1 B300 TUTORIAL WEEK TWO

2 Decision makingStrategy Policy Organisation Business behaviour in a changing world B300: Overview

3 DECISION MAKING –THE RATIONAL MODEL STRATEGY –THE CLASSICAL MODEL POLICY –PERFECT COMPETITION –MARKET FAILURE –FREE TRADE What is strategy? Industry Factors Firm Based Factors Innovation Globalisation Deviations Individual Organisational Societal Why Policy? Can it have an impact? Competitiveness of nations? Nature of interventions Impact on free trade Environmental issues Overview of B300

4 The nature Of Organizational Decision-making Decision making & Rationality Politics, processes & other factors When things go wrong Decision making & the external world Decisions, decisions, decisions

5 THIS TUTORIAL…. CHAPTER 3 A Summary of Basic Concepts in the Behavioural Theory of the Firm by R.M.Cyert and J.G.March CHAPTER 4 Decision Making in Organisations by S. Miller, D. Hickson and D. Wilson

6 CHAPTER 3 A Summary of Basic Concepts in the Behavioural Theory of the Firm by R.M.Cyert and J.G.March Goals, expectations and choice Organisational goals Two sets of variables affecting the goals of an organisation: The first set influences the dimensions of the goals (what things are viewed as important. Goals change as new participants join or leave the organisation, goals are influenced by the goals of the sub-unit making the decision, goals are evoked by problems. The second set influences the aspiration level on any particular goal dimension. Past goals, past performance and past goals of comparable firms.

7 Organisational expectations Seen to be the result of drawing inferences from available information Pattern-recognition variables Effect of hopes on expectations Variables affecting search activity within a firm: Affecting the intensity and success of search are the extent to which goals are achieved and the amount of organisational slack in the firm Affecting the direction of search are the nature of the problem stimulating search and the location in the organisation in which the search is focused.

8 Organisational Choice The variables that affect choice are those that influence: The definition of the problem The standard decision rules and that affect: The order of consideration of alternatives The standard decision rules are affected primarily by: The past experience of the organisation and the record of organisational slack. The order in which alternatives are considered depends on: The part of the organisation in which the decision is being made, and Past experience in considering alternatives.

9 Four Major Relational Concepts which represent the Cyert and March theory of decision making Quasi resolution of conflict Uncertainty avoidance Problemistic search Organisational learning

10 Quasi resolution of conflicts Goals as independent constraints Study those constraints that are essential, continuous and operative. Local Rationality Divide problems into sub-problems and assign them to sub-units e.g. sales department for sales problems and strategy etc. Delegation and specialisation in decisions and goals. Acceptable level of decision rules: The “invisible hand” would enforce consistency in local rationality Sequential attention to goals: Organisations are likely to attend to one goal at a time

11 CHAPTER 4 Decision Making in Organisations by S. Miller, D. Hickson and D. Wilson

12 Aim of this chapter To gain an overview of some of the classic literature in decision-making. To recognise different approaches to the analysis and understanding of decision making. To think about a useful way of organising the main contributions to the debate about organisational decision-making.

13 This chapter… shows the competing views and alternative theoretical frameworks of the way which decisions are made have shaped both the methods of enquiry of subsequent explanations. The central concepts are of rationality and power in decision- making.

14 Why should decision-making be studied ? The increasing complexity of ‘modern organisations’ which needed both differentiation and integration meant that key decisions about the central operational and transformational process were required. Modern organisations need decisions to be made in order that they can function effectively - managers spend much of their time in making decisions at both the operational and the strategic level. Decisions can be viewed as being fundamentally concerned with the allocation and exercise of power in organisations.

15 Rationality Neo-classical economic assumptions lie at the heart of rational choice models of decision-making. They say that individuals normally act as maximising entrepreneurs, and decisions are through to be arrived at by a step by step process which is logical and linear. Decision makers identify the problem or issue about which a decision has to be made, collect and sort information about alternative possible solutions, compare each solution against predetermined criteria assess degree of fit, and arrange solutions in order of preference to make the optimal choice.

16 Managerial rationality in decision-making What are the main features? Predetermined criteria Neo-classical economics: maximise rewards / minimise costs Impersonal/unemotional Objective linear logic: step-by-step Information based – full certainty is achievable Rational – As per Weber et al

17 Zey This kind of logic is by no means new. Claims that this logic has increasingly dominated many areas of government and business over the last 20 years, especially in the U.S.A and Western Europe. He claims that if individuals behave in accordance with rationality then little or no interference is required by any superordinate bodies.

18 Simon provides a comprehensive critique of the limitation of ‘rational economic man’ or the ‘rational actor’ model.  He claims that there are constraints of the complexity of modern organization to prevent it from operating under conditions of perfect rationality.  Decisions are likely to be unavailable, incomplete or misrepresented; and criteria by which potential solutions are to be evaluated are uncertain or not agreed.  Seeking better choices can take too long, the net result of these constraints is that the outcome is likely to be a satisficing rather than an optimising choice (one which both satisfies and suffices in the circumstance, for the time being).  ”Bounded Rationality” takes up where administrative behaviour left off. Attempting to understand decision making in its most general sense and to show that economics and psychology could contribute to illuminating organisational decision-making processes.  Programmed decisions are made lower down in the organisational hierarchy; they are operational decisions which can be left to subordinates.  Non-programmed decisions are those which are unfamiliar; they have not been encountered in quite the same way before, they are in some way unusual. The continuum of decisions along a programmed/ non-programmed dimension represents an early but significant step in distinguishing the characteristics of decisions and associating them with types of process. (pp76-78)

19 Decision-making as the enactment of power · In Simon’s definition of the term ‘Bounded Rationality' is the result of human and organization constraint. Many writers see decision making as a game of power in which competing interest groups vie with each other for the control of scarce resources.  Power is an ever-present feature of organisational life. Legitimate power is allocated to positions of authority in the hierarchy (Weber rational-legal power).  Organization as an open system, it interacts with its environment in order to survive, it is crucially dependent on obtaining resource from suppliers. Power flows to those part of the organisation that can control the flow of resources, especially if these are scarce and critical for the functioning of the organisation.

20 Crozier and Friedberg state that organisations can be seen as individuals and groups jockey for position in a hierarchy which is mediated by ongoing negotiation and bargaining. Pluralist positions are predicated upon the notion of unequal power relations among elites, under the auspices of a largely neutral set of institutional arrangements. Schattsneider states that all forms of political organisation have a bias in favor of some kind of conflict, and the suppression of others because the organisation is the mobilization of bias. He states that some issues are organised into politics while others are organised out. This is turn implies that to gain an even deeper understanding of power in organisations we need to look beyond what is readily observable. “this mean that some decisions do not go onto the agenda”. Bachrach and Baratz maintain that non-decisions are equally if not more important than the decisions which are overtly made.

21 Lindblom Lindblom studied decision-making in the US Public sector, and he found that decision-making was a linear, sequential process. Decision were made in an incremental way with period of recycling, iteration and reformulation. The process was a non—linear one. Instead of final choice being arrived at after the full rational process of search and evaluation is complete, small adjustments are made to ongoing strategies. The full range of alternative solutions is not considered, only ones which do not differed markedly from the status quo. Decisions processed by a series of small step, rather than attaining and implementing the complete solution in one large step. And because each step is not too dissimilar from what is already being done, it does not upset too many stakeholders - they do not feel threatened by radical change so it is possible to gain commitment for what is being done. Quinn developed this concept into logical instrumentalism which can be found in private sector organization. It appears that all kinds of decision- makers operate in an incremental fashion.

22 Mintzberg Mintzberg et al studied 25 strategic decisions in variety of Canadian organisations. They found clearer evidence of cycling and recycling of information and alternatives, again showing that the making of this level of decision is likely to require constant adjustment and reappraisal. These studies distinguished seven kind of process : simple impasse, political design, basic search, modified search, basic design, blocked design, and dynamic design processes. Dutton, and Rosenthal, say that in periods of crisis decisions can be made in a relatively speedy and straightforward way, even by subordinates in a position to help.

23 The Bradford Studies The Bradford studies investigated the making of 150 strategic decisions in 30 organisation in England. It was found that there are three kind of process, labeled sporadic, fluid and constricted. Sporadic processes are subject to more disrupting delays than either fluid or constricted process. The information used will be uneven in quality, some good, some bad, and will come from a wide range of sources, and there will be scope for negotiation. Fluid processes are almost the opposite of sporadic ones. There is much less informal interaction and the process flows more through formal meeting with fewer impediments and delays. These processes are rather faster and the decisions is likely to be made in months, rather than years. In short a fluid process is ‘steadily paced, formally channeled and speedy’. Constricted processes share some of the characteristics of each of the other two but have features distinctive from both. They are less fluid than the fluids and less sporadic than the sporadic, but constricted in a way that neither of the others is. They tend to revolve around a central figure such as a finance or production director who draws in a wide range of expertise in other department before arriving at a decision. In short they are narrowly channeled. It is the political and complex nature of what is being decided which is all- important. With regard to politicality, all decisions draw in a specific ‘decision set’ of interests: those from inside and outside the organization like; individuals, department, divisions, owner, suppliers, government agencies and so on. But not all interests are equally influential and not every decision draws in the same number or configuration of them. The concept of politicality and complexity are the primary explanation of why strategic decisions follow the processes they do.

24 The garbage can model of decision making (Cohen et al 1972) No agreement on neither goals nor the means of achieving them Uncertainty and ambiguity. Environment and technology are poorly understood. Key actors move in and out the decision making process. Complex organisations, internal processes are not understood even by those who work in them. Means and ends of decisions become uncoupled. Actions do not lead to the expected outcomes. Problems, participants, solutions and choice situations come in a haphazard way. Decisions don’t meet the problems. Solutions exist before the problem. There are underlying patterns of chaos and complexity theory!

25 The Action Dimension Decision-making may be viewed as running from the more coherent to the more chaotic. Authors who take a predominantly coherent view of process subscribe to the notion that decision process trajectories can be relatively sequenced and linear, and reflect attempts by decision- makers to achieve step by step progress toward stated goals or objectives. Coherent view: decision making process relatively sequenced and linear, intended rationality. Chaotic view : Coherence a myth, decision making random. Processes part of the embeddedness of the organisation and not always in control.

26 The Interest Dimension The more political interest dimension runs from a purely problem- solving view to a negotiated order view in which diverse interests give a political color to decision-making. Problem solving: Goals are specified, targets set, satisfactory solutions are sought. Political: All activity is politically driven. Simon’s description of decision-making is as a “new science”. It is “new” because Simon rejected the prevailing orthodoxy of his coeval economists, who believed economic models of individual choice behaviours could be applied directly to organizational decision processes. It is “scientific”, however, since Simon still held centrally the notion of problem-oriented behaviors from those involved. Let us suppose that the decision itself cannot be taken for granted? Suppose that the very ideas of ‘a decision’ is misleading?

27 Coherence Chaos Action dimension Political Problem solving Nutt Butler et al Pettigrew Knights et al Cohen et al Allison Bacharach & Baratz Heller et al Lindblom, Quinn Hickson et al Simon Interest dimension Fig 4.1: Mapping decision studies (Reader, p.85) Mintzberg Explanations of deviation from the Rational Model

28 The Concept of “A Decision”. Read pages 87-89, The concept of a decision. Do managers have the content and process of decision making imposed upon them?

29 TMA01 SET Your Tutor will provide you with the question for TMA01. It is based upon the case study and the areas of the Decision Making module up to Chapter 6 although the main chapters you need to draw upon are chapter 3 & 4. You must work on this assignment alone and it must be your own work. Collaborative or plagiarised attempts will be graded zero..

30 What are you being asked to do? Scope of the question and thus your answer What are the key process words? How you are going to address the question What are the key theories you will use? Why? How you will demonstrate your knowledge of B300 What examples you will use to illustrate the theories you use? How you will demonstrate your understanding of B300 Answering a question READ & FOLLOW THE QUESTION

31 Analysing TMA questions* Compare & Contrast – look for similarities & differences Conclude – summarise, on balance, side you support and why? Criticise – your judgement (with evidence and reasoning) on … Define – precise meaning & examine range of existing definitions Describe – a detailed account of … Discuss – examine rationale & evidence behind the ‘for’ and ‘against’ Evaluate / (Assess) – make an appraisal of the worth of … Explain – give a plain account of … Illustrate – use example(s) (verbal or graphic) to explain … * Source: Study skills from OU Web site

32 TMA do’s & don’ts Answer the question, the whole question & nothing but the question – identify all the question’s main demands, and stick to being relevant to these demands in your answer Introduction – outline the path your answer will take + highlight any particularly interesting or difficult or unusual aspects to answering the question Expression – be clear, accurate, succinct & “say-what-you-mean” Structure – the ‘backbone’ of your TMA = strong, linking + linked, holding your answer together and giving it shape Reference – see & stick to AOU Guidelines in TMA Guidelines Word count – stick to it by editing down + making legitimate use of tables, charts etc.  Provide ‘commonsense’ answers – without reference to any course materials, theories or concepts + full of preconceived ideas that are value/belief laden  Provide prescriptive answers – unless the questions asks for your recommendations, suggestions or advice [i.e. no should do’s or musts]  Repeat the same old weaknesses – instead make new mistakes, but learn from previous TMAs [PT3 comments + Script comments]  Plagiarise – see AOU rules  Conclude – unless the question specifically asks you for your conclusions, or to arrive at some conclusions

33 WEEK 2 ACTIVITIES Please select from the following activities which could be undertaken by students at this stage: Activity Three (page 28 of the Decision Making Study Guide) Activity 4a (Module 1 Decision-making, page 10 of 2006 Tutor File) Student Handout Chapters 1-4

34 READING TO BE COMPLETED BY NEXT WEEK Please read pages of the Decision Making Study Guide to refresh your study of Chapters three and four. Please read pages (Chapters 5 and 6) of Decision Making for Business Text Book. If you have time, read pages of the Decision Making Study Guide to prepare you for next week.