Understanding Business DECISION MAKING

Tell the class about one decision you have already made today QUICK TASK Tell the class about one decision you have already made today Some examples: Time to get up? – on alarm or sleep in What to have for breakfast? – cereal or toast What to wear? – jeans or dress code How to get to school? – walk or by bus These tend to be routine tasks that do not take long to think about and are easy to make.

Now suggest a decision that a Manager might have to make. Image - Redesign company logo or not Staffing – Redundancies or ? Technology - Invest in new or repair Size - Expand or downsize Finance - Borrow money or make cutbacks These tend to be decisions that are made infrequently and take longer to consider. The choices are often more limited due to constraints.

WHY MAKE DECISIONS? Allows a business to achieve its objectives Solves problems that arise Addresses dynamic pressures on business Prevents problems arising from unaddressed pressures Allows management to fulfil their role effectively Provides a framework to direct an organisation

TYPES OF DECISIONS Strategic Tactical Operational

STRATEGIC Long term decisions concerning the future Affects general direction of business Use to devise policies (gives structure) Made by senior management or owners High risk – lots to go wrong Non-routine Simple statements – no specific details about how they will be achieved

Examples of strategic decisions: What products to produce? What market segments to aim for? To increase market share by 20% within the next 5 years To maximise sales/profit To achieve 100% customer satisfaction To diversify

TACTICAL Medium-term decisions Made by middle (department) or top level managers Medium risk Help achieve the strategic aims and objectives Detailed – describing ways to achieve goals Constantly under review because of external influences (PESTEC) Evaluated regularly – are they working?

Examples of Tactical decisions: To hire more staff To re-name the business (re-branding) – eg Royal Mail to Consignia back to Royal Mail To issue more shares to raise more capital To achieve a 10% increase in new orders over the next 6 months Open a store 24 hours a day to keep up with competitors To merge with/takeover a rival firm To introduce an economy drive (cost cutting exercise)

OPERATIONAL “Day-to-day” decisions (short term) Carry little risk Reactionary - responding to a situation Routine decisions – often made every day Made by all levels Often require to be made quickly

Examples of Operational decisions: Organising work rotas Dealing with customer complaints Ordering materials from suppliers Reducing prices to get rid of stock reaching sell-by dates Arranging cover staff for absentees

EXAMPLE Strategic Decision - Tesco planned to introduce a Financial Service – eg Credit Card Tactical Decisions - what interest rate to charge and credit limits to be allowed Operational Decision - when to send out the statements

Everyone who will be affected by the decision. Who needs to know? Everyone who will be affected by the decision. Employees - kept informed of changes and what they are working towards. These must be clearly explained and allow time for consultation. Change can lead to resistance from staff, which can affect the organisation’s success.

Investors – kept informed of changes which might affect their investment. They may vote against changes. Also: Owners (business performance) Managers (tasks to delegate to achieve aims) Customers (factors affecting buying patterns)

Threats SWOT ANALYSIS Strengths Weaknesses Opportunities INTERNAL FACTORS EXTERNAL FACTORS

The strengths identify areas where the business is doing well at the present time. Eg having new products in the development stages ready for launch will provide a very good platform for the business to progress. The weaknesses highlight the areas where issues need to be addressed. Eg having a high level of borrowing will make the business vulnerable to changes in the economy.

Opportunities provide a business with new challenges which could be included in their strategic planning. Eg to introduce new technology Threats come from outside the organisation and are often beyond their control. Eg Economic recession reduces the number of sales

Organisational structure Operations New product(s) External factors: Internal factors: Finance Technology Management Human resources Marketing Organisational structure Operations New product(s) External factors: Competition Technological change Economic factors Social change Legislation Consumer needs/preferences Recap A SWOT analysis will help convert identified weaknesses into strengths, and potential threats into opportunities.

Internal Present Future External Positive Negative The SWOT Box Internal Strengths Weaknesses Present Opportunities Threats Future External Positive Negative

Why use SWOT as a decision making tool? SWOT can help an organisation: identify any problems and objectives ensure information is gathered and analysed devise alternative solutions assess strengths and weaknesses of the business allow them to capitalise on strengths and opportunities and minimise weaknesses and threats evaluate decisions using a second SWOT

THE DECISION MAKING PROCESS Some experienced Managers can make quality spur of the moment decisions. However, success is not always guaranteed. Using a structured decision-making model gives a greater chance of success. A specific example would be POGADSCIE – see core text for additional reading

BENEFITS OF A STRUCTURED DECISION-MAKING MODEL No rash decisions made - time is taken to gather and analyse information Decisions are made using facts – better quality Alternative solutions are found - giving choices Ideas are enhanced by following the process

DECISION-MAKING MODEL COSTS OF A STRUCTURED DECISION-MAKING MODEL Time-consuming to follow the processes – may delay decisions being made Slower to respond to market changes Developing a range of possible solutions can be difficult to do as internal and external constraints might limit choices Can stifle creativity and gut reactions to problems

The Role of Management in Decision Making Manager - the person in charge of groups of staff and/or an area of an organisation. They make decisions by evaluating each option when given a choice. They identify ways to deal with problems in an organisation to achieve its aims.

Management theorists describe the role of managers in different ways: “A manager is one who is responsible for getting things done through people instead of doing the job himself” – W F Coventry “ The quality and performance of the managers determine the success of a business, indeed they determine survival” – Peter Drucker

in order to solve problems, make decisions and These statements summarise the theoretical role management plays within an organisation. They are: unifying resources (bringing together the people, materials and money) in order to solve problems, make decisions and make sure that the business gets the best possible return from its resources.

Henry Mintzberg found that Mangers perform a wide variety of roles which fit into 3 categories: Interpersonal role – relationship(s) with others Informational role – gathering and communicating information Decisional role – making different types of decisions

Henri Fayol (management theorist) identified the 5 functions (roles) of managers: PLAN (look ahead and set aims and strategies) ORGANISE (ensure resources are in the right place at the right time) COMMAND (tell others their responsibilities and be a leader) COORDINATE (ensure resources are working together to achieve the aims) CONTROL (measure, evaluate and adjust work relative to plans)

The Role of a Manager - POCCCDM More recently 2 other functions have been added : DELEGATE (give responsibility for actions/decisions to others) MOTIVATE (encourage others to work effectively) REMEMBER: The Role of a Manager - POCCCDM

What qualities and skills make a “good” manager? You can learn these From your own personality SKILLS Communication Leadership Organisation Motivation Planning Interpersonal Numeracy QUALITIES Good judgement Initiative Innovation Personal energy Maturity Flexibility Stress-handling Assertiveness

Constraints on Decision-making Finance may prevent the most effective option be chosen Employees may limit what can or cannot be achieved Ability and skills of managers Policies and procedures of the organisation may place restrictions on decision making Quality of information Has the decision making model (eg POGADSCIE and SWOT) be applied properly

Leadership Styles Autocratic Manager makes all the decisions N5 Recap Leadership Styles Autocratic Manager makes all the decisions Discussion with staff is not encouraged Work completed on time to a high standard Can be demoralising Can lead to high levels of absenteeism and staff turnover Democratic Manager makes the final decisions, but include staff in decision-making process Staff are often highly engaged in projects and decisions Staff have high job satisfaction and high productivity Not always effective when a quick decision is required

Laissez-faire Managers give staff a lot of freedom in how they do their work and the deadlines set Managers provide support with resources and advice if needed leads to high job satisfaction, Can cause problems if staff don’t manage their time well, have the knowledge, skills, or self motivation to do their work effectively

ICT in Decision Making Different pieces of hardware and software can aid with decision making. Internet Intranet E-mail Spreadsheets Databases Word processing Presentation software Videoconferencing Task: How would each piece of ICT be used in decision making

Other decision-making aids: Brainstorming (Thought Shower) When groups of staff meet to think of as many ideas as possible. No idea is rejected or criticised at this stage. Benchmarking Comparing what you do with the best organisation and trying to match their performance.