Organizational Decision-Making

Chapter 9: Managerial Decision Making

• Managerial decisions drive organizational success or failure
• Complex problems, changing factors, unclear information, and conflicting viewpoints make decision-making challenging
• Managers sometimes make poor decisions, as seen in the Caterpillar example purchasing China ERA and its later decline in value
• Good decision making is crucial for solving problems, allocating resources, and achieving organizational goals

Learning Objectives

• Differentiate between programmed and non-programmed decisions, considering certainty, uncertainty, and ambiguity
• Compare the ideal (rational) model of decision making with the political model
• Summarize the six steps in the managerial decision-making process
• Identify four personal decision styles used by managers
• Recognize common decision-making biases
• Detail innovative techniques like brainstorming, evidence-based management, and after-action reviews

Overview

• Organizational success relies heavily on managerial decisions
• Managers often face difficulty due to constantly changing conditions, ambiguous information, and diverse view points
• Examples of poor decisions, such as the Caterpillar ERA purchase, underscore the importance of effective decision-making

9.1 Types of Decisions and Problems

• Decision-making involves identifying problems and opportunities, then resolving these issues.
• Decision is a choice among available alternatives

9.1.1 Programmed and Non-programmed Decisions

• Programmed decisions address recurring problems with established rules
• Non-programmed decisions tackle unique or unexpected issues, often requiring significant managerial input

9.1.2 Facing Certainty and Uncertainty

• Decision difficulty reflects the level of uncertainty/risk/ambiguity
• Attempts to reduce uncertainty through information gathering
• Programmed decisions involve certainty, while non-programmed decisions involve varying degrees of uncertainty, risk, and ambiguity

Certainty, Risk, Uncertainty, and Ambiguity

• Certainty: Full information available, predicting outcomes with confidence
• Risk: Clear goals, uncertainty about outcome probabilities
• Uncertainty: Know the goals but lack information to predict outcome probabilities
• Ambiguity: Goals and alternatives unclear, outcome prediction impossible

9.3 Decision-Making Models

• Classical, administrative, and political models represent managerial perspectives
• Model choice depends on decision characteristics, especially the degree of uncertainty

9.3.1 Classical Model

• Normative model outlining ideal decision-making
• Assumes rational behavior with clear goals and perfect information
• Used for programmed decisions with certainty/little uncertainty

9.2.2 Administrative Model

• Descriptive model of how managers actually make decisions
• Recognizes human and environmental limitations
• Bounded rationality: Managers can't evaluate every possible solution. They often look for workable rather than optimal solutions
• Satisficing: Choosing the first acceptable solution instead of pursuing an optimal one

9.2.2 Administrative Model (cont.)

• Goals may be vague and conflicting, and information incomplete
• Managers may make simplistic decisions due to resource and time limitations
• Managers often use intuition and discussion to solve problems

9.3.3 Political Model

• Recognizes conflicts and power struggles among diverse stakeholders
• Decision-making involves coalition building and negotiation among managers with varied goals.
• Best used for non-programmed decisions in ambiguous situations

9.3.3 Political Model (cont.)

• Four assumptions include organizational structure with diverse interests, incomplete information, resource and time constraints, and uncertainty/conflicts as part of the process
• Decisions result from bargaining and negotiation among stakeholders

9.4 Decision-Making Steps

• Six-step process for effective managerial decision-making
• Recognition of decision requirement: identifying problems or opportunities
• Diagnosis and analysis of causes: exploring underlying causes
• Developing alternatives: generating feasible solutions
• Selection of desired alternative: choosing the best solution
• Implementation: putting chosen alternative into effect
• Evaluation and feedback: assessing the solution's effectiveness

9.5 Personal Decision Framework

• Managers' varying decision styles—directive, analytical, conceptual, and behavioral—impact their decision-making.
• The style chosen depends on the factors of the situation

9.6 Why Do Managers Make Bad Decisions?

• Initial Impressions/Anchoring Bias: Overreliance on past data for current judgments
• Justification of Past Decisions/Sunk Cost Effect: Continuing effort in a failing project despite evidence against it
• Confirmation Bias: Favoring information that supports existing beliefs/opinions
• Perpetuating the Status Quo: Maintaining past practices without sufficient evaluation/innovation
• Emotional Influence: Decisions driven by emotions, rather than logic
• Overconfidence: Overestimating one's abilities to predict uncertain outcomes

9.7 Innovative Decision Making

• Brainstorming, electronic brainstorming, hard evidence, and evidence-based decision-making for effective decisions
• Practices like devil's advocate, and rigorous debate can be included in the decision making process to improve quality of decisions.
• Groupthink, escalating commitment, and premortems are used to prevent biases