Organizational Theory: Decision Making

Organizational Theory: Decision Making and Sensemaking

• Decision making is the process of identifying and solving problems. It involves problem identification (monitoring the organization and external environment for changes), problem solution (engaging in discussion, considering alternatives, and choosing an action), and the decision-making actors (individuals or groups—internal (employees) and/or external (stakeholders)). Managers often base decisions on rationality or bounded rationality.

Decision Making in Today's Environment

• Today's business environment is characterized by greater complexity and uncertainty, and rapid change.
• New decision-making requirements include faster decision-making, more cooperation among individuals, less reliance on hard data, greater acceptance of uncertainty & outcomes, and a more iterative approach (evolving through trial and error).

Rational Decision Making

• Rational decision-making is a scientific, logical, and step-by-step approach focused on cause and effect.
• Managers weigh pros and cons, adhere to established processes, procedures, rules, and logic, aiming to maximize or achieve the optimal solution.
• Modern technology facilitates decision-making: access to vast information, organizational intelligence networks, and feedback from departments, branches, the supply chain, customers and stakeholders allowing monitoring of past decisions and quick adaptations.

Steps in Rational Decision Making

• Problem identification- Define the problem
• Specify decision objectives- Determine what outcomes are desired
• Develop alternative solutions- Brainstorm possible solutions
• Evaluate alternatives- Analyze the benefits and drawbacks of each option
• Choose the best alternative- Select the most promising solution
• Implement the chosen alternative- Put the chosen plan into action
• Monitor the decision environment- Track progress and outcomes to see if the decision needs adjustment based on conditions

Rational Decision Making - Limitations

• Rational Decision Making is valuable when situations are well-understood
• However, it's often imperfect in practice due to complex issues, urgent time constraints, limited information, and an inability to evaluate every conceivable factor.

Bounded Rationality

• Acknowledges that many decisions occur in situations with incomplete information, constraints, and trade-offs, creating limitations on information processing capabilities making perfect rationality impractical.
• Managers must "talk to each other" and exchange perspectives to reduce ambiguity as complete information is not always available
• Constraints such as time, resources, competing values, emotional needs and past experiences can influence choices – leading to less than perfect, or "good enough" decisions ("satisficing" rather than maximizing).

Cognitive Biases

• Cognitive biases are errors in judgment that affect decision-making.
• Some common biases include being swayed by initial impressions (anchoring effect), seeing what one wants to see (ignoring contradictory information), being influenced by emotions, being overconfident, escalating commitment to failing choices, fearing failure over potential gain, and succumbing to groupthink.

Sensemaking

• Sensemaking is the process & organizing of information related to the environment to understand issues, anticipate problems, and make decisions
• It helps managers make better sense of their environment by interpreting events, experiences, problems, and stakeholder expectations.
• Sensemaking is crucial when situations are ambiguous or uncertain, generating interpretations and creating action to respond.
• Interruptions of routines can cause collapses in sensemaking as people revert to familiar responses in crisis. Collecting, processing, and engaging stakeholders is important to prevent such collapses.

Weick's 7 Properties of Sensemaking

• Identity: understanding one's role in the organization and the environment.
• Retrospective: interpreting past events based on previous experiences.
• Ongoing events: responding to continuous change.
• Socialization: using meanings from culture, upbringing, and education.
• Important cues: understanding the relevance of information collected.
• Plausibility: improving credibility of interpretation by gaining external validation and testing cues.
• Sufficiency:making a decision that is adequate, rather than trying to achieve perfection.

Case Study: The 89th Academy Awards

• The 89th Oscars showcased a faulty sensemaking process when presenters were handed the wrong envelope and made a decision based that mistake – highlighting problems that can occur through limited information and poor communication.

Lessons Learned

• Open communication; humility; acknowledging the environment is constantly changing and adapting accordingly; avoiding overconfidence.
• Decision-making should be iterative and responsive to the environment
• Learning from past crises and disasters are vital tools
• Be aware that there are always unknowns and be sufficiently flexible to adapt

Bhopal Disaster

• Highlights decision-making failures leading to a significant disaster.
• The Union Carbide pesticide plant accident in Bhopal, India, was caused by decay and lack of maintenance of facilities and poor safety and training of employees. This demonstrates that poor decision making can have significant consequences.

Explore the complexities of decision making within organizational theory. This quiz covers the processes of problem identification, solution, and the dynamics of decision-making actors in today's fast-paced environment. Dive into rational decision-making approaches and the adaptations necessary for success in uncertain conditions.