Thomson Learning © Chapter Twelve Decision-Making Processes

Thomson Learning © Today’s Business Environment New strategies Reengineering Restructuring Mergers/Acquisitions Downsizing New product/market development... Etc.

Thomson Learning © Decisions Made Inside the Organization Complex, emotionally charged issues More rapid decisions Less certain environment Less clarity about means/outcomes Requires more cooperation

Thomson Learning © A New Decision-Making Process Required because no one person has enough info to make all major decisions No one person has enough time and credibility to convince many Relies less on hard data Guided by powerful coalition Permits trial and error approach

Thomson Learning © Steps in the Rational Approach to Decision-Making Monitor Decision Environment Implement Chosen Alternative Define Decision Problem Specify Decision Objectives Diagnose Problem Develop Alternative Solutions Evaluate Alternatives Choose Best Alternative

Thomson Learning © Trade-off Constraints and Trade-offs During Non-programmed Decision-Making Personal Constraints: Desire for prestige, success; personal decision style; and the need to satisfy emotional needs, cope with pressure, maintain self-concept Organizational Constraints: Need for agreement, shared perspective, cooperation, support, corporate culture and structure, ethical values Bounded Rationality: Limited time, information, resources to deal with complex, multidimensional issues Decision/ Choice: Search for a high-quality decision alternative Trade-off Sources: Adapted from Irving L. Janis, Crucial Decisions (New York: Free Press, 1989); and A. L. George, Presidential Decision Making in Foreign Policy: The Effective Use of Information and Advice (Boulder, Colo.: Westview Press, 1980).

Thomson Learning © Choice Processes in the Carnegie Model Hold joint discussion and interpret goals and problems Share opinions Establish problem priorities Obtain social support for problem, solution Adopt the first alternative that is acceptable to the coalition Conduct a simple, local search Use established procedures if appropriate Create a solution if needed Managers have diverse goals, opinions, values, experience Information is limited Managers have many constraints UncertaintyCoalition FormationSearch Satisficing Conflict

Thomson Learning © The Incremental Decision Process Model · Identification Phase Recognition Diagnosis Development Phase Search Screen Design Selection Phase Judgment (evaluation – choice) Analysis (evaluation) Bargaining (evaluation – choice) Authorization Dynamic Factors

Thomson Learning © Learning Organization Decision Process When Problem Identification and Problem Solution Are Uncertain When problem identification is uncertain, Carnegie model applies Political and social process is needed Build coalition, seek agreement, and resolve conflict about goals and problem priorities When problem solution is uncertain, Incremental process model applies Incremental, trial-and-error process is needed Solve big problems in little steps Recycle and try again when blocked PROBLEM IDENTIFICATIONPROBLEM SOLUTION

Thomson Learning © Illustration of Independent Streams of Events in the Garbage Can Model of Decision-Making Problems Solutions Choice Opportunities Participants Problems Solutions Choice Opportunities Participants Problems Solutions Choice Opportunities Participants Choice Opportunities Participants Middle Management ProblemsSolutions Participants Problems Solutions Choice Opportunities Problems Participants Solutions Department ADepartment B

Thomson Learning © CertainUncertain Contingency Framework for Using Decision Models Problem Consensus Individual: Rational Approach Computation Organization: Management Science Individual: Bargaining, Coalition Formation Organization: Carnegie Model Individual: Judgment Trial-and-error Organization: Incremental Decision Process Model Individual: Bargaining and Judgment Inspiration and Imitation Learning Organization: Carnegie and Incremental Decision Process Models, Evolving to Garbage Can Solution Knowledge Certain Uncertain

Thomson Learning © Experiential Learning Organizations are routine-based history-dependent adaptive incrementally to past experience As a result, experiential organizational learning processes are localized in space and time (local search) strongly history dependent (momentum)

Thomson Learning © Vicarious Learning Learning is based on competitors’ choices and known outcomes “Success” can be objectively assessed (Rankings) but often a proxy is selected (Size)

Thomson Learning © Absorptive Capacity Cohen & Levinthal’s (1990) insight that organizations are prone to inappropriate generations from vicarious learning if they have not accumulated sufficient experiential learning themselves to make sense of the information which they gather from industry peers

Thomson Learning © Organizational Absorptive Capacity Threshold Experiential Knowledge Lower Limit Industry Experience Threshold: Vicarious Knowledge Lower Limit Inappropriate Generalization From Experiential Learning Experiential X Vicarious Interaction = Acquisition Success Inappropriate Generalization From Vicarious Learning A A C C Inappropriate Generalization From Vicarious Learning if Exper Learning is Inadequate B Increasing Experiential Knowledge Stocks Increasing Vicarious Knowledge Stocks B