Chapter 7: Managers as Decision Makers
that are ‘good enough’), rather than
Decisions- making choices; all organizational
members make decisions that affect their jobs
and the organization they work for
Decision Process:
1. Identifying Problem- An obstacle that
makes it difficult to achieve a desired
goal or purpose
“Never confuse problems with
symptoms”
2. Identifying Decision Criteria- a guide
define what’s important or relevant to
resolving a problem
3. Allocating Weights to criteria
4. Developing alternatives
5. Analyzing Alternatives
6. Selecting an alternative- the best one
7. Implementing the alternative
8. Evaluating Decision Effectiveness
Decision Making- the essence of management
 Rational decision making; that is, they’ll
make logical and consistent choices to
maximize value
Assumptions of Rationality (not very
realistic):
1. A rational decision maker would be
fully objective and logical.
2. The problem faced would be clear
and unambiguous, and the decision
maker would have a clear and
specific goal and know all possible
alternatives and consequences.
3. Making decisions rationally would
consistently lead to selecting the
alternative that maximizes the
likelihood of achieving that goal
4. Decisions are made in the best
interests of the organization
 Bounded Rationality- Decision making
that’s rational, but limited (bounded) by
an individual’s ability to process
information
“managers satisfice (Accept solutions
maximize”
Escalation of Commitment- an increased
commitment to a previous decision
despite evidence that it may have been
wrong because they don’t want to admit
that their initial decision may have been
flawed
 Role of Intuition:
Intuitive Decision Making: making
decisions on the basis of experience,
feelings, and accumulated judgment
1. Experienced-based Decisions
2. Affect Initiated Decisions-
feelings/emotions
3. Cognitive-based Decisions- skills and
training
4. Subconscious Mental Processing
5. Ethics-based Decisions
 Role of Evidence Based Management
(EBMgt): systematic use of the best
available evidence to improve
management practice.
Elements:
1. decision maker’s expertise and
judgment;
2. external evidence that’s been
evaluated by the decision
maker;
3. opinions, preferences, and
values of those who have a
stake in the decision;
4. relevant organizational
(internal) factors such as
context, circumstances, and
organizational member
Types of Decisions
STRUCTURED PROBLEMS AND PROGRAMMED
DECISIONS- The decision maker’s goal is clear,
the problem is familiar, and information about
the problem is easily defined and complete
 structured problems because they’re
straightforward, familiar, and easily
defined
  programmed decision, a repetitive
decision that can be handled by a
routine approach
the manager relies on one of three
types of programmed decisions:
1. procedure- a series of sequential
steps a manager uses to respond to
a structured problem
2. rule- an explicit statement that tells
a manager what can or cannot be
done
3. policy- a guideline for making a
decision; establishes general
parameters for the decision maker
rather than specifically stating what
should or should not be done
UNSTRUCTURED PROBLEMS AND
NONPROGRAMMED DECISIONS
 Unstructured problems- problems that
are new or unusual and for which
information is ambiguous or incomplete
 Nonprogrammed decisions- are unique
and nonrecurring and involve custom-
made solutions
Decision Making Conditions
1. Certainty- which is a situation where a
manager can make accurate decisions
because the outcome of every
alternative is known
2. Risk- conditions in which the decision
maker is able to estimate the likelihood
of certain outcomes
3. Uncertainty- the choice of alternative is
influenced by the limited amount of
available information and by the
psychological orientation of the decision
maker
 an optimistic manager will follow a
maximax choice (maximizing the
maximum possible payoff);
 a pessimist will follow a maximin
choice (maximizing the minimum
possible payoff
 a manager who desires to minimize
his maximum “regret” will opt for a
minimax choice.
“Managers calculate regret by subtracting all
possible payoffs in each category from the
maximum possible payoff for each given event,
in this case for each competitive action”
Decision Making Styles
thinking style reflects two things: (1) the source
of information you tend to use (external data
and facts OR internal sources such as feelings
and intuition), and (2) whether you process that
information in a linear way (rational, logical,
analytical) OR a nonlinear way (intuitive,
creative, insightful).
 linear thinking style, is characterized by
a person’s preference for using external
data and facts and processing this
information through rational, logical
thinking to guide decisions and actions.
 nonlinear thinking style, is characterized
by a preference for internal sources of
information (feelings and intuition) and
processing this information with internal
insights, feelings, and hunches to guide
decisions and actions
Decision Making Biases and Errors
The use of “rules of thumb,” or heuristics, to
simplify their decision making. Rules of thumb
can be useful because they help make sense of
complex, uncertain, and ambiguous information.
1. overconfidence bias- when decision
makers tend to think they know more
than they do or hold unrealistically
positive views of themselves and their
performance
2. immediate gratification bias describes
decision makers who tend to want
immediate rewards and to avoid
immediate costs.
3. anchoring effect- describes how
decision makers fixate on initial
information as a starting point and then,
 once set, fail to adequately adjust for
subsequent information.
4. Selective perception bias- When
decision makers selectively organize and
interpret events based on their biased
perceptions.
5. Confirmation bias -Decision makers who
seek out information that reaffirms their
past choices and discount information
that contradicts past judgments. These
people tend to accept at face value
information that confirms their
preconceived views and are critical and
skeptical of information that challenges
these views.
6. Framing bias- is when decision makers
select and highlight certain aspects of a
situation while excluding others. By
drawing attention to specific aspects of
a situation and highlighting them, while
at the same time downplaying or
Effective Decision Making in Today’s World:
omitting other aspects, they distort
what they see and create incorrect
reference points.
7. Availability bias- happens when
decisions makers tend to remember
events that are the most recent and
vivid in their memory. The result? It
distorts their ability to recall events in
an objective manner and results in
distorted judgments and probability
estimates.
8. Representation bias- When decision
makers assess the likelihood of an event
based on how closely it resembles other
events or sets of events. Managers
exhibiting these bias draw analogies and
see identical situations where they don’t
exist. The
9. Randomness bias- describes the actions
of decision makers who try to create
meaning out of random events. They do
this because most decision makers have
difficulty dealing with chance even
though random events happen to
everyone and there’s nothing that can
be done to predict them.
10. Sunk costs error occurs when decision
makers forget that current choices can’t
correct the past. They incorrectly fixate
on past expenditures of time, money, or
effort in assessing choices rather than
on future consequences. Instead of
ignoring sunk costs, they can’t forget
them.
11. Self-serving bias- Decision makers who
are quick to take credit for their
successes and to blame failure on
outside factors
12. Hindsight bias is the tendency for
decision makers to falsely believe that
they would have accurately predicted
the outcome of an event once that
outcome is actually known.
1. Understand cultural differences.
2. Know when it’s time to call it quits.
When it’s evident that a decision isn’t
working, don’t be afraid to pull the plug.
3. Use an effective decision-making
process. Experts say an effective
decision-making process has these six
characteristics:
(1) It focuses on what’s important;
(2) It’s logical and consistent;
(3) It acknowledges both subjective and
objective thinking and blends analytical
with intuitive thinking;
(4) It requires only as much information
and analysis as is necessary to resolve a
particular dilemma;
(5) It encourages and guides the
gathering of relevant information and
informed opinion;
(6) It’s straightforward, reliable, easy to
use, and flexible.
4. Build an organization that can spot the is, you don’t start fires—you extinguish
unexpected and quickly adapt to the them), but at the time it was the best
changed environment. This suggestion decision.
comes from Karl Weick, He calls such (4) They embrace complexity. Because
organizations highly reliable business is complex, these organizations
organizations (HROs) and says they recognize that it “takes complexity to
share five habits. sense complexity.” Rather than
(1) They’re not tricked by their success. simplifying data, which we instinctively
HROs are preoccupied with their try to do when faced with complexity,
failures. They’re alert to the smallest these organizations aim for deeper
deviations and react quickly to anything understanding of the situation. Theyask
that doesn’t fit with their expectations. “why” and keep asking why as they
He talks about Navy aviators who probe more deeply into the causes of
describe “leemers—a gut feeling that the problem and possible solutions.
something isn’t right.” Typically, these (5) Finally, they anticipate, but also
leemers turn out to be accurate. recognize their limits. These
Something, in fact, is wrong. organizations do try to anticipate as
Organizations need to create climates much as possible, but they recognize
where people feel safe trusting their that they can’t anticipate everything. As
leemers. Weick says, they don’t “think, then act.
(2) They defer to the experts on the front They think by acting. By actually doing
line. Frontline workers—those who things, you’ll find out what works and
interact day in and day out with what doesn’t.”
customers, products, suppliers, and so
forth—have firsthand knowledge of
what can and cannot be done, what will
and will not work. Get their input. Let
them make decisions.
(3) They let unexpected circumstances
provide the solution. One of Weick’s
betterknown works is his study of the
Mann Gulch fire in Montana that killed
13 smoke jumpers in 1949. The event
was a massive, tragic organizational
failure. However, the reaction of the
foreman illustrates how effective
decision makers respond to unexpected
circumstances. When the fire was nearly
on top of his men, he invented the
escape fire—a small fire that consumed
all the brush around the team, leaving
an area where the larger fire couldn’t
burn. His action was contrary to
everything firefighters are taught (that
Chapter 8: Foundations Of Planning

Planning- Defining the organization’s goals,  Management By Objective (MBO)

establishing strategies for achieving those goals,
Elements:
and developing plans to integrate and
coordinate work activities. It’s concerned with 1. Participative Decision Making
both ends (what) and means (how). 2. Goal Specificity
3. Explicit Time Period
Formal Planning- Specific goals, time period, and
4. Performance feedback
strategies
Characteristics of well written goal
Why Managers Plan
1. Written in terms of outcomes rather
1. Provides Direction
than actions
2. Reduces Uncertainty
2. Communicated to all necessary
3. Minimizes Waste and Redundancy
organizational members
4. Establishes the goals or standards used
3. Clear as a time frame
in controlling
4. Challenging yet attainable
Planning and Performance- high performance-> 5. Written down
positive Financial Results-> 6. Measurable and quantifiable

Goals- desired outcomes Steps in goal Setting

Types: 1. Review the organization’s mission or

 Stated Goals- Official statements of
what an organization says, and what it
wants its various stakeholders to
believe, its goals are.
There are 2 classifications:
Financial Goals and Strategic Goals.
 Real Goals- Goals that an organization
actually pursues, as defined by the
actions of its members
Approaches to Setting Goals
 Traditional Goal Setting- An approach
to setting goals in which top managers
set goals that then flow down through
the organization and become sub goals
for each organizational area
 Means End Chain- An integrated
network of goals in which the
accomplishment of goals at one level
serves as the means for achieving the
goals, or ends, at the next level
purpose
2. Evaluate available resources
3. Write down the goals and communicate
them to all who need to know
4. Determine
5. the goals individually or with input from
others
6. Review
7. results and whether goals are being
meant
Plans- Documents that outline how goals are
going to be met
Types:
 Breadth
1. Strategic- Plans that apply to the entire
organization and establish the
organization’s overall goals
2. Operational- Plans that encompass a
particular operational area of the
organization
 Time Frame
 1. Long Term Plans- beyond three years flexible. And it is important to do formal
2. Short Term Plans- less than one year planning and have a flatter hierarchy
3. Intermediate Plans  Using Environmental Scanning- involves
 Specificity screening information to detect
1. Specific- Plans that are clearly defined emerging trends
and leave no room for interpretation Types:
2. Directional- Plans that are flexible and  Competitor Intelligence- gathering
set out general guidelines information about competitors that
 Frequency of use allows managers to anticipate
1. Single Use Plans- one-time plan competitors’ actions rather than
specifically designed to meet the needs merely react to them
of a unique situation  SWOT Analysis
2. Standing Plans- ongoing plans that  PESTLE
provide guidance for activities
performed repeatedly

Developing Plans

 Contingency Factors
1. Organizational Level
2. Environmental uncertainty
3. Length of future commitments
(Commitment Concept)- Plans
should extend far enough to meet
those commitments made when the
plans were developed
 Approaches to planning
 Traditional Approach- planning is
done entirely by top-level managers
who often are assisted by a formal
planning department (a group of
planning specialists whose sole
responsibility is to help write the
various organizational plans)
 Involvement of more organizational
members in the process- plans
aren’t handed down from one level
to the next, but instead are
developed by organizational
members at the various levels and
in the various work units to meet
their specific needs
 Planning Effectively in a Dynamic
Environment- must be specific but
Chapter 9: Strategic Planning
Strategic Management- is what managers do to
develop the organization’s strategies. It’s an
important task involving all the basic
management functions—planning, organizing,
leading, and controlling
Strategies- the plans for how the organization
will do whatever it’s in business to do, how it will
compete successfully, and how it will attract and
satisfy its customers in order to achieve its goals
Business model- how a company is going to
make money. It focuses on two things: (1)
whether customers will value what the company
is providing, and (2) whether the company can
make any money doing that
Importance of Strategic Planning
1. it can make a difference in how well an
organization performs. Organizations
that use strategic management have
higher levels of performance. And that
2. it’s important has to do with the fact
that managers in organizations of all
types and sizes face continually
changing situations They cope with this
uncertainty by using the strategic
management process to examine
relevant factors and decide what actions
to take.
3. Finally, strategic management is
important because organizations are
complex and diverse. Each part needs to
work together toward achieving the
organization’s goals; strategic
management helps do this as
determined by its goals.
Strategic Management Process- a six-step
process that encompasses strategy planning,
implementation, and evaluation
1. Identifying the Organization’s Current
Mission, Goals, and Strategies- Every
organization needs a mission—a
statement of its purpose. Defining the
mission forces managers to identify
what it’s in business to do.
2. Doing an External Analysis-. In an
external analysis, managers examine the
economic, demographic, political/legal,
sociocultural, technological, and global
components to see the trends and
changes. Once they’ve analyzed the
environment, managers need to
pinpoint opportunities that the
organization can exploit and threats that
it must counteract or buffer against.
Opportunities are positive trends in the
external environment; threats are
negative trends.
3. Doing an Internal Analysis- provides
important information about an
organization’s specific resources (assets
or “what” the organization has) and
capabilities (skills and abilities or “how”
it does its work) The major value-
creating capabilities of the organization
are known as its core competencies.
After completing an internal analysis,
managers should be able to identify
organizational strengths (Any activities
the organization does well or any unique
resources) and weaknesses (activities
the organization doesn’t do well or
resources it needs but doesn’t possess).
SWOT analysis- an analysis of the
organization’s strengths, weaknesses,
opportunities, and threats. After
completing the SWOT analysis,
managers are ready to formulate
appropriate strategies—that is,
strategies that
(1) exploit an organization’s strengths
and external opportunities
(2) buffer or protect the organization
from external threats
(3) correct critical weaknesses
4. Formulating Strategies
As managers formulate strategies, they
should consider the realities of the
external environment and their available
resources and capabilities in order to
design strategies that will help an
organization achieve its goals. The three
main types of strategies managers will
formulate include
 Corporate- determines what
businesses a company is in or wants
to be in, and what it wants to do
with those businesses. It’s based on
the mission and goals of the
organization and the roles that each
business unit of the organization will
play
- growth strategy is when an
organization expands the
number of markets served or
products offered, either through
its current business(es) or
through new business(es)
a) concentration- focuses on
its primary line of business
and increases the number
of products offered or
markets served in this
primary business
b) vertical integration- In
backward vertical
integration, the
organization becomes its
own supplier so it can
control its inputs forward
vertical integration, the
organization becomes its
own distributor and is able
to control its outputs
c) horizontal integration, a
company grows by
combining with competitors
diversification. Related
diversification happens
when a company combines
with other companies in
different, but related,
industries Unrelated
diversification is when a
company combines with
firms in different and
unrelated industries
- stability strategy- an
organization continues to do
what it is currently doing
- renewal strategies- address
declining performance. A
retrenchment strategy is a
short-run renewal strategy used
for minor performance
problems. turnaround strategy
is needed, when an
organization’s problems are
more serious, more drastic
action
Corporate strategy is managed by
using a corporate portfolio matrix.
BCG matrix- A strategy tool that
guides resource allocation decisions
on the basis of market share and
growth rate of SBUs
 Competitive- strategy for how an
organization will compete in its
business; defines its competitive
advantage, the products or services
it will offer, the customers it wants
to reach, and the like
strategic business units (SBUs)-
single businesses that are
independent and that have their
own competitive strategies
Competitive Advantage- its
distinctive edge
- Quality as a Competitive
Advantage
- Sustaining Competitive
Advantage
 - Five Forces Model
a) Threat of new entrants.
b) Threat of substitutes.
c) Bargaining power of buyers.
d) Bargaining power of
suppliers.?
e) Current rivalry
“managers select a strategy that will
give the organization a competitive
advantage, either from having lower
costs than all other industry
competitors or by being significantly
different from competitors.”
Types:
- cost leadership strategy- having
the lowest cost
- differentiation strategy- offering
unique products that everyone
values
- focus strategy- involves a cost
advantage (cost focus) or a
differentiation advantage
(differentiation focus) in a
narrow segment or niche
stuck in the middle- costs are too
high to compete with the low-cost
leader or when its products and
services aren’t differentiated
enough to compete with the
differentiator
 functional- strategies used by an
organization’s various functional
departments to support the
competitive strategy
5. Implementing Strategies- No matter
how effectively an organization has
planned its strategies, performance will
suffer if the strategies aren’t
implemented properly.
6. Evaluating Results- see the effects of the
plan and change some for improvement
Current Issues
 The Need for Strategic Leadership (the
ability to anticipate, envision, maintain
flexibility, think strategically, and work
with others in the organization to
initiate changes that will create a viable
and valuable future for the
organization.)
 The Need for Strategic Flexibility (the
ability to recognize major external
changes, to quickly commit resources,
and to recognize when a strategic
decision isn’t working)
 Encourage leadership unity by making
sure everyone is on the same page.
 Keep resources fluid and move them as
circumstances warrant.
 Have the right mindset to explore and
understand issues and challenges.
 Know what’s happening with strategies
currently being used by monitoring and
measuring results.
 Encourage employees to be open about
disclosing and sharing negative
information.
 Get new ideas and perspectives from
outside the organization.
 Have multiple alternatives when making
strategic decisions.
 Learn from mistakes.
 Important Organizational Strategies for
Today’s Environment
1. e-Business Strategy
2. Customer Service Strategy
3. Innovation Strategy
first mover- An organization that’s
first to bring a product innovation to
the market or to use a new process
innovation