Management Chapter 9: Decision Making

Decision Making

• Decision making is a crucial task for management, involving problem-solving and uncertainty
• Decision making involves multiple criteria, interdisciplinary input, joint decision making, and consideration of long-term consequences and value judgments
• Decisions can be categorized as routine problems (requiring pre-programmed decisions) or specific problems (requiring less structured solutions)

Types of Decision Making Processes

• Rational decision making: involves defining the problem, developing alternatives, evaluating alternatives, selecting an alternative, and implementing the decision
• Non-rational decision making processes:
  • Neo-rational decision making: informal, centralized, and directed by one person
  • Bureaucratic decision making: formal, centralized, and based on rules
  • Partial decision making: formal, decentralized, and involves negotiating and interactions between groups
  • Open-ended decision making: informal, decentralized, and characterized by lack of clear starting and finishing points

Aspects of Decision Making

• Creativity: essential for organizational competitiveness, can be encouraged through brainstorming and off-site sessions
• Participation: essential for motivating employees, can be achieved through indirect (workers' council) or direct (staff representatives) means
• Meeting skills: effective meetings involve structuring, being informed together, working together, and implementing together
• Negotiation: involves finding a compromise that is acceptable to all parties, based on principles

Decision Making Styles

• Directive style: rational, structured, and has a low tolerance for ambiguity
• Behavioral style: works well with others, has a high tolerance for ambiguity
• Analytical style: rational, has a high tolerance for ambiguity
• Conceptual style: combines intuitive thinking with a high degree of tolerance for ambiguity

Decision Making Tools and Techniques

• Balanced scorecard: a management approach that considers financial and non-financial indicators
• Decision matrix: a method for comparing solutions using weighted criteria
• Decision tree: a graphic illustration of alternatives and consequences
• Decision supporting systems: computer-based systems that help decision-makers solve problems
• Expert systems: automated systems that solve problems using stored specialized knowledge
• Simulation models: software models that simulate the economic simulation of a particular sector or enterprise### Structure Partnerships
• In the Netherlands, partnerships with more than 100 employees are required to establish a Board of Commissioners (Raad van Commissarissen)
• The Board of Commissioners has three main tasks:
  • Monitoring management's policy and general organizational affairs
  • Appointing or dismissing directors
  • Approving crucial decisions, such as mergers and major investments
• The Board of Commissioners is headed by a president-commissioner

Two-Tier System

• The Dutch Structure Law operates on a two-tier system, separating management and supervision
• Also known as the Rhineland model, which weighs the interests of various stakeholders
• In contrast, the Anglo-Saxon model is a one-tier system, where management and supervision are not separated

One-Tier Board

• Introduced in 2013, allowing companies to choose between one-tier and two-tier boards
• In a one-tier board, supervisors are part of management, and executive managers can be appointed, supervised, and rewarded by non-executive managers

Organization-Directed Methods

• Unit management: semi-independent units that behave like independent enterprises
• Advantages:
  • Shared sales teams, common grounds, and exchange of experiences
• Disadvantages:
  • Diminished efficiency, less coherence, and prevailing short-term interests

Organizational Structure

• The process of creating an organizational structure involves:
  • Dividing tasks into separate functions
  • Allocating tasks to departments and individuals
  • Defining authority and responsibilities
• The purpose of task division is to:
  • Increase productivity
  • Identify tasks of the same level
  • Seek coherence between tasks

Task Division

• Vertical task division: dividing tasks into levels to be performed
• Factors influencing task division:
  • Cost factors
  • Managerial factors
  • Individual factors
  • Societal motives
• Work structuring involves considering technical, economic, and social aspects of working in an organization

Horizontal Task Division

• Functional division: dividing an organization into smaller groups based on specialized functions
• Internal specialization: grouping activities based on the result
• Forms of horizontal task division:
  • Internal differentiation
  • Internal specialization

Span of Control

• The number of subordinates a manager can effectively oversee
• Influences efficiency, communication, and overall effectiveness of management
• Factors determining span of control:
  • Manager's qualities
  • Employee qualities
  • Nature of the organization
  • Nature of the work

Organizational Systems

• Mechanistic organizational system:
  • Hierarchical structure
  • Technical and financial efficiency
  • Primarily effective in stable environments
• Organic organizational system:
  • Flexible and adaptable to change
  • Flat organizational structure
  • Decentralized decision-making
  • Appropriate in dynamic environments

Functional and Line Staff Organization

• Line and staff organization: a combination of functional and line structure
• Functional staff division:
  • Assigning functional responsibility to individuals and departments
  • Involving functional staff in decision-making
• Advantages:
  • Greater input of expertise
  • Uniform and consistent policies
• Disadvantages:
  • Confusion due to dual management
  • Difficulty in retaining control

Matrix Organization

• A temporary project-based organization
• Characteristics:
  • Joint authority
  • Project managers and department heads
  • Cross-departmental tasks
• Advantages:
  • Cross-departmental task management
  • Maintaining line organizational structure
• Disadvantages:
  • Tensions and conflicts between project managers and department heads
  • Potential negative effects on departmental awareness

Divisional Organization

• Grouping activities around related products or markets
• Headed by a divisional director or manager
• Advantages:
  • Anticipating customer needs
  • Combining small and large unit assets
  • Using group support units
• Disadvantages:
  • Short-term interests taking precedence
  • Extra management and overhead costs
  • Independence may result in underutilization of knowledge and experience

Organizational Properties

• Mintzberg's configuration approach:
  • Integrating organizational properties to create cohesion
  • Focusing on the mutual adjustment of the organization's properties### Organizational Structure
• An organization needs at least one manager who supervises all processes and manages the organization, located in the strategic apex.
• As an organization grows in size, it needs more managers, including those who direct other managers, creating an intermediate or middle line.
• The organization also needs a technical staff area that analyzes and supports primary processes, making plans and managing work.

Coordination Mechanisms

• Organizations divide work amongst employees (task division) and coordinate activities using:
  • Mutual adjustment: formal and informal communication between employees.
  • Direct supervision: managers issue assignments and instructions to staff.
  • Standardization of work process: tasks are specified and standardized.
  • Standardization of outputs: results are specified.
  • Standardization of skills: activities are coordinated based on training and experience.
  • Standardization of norms: staff share a similar set of opinions.

Design Parameters

• Design parameters determine how tasks are divided in an organization, including:
  • Specialization of tasks: number of tasks per function and assignment of responsibilities and authorities.
  • Size of departments or groups: connected to the number of employees per unit or group.
  • Centralization or decentralization: degree to which decision-making authorities are assigned to staff lower down the hierarchy.
  • Formalization of behavior: extent to which rules, procedures, and job descriptions standardize employee duties.

Contingency Factors (Situational Factors)

• Situational factors affect the success of an organization's strategy, including:
  • Technical system: level of automation used by the operational core.
  • Environmental characteristics: dynamic, complex, or stable environment.
  • Age and size of the organization: formalization increases with age and size.

Organizational Forms (Mintzberg's 7 Organizations)

• Mintzberg identified 7 different organizational configurations:
  • The Entrepreneurial Organisation: flat structure, charismatic and autocratic leadership, flexible, and market-oriented.
  • The Machine Bureaucracy: formal communication and decision-making channels, strategic planning, and rational.
  • The Professional Organisation: highly skilled staff, standardization of knowledge and skills, autonomous, and democratic.
  • The Diversified Organisation: semi-independent units or divisions connected by central management.
  • The Innovative Organisation: multidisciplinary teams, minimal standardization, innovative, and adaptable.
  • The Missionary Organisation: strong ideology, small units, charismatic leadership, and high employee alignment.
  • The Political Organisation: influenced by politics, authority, and expertise, with potential for internal conflicts.

Organizational Structure Trends

• Network organizations:
  • Collaborate between autonomous entities or individuals to achieve goals.
  • Leverage each other's strengths to create added value for common clients.
  • Interdependence, reducing individual risk and focusing on mutual product development or expertise sharing.
  • Characteristics: globalization, advancements in information technology, and horizontal relationships based on trust.
• Cluster organizations:
  • Focus on team structures, forming project, quality, or cross-functional teams.
  • Expected to become more prevalent, according to Peter Drucker.
• Virtual organizations:
  • Enabled by the internet and other technologies, allowing for global collaboration without a central physical location.
  • Reduce costs by eliminating the need for complex international setups.
  • Support project-based connections, improving flexibility, commitment, and balance between individual work and teamwork.