Background Information Decision Making

Background information:

Being defined as a process of identifying and solving problems, decision making, is the activity most companies would take part in every day. It can be categorized into two parts: the first is programmed decision which is well defined and there are procedures exist for resolving the problem; the second is non-programmed decision which is poorly defined, and there are no procedures exists for solving the problems. A good decision could contribute to growth of firm’s revenue, increasing market shares and putting the company on a good wicket.

For example, considering the increasing number of middle class in China, the UK luxury group – Burberry Corporation – increases its direct-sales stores into 100 in China and had a 30 percent growth in sales. In contrast, a bad decision make lead to a disaster for the company. Take Starbuck as an example. In order to meet its growth goals, Starbuck choose the store location with lower standards and could not support so many new stores.

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As a result, it closed hundreds of underperforming stores in 2008.

Thesis statement: The evidence given seems to suggest that making a good decision plays a critical role in company.

Model 1 Rational model
Description
The rational model stresses the need for systematic analysis of a problem followed by choice and implementation in logical step by step sequences. The particular example is U.S. Marine which adopts a series of mental routines to help the soldier analyze the situation and take action. There are two assumptions for this model: the known objectives and organization possess a single, super ordinate goal.

The decision making process can be divided into three section. In the problem identification stage, the company should recognize the problem and then define the characteristic of the problem by gathering more information. In the development stage, the company should seek out alternatives and design a custom solution. The final stage is the selection where company should evaluate the selection. When final choices falls upon a single decision maker, and the choice involves judgment based upon experience.

Case 1: Cuba missile crisis

Case 2: GE Capital Mortgage Insurance Company used rational analysis to improve the decision making of loss management representatives. Using Loss Mitigation optimizer to analyzes and measures relevant variables. Hence, GE improves its cure rates from 30 percent to more than 50 percent while representatives were taking 30 percent to 50 percent less time per deal.

Critique

There are several critiques of this model.
1. Many decisions follow the basic phases of problem identification, development and selection, but they cycle through the various stages, frequently repeating, and going deeper. Nutt points out those pieces of the rational model are valid but they do not necessarily follow a simple, causal sequence. So it is not just the linear cause – effect process. Agreeing this, the Bradford group states the amount of cycling and shape of the process depends on how complex and political the decision is. Case:

2. Decision processes are often bounded rational. Bounded rationality means there are imperfect information and time pressure. The manager of the company could not collect all relevant information and he should make the decision in a short time. Also, the processing and storing capacity of manager is limited and hence could not analyze the information deeply. Anderson points out that in order to avoid high risk, decision maker often selected alternatives that even they did not expect to solve the problem. Therefore, decision makers satisfy instead of optimize, rarely engage in comprehensive search, and discover their goals in the process of searching. (improve the rationality: using more information and create more diverse viewpoints – group thinking)

3. A critical assumption for this model is that the object is known by decision makers. Nevertheless, this assumption is quite invalid in current rapid change business world. For example, in the stock market, the stock price changes every second. The information the trader acquired is changing and he could not follow a rational process to make the investment decision. Hence, the more complex or turbulent environment requires less rationality.

Solution:
Because of the bounded rationality, personal constraints and organizational constraints would affects the decision, managers simply could not use the rational approach for non-programmed decision. However, the managers could use intuitive decision making which depends on experience rather than sequential logic or explicit reasoning. In the problem identification stage, the manager could not prove a problem existed but knew intuitively that a certain area needed attention. In the problem solution stage, a study finds that executives make decision without explicit reference to the impact on profits or to others measurable outcomes.

Model 2 Organizational model

Description
Government define alternatives and estimate consequences as organizations process information. Governments act as these organizations enact routines. To be responsive to a broad spectrum of problems, governments consist of large organizations among which primary responsibility for particular areas is divided. Thus government behaviour relevant to any important problem reflects of independent output of several organizations, partially coordinated by government leaders. The coordination required standard operating procedures: rules according to which things are done. At any given time, a government consists of existing organizations, each with a fixed set of standard operating procedures and programs. So behaviour determined by routines. 1. Action as organizational output. The behaviour is guided by pre-established routines. In producing outputs, the activity of each organizations is characterized by: a. Goals: constraints defining acceptable performance. Each org’s operational goals emerge as a set of constraints defining acceptable performance. Central among these constraints are org health. b. Sequential attention to the goal.

The existence of conflict among operational constraints is resolved by the device of sequential attention. As a problems arises, the subunits of the org most concerned with that problem deal with it in terms of the constraints they take to be most important. c. Standard operating procedures. Org performs their high function: attending to problem areas, preparing relevant responses for likely contingencies. Without these standard procedures, it would not be possible to perform certain concerted tasks. But because of standard procedures, org behaviour in particular instances often appears unduly formalized, sluggish, or inappropriate.

d. Programs and repertoires. Organizations must be capable of performing actions in which the behaviour of large numbers of individuals is carefully coordinated.

e. Uncertainty Avoidance. Org do not attempt to estimate the probability distribution of future occurrences. Rather, organizations avoid uncertainty. By arranging a negotiated environment, org regularize the reactions of other actors with whom they have to deal.

f. Problems directed search. Where situations cannot be construed as standard, organizations engage in search. The style of search and the solution are largely determined by existing routines. Organizational search for alternative courses of actions is problem-oriented and simple minded. g. Organizational learning and change.

In response to non-standard problems, org search and routines evolve, assimilating new situation, Thus learning and change follow in large part from existing procedures. Some marked changes:

1) periods of budgetary feast: org devour budgetary feasts by purchasing additional items on the existing shopping list. 2) Periods of prolonged budgetary famine 3)Dramatic performance failures. h. Central coordination and control. Actions require decentralization of responsibility and power. Responsive action entails decentralized power VS coordinated action requires central power. i. Decision of Government leaders.

Critique:
1. SOP. Fail: specific instances, particularly critical instances that typically do not have standard characteristics and often handled sluggishly or inappropriately. 2. Limited flexibility and incremental change.

Major lines of organizational action are straight.
a. Organizational budgets change incrementally – both with respect of totals and with respect to intra-organizational splits. In practice, org take last year’s budget as a base and adjust incrementally. b. Once undertaken, an organizational investment is not dropped at the point where “objective” costs outweigh benefits. 3. Administrative feasibility

Adequate explanation, analysis, and prediction must include administrative feasibility as a major dimension. a. Org are blunt instruments. Projects that require several org to act with high degrees of precision and coordination are not likely to succeed. b. Projects that demand that existing org units depart from their accustomed functions and perform previously programmed tasks are rarely accomplished in their designed form. c. Government leaders can expect that each org will do its part in terms of what the org knows how to do d. Government leader can expect that each incomplete and distorted information from each org concerning its part of the problem. e. Where an assigned piece of a problem is contrary to the existing goals of an org, resistance to implementation of that piece will be encountered. Combination

Model 3 Political model
In political model, the decision is the result of process in which decision makers have different goals, they come together through coalitions, and the preferences of the most powerful people. Organization possesses a single, super ordinate goal. Here, people are individual rational, but not collectively so. Organizations are coalitions of people with competing interests.

First feature: The heart of the political perspective is the process by which conflicts is resolved among individuals with competing preferences. Decision makers often attempt to change the power structure by engaging in political tactics such as coalition formation, co-optation, strategic use of information.

Case: NYU

NYU wants to shift from an open-enrolment, part-time school to a demanding, research-oriented university. On the one hand, participants – faculty, administrator, students, alumni – shared a common interest in the welfare of the university. On the other hand, their interest diverged. For example, a proposed tuition increase co-aligned students and some faculty against the administration. In this case, the conflict between these participant was not simple a misunderstanding, but a fundamental difference in self-interest.

Feature 2: choice reflects the preferences of powerful people.

Case: NYU
The weak Commerce and Education schools lost to the powerful central administration in a series of decisions that changed the NYU student body from a less-qualified, part-time group into a full-time, high quality, residential student body.

Third feature: people at least sometimes engage in politics. EG: example of politics include coalition formation, lobbing, withholding agendas and control of agendas.

Pro: Politics are essential to org. Creating effective change and adaption within org depends upon effective use of politics. Critique:
1. Politics are triggered by power imbalances. The choice reflects the preferences of people with strong power 2. Politics are static. Decision maker rely on the same allies and the same politics time after time. 3. Politics are seen as ineffective. Many people dislike politics, finding them inefficient, unpleasant, and unnecessary.

The authors conclude that politics creates animosity, wastes time, disrupts information channels and ultimately lead to poor performance.

Model 4 Garbage can model
Garbage can model describes decision making in highly ambiguous settings called organization anarchies.

Organization anarchy: organizations that experience extremely high uncertainty, such as the growth and change required in a learning organization. It is an organic organization. They are caused by three characteristic: 1. Problematic preferences: ill-defined problems and ambiguity. 2. Unclear, poorly understood technology. Cause and effects relationship within the organization are difficult to indentify. 3. Fluid participation. Decision making participants and go from the decision process, with their involvement depending upon their strategy, interest and other demands on their time.

The garbage can model describes the accidental or random confluence of four streams: 1. Choices opportunities: occasions which call for a decision 2. Solution: answers looking for problems.
3. Participants: people with busy schedules who might pay attention 4. Problems: concerns of people within and outside the organization.

When a problem, solution, and participant happen to connect at one point, a decision may be made and the problem may be solved, but if the solutions does not fit the problem, the problem may not be solved. Decisions are not the result of analysis by bounded rational individual or the power of a coalition, but rather are a random confluence of events.

The heart of the garbage can model is the premise that decision are the result of a random confluence of people, problems, solutions and choice opportunities.

Consequences:
1. Problems may be proposed even when problems do not exist
2. Choices are made without solving problems
3. Problems may persist without being solved
4. A few problems are solved

Case: Casablanca
The production of Casablanca was not a rational process that started with a
clear problem and need with a logical solution. Some solutions were connected to emerging problems: the original script arrived just when Ha Wallis was looking for topical stores; and Bergman was surprisingly available to the cast in the role of Ilsa. Other events that contribute to the Casablanca’s success were not even connected to the film. For example, the invasion of North Africa is only eighteen days before the premiere.

Critique:
1. Decision making process tend to become less like a garbage can as deadline are imposed. Deadline forced the ejection of extraneous garbage from the can and a focusing on the remaining issues. The number of participants decreases. But these fewer participants became more knowledgeable and their participation was more frequent. In addition, problems and solutions became clearly intertwined. 2. A longer time perspective improves the fit with the garbage can model, whereas a short time perspective is better captured by rational and political models of choices. As time progresses, the scope of decision increases, the participants become more varied, and the number of solutions becomes larger. 3. While there are some variation and ambiguity about what people wanted, there were common themes throughout the choices process. EG: Danish free-school. Certain values such as Children’s rights for self-determination are relevant throughout the decision process. 4. Participant are not always so random either.

EG: Danish free-school. A core group of six people dominated choice process. 5. Comparative research: Pinfield: participation was not randomly fluid, but rather was a consequence of institutional role, politics, and the phase of the decision process. People, choice opportunities and solutions were not independent, but rather linked together by the issue at hand. Further, individuals attempted to manage choice opportunities and the participation of others in the process.

Combination
Strategic decision making is best described as a combination of bouldedly rational and politics insights. Bounded rationality shapes the cognitive limits and looping of strategic decision process and the political
perspective shapes the social context. While useful, the garbage can perspective is lee empirically robust than these other perspectives.

1 concentrates on market factors: pressures and incentives created by the international strategic marketplace. 2 and 3 focus on the internal mechanism of the government that chooses in this environment.

Model 1: nations quit when costs outweigh the benefits.

Model 2 and 3 focus upon the government machine through which this fact about the international strategic marketplace must be filtered to produce surrender.

Model 2 examines two sub-problems. First, The government must know that the strategic cost-benefit calculus is negative, but neither the categories , nor the indicators , of strategic costs and benefits are clear. Second, since org define the details of options and execute actions, surrender (and negotiation) is likely to entail considerable bungling in the early stages. Model 3suggests that surrender will not come at the point that strategic costs outweigh benefits, but that it will not wait until the leadership group conclude that the war is lost. Rather the problem is better understood in terms of four additional propositions: 1 strong advocates of the war effort, whose careers are closely identified with the war, rarely come to the conclusion that cost outweighs benefits. 2. A number of members of the government are convinced that the war effort is futile.3. Surrender is likely to come as the result of a political shift that enhances the effective power of the latter group. 4. The course of the war, particularly actions of the victor, can influence the advantage and disadvantage of players in the loser’s government.