Decision making, Planning Strategy

Managerial Decision Making

• Decision making is the process where managers respond to opportunities and threats.
• Managers analyze options and decide on goals and courses of action.
• Decisions in response to opportunities aim to improve organizational performance.
• Decisions in response to threats occur when managers are impacted by adverse events.

Types of Decision Making

• Programmed Decisions: routine, almost automatic process.
• Managers have made similar decisions before.
• Rules or guidelines are available to follow.
• Example: Reordering office supplies.
• Non-programmed Decisions: unusual situations that have not been often addressed.
• No rules to follow, decisions are based on information, manager's intuition, and judgment.
• Example: Investing in new technology.

The Classical Model

• A prescriptive model that describes how decisions should be made.
• Assumes managers have access to all needed information.
• Managers can rank preferences among alternatives to reach the optimum decision.
• Unfortunately, managers often lack all, or most, required information.

The Administrative Model

• Challenges the classical model's assumptions about managers having and processing all information.
• Decision making is risky due to bounded rationality.
• A large number of alternatives and information makes it impossible for managers to consider everything.
• Decisions are limited by cognitive abilities.
• Incomplete information is common as most managers do not see all alternatives. They base decisions on incomplete information.

Why Information is Incomplete

• Risk: managers know a given outcome can fail or succeed and assign probabilities.
• Uncertainty: probabilities cannot be given and the future is unknown.
• Ambiguous information: information whose meaning is unclear.
• Interpretation differences exist.
• Time constraints, and information costs.

Decision Making Steps

• Recognize need for a decision (e.g., environment changes).
• Frame the problem.
• Generate and assess alternatives.
• Choose among alternatives.
• Implement the chosen alternative.
• Learn from feedback.

Evaluating Alternatives

• Legal considerations: Alternative must be legal, both domestically and internationally in case of exports.
• Ethical implications: The alternative cannot hurt stakeholders.
• Economic feasibility: The alternative must be capable of meeting the company's performance goals.
• Practicality: The company should have the necessary resources and capabilities for implementing the alternative.

Cognitive Biases

• Decision makers use heuristics (rules of thumb) to deal with bounded rationality
• Heuristics can lead to poor decisions if they're flawed.
• Systematic errors can arise from incorrect heuristics.

Types Of Cognitive Biases

• Prior Hypothesis bias: Managers allow strong prior beliefs that may not be supported by evidence.
• Representativeness: Decision makers generalize too easily with limited samples.
• Illusion of control: Managers overestimate their ability to control events.
• Escalating commitment: Managers continue to invest resources in projects even after feedback shows that they have a problem.

Group Decision Making

• Group decision making may combine skills and reduce biases.
• Groupthink: biased decision making that occurs when members strive for agreement. Members may blindly commit to a central idea without considering alternatives.

Improved Group Decision Making

• Devil's Advocacy: A member acts as a critic, pointing out problems.
• Dialectical Inquiry: Two groups evaluate each other's alternatives.
• Promote diversity: Increased diversity may lead to different perspectives and more alternatives.

Organizational Learning & Creativity

• Organizational Learning: Managers aim to improve member understanding of the organization and its environment to boost efficiency.
• Creativity: the ability to come up with novel ideas resulting in feasible courses of action.
• Learning organization: fosters creativity to maximize organizational learning.

Senge's Learning Organization Principles

• Develop Personal Mastery
• Build Shared Vision
• Encourage Systems Thinking
• Promote Team Learning

Creating a Learning Organization

• Personal Mastery: Empower employees to learn and explore.
• Mental Models: challenge employees to seek new, better methods.
• Team Learning: Team learning is more important than individual learning.
• Build a Shared Vision: A shared mental model can help people understand opportunities.
• Systems Thinking: Actions in one area impact others.

Individual Creativity

• Organizations build an environment to support creativity.
• Managers need to equip employees with the ability to take risks.
• Failures can be helpful in building creativity.

Building Group Creativity

• Brainstorming: Generating alternatives without evaluation until all are listed.
• Production Blocking: Members cannot absorb all information during a session.
• Nominal Group Technique: A more structured way to generate alternatives in writing.
• Delphi Technique: A written format method for generating and ranking alternatives without face-to-face meetings.

The Manager as a Planner and Strategist

• Planning: a process for identifying and selecting goals and action courses for an organization.
• The organizational plan outlines goals to be met.
• The pattern of decisions demonstrates the organization's strategy.

Three Stages of the Planning Process

• Determining the organization's mission and goals (defining the business).
• Strategy formulation (analyzing the current situation and developing strategies).
• Strategy implementation (allocating resources and responsibilities to achieve strategies).

Planning Process Stages

• Organizational Mission: A broad declaration of overriding purpose, identifies products, customers, and distinguishes the firm from competitors.
• Formulating Strategy: Analyze current situations and develop strategies to achieve the mission.
• Implementing Strategy: Allocate resources between groups to ensure strategy is successfully achieved.

Levels of Planning

• Corporate Level: Top management decisions about businesses and markets.
• Business Level: Divisional long-term goals and structure, how the business will compete in the market.
• Functional Level: Actions of managers in departments, which detail exactly how business level strategies are achieved.

Planning at General Electric

• The diagram illustrates the different levels of planning within an organization.

Planning Levels

• Corporate Level: Top management decisions.
• Business Level: Defining divisional long-term goals and structure.
• Functional Level: Functional managers acting in departments.

Characteristics of Plans

• Time Horizon: the duration of a plan's application.
• Long-term plans: generally 5 years or more.
• Intermediate-term plans: 1-5 years.
• Short-term plans: less than 1 year.

Types of Plans

• Standing plans: for programmed decisions (e.g., policies, rules, standard operating procedures).
• Single-use plans: developed to address a non-programmed issue (e.g., one-time programs or projects).

Who Plans?

• Corporate Level, business level, and functional level planning involve different management levels.
• All levels of management should be involved in the planning process.

Why Planning is Important

• Planning sets direction and purpose, coordinates efforts in the organization, and establishes control.

Scenario Planning

• Scenario planning generates multiple forecasts of future conditions to analyze responses.

Determining Mission and Goals

• Define the business: understanding customers, needs, and competitors.
• Establishing major goals: goals should be ambitious, realistic, and have a timeframe.

Mission Statements

• Broad declaration of purpose, identifies the firm's products, customers, and distinguishes it from competitors.

Strategy Formulation

• Analyzing current situations to develop strategies that will achieve the mission.
• SWOT analysis: examining Strengths, Weaknesses, Opportunities, and Threats.
• Examples of strengths and weaknesses from the analysis will be helpful.

The Five Forces Model

• Model analyzes the competitive forces within an industry.
• These forces are rivalry amongst existing organizations, the threat of new entrants, the power of suppliers, the power of buyers, and the threat of substitute products.

Corporate-Level Strategies

• Concentrating in one business (e.g.,McDonald's, fast-food).
• Diversification: Entering new business and services.
• Related diversification: Building upon existing divisions.
• Unrelated diversification: Creating a portfolio of unrelated firms.

International Strategy

• Global strategy (standard product/marketing approach).
• Multidomestic strategy (customized product/marketing approach per country).

Vertical Integration

• Backward vertical integration: producing one's own inputs (e.g., McDonalds growing its own potatoes).
• Forward vertical integration: distributing one's own outputs (e.g., McDonalds owning final restaurants).

Vertical Value Chain

• Describes the various steps in the production process from raw materials to the final customer.

Business-level Strategies

• Low-cost: driving down organizational costs (e.g., reduced waste, lower manufacturing costs, lower prices than competitors).
• Differentiation: Making products different from competitors (e.g., offering unique features, charging more for a differentiated product).

Business Strategies

• Focused low-cost: Aiming to be the lowest cost in a specific segment.
• Focused differentiation: Emphasizing differentiation in a specific segment.

Functional-level Strategies

• Each department (e.g., marketing, service, production) adds value to goods/services.
• Adding value in two ways: Reducing operational costs and providing differentiation.
• Alignment with business-level strategies.

Goals for Successful Functional Strategies

• Superior efficiency and quality.
• Superior innovation and responsiveness to customers.

This quiz explores the processes and types of decision making in management. It covers programmed and non-programmed decisions, and the classical model of decision making. Test your understanding of how managers analyze options and respond to opportunities and threats.