Decision making, Planning Strategy

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Questions and Answers

What is a primary reason for incomplete information in decision making?

Excessive data availability

Sufficient time for research

Clarity of information

Time constraints and information costs (correct)

Which term describes the situation where managers choose an acceptable decision rather than the best one due to incomplete information?

Satisficing (correct)

Maximizing

Optimizing

Innovating

What must managers do first in the decision-making process?

Implement chosen alternative

Generate alternatives

Recognize the need for a decision (correct)

Evaluate alternatives

What can make it difficult for managers to generate good alternatives?

A lack of creativity Signup and view all the answers

Which statement best describes ambiguous information?

Information that has multiple interpretations Signup and view all the answers

What is an important aspect to consider when evaluating alternatives?

Both advantages and disadvantages of each alternative Signup and view all the answers

How do managers often assume when dealing with limited information?

The limited options represent all possible options Signup and view all the answers

Which of the following describes uncertainty in decision-making?

Probabilities that cannot be determined for outcomes Signup and view all the answers

Why is learning from feedback important for managers?

It prevents past mistakes from being repeated Signup and view all the answers

Which factor is NOT considered when evaluating alternatives?

Personal preferences Signup and view all the answers

What does the term 'bounded rationality' refer to in decision-making?

The limitations in knowledge that affect decision quality Signup and view all the answers

Which cognitive bias involves overestimating one's control over events?

Illusion of control Signup and view all the answers

What is a common outcome of using incorrect heuristics in decision-making?

Recurrent poor decisions Signup and view all the answers

What does escalating commitment refer to in a decision-making context?

Increasing resource allocation despite negative feedback Signup and view all the answers

How do groups influence cognitive biases in decision-making?

By pooling diverse perspectives and skills Signup and view all the answers

Which of the following scenarios exemplifies the prior hypothesis bias?

A manager insists that their past successful strategy will work again despite changing circumstances Signup and view all the answers

Which principle emphasizes the importance of employees finding better methods to perform tasks?

Personal Mastery Signup and view all the answers

What is the main benefit of Team Learning in organizations?

It enhances decision-making made in groups. Signup and view all the answers

What does Systems Thinking in Senge's model emphasize?

Actions in one area can affect all others within the organization. Signup and view all the answers

What approach does the Nominal Group Technique take to avoid production blocking?

Each member writes alternatives individually before discussion. Signup and view all the answers

Why is it important for managers to reward periodic failures in fostering creativity?

It encourages risk-taking and innovation. Signup and view all the answers

What is a potential disadvantage of brainstorming sessions?

They can lead to production blocking among team members. Signup and view all the answers

What does building a Shared Vision involve in Senge’s principles?

Creating a common mental model among employees. Signup and view all the answers

What technique ensures that group members' ideas are listed before any discussion occurs?

Nominal Group Technique Signup and view all the answers

What is the final step in the planning process after strategy formulation?

Strategy Implementation Signup and view all the answers

Which of the following best describes the purpose of a mission statement?

To define the organization’s overarching purpose and differentiators Signup and view all the answers

How does the Delphi Technique facilitate decision-making?

By enabling distant managers to participate through written communication Signup and view all the answers

What is the primary focus of strategy formulation in the planning process?

Analyzing the current situation and creating strategies Signup and view all the answers

Which statement correctly summarizes strategy implementation?

It is the final stage where resources are allocated to achieve strategies Signup and view all the answers

What is the primary focus of corporate-level planning?

Deciding which businesses or markets to operate in Signup and view all the answers

Which level of planning is most directly involved with day-to-day operational procedures?

Functional-level planning Signup and view all the answers

What type of planning typically has a time horizon of less than one year?

Short-term planning Signup and view all the answers

Which of the following is a characteristic of standing plans?

General guides to action such as policies Signup and view all the answers

Business-level plans primarily focus on which of the following aspects?

Identifying how to compete in the market Signup and view all the answers

Which term describes the duration of plans that span 1 to 5 years?

Intermediate-term plans Signup and view all the answers

What is the main role of corporate-level strategy formulation?

Establishing long-term goals and actionable frameworks Signup and view all the answers

What is typically included in functional-level planning?

Detailed budget allocations and department-specific strategies Signup and view all the answers

What is a risk associated with concentrating in a single business?

Vulnerability to market fluctuations Signup and view all the answers

Which strategy involves customizing products and marketing for each country of operation?

Multidomestic strategy Signup and view all the answers

What type of diversification focuses on expanding into areas similar to existing operations?

Related diversification Signup and view all the answers

Which aspect of vertical integration involves a company producing its own inputs?

Backward vertical integration Signup and view all the answers

What is a potential benefit of a global strategy in international markets?

Lower operational costs through standardization Signup and view all the answers

Study Notes

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.

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Description

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.