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CHAPTER 9
ORGANIZATIONAL DECISION MAKING
Lecture Notes
1
The Nature of Decision Making
A.
Figure 9-1
p. 307
B.
Figure 9-2
p. 308
What is Decision Making?
1.
Decision making is the process of identifying a set of feasible alternatives and choosing a
course of action.
2.
Decisions are judgments which directly affect a course of action.
3.
Choice making refers to the narrow set of activities associated with choosing one option
from a set of alternatives.
4.
Decision making is an intermediate-sized set of activities.
 identification of the problem
 identification and evaluation of alternatives
 making a choice
5.
Problem solving: a broad set of activities.
 involves finding and implementing a course of action to correct an unsatisfactory
situation.
 includes decision making and implementing, monitoring, maintenance of the
decision
6.
Many occasions give rise to the need for decisions.
 a current state of affairs may fall short of a goal or an ideal
 a problem or crisis may arise
 managers may want to take advantage of an opportunity
 maintaining the status quo
 proactive managers
Decision Characteristics
1.
Conditions of certainty, risk, and uncertainty
 a continuum of uncertainty ----- risk------ certainty
 state of certainty: when a decision maker is aware of all available alternatives, the
factors (outcomes) and probabilities associated with each
 few organizational decisions are made under conditions of certainty
 requires the collection and use of accurate, measurable, and reliable information
 state of risk: when a decision maker is aware of all alternatives, but do not know
what will happen if they choose a particular alternative
 know enough to estimate probabilities
 requires the collection of as much accurate information as possible
 state of uncertainty: when a decision maker is not aware of all possible courses of
action
 there is not enough information to estimate probabilities of outcomes
 particularly difficult for managers with low tolerance of ambiguity
 managers should always try to reduce uncertainty by conducting research
2.
Problem structure
 structured problem: the nature of the existing problem and its context is well-defined
 unstructured problem: little problem and context definition
 a common by-product associated with structured and unstructured problems is role
clarity and role ambiguity, respectively
3.
Conflict
 intra-individual conflict
 psychological in nature
 we are frequently trapped by our own history, preferences, training, and biases
 interpersonal conflict
 disagreements over desirability of outcomes and/or the means of achieving
outcomes
 few organizational decisions are likely to be unanimous or uncompromised
4.
Politics
 activities oriented toward increasing one’s power base over others
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
attempts to overcome opposition through
 coalitions
 bargaining
 trading support across issues
 working to achieve key positions
 controlling resources
 Key Point: The decisions which emerge when organizational politics are at work are
commonly focused on that which is desired by one or more intra-organizational interest
groups, as opposed to that which is good for the organization as a whole.
C.
Types of Decisions
1.
Means vs. ends decisions
 means decisions: focus on how the goal will be reached
 ends decisions: focus on the goals (outcomes) that will be pursued
 means and ends decisions are often linked together
 ends decisions are more likely to be successful when combined with means decisions
2.
Decision levels
 strategic decisions
 strategies for positioning the organization in the external environment
 e.g., deciding to market products in a new state


managerial (tactical) decisions
 specify how an organization intends to integrate its institutional level with its
technical core, and how it will coordinate work systems within the technical
core
 e.g., how will we allocate resources for the expansion into a new state?
operating decisions
 day-to-day operations of the organization
 e.g., how will we coordinate daily activities to handle the expanded operations?
 Key Point: Decisions made at one level are likely to be felt at many levels. Operating
decisions ultimately affect strategic decisions, just as strategic decisions affect decisions made
at lower levels.
3.
4.
2
Programmed vs. nonprogrammed decisions
 programmed: routine to deal with frequently occurring situations
 much more efficient to use a programmed decision than to make a new decision
for each similar situation
 managers make a real decision only once -- when the program is created
 results in the formulation of rules, policies, procedures
 nonprogrammed: made in unique situations
 tend to arise out of unstructured problems
 in traditional structures, nonprogrammed decisions are made mostly by upper
management
 in high involvement organizations, more nonprogrammed decisions are made in
the technical core
Other decision types
 functional decisions: relate to each of the organization’s functional areas
 job content decisions: focus on the nature of the job itself
 job context decisions: focus on issues surrounding the job
Decision Making Process and Managerial Practices
A.
A Systematic Approach to the Decision Making Process
1.
Step 1: recognizing the need for a decision
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

starts with a triggering of the sensation part of the perceptual process
detection of symptoms: upon detecting the need for a decision, the decision maker
needs to identify the problem exactly and define the situation in detail
 Key Point: Frequently, decision makers fail to explore the context sufficiently and come to
believe that the symptom is actually the problem. Efforts are made to get rid of the symptom,
only to discover that the symptom is actually the problem.


decomposition process: breaking a problem into a series of subproblems, analyzing
the subproblems, and recombining them into an analyzed whole
guidelines
 differentiate between events and others’ interpretations of the events
 identify whether the available information is fact or opinion
 determine the underlying cause, rather than placing blame or giving credit
 look for several causes
 be specific in the diagnosis of a problem
 Key Point: The high achieving organizations will be those that have developed the ability to
scan their internal and external environments, identifying and seizing opportunities for change
through decisions.
2.
3.
4.
B.
Figure 9-3
p. 316
Step 2: generating alternative solutions
 specify the goals that should be achieved through the decision
 existing solutions: alternatives that have been used (or considered) by other decision
makers in similar situations
 can be seen as programmed solutions
 frequently adapted to new situations
 in failing to consider fresh information, managers might define problems poorly
and identify solutions inadequately
 custom solutions: developed specifically for a current situation
 called for by unstructured problems
 at this stage, creativity is needed
 work hard at seeing and listening to the environment
 multiple ideas must be generated
Step 3: evaluating the alternatives
 use research, experimentation, and past experience
 how well does each alternative meet the specified goals and objectives?
 evaluate the feasibility of each alternative
 some possible questions
 how much would the alternative cost?
 would it be acceptable to those who have to make it work?
 what risks are there?
 are there any legal, regulatory, social responsibility, or ethical barriers?
 how would it influence other aspects of the organization?
Step 4: choosing an alternative
 quantitative-based tools (e.g., queuing models, break-even analysis)
 quantitative-based tools (e.g., delphi, synetics, nominal group technique)
 three decision approaches:
 optimizing: finding the best possible decision
 maximizing: find the decision which meets the maximum number of criteria
 satisficing: try to find the first satisfactory solution
 decision makers often settle for satisficing
 many decisions are made through compromises, which are difficult to keep objective
Contingency Approaches to Decision Making
1.
The Thompson and Tudin model
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
2.
Figure 9-4
p. 319
C.
two critical situational conditions guiding the selection of a decision strategy
 preferences about outcome (agree/disagree)
 belief about causation (agree/disagree)
 computational approach
 when there is agreement on the desired outcomes and a body of knowledge for
proceeding
 an expert interprets the existing body of knowledge, makes the decision, and
directs others on how to respond
 judgmental approach
 when there is agreement on the desired outcomes, but no body of knowledge
 experts are asked to share their knowledge & opinions
 creativity is used to develop solutions in the face of uncertainty
 majority rule is often used
 compromise approach
 when there is disagreement on the desired outcomes, but a body of knowledge
 participation from members of each preference group is needed (limited in size)
 the top priority must be resolution of conflict
 each group must have access to all relevant information and veto power over
emerging decisions
 inspirational approach
 when there is disagreement on the desired outcomes and no body of knowledge
 researchers have been unable to identify a successful strategy in this situation
 need for commitment to finding a resolution, continued dialogue, and
information sharing
 need creativity and intuition
 task uncertainty, task interdependence, and social system size play a major role
influencing the use of hierarchical, group, and individual approaches to decision
making
The decision tree
 a tool to help managers decide the extent to which subordinates should be involved
in the decision making process
 five possible approaches
 Autocratic I (AI): a manager makes plans and decisions alone
 Autocratic II (AII): a manager asks for information from subordinates, then
makes plans and decisions alone
 Consultative I (CI): a manager shares the situation with subordinates and asks
each individually for information and evaluation, then makes plans and
decisions alone
 Consultative II (CII): a manager shares the situation with subordinates as a
group and asks the group for information and evaluation, then makes plans and
decisions alone
 Group (G): a manager shares the situation with subordinates as a group and asks
the group for information and evaluation, then accepts and implements the plan
or decision agreed on by the group
 degree of employee participation in the decision making process depends upon
 nature of the problem
 required level of decision quality
 importance of subordinates’ commitment to the decision
 groups should make the decision when
 low required quality of the decision
 high need for subordinate commitment to the decision
 if the manager were to make the decision him/herself, subordinates would not be
committed to the decision
 manager should make the decision when
 low required quality of the decision
 low need for subordinate commitment to the decision
Muddling Through
1.
Managers typically do not make decisions deliberately and systematically.
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2.
3.
4.
D.
Much of organizational decision making occurs in an uncertain climate, among several
other activities, and influenced by organizational politics.
It is common to observe decision making that represents small adjustments to the status
quo. (incremental approach to decision-making)
Incrementalism can be especially effective in unstable environments
Typical Managerial Practices
1.
Many behaviors are not conscious in nature and are driven by habit.
2.
A manager who has internalized organizational goals and has a good sense of the
managerial process may be able to solve uncomplicated problems from instinct.
 Key Point: It is important for managers to be able to diagnose the situations that they face, to
judge the importance of a decision, and to determine whether to decide systematically or
instinctively.
3.
The need for a more systematic approach to decision making increases as
 size and length of commitment expands
 flexibility of plans diminishes
 uncertainty increases
 human impact of the decision rises
4.
“Garbage can” approach to decision making: a random, illogical decision making process
5.
Managers seldom progress smoothly through the stages of decision making.
6.
Failures due to undesired results and poor planning frequently force a return to earlier
stages of the process.
An Inside Look: A Great Management Decision
In 1998, Management Review compiled a list of the 75 Greatest Management Decisions
Ever Made. Below are two recent examples of great management decisions that have
influenced the way that businesses operate.
The Tylenol Poisoning Episode. In 1982, Tylenol capsules were found to be tainted with
poison. Parent company Johnson & Johnson immediately pulled Tylenol from store
shelves and was open with the media about the catastrophe. Their honesty worked to their
advantage and led to even greater customer trust in the product and the company.
The Malden Mills Fire. In 1995, a fire destroyed nearly the entire operation of clothing
manufacturer Malden Mills. The head of Malden Mills, Aaron Feuerstein, retained his
entire work force of 2400 employees and paid them out of his own pocket. Employee
loyalty and gratitude paid off in the form of exceptional productivity, and Malden Mills
was back on its feet in three months and became more profitable than ever.
Both Tylenol and Malden Mills are examples of ideal management decisions. They
combine luck, intuition, and hard work and involve significant risks. They also
demonstrate ethical management behavior. Not every management decision will succeed,
but the important thing for managers to remember is to keep trying and to learn from
one’s mistakes and failures.
3
Problems in the Decision Making Process
A.
Misunderstanding the Situation
1.
If information is incomplete or poorly organized, it is easy to misconstrue the situation.
2.
Because abstract information is more difficult to identify, it frequently goes unnoticed.
3.
Perceptions of and reactions to situations aren’t always accurate.
4.
Managers can mistake the symptoms of a problem for the problem itself.
B.
Rushing the Decision Making Process
1.
Results in inadequately defined problems, limited searches for solutions, and
inadequately evaluated decisions.
2.
Because many decision makers dislike uncertainty, they tend to overlook unusual
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3.
alternatives in favor of readily available and previously used alternatives.
Rushing the process inhibits “hitchhiking”: developing new ideas from earlier ideas.
 Key Point: When decision makers simultaneously generate and evaluate ideas, they cannot
grow into fully formed possibilities.
4
Improving Decision Making
A.
Improving the Roles of Individuals
1.
Use heterogeneous groups.
 expand information base
 encourage thorough definition of problems, searches for alternatives, and evaluations
of alternatives
2.
Use a devil’s advocate whose role is to challenge alternatives and tentative decisions.
3.
Many reward and penalty systems discourage employees from identifying decision
making opportunities.
 people are often rewarded only for doing what they are told
 as a result, many existing problems and opportunities go unnoticed
4.
Some organizations do encourage employees to look for new opportunities.
5.
6.
3M Corporation systematically encourages employees to search for new opportunities.
 employees devote a portion of their workday to searching for opportunities
 led to development of the Post-it Note
Employees should be
 trained in systematic decision making
 provided with the tools for information collection
 allowed adequate time to make a decision
 supported with reward systems
B.
Structured Group Decision Making Processes
1.
There is evidence that groups can significantly enhance the quality of decision making.
2.
Managers need to learn how to use groups effectively.
3.
This will be discussed further in Part Four.
C.
Organizational Learning
1.
Efforts to create a learning organization have been undertaken by many major firms.
2.
Organizational learning: the process by which organizations gain new knowledge and
insights that lead to a modification in behavior and action.
 occurs through shared insights, knowledge, and mental models
 expansion of the capacity to create and produce new and improved results
3.
To maintain or develop a capacity to learn, organizations must have:
 an explicit commitment to educational ideas
 the promotion of policies that emphasize curiosity, experimentation and learning;
permit failure; and reward discovery
 an allocation of organizational resources to support learning
 a system for collecting, storing, and processing information
 an opening of internal boundaries so that information can flow more freely - vertically, horizontally, and diagonally within the organization
 the creation of a participative philosophy and practices to support it so that
organizational members become aware of what is learned and collaborate on
decision making and problem solving

 Key Point: Organizations that can handle the vast number of decision-making and problemsolving occasions that confront them are strongly influenced by their ability to learn.
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5
Models of Individual Decision Making
A.
Table 9-1
p. 327
A Classical (Rational/Economic) Decision Making Model
1.
This model was most popular during the early 1900’s.
2.
Portrays decision makers as rational, dealing with objective and verifiable facts, and
economically motivated.
3.
Objective rationality: selecting the “one best” alternative by following the decision
making process portrayed in Figure 9-1, p. 307.
4.
Discounts the effects of attitudes, emotions, or personal preferences.
B.
A Behavioral (Administrative) Decision Making Model
1.
It is unrealistic to think that we always make decisions based on objective rationality.
2.
Most decision makers satisfice (choose the first satisfactory solution identified).
3.
Bounded rationality
 behaving rationally within the limits of our information-processing capabilities
 within the context of our attitudes and emotions
C.
Individual Differences in Decision Making
1.
Cognitive attributes
 intelligence, learning, remembering, and thinking affect judgmental aspects of
decision making

2.
cognitive attributes affect
 problem recognition, comprehension, and diagnosis
 storage, retrieval, and assimilation of information for developing and evaluating
alternatives
 decision makers with greater capacity tend to become more abstract decision makers
Personality attributes
 affect decision making style
 reflected in
 speed of decision making
 level of risk taking
 confidence in choice of a decision
 high risk propensity: make rapid decisions; process less information and spend less
time evaluating alternatives
 dogmatic: fixed, narrow life perspectives; consider only the small set of alternatives
that fit their view of the world
 impatient, competitive: process information quickly and aggressively; make
decisions quickly
 calm, reflective: good at long-term planning and decision making
 tolerance for ambiguity
 low (problem avoiders): more likely to select alternatives with fairly certain
consequences; ignore the first signs of an unexpected problems
 intermediate (problem solvers): anticipate difficulties & deal with them as they
arise
 high (problem seekers): derive satisfaction from conquering uncertainty; behave
as entrepreneurs
Self-Assessment: Tolerance for Ambiguity, p. 329
6
Employee Reactions to Organizational Decision Making
A.
Participative Decision Making
1.
Involving those who will be affected in the decision making process.
2.
Participative decision making should be viewed in degrees of participation.
3.
Other dimensions
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Figure 9-5
p. 331
4.
5.
6.
 job context vs. job content decisions
 within vs. across functional area decisions
 within organizational level vs. across level decisions
Why/how does employee participation in decision making lead to job satisfaction?
 cognitive model: others’ involvement in the process increases the amount of
available information and ideas results in better decisions and subsequent
performance effects
 affective model: feelings of involvement are satisfying
Kurt Lewin: democratic leadership leads to group mindedness, friendliness, and higher
productivity in the absence of the leader
While the research evidence has generated inconsistent observations, there appears to be
a positive relationship between participation in decision making and job satisfaction.
 Key Point: It is important to remember that while participation may enhance the quality of
decisions made, these decisions still need to be successfully implemented before the
performance effects associated with participation can be realized.
B.
Figure 9-6
p. 334
Figure 9-7
p. 334
7.
There is evidence that structured forms of group decision making are productive in terms of
 number of ideas generated
 idea uniqueness and creativity
 number of alternative solutions for the decision making process
8.
Lawler: 4 critical requirements for employees participating in decision making
 skills and abilities to be effective contributors
 have the information necessary to make a contribution
 have the power to make something meaningful happen
 have the opportunity to participate in a gainsharing program to give them a reason
for investing time and energy
Distributive and Procedural Justice
1.
Distributive justice: fairness in outcomes stemming from organizational decisions
 has been realized when an organizational member feels that there is a balance in
what the organization receives and what is given
 operates at a personal level
2.
Procedural justice: fairness in the processes employed to achieve an end
 focuses on how the outcomes are determined
3.
Every organizational decision has the potential to be experienced from both a procedural
and distributive justice perspective.
4.
The highest levels of satisfaction will come from the experience of both procedural and
distributive justice.
5.
Researchers have observed a positive relationship between experiences of procedural
justice and job satisfaction, commitment, and trust in the organization.
 Key Point: When hierarchical decision making processes are necessary, it is important for
managers to let employees see that the procedure is fair (procedural justice), to reduce the
likelihood of an adverse impact on satisfaction, commitment, and trust.
Figure 9-8
p. 335
7
6.
Procedural rules
 procedures should be consistent across people and over time
 decision makers should not be influenced by personal self-interest
 decisions should be based on good information and informed opinion
 opportunities should exist to modify or reverse bad decisions
 processes should represent the concerns of all affected subgroups and individuals
 processes should be compatible with prevailing moral and ethical standards
Control- and Involvement-Oriented Approaches to Decision Making
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9 Organizational Decision Making
Figure 9-9
p. 337


involvement-oriented practices encourage decisions being made close to the point in the
organization where the decision will be carried out
control-oriented processes attempt to minimize the amount of risk and uncertainty confronting
lower-level decision makers
An Inside Look: Decision Scenarios
A Control-Oriented Management Approach
A manufacturing decision in a control-oriented organization is about to be made by the
general manager. He has thought through the problem himself and discussed it with other
individuals in the organization, and now must get his ideas approved from his superiors
before he can implement them. The proposal is approved by the Vice President of
Manufacturing, who then presents it to the executive committee and gives them time to
review the proposal. The committee then advises the company president of their
recommendations, and he decides to approve the proposal. News of the approval then
travels back down the chain of command for implementation.
An Involvement-Oriented Management Approach
Workers who make greeting cards are no longer housed in functionally pure departments;
instead, writers, artists, accountants, and lithographic personnel work together as a selfmanaging work team creating birthday cards. The team has a team leader who
communicates with other teams, serves on an advisory customer group, and helps the
organization’s administrative and strategic management teams.
One of the teams has come up with an idea to make a major change in the manufacture of
the greeting cards. As the production team creates its tentative proposal, the team leader
carries the group’s thoughts and ideas to other teams in the organization, keeping them
abreast of the proposal and carrying questions, concerns, and suggestions back to the
team. The tentative proposal developed by the team is then sent out through email, and
other teams from several different organizational areas are invited at several points during
the process to give feedback to the production team. Throughout this process the proposal
is strengthened, and commitment and ownership are attached to the proposal from
throughout the organization.
Discussion Questions:
1.
What are the advantages and disadvantages of the control-oriented system?
2.
What are the advantages and disadvantages of the involvement-oriented system?
3.
Why do you think that so many organizations still use a control-oriented
approach? Why is it so hard to change?
4.
How does the manager’s role differ between the two systems?
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