Introduction to Management 11e

John Schermerhorn

Chapter 7 The Decision-Making Process

Planning Ahead Chapter 7 Study Questions

1. What is the role of information in the management process? 2. How do managers use information to make decisions? 3. What are the steps in the decision-making process? 4. What are the current issues in managerial decision making?

Management 11e Chapter 7

Study Question 1: What is the role of information in the management process?

Information, technology and management

Managers must have
Computer competency
Ability to understand computers and use them to their best advantage

Information competency
Ability to gather, analyze and use information for decision making and problem solving

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Study Question 1: What is the role of information in the management process?

What is useful information?

Data
Raw facts and observations

Information
Data made useful for decision making

Information drives management functions

Management 11e Chapter 7

Study Question 1: What is the role of information in the management process?

Characteristics of useful information:

Timely High quality Complete Relevant Understandable

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Study Question 1: What is the role of information in the management process?

Information needs of organizations

Information exchanges with the external environment:
Gather intelligence information Provide public information

Information exchanges within the organization:

Facilitate decision making Facilitate problem solving
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Study Question 1: What is the role of information in the management process?

Implications of IT for relationships with external environment: Helps with customer relationship management Helps organizations with supply chain management Helps in monitoring outsourcing and other business contracts
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Implications of IT within organizations: Facilitation of communication and information sharing Operating with fewer middle managers Flattening of organizational structures Faster decision making Increased coordination and control
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Figure 7.1 Internal and external information needs of an organization

Management 11e Chapter 7

Study Question 1: What is the role of information in the management process?

Information systems
Use IT to collect, organize and distribute data for use in decision making

Management information systems

Meet the information needs of managers in making daily decisions
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Figure 7.2 Information technology is breaking barriers and changing organizations

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Study Question 2: How do managers use information to make decisions?

Managerial advantages of IT utilization:

Planning advantages
Better and more timely access to useful information Involving more people in planning

Organizing advantages
More ongoing and informed communication among all parts of the organization Improved coordination and integration
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Study Question 2: How do managers use information to make decisions?

Managerial advantages of IT utilization (cont.):

Leading advantages
Improved communication with staff and stakeholders Keeping objectives clear

Controlling advantages
More immediate measures of performance results Allows real-time solutions to performance problems
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Figure 7.3 The manager as an information-processing nerve center

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Study Question 2: How do managers use information to make decisions?

Problem solving
The process of identifying a discrepancy between actual and desired performance and taking action to resolve it Decision
A choice among possible alternative courses of action
Management 11e Chapter 7

Performance threat
Something is wrong or has the potential to go wrong

Performance opportunity
Situation offers the chance for a better future if the right steps are taken
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Study Question 2: How do managers use information to make decisions?

Problem-solving approaches or styles:

Problem avoiders
Inactive in information gathering and solving problems

Problem solvers
Reactive in gathering information and solving problems

Problem seekers
Proactive in anticipating problems and opportunities and taking appropriate action to gain an advantage

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Study Question 2: How do managers use information to make decisions?

Systematic versus intuitive thinking

Systematic thinking approaches problems in a rational, step-bystep, and analytical fashion Intuitive thinking approaches problems in a flexible and spontaneous fashion

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Study Question 2: How do managers use information to make decisions?

Multidimensional thinking applies both intuitive and systematic thinking

Effective multidimensional thinking requires skill at strategic opportunism

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Study Question 2: How do managers use information to make decisions?

Managers use different cognitive styles

Sensation Thinkers

impersonal, realistic, prefer facts

Intuitive Thinkers impersonal, abstract, idealistic, likes unstructured problems

Sensation Feelers relationship oriented, analytical, realistic

Intuitive Feelers relationship oriented, abstract, flexible

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Management 11e Chapter 7

Study Question 2: How do managers use information to make decisions?

Types of problems
Structured problems are ones that are familiar, straightforward, and clear with respect to information needs Programmed decisions apply solutions that are readily available from past experiences to solve structured problems

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Study Question 2: How do managers use information to make decisions?

Types of problems
Unstructured problems are ones that are full of ambiguities and information deficiencies Nonprogrammed decisions apply a specific solution to meet the demands of a unique problem Commonly faced by higher-level management

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Study Question 2: How do managers use information to make decisions?

Crisis decision making

A crisis involves an unexpected problem that can lead to disaster if not resolved quickly and appropriately

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Study Question 2: How do managers use information to make decisions?

Rules for crisis management: Figure out what is going on Remember that speed matters Remember that slow counts, too Respect the danger of the unfamiliar Value the skeptic Be ready to fight fire with fire
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Management 11e Chapter 7

Study Question 2: How do managers use information to make decisions? Managers make decisions with various amounts of information
Certain environment offers complete information on possible action alternatives and their consequences Risk environment lacks complete information but offers probabilities of the likely outcomes for possible action alternatives

Uncertain environment
lacks so much information that it is difficult to assign probabilities to the likely outcomes of alternatives
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Figure 7.4 Three environments for managerial decision making and problem solving

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Study Question 3: What are the steps in the decision-making process?

Five-step decision-making process:

Identify and define the problem Generate and evaluate alternative solutions Make decision Implement the decision Evaluate results

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Study Question 3: What are the steps in the decision-making process?

Step 1 Find and define the problem

Focuses on information gathering, information processing, and deliberation Decision objectives should be established Common mistakes in defining problems:
Defining the problem too broadly or too narrowly Focusing on symptoms instead of causes Choosing the wrong problem

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Study Question 3: What are the steps in the decision-making process?

Step 2 generate and evaluate alternative courses of action

Potential solutions are formulated and more information is gathered, data are analyzed , the advantages and disadvantages of alternative solutions are identified Approaches for evaluating alternatives:
Stakeholder analysis Cost-benefit analysis
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Study Question 3: What are the steps in the decision-making process?

Step 2 generate and evaluate possible solutions (cont.)

Criteria for evaluating alternatives:
Benefits Costs Timeliness Acceptability Ethical soundness

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Study Question 3: What are the steps in the decision-making process?

Step 2 generate and evaluate possible solutions (cont.)

Common mistakes:
Selecting a particular solution too quickly Choosing a convenient alternative that may have damaging side effects or may not be as good as other alternatives

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Study Question 3: What are the steps in the decision-making process?

Step 3 decide on a preferred course of action

Two different approaches
Behavioral model leads to satisficing decisions Classical model leads to optimizing decisions

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Figure 7.6 Differences in the classical and behavioral decisionmaking models

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Study Question 3: What are the steps in the decision-making process?

Step 4 implement the decision solution

Involves taking action to make sure the solution decided upon becomes a reality Managers need to have willingness and ability to implement action plans Lack-of-participation error should be avoided

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Study Question 3: What are the steps in the decision-making process?

Step 5 evaluate results

Involves comparing actual and desired results Positive and negative consequences of chosen course of action should be examined If actual results fall short of desired results, the manager returns to earlier steps in the decision-making process
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Study Question 3: What are the steps in the decision-making process?

Check ethical reasoning

Ask these spotlight questions

Utility
Rights Justice Caring
Management 11e Chapter 7

Does the decision satisfy all constituents or stakeholders? Does the decision respect the rights and duties of everyone? Is the decision consistent with the canons of justice? Is the decision consistent with my responsibilities to care?
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Study Question 4: What are the current issues in managerial decision making?

Issues in decision making

How do decision errors happen? Hueristics are strategies for simplifying decision making

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Study Question 4: What are the current issues in managerial decision making?
Availability Bias
Bases a decision on recent information or events

Representativeness Bias
Bases a decision on similarity to other situations

Anchoring and Adjustment Bias

Bases a decision on incremental adjustment from a prior decision point

Framing Error
Trying to solve a problem in the context in a positive or negative context

Confirmation Error
Focusing on information that confirms a decision already made

Escalating Commitment
Continuing a course of action even though it is not working
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Study Question 4: What are the current issues in managerial decision making?

Creative Decision making:

Creativity is the generation of a novel idea or unique approach that solves a problem or crafts an opportunity
creativity is more likely when decision makers are highly task motivated

Organizations should create an environment that supports and encourages creativity

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Study Question 4: What are the current issues in managerial decision making?

Personal creativity drivers

Task Motivation Task Expertise Creativity Skills

Creativity

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Study Question 4: What are the current issues in managerial decision making?

Situational creativity drivers

Team creativity skills Management support for creative ideas Organizational culture

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Study Question 4: What are the current issues in managerial decision making?

Situational creativity drivers

Management Support Group Creativity Skills Organizational Culture

Creativity

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Chapter 7 Case

Amazon: One E-Store to Rule Them All