An Analysis of Decision Making Process in Organizations

In today’s business world, the main task of any manager is to take decision; these decisions are impacting the firm, the employees and the environment. As the world is developing and transitioning into a globalized unit, decision making is becoming a complicated task. Manager takes thunders of decisions every day, some decisions are done consciously and other are done subconsciously. More the manager has experiences, more often he will take subconscious decision for recurrent problem, due to it knowledge of the firm, the environments and it past experiences. Other decisions that are not as usual, need to be analyzed on every angle, before being able to build solutions for it, this would be a conscious decision.

Decision making is defined as the process of deciding about something important, especially in a group of people or in organization. Decision-making is a six steps processes, no matter if the decision is taken subconsciously or consciously. First step is to define the problem; second step is to gather information and collect data; third step is to develop and weight the options; fourth step is choosing the best option possible that we will be plan and execute, which lead to the last step which is taking follow up action depending on the response of the executed plan.

In any type of decision making there are two majors stages: first is the problem identification and the second is the problem solution. However, organization have different ways of dealing with problems, for repetitive and well define problems they have programmed decision. Program decisions is when the company have created a procedure to answer a problem that keep coming up. For example, when a company is running out of printing paper, the company set up a procedure to follow. In this case, it could be when any employee who is using the printer see that there is only a certain number of papers left, then the employee could follow the procedure to order some more. If a problem is poorly defined and no procedure have been created for this kind of issue, then it is called a non-programmed decision. When a company face a non-programmed problem for the first time, all the options to solve the issue have to be weighted and the best alternative will then be chosen. However, in an organization decision making can be taken by an individual or by an organization as a whole, and non-program and program decision apply to these two actors of decision making.

Individual decision making is made by every single employee, however, in this case we are concerned with the manager decision making, since he is the one who own the power and so take powerful decision that can greatly impact the company. There are two types of individual decision making, it can be made by rational approach or by bounded rationality perspective. Rational approach advises on the ideal methods a manager should use to make decisions, this kind of approach is often trying to be reached by manager, however, it is hardly every reach. This kind of approach stress the decision maker to analysis the problem in depth, in order to choose the ideal solution for it. Pretty much everybody has done in their life a two-colon chart with “pro” and “cons” in order to take the best decision, this is a good example of rational approach. With this way of doing, the decision maker avoids an unsystematic and arbitrary approach to a problem a company face. This technic is, however, hardly every reach since the world nowadays is full of uncertainty, complexity and impose rapid change. The rational approach model is broken into eight steps. The first step is to monitor the “decision environment”, meaning the manager is looking at internal and external data, in order to understand the context of the problem that have to be solve and answer to it with the right behavior. For example, a store in the mall during Christmas seasons can look around the other stores to see if the other stores are marking down there merchandises, or they can look at their personal data sales to understand and see what merchandise is selling well and what merchandise is not, this help to understand the environments and can give clue on how to fix the problem. The second step is to define the decision problem, meaning after identifying the problem in the first part, now it is time to understand where the problem comes from. In order to understand where the problem comes from the manager should look in detail where, when, who was involve, who was affected and how current activities are influenced. For example, in the same store as earlier, it could be understanding why the store profit is low, by analyzing the situation of the past action (look around mall, look at sales data…), the manager should be able to understand why the profit is low, and what is it affected by it, in order to fix this specific issue. Third step is specifying decision objective, meaning the manager decide what outcome he want to have with the decision the manager is about to make. In the case of the store, it would be increasing profit. Forth step is diagnose the problem, meaning what causes the problem in the first place. For example, if the profit is low at the store it can come from a failure to display the right items in a visible location or due to the fact that the competitors are marking down their products that are not marked down in the store concerned. The fifth step is developed alternative solutions, this mean that the manager has to explore every and any available options to achieve the objective. For example, the store manager could explore different options to solve the low profit issue by reducing the number of employees, put up special deals or introducing new items to the store to bring people back inside and make them purchase items in the store. The sixth step is called evaluate alternative, in other word this step assesses the pro and cons of each alternative. The seventh step is to choose the best alternative, this mean to make a decision of the alternative that is preferred. The final step is to implement the choose alternative. However, rational decision making is not always the best option, since it is so rarely reach, another option for individual decision making can be bounded rationality perspective.

The bounded rationality perspective, pressure managers to use systematic procedure to make the right decision. As explain earlier, when a manager faces a well know and understood issue, they generally used a programed decision making. However, research have proven that manager tend to not follow the procedure of programed decision. They tend to not follow the procedure due to the lack of time, the pressure for rapidity as well as the pressure of internal and external factor. Since manager is facing all this pressures and often does not have the mental capacity to treat every goals, problems and alternatives, the decision tends to be rushed. This involve that there is a limit to the rationality of humans, and so of managers. Since the world is so complex, the human brain tends to convert complex data from the reality into more easily understandable narratives. By oversimplifying issues, the manager closes the door to many alternative and open the door to false alternative, which corrupt the decision making. The creator of the Bounded Rationality Perspective is called Herbert Simon, he believed that the perfect solution for every problem exist, however, due to bounded mind of peoples it is very hard for humans to reach the perfect alternative and apply it. As explain decision making is complex but on top of having to take complex decision, the decision maker often face personal constraint such as work pressure, feeling of insecurity, desire for prestige etc. An example would be a manager trying to please an upper-manager which result in taking a decision that will satisfy it upper-manager and not the option that would benefit the organization. All of this limit forces the employees to make trade off to reach decision making, even so most of the trade-off are made subconsciously. In order to try to avoid this types of behavior, there are four advices a manager can follow: do not let initial impression influence the decision, do not just see what you want to see, do not let emotion influence the decision and do not be overconfident. However, most of decisions making are made by group not only by one manager, then the way of taking decisions change.

Decision Making Process in Organizations

Organizational decision making is when a group of managers of one company gather to make decision by using both rational and intuitive process. This is the most commonly used decision making in firms since, in real life, most of the decisions are not made by a single manager. The reason why not only one manager can take a decision for the firm in its globality is that one manager probably does not know what is going on in another department of the same firm and the decision can impact multiple departments. Also, when a decision is taken by a group rather than one individual, the decision taken tend to be more appropriate, it have a higher chance of not failing. There are four mains way to take organizational decision: management science approach, Carnegie model, incremental decision model and garbage can model. The first one, management science approach is very similar to what was explain for rational approach by individual decision making. In this case the “pro” and “cons” are define mathematically trough software and/or technology. This allow to solve problems more quickly and accurately, since every alternative are solved by technology. Management science is even more efficient nowadays, since big data was introduced, the range of alternative and data tremendously increase, in a way that human without technology could never figure out. However, with this approach technology fail to convey tactical knowledge, which can lead to the wrong decision, as long as the managers are aware of this factors it should not impact the company badly. If management science is related to rational approach, Carnegie model is related to bounded rationality approach. Carnegie model was invented in Carnegie Mellon University by the three-professors called Richard Cyert, James March and Herbert Simon. There researches show that when decisions are made by many managers and that the final decision is based on coalition, the solution chosen tend to be a good decision. The coalition is mostly internal to the company, for example with staff specialist, manager from certain department, but sometimes it is also a coalition with outsider of the company, for example people such as bankers, unions representatives etc. The coalition is the most important part of this model for two reasons: the first reason is that goals of the company are often ambiguous, inconsistent and having different views, which allow the team to have a broader view of the issues, second reasons for coalition is that a manager is always trying to be rational but realistically a manager function with cognitive limitation. One manager cannot process all the informations due to a lack of time, resource and mental capacity. So, when managers gather, there is less place for uncertainty and ambiguity. However, this model has two mains limitation: satisficing and Problematic Search. With this model the decision taken are often the one that satisfy the most and not the one that would maximize the level of performance. Other issue with this model is called Problemistic Search, which mean that manager tend to look on the short-run in the immediate environments, which often is not the best alternative for the long-run. If the past two models approach of decision making are trough social and political factors; Incremental Decision Model approach decision making on the structured sequence of activities from discovery the issue till it is solved. Incremental Decision Model was invented by Henry Mintzberg. Mintzberg analyzed decision making on twenty-five nonprogram issues solved in an organization. His started by analysing decision making from beginning to end and involved all the external factors. What his reaches show is that organizations makes multiples small decisions before making the final big decision. His analysis cover three mains face: identification, development and selection. The first face, identification covert 2 steps, recognition and diagnosis. During this face multiple manager becomes aware of the issue and recognize the need for decision making. Then the managers do a diagnosis, which mean they gather more information to answer properly the problem. The second face gather another two steps: search and design. Search is the moment when managers seek different alternatives by reflecting on similar events, for example. If there is no similar event in history then they can design their own solution or use similar event to create their own solution. Finally, the last face has different steps depending on the solution picked to solve the problem. Judgment is the first step taken into this last face, this on allow managers to eliminate alternatives based on their experience. Then, the second step is analysis, which is solution chosen and the best alternative possible given all the data they have. This is followed by bargaining, which is when all the managers “fight” what they believe to be the best alternative. The final step is authorization, which is when the best alternative is past on to a higher hierarchy and is approved (or not). Since these methods are not perfect, companies tend to combine Incremental and Carnegie Models. This combination offers more certainty in the decision making. Carnegie Model is used during the phases of problem identification, since political and social process is needed. This step allows to build coalition, seek agreement, and resolve conflict about goals and problems priorities. Incremental Model is used during the phase of problem solution since incremental and trial-and-error process is needed. This model allows companies to solve big problems in little steps and recycle and try again when they are blocked. The final model and most recent on that can be used on organization decision making is the garbage can model. This model is very different from the past on analyzed since instead of dealing with one single decision, it is dealing with multiples decisions. This model focus on the organization as a whole and reflect on the frequent decision made by managers. This model implies that managers have to individually analyze different alternatives and then have higher management combining ideas to create the best alternative, which tend to be messy. This model can only work in very organic organization. However, it is not a perfect model. The four main consequences are that solution may be proposed even when problems do not exist, choices are made without solving problems, problems may persist without being solved, and fewer problems are solved. In the first consequence, an employee may stress an idea on other people of the company, for example in 1970’s when computer start to be more accessible, systems analyst propose to purchase computers. This intervention did not solve any problems and even in some case created some. The second consequence explain that sometime some decisions are taken to solve a problem but indeed do not solve anything. The third consequence reflect on the fact that some problems are so complex to solve that employees tend to give up on finding a solution and just adjust to the problem, meaning they learn how to deal with it and forget about it. The last consequence, just reflect on how matching problems and solutions result in decision making. All of these models are different and answer different needs in different companies for different issues.

So how do company know which model to use? There are two characteristics to determine which model to use; problem consensus and technical knowledge about the means to solve those problems. Problem consensus is defined as an agreement among manager about the nature of a problem or opportunity and about which goals and outcome to pursue. In the case of managers agreeing, that mean there is little or no uncertainty, all the managers are on the same page concerning goals and problems and reflect on them similarly. However, when managers disagree it, show high uncertainty. This mean that managers fail to agree on the goals to reach and problem to solve. In problem uncertainty, when managers fail to agree, it cause an issue on identifying the problem, which causes the managers to focus on agreeing on the problem and not the solution. The other determinant on which model to use is technical knowledge, which is define as the understanding and agreement about how to solve problems and reach organization goals. When managers agree on a solution it mean they have a deep understanding of the problem and figure out appropriate alternative. However, when managers fail to agree on a solution, it means the issue was not understood and the alternative where not relevant. In this case, their preferred solution is then based on their own personal judgement and intuition. In order to take the best decision, a contingency decision-making framework is available, depending on how certain the problem consensus is and how certain solution knowledge is, company can choose between four options represented in the framework. However, some decisions are so complex nowadays and the environment so versatile that it can require special decision circumstance.

The issues with decision making in today’s world are due to the high-velocity environments, the complexity of learning from decision mistakes and being able to understand cognitive biases and overcoming them. These special decisions circumstances are what make decision making even more complicated. In some industry, such as in the smart phone industry, the competitivity is so intense and the technological change is so extreme than any market data is obsolete and does not reflect the market by the time it comes out, this would be an example of how high velocity impact negatively the decision making. This involve that any decision that is not done quickly, will possibly or probably be the wrong decision. In a result of this ascertainment, in order to improve the change of taking a good decision the manager have to be quick. Pattern have been observed in successful companies where the velocity is high, the decision maker is often tracking on the moment any information available, this allows him to have a grasp on what the environment is, which enable decision making to be quick. Another pattern observed, is that companies tend to apply one alternative and have other back up alternative running in case the first is unsuccessful. The last pattern observe, is that collision is used to find the best option, however, if the team take too long to decide then the top management take the final decision, which avoid delays and allow to stay in track with the fast path environment. Successful companies who have to work in a high-velocity environment, have recognized that taking a slow decision is as bad as taking the wrong decision. However, it does not matter if the environment is high-velocity or not, if a company make a decision mistakes, then need to learn from it, in order to stay in competition. It takes to make mistake to be able to go through decision learning, this allows the companies to gain knowledge and experience. As Scott Cook, chairman of the firm Intuit, said “It’s only a failure if we fail to get the learning”. One of the factors that can be avoid and would allowed companies to not have to go through the process of decision learning and that lead to a bad decision making is letting cognitive biases affect the decisions taken. Cognitive biases are severe errors in judgement that all human is prone to and that typically lead to bad choices. The most common biased in business are loss aversion, escalating commitment and groupthink. Loss aversion referee to the prospect theory. The prospect theory demonstrate that humans are more afraid of taking the risk to failing, than trying to risk it and being successful. This happen especially when manager do not want to be affiliated to a failing project. Another cognitive bias is escalating commitment. Escalating commitment reflects on the application of the alternative chosen, sometime manager continues to implement an alternative that fail, in the believe that it will work at some point. This is a costly cognitive bias because it cost a lot of time and money. This often happen when the manager is the one who took the bad decision, the manager is influence by its ego and block or distort negative information coming from the decision made. This bias also comes from the modern society we live in, manager who are persistent tend to be recognize as better leader, which make it difficult for the leader to pull out of its decision. The final cognitive bias is groupthink. Most of the decision taken in organization are made in group, for the sake of belonging, employees tend to go with the group opinion instead of speaking up and taking the risk to be rejected. This is a frequent phenomenon in a group where people like one another, people tend to criticize another person’s opinion less or even censor them self. If group decisions are recognized to be better due to the accumulation of knowledge and experience, it can also lead to a satisfying decision and not a quality decision. However, as mention earlier cognitive biases can be avoid, the most effective technique are evidence-based management and push dissent and diversity. When applying evidence-based management, a team agree to commit to make decision based on facts proven, intellect analyze and by having fully awareness of their cognitive biases. Every decision should not be made reflecting on past experiences or assumption. Nevertheless, it is not only concerning group thinking, evidence-based management is also very efficient to overcome fear of lost and the dealing with the issues of escalating commitment. Manager can overcome fear of lost by making sure the alternative presented is based on actual evidence, which allow the manager to back up what he is applying and being able to report to higher management. For any employee who work under the supervision of the manager that took the decision, understanding why the executive took this decision and learn from the mistake of someone else is also very helpful. In the case of escalating commitment, evidence-based management enable the manager to do a postmortem, meaning evaluate the decision taken, see if the alternative chosen did work, what did not work and how the alternative can be improve along the way. Finally, encouraging dissent and diversity also allow to overcome cognitive bias. The importance of diversity in an organization is one of the basics of management. By adding diversity and dissent to a group, it allows to have a wider range of opinion, idea, which allows the decision making to be done in an easier way. When a group is homogeneous the ideas found tend to be from similar perspective and it is harder to find the proper alternative. Often in a diverse group companies will use a Devil’s Advocate. The Devil’s Advocate is someone in the group who criticized and challenge what another member of the team says. When challenged, peoples tend to rethink and upgrade their alternative for decision making, it also avoiding premature decision. Whatever technique is used to make decision making, good manager will always find a way to apply the best decision they possibly can.

Most organization take decision based on experience, which lead to bad decision. Most of the decision need to be taken quickly, often in a conflictual environment, with a lack of data. However, as explain earlier there is ways of avoiding this, by being aware of cognitive biases, including diversity in the decision-making team, avoid individual decision making and instead promote coalition when a decision need to be made and by applying some approach such as management science approach or model such as Carnegie model or others explained earlier. There are six take out on decision making: working on an appropriate frame, meaning having a clear understanding of the problem and knowing what to achieve. Then, being creative is another important one, in order to find interesting alternatives, creativity is key. Working with meaningful information and clarity about desire outcome that are based on solid reasoning and what sounds logic. The last take away, would be to commit to an action, when a manager make a decision, he have to commit to it and know how to pull off when the alternative does not work. So even if decision making is complex and uncertain it is worth trying to fix the issues. As Karl Weick said “chaotic action is preferable to orderly inaction”.

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