Chapter 7

The Place and Role of Decision Making

in the Process of Modern Enterprise
Management
Olga V. Danilova

7.1 Introduction
Management as a process of bringing the system to a certain required state
essentially represents a set of management decisions, the development and
adoption of which are aimed at achieving the goals. Decisions that managers of
any level take in accordance with their position determine not only the short-term
efficiency of the enterprise but also its viability and sustainable development in a
highly integrated economy. Particular importance of management decisions is
associated with the role of the head, his professionalism, responsiveness in difficult
situations, and knowledge of modern methods of dynamic and computer
modeling.

7.2 Materials and Method

The theory of decision making appeared as a result of the development of
management science and is associated with the rejection of the “mechanistic”
concept of change, considering the company as a machine, all components of
which (shops, departments, personnel) work in accordance with rigidly fixed rules
and laws, which ensures the coherence of the movement of all parts, and the
formation of the concept of “living organization,” considering the enterprise as a
single organism, as “a set of reactions to social needs.” The main objectives of the
enterprise, as well as any organism, were recognized not so much profit, as sur-
vival and growth. And if before the approval of the concept of the enterprise as a
living system in a relatively stable environment from managers needed to opti-
mize, that is to improve, the same process, in the middle of the last century, the
emphasis was on decision making in an ever-changing environment. Managers
had to take full responsibility for their decisions under uncertainty. Decision
making has become an important component of business success or failure.
Optimization models and methods have become effective tools for managing

Specifics of Decision Making in Modern Business Systems, 57–67

Copyright © 2019 by Emerald Publishing Limited
All rights of reproduction in any form reserved
doi:10.1108/978-1-78756-691-020191008
58 Olga V. Danilova

modern organizations, and management has been recognized as a special art and
occupation.

7.3 Discussion
Theoretical and practical issues of management decisions have become the subject
of research of many Russian and foreign scientists who studied the nature of
managerial decisions (Daft, 2009, 600 pp.; Gerter Gitte, 2015, pp. 21–54; Laux,
2006, pp. 44–60; Simon, 1959), creating mathematical modeling methods
(Madera, 2015, pp. 34–56; Tarasenko, 2010, pp. 80–99), technology development,
and selection of optimal solutions to strategic, tactical, and operational man-
agement tasks (Korotkov, 2004, 893 pp.; Lapygin & Lapygin, 2009, pp. 12–48;
Litvak, 2002, pp. 54–92). The review of the modern literature on the problem
showed the lack of elaboration of alternative tools for the development and
management decision making, ensuring its effectiveness and feasibility in modern
conditions of uncertainty and high risks of business.

7.4 Results
Management, as a function of biological, social, and technical organizational
systems, ensures the preservation of the structure and supports a certain mode of
their activities. The essence of any concept is manifested in the functions per-
formed by it. Each function expresses one of the aspects of the essence of the
phenomenon, and the implementation of the functions in full allows us to
understand the nature and possibilities of the evolution of the phenomenon in the
economic system. The main control functions are shown in Fig. 7.1.
The main component of each of these functions is decision making. The
management decision connects all aspects of the manager’s activities – from the
definition of the goal, research, and diagnosis of the situation and identification of
the problem (s) to the development of possible alternatives, the choice of the
optimal solution to the problem, and achievement of the goal. The definition of
objectives, planning, organization, motivation, control, and coordination of the
implementation of the whole process of implementation of managerial decisions is
largely dependent on the correctness of the set problem, its relevance and
importance for the control object, its size, production, and economic specificities.

Planning Organization

Coordination

Control Motivation

Fig. 7.1. Basic Management Functions.

 The Place and Role of Decision Making in the Process 59

Yielding to digital technology in speed and accuracy of calculations, the per-

son, at the same time, has unique abilities. He quickly assesses the situation,
highlights the significant, to set aside the secondary, compares conflicting esti-
mates, ambiguities and uncertainties fill their own hypotheses. These unique
qualities have saved humanity throughout the historical development. How
management makes decisions about why some companies succeed where others
fail – all of this needs to be addressed. Concretization of management theory can
be traced in the process of development of management systems. The develop-
ment of management thought and the emergence in practice of new tools and
mechanisms of management is a process of dialectical unity of opposites, between
which there is both direct and feedback (Fig. 7.2).
Intensive development and use in practice of methods of solving complex
management problems has developed in the scientific discipline and has been
widely used in the practice of management of organizations in 1950–1960. In this
extremely difficult period for national economies, the management science was
tasked with developing effective management technologies, models, and methods
(quantitative and qualitative) to solve complex management problems in a
resource-limited environment. The system of management decision making
methods has become an integral part of the special scientific disciplines: opera-
tions research, system analysis, management of technical systems, etc., and the
specific name of the created areas in management was determined by those
aspects of the management process, which was the main focus.
Modern organization is an open system consisting of many interrelated ele-
ments. As a social system, an organization includes technical and biological
systems. In each particular country there is a special management model adapted
to national conditions, which is a product of evolution and is determined by a
number of factors: the political system, legislation and regulations governing the
rights and obligations of all parties involved, the current economic system, the
conditions and opportunities for the formation of a particular management
structure, traditions and corporate culture, etc.
The national model of management is understood by us as a system of man-
agement relations, formed as a result of the evolution of management practices
and typical for the vast majority of organizations in the country. In the Russian
practice of the 1990s, operational methods of enterprise management prevailed.

The development of the Improving decision making

management theory

The emergence of new ideas

and the formation of new Management practice
concepts

Fig. 7.2. Relations between Management Theory and Decision

Making.
60 Olga V. Danilova

The solution of operational issues averaged 70–80% of the total volume of

decisions. The growth of competition, uncertainty, and economic instability in
international markets required to shift the focus of management to address the
problems of strategic development. The world practice of management shows that
the organization of highly efficient production depends on the effectiveness of the
management system, the quality of developed and adopted decisions, profes-
sionalism and competence of the organization’s management, approaches, tools,
and models of management decision making.
In the world practice of management there are three basic models of decision
making – American, Japanese, and German (Fig. 7.3).

Diagnosis of the
problem
Problem
statement

The wording of Search

the criteria and (extraction) of
restrictions formation

Evaluation
Diagnosis of the
problem
Taking decision
B
Assessment of
alternatives Diagnosis, formulation
and justification of the
problem
Final choice

А The problem Formulation of

constraints and criteria
Problem statement Identification of
factors
Formulation and
Proposal of Development of selection of possible
alternative solutions solutions solutions

Choosing the best Evaluation and Evaluation and

В
solution decision making decision making

C D E

A, American model; B, German model; C, Japanese model;

D and E, Russian model

Fig. 7.3. Models of Decision Making in Different Schools of

Management.
 The Place and Role of Decision Making in the Process 61

The American model of management, formed at the turn of the nineteenth to

twentieth centuries, is associated with the leader of “scientific management” by
Taylor and technical progress in large industrial enterprises. The American school
of management connects the success of the company with internal factors of
efficiency: rational organization of labor, rational use of resources, specialization
of individual employees and structural units, and a strict division of responsi-
bilities. The American management system is characterized by a hierarchical
model of management, differentiation of strategic and operational decision
making, individual actions, the prevalence of personal gain and competition as a
way to motivate the productive activities of employees. Unity of command and
individualization in the payment of managers, entrepreneurship in achieving
leadership, and individual methods of stimulating employees to perform assigned
work with maximum responsibility – all of the above distinguishes the American
type of management from the Japanese and to some extent from the Western
European type of management.
The American style in management is not a movement from the present to the
future, but the future is seen as the idea of the company’s development in the
present. Strategy as an idea of the company’s development, planning for the
future, forecasting and marketing, and allowing to understand the consumer and
adjust to his requirements, to anticipate market changes, and to take the neces-
sary measures in the production sphere in a timely manner (Sorokina, 2016a,
2016b).
The German school considers the decision making component of a well-
thought-out planned procedure for the organization of the management pro-
cess. Priority is given to the order of elaboration processes and achieves efficiency
in accordance with the detailed thought-out plan. The main criteria for the
rationality of the management decision include its usefulness, financial aspects,
first of all, saving material, administrative and labor costs, satisfaction with the
results of the implementation of the decision, the number and quality of decisions.
The brevity of the decision making process demonstrates the idea of the German
management of the decision, as part of the planning and control of production
and economic activities.
The Japanese management system, clearly accepted as the most effective in the
world practice, developed as a result of the influence of national traditions,
American management ideas, popular in the country after WWII, the need to
combat postwar poverty and devastation. Built on the philosophy of “we are one
family,” Japanese management relies on the establishment of normal “family”
relations between employees of the company. Japan was the first in the world to
create a management system with a “human face,” based on the involvement of
all employees in solving the problems of the company. Keeping and focusing
attention in the management process on national values, Japanese management
constantly uses advanced technologies, approaches, and methods of management,
adapts them to local conditions, and forms a special style of relationship between
management and employees of the company.
A common feature for all modern organizations is a fairly complex organi-
zational structure of management and, as a consequence, the presence of a
62 Olga V. Danilova

significant number of not only senior and middle managers but also a relatively
large number of professionals who are not in fact even managers. The structural-
level concept of the management decision making process that has developed in
the world practice describes this process in the form of several levels. Autocratic,
autonomous, local peer, integrative, and collegial metacollegially levels of deci-
sion making are of particular specificity, positive and negative sides.
The autocratic level of decision making has two main features: firstly, the
solutions to the problem are developed by the head individually, separately from
subordinates, demonstratively “closing” the decision making process; secondly,
when making a decision, the head does not take into account the position of
subordinates, guided solely by his own interests. Formally being a part of the
organization, maintaining its status and position, the head actually opposes
himself to the team, positioning himself “outside the organization.”
The difference between the autonomous levels of decision making is the
maximum acceptance of the head of the interests and opinions of other members
of the workforce. Being aware of belonging to the group, understanding the
need to respect its interests, the head makes decisions independently, keeping the
individual form. The elements of collegiality at the autonomous level mean that
the leader is already the bearer of group interests, norms, and values. At the
local collegial level, the decision making process is collective, formed on the
basis of interpersonal contacts of all members of the team. In accordance with
the specifics of delegation of authority, they should develop and make decisions
that are relevant to the organization. The core of organizational culture is
teamwork and rationality of decisions. Practice shows that employees who work
together for a long time generate an atmosphere of self-motivation and self-
stimulation. The result of competent management is the creation of a team of
like-minded people, motivated by a common goal and set to solve clearly defined
tasks.
The Russian specificity lies in the combination of autocratic and autono-
mous levels, the inclusion of procedures of local collegial style of decision
making. The central face of a modern Russian company is a leader, a specific
person who has a good command of business information and can achieve the
required results due to authoritarian pressure on employees. The main
emphasis is on the authoritarian style of management. The manager, who
combines the owner and the chief manager in one person, identifies himself
with the company and is convinced of his own importance and irreplaceability.
Implementing and controlling the decisions taken, the modern Russian leader
is obliged to respond flexibly to the changes taking place in the external
environment, to provide feedback, and to make decisions based on short-term
subjective goals. “Manual control” has actually become the main method of
decision making of the Russian management. In such a situation, the manager
helps experience, which gives information about the variability of events, what
can happen with the greatest probability. In this case, the probability estimate
is always subjective. When dealing with new, atypical problems, when the
factors to be taken into account are so new and complex that it is impossible to
obtain enough information about them, an important component is the risk
 The Place and Role of Decision Making in the Process 63

assessment. As a result, the probability of a particular solution cannot be

estimated with a sufficient degree of reliability.
Uncertainty, the lack of clear prospects in public policy and global economic
development, does not allow to make decisions in the long term. The profes-
sionalism of the decision maker depends on his competence and is reduced to the
prediction and adoption of corrective management actions. In the current Russian
management model, the manager is able to assess the situation well today and
work successfully on a small scale of business. As part of the performance of their
duties, the head develops and implements various kinds of functional orientation
and management decisions. Decisions are made at each stage of the management
process, are associated with all aspects of management, and to make effective
decisions, the manager must possess modern technologies of managerial decision
making. In addition to the specific role of the head, the Russian management
practice is characterized by the predominance of personal, friendly relations. The
lack of professionalism, the practice of relationships with the workforce on the
basis of informal principles does not allow to build a system of regular man-
agement, to ensure the work of the company without urgent unplanned work and
unproductive losses. Decision making on vital issues in the “emergency style”
prevents the company’s management to carry out the planned changes, to solve
strategic problems (Sorokina, 2018, pp. 22–64).
Management decisions in the Russian practice have their own characteristics
depending on the industry and the sphere of activity of a particular organization.
At the state level, the specific features of solutions are the breadth of coverage of
the affected problems and the number of employees involved in their solution, the
importance and high social responsibility for the results of the implemented
solutions – financial, sociopolitical, environmental, moral, and ethical (Danilova,
2016). The specificity of the decisions made and implemented in the industrial
organization is largely determined by the high importance of technical and
technological equipment of production, high requirements and characteristics of
relationships with consumers, the use of automated control systems, the
complexity of the organizational structure, and the need to solve social problems
and meet environmental standards. The presence of high-tech and innovative
processes and production adds high uncertainty and the need to make decisions
taking into account the risks and planning of technological losses, high require-
ments for the skills and experience of employees, the complexity of the devel-
opment of methods of motivation and assessment of the contribution of specialists
in the creation and production of high-tech products.
Obligatory condition of successful activity of service organizations is their
customer-oriented approach. From this point of view, management decisions
should be made with the direct participation of the consumer, production
capacities are established according to the “peak demand” of the consumer
(rather than the average demand), a high degree of individualization of the
finished product and mandatory social and psychological skills of employees,
significant costs for marketing research, and high labor intensity of work.
An important factor that affects the process and cost of decisions is the size of
the organization. The larger the organization and the more complex the hierarchy
64 Olga V. Danilova

of decision making levels, the more expensive these decisions are and the more
likely they are to cause pathologies. At each of the three main levels of decision
making – operational, tactical, and strategic – the priority of goals is set, a list of the
most important tasks is formed, methods, technologies, and tools for the devel-
opment and implementation of management decisions are determined. For small
business firms when taking decisions, of particular importance is the high depen-
dence from the user, resource limitations and problems of credit difficulties with the
selection of qualified personnel and uniform distribution of resources, and lack of
information about the state of the market (Sorokina, 2016a, 2016b). Features of
management decision making in Russian organizations are shown in Fig. 7.4.

• Top-priority goals for the organization are

Sensitivity to the sphere of
organization's activities
obtaining profit. Depending on the sphere of
activities, economic innovational and
motivational decisions are made, with
emphasis on economic, political or scientific
problems as opposed to social or ethical
aspects.

•Development, selection, and implementation of the

Dependence on specific
circumstances in which
decisions are made
variants of decisions are influenced by the factors
of external and internal environments. With large
dependence on sectorial belonging, the share of
standard decisions (for a specific sphere of
company’s activities) is high.

•High level of risks during decision making in all

spheres of economy, connected to uncertainty and
crisis phenomena, instability in economic, political,
High level
and social spheres. The necessity for considering
these factors is reflected on quality of the
decisions.

•Sizes and sectorial belonging of the organization

Low predictability of
consequences of the decisions
directly influence the complexity of managerial
decisions. If organization is large and regionally
significant, the management’s decisions might
seriously influence the socio-economic situation
of the territories. In the key and socially important
spheres, decisions may have serious socio-
economic consequences. Decisions of this kind
should be treated with special care.

Fig. 7.4. Features of Managerial Decision Making in Russian

Organizations.
 The Place and Role of Decision Making in the Process 65

The set of parameters of the chosen alternative, satisfying a particular con-

sumer (consumers) and ensuring the reality of its implementation is defined as the
quality of the management decision. The criterion of quality of solutions is their
practical implementation. In the practice of Russian organizations, the indicator
is used to indirectly assess the quality of management decisions based on the
number of decisions made:
K ¼ RV 2 PH=RPp100;

where:

K – coefficient of quality of managerial decisions;

RP – number of management decisions;
RV – the number of executed management decisions;
PH – the number of poor-quality solutions.

Determined in percentage terms, this indicator allows to have an idea of the

quality of decisions with a certain degree of probability. The main conditions for
making quality management decisions include the following:

• use of scientific management approaches (system, situational, complex, func-

tional, etc.) in the development of management decisions;
• study of objective economic laws and their impact on the effectiveness of
decisions;
• availability of reliable quality information about the object of management,
accurate data on the parameters of “input,” “output,” “external environment,”
and “business processes,” and the availability of information for the decision
maker;
• application of methods of functional cost analysis, forecasting, modeling, and
economic justification of decisions;
• structuring problems and challenges with using the “decision tree,” the compa-
rability of the generated alternatives, the provision of multivariant solutions;
• legislative and regulatory support of decisions;
• automation of the process of collecting and processing information, develop-
ment and control of the implementation of decisions;
• formation of an effective system of responsibility and motivation of quality
execution of decisions, personal responsibility for the implementation of decisions.

The decisions made are the result of management activities, and therefore, to
assess their quality, it is fair to use the criteria used to assess the effectiveness of
conventional products, works, and services – efficiency, effectiveness, and pro-
ductivity. In Russian practice, the following parameters of the effectiveness of
management decisions are used:

• organizational effectiveness as a result of achieving organizational goals

through less effort, fewer employees, or less time;
66 Olga V. Danilova

• legal effectiveness is measured by the degree to which the legal objectives of the
organization and staff are achieved in a shorter time, by fewer employees or by
lower financial costs;
• economic efficiency as a ratio of the value of the additional product obtained
through the implementation of a specific management decision and the cost of
its preparation and implementation;
• social efficiency is seen as the result of achieving social goals for more
employees and the organization in a shorter time, fewer employees, less
financial costs; the result of social efficiency can be a good sociopsychological
climate in the unit, mutual assistance, informal relationships in the team;
• technological efficiency is the result of achieving the industrial, national, or
global technological level of production, planned in the business plan, in a
shorter time or less financial costs;
• psychological effectiveness is the result of achieving psychological goals for
more workers or the population in a shorter time, with fewer workers, or less
psychological costs;
• environmental efficiency represents the achievement of the environmental
goals of the organization and staff in a shorter time, with fewer employees, or
less economic costs.

7.5 Conclusions
Management decision, always the choice of alternatives associated with the
conscious and purposeful nature of human activity, exists at all stages of
the management process and is an essential element of the implementation of
all management functions. Decision making is not a one-time act but is
the result of the process of development and selection of the best option,
which has a certain duration and structure. By its nature, the decision making
process is a cyclic sequence of actions of the subject of management aimed
at solving the actual problems of the organization and consists in analyzing
the situation, generating alternatives, and choosing the best one and its
implementation.
Management decision making belongs to the category of creative operations in
management technology. In its content, this process is a logical and mental
activity performed mainly by senior staff on the basis of accumulated knowledge,
intuition, and creative abilities. On the other hand, the manager must be pro-
fessionally able to make a competent informed choice from a variety of alter-
natives. Only scientific approaches and management principles, careful choice of
tools and methods, models and mechanisms of development and decision making
can provide such an opportunity.
As the main criterion of effectiveness, it is proposed to consider the effec-
tiveness of the managed object. The quality and rationality of management
decisions should be the most important indicator of assessing the effectiveness of
the management potential of the organization, which is implemented in both
material and intellectual forms: the costs and expenses for the development of
management tools and technologies, the volume of management actions, the
 The Place and Role of Decision Making in the Process 67

nature of management work, and the realization of the interests of all stake-
holders in achieving the goals of successful development of the organization.

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