Introduction to Management 11e John Schermerhorn Chapter 7 The Decision-Making Process

Planning Ahead — Chapter 7 Study Questions What is the role of information in the management process? How do managers use information to make decisions? What are the steps in the decision-making process? What are the current issues in managerial decision making? Management 11e Chapter 7

Information, technology and management Study Question 1: What is the role of information in the management process? Information, technology and management Managers must have Computer competency Ability to understand computers and use them to their best advantage Information competency Ability to gather, analyze and use information for decision making and problem solving Management 11e Chapter 7

What is useful information? Study Question 1: What is the role of information in the management process? What is useful information? Data Raw facts and observations Information Data made useful for decision making Information drives management functions Management 11e Chapter 7

Characteristics of useful information: Study Question 1: What is the role of information in the management process? Characteristics of useful information: Timely High quality Complete Relevant Understandable Management 11e Chapter 7

Information needs of organizations Study Question 1: What is the role of information in the management process? Information needs of organizations Information exchanges with the external environment: Gather intelligence information Provide public information Information exchanges within the organization: Facilitate decision making Facilitate problem solving Management 11e Chapter 7

Study Question 1: What is the role of information in the management process? Implications of IT for relationships with external environment: Helps with customer relationship management Helps organizations with supply chain management Helps in monitoring outsourcing and other business contracts Implications of IT within organizations: Facilitation of communication and information sharing Operating with fewer middle managers Flattening of organizational structures Faster decision making Increased coordination and control Management 11e Chapter 7

Figure 7.1 Internal and external information needs of an organization Management 11e Chapter 7

Management information systems Study Question 1: What is the role of information in the management process? Information systems Use IT to collect, organize and distribute data for use in decision making Management information systems Meet the information needs of managers in making daily decisions Management 11e Chapter 7

Figure 7.2 Information technology is breaking barriers and changing organizations Management 11e Chapter 7

Study Question 2: How do managers use information to make decisions? Managerial advantages of IT utilization: Planning advantages Better and more timely access to useful information Involving more people in planning Organizing advantages More ongoing and informed communication among all parts of the organization Improved coordination and integration Management 11e Chapter 7

Study Question 2: How do managers use information to make decisions? Managerial advantages of IT utilization (cont.): Leading advantages Improved communication with staff and stakeholders Keeping objectives clear Controlling advantages More immediate measures of performance results Allows real-time solutions to performance problems Management 11e Chapter 7

Figure 7.3 The manager as an information-processing nerve center Management 11e Chapter 7

Study Question 2: How do managers use information to make decisions? Problem solving The process of identifying a discrepancy between actual and desired performance and taking action to resolve it Decision A choice among possible alternative courses of action Performance threat Something is wrong or has the potential to go wrong Performance opportunity Situation offers the chance for a better future if the right steps are taken Management 11e Chapter 7

Study Question 2: How do managers use information to make decisions? Problem-solving approaches or styles: Problem avoiders Inactive in information gathering and solving problems Problem solvers Reactive in gathering information and solving problems Problem seekers Proactive in anticipating problems and opportunities and taking appropriate action to gain an advantage Management 11e Chapter 7

Study Question 2: How do managers use information to make decisions? Systematic versus intuitive thinking Systematic thinking approaches problems in a rational, step-by-step, and analytical fashion Intuitive thinking approaches problems in a flexible and spontaneous fashion Management 11e Chapter 7

Study Question 2: How do managers use information to make decisions? Multidimensional thinking applies both intuitive and systematic thinking Effective multidimensional thinking requires skill at strategic opportunism Management 11e Chapter 7

Study Question 2: How do managers use information to make decisions? Sensation Thinkers impersonal, realistic, prefer facts Intuitive Thinkers impersonal, abstract, idealistic, likes unstructured problems Sensation Feelers relationship oriented, analytical, realistic Intuitive Feelers relationship oriented, abstract, flexible Managers use different cognitive styles Management 11e Chapter 7

Study Question 2: How do managers use information to make decisions? Types of problems Structured problems are ones that are familiar, straightforward, and clear with respect to information needs Programmed decisions apply solutions that are readily available from past experiences to solve structured problems Management 11e Chapter 7

Study Question 2: How do managers use information to make decisions? Types of problems Unstructured problems are ones that are full of ambiguities and information deficiencies Nonprogrammed decisions apply a specific solution to meet the demands of a unique problem Commonly faced by higher-level management Management 11e Chapter 7

Study Question 2: How do managers use information to make decisions? Crisis decision making A crisis involves an unexpected problem that can lead to disaster if not resolved quickly and appropriately Management 11e Chapter 7

Study Question 2: How do managers use information to make decisions? Rules for crisis management: Figure out what is going on Remember that speed matters Remember that slow counts, too Respect the danger of the unfamiliar Value the skeptic Be ready to “fight fire with fire ” Management 11e Chapter 7

Study Question 2: How do managers use information to make decisions? Managers make decisions with various amounts of information Certain environment offers complete information on possible action alternatives and their consequences Risk environment lacks complete information but offers probabilities of the likely outcomes for possible action alternatives Uncertain environment lacks so much information that it is difficult to assign probabilities to the likely outcomes of alternatives Management 11e Chapter 7

Figure 7.4 Three environments for managerial decision making and problem solving Management 11e Chapter 7

Study Question 3: What are the steps in the decision-making process? Five-step decision-making process: Identify and define the problem Generate and evaluate alternative solutions Make decision Implement the decision Evaluate results Management 11e Chapter 7

Study Question 3: What are the steps in the decision-making process? Step 1 — Find and define the problem Focuses on information gathering, information processing, and deliberation Decision objectives should be established Common mistakes in defining problems: Defining the problem too broadly or too narrowly Focusing on symptoms instead of causes Choosing the wrong problem Management 11e Chapter 7

Study Question 3: What are the steps in the decision-making process? Step 2 — generate and evaluate alternative courses of action Potential solutions are formulated and more information is gathered, data are analyzed , the advantages and disadvantages of alternative solutions are identified Approaches for evaluating alternatives: Stakeholder analysis Cost-benefit analysis Management 11e Chapter 7

Study Question 3: What are the steps in the decision-making process? Step 2 — generate and evaluate possible solutions (cont.) Criteria for evaluating alternatives: Benefits Costs Timeliness Acceptability Ethical soundness Management 11e Chapter 7

Study Question 3: What are the steps in the decision-making process? Step 2 — generate and evaluate possible solutions (cont.) Common mistakes: Selecting a particular solution too quickly Choosing a convenient alternative that may have damaging side effects or may not be as good as other alternatives Management 11e Chapter 7

Study Question 3: What are the steps in the decision-making process? Step 3 — decide on a preferred course of action Two different approaches Behavioral model leads to satisficing decisions Classical model leads to optimizing decisions Management 11e Chapter 7

Figure 7.6 Differences in the classical and behavioral decision-making models Management 11e Chapter 7

Study Question 3: What are the steps in the decision-making process? Step 4 — implement the decision solution Involves taking action to make sure the solution decided upon becomes a reality Managers need to have willingness and ability to implement action plans Lack-of-participation error should be avoided Management 11e Chapter 7

Study Question 3: What are the steps in the decision-making process? Step 5 — evaluate results Involves comparing actual and desired results Positive and negative consequences of chosen course of action should be examined If actual results fall short of desired results, the manager returns to earlier steps in the decision-making process Management 11e Chapter 7

Study Question 3: What are the steps in the decision-making process? Check ethical reasoning Ask these spotlight questions Utility Does the decision satisfy all constituents or stakeholders? Rights Does the decision respect the rights and duties of everyone? Justice Is the decision consistent with the canons of justice? Caring Is the decision consistent with my responsibilities to care? Management 11e Chapter 7

Issues in decision making Study Question 4: What are the current issues in managerial decision making? Issues in decision making How do decision errors happen? Hueristics are strategies for simplifying decision making Management 11e Chapter 7

Study Question 4: What are the current issues in managerial decision making? Availability Bias Bases a decision on recent information or events Representativeness Bias Bases a decision on similarity to other situations Anchoring and Adjustment Bias Bases a decision on incremental adjustment from a prior decision point Framing Error Trying to solve a problem in the context in a positive or negative context Confirmation Error Focusing on information that confirms a decision already made Escalating Commitment Continuing a course of action even though it is not working Management 11e Chapter 7

Creative Decision making: Study Question 4: What are the current issues in managerial decision making? Creative Decision making: Creativity is the generation of a novel idea or unique approach that solves a problem or crafts an opportunity creativity is more likely when decision makers are highly task motivated Organizations should create an environment that supports and encourages creativity Management 11e Chapter 7

Personal creativity drivers Study Question 4: What are the current issues in managerial decision making? Personal creativity drivers Creativity Task Expertise Task Motivation Creativity Skills Management 11e Chapter 7

Situational creativity drivers Study Question 4: What are the current issues in managerial decision making? Situational creativity drivers Team creativity skills Management support for creative ideas Organizational culture Management 11e Chapter 7

Group Creativity Skills Study Question 4: What are the current issues in managerial decision making? Situational creativity drivers Creativity Group Creativity Skills Management Support Organizational Culture Management 11e Chapter 7

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