Introduction (Psychology and Mental Health)
Much of what people do—with the exceptions of reflexive and habitual behavior—results from the cognitive processes of deciding. Even a minor decision, such as whether to drive the car, take the bus, or walk to work, involves the coordination of many complex processes. In making this choice, one might take into consideration one’s perception of the weather, guilt about contributing to smog, feeling of physical energy, goal of obtaining more exercise, memory of a recent bus trip, desire for company, or judged likelihood of working late. Even such a relatively minor decision can be difficult to make because there are numerous considerations, and some favor one alternative while remaining considerations favor other alternatives. In addition, the decision maker cannot know all relevant information, so there is uncertainty about the outcomes of important events.
A major goal of decision research is to understand the rules that people use in choosing alternatives. This often means gaining insight into the decision processes that are used when no alternative is clearly preferred. To accomplish this, it is necessary to understand what is meant by a rule and to identify different potential rules for selecting one of a set of alternative courses of action. Some rules are heuristics, or strategies for simplifying choice that limit the evaluation of alternatives. Heuristics can be very efficient. In the example about choosing the mode...
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Decision Theories (Psychology and Mental Health)
Decision theory has a long history of identifying normative procedures for decision making. These procedures tell people what rules they should follow in making decisions. A standard rule is to take into account two dimensions for each decision alternative: likelihood and utility. This principle, which is embodied in subjective expected utility theory, is intended to maximize the personal value of one’s anticipated outcomes. A person may be given a choice between a 50 percent chance of winning $100 and a certain $2. The first alternative has an expected outcome of $50 (calculated by 50 percent of $100 = $50), since that is what one would expect to win on average if one played this game many times. The other alternative has an expected outcome of $2 (calculated by 100 percent of $2 = $2). Subjective expected utility theory indicates that one should choose the first alternative, the 50 percent chance of $100, because it has a higher expected outcome. This choice is called “rational” in the sense that it is the choice that is likely to maximize earnings.
The cognitive approach to decision making emphasizes an understanding of the ways in which various factors influence the choices that people make in reality—regardless of whether they follow normative principles. In contrast to the normative approach, the cognitive approach is focused on description of the actual processes that people use. A person may be given a 30...
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Illusions and Heuristics (Psychology and Mental Health)
Of particular interest in the cognitive approach to decision making are those factors that lead to miscalculations of likelihood or utility, since they will ultimately contribute to undesirable outcomes. Psychologists Amos Tversky and Daniel Kahneman revolutionized the field of decision making by identifying factors that contribute to poor decision making. Some of these may be called “cognitive illusions,” because they lead a decision maker to a judgment that is in fact a distortion of reality. One type of judgment that is often affected by such illusions concerns likelihood estimation, the chance of an event leading to a particular outcome.
Another type of judgment that is susceptible to illusionary distortion is the estimation of quantity or frequency. In making these estimations, people often use heuristics. In a heuristic for estimating quantity called anchoring and adjustment, one takes any available number as an initial starting point or anchor and then adjusts it to arrive at an estimate. For example, one might predict tomorrow’s temperature by taking today’s temperature and adjusting downward for forthcoming rainfall. Although heuristics can be more efficient than the careful and comprehensive analysis of relevant information, they can also be misleading.
Illusions and heuristics can be detrimental to good decision making because they lead the decision maker to a distorted view of the problem...
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Expectancy, Utility, and Motivation (Psychology and Mental Health)
The principles of subjective expected utility theory have been applied in a wide variety of problem areas. A distinction between expectancy and utility can be quite useful. For example, two people who choose to continue to smoke may do so for different reasons. One may truly believe that he has a high chance of developing a serious disease such as lung cancer. He may anticipate great medical advances, however, and expect that lung cancer will be only a mild problem by the time he is diagnosed with it. Though the expectation of a negative outcome is high, the outcome is not particularly negative to this individual. Another person may be convinced that lung cancer is—and will continue to be—a painful, expensive, deadly disease. Despite the fact that this outcome has great negative utility for this person, she may continue to smoke because her expectation is that she will not develop lung cancer. Each of these individuals is influenced by different factors. Understanding how the decision to smoke or to quit is made can assist health advocates—and tobacco advertisers—to influence these decisions.
One of the areas in which subjective expected utility principles have been highly influential is that of motivation. While early theories of motivation viewed behavior as the result of basic drives or personality traits, subsequent theories emphasized the way in which people thought about their options. From...
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Biases in Decision Making (Psychology and Mental Health)
In one sense, it is easy to observe instances of illusions and heuristics that lead to biases in decision making in real life. Bad decisions seem to be everywhere. As noted, however, decisions that turn out badly may sometimes result from badly made decisions. People are accustomed to judging the actions of others and will label them irrational if it appears that they are choosing alternatives with inferior outcomes for themselves. During the Persian Gulf War of 1991, the American media frequently concluded that Saddam Hussein was “irrational” because he chose not to withdraw from Kuwait by the United Nations deadline. Though it is tempting to label an enemy “irrational,” it is wise to keep in mind a serious problem in determining irrationality in a decision maker. It is exceedingly difficult to assess the utility of any alternative for the decision maker. By American standards, it would have been better for the Iraqis to withdraw from Kuwait before suffering enormous loss of life—and eventual forced withdrawal from Kuwait—so it seemed that Hussein could not possibly be evaluating the alternatives realistically. Either he did not understand the potential magnitude of his human and economic losses from a failure to withdraw or he did not understand the virtual certainty of losing the war. Hussein may, however, have understood both perfectly and simply have attached different utilities to the outcomes anticipated...
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Decisions in the Workplace and Daily Life (Psychology and Mental Health)
Numerous forces have come together to fuel the study of human decision making as a cognitive process. One of these is the coming of the information age. With the transition from a production economy to a service economy, workers are no longer seen as people who engage in only physical work. Workers at all levels deal with information and decisions. It is no longer possible to attribute all the difficulty of making decisions to insufficient information. Decision makers are often overloaded and overwhelmed by information. The real problem they face is knowing which information to select and how to integrate it into the decision-making process.
Within psychology, two areas of study that have had a great impact on behavioral decision making are perception and quantitative psychology. Both Kahneman and Tversky did extensive work in the area of perception before becoming interested in studying the cognitive processes in human judgment and decision making. Many other behavioral decision researchers began their studies in quantitative psychology or statistics. The primary objective in this area is to learn how to make decisions under uncertainty using the laws of probability. Because this is what people routinely face in the course of their work and daily lives, there are many intriguing parallels between statistics and behavioral decision making.
Advances in understanding the rationality of human...
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Sources for Further Study (Psychology and Mental Health)
Ariely, Dan. Predictably Irrational: The Hidden Forces That Shape Our Decisions. New York: HarperCollins, 2008. The author, a behavioral economist from the Massachusetts Institute of Technology, refutes the common notion that most people make smart, rational choices in everyday situations. Research shows that expectations, emotions, social norms, and illogical forces affect everyone’s ability to reason.
Connolly, Terry, Hal R. Arkes, and Kenneth R. Hammond, eds. Judgment and Decision Making: An Interdisciplinary Reader. 2d ed. New York: Cambridge University Press, 2000. A collection of essays focusing on practical applications in public policy and legal fields, as well as theoretical critiques, research agendas, and new directions.
Hastie, Reid, and Robyn M. Dawes. Rational Choice in an Uncertain World. Thousand Oaks, Calif.: Sage Publications, 2003. A social-psychological perspective on judgment and decision processes. Highly interesting content and style for all audiences. Includes thoughtful discussions of controversial applications. Nontechnical and concise. Chapters can be read individually or out of order.
Plous, Scott. The Psychology of Judgment and Decision Making. New York: McGraw-Hill, 1993. An introductory textbook that uses the reader’s own decisions as a heuristic tool for explaining the psychology of decision making.
Russo, J. Edward, and...
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Decision Making (Encyclopedia of Business and Finance)
Decision making, also referred to as problem solving, is the process of recognizing a problem or opportunity and finding a solution to it. Decisions are made by everyone involved in the business world, but managers typically face the most decisions on a daily basis. Many of these decisions are relatively simple and routine, such as ordering production supplies, choosing the discount rate for an order, or deciding the annual raise of an employee. These routine types of decisions are known as programmed decisions, because the decision maker already knows what the solution and outcome will be. However, managers are also faced with decisions that can drastically affect the future outcomes of the business. These types of decisions are known as nonprogrammed decisions, because neither the appropriate solution nor the potential outcome is known. Examples of nonprogrammed decisions include merging with another company, creating a newproduct, or expanding production facilities.
Decision making typically follows a six-step process:
- Identify the problem or opportunity
- Gather relevant information
- Develop as many alternatives as possible
- Evaluate alternatives to decide which is best
- Decide on and implement the best alternative
- Follow-up on the decision
In step 1, the decision maker must be sure he or she has an accurate grasp of the situation. The need to make a decision has occurred because there is a difference between the desired outcome and what is actually occurring. Before proceeding to step 2, it is important to pinpoint the actual cause of the situation, which may not always be obviously apparent.
In step 2, the decision maker gathers as much information as possible because having all the facts gives the decision maker a much better chance of making the appropriate decision. When an uninformed decision is made, the outcome is usually not very positive, so it is important to have all the facts before proceeding.
In step 3, the decision maker attempts to come up with as many alternatives as possible. A technique known as "brainstorming," whereby group members offer any and all ideas even if they sound totally ridiculous, is often used in this step.
In step 4, the alternatives are evaluated and the best one is selected. The process of evaluating the alternatives usually starts by narrowing the choices down to two or three and then choosing the best one. This step is usually the most difficult, because there are often many variables to consider. The decision maker must attempt to select the alternative that will be the most effective given the available amount of information, the legal obstacles, the public relations issues, the financial implications, and the time constraints on making the decision. Often the decision maker is faced with a problem for which there is no apparent good solution at the moment. When this happens, the decision maker must make the best choice available at the time but continue to look for a better option in the future.
Once the decision has been made, step 5 is performed. Implementation often requires some additional planning time as well as the understanding and cooperation of the people involved. Communication is very important in the implementation step, because most people are resistant to change simply because they do not understand why it is necessary. In order to ensure smooth implementation of the decision, the decision maker should communicate the reasons behind the decision to the people involved.
In step 6, after the decision has been implemented, the decision maker must follow-up on the decision to see if it is working successfully. If the decision that was implemented has corrected the difference between the actual and desired outcome, the decision is considered successful. However, if the implemented decision has not produced the desired result, once again a decision must be made. The decision maker can decide to give the decision more time to work, choose another of the generated alternatives, or start the whole process over from the beginning.
STRATEGIC, TACTICAL, AND OPERATIONAL DECISIONS
People at different levels in a company have different types of decision-making responsibilities. Strategic decisions, which affect the long-term direction of the entire company, are typically made by top managers. Examples of strategic decisions might be to focus efforts on a newproduct or to increase production output. These types of decisions are often complex and the outcomes uncertain, because available information is often limited. Managers at this level must often depend on past experiences and their instincts when making strategic decisions.
Tactical decisions, which focus on more intermediate-term issues, are typically made by middle managers. The purpose of decisions made at this level is to help move the company closer to reaching the strategic goal. Examples of tactical decisions might be to pick an advertising agency to promote a newproduct or to provide an incentive plan to employees to encourage increased production.
Operational decisions focus on day-to-day activities within the company and are typically made by lower-level managers. Decisions made at this level help to ensure that daily activities proceed smoothly and therefore help to move the company toward reaching the strategic goal. Examples of operational decisions include scheduling employees, handling employee conflicts, and purchasing rawmaterials needed for production.
It should be noted that in many "flatter" organizations, where the middle management level has been eliminated, both tactical and operational decisions are made by lower-level management and/or teams of employees.
Group decision making has many benefits as well as some disadvantages. The obvious benefit is that there is more input and therefore more possible solutions to the situation can be generated.
Another advantage is that there is shared responsibility for the decision and its outcome, so one person does not have total responsibility for making a decision. The disadvantages are that it often takes a long time to reach a group consen sus and that group members may have to com promise in order to reach a consensus. Many businesses have created problem-solving teams whose purpose is to find ways to improve specific work activities.
Boone, Louis E., and Kurtz, David L. (1999). Contemporary Business, 9th ed. Orlando, FL: Harcourt Brace College Publishers.
Bounds, Gregory M., and Lamb, Charles W., Jr. (1998). Business. Cincinnati, OH: South-Western College Publishing.
Clancy, Kevin J., and Shulman, Robert S. (1994). Marketing Myths That are Killing Business: The Cure for Death Wish Marketing. New York: McGraw-Hill.
French, Wendell L. (1998). Human Resources Management. New York: Houghton Mifflin.
Madura, Jeff. (1998). Introduction to Business. Cincinnati, OH: South-Western College Publishing.
Nickels, William G., McHugh, James M., and McHugh, Susan M. (1999). Understanding Business, 5th ed. Boston: Irwin McGraw-Hill.
Pride, William M., Hughes, Robert J., and Kapoor, Jack R. (1999). Business, 6th ed. New York: Houghton Mifflin.
Decision Making (Encyclopedia of Management)
The essence of management is making decisions. Managers are constantly required to evaluate alternatives and make decisions regarding a wide range of matters. Just as there are different managerial styles, there are different decision-making styles. Decision making involves uncertainty and risk, and decision makers have varying degrees of risk aversion. Decision making also involves qualitative and quantitative analyses, and some decision makers prefer one form of analysis over the other. Decision making can be affected not only by rational judgment, but also by nonrational factors such as the personality of the decision maker, peer pressure, the organizational situation, and others.
Management guru Peter F. Drucker, as quoted in Association Management, identified eight "critically important" decision-making practices that successful executives follow. Each:
- Ask "What needs to be done?"
- Ask "What is right for the enterprise?"
- Develop action plans
- Take responsibility for decisions
- Take responsibility for communicating
- Focus on opportunities rather than problems
- Run productive meetings
- Think and say "we" rather than "I"
POSING THE PROBLEM CORRECTLY
According to Ralph L. Keeney, professor at the University of Southern California's Marshall School of Business and co-author of Smart Choices: A Practical Guide to Making Better Decisions, managers commonly consider too few alternatives when making difficult decisions. When approaching a problem, decision makers need to regularly consider, starting at the outset, "Is this what I really need to decide?" In addition, the nature of the problem may change during the decision-making process, as either the situation changes or the decision maker's insights into the situation change.
By not formulating the problem correctly, decision makers risk missing a whole range of other alternatives. Decision makers can improve the chances of asking the right question by probing objectives, goals, interests, fears, and aspirations. They also need to consider very carefully the consequences of each alternative. They can devise new alternatives through brainstorming and imagining as many options as possible, keeping in mind objectives, but not necessarily being entirely practical at first. In practice, action-oriented decision makers tend to focus on solutions without considering whether they are working on the right problem. Instead of choosing from decisions selected by others, decision makers need to review what decisions they should be addressing.
Managers in a corporate setting tend to view decision making differently than entrepreneurs. Since they are typically given a fixed amount of budgeted resources to work with, managers tend to define a problem in terms of what can be done with the resources at hand. Entrepreneurs, on the other hand, will likely pose the problem in terms of an objectiveThis is what I want to get done"nd then worry about finding the resources to accomplish that objective. As a result, entrepreneurial decision makers will lay out a wider range of alternatives from which to choose. They feel less constrained by a lack of resources. To develop more alternatives, decision makers should release themselves from existing constraints, think imaginatively, and brainstorm with others, all the while keeping objectives clearly in mind and being honest about what they really need or desire.
SYSTEMATIC ANALYSIS VS. INTUITIVE ANALYSIS
Entrepreneurs are famous for making "seat-of-the-pants" decisions, which means they make quick decisions based on a gut feeling or intuition. They are often forced to make decisions under conditions of uncertainty and without all of the necessary information. While some entrepreneurs are good decision makers, others need to be more cautious about the intuitive approach. One case against intuitive decision making comes from the credit industry. For example, some banks use scoring models for consumer and small business loans, but at times individual bankers override the automated system because they intuitively disagreed with the computer model's results. These loans, however, invariably have higher delinquency and charge off rates than loans approved by the computer model.
In some cases a person's intuition will be in conflict with the results of a more formal or systematic analysis, resulting in an uncomfortable feeling for the decision maker. What should a decision maker do then? Howard Raiffa, Harvard Business School professor emeritus, recommended in Inc.: "You should review both sides of the ledger to see if your intuition holds up when it is informed with some systematic analysis. And if your analysis seems wrong intuitively, don't accept the analysis, just keep on probing." The uncomfortable feeling may be sending a message to the decision maker that it's not quite time to act, that perhaps a little more thinking about the problem is required.
Emotions are one of several nonrational factors that play a role in decision making. According to Raiffa, decision makers should pay attention to emotions and feelings when making decisions. By partially committing to one alternative, decision makers can give themselves a chance to "sleep on it," which then becomes a way of testing different alternatives. In spite of practical recommendations to not let emotions play a part in decision making, emotions do come into play because the decision maker cares about the consequences that may occur as a result of any decision made.
Making quick decisions, something managers are often required to do, does not necessarily mean sacrificing systematic decision making. Managers can prepare themselves for making quick decisions by practicing pre-decision making. This involves keeping in mind a decision-making structure, such as a series of probing questions that must be answered, as a contingency plan in the event a quick decision is needed.
UNCERTAINTY AND RISK
Many decisions must be made in the absence of complete information. Decision makers often have to act without knowing for certain all of the consequences of their decisions. Uncertainty simply increases the number of possible outcomes, and the consequences of these outcomes should be considered. That is, it is important for the decision maker to identify what the uncertainties are, what the possible outcomes are, and what the consequences would be. Decision makers can sometimes clarify the problem they are working on by listing what could happen and assigning probabilities to each possible outcome (a formal representation of this is known as a decision tree).
Risk aversion is another nonrational factor affecting sound decision making. Studies have shown that people who exhibit risk-averse behavior in one setting will become risk-seekers when offered the same choice in a different setting. For example, most people will display risk-averse behavior by rejecting a fair gamble in favor of a certain gain. However, when the choice involves a fair gamble and a certain loss, most people display risk-seeking behavior by choosing the gamble over the certain loss, even though the risky choice may well result in an even greater loss.
The valuation of a risky alternative appears to depend more on the reference point from which a possible gain or loss will occur, than on the absolute gain to be realized. That is, the decision maker is motivated not by the absolute performance of a particular alternative, but whether that alternative will perform better or worse relative to a specific reference point. Consequently, decision makers can be easily influenced by shifting reference points.
DECISIONS BASED ON PRINCIPLES
Principled decision making can be a useful complement or alternative to analytical decision making. Principled decision making may or may not involve ethics. Ethical decision making uses ethical (moral) principles to make decisions, while principled decision making can employ all kinds of principles (i.e., including potentially unethical principles or decisions that lead to unethical outcomes). While not widely used, principled decision making is sometimes used by investment managers to manage risk and uncertain investments. Risk and portfolio managers may turn to principled decision making for complex risk management problems that cannot be modeled or solved.
Principled decision making emphasizes the process of decision making, with the end results of the decision being of secondary concern. It is essentially a two-step process, with the first step being to select and communicate the right principles to which decisions must adhere. The second step requires the decision maker to apply the appropriate principles. Principled decision making is easy to understand, and the principled decisions are easy to communicate to others in an organization.
Principles can be used to assist analytical decision making. For example, a portfolio manager may use principles as screens to segregate potential investments into acceptable and unacceptable categories. This effectively defines the search dimensions and reduces the sample space. Once principles have been used to reduce a problem to manageable size, then analytical techniques can be employed to make a final selection.
Principled decision making can be applied as an alternative to analytical decision making in such areas as organizational missions, goals, strategies, and codes of conduct. Sears, Roebuck and Co. was founded on the principle that the customer is always right, and that principle has served to guide corporate decisions over the years. Such principles, when used in decision making, can help the organization better cope with changes over time, shifts in leaders, fluctuating leadership styles, and changing market conditions.
THE ROLE OF INFORMATION: DECISION SUPPORT SYSTEMS
Armed with information, managers can make better decisions. Frontline managers, for example, who are supplied with direct activity cost information, can better manage revenues, margins, and costs. Organizations can achieve more consistency between upper management and lower-level managers by providing more information throughout the organization.
With Internet-hosted databases and user-friendly query tools becoming more common, corporations are turning to decision support systems (DSS) software to analyze the firm's databases and turn them into information useful for decision makers. DSS typically includes analytical and report-writing features, thus enabling users to translate raw data into a form useful for decision support.
Decision support technology is a relatively new development in software and may not yet be a high priority with the firm's information technology (IT) department. DSS, which offers users more flexible programming paradigms, can be compared to another type of software, enterprise resource planning (ERP), which enhances productivity by accelerating routine operations. DSS, on the other hand, slices and dices data that may be novel and complex into understandable chunks to facilitate shared consideration of multiple criteria.
One DSS technique is called analytic hierarchy process (AHP), which enables users to attack complex problems by reducing them to simpler pairwise comparisons between different combinations of options and criteria. When people are able to choose between pairs of options, their decisions are made more quickly and consistently than when larger sets of options must be considered. AHP was invented by Thomas Saaty, who cofounded Expert Choice Inc. (http://www.expertchoice.com) to provide AHP-related software and services.
DSS can result in significant time savings as well as improved decision making. Home products retailer Payless Cashways reported that its DSS software enabled it to realize a 70 percent time reduction in information and report gathering and a 30 percent rise in user productivity, along with reduced training time and better decisions on marketing, staffing, and warehousing. The company used DSS to extract and sort information related to sales volume, category performance, comparable-store sales, and in-stock figures.
DSS can speed collaboration when there are several decision makers who must be satisfied. By providing multiple users with access to the firm's data, DSS can clarify the decision-making process and enhance consistency among multiple decision makers. With electronic commerce competitors responding to strategic decisions within days or even hours, the speed with which decisions are made becomes more critical. DSS helps decision makers consider a wider range of alternatives in a shorter period of time. When more consideration is given to the probability and value of the competition's response, strategic decision making becomes more like game theory.
STRATEGIC DECISION MAKING
Strategic decisions are those that affect the direction of the firm. These major decisions concern areas such as new products and markets, acquisitions and mergers, subsidiaries and affiliates, joint ventures and strategic alliances, and other matters. Strategic decision making is usually conducted by the firm's top management, led by the CEO or president of the company.
In markets characterized by extreme competition and a rapid pace of change, companies are being forced to compete on the edge. Their strategic thinking can no longer be limited to identifying promising industries, core competencies, and strategic positions. Rather, top management is engaged in creating a continuing flow of temporary and shifting competitive advantages relative to other competitors and the market being served. As a result, greater emphasis is placed on efficient strategic decision making to create effective strategies.
Kathleen M. Eisenhardt, professor of strategy and organization at Stanford University, studied the strategic decision-making processes at different companies in high-velocity markets. Strategic decision makers at more effective firms were able to make quick, high-quality decisions that were widely supported through-out the firm. Her studies identified four areas in which effective strategic decision makers outperformed counterparts at less effective firms: (1) building collective intuition, (2) stimulating conflict, (3) maintaining a pace or schedule for decision making, and (4) defusing political behavior.
Also termed "betting markets" or "idea markets," prediction markets emerged during 2004 as a way to assess consensus opinion about questions of importance to corporate decision makers. As discussed by James M. Pethokoukis in U.S. News & World Report, companies such as Hewlett-Packard and Dentsu were exploring use of prediction markets to forecast corporate figures such as revenues, advertising demand, consumer trends, and employee retention. These markets enable companies to determine what products or decisions are more likely to be successful and where to focus resources. Firms were still researching how well this works and where it could best be applied. A senior manager at Dentsu explained, "The key value we see is that prediction markets have the potential to extract the best essence from group knowledge, as an alternative to majority decisions."
BUILDING COLLECTIVE INTUITION
Effective decision makers built a collective intuition by sharing information at "must-attend" meetings. They reviewed internal and external information, preferring real-time operational information over accounting-based data. At one firm each top manager was responsible for gathering and reporting data from a particular area. The managers gained an enhanced understanding of the data by discussing it from different perspectives at these meetings. The meetings also gave them a chance to get to know one another better, leading to open and direct interactions.
Many decision makers tend to avoid conflict, fearing it will bog down the decision-making process and degenerate into personal attacks. However, Eisenhardt's studies found that in dynamic markets, conflict is a natural feature where reasonable managers will often diverge in assessments of how a market will develop. She found that conflict stimulates innovative thinking, creates a fuller understanding of options, and improves decision effectiveness. Without conflict, decision makers often overlooked key elements of a decision and missed opportunities to question assumptions.
Executives accelerated conflict by forming diverse executive teams made up of individuals who differed in age, gender, functional background, and corporate experience. Other techniques that can introduce conflict quicker include scenario planning, where teams systematically consider strategic decisions in light of several possible futures, and role playing, where executives advocate alternatives that they may or may not favor and play the role of competitors. Debate is encouraged and conflict stimulated when as broad a range of alternatives as possible is presented for discussion.
MAINTAINING A SCHEDULE
Strategic decision makers are faced with a dilemma when they feel that every strategic decision they make is unique, yet they feel pressured to make decisions as quickly as possible. Effective decision makers overcome this dilemma by focusing on the pace of decision making, not the speed with which a decision is made. By using general rules of thumb regarding how long a particular type of decision should take, they maintain decision-making momentum by launching the decision-making process promptly, keeping up the energy surrounding the process, and cutting off debate at the appropriate time.
In order to keep to a specific time frame, executives can alter or adjust the scope of a particular decision to fit the allotted timeframe by viewing it as part of a larger web of strategic choices. Eisenhardt's studies found that effective decision makers followed the natural rhythm of strategic choice. The rule for how long major decisions should take was a fairly constant two to four months. Decisions that would take less time were considered not important enough for the executive team, while those that appeared to take longer involved either too big an issue or management procrastination. By recognizing similarities among strategic decisions, such as those involving new products, new technologies, or acquisitions, executives could more easily gauge the scale of a decision.
One of the most effective methods for cutting off debate was a two-step method called "consensus with qualification." The decision-making process is conducted with consensus as a goal. If consensus is achieved, then the decision is made. However, if there is no consensus, then the deadlock can be broken by using a decision rule such as voting or, more commonly, letting the executive with the largest stake in the outcome make the final decision. By taking a realistic view of conflict as both valuable and inevitable, consensus with qualification helps maintain the pace of decision making. It helps managers plan progress and emphasizes that keeping to schedule is more important than forging consensus or developing massive data analyses.
The high stakes of strategic decision making can quickly turn the decision-making process into one of competition among ambitious managers. While less effective strategic decision makers view politics as a natural part of the decision-making process, effective strategic decision makers take a negative view of politicking. They not only see it as wasting valuable time, it can distort the information base, since politicking managers will tend to use information to their own advantage.
Politicking can be defused by emphasizing a collaborative, rather than competitive, environment, and by creating common goals. Rather than implying homogeneous thinking, common goals suggest that managers have a shared vision of where they want to be or who external competitors are. A balanced power structure, in which each key decision maker has a clear area of responsibility and the leader is recognized as the most powerful decision maker, can also defuse politicking among executives. The clear delineation of responsibility facilitates information sharing and other interaction, because each executive is operating from a secure power base. Finally, humor can defuse politicking and help build a collaborative outlook.
AN EIGHT-STEP APPROACH TO MAKING BETTER DECISIONS
The following list is adapted from Smart Choices by Hammond, et al.:
- Work on the right decision problem. Be careful in stating the problem, and avoid unwarranted assumptions and option-limiting prejudices.
- Specify your objectives. Determine what you want to accomplish, and which of your interests, values, concerns, fears, and aspirations are the most relevant.
- Create imaginative alternatives. Alternatives represent different courses of action, and your decision can be no better than your best alternative.
- Understand the consequences. Determine how well different alternatives satisfy all of your objectives.
- Grapple with your tradeoffs. Since objectives frequently conflict with each other, it becomes necessary to choose among less-than-perfect possibilities.
- Clarify your uncertainties. Confront uncertainty by judging the likelihood of different outcomes and assessing their possible impacts.
- Think hard about your risk tolerance. In order to choose an alternative with an acceptable level of risk, become conscious of how much risk you can tolerate.
- Consider linked decisions. Many important decisions are linked over time. The key to making a series of decisions is to isolate and resolve near-term issues while gathering information relevant to issues that will arise later.
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Decision Making (Encyclopedia of Small Business)
Decision making is a vital component of small business success. Decisions that are based on a foundation of knowledge and sound reasoning can lead the company into long-term prosperity; conversely, decisions that are made on the basis of flawed logic, emotionalism, or incomplete information can quickly put a small business out of commission (indeed, bad decisions can cripple even big, capital-rich corporations over time). All businesspeople recognize the painful necessity of choice. Furthermore, making these choices must be done in a timely fashion, for as most people recognize, indecision is in essence a choice in and of itself choice to take no action. Ultimately, what drives business success is the quality of decisions, and their implementation. Good decisions mean good business.
The concept of decision making has a long history; choosing among alternatives has always been a part of life. But sustained research attention to business decision making has developed only in recent years. Contemporary advances in the field include progress in such elements of decision making as the problem context; the processes of problem finding, problem solving, and legitimation; and procedural and technical aids.
THE ELEMENTS OF DECISION MAKING
THE PROBLEM CONTEXT All decisions are about problems, and problems shape context at three levels. The macrocontext draws attention to global issues (exchange rates, for example), national concerns (the cultural orientations toward decision processes of different countries), and provincial and state laws and cultures within nations. The mesocontext attends to organizational cultures and structure. The microcontext addresses the immediate decision environmenthe organization's employees, board, or office.
Decision processes differ from company to company. But all companies need to take these three context levels into consideration when a decision needs to be made. Fortunately, economical ways to obtain this information are available and keep the cost of preparing for decisions from becoming prohibitive.
PROBLEM FINDING AND AGENDA SETTING An important difficulty in decision making is failure to act until one is too close to the decision pointhen information and options are greatly limited. Organizations usually work in a "reactive" mode. Problems are "found" only after the issue has begun to have a negative impact on the business. Nevertheless, processes of environmental scanning and strategic planning are designed to perform problem reconnaissance to alert business people to problems that will need attention down the line. Proactivity can be a great strength in decision making, but it requires a decision intelligence process that is absent from many organizations.
Moreover, problem identification is of limited use if the business is slow to heed or resolve the issue. Once a problem has been identified, information is needed about the exact nature of the problem and potential actions that can be taken to rectify it. Unfortunately, small business owners and other key decision makers too often rely on information sources that "edit" the dataither intentionally or unintentionallyn misleading fashion. Information from business managers and other employees, vendors, and customers alike has to be regarded with a discerning eye, then.
Another kind of information gathering reflects the array and priority of solution preferences. What is selected as possible or not possible, acceptable or unacceptable, negotiable or non-negotiable depends upon the culture of the firm itself and its environment. A third area of information gathering involves determining the possible scope and impact that the problem and its consequent decision might have. Knowledge about impact may alter the decision preferences. To some extent, knowledge about scope dictates who will need to be involved in the decision process.
Problem solvinglso sometimes referred to as problem managementan be divided into two partsrocess and decision. The process of problem solving is predicated on the existence of a system designed to address issues as they crop up. In many organizations, there does not seem to be any system. In such businesses, owners, executives, and managers are apparently content to operate with an ultimately fatalistic philosophyhat happens, happens. Business experts contend that such an attitude is simply unacceptable, especially for smaller businesses that wish to expand, let alone survive. The second part of the problem management equation is the decision, or choice, itself. Several sets of elements need to be considered in looking at the decision process. One set refers to the rationales used for decisions. Others emphasize the setting, the scope and level of the decision, and the use of procedural and technical aids.
RATIONALES Organizational decision makers have adopted a variety of styles in their decision making processes. For example, some business leaders embrace processes wherein every conceivable response to an issue is examined before settling on a final response, while others adopt more flexible philosophies. The legitimacy of each style varies in accordance with individual business realities in such realms as market competitiveness, business owner personality, acuteness of the problem, etc.
SETTINGS Certainly, some entrepreneurs/owners make business decisions without a significant amount of input or feedback from others. Home-based business owners without any employees, for example, are likely to take a far different approach to problem-solving than will business owners who have dozens of employees and/or several distinct internal departments. The latter owners will be much more likely to include findings of meetings, task forces, and other information gathering efforts in their decision making process. Of course, even a business owner who has no partners or employees may find it useful to seek information from outside sources (accountants, fellow businesspeople, attorneys, etc.) before making important business decisions. "Since the owner makes all the key decisions for the small business, he or she is responsible for its success or failure," wrote David Karlson in Avoiding Mistakes in Your Small Business. "Marketing and finance are two of several areas in which small business owners frequently lack sufficient experience, since they previously worked as specialists for other people before they started their own businesses. As a result, they generally do not have the experience needed to make well-informed decisions in the areas with which they are unfamiliar. The demands of running and growing a small business will soon expose any achilles heel in a president/owner. It is best to find out your weaknesses early, so you can develop expertise or get help in these areas."
SCOPE AND LEVEL Finally, attention must be paid to problem scope and organizational level. Problems of large scope need to be dealt with by top levels of the organization. Similarly, problems of smaller scope can be handled by lower levels of the organization. This is a failing of many organizations, large and small. Typically, top level groups spend much too much time deciding low-level, low-impact problems, while issues of high importance and organizational impact linger on without being addressed or resolved.
PROCEDURAL AND TECHNICALAIDS In recent years, a number of procedural and technical aids have been developed to help business managers in their decision making processes. Most of these have taken the form of software programs that guide individuals or groups through the various elements of the decision making process in a wide variety of operational areas (budgeting, marketing, inventory control, etc.). Leadership seminars and management training offer guidance in the decision making process as well.
OUTCOME Whatever decision making process is utilized, those involved in making the decision need to make sure that a response has actually been arrived at. All too often, meetings and other efforts to resolve outstanding business issues adjourn under an atmosphere of uncertainty. Participants in decision making meetings are sometimes unsure about various facets of the decision arrived at. Some meeting participants, for example, may leave a meeting still unsure about how the agreed-upon response to a problem is going to be implemented, while others may not even be sure what the agreed-upon response is. Indeed, business researchers indicate that on many occasions, meeting participants depart with fundamentally different understandings of what took place. It is up to the small business owner to make sure that all participants in the decision making process fully understand all aspects of the final decision.
IMPLEMENTATION The final step in the decision making process is the implementation of the decision. This is an extremely important element of decision making; after all, the benefits associated with even the most intelligent decision can be severely compromised if implementation is slow or flawed.
FACTORS IN POOR DECISION MAKING
Several factors in flawed decision making are commonly cited by business experts, including the following: limited organizational capacity; limited information; the costliness of analysis; interdependencies between fact and value; the openness of the system(s) to be analyzed; and the diversity of forms on which business decisions actually arise. Moreover, time constraints, personal distractions, low levels of decision making skill, conflict over business goals, and interpersonal factors can also have a deleterious impact on the decision making capacities of a small (or large) business.
A second category of difficulties is captured in a number of common pitfalls of the decision procedure. One such pitfall is "decision avoidance psychosis," which occurs when organizations put off making decisions that need to be made until the very last minute. A second problem is decision randomness. This process was outlined in the famous paper called "A Garbage Can Model of Organizational Choice" by Cohen, March and Olsen. They argued that organizations have four roles or vectors within them: problem knowers (people who know the difficulties the organization faces): solution providers (people who can provide solutions but do not know the problems); resource controllers (people who do not know problems and do not have solutions but control the allocation of people and money in the organization) and a group of "decision makers looking for work" (or decision opportunities). For effective decision making, all these elements must be in the same room at the same time. In reality, most organizations combine them at random, as if tossing them into a garbage can.
Decision drift is another malady that can strike at a business with potentially crippling results. This term, also sometimes known as the Abilene Paradox in recognition of a famous model of this behavior, refers to group actions that take place under the impression that the action is the will of the majority, when in reality, there never really was a decision to take that action.
Decision coercion, also known as groupthink, is another very well known decision problem. In this flawed decision making process, decisions are actually coerced by figures in power. This phenomenon can most commonly be seen in instances where a business owner or top executive creates an atmosphere where objections or concerns about a decision favored by the owner/executive are muted because of fears about owner/executive reaction.
IMPROVING DECISION MAKING
Business consultants and experts agree that small business owners and managers can take several basic steps to improve the decision making process at their establishments.
Improve the setting. Organizing better meetings (focused agenda, clear questions, current and detailed information, necessary personnel) can be a very helpful step in effective decision making. Avoid the garbage can; get the relevant people in the same room at the same time. Pay attention to planning and seek closure.
Use Logical Techniques. Decision making is a simple process when approached in a logical and purposeful manner. Small businesses that are able to perceive the problem, gather and present data, intelligently discuss the data, and implement the decision without succumbing to emotionalism are apt to make good ones that will launch the firm on a prosperous course.
Evaluate decisions and decision making patterns. Evaluation tends to focus the attention, and make individuals and teams more sensitive to what they are actually doing in their decision making tasks. Evaluation is especially helpful in today's business environment because of the interdependency of individuals and departments in executing tasks and addressing goals.
Determine appropriate levels of decision making. Business enterprises need to make sure that operational decisions are being made at the right level. Keys to avoiding micromanagement and other decision making pitfalls include: giving problems their proper level of importance and context; addressing problems in an appropriate time frame; and establishing and shifting decision criteria in accordance with business goals.
Burke, Lisa A., and Monica K. Miller. "Taking the Mystery out of Intuitive Decision Making." Academy of Management Executive. November 1999.
Cohen, M. James, G. March, and J. Olsen. "A Garbage Can Model of Organizational Choice." Administrative Science Quarterly. March 1972.
Daft, Richard. Organization Theory and Design. West Publishing, 1992.
Dawson, Roger. The Confident Decision Maker. Morrow, 1993.
Graham, John R. "Avoiding Dumb and Dumber Business Decisions: Why Even the Experts Make Mistakes." American Salesman. April 1997.
Gunn, Bob. "Decisions, Decisions." Strategic Finance. January 2000.
Karlson, David. Avoiding Mistakes in Your Small Business. Crisp, 1994.
Magasin, Michael, and Frieda L. Gehlen. "Unwise Decisions and Unanticipated Consequences." Sloan Management Review. Fall 1999.
Roe, Amy. "One of the Most Ticklish Jobs is Decision Making." The Business Journal. June 2, 1997.
Decision Making (Encyclopedia of Business)
- THE ELEMENTS OF DECISION MAKING
- PROBLEM FINDING AND AGENDA SETTING
- THE DECISION PROCESS
- LEGITIMATING PROCESSES
- IMPROVING DECISION MAKING
Decision making is a business process (with a decision being the result of that process) that allocates goods and values in a system (such as one's own time and assets, family or organizational wherewithal, or community and national resources). In a business context, the system is the business organization as the decision unit, with the manager or executive the decision maker.
All businesspersons recognize the painful necessity of choice. Furthermore, choice must be timely because "not to decide to is to decide" (as the popular saying goes). Ultimately, what drives business success (where success is defined as producing, repeatedly, high-quality results [HQR]) is making high-quality decisions (HQD) and delivering high-quality implementation (HQI). (HQD + HQI = HQR.) Good decisions mean good business; great decisions mean great business.
The concept of decision making has a long history; choosing among alternatives has always been a part of life. But sustained research attention to business decision making has developed only in recent years. Contemporary advances in the field include progress in such elements of decision making as the problem context; the processes of problem finding, problem solving, and legitimization; and procedural and technical aids, and includes the very conception of decision making itself.
As with many fields, the language needs to be expanded to convey the richness of the processes within. Decision discourse is a phrase that attends to this task. "Decision work" replaces, in a way, the gaggle of concepts that used to be called "decision making." Decision work refers to all the parts of the decision process. Decision making is coming to have a much more specific meaning. "Making" a decision carries the implication that "a" decision is a unitary thing. It's really not. The word decision is a collective noun. One should really think of the decision as a mosaic of smaller pieces. In that case, decisions are "built" or constructed rather than made. Decision making, then, refers to work on the series of elements in the mosaic. These elements might be called "micro" decision work. Decision making works with the smallest part of the decision mosaic. "Decision building" refers to constructing the mosaic itself. Decision sculpting addresses decisional work on the whole mosaic, taken as a whole. It might be thought of as "meso" decision work. "Decision sculpting" refers to shaping the whole mosaic after it has been built and making some changes and adjustments in the overall way the whole mosaic fits together. It might be called "macro" decision work. "Decision taking" is a phrase that refers to decision action (making, building, sculpting) in a generic or general sense.
THE ELEMENTS OF DECISION MAKING
From the business perspectivehich looks at the world through the lens of actionhe following eight areas seem most salient for a brief consideration of this large field of study. First is the "issue context," or arena in which the issue is occurring. As firms globalize, context matters more and affects, as well, all the remaining issues. A second element deals with "problem finding." Exactly how is the "problem" defined, and by whom? Agenda setting refers to the movement from "issue" to "problem" to "ready for decision work." "Option creation" deals with the development of acceptable alternatives among or between which decisions will be taken. "Decision making process" addresses questions about the steps and rationale that organizations and individuals use in decision taking. Decisions, of course have "results." The "outcomes" looks at what, if anything, comes out of the decision work. Decision taking must concern itself not only with getting a result but also with legitimating that result. What, after all, would allow a loser to accept a decision that goes against his or her interests? Decision "legitimating processes" considers this issue. "Evaluating decision making and decision making patterns" is becoming more and more crucial, as "decisions" are coming to be recognized as crucial organizational "products." And finally, organizations are interested in "improving decision making."
THE ISSUE CONTEXT
All decisions are about issues (problems or opportunities). Three kinds of context help to shape the issues and the way we approach them. The macrocontext draws attention to issues outside the organizationlobal issues (exchange rates, for example), national concerns, markets, customers, supplier concerns, and so on. National style (the cultural orientations toward decision processes of different countries), and provincial and state laws and cultures within nations are also important in the macrocontext.
The mesocontext considers how issues are shaped by elements within the organization that affect the decision process. Typically these are organizational values, and structure and culture both overall and in terms of a firm's specific approach to decision making. Structure refers to the way the organization is configuredlat, hierarchical, loosely coupled, and so on. Values refer to commitments espoused by the organization ("values, vision, mission"). Culture refers to the particular combination of policy and practice that characterizes the firm at any given moment. Microsoft and General Motors have rather different cultures. Decision making within them is different. We need to consider how universities are different from governments, and how these in turn differ from Fortune 500 companies. More concretely, each organization has a "decision subculture"hat is, ideas and practices about how the decision process should be handled. This too is a part of the mesocontext. Technical and information aids are a part of the mesocontext as well. Readers might want to consider the decision subculture at their firm. For example, how does Microsoft approach decisions, as opposed to General Motors?
The microcontext addresses the immediate decision environmenthe organization's employees, board, or office, the time of day, the amount of pressure, and so on.
PROBLEM FINDING AND AGENDA SETTING
To be a problem, an issue must be identified as problematic and of consequence. An important difficulty in decision making is failure to act until one is too close to the decision pointhen information and options are greatly limited. Organizations usually work in a "reactive" mode. Problems are "found" when there is a "whack on the side of the organizational head." Nevertheless, processes of environmental scanning and strategic planning are designed (though they often do not work well) to perform problem reconnaissance to alert businesspeople to problems that will need attention. Proactivity can be a great strength in decision making, allowing less fateful experiments, prototypes, and research. Proactivity requires, however, a decision intelligence process that is missing from many organizations.
Even if problem finding works, a subsequent procedure of agenda setting is needed. Less is known about how potential problems get on the action agenda in companies. Too frequently, potential areas of difficulty are noticed, and even mentioned, but are neither heeded nor resolved.
As a problem is identified, information is needed about the problem and potential actions to be taken. One kind of information is purely factualhat is the problem? A complication is that the processes and procedures of gathering and packaging informationediting"ften leaves business executives at the mercy of "editors." In 1958 James March and Herbert Simon (who later won the Nobel prize in economics) pointed to an important aspect of the editing process, one they called "uncertainty absorption." They suggest that since uncertain information may imply the editors (other staff in the organization) are inept, editors tend to edit out the uncertainty and present information to their superiors as more certain than it really is.
Another kind of information reflects the array and priority of solution preferences. These options are the "values" in the famous "fact and value in decision making" idea. What is selected as possible or not possible, acceptable or unacceptable, negotiable or nonnegotiable depends upon the culture of the firm itself and its environment, as in the statement, "We here at J&L always look for victory."
A third area of information is the possible scope and impact that the problem and its consequent decision might have. Knowledge about impact may alter the decision preferences. To some extent, knowledge about scope dictates who will need to be involved in the decision process.
Typically decision making groups cannot handle too many options. Sometimes, when there is really only one option, decision taking is really a ratification or validation of action. At other times the "painful necessity of choice" sits right on the table. The process through which "agendas" (or "issues") get translated into "alternatives" is a vital one. At issue here is the radical nature of the alternatives (transaction or transformational ones) and the number of choices. Research suggests that an odd number of choices is better than an even one, and that about three to five options seem optimal. If there are more than five options, brainstorming is best continued until the main planes of choice are revealed.
THE DECISION PROCESS
Several sets of elements need to be considered in looking at the decision process. One set refers to the rationales used for decisions. Others emphasize the setting, the scope and level of the decision, and the use of procedural and technical aids.
One approach to process is optimizing, in which all decision possibilities are listed, explored, and prioritized. The rational decision maker proceeds, perhaps one-item-at-a-time, through the list and the "best" solution is found after a complete review. This is also called the rational-individual approach. The problem, of course, is that such a process in its pure form cannot really be accomplished, and it is time consuming and exhausting. Alternatively, one can decide on something that is acceptable for the matter at hand, though less than optimal. These approaches reflect the famous distinction made by Simon, and reported (later) by March and Simon, between optimizing and "satisficing" in the solution of day-to-day organizational problemshe difference between finding the sharpest needle in the haystack and finding one sharp enough to sew with.
From a welfare economics perspective, the economist would list preferences, and similarly work through the list. This perspective focuses somewhat on system optimality, and questions might be raised about whether individual optimality should be replaced by system optimality (does Adam Smith's "hidden hand" really work?). David Braybrooke and Charles E. Lindblom presented a good discussion of these problems in A Strategy of Decision.
They also discussed an approach called disjointed incrementalism. Lindblom also called it "muddling through." Decisions are made "at the margin" or built, element by element (with an element being the smallest irreducible part of the decision matrix, a matrix that contains many such small parts), until the overall decision has been assembled. In this approach what we often call "decisions" might better be called a "decision mosaic" construction made of decisions about each element. (Once the mosaic has been constructed, one can use "decision sculpting" to look at the overall mosaic and make adjustments so that everything fits).
Timing and order can be crucial in the "disjointed incremental" approach. To be effective, decisions must be taken in a timely manner, such that the overall "construction project" can proceed. This just-in-time approach occurs at the appropriate moment, not the last possible moment. Sequence is also important. Dominant elements that influence later elements need to be completed first. While it is clear in construction that one does the basement first, then adds the other floors, such clarity is not always obvious in decision processes.
Sometimes events take over, in what R. Daft called "nonprogrammed" decisions. A process of constraints and tradeoffs dominate, often simultaneously.
In most cases, business decisions are made in collective settings called "meetings." Meetings, committees, and task forces have taken on a pejorative meaning. Most meeting humor expresses a meeting's ineptitude, as in the examples, "A camel is a horse constructed in a meeting," and "A meeting is a group which takes minutes to waste hours!" Meetings can be improved, and made into effective information processing systems that have decisions as their outcome. Much work has been done to develop more effective meetings. Antony Jay's famous piece, "How to Run a Meeting," essentially became the script for the well-known meeting improvement video starring John Cleese, "Meetings, Bloody Meetings" (Video Arts). Meetings can be thought of as places where "coalitions" crystallize and ebb. Coalitions are important in business organizations because of the myth of the individual decision maker. As discussed, organizational "editors" assemble information, making subdecisions along the way. But also, different perspectives are needed. The final decision mosaic is a construction of many hands, as often blessed as made by the decision maker. Our individualistic culture retains a fiction that individuals decide; more often they are components in a decision process. (The truth is even more starkany times decisions are made, or not made, in the meeting situation without an actual decision maker; rather, there is a decision system/team that works well, or not.)
SCOPE AND LEVEL.
Finally, attention must be paid to problem scope and organizational level. Problems of large scope need to be dealt with by top levels of the organization. Similarly, problems of smaller scope can be handled by lower levels of the organization. Most organizations could improve on getting the right problems to the right decision groups. Typically, top-level groups spend much too much time deciding low-level, low-impact problems, while at the same time avoiding problems of high importance and organizational impact.
USE OF PROCEDURAL AND TECHNICAL AIDS.
In recent years, a number of procedural and technical aids have been developed to deal with effective group decision making in meetings. Other such aids deal with the use of computers and computer-based decisions. Decision assistance software, called groupware, is helpful. Groupware is a term used for computer-based decision support systems, group writing programs, and group spreadsheet programsrograms that tally preferences in order to aid the business team in making high-quality decisions. There are many new titles in this area. One is Groupware and Teamwork: Invisible Aid or Technical Hindrance?, edited by Claudio U. Ciborra. For example, in "chauffeur-driven" systems individuals respond over a set of keypads to questions. Overall preferences can be displayed anonymously without regard to race, gender, or power. These improvements have led to virtual meetings and team interaction. Virtual meetings are becoming very much the norm. Here too there is much new literature. One example is Virtual Teams: Reaching across Space, Time, and Organizations with Technology, by Jessica Lipnack and Jeffrey Stamps.
Whatever the process, there also needs to be an outcome. Many times there is uncertainty in business meetings about what has actually happened. In exit interviews the author has conducted, participants of decision making meetings were unclear about what happened, and in a considerable number of instances different participants thought different results had been achieved. Stepping away from a decision, or failing to nail it down, is a nonresult that occurs for many reasons. One cause is stalling; opposing interests neutralize each other. Another cause is that decision making tears at group cohesion, something groups resist, especially when the same individuals defeated this morning are one's colleagues this afternoon. And there is sometimes honest confusion about what is up for decision, and which group (or person) should make it.
Once made, or while being made, decisions need to be legitimated. Decisions are accepted by the losers, even if they do not like the outcome. In an article published in Personnel, Robert Quinn, J. Rohrbaugh, and M. R. McGrath provided an excellent slant on decision legitimacy with four perspectives or orientations to decision making in organizationsonsensual, empirical, rational, and political (see Table 1).
Readers will doubtless recognize their own styles, and may also sense that their business approaches different kinds of decisions with different perspectives, There may also be conflict over which perspective is appropriate. Two key points are important, and for high-quality decisions, some of each of these perspectives is needed. First, if an executive or firm works only in one area, then there is vulnerability and exposure from the others. Secondly, one can supplement or buttress one's own style with that of others, in a "decision team." It's unlikely that any of us have the ability to work in all of these areas; we can build a decision ensemble that can.
Another approach to decision legitimacy is to look at decision rules, which are defined as "extra group norms which make decisions ok." There are several decision rules, and they conflict with the other (an outcome determined by any one of them would have a different distribution of winners and losers). So far, five rules seem prominent: the extensive rule (one person, one vote); the intensive rule (what people who care or feel deeply about the issue want); the involvement rule (what those who might have to implement any decision prefer); the expert rule (what the "lawyers" or other experts think); and the power rule (what the boss wants). It appears these rules are brought into decision settings from the culture at large. Since they conflict, decisions tend to be sought that will address as many as possible. Three or more seems like the minimum acceptable number. In other words, managers who can frame decision options that can be seen to address at least three of these five at any one time are more likely to make decision progress than managers who can't.
EVALUATING DECISIONS AND DECISION MAKING PATTERNS
Managers, executives, and businesspeople attending to each of these areas still have more elements to take into consideration. One of them is the quality of the decision. In the press for action, groups not only avoid decisions, they make premature decisions (and exhibit other problems). Quality decreases, and may even become negative (in which everyone is worse off than before.)
|Key Base||Participation Base||Data Base||Goal Base||Adaptive (Interests) Base|
|Result/Outcome||Good Feelings Results||Numbers Add Up||Logic Is Flawless||Stakeholder Needs Met|
DEFINING THE QUALITY OF DECISIONS.
Decisions are a product, and decision makers need to look at those products and ask if they are of high quality. One method is to sample the group's decisions (or your own, for that matter) and give them a grade: A B C D F. An A decision is one in which all stakeholders come out ahead, though they do not need to come out equally ahead. The B decisions involve winners and losers, but the final result is that the organization is better off. The C decision, a very common one, occurs when there is a shift in the winner/loser mix, but the organization is no better off than it was. The D is the opposite of the B; now there are some losses that mean that the organization is worse off. Finally there is the "nuclear war" decision, the F. In this decision, everyone winds up worse off than before.
This method relies on judgment, as a small group looks at each decision in the sample and gives it a grade. It certainly has no claim to superiority over other methods the businessperson might develop. The important thing about decision analysis, however, is that some system be used so that a review can occur. Once decision making systems are aware that their decisions are being reviewed, greater attention will be paid, and they are likely to improve, for reasons of the measurement itself.
What happens after the "grading"? The executive can sit down with a staff or an operations group and review the results, seeking to find out, in the spirit of constant improvement, whatbout problem finding, problem context, decision legitimization, or problem solvingould be improved. This "decision audit" can be helpful in pointing to specific problem areas, and in calling attention to the whole area of decision making in general. Care must be taken to avoid blame, and to avoid a "shooting the messenger" mentality, in these situations.
A further step one can take is the decision autopsy. Here, one takes an A and an F decision and takes each of them apart. One seeks to find out what went right, and continue it; and what went wrong, and stop it. For most companies, these are not the same things. Because most organizations are doing some things right and some things wrong at the same time (we all have many processes going on), they tend to assume that if they are doing things right then they are not doing things wrong. This error is a common one, because wrong things and right things are generally in different business behavioral repertoires. Consider Figure 2. It assumes that an organization has a mix of success decisions and failure decisions. Depending upon the mix or ratio of these, the organization can be in any quadrant. True excellence requires that one do lots right, and little wrong (the upper left quadrant). Executives should seek to have a decision pattern that can fit there. Doing lots right and lots wrong at the same time can lead to a shooting star organization, one that can "drop dead" at any moment (upper right quadrant). Many organizations don't make many right decisions, or many wrong oneshey don't do much at all. These organizations are "lingering," and may move into "organizational death" (from the lower right to the lower left quadrant).
Why do decisions go wrong? Given the great desire to do the right thing, decision-wise, one might wonder why things go wrong, so badly, so often. The reason is that there are important limitations in each of the five areas mentioned above, especially in the decision process.
The following list (adapted from Braybrooke and Lindblom's A Strategy of Decision) suggests some of the more common and perhaps inherent, process limitations: limited organizational capacity; limited information; the costliness of analysis; interdependencies between fact and value; the openness of the system(s) to be analyzed; the diversity of forms on which business decisions actually arise. Problems of time insufficiency, distraction, low level of decision making skill, conflict over goals (and no way to resolve the conflict) are also important. While these cannot be completely controlled, executives can be alert to them.
A second category of difficulties is captured in a number of common pitfalls of the decision procedure. One such pitfall is "decision avoidance psychosis" that occurs when organizations put off until the very last minute making decisions that need to be made. One form of this is the "nondecision." It may appear a decision has been made, when in reality one has not. For example, one organization I knew put contentious things on the "list." Putting an item "on the list" had the "feel" of a decision; in reality, of course, as everyone knew, the list was never revisited.
Things here, and usually, go along very much as they have. Over time this pattern of nondecision can lead to the boiled-frog phenomenon, as described by Noel Tichy and Mary Anne Devanna in The Transformational Leader. This phenomenon takes its name from an experiment in which one puts a frog in a petri dish filled with water, and slowly heats the water over a burner. The frog boils to death. Why does it not leave? The answer seems to be that the barely perceptible difference in the temperature is never enough to cause action. This "just noticeable" difference phenomenon is an important source of nondecision in organizations. Members see things pretty much as they were, and thus wrongly conclude that there is no need to act.
A second problem is decision randomness. This process was outlined in the famous paper entitled "A Garbage Can Model of Organizational Choice," written by M. James Cohen, G. March, and J. Olsen. They argued that organizations have four roles or vectors within them: problem knowers (people who know the difficulties the organization faces); solution providers (people who can provide solutions but do not know the problems); resource controllers (people who don't know the problems and don't have solutions but control the allocation of people and money in the organization); and a group of "decision makers looking for work" (or decision opportunities). For effective decision making, all these elements must be in the same room at the same time. In reality, most organizations combine them at random, as if tossing them into a garbage can.
Decision drift, or the Abilene Paradox, is another famous bad decision case (described by Jerry B. Harvey). A group of people were outside of Abilene, Texas, with nothing to do. It was hot. Somehow they wound up going into town (many miles, dusty drive, no air conditioning) to have a very bad meal. On the way back, the "search for guilty parties" began. As they sought to find out whose idea this was, the troubling truth emerged that it was no individual's ideaach had thought the others wanted to do it; no one had questioned it. The Abilene Paradox has come to refer to group actions where there never really was a decision to take that action.
Decision coercion, also known as groupthink, is another very well-known decision problem, made famous by Irving Janis, author of Groupthink. In groupthink, decisions are actually coerced. It is a false agreement in the face of power. When the boss says, "We're all agreed then," most at the table say "Aye." Only later, in the hallway, when the real discussion occurs, do the problems surface.
Naming these common problems will not prevent them. Because they are so common, however, executives can be more aware of them, and seek to prevent them.
IMPROVING DECISION MAKING
What can businesspersons do to improve the decision making process at their firms? Six sets of possibilities are explored below.
- Improve the setting. Organize better meetings, with more focused agenda, clear questions, the right information and the right people. Avoid the garbage can; get the relevant people in the same room at the same time. Pay attention to planning and seek closure.
- Use logical techniques. In the film "Meetings, Bloody Meetings," a five-step discussion sequence is proposed: (1) state the problem; (2) present the evidence; (3) argue about what the evidence proves; (4) decide; and (5) act. And, as the narrator says, "Keep people from jumping ahead or going over old ground." This technique is as good as any. The use of the Delphi technique, in which group preferences are continually sought, tallied, and then fed back to the group, is another approach.
- Enlist decision aids. Groupware and decision software might be helpful, as well as steps to improve one's meeting processes. Specific attention to the structure of the decision system might yield useful results.
- Evaluate decisions and decision making patterns. Evaluation tends to focus the attention, and make individuals and teams more sensitive to what they are actually doing in their decision making tasks. Evaluation is especially helpful in today's business environment because of the interdependency of individuals in a decision matrix. No one person does it all, regardless of what she or he may think.
- Be prepared to deal with poorly structured problems. The executive may still seek some answers to questions of what she or he could do to develop personally. This question is especially pertinent to a certain class of problems that require decision, but are poorly structured. The executive needs to develop his or her own approach to a point where it can be dealt with by others. In The Executive Challenge, Michael McCaskey suggested skill areas that would help in dealing with such poorly structured problems.
- Play the right game. Much emphasis here has been on business decision making. But what kinds of decisions might executives be looking for? Complaints about "micromanaging" and "pie-in-the-sky" are common enough that one might conclude executives have a substantial lack of clarity about the types of decisions they should be looking to make. In Managing Large Systems, Leonard R. Sayles and Margaret K. Chandler provided a useful list:
- Giving problems their proper weight and context
- Taking problems at the right time
- Taking problems in the right sequence
- Establishing and shifting decision criteria
- Acting as the coxswain (beating out the pace of decision action)
Decision making is at the heart of business operations. High-quality decision making is essential for businesses to thrive and prosper. Unfortunately, the decision process is hard to pin down and understand and often receives far less attention than it deserves. The future of one's business is written in the decisions of today. Every effort to make those decisions of high quality will be rewarded.
SEE ALSO: Management Science; Operations Management
[John E. Tropman]
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