Organizational Decision Making

Prof. Sumita Mishra ASBM

sumita@asbm.ac.in sumita.mishra@gmail.com

Org. decision making is the process of responding to a problem by searching for & selecting a course of action that will create value for org. stakeholders
-Decision making is one of the most important of

management activities -A decision is a judgment that affects a course of action -Org. decision making has two phases 1) problem identification & 2) problem solution -Problem identification involves monitoring the org. & environmental conditions to determine if the performance is satisfactory & identify shortcomings & diagnose their cause -Problem Solution involves choosing, selecting & implementing an alternative

Organizational Decision Making

1. Programmed vs. Non Programmed Decisions

situations in org. -Non Programmed decisions are employed to address unique or novel situations confronting the org. Variable
Type of Task Reliance on Org. policies Typical Decision Maker Examples

-Programmed decisions are employed to deal with frequently occurring

Programmed Decisions
Simple, Routine Considerable guidance from past decisions Low Level workers (usually alone) Manager of a restaurant orders buns when supply is low

Non Programmed Decisions

Complex, Creative No guidance from past decisions Upper Level Supervisors (in groups) Scientist attempting to find a cure for a rare disease

2. Means vs. Ends Decisions

-Means decisions specify how a goal is to be reached -Ends decision are those that focus on the goals (outcomes) to be pursued

3. Strategic, Managerial & Operating Decisions

-Strategic decisions identify ends & means associated with positioning the organization in the external environment -Managerial or tactical decisions specify how an org. intends to integrate its institutional level with its technical core & how will it coordinate work systems within the technical core (The allocation of resources for the implementation of certain activities) -Operating decisions deal with the day-to-day functioning of an org. (Coordination of daily activities such as customer contacts, sales reports, delivery problems etc.)

Organizational Decision Making

Examples of highly successful strategic decisions

COMPANY
Coca-Cola J&J Sony

DECISION MADE
After World War II, the company developed brand loyalty by selling bottles of coke to members of the armed services In 1982, the company pulled all bottles of Tylenol capsules off the store shelves after a few capsules were found to be poisoned In 1980, the company introduced the Walkman after officials noted that young people liked to have music wherever they go In 1979, the company decided to use an engineers observation that metal heated in a way tended to splatter, resulting in the development of the ink-jet printer

HewlettPackard

Garbage Can Model Rational Model Carnegie Model

Incremental Model

Organizational Decision Making

Rational Model

Decision Making is a straightforward 8 stage process

1. Identify the problem (less funds to meet payrolls) 8. Follow Up (Do I have 2. Define Objectives sufficient funds now?) (Increase cash flow)

7. Implement choice (raise in prices)

3. Make a pre-decision (decide to solve this problem alone)

6. Make a choice (decide to raise prices slightly) 5. Evaluate Alternatives (higher prices may lower sales) 4. Generate Alternatives (raise prices, lay off workers etc.)

Organizational Decision Making

Assumptions & Criticisms

1. Assumption that decision makers have all the information they need. Do managers have all the information in an uncertain & changing environment? 2. Assumption that decision makers are smart Do managers always make the right decisions? 3. Assumption that decision makers agree about what needs to be done? Do managers always have the same preferences for alternatives in making decisions on similar issues?

Rational Model

Organizational Decision Making

Carnegie Model

-Criticisms of the rational model were taken care of by the Carnegie model -Proponents were Richard Cyert, James March & Herbert Simon of Carnegie Mellon University

Decision Making Process in the Model

1. Bounded Rationality (Information is limited to managers) 3. Coalition formation -Share opinions -Establish problem priorities -Obtain social support for problem solution 4. Search for solutions

2. Conflict (Managers have diverse goals, opinions, values)

5. Satisficing Decision Behavior (Select the decision acceptable to the coalition)

Differences between the Rational & Carnegie Models of Decision Making

Rational Model Carnegie Model

Information is available Decision Making is Value Free Decision making is costless All possible alternatives are evaluated Solution is chosen by unanimous agreement Solution chosen is best for org.

Limited information is available Decision Making is affected by preferences & values of decision makers Decision making is costly (managerial costs, information search costs) A limited range of alternatives is generated & evaluated Solution is chosen by compromise, bargaining, between org. coalitions Solution chosen is satisfactory for org.

Incrementa l Model
-Developed by Henry Mintzberg & his associates at the McGill University -Structured sequence of activities undertaken from the discovery of a problem to its solution -Three major decision phases 1. Identification Phase: Recognition & Diagnosis of a problem 2. Development Phase: Search & Design a Solution 3. Selection Phase: Evaluation & Choice of Solution. Evaluation happens through judgment & bargaining. 4. When decision is formally accepted by the org. authorization taken place -Decision making is not orderly but rather takes place in loops or cycles & the sequence from recognition of a problem to authorization can be interrupted (decision interrupts)
Organizational Decision Making

Garbage Can Model

-Designed by Michael Cohen, James March & Johan Olsen to describe decisions in highly uncertain org. environments called an organized anarchy -Org. anarchy results from 1) problematic preferences 2) Poorly understood technology & 3) Turnover -Decision Making incorporates 1) Problems 2) Solutions 3) Participants 4) Choice Opportunities

The consequences of decision making in this model are -Solutions may be proposed even when problems do not exist -Choices are made without solving problems -Problems may persist even if they are unsolved -Few problems are solved

Example of Decision Making at Microsoft using the Garbage Can Model

Phase I- Solutions are made when problems do not exist Phase II- Choices are made without solving problems To invest in Internet service on observing the growth of the world wide web in the 1990s Work on MSN Internet service to provide consumers access to the web. Control of Internet through the MSN Faulty choice as Netscape introduced its web browser in 1994 & gained 80% market share Phase III- Existence of a problem Phase IV-Making of Choices No existence of a suitable product under development to compete with Netscape Allocation of software resources & programmers to produce a Microsoft browser in 1994 The development of internet explorer in 1995 & selling it for free crushed Netscape. Netscape was merged into AOL in 1998

Phase V-Solution of Problem

o Problem Consensus-refers to the agreement among managers about

the nature of a problem or opportunity o Technical Knowledge-refers to understanding & agreement about how to solve problems & reach org. goals
Certain Certain 1 Individual: Rational Approach Organization: Management Science Problem Consensus 2 Uncertain Individual: Bargaining, Coalition Formation Organization: Carnegie Model 4 Individual: Bargaining & Judgment Inspiration & Imitation Learning Organization: Carnegie & Incremental Models, evolving to Garbage Can

Solution Knowledge 3

Uncertain

Individual: Judgment Trial-and-error Organization: Incremental Decision Process Model

Individual Factors
o Individual differences in decision making o Individual biases in decision making

Group Influences
o Potential benefits & problems

Organization Barriers to Decision making

o Time Pressures o Cultural differences in decision making (multinational org.)

Organizational Decision Making

Individual decision making styles affect their approach to decision making

-Decision style indicates the differences between people with respect to their orientation towards decisions. -Four major decision styles exist
Decision Making Styles

Analytical -Prefer complex Normative -Simple, clear solns Problems -Analyze Alternatives -Make decisions -Enjoy solving Rapidly Problems -Do not consider -Willing to many alternatives use innovative metds -Rely on existing rules

Conceptual -Socially oriented -Humanistic & artistic Approach -Solve problems Creatively -Enjoy new ideas

Behavioral -Concern for org. -Interest in Helping others -Open to Suggestions -Rely on meetings

Individual Biases in Decision Making 1. Bias towards Implicit Favorites

-Implicit favorite decision is ones preferred decision alternative , selected even before all options have been considered -Confirmation candidate is a decision alternative considered only for purposes of convincing oneself of the wisdom of selecting the implicit favorite

2. Hindsight Bias
-The tendency for people to perceive outcomes as more inevitable after they have occurred (i.e. hindsight) than they did before they have occurred (i.e. in foresight) -Bias occurs as people feel good about being able judge things accurately
Organizational Decision Making

3. Person Sensitivity Bias

-The tendency for people to give others too little credit when things are going poorly & too much credit when things are going well -Decision making is not objective as one goes with the perception that Whats good is very good; whats bad is very bad -The election of George Bush in 2001

4. Escalation of Commitment Bias

-The tendency for individuals to continue to support previously unsuccessful courses of action -Iridium & Motorola -Conditions when people refrain from escalating commitment to a particular course of decision
Organizational Decision Making

Escalation of Commitment
TIME Past Present

Decision

Do X

Do X again?

Outcome

Negative

Yes

No

Conditions -Limited Resources -Overwhelming Evidence of Failure -Diffused responsibility for Previous decisions -Total investment Is expected to exceed gains

Give up; Escalate Commitment-Throw good money After bad in order to justify previously made Cut losses decisions

Organizational Decision Making

1. Potential Benefits
-Pooling of resources -Specialization labor -Greater acceptance of decisions

2. Potential Problems
-Wastage of time -Group conflict -Intimidation by the group leader & problem of groupthink -The origins of groupthink in the works of Irving Janis -Groupthink is the tendency for members of highly cohesive groups to so strongly confirm to group pressures regarding a decision that they fail to think critically rejecting the potentially correcting influences of outsiders -NASA & the launch of Challenger in 1986

Groupthink: An overview

High Levels of Group Cohesion

Pressure to go along with the group

Reluctance to question Group decisions

Illusions that No dec consideration Poor Are unanimous Decisions Of alt. Belief that Biased Inf. group is correct DEFECTS RESULT

ANTECEDENT PROCESSES

SYMPTOMS

Organizational Decision Making

Training Individuals to improve group performance

-Avoidance of o Hyper vigilance: The state in which an individual frantically searches for quick solutions to problems & goes from idea to the other o Un conflicted Adherence: The tendency for decision makers to stick to the first idea that comes to their mind o Un conflicted change: The tendency for people to quickly change their minds & adopt the first new idea o Defensive Avoidance: Failure to solve problem as decision makers avoid working on the problem at hand

Making Ethical Decisions

Organizational Decision Making

1.

Delphi Technique

-A method of improving group decisions using the opinions of experts, which are solicited by mail & then compiled by the group leader. The expert consensus of opinions is then used to make a decision. -Time consuming process

2. Nominal Group Technique

-A technique in which small groups of individuals systematically present & discuss their ideas before privately voting on their preferred solution. The most preferred solution is accepted as the groups solution -Cannot be used for urgent decisions -Reduction of conformity in the group
Organizational Decision Making

3. Stepladder Technique
A technique for improving the quality of group decisions that minimizes the tendency for group members to be unwilling to present their ideas by adding new members to a group one at a time & requiring each to present his or her ideas independently to a group that has already discussed the problem at hand

Step 3

Tentative Group Decision made by Person A & B & C Tentative Group Decision made by Person A & B Individual Decision made by Person A

Individual Decision made by Person D Individual Decision made by Person C Individual Decision made by Person B

Step 2

Step 1

Organizational Decision Making

1. 2.

E-Meetings Computer Assisted Communication

-The sharing of information, such as text messages & data relevant to the decision, over computer networks -Technological Adaptation & issues

3. Group Decision Support Systems

-Interactive computer-based systems that combine communication, computer & decision technologies to improve the effectiveness of group-problem solving meetings
Organizational Decision Making

Organizational Decision Making