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Decision Making

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- When managers respond to opportunities and threats by analyzing the options and making decisions about specific goals and course of action.

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Decision making in response to opportunities...

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- Occurs when managers search for ways to improve organizational performance to benefit customers, employees, and other stakeholders.

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Decision making in response to threats...

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- Occurs when events inside or outside the organization adversely affect organizational performance and managers search for ways to increase performance.

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Four Principle Tasks at the Center of Decision Making...

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1.Planning 2. Organizing 3. Leading 4. Controlling

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Programmed Decision Making

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- A routine, virtually automatic process. - Managers can rely on the long-established decisions already in place.

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Examples of Programmed DM:

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1. School principle asks the school board to hire a new teacher whenever enrollment increases by 40 students. 2. Manufacturing supervisor hires new workers whenever existing workers' overtime increases by 10% 3. Office manager orders basic office supplies whenever the inventory of supplies drops below a certain level. *** this manager orders the same amount of supplies each time.

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Non-programmed Decision Making

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- Required for non-routine decisions. - New situation = No rules in place.

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Examples of Non-Programmed DM:

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1. Decisions to invest in a new technology 2. Develop a new kind of product 3. Launch a new promotional campaign 4. Start a new business ( Shuman in "Management Snapshot")

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Intuition

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- Feelings, beliefs, and hunches that come readily to mind, require little effort and information gathering, and result in on-the-spot decisions.

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Examples of Intuition:

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1. Fire Fighters who make quick decisions based on the need to save a person life, contain the fire, or preserve the property. 2. Other occupations that have the time to make a decision, but do not have established rules to guide their decision.

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Reasoned Judgement

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- A decision that requires time and effort, which results in careful gathering of information, generation and evaluations of alternatives.

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The Classical Model (Prescriptive)

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1. List all the alternative courses of action possible & the consequences of the different alternatives. - Assumes all information about alternatives is available to managers. 2. Rank each alternative from least preferred to most preferred according to personal preferences. - Assumes managers possess the mental facility to process this information. 3. Select the alternative that leads to desired future consequences. - Assumes that managers know what future course of action is best for the organization.

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Optimum Decision

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- The most appropriate decision because of what managers believe to be the most desirable consequence for the organization.

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The Administration Model (March and Simon)

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- Explains why decision making is always an inherently uncertain and risky process. - Explains why managers can rarely make decisions in the manner described by the classical model. IMPORTANT CONCEPTS: 1. Bounded Rationality. 2. Incomplete Information. 3. Satisfying.

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Bounded Rationality

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- Cognitive limitations that constrain one's ability to interpret, process, and act on information.

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1. Risk & Uncertainty

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- Present when managers know the possible outcomes of a particular course of action and can assign probabilities to them. - The probabilities of alternatives outcomes cannot be determined and future outcomes are unknown.

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Example of Uncertainty:

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- When Apple launched a new product without knowing if it would have success.

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2. Ambiguous Information

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- The information is unclear and can be interpreted in multiple conflicting ways. - Managers make decisions based on their own interpretations.

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3. Time Constraints and Information Costs

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- Managers neither have the time nor the money to search for all possible solutions and evaluate all the potential consequences.

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Example of Time Constraint:

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- When the Ford Motors manager had one month to choose one supplier for a small engine part. (out of 20,000 candidates)

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Satisficing

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- Searching and choosing an acceptable response to problems and opportunities, rather than trying to make the best decision. - Exploring a limited sample of all potential alternatives.

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Scott McNealy

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- Founder of Sun Microsystems and was the chairman of the board of directors until Sun was acquired by Oracle in 2010. - Choice conflicts: practicality or economic feasibility.

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6 Steps in Decision Making

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1. Recognize the need for a decision. 2. Generate alternatives. 3. Assess alternatives. 4. Choose among alternatives. 5. Implement the chosen alternative. 6. Learn from feedback.

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Key to good assessment...

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- Define the opportunity or threat exactly & then specify the criteria that should influence the selection of alternatives for responding to the problem or opportunity.

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Four criteria to evaluate the pros & cons of alternative courses of action:

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1. Legality 2. Ethicalness 3. Economic Feasibility 4. Practicality

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Legal?

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- Managers must ensure course of action will not violate any domestic or international laws or government regulations.

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Ethical?

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- Manager must ensure course of action is ethical & will not harm stakeholders.

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Economical?

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- Managers must decide whether the alternatives can be accomplished given the organization's performance goals. (Perform cost-benefits analysis)

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Practical?

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- Managers must decide whether they have the capabilities and resources required to implement the alternative, and they must be sure the alternative will no threaten other organizational goals.

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Learning from feedback:

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1. Compare what actually happened to what was expected to happen as a result of the decision. 2. Explore why any expectation for the decision were not met. 3. Create guidelines that will help in future decision making.

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Groupthink

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- A pattern of faulty & biased decision making that occurs in groups whose members strive for agreement among themselves at the expense of accurately assessing information relevant to a decision.

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Commitment...

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... is often based off emotions, rather than an objective, assessment of the optimal course of action.

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Devil's Advocacy

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- A critical analysis of a preferred alternative to ascertain its strengths and weaknesses before it is implemented. - They critique and challenge the way the group evaluated alternatives and chose one over the others.

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Diversity among Decision Makers

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- Broadens the range of life experiences and opinions that group members can draw on as they generate, assess, and choose among alternatives. - Less prone to groupthink because the group members already differ from each other, meaning less likely to uniformity.

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Organizational learning

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- The process through which managers seek to improve employees' desire and ability to understand and manage the organization and its task environment.

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Learning organization

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- Maximizing the ability of individuals and groups to think and behave creatively, and maximizing the potential for learning to occur.

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Creativity

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- The ability of a decision maker to discover original ideas.

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Innovation

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- Implementing creative ideas in an organization.

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Principles for Creating a Learning Organization: (Peter Senge)

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1. Develop personal mastery. 2. Build complex mental modes. 3. Promote team learning. 4. Build shared vision. 5. Encourage systems thinking.

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Brainstorming

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- A group problem-solving technique, which managers meet to generate and debate a variety of alternatives until a decision is made.

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Production Blocking

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- A loss of productivity in brainstorming sessions due to the unstructured nature of brainstorming.

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Nominal Group technique

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- Group members write down ideas and solutions, read their suggestions to the whole group, and discuss and then rank the alternatives. (Provides Structure)

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Delphi technique

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- Group members respond in writing to questions posed by the group leader.

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Entrepreneur

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- One who notices opportunities and decides how to mobilize the resources necessary to produce new and improved services. ( Founders of Yahoo!)

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Social Entrepreneurs

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- Seek to mobilize resources to solve social problems through creative solutions.

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Examples of Social Entrepreneurs:

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1. Increasing Literacy 2. Protecting the Environment 3. Reducing substance abuse

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Intrapreneur

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- 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. - Intrapreneurs often leave their jobs and become Entrepreneurs by starting their own company.

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Entrepreneur Characteristics

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1. Openness to Experience. 2. Internal locus of control. 3. High level of self-esteem. 4. High need for achievement.

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Entrepreneurship

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- Noticing an opportunity to satisfy a customers need and then deciding how to find and use resources to make a product that satisfies its needs.

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Management

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- Encompasses all the decisions involved in planning, organizing, leading, and controlling resources.

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Product Champion (3M)

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- 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.

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Skunkworks

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- A group of entrepreneurs who are deliberately separated from the normal operation of an organization to encourage them to devote all their attention to developing new products.

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Rewards for Innovation

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- Intrapreneurs are paid large bonuses if their products sell well. (Microsoft & Google) - Intrapreneurs that are successful can expect promotions or they promote to prevent them from leaving the company.

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Planning

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- A process managers use to identify and select appropriate goals and courses of action for an organization. - Goal-making and strategy-making process.

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Planning Process

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1. Determining an organizations mission and goals 2. Formulating strategy 3. Implementing Strategy

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Strategy

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- A cluster of related managerial decisions and actions to help an organization attain one of its goals.

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Mission Statement

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- A broad declaration of an organization's purpose that identifies the organization's products and customers and distinguishes the organization from its competitors.

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Why is Planning Important?

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1. Planning is necessary to give a sense of direction and purpose. 2. Planning is a useful way of getting managers to participate in decision making about the appropriate goals and strategies for an organization. 3. A plan helps coordinate managers of the different functions and divisions of an organizations to ensure that they all pull in the same direction and work to achieve its desired future state. 4. A plan can be used as a device for controlling managers within an organization.

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Levels of Planning

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1. CEO 2. Corporate Office 3. Business or Division Level 4. Functional Level

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Corporate Level Plan

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- Top managements decisions pertaining to the organizations mission, strategy, and structure.

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Corporate Level Strategy

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- A plan that indicates in which industries and national markets an organization intends to compete.

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Business Level Plan

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- Divisional managers decisions pertaining to divisions' long-term goal, strategy, and structure.

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Business Level Strategy

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- A plan that indicates how a division intends to compete against its rivals in an industry.

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Functional Level Plan

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- Functional managers' decisions pertaining to the goals that they propose to pursue to help the division attain its business-level goals.

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Functional Level Strategy

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- A plan of action to improve the ability of each of an organization's functions to perform its task-specific activities in ways that add value to an organization's goods and services.

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Time Horizon

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- The intended duration of a plan.

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Defining the Business

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1. Who are our customers? 2. What customers needs are being satisfied? 3. How are we satisfying customers needs?

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Strategic Leadership

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- The ability of the CEO and top managers to convey a compelling vision of what they want the organization to achieve to their subordinates.

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Strategy Formulation

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- The development of a set to corporate, business, and functional strategies that allow an organization to accomplish its mission and achieve its goals.

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SWOT Analysis

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- A planning exercise in which managers identify organizational strengths (S) and weaknesses (W) and environmental opportunities (O) and thread (T).

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Corporate- Level Strategy

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- A plan of action to manage the growth and development of an organization so as to maximize its long-run ability to create value.

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Business-Level Strategy

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- A plan of action to take advantage of favorable opportunities and find ways to counter threats so as to compete effectively in an industry.

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Functional-Level Strategy

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- A plan of action to improve the ability of an organization's department to create value.

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The Five Forces Model

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1. The level of rivalry among organizations in an industry. 2. The potential for entry into an industry. 3. The power of large suppliers. 4. The power of large customers. 5. The threat of substitute products.

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Hyper-competition

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- Permanent, ongoing, intense competition brought about in an industry by advancing technology or changing customers tastes.

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Low-Cost Strategy

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- Driving the organization's costs down below the costs of its rivals.

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Differentiation Strategy

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- Distinguishing an organization's products from the products of competitors on dimensions such as product design, quality, or after-sales service.

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"Stuck in the Middle"

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- Porter says managers must choose between low-cost strategy and a differentiation strategy. - Those "Stuck in the Middle" tend to have lower levels of performance than do those that pursue a low-cost or a differentiation strategy.

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Focused Low-Cost Strategy

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- Serving only one segment of the overall market and trying to be the lowest cost organization serving that segment.

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Focused Differentiation Strategy

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- Serving only one segment of the overall market and trying to be the most differentiated organization serving that segment.

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Diversification

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- Expanding a company's business operations into a new industry in order to produce new kinds of valuable goods or services.

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Synergy

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- Performance gains that result when individuals and departments coordinate their actions.

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Unrelated Diversification

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- Entering a new industry of buying a companion a new industry that is not related in any way to an organization's current businesses or industries.

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Global Strategy

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- Selling the same standardized product and using the same basic marketing approach in each national market.

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Multi domestic Strategy

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- Customizing products and marketing strategies to specific national conditions.

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Exporting

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- Making products at home and selling them abroad.

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Importing

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- Selling products at home that are made abroad.

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Four ways to Expand Internationally

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1. Importing and Exporting 2. Licensing and Franchising 3. Strategic alliances, joint ventures. 4. Wholly owned foreign subsidiary. Low High: Level of foreign involvement and investment and degree of risk.

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Licensing

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- Allowing foreign organization to take charge of manufacturing and distributing a product in its country in return for a negotiated fee.

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Franchising

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- Selling to a foreign organization the rights to use a brand name and operating know-how in return for a lump-sum payment and a share of the profits.

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Strategic Alliance

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- An agreement in which managers share their resources and knowledge with a foreign company, and the two organizations share the rewards and risks.

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Joint venture

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- A strategic alliance among two or more companies that agree to jointly establish the ownership of a new business.

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Wholly owned foreign subsidiary

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- Production operations established in a foreign country independent of any local direct involvement.

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Organizational Structure

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- A formal system of task and reporting relationships that coordinates and motivates organizational members so that they work together to achieve organizational goals.

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Organizational Design

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- The process by which managers make specific organizing choices that result in a particular kind of organizational structures.

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Factors Affecting Organizational Structure

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1. Organizational Environment 2. Strategy 3. Technology 4. Human Resources

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Job Design

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- The process by which managers decide how to divide tasks into specific jobs.

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Job Simplification

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- The process of reducing the number of tasks that each worker performs.

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Job Enlargement

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- Increasing the number of different tasks in a given job by changing the division of labor.

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Job Enrichment

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- Increasing the degree of responsibility a worker has over his/her job.

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The Job Characteristics Model

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1. Skill Variety 2. Task Identity 3. Task Significance 4. Autonomy 5. Feedback

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Functional Structure

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- An organizational structure composed of all the departments that an organization requires to produce its goods or services.

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Divisional Structure

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- An organizational structure composed of separate business units within which are the functions that work together to produce a specific customer.

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Product Structure

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An organizational structure in which each product line is handled by self-contained division.

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Geographic Structure

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- An organizational structure in which each region of a country is served by a self-contained division.

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Market Structure

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- An organizational structure in which each kind of customer is served by a self-contained division.

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Matrix Structure

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- An organizational structure that simultaneously groups people and resources by function and by product.

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Product Team Structure

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- Employees are permanently assigned to a cross-functional team and only report to the the team manager.

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Cross-Functional Team

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- A group of managers brought together fro different departments to perform organizational tasks.

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Authority

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- The power to hold people accountable for their actions and to make decisions concerning the use of organizational resources.

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Hierarchy of Authority

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- An organization's chain of command, specifying the relative authority of each manager.

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Span of Control

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- The number of subordinates who report directly to a manager.

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Decentralizing Authority

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- Giving lower-level managers and non managerial employees the right to make important decisions about how to use organizational resources.

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Integrating Mechanisms

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- Organizing tools that managers can use to increase communication and coordination among functions and divisions.

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Task Force

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- A committee of managers from various functions or divisions who meet to solve a specific, mutual problem.

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Network Structure

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- A series of strategic alliances that an organization creates with suppliers, manufactures, and/or distributors to produce and market a product.

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Outsource

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- To use outside suppliers and manufactures to produce goods and services.

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Boundary-less Organizations

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- Members are linked by computers, faxes, computer-aided design systems, and video teleconferencing and who rarely, if ever, see one another face-to-face.

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Knowledge Management System

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- A company- specific virtual information system that allows workers to share their knowledge and expertise and find others to help solve ongoing problems.

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Business-to-Business Network

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- A group of organizations that join together and use IT to link themselves to global suppliers to increase efficiency and effectiveness.

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Controlling

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- The process where managers monitor and regulate how efficiently and effectively an organization are performing the activities necessary to achieve organizational goals.

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Control Systems

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- Formal target-setting, monitoring, evaluation, and feedback systems that provide managers with information about how well the organization's strategy and structure are working.

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Feedforward Control

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- Control that allows managers to anticipate problems before they arise.

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Concurrent Control

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- Control that gives managers immediate feedback on how efficiently inputs are being transformed into outputs so managers can correct problems as they arise

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Feedback Control

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- Control that gives managers information about customers' reactions to goods and services so that corrective action can be taken if necessary.

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The Control Process

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1.Establish standards of performance, goals, or targets against which performance is to be evaluated. 2. Measure actual Performance. 3. Compare actual performance against chosen standards of performance. 4. Evaluate the result and initiate corrective action if the standard is not being achieved.

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Four Measures of Financial Performance

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1. Profit Ratios 2. Liquidity Ratios 3. Leverage Ratios 4. Activity Ratios

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Operating Budget

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- A budget that states how managers intend to use organizational resources to achieve organizational goals.

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Management By Objectives (MBO)

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- The process in which managers and their employees jointly set objectives for the employees, periodically evaluate performance, and reward according to the results.

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Management By Objectives steps:

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1. Specific goals and objectives are established at each level of the organization. 2. Managers and their subordinates together determine the subordinates' goals. 3. Managers and their subordinates periodically review the subordinates' progress toward meeting goals.

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Bureaucratic Control

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- Control of behavior by means of a comprehensive system of rules and standard operating procedures.

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Problems with Bureaucratic Control

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1. Establishing rules is always easier then discarding them. 2. Because rules constrain and standardize behavior and lead people to behave in predictable ways.

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Organizational Culture

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- The set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an organization to achieve organizational goals.

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Clan Control

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- The control exerted on individuals and groups by shared organizational values, norms, and standards of behavior

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Adaptive Culture

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- Control employee attitudes and behaviors.

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Inert Culture

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- Lead to values and norms that fail to motivate employees.

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Organizational Change

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- Movement of an organization away from its present state and toward some desired future state to increase its efficiency and effectiveness

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Organizational Change Process

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1. Assess the need for change. 2. Decide on the change to make. 3. Implement the change. 4. Evaluate the change.

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Top-down Change

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- A fast, revolutionary approach to change in which top managers identify what needs to be changed and then move quickly to implement the changes throughout the organization.

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Bottom-up Change

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- A gradual or evolutionary approach to change in which managers at all levels work together to develop a detailed plan for change

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Benchmarking

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- A process of continuously measuring system results, comparing those results to optimal system performance (benchmark values), and identifying steps and procedures to improve system performance.

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