Chapter 6 Managerial Decision Making

2007 Thomson/South-Western. All rights reserved.6*Sources of Organizational and Entrepreneurial DecisionsDecision makingThe process through which managers and leaders identify and resolve problems and capitalize on opportunities.ProblemA condition that occurs when some aspect of organizational performance is less than desirable.OpportunityAny situation that has the potential to provide additional beneficial outcomes.

2007 Thomson/South-Western. All rights reserved.

2007 Thomson/South-Western. All rights reserved.6*Figure 6.1 Seven Steps in the Decision-Making ProcessIdentifying opportunities and diagnosing problemsIdentifying objectivesGenerating alternativesEvaluating alternativesChoosing implementation strategiesMonitoring and evaluatingReaching decisions


2007 Thomson/South-Western. All rights reserved.6*Ethics and Decision MakingEthical DilemmaA situation in which a person must decide whether or not to do something that, although benefiting oneself or the organization, may be considered unethical and perhaps illegal.Have you accurately assessed the problem?Do you have all the necessary information?Where are your loyalties?Have you generated a list of possible alternatives and considered how each will affect the other parties involved?Have you tested each alternative by asking whether it is legal, fair, and just to all parties involved?Would your decision change if you were to disclose it to your family, your boss, or society as a whole?Does your decision have any symbolic potential?Could it be misunderstood?


2007 Thomson/South-Western. All rights reserved.6*Behavioral Decision ModelAcknowledges the human limitations that make rational decisions difficult to achieve. A managers cognitive ability to process information is limited.Managers usually attempt to behave rationally within their limited perception of a situation. The complexity of most organizational situations forces managers to view problems within sharply restricted bounds.The behavior of managers can be considered rational, but only in terms of their simplified view of the problem.


2007 Thomson/South-Western. All rights reserved.6*Concepts Important to the Behavioral Decision ModelBounded RationalityRecognizes that people are limited by organizational constraints such as time, information, resources, and their own mental capabilities.IntuitionAn unconscious analysis based on past experience.SatisficingThe search and acceptance of something that is satisfactory rather than perfect or optimal.


2007 Thomson/South-Western. All rights reserved.6*Concepts Important to the Decision Model (contd)Escalation of CommitmentThe tendency to increase commitment to a previously selected course of action beyond the level that would be expected if the manager followed an effective decision-making process.


2007 Thomson/South-Western. All rights reserved.6*Fostering Quality in the Decision-Making ProcessVigilanceBeing concerned for and attentive to the correct decision-making procedures can make a good decision more likely.


2007 Thomson/South-Western. All rights reserved.6*Group Considerations in Decision MakingGroup decision making is becoming more common as organizations focus on improving customer service and push decision making to lower levels.


2007 Thomson/South-Western. All rights reserved.6*Participative ModelsVroom and Yetton ModelHelps managers determine when group decision making is appropriate.Postulates that there are five decision-making styles arranged along a continuum.The decision methods become progressively more participative as one moves from the highly autocratic style (AI) to the group style (GII), where the manager allows the group to decide.


2007 Thomson/South-Western. All rights reserved.6*Situational Contingencies Affecting Decision Making ParticipationDecision significanceImportance of commitmentLeader expertiseLikelihood of commitmentTeam supportTeam expertiseTeam competence


2007 Thomson/South-Western. All rights reserved.6*Figure 6.4 Vroom and Jago Decision ModelInstructions: The matrix operates like a funnel. You start at the left with a specific decision problem in mind. The column headings denote situational factors which may or may not be present in that problem. You progress by selecting High and Low (H or L) for each relevant situational factor. Proceed down from the funnel, judging only those situational factors for which a judgment is called for, until you reach the recommended process.


2007 Thomson/South-Western. All rights reserved.6*Participative Models (contd)Vroom and Jago ModelThe nature of the decision itself determines the appropriate degree of participationdiagnostic questions help managers select the appropriate level.A participative decision style is desirable when:Subordinates have useful information and share the organizations goals.Subordinates commitment to the decision is essential.Timeliness is not crucial.Conflict is unlikely.


2007 Thomson/South-Western. All rights reserved.6*What is Groupthink?An agreement-at-any-cost mentality that results in ineffective group decision making.Characteristics of GroupthinkIllusions of invulnerabilityCollective rationalizationBelief in the morality of group decisionsSelf-censorshipIllusion of unanimity in decision makingPressure on members who express arguments


2007 Thomson/South-Western. All rights reserved.6*BrainstormingBrainstormingA technique to enhance creativity by encouraging group members to generate as many novel ideas as possible on a given topic without evaluating them.Rules of BrainstormingFreewheeling is encouraged.Ideas are not criticized as they are being generated.Quality is encouraged.The wilder the ideas, the better.Piggyback on previously stated ideas.Ideas are evaluated after alternatives are generated.


2007 Thomson/South-Western. All rights reserved.6*Other Decision-Making TechniquesNominal Group Technique (NGT)A structured process designed to stimulate creative group decision making where agreement is lacking or the members have incomplete knowledge concerning the nature of the problem.Delphi TechniqueUses experts to make predictions and forecasts about future events without meeting face-to-face.


2007 Thomson/South-Western. All rights reserved.6*Other Decision-Making Techniques (contd)Devils AdvocacyAn individual or subgroup appointed to critique a proposed course of action and identify problems to consider before the decision is final.Dialectical InquiryApproaches a decision from two opposite points and structures a debate between conflicting views.


2007 Thomson/South-Western. All rights reserved.6*Classifying Decision SituationsProgrammed decisionA decision made in response to a situation that is routine or recurring.Example: starting your automobileNonprogrammed decisionA decision made in response to a situation that is unique, unstructured, or poorly defined.Example: deciding to get a tattoo


2007 Thomson/South-Western. All rights reserved.6*Strategic Decision-Making ToolsStrategic Decision MakingSelection of a strategy that will define the long-term direction of the firmoccurs at the highest levels of the organization.Two important areas for strategic decision making are:Strategy selectionEvaluation of portfolios


2007 Thomson/South-Western. All rights reserved.6*Strategy SelectionThe Strategic Decision-Making MatrixA two-dimensional grid used to select the best strategic alternative in light of multiple organizational objectives.Management usually assigns the weights based on its subjective assessment of the importance of each objective.


2007 Thomson/South-Western. All rights reserved.6*Table 6.4 Strategic Decision-Making Matrix

Objectives IncreasedIncreased Total IncreasedShareOutput Weighted Profit Market ProductionScore Alternative 0.5 0.3 0.2 Strategies/Weight

Product 2 2 30.5(2) 1 0.3(2) 1 0.2(3) 5 2.2 development

Horizontal 4 2 2 0.5(4) 1 0.3(2) 1 0.2(2) 5 3.0 integration

Joint venture 5 3 3 0.5(5) 1 0.3(3) 1 0.2(3) 5 4.0


2007 Thomson/South-Western. All rights reserved.6*Evaluation of PortfoliosBusiness Portfolio MatrixA two-dimensional grid that compares the strategic positions of each of the organizations businesses.Most frequently used matrices:Growth-share matrix.Industry attractiveness/business strength matrix.


2007 Thomson/South-Western. All rights reserved.6*Boston Consulting Group (BCG) MatrixBusiness portfolio matrix that uses market growth rate and relative market share as the indicators of the firms strategic position.Market growth rateA measure of the annual growth percentage of the market in which the business operates.Relative market shareThe firms market share divided by the market share of its largest competitor.


2007 Thomson/South-Western. All rights reserved.6*BCG Matrix: Stars and Cash CowsStarsBusinesses that fall into the high market growth/high market share cell of the BCG matrix.Offer attractive profit and growth opportunities.Cash CowsBusinesses that fall into the low market growth/high market share cell of a BCG matrix.Generate substantial cash surpluses.Generally yesterdays stars that have matured.


2007 Thomson/South-Western. All rights reserved.6*BCG Matrix: Dogs and Question MarksDogsBusinesses that fall into the low market growth/low market share cell of a BCG matrix.Typically generate low profits, and in some cases may even lose money.Question MarksBusinesses that fall into the high market growth/low market share cell of a BCG matrix.Businesses that look attractive from an industry standpoint, however, their low market share makes their profit potential uncertain.


2007 Thomson/South-Western. All rights reserved.6*Table 6.6 Illustration of Industry Attractiveness and Business Strength ComputationsSource: Adapted from Strategic Management: Text and Cases on Business Policy by Hesmer, 1984. Reprinted by permission of Prentice Hall, Upper Saddle River NJ.


2007 Thomson/South-Western. All rights reserved.6*The Industry Attractiveness/BusinessStrength Matrix (GE Matrix)Business portfolio matrix that uses several factors to assess industry attractiveness and business strength.Uses multiple factors in determining both industry attractiveness and business strength for each firm in the portfolio.


Documents

Chapter 6 Managerial Decision Making