5. Decision making process

Decision – making a choice from two or more alternatives

Problem – an obstacle that makes it difficult to achieve a desired goal or purpose

Decision Making process:

Indentify problemDecision criteriaAllocate weights to criteriaDevelop alternativesAnaylse themSelect alternativeImplementationEvaluate effectiveness

Perspectives how managers make their decisions:

1. Rational: describes choices that are logical ad consistent while maximizing the value. Rational techniques include: objectiveness, logics, face clear problems, meet best org. needs

2. Bounded: rational, but limited by individuals’ ability to process information

3. Satisfying: large commitment to a goal and decisions

4. Intuitive: making decision on tha basis of experience, feelings (affect based) and accumulated judgement (cognitive based)

Programmed decision- a repetitive decision that can be handled by routine approach (e.g. a waiter spilled a coffee into a customer)

• Time required is short

• Goals are clear

• Info is readily available

• frequent

1. Procedure – series of sequential steps

2. Rule – exact statement

3. Policies – legal guidelines

Non – programmed decision – new problems for which info is ambiguous and incomplete

• Time required is long

• Info is ambiguous

1. Require unique solution and approach

Types of problems:

1. Structured – straightforward problems, familiar, easy to solve

2. Unstructured – new problems, that are unusual and not easy to solve, no specific approach.

Decision making conditions

Certainty Manager is able to make accurate decisions, outcome is known

Risk Manager can estimate the likelihood of certain outcome and can assign probabilities

Uncertainty Managers are not certain about outcomes, limited info provided

Decision Making Biases

Heuristics – decisions which use “rules of thumb” for simplicity, so they lead to biases.

Biases:

• Selective perception – interpret events based on personal perceptions

• Confirmation – seek info that can reaffirm past decisions

• Anchoring – ignoring subsequent info

• Overconfidence – unrealistic views of the problem

• Immediate gratification – offer immediate rewards and avoid costs

• Framing – select import. Aspects but ignoring other

• Availability – loose objectivity

• Representation – seeking identical situations

• Randomness

• Self- serving – blame other factor for failing

• Hindsight – mistakenly believe that even can be predicted

• Sunk cost errors – forget that current actions can not influence past one

6. Strategic management

Strategic management – what managers do to develop the organizations’ strategies: planning, organizing, leading, controlling.

Strategies – plans for how the org. will do, how it will compete successfully and how it will attract new customers.

Corporate Strategy

Corporate Determines what business a company is in ad what it wants to do with those businesses Growth Org. expansion, which can grow by: Concentration, Vertical Integration (become own supplier and distributor), Horizontal integration (combine with competitors), Diversification (related and unrelated) Stability maintain the status quo Renewal – addresses declining performance

Competitive Includes strategic business units, hich will have its own competitive advantage  Cost Leadership strategy Org. competes on the basis of having lower costs, maintains product quality  Differentiation strategy Org. competes by offering unique products  Focus strategy Cost/differentiation advantage in a narrow segment

Functional Research and development, manufacturing, marketing, HR, fiancé used to support the competitive strategy

Customer service – provide customers with what they want, communicate effectively, employees should be trained about proper service

Innovation strategy – strategies that reflect innovation, philosophy f company, include two decisions:

• Innovation emphasis (what is the company focusing on?),

• Innovation timing (first mover organizations that bring a product innovation or use new innovative process)