chapter3

Managerial Decision-making?
*Formal Definition
*“The process of identifying problems and
opportunities for the Organization”
*Requires 1), design a choice, 2), form
expectations, 3), evaluate the consequences
*Informal Definition of a Decision
*Deliberate, Conscious (e.g., material choice)
*Automated, Saccadic (e.g., eye movement)
*Short sequences (e.g., driving a car)
*Long sequences (e.g., life-time investment)
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Scan and SWOT
• The combination of an Environmental Scan and a
S.W.O.T. Analysis is called SITUATION ANALYSIS
• Scans & SWOTS are targeted i.e. don’t scan the
broader external environment “willy-nilly” – ask ‘how
external factors and forces in the environment
beyond the company impact specific challenges
(opportunities or situations)
• Equally S.W.O.T.S are also typically narrowed to
areas of business strategy under consideration e.g. a
new product launch, JV, market segmentation etc.
pricing, channel distribution
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Analytics for Management Decision-
making
• Prescriptive Analytics
• What should we do?
• HR Department: What should we (the HR Department) do to meet or exceed the
organization’s hiring and retention goals for next year? What
data/information/knowledge/wisdom should we provide to our hiring and technical
managers to help? What are we missing?
• Predictive Analytics
• What is likely to happen?
• HR Department: How many new employees will our organization need next year? How will
the mix change? What is our competition likely to do?
• Diagnostic Analytics
• Why did it happen?
• HR Department: Did our emphasis on recruiting from campus A (over campus B, etc.)
matter? What do the managers of these entry-level employees think?
• Descriptive Analytics
• What happened?
• HR Department: How many entry-level professionals did we hire last year? How many of
them are still with us now?

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Environmental scanning provides relevant
information about external business environment
• Changes in the marketing environment are a source of
opportunities and threats to be exploited and/or managed
• Environmental scanning is process of continually acquiring
information on events occurring outside the organization to
identify and interpret potential trends
• Environmental trends typically arise from five sources: social,
economic, technological, competitive, and regulatory forces
• An environmental scan may uncover and explain trends that
affect business in the future
• ES information must be carefully directed & included in
SWOT or Situation Analysis.
• Timely, focused information is an important business
function and source of value creation, profitability &
competiveness

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Organizational Structure and Environmental Scan

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e.g. Ben & Jerry’s SWOT
Next two slides show four cells internal versus external
factors (the rows) and favorable versus unfavorable factors
(the columns) to summarize strengths, weaknesses,
opportunities, and threats:

SWOT Analysis:
 Build on a strength: Find distribution efficiencies with
Unilever’s existing ice cream brands
 Correct a weakness: Recruit experienced managers from
other consumer products firms to help stimulate growth
 Exploit an opportunity: Develop a new line of low-fat frozen
yogurts to respond to consumer health concerns
 Avoid a disaster-laden threat: Focus on less risky
international markets, such as Canada and Mexico
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Four alternative market-product strategies for
Ben & Jerry’s to expand sales revenues using
diversification analysis

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Ben & Jerry’s SWOT analysis that serves as the basis for
management actions regarding growth

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Summary of factors that affect an organization’s decision program

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Decision Making situations
• Programmed decision: Routine, virtually
automatic decision making that follows established
rules or guidelines
• Managers have made these decisions many times
before
• Define rules or guidelines to follow based on
experience with past decisions
• Little ambiguity involved
Decision Making
• Non-programmed decisions: Nonroutine decision
making that occurs in response to unusual,
unpredictable opportunities and threats
• In the absence of decision rules managers may rely
on their intuition
Decision Making
Intuition Reasoned judgment
• Feelings, beliefs, and • Decisions that take
hunches that come time and effort
readily to mind • Result from careful
• Require little effort information gathering,
and information generation of
gathering alternatives, and
• Result in on-the-spot evaluation of
decisions alternatives
The Classical Model of Decision Making
• Prescriptive model that assumes the decision maker
can identify and evaluate all possible alternatives
and their consequences and rationally choose the
most appropriate course of action
• Optimum decision: Most appropriate decision in
light of what managers believe to be the most
desirable consequences for the organization
The Classical Model of Decision Making
The Administrative Model of Decision
Making
• An approach to decision making that explains why
decision making is inherently uncertain and risky
and why managers usually make satisfactory rather
than optimum decisions
• Bounded rationality, incomplete information
Figure 5.2 - Why Information Is
Incomplete
Causes of Incomplete Information
• Risk: Degree of probability that the possible
outcomes of a particular course of action will occur
• Uncertainty: When the probabilities of alternative
outcomes cannot be determined and future
outcomes are unknown
• Ambiguous information: Information that can be
interpreted in multiple and conflicting ways
Causes of Incomplete Information
• Time constraints and information costs: Managers
have neither the time nor money to search for all
possible alternatives and evaluate potential
consequences
• Satisficing: Searching for and choosing an
acceptable, or satisfactory response to problems
and opportunities, rather than trying to make the
best decision
Figure 5.4 - Six Steps in Decision Making
Decision Making Steps
• Step 1 - Recognize need for a decision
• Sparked by stimuli such as changes in the
organizational environment
• Managers who actively pursue opportunities to use
these competencies create the need to make
decisions
Decision Making Steps
• Step 2 - Generate alternatives
• Managers must develop feasible alternative courses
of action
• Failure to properly generate and consider different
alternatives sometimes leads to bad decisions
• It is hard to develop creative alternative solutions
Decision Making Steps
• Step 3 - Assess alternatives
• Key to a good assessment of the alternatives
• Define the opportunity or threat exactly
• Specify the criteria that should influence the
selection of alternatives
Figure 5.5 - General Criteria for
Evaluating Possible Courses of Action
Decision Making Steps
• Step 4 - Choose among alternatives
• Rank the various alternatives and make a decision
• There is a tendency for managers to ignore critical
information, even when available
Decision Making Steps
• Step 5 - Implement chosen alternative
• Managers must now implement the selected course
of action
• Implementing the chosen course of action would
require making subsequent decisions
• Managers should take up the responsibility for
making the follow-up decisions necessary to achieve
the goal
Decision Making Steps
• Step 6 - Learn from feedback
• Compare what happened to what was expected to
happen
• Explore why any expectations for the decision were
not met
• Derive guidelines that will help in future decision
making
Types of decision making
• Individual decision making ..based on individual
outlook and justification

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Group Decision Making
• Superior to individual decision making
• Choices less likely to fall victim to bias
• Able to draw on combined skills, competencies,
and accumulated knowledge of group members
• Improve ability to generate feasible alternatives
and make good decisions
• Allows managers to process more information
• Probability of the decision being implemented
successfully increases
Group Decision Making
• Groupthink
• Pattern of faulty and biased decision making that
occurs in groups
• Members strive for agreement among themselves at
the expense of accurately assessing information
relevant to a decision
• Devil’s advocacy: Critical analysis of a preferred
alternative to ascertain its strengths and
weaknesses before it is implemented
Diversity Among Decision Makers
• Promoting diversity improves group decision making
• Bringing together managers of both genders from
various ethnic, national, and functional
backgrounds broadens the range of life experiences
and opinions
Organizational Learning and Creativity
• Organizational learning: Process through which
managers seek to improve a employee’s desire and
ability to understand and manage the organization
and its task environment
• Creativity: Decision maker’s ability to discover
original and novel ideas that lead to feasible
alternative courses of action
• Innovation: Implementation of creative ideas in an
organization
Figure 5.6 - Senge’s Principles for
Creating a Learning Organization
Promoting Individual Creativity
• Creativity results when employees have an
opportunity to experiment, to take risks, and to
make mistakes and learn from them
• Creativity can be fostered by giving constructive
feedback and rewarding employees who come up
with creative ideas
Promoting Group Creativity
• Brainstorming
• One manager describes in broad outline the
problem the group is to address
• Group members share their ideas and generate
alternatives
• Each alternative is described, and one member
records the alternatives on a flip chart
• Group members are encouraged to be as innovative
and radical as possible
• When all are listed, the pros and cons of each are
discussed and a short list created
Promoting Group Creativity
• Production blocking: Loss of productivity in
brainstorming sessions due to the unstructured
nature of brainstorming
• Nominal group technique: Decision-making
technique in which group members write down
ideas and solutions, read their suggestions to the
whole group, and discuss and then rank the
alternatives
Promoting Group Creativity
• Delphi technique: Decision-making technique in
which group members do not meet face-to-face but
respond in writing to questions posed by the group
leader
Entrepreneurship and Creativity
• Entrepreneurs: An individual who notices
opportunities and decides how to mobilize the
resources necessary to produce new and improved
goods and services
• Social entrepreneurs: Individuals who pursue
initiatives and opportunities to address social
problems and needs in order to improve society and
well-being
Entrepreneurship and Creativity
• Intrapreneur: A manager, scientist, or researcher
who works inside an organization and notices
opportunities to develop new or improved products
and better ways to make them
Characteristics of Entrepreneurs
• High on the personality trait of "openness to
experience"
• Are daring and willing to take risks
• Have an internal locus of control
• Possess a high level of self-esteem
• Have a high need for achievement
• Have a strong desire to perform challenging tasks
and meet high personal standards of excellence
Entrepreneurship and Management
Entrepreneurship Management
• Noticing an opportunity • Encompasses all the
to satisfy a customer decisions involved in
need and then deciding planning, organizing,
how to find and use leading, and controlling
resources to make a resources
product that satisfies
that need
Intrapreneurship and Organizational
Learning
• Intensity of competition from agile and small
companies has driven large, established
organizations to promote intrapreneurship
• Product champion
• A manager who takes “ownership” of a project and
provides the leadership and vision that take a
product from the idea stage to the final customer
• Skunkworks
• A group who is deliberately separated from normal
operations to encourage them to devote all their
attention to developing new products
Rewards for Innovation
• Organizations must reward intrapreneurs equitably
if they wish to prevent them from leaving and
becoming outside entrepreneurs