decision making chapter 11 gabriella morzi, jill hodgins, sai tian
TRANSCRIPT
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Decision Making Chapter 11
Gabriella Morzi, Jill Hodgins, Sai Tian
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Chapter Overview• Definitions• Individual Decision Making• Special Decision Circumstances• Organizational Decision Making• The Learning Organization• Contingency Decision-Making Framework• Closing Thoughts
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Decision Making in Today’s Environment
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Definitions Two major stages:• Problem identification stage• Problem solution stage
Two categories of organizational decisions:• Programmed decisions•Non-programmed decisions
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Individual Decision Making• One manager decides on problem identification and problem solution
Consists of:• Rational approach• Bounded rationality approach
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Rational Approach Steps:
1. Monitor the decision environment2. Define the decision problem3. Specify decision objectives4. Diagnose the problem5. Develop alternative solutions6. Evaluate alternatives7. Choose the best alternative8. Implement the chosen alternative
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Rational Approach Framework
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Example: Rational Decision Making Process
Beginning: In this session, we have many
perspectives and models to introduce
Goal: To help the class understand this session
and to have a better mark for us as session
leader
Decision: Should I use a chart to help the class better understand how the decision session fits
into our course?
Solutions: Yes, because it can actually help and
Trevor Loves it!
Alternatives: NO ALTERNATIVE!
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Remember the Rational Process?• Overviewing the data and evaluating the chosen decision
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Bounded Rationality Approach• Less formal approach to individual decision making
Consists of:
1. Constraints & trade-offs
2. Role of intuition
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Bounded Rationality Approach• Constraints and Trade-offs
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Bounded Rationality ApproachThe role of intuition:• Uses experience and judgment to make decisions• A 2002 survey found that 45% of corporate executives say they rely more on instinct than on facts and figures to make business decisions • New research dictates that most managers are making decisions with intuition and figures
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Organizational Decision Making• Many managers giving their input on problem identification and problem solution. Consists of:• Management Science• Carnegie Model• Incremental Decision Process• Garbage Can Model
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Management Science• Uses mathematical models for a quantitative approach• Used when variables can be analyzed and measured• Inputs variables to compare them and pick most the appropriate alternative• i.e. Hotwire Hotels
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Limitations• Doesn’t account for human oversight & judgment • Quantitative data might not be sufficient enough• Important qualitative factors can’t be accounted for
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Appropriate To Use When…• Structure: mechanistic & vertical
• Goals: efficiency & productivity
• Culture: mission
• Environment: simple + stable
• Strategy: defender
• Innovation: incremental change
• Life Cycle Stage: formalization
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Carnegie Model• Decisions are made from several managers through a coalition • Consensus is reached regarding what the main goals and problems are • Coalition is important because •Operational goals are ambiguous •Difficult to agree on what problems to prioritize• Limitations in human cognitive abilities
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Limitations• Coalition building: outcomes are subjected to organizational politics• Managers have to do bargaining to convince others there’s a problem• Leads to satisficing performance• Problemistic search yields low quality solution
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Appropriate To Use When…• Structure: mechanistic & vertical
• Goal: efficiency & overall performance
• Culture: bureaucratic → mission
• Environment: complex + stable
• Strategy: reactor
• Innovation: incremental change
• Life Cycle Stage: elaboration
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Incremental Process• Examines the series of sequential events that takes place from the problem identification stage to the problems solution stage• Usually small decisions made over a lengthy period of time to reach final outcome• Decision interrupts• Decision loops• Moves through 3 stages: • Identification• Development• Selection
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Identification PhaseInitial stage moves through 2 steps:
1. Recognition: manager becomes aware of a problem or opportunity.
2. Diagnosis: sufficient information has been gathered on the issue. Will move further systematically or informally depending on severity.
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Development Phase• Solution starts forming• Search procedures are used if this problem has come up before• A custom solution is made if it’s a new problem; trial and error
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Selection Phase• Solution that is feasible is picked• Final authorization is required• 3 methods to picking:• Judgment• Analysis• Bargaining
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Limitations• Can be very time consuming (i.e decision loops)• Employees can become frustrated and discouraged if higher level management doesn’t authorize final decision
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Appropriate To Use When…• Structure: organic & horizontal
• Goals: overall performance, growth, innovation
• Culture: adaptability
• Environment: simple + unstable
• Strategy: prospector
• Innovation: radical change
• Life Cycle Stage: collectivity
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The Learning Organization• Approaches are used when there is a heavy level of uncertainty in both the problem identification and problem solution.• Consists of:• Combining Carnegie & Incremental•Garbage Can Model
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Carnegie & Incremental• Combining of the 2 approaches
• Carnegie is useful in problem identification stage; coalition agrees which problems to prioritize
• Incremental is useful in problem solution stage; take small steps and compare outcomes
• i.e MediaNet Digital
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Appropriate To Use When…• Structure: organic & horizontal• Culture: clan • Environment: unstable + complex• Innovation: radical change
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The Garbage Can Model• Focuses on whole organization and flows or patterns of ongoing decision making process• Describes decision making processes, but isn’t really a tool• Shows relationship between 3 concepts:• Organized Anarchy• Streams of Events• Consequences
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Organized AnarchyCharacterized by:• Problematic preferences• Unclear, poorly understood technology• Turnover
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Streams of Events4 streams:• Problems• Potential solutions• Participants• Choice opportunities
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Consequences4 specific consequences:• Solutions proposed for non-existent problems• Choices made, but no problems solved• Problems persist without being solved• A few problems are solved
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When, Where or Why???• Environment unstable + complex = uncertain
• Goals effectiveness, innovation
• Strategy differentiation
• Structure Learning organization extremely organic, horizontal
• Life Cycle Stage entrepreneurial stage
• Culture clan culture or adaptability
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Preventative Measures:• Define goals• Add some structure; collaborative managerial role• Strong interaction with external environment to make knowledgeable, relevant decisions• Use clan controls and develop a strong clan culture, with dynamic, charismatic leadership
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Contingency Decision-Making Framework
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Contingency Decision-Making FrameworkConsists of 2 Dimensions:• Problem consensus• Technical knowledge
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Problem ConsensusThe degree to which managers agree on:1. What the problem or the possible opportunity is
2. What outcomes, goals and objectives to focus on
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Technical KnowledgeThe degree to which managers understand and agree on:1. How to solve problems and reach goals
2. The methods or tools available
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Special Decision CricumstancesCan Include:• High-velocity environment
• Decision mistakes and learning
• Escalating commitment
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High-Velocity Environment• The rate of competitive and technological change is so extreme that market data is either unavailable or obsolete• Strategic windows open and shut quickly, perhaps within a few months• The cost of poor decisions can result in failure to meet company goals
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High-Velocity Environment Point-Counterpoint: A tool that helps managers make decisions in a limited time:•Divides decision makers into 2 groups and assigns them different,
often competing, responsibilities• The groups develop and exchange proposals and debate options
until they arrive at a common set of understandings ensuring diverse opinions are considered
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Decision Mistakes and Learning• Decisions can result in many errors, especially when made in conditions of great uncertainty• Decision makers should see mistakes as an opportunity to learn• i.e. Student/professor feedback loop
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Escalating Commitment• Commit to a mistake, even when its failing• Tends to do more harm than good• Decision makers can’t accept failure
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Closing Thoughts• Decision making has many facets and is not a perfect process• Social processes play a large role in decision making• Degree of certainty & agreement determine best approaches to decision making