Chapter 5 Decision Makers and Decision Making

Who are the Decision Makers in Business? McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. Stockholders- May vote on major decisions - Generally, involvement is limited Board of Directors- Approves major strategic decisions - Oversees general direction of the business Top Management- Makes major strategic decisions Middle Management- Implements top management decisions - Makes decisions within area of responsibility Professional Staff- Makes decisions in area of expertise First-Line Supervisors- Implements higher level decisions - Make day-to-day operational decisions Non-managerial Employees- Make decisions regarding performance of their individual jobs Stockholders- May vote on major decisions - Generally, involvement is limited Board of Directors- Approves major strategic decisions - Oversees general direction of the business Top Management- Makes major strategic decisions Middle Management- Implements top management decisions - Makes decisions within area of responsibility Professional Staff- Makes decisions in area of expertise First-Line Supervisors- Implements higher level decisions - Make day-to-day operational decisions Non-managerial Employees- Make decisions regarding performance of their individual jobs

Stockholders Are owners of a company Never take an active role in a company Buy & sell their stock Vote on major issues at the annual meeting Elect members of the board of directors Do not make decisions for the company Are owners of a company Never take an active role in a company Buy & sell their stock Vote on major issues at the annual meeting Elect members of the board of directors Do not make decisions for the company McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

The Board of Directors Board of Directors: Individuals elected by stockholders to oversee the management of the firm. Inside Directors: Directors who are company employees. Outside Directors: Directors who are not company employees. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Roles of the Board: Make decisions of strategic significance Serve as the corporate conscience of the company Ensure that the firm’s activities are legal and ethical McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Top Management Top Management: The officers of a business who make major decisions for the company and are responsible for the company’s performance. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Top Management McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. Chief Executive Officer (CEO) Individual responsible for the long-range, strategic direction of the company. Chief Operating Office (COO) Individual responsible for the company’s internal day-to-day operations. Chief Financial Officer (CFO): Individual responsible for the overall financial health and strategy of a company.

Top Management McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. Chief Information Officer (CIO) Individual in charge of policy relating to the gathering, use, and storage of company information. Vice President: A top manager who is responsible for a specific area of the company.

Typical Top Management Positions McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. Board of Directors Chair Board of Directors Chair Board of Directors President Vice President Production Vice President Production Vice President Marketing Vice President Marketing Vice President Research Vice President Research Vice President Human Resources Vice President Human Resources Vice President Finance Vice President Finance Vice President Information Technology Vice President Information Technology CEO COO CFO CIO

Other Levels of Management Middle Managers: Managers below the vice president down to just above first-line supervisors, responsible for broad policies into doable tasks. Professional Staff: Employees that make decisions within their area of specialty that assist others in doing their job. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Other Levels of Management First-Line Supervisors: The lowest level of management, directly responsible for overseeing the work of production employees. Non-Managerial Employees: Employees in a business who are actually involved in producing or selling products and providing services. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Teams are Empowered to Make Work-Related Decisions Advantages of Teams: Brings together talented people from various levels of businesses. Breaks departmental barriers, allowing quicker action. Promotes employee involvement and commitment. Provides excellent source of creativity and commitment. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Types of Teams Self-Directed Work Team: A group of employees who supervise their own work and are given broad discretion over the direction of their own work. Self-Directed Work Team: A group of employees who supervise their own work and are given broad discretion over the direction of their own work. Cross-Functional Team: A group of employees who are selected from various areas of the business and brought together to make a collective decision. Cross-Functional Team: A group of employees who are selected from various areas of the business and brought together to make a collective decision. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. Teams can exist at top and middle management, staff positions, and in non-managerial levels. Teams can be ongoing or appointed to solve particular problems. Teams can exist at top and middle management, staff positions, and in non-managerial levels. Teams can be ongoing or appointed to solve particular problems.

Relationships between Positions and the Chain of Command McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. President VP - Marketing VP - Finance VP - R&D Manager, Basic Research Manager, Product Development Manager, Testing Administrative Staff Human Resources Clerical Staff Scientists Engineers Marketing Finance VP – Human Resources

Differences Between Large and Small Businesses Large Businesses: More complex decision making Many vice presidents VP’s with specific responsibilities Top managers with specific responsibility VPs perform specific duty Small % of workers are non-managerial Deliberative decision making Large Businesses: More complex decision making Many vice presidents VP’s with specific responsibilities Top managers with specific responsibility VPs perform specific duty Small % of workers are non-managerial Deliberative decision making Small Businesses: Less complex decision making One or few vice presidents VP with multiple responsibilities Top managers with multiple responsibilities VP performs staff duties Large % of workers are non-managerial Faster decision making Small Businesses: Less complex decision making One or few vice presidents VP with multiple responsibilities Top managers with multiple responsibilities VP performs staff duties Large % of workers are non-managerial Faster decision making McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Decision Makers in Not-for-Profit Organizations In Small Non-Profits: Volunteer Board of Directors Executive Director Paid staff secretary In Large Non-Profits: President Full set of Vice Presidents Paid Staff employees McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

The Decision-Making Process McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. Strategic Decisions – Decisions that have a major impact on the general direction of a firm. Strategic Decisions – Decisions that have a major impact on the general direction of a firm. Have long range impact. Require careful analysis of the firm and its environment. Are often the result of a strategic planning process. May involve millions of dollars. Are designed to capture opportunities or offset weaknesses. Involve top management, including board of directors. Have long range impact. Require careful analysis of the firm and its environment. Are often the result of a strategic planning process. May involve millions of dollars. Are designed to capture opportunities or offset weaknesses. Involve top management, including board of directors. Characteristics of Strategic Decisions

The Decision-Making Process McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. Operational Decisions – Decisions that affect the day-to-day actions of a business. Operational Decisions – Decisions that affect the day-to-day actions of a business. May or may not involve a large amount of capital. Deal within specific situations within an organization. Are made by experienced managers in the area. Often have standard operating procedures available to guide decisions. Require less analysis than strategic decisions do. May or may not involve a large amount of capital. Deal within specific situations within an organization. Are made by experienced managers in the area. Often have standard operating procedures available to guide decisions. Require less analysis than strategic decisions do. Characteristics of Operational Decisions

The Decision-Making Process McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. Problem Solving Decisions – Decision making aimed at correcting an adverse situation that has developed. Problem Solving Decisions – Decision making aimed at correcting an adverse situation that has developed. Situation is a deviation from normal operations. May be minor or of crisis proportions. Often need quick decisions to find solutions acceptable to all involved. There may be no easy solution. Situation is a deviation from normal operations. May be minor or of crisis proportions. Often need quick decisions to find solutions acceptable to all involved. There may be no easy solution. Characteristics of Problem-Solving Decisions

A Basic Decision-Making Model McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. 1. Define the decision issue. 2.Gather and analyze information about the issue and the people involved. 2.Gather and analyze information about the issue and the people involved. 3. Develop alternative solutions or strategies. 4. Evaluate and select the best alternative. 5. Implement the solution. 6. Evaluate the results.

A Model of Creative Decision Making Creative Decision Making: The process of developing new or different ways to solve problems or capture opportunities. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. Break out of the mold!! Break out of the mold!! Think outside of the box!! Think outside of the box!!

Crisis Decision Making Characteristics of Crisis Situations: A short time-frame exists. The situation is often highly visible. The decision has significant consequences Some risk of survival is at stake. Characteristics of Crisis Situations: A short time-frame exists. The situation is often highly visible. The decision has significant consequences Some risk of survival is at stake. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

1. The situation must be stabilized immediately to keep it from getting worse. 2. The decision should leave all interested parties no worse off than they currently are. 3. Determine if contingency plans are in place to deal with at least part of the problem. 4. Every effort should be made to inform the company’s stakeholders and gather input for the decision if time permits. 5. If there is no good answer, take the least bad answer. 6. If acceptable alternatives exist, take the one that can be most easily changed later if necessary. 1. The situation must be stabilized immediately to keep it from getting worse. 2. The decision should leave all interested parties no worse off than they currently are. 3. Determine if contingency plans are in place to deal with at least part of the problem. 4. Every effort should be made to inform the company’s stakeholders and gather input for the decision if time permits. 5. If there is no good answer, take the least bad answer. 6. If acceptable alternatives exist, take the one that can be most easily changed later if necessary. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. Caveats in Crisis Decision Making

Facts about Team Decision Making Team decisions take more time than individual decisions. Team decisions are often better decisions. Team decisions typically reflect the broader background of team members. Team members need to feel comfortable with other members. Team members must understand the goals to work effectively. Team members must use active listening and open communication with each other. The biggest drawback is the time and effort to make a decision. Team decisions take more time than individual decisions. Team decisions are often better decisions. Team decisions typically reflect the broader background of team members. Team members need to feel comfortable with other members. Team members must understand the goals to work effectively. Team members must use active listening and open communication with each other. The biggest drawback is the time and effort to make a decision. McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.

International Decision Making International decisions become more complex and must consider: Customs Laws Customer needs International currencies Governmental influences Political influences Ethical issues International decisions become more complex and must consider: Customs Laws Customer needs International currencies Governmental influences Political influences Ethical issues McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.