Process

Definitions

Organizational Decision Making is the process of identifying and solving problems. It is broken up into problem identification (figuring out there is a problem) and problem solution (figuring out the course of action to take). Problems can be broken down into programmed decisions (repetitive decisions that are well defined and have procedures to solve them) and non-programmed decisions (ones that are poorly defined and no formal plans ahead of time). Strategic planning is often involved in non-programmed decisions. Extremely complex non-programmed decisions are referred to as ‘wicked’ decisions. Non-programmed decisions are increasing in businesses today.

Individual Decision Making

Rational Approach

The rational approach is a step by step decision making process. It was developed so decisions would be less arbitrary. It is not fully achievable because of uncertainty in the real world. It consists of eight steps:

1. Monitor the decision environment – look for deviations from the normal behavior

2. Define the problem – find out the 5 w’s : Who, What, When, Where, Why. Also add how it influences things now.

3. Specify decision alternatives – what do we need to be done

4. Diagnose the problem – dig into the problem to see what caused it

5. Develop alternative solutions – seek and ideas and solutions from others and develop several alternatives

6. Evaluate alternatives – gauge which ones have the best chance of working, prioritize the solutions

7. Choose the best alternative – select the one that is the best choice

8. Implement the chosen alternative – Carry out the chosen path

Here the first four steps together identify the problem; the last four are the solution stage.

Bounded Rationality Perspective

Often because of limited time or the complexity of the problem the rational abandoned in part.

Constraints and Tradeoffs

Some decisions are hard to make because there are too many things that restrict the decisions to be made. This can be caused by the problem being ambiguous, needing another view, needing social support, culture, ethical values, and decision making styles.

The Role of the Intuition

Intuition is not an arbitrary thing as it is based on years of information and similar decisions that have been made or stored. Very often intangible items can lead an experienced person to see a problem before it develops. It should however not always be trusted. It can lead to total failure. Managers need to learn to walk the line between making the decisions with arbitrary thinking and obsessing over all the possible solutions.

Organizational Decision Making

Management Science Approach

Management Science Approach is used when things are easily gathered and they can be programmed into equations. Increasingly, computers are being used especially when there are many variables to consider. Always remember that in the end, there needs to be some human that oversees the results. Some tacit knowledge cannot be conveyed to a computer program. Let people look at the decisions and discuss the output.

Carnegie Model

The Carnegie model comes from people associated with Carnegie-Melon University. In it, decisions are not made by one person, but, by a coalition of many managers. This works well when the goals are ambiguous as management must bargain about the problem and build a group to support it. It also works well because mangers intend to work rationally but in the end decide to work intuitively. A coalition helps because all interested parties get to put in their input. In working together, the group does a satifice, choosing to find a solution agreeable to all, but not necessarily the optimal solution. Management in this setting and alone will often do a problemistic search; find the first solution that seems to work best for the problem and stop at that point.

Incremental Decision Process Model

The incremental decision making process focuses more on the sequences that must be gone through for a decision to be made. A firm in making a decision does not make one big decision but several series of smaller ones. This process does break down into three categories though:

Identification Phase

The first thing to do is to have recognition or become aware of the problem. Often external or internal environments will change and show a problem when it does. Then the diagnosis takes place. These diagnoses can be very systematic or can be informal based on the problem and the time needed to find a solution.

Developmental Phase

During the development stage the first thing that is done is an alternatives search. People in the organization will look in to their collective knowledge for a way to solve the problem. If a problem can not be resolved by a search then there will be a design of a solution.

Selection Phase

From here we pick a solution in one of three ways.

· Judgment – when a single manager makes a choice based on the information that he has

· Bargaining – when there are several mangers with a stake in the outcome, and conflict arises

· Authorization – once solution found, it is passes up the hierarchy to the person with the authority to get it done, and this is generally done because of the expertise at the lower level

Dynamic Factors

Minor problems may cause a non-linear solution, causing people to go back and re-engineer ideas to resolve the problem.

The Learning Organization

Organizations that have a great deal of change tend to look at the learning organization as a model.

Combining the Incremental and the Carnegie Models

The Carnegie model works well for the problem identification stage. After that the incremental method is best used as it can take you step by step through a way to solve the problem.

Garbage Can Model

The garbage can model makes the whole organization the focus of the decision.

Organized Anarchy

Organized anarchy exists in very organic organizations and have three characteristics’:

1. Problematic preferences – every thing about problem is ill-defined

2. Unclear, poorly understood technology – cause and effect hard to determine

3. Turnover – high rate of change in participants, low amount of time available to resolve a problem

While many organizations may find this happening from time to time, as model it does not exist in its pure form.

Streams of Events

In the garbage can model, there are no sequences to solve a problem; in fact a solution may be present for a problem that does not exist. There are four streams to deal with:

1. Problems – problems are dissatisfaction between current and desired performances. They may or may not lead to a solution, but are solved when given a solution.

2. Potential solutions – a solution is what is proposed for adoption. Sometimes participants will look for problems that will fit there solutions to get them adopted.

3. Participants – the employees in an organization

4. Choice Opportunities – occasions when an organization makes a decision.

The idea is that the four streams get stirred together and when problems, solutions and participants connect, then a decision will be made. Not all problems will get solved and not all solutions have a problem to go with them creating high levels of uncertainty.

Consequences

1. Solutions may be proposed where problem does not exist, causing adoption when there was no need to

2. Choices are made without solving problems because the intention is to solve the problem but the solution is wrong

3. Problems may persist without being solved because people may get used to them or not know how to solve them

4. A few problems are solved

Contingency Decision Making Framework

Problem Consensus

Problem consensus refers to the agreement among managers about the nature of the problem and which goals or outcomes to pursue. When managers disagree the level of uncertainty in the organization becomes high. When there is a high degree of differentiation there is a low level of problem consensus as well. Consensus is really needed at the problem identification stage.

Technical Knowledge about Solutions

Technical knowledge deals with understanding and agreeing on how to solve a problem to reach a goal. When the knowledge to solve the problem is not there, trial and error become the way to solve it.

Contingency Framework

	Problem Consensus
Solution Knowledge		Certain	Uncertain
	Certain	Individual; Rational approach, Computation Organization: Management Science	Individual; Bargaining, Coalition forming Organization: Carnegie Model
	Uncertain	Individual; Judgment, trial and error Organization: Incremental Decision Process Model	Individual; Bargaining and Judgment, Inspiration and limitation Organization: Carnegie and Incremental Decision making process model, Evolving to the Garbage can model

Cell 1 Certain – Certain

Because everything is certain, there is rational ways of solving problems.

Cell 2 Certain – Uncertain

Here we are uncertain of the problem so even though we have the ability to fix it we are unsure of what it is. The Carnegie model works well here because of the bargaining to get the real problem out in the open.

Cell 3 Uncertain – Certain

We know the problem here but are not sure how to solve it. Managers need to rely on intuition and the rational approach to solve the problem. Trial and error is often used here.

Cell 4 Uncertain – Uncertain

Along with trying to use the other approaches, inspiration and imitation can be used. The garbage can model will eventually become prevalent.

Special Decision Circumstances

High-Velocity Environments

Research has gone into how companies that have so much technological change handle theses high-velocity environments and they found:

· Successful managers tracked information in real time, unsuccessful ones looked more to the future

· Successful firms planed many alternatives at a time, unsuccessful ones thought out one at a time

· Success followed decision makers that sought out many people for advice and trusted a select few for key advice, it did not follow those who had a hard time rallying people around them

· Fast companies tried for consensus but when not available would have a key manager make the decision, slower ones delayed till a consensus could be reached

· Successful companies made decisions that meshed well and met objectives of the firm, less success happened when the decisions were abstract from each other and considered in isolation

In these firms a slow decision is as bad as a wrong decision. In order for firms to learn to make decisions quick, they will do count-counterpoint exercises, pitting groups against each other with conflicting goals to reach forcing them to learn how to make concessions to each other.

Decision Making and Learning

When there is great uncertainty there is a harder time in making decisions but this can be good because there is chance to learn from mistakes.

Escalating Commitment

A bad thing is to keep in a plan, escalating commitment to it, even when it is failing. Managers tend to keep in a plan because they do not see the negative reports and focus on what good news that they can find. Managers also will do this because consistency and persistence are things that are valued in people and firms. Failure to admit a mistake and staying on a course of action that will continue to fail is much worse than allowing for a firm to make mistakes and learn from them.

Summary and Interpretation