Organizing for Managerial Decision

Making

Module IV
 Syllabus
Module 1V
 Organising for decision making:
 Nature of organizing, organization levels and span of control in management
Organisational design and structure
 Departmentation, line and staff concepts (3 Hrs.)
 Limitations of decision making
 Evaluation and selecting from alternatives
 Programmed and non programmed decisions
 Decision under certainty, uncertainty and risk-creative process and innovation
(3 Hrs.)

2
Organisation Hierarchy

 A hierarchy is an arrangement where there

are different levels of authority or power.
 Organisations usually have a hierarchical
structure, where some people are more
powerful or important than others.
Typical hierarchy in organisations
Typical hierarchy in organisations
STRATEGIC
Typical management hierarchy in
organisations
STRATEGIC
STRATEGIC

TACTICAL
Typical management hierarchy in
organisations
STRATEGIC
STRATEGIC

TACTICAL

OPERATIONAL
Civil Engineering Sem IV
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STRATEGIC DECISION MAKERS
 The very highest level of the hierarchy

 Make very big decisions that:

– Are expensive
– Are long-term (e.g. years)
– Could be disastrous if wrong
– Define the nature of the organisation
– Chart the organisation’s future

Typical Strategic level job titles:

- Chairman
- President
- CEO (Chief Executive Office)
- Board of Directors
- General Manager
Tactical Management
 These people are still high-level, and make important
decisions in their own areas

 But they follow instructions from above: from the strategic

management.
 Tactical managers implement the decisions made at the
strategic level.
 They take a big idea and work out how to make it happen.
 Typical Tactical level Job Titles
 Advertising manager
 Personnel manager
 Creative director
 Manager of information systems
 Communications director
 Chief Financial Officer
Tactical decisions

 Implement strategic decisions

 Are medium-term (e.g. months, weeks)
 Are passed down to the next level of
management…
Operational Management
 Operational managers directly manage non-
management staff and the public.
 They make day-to-day decisions that are
vital to actually make things, sell things,
provide services.
 They are at the ‘coal face’ doing business
and making money.
 Typical operational job titles
 Store manager , Foreman, Army Sergeant
Drawing the line
• Sometimes it’s hard to decide whether a
decision is strategic, tactical or
operational.
• It can depend on the size of the
organisation.
ORGANIZATIONAL STRUCTURE
 Every Organization has a Structure
But structures can differ
1. Due to choice
2. Due to national laws
The words used to describe them also can differ

1. Organization chart, design, structure

The way they are drawn can differ

1. pyramid, sideways pyramid, circle

 Organizational Structure

 An organizational structure consists of activities

such as task allocation, coordination and
supervision, which are directed towards the
achievement of organizational aims.
 It can also be considered as the viewing glass or
perspective through which individuals see their
organization and its environment.
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What Determines
Organizational Structure?
 To what degree are tasks subdivided into separate
jobs?
 On what basis will jobs be grouped together?
 To whom do individuals and groups report?
 How many individuals can a manager efficiently and
effectively direct?
 Where does decision-making authority lie?
 To what degree will there be rules and regulations to
direct employees and managers? Civil Engineering Sem IV
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The Structural Configuration
 is the skeleton of the organization
 reflects corporate governance
 is intended to meet organizational objectives
 arises out of strategic directions
 and causes managers to ask:
– what structure will best aid us in meeting our
strategy and objectives?
 Hence it can be formal or Informal
 Other Aspects of Organization
Structure

Chain of Command
Who reports to
whom?

Wide Span of
control and Narrow
span of control
Line and staff concepts

Director

General
Manager

Works manager
Other Aspects of Organization
Structure

Departmentalization

Functional
Product
Geography
Processing
Customer
Organizational Structure
Types
 Pre-bureaucratic structures

 Pre-bureaucratic (entrepreneurial) structures

lack standardization of tasks.
 This structure is most common in smaller organizations
and is best used to solve simple tasks.
 The structure is totally centralized.
 The strategic leader makes all key decisions and most
communication is done by one on one conversations.
 It is particularly useful for new (entrepreneurial) business
as it enables the founder to control growth and
development.
 Usually traditional domination or charismatic domination.
 Few Wide Spans
Departments of Control

The Simple Structure

Little Centralized
Formalization Authority
 Bureaucratic structures

 Weber gives the analogy that “the fully developed

bureaucratic mechanism compares with other organizations
exactly as does the machine compare with the non-
mechanical modes of production. Precision, speed,
unambiguity, … strict subordination, reduction of friction and
of material and personal costs- these are raised to the
optimum point in the strictly bureaucratic administration.”
 Bureaucratic structures have a certain degree of
standardization. They are better suited for more complex or
larger scale organizations. They usually adopt a tall structure.
It is very much complex and useful for hierarchical structures
organization, mostly in tall organizations.
 The
Bureaucracy

Functional Divisional
Divisional
Structure Structure
Structure
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 Functional Structure
An organizational structure composed of all
the departments that an organization
requires to produce its goods or services.
Advantages
 Encourages learning from others doing similar
jobs.
 Easy for managers to monitor and evaluate
workers.
Possible Disadvantages
 Difficult for departments to communicate with
others. Civil Engineering Sem IV
 Preoccupation with own department and
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losing sight of organizational goals.

Functional Structure
Divisional Structure Can Take
Different Forms

 Product
 Geographic
 Customer group served
Divisional Structures

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Divisional Structures

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Divisional Structures

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The Matrix Structure
 The Matrix Structure
• The matrix structure groups employees by both function and product.
• This structure can combine the best of both separate structures.
• A matrix organization frequently uses teams of employees to accomplish
work, in order to take advantage of the strengths, as well as make up for the
weaknesses, of functional and decentralized forms.
• An example would be a company that produces two products, "product a"
and "product b". Using the matrix structure, this company would organize
functions within the company as follows: "product a" sales department,
"product a" customer service department, "product a" accounting, "product
b" sales department, "product b" customer service department, "product b"
accounting department.
• Matrix structure is amongst the purest of organizational structures, a simple
lattice emulating order and regularity demonstrated in nature.
 The Matrix Structure
Cross-Functional Clear
Coordination Accountability

Dual Chain Allocation

of Command of Specialists
 We Use a Matrix to Organize Roles and
Relationships in Business Education.
 Hybrids Often Emerge to Deal with Problems
of Functional and Divisional Forms
The Virtual Organization

Independent R & D Advertising

Consulting Firm Agency

Executive
Group

Factories in Commissioned
South Korea Sales Representatives
 The Boundary less
Organization

Limited Widened Empowered

Chain of Spans of Employee
Command Control Teams
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B2B Network Structures
and IT

 Boundary less Organization

– An organization whose members are linked by
computers, faxes, computer-aided design
systems, and video-conferencing and who, rarely,
if ever, see one another face-to-face.
 Knowledge Management System
– A company-specific virtual information system that
allows workers to share their knowledge and
expertise and find others to help solve problems.
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 Managerial Decision Making

 Decision making is not easy

 It must be done amid

– ever-changing factors
– unclear information
– conflicting points of view

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 Decisions and Decision Making

 Decision = choice made from available

alternatives
 Decision Making = process of identifying
problems and opportunities and resolving them.
Or
 A process by which a course of action is
consciously chosen from available alternatives
for the purpose of achieving the desired goal.
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 Categories of Decisions
 Programmed Decisions
–Situations occurred often enough to enable
decision rules to be developed and applied in
the future
– Made in response to recurring organizational
problems
 Nonprogrammed Decisions – in response to
unique, poorly defined and largely unstructured,
and have important consequences to the
organization

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 Decisions and Decision Making

 Many decisions that managers deal with

every day involve at least some degree of
uncertainty and require nonprogrammed
decision making
 May be difficult to make
 Made amid changing factors
 Information may be unclear
 May have to deal with conflicting points of view

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 Techniques for Non Programmed
decisions

 Delphi Method
 Nominal Group Technique
 Experience
 Quantitative Decision Making Tools
 Quality Circles.

43
 Comparision…
Sl No Programmed Decisions
1 Recurring in Nature
2 Structured Problems
3 Simple with small Impact
4 Guided by policies and procedures
5 Lower management takes this
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Non Programmed Decisions
Non Recurring
Unstructured Problems
Complex with long term impact
Guided by the situation
Top management takes this
 Risks…..

 What is it….
 Risks refers to a decision making situation
where there are different possible outcomes
and the probabilities of these outcomes can
be measured in some way.

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 Certainty, Risk, Uncertainty, Ambiguity
● Certainty
● all the information the decision maker needs is fully available
● Risk
● decision has clear-cut goals
● good information is available
● future outcomes associated with each alternative are subject to
chance
● Uncertainty
● managers know which goals they wish to achieve
● information about alternatives and future events is incomplete
● managers may have to come up with creative approaches to
alternatives
● Ambiguity
● by far the most difficult decision situation
● goals to be achieved or the problem to be solved is unclear
● alternatives are difficult to define
● information about outcomes is unavailable

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 Types of Risks.

Risks
Systematic Risks Un Systematic Risks

1. Markets 1. Business Risk

2. Inflation 2. Credit Risk
3. Interest Rates 3. Liquidity Risk

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 Decision Making …..

Low Certainity High

Possibility of Failure

Managerial Control
Risk

High Low
48 Uncertainlty
 Conditions that Affect the Possibility of
Decision Failure
Organizational
Problem

Low Possibility of Failure High

Certainty Risk Uncertainty Ambiguity

Programmed Nonprogrammed
Decisions Decisions

Problem
Solution

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 Selecting a Decision Making Model

 Depends on the manager’s personal

preference
 Whether the decision is programmed or
non-programmed
 Extent to which the decision is
characterized by risk, uncertainty, or
ambiguity

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 Six Steps in the Managerial
Decision-Making Process
 
Evaluation Recognition of
and Decision
Feedback Requirement


Implementation Diagnosis
of Chosen Decision- and Analysis
Alternative Making of Causes
Process



Selection of Development of
Desired Alternatives
Alternative



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 Recognition of Decision
Requirement

 Problem = A
 Opportunity = A
situation in which situation in which
organizational managers see
accomplishments potential
have failed to meet organizational
established goals accomplishment
that exceed current
goals

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 Diagnosis and Analysis of Causes

 Diagnosis = analyze underlying causal

factors associated with the decision situation

 Managers make a mistake if they jump into

generating alternatives without first exploring
the cause of the problem more deeply

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 Selection of Desired Alternatives

 Risk Propensity = willingness to undertake

risk with the opportunity of gaining an
increased payoff

 Implementation = using managerial,

administrative, and persuasive abilities to
translate the chosen alternative into action

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 Decision Styles

 Differences among people with respect to how

they perceive problems and make decisions
 Not all managers make decisions the same
– Directive style
– Analytical style
– Conceptual style
– Behavioral style

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 Personal Decision Framework

Situation: Personal Decision Decision Choice:

· Programmed/non- Style: · Best Solution to
programmed · Directive Problem
· Classical, administrative, · Analytical
political · Conceptual
· Decision steps · Behavioral

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 Directive Style

 People who prefer simple, clear-cut solutions

to problems
 Make decisions quickly
 May consider only one or two alternatives
 Efficient and rational
 Prefer rules or procedures

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 Analytical Style
 Complex solutions based on as much data
as they can gather
 Carefully consider alternatives
 Base decision on objective, rational data
from management control systems and other
sources
 Search for best possible decision based on
information available

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 Conceptual Style
 Consider a broad amount of information
 More socially oriented than analytical style
 Like to talk to others about the problem and possible
solutions
 Consider many broad alternatives
 Relay on information from people and systems
 Solve problems creatively

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 Behavioral Style

 Have a deep concern for others as individuals

 Like to talk to people one-on-one
 Understand their feelings about the problem and the
effect of a given decision upon them
 Concerned with the personal development of others
 May make decisions to help others achieve their
goals

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 Participation in Vroom-Jago
Decision Making Model

 Helps gauge the appropriate amount of

participation for subordinates in process

● Leader Participation Styles

 Five levels of subordinate participation in decision
making ranging from highly autocratic to highly
democratic
 Decide – Consult Individually – Consult Group –
Facilitate – Delegate
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 Participation in Vroom-Jago
Decision Making Model

 Diagnostic Questions
 Decision participation depends on the
responses to seven diagnostic questions
about

● the problem
● the required level of decision quality
● the importance of having subordinates commit to
the decision

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 Seven Leader Diagnostic Questions
 How significant is the decision?
 How important is subordinate commitment?
 What is the level of the leader’s expertise?
 If the leader were to make the decision alone at what level
would subordinates be committed to the decision?
 What level is the subordinate’s support for the team or
organization’s objectives?
 What is the member’s level of knowledge or expertise
relative to the problem?
 How skilled or committed are group members to working
together?

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 New Decision Approaches
for Turbulent Times

Wh ys
New i ve
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Brainsto Decision ct i c
rmi ng Pra
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for Turbulent
Times
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Deb n to
Bail
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71
sh
 Problem: Chetan Anand

Chetan Anand is a writer of novels. A movie

company and a TV network both want exclusive
rights to one of his more popular works. If he
signs with the network, he will receive a single
lump sum, but if he signs with the movie
company, the amount he will receive depends on
the market response to his movie. What should
he do?
 Payouts and Probabilities
 Movie company Payouts
– Small box office - $200,000
– Medium box office - $1,000,000
– Large box office - $3,000,000
 TV Network Payout
– Flat rate - $900,000
 Probabilities
– P(Small Box Office) = 0.3
– P(Medium Box Office) = 0.6
– P(Large Box Office) = 0.1
 Chetan Anand- Payoff Table

States of Nature

Small Box Medium Box Large Box

Decisions Office Office Office

Sign with Movie

$200,000 $1,000,000 $3,000,000
Company

Sign with TV
$900,000 $900,000 $900,000
Network
Prior
0.3 0.6 0.1
Probabilities
 Using Decision Trees
 Can be used as visual aids to
structure and solve sequential
decision problems
 Especially beneficial when the
complexity of the problem grows
 Decision Trees
 Three types of “nodes”

– Decision nodes - represented by squares (□)

– Chance nodes - represented by circles (Ο)
– Terminal nodes - represented by triangles (optional)
 Solving the tree involves pruning all but the best
decisions at decision nodes, and finding expected
values of all possible states of nature at chance
nodes
 Create the tree from left to right
 Solve the tree from right to left
Example Decision Tree

Chance Event 1

node
Decision 1
Event 2

sion
node Deci Event 3

Dec
ision
2
Chetan Anand’s Decision Tree
Small Box Office
$200,000

Sign with Movie Co. Medium Box Office

$1,000,000

Large Box Office

$3,000,000

Small Box Office

$900,000

Sign with TV Network Medium Box Office

$900,000

Large Box Office

$900,000
Reengineering….
Supply Chain

 Flow of materials, information, and services

 Includes organizations and processes
 Manage the entire process
 Business Process Reengineering(BPR)
Reengineering the Corporation
 Written - 1993
 Michael Hammer
– One of 1996 most influential people in the U.S.
Time Magazine
July 17,1996

And
 James Champy
What is Reengineering?
 “the fundamental rethinking and radical
redesign of business
processes to achieve dramatic
improvements in critical,
contemporary measures or
performance, such as cost,
quality, service, and speed”
p. 32
 Reengineering is...
 Reversing the Industrial revolution

Starting Over from Scratch

Re-creating
Re-Inventing
Innovation
Process Oriented
 Where does it Impact?

Company Customers Employees

 Increase product  Benefit from Teams
by an order of better product Less
magnitude  Needs are Workers -
 Examine process met More Work
 Vision  Tendency to
Empowered
 Increase Profits return
 Loyalty Layoffs
 Why Reengineer?

 The 3 C’s
– Customers
– Competition
– Change
 Nothing is Constant or Predictable
 Change is the only constant

 To reengineer a company is to take a journey from

the familiar into the unknown. The journey has to
begin somewhere and with someone. Where and
with whom?
Keys

 Leaders
 Staff Empowerment
 Broader Scope
– Knowledge / Skills
 Tasks to Process
– Redesign of Systems
 Information Technology
 Community
The 3 R’s
 Redesign
– Cross-function approach
 Retool
– Information Tools
 Reorchestrate
– Organization changes
Problems

 Fix vs. Change

 Focus
 Ignore
 Quit
 Scope
 HR / Unions
 Success Rate
 Bell Atlantic’s Experience
 The difference is that in a compliance mode I do
what I must do because my boss tells me I must do
it. In a commitment mode, I understand what the
corporation is trying to achieve and how we’re going
to achieve it, and I will do whatever it takes to make
that happen, including changing the way I do my job
if that is what is required
– p. 196/197
 BPR
 No longer a need to destroy everything - start
from scratch

 Instead - Flexible approach that can be executed

by proven methodologies and principles.
Hammer and Stanton[1995]
& Champy [1995]
Process Innovation

Encompasses the envisioning of new work

strategies, the actual process design activity,
and the implementation of the change in all its
complex technological, human, and
organizational dimensions – order-of-
magnitude improvements
Davenport (1993)
Process Innovation vs.
Incremental Improvement
Process Innov. Incr. Improv .

 Change  Abrupt, volatile  Gradual, constant

 Immediate  Long-term
 Effects  Few champions  From few to
 Involvement  High initially, everybody
less later  Low initially, high to
 Investment  Technology sustain
 Profits  People
 Orientation  Processes
 Focus
 Networked Organization
Classical/Hierarchical
 Formal
 Highly Structured
 Manage
 Control
 Direct
 Employee a cost
 Information management
owned
 Risk avoidance
 Individual contributions
Networked Organ.
 Informal
 Loosely Structured
 Delegate/lead
 Ownership/participation
 Empower
 Employees an asset
 Information
shared-ownership
 Risk management
 Team
contributions
 Enabling IT
(P. 133)
Old Rule Intervene Tech New Rule
 Information appears Shared  Information appears
in only one place Database, Inter, simultaneously
 Only expert can Intra  Novices can perform
perform complex  Expert Systems work
work  Decision support  Decision making is
 Only managers systems part of everyone’s
make decisions  Tracking job
 Locate items technology  Items located
manually automatically
CHANGE

 “It is an educational and communications

campaign”
– p.148
 Thank You

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