Management Planning

Continuation of strategic planning Corporate strategy is for the whole organisation. It is informed by Steps 1-3 (Mission statement, current business model, SWOT) Competitive strategy has 3 main directions: cost leadership, differentiation, focus. Any strategy needs to be decided based on information (internal and external)

What is strategic leadership? Strategic leadership - the ability to anticipate, envision, maintain flexibility, think strategically, and work with others in the organisation to initiate changes that will create a viable and valuable future for the organisation.

Who provides strategic leadership? CEO – chief executive officer Team of top managers: COO – chief operating officer CFO – chief financial officer CIO – chief information officer

Effective strategic leadership (8 factors)

Need for strategic flexibility Strategic flexibility - the ability to recognize major external changes, to quickly commit resources, and to recognise when a strategic decision was a mistake. Move quickly!

Characteristics of strategic flexibility Leadership unity Flexible in allocating resources Creative and problem solving mindset Understand current strategies using monitoring and measuring results Open communication with employees New ideas and perspectives from outside the organisation Multiple alternatives (plan b) Reflective and learn from mistakes

eBusiness strategies For any business, to help lower costs. Cost Leadership On-line activities: bidding, order processing, inventory control, recruitment and hiring Differentiation Internet-based knowledge systems, online ordering and customer support Focus Chat rooms and discussion boards, targeted Web sites

Customer service strategies Giving the customers what they want Communicating effectively with them Providing employees with customer service training

Innovation strategies Possible Events Radical breakthroughs in products Application of existing technology to new uses Strategic Decisions about Innovation Basic research Product development Process innovation First Mover - an organisation that brings a product innovation to the market or uses new process innovations.

Being a First Mover?

Planning Decision Making

Today’s lecture We will learn: 8 step decision making process How managers make decisions Explain decision making conditions Styles of decision making Biases and errors of decision making Identify effective decision-making techniques

Useful Vocabulary Decision criteria Rational decision making Bounded rationality Satisfice Intuitive decision making Structured problems Programmed decision Procedure Rule Policy Unstructured problems Non-programmed decisions Risk Linear thinking style Heuristics

What is a decision? Decision - making a choice from two or more alternatives Problem - an obstacle that makes it difficult to achieve a desired goal or purpose

Summary of making a decision Identifying a problem and decision criteria and allocating weights to the criteria Developing, analysing, and selecting an alternative that can resolve the problem Implementing the selected alternative Evaluating the decision’s effectiveness

8 steps process for decision making Look at this diagram on p179

DMP – Step 1 – Identify the problem Characteristics of Problems A problem becomes a problem when a manager becomes aware of it There is pressure to solve the problem The manager must have the authority, information, or resources needed to solve the problem

DMP – Step 2 – Identify decision criteria Decision criteria are factors that are important (relevant) to resolving the problem, such as: Costs that will be incurred (investments required) Risks likely to be encountered (chance of failure) Outcomes that are desired (growth of the firm)

Example for Step 2 If you want to buy a laptop, here are some of the decision criteria you are likely to have… Decision Making Criteria Memory and storage Battery life Carrying weight Warranty Display quality

DMP – Step 3 – Allocating weights Decision criteria are not of equal importance: Assigning a weight to each item places the items in the correct priority order of their importance in the decision-making process.

Example for Step 3 To help you buy the laptop, you give each decision criteria a weighting to help decide which is most important… Criteria Weighting Memory and storage 10 Battery life 8 Carrying weight 6 Warranty 4 Display quality 3

DMP- Step 4 - Alternatives Identifying viable alternatives Alternatives are listed (without evaluation) that can resolve the problem. Alternatives HP Probook Sony VAIO Lenovo IdeaPad Apple Macbook Toshiba Satellite Sony NW Dell Inspiron HP Pavilion

DMP – Step 5 – Analysing Alternatives Appraising each alternative’s strengths and weaknesses An alternative’s appraisal is based on its ability to resolve the issues related to the criteria and criteria weight.

Example for Step 5a – marks out of 10 for each laptop

Example for Step 5b – multiplying each mark by the weighting

DMP – Step 6 – Selecting the alternative Choosing the best alternative The alternative with the highest total weight is chosen.

DMP – Step 7 – Implementing the alternative Putting the chosen alternative into action Conveying the decision to and gaining commitment from those who will carry out the alternative So in this example, that would be convincing finance and her manager using her working out Helpful to involve people in the decision making process

DMP - Step 8 – Evaluating decision effectiveness The soundness of the decision is judged by its outcomes. How effectively was the problem resolved by outcomes resulting from the chosen alternatives? If the problem was not resolved, what went wrong? Did you identify the wrong problem?

Decisions manager make

Rational decision making Rational Decision-Making - describes choices that are logical, in the best interests of the company and consistent. Perfect decision making! Bounded Rationality - decision making that’s rational, but limited (bounded) by an individual’s ability to process information. Satisfice - accepting solutions that are “good enough.”

Intuitive decision making Making decisions on the basis of experience Feelings accumulated judgment Works alongside rational decision making Works best if person understands their emotions and has experience

What is intuition?

Types of decisions

Programmed and non-programmed decisions Programmed Decision - a repetitive decision that can be handled by a routine approach, eg, if a customer brings in a broken product, you repair or replace it. Non-programmed Decisions - unique and nonrecurring decisions that require a custom-made solution, eg, heavy snow might make flying dangerous

Types of programmed decisions Procedure - a series of interrelated steps that a manager can use to apply a policy in response to a structured problem, eg, need to buy 15 laptops, follow company purchasing procedure Rule - an explicit statement that limits what a manager or employee can or cannot do, eg, not allowed to smoke in the building Policy - a general, flexible guideline for making a decision about a structured problem, eg, the customer is always right and must be happy.

Programmed v. non-programmed

Decision making situations Certainty can make an accurate decision because the outcome of every alternative choice is known, eg, choosing a bank account based on interest accrued. Risk a situation in which the manager is able to estimate the likelihood (probability) of outcomes that result from the choice of particular alternatives, eg, expanding a hotel as you have lots of data to make the decision

Decision making situations Uncertainty Limited information makes it difficult to know the outcomes Limited information forces managers to rely on intuition, hunches, and “gut feelings.” Maximax: optimistic, to maximize the maximum payoff (assume the best, get the most) Maximin: pessimistic, maximize the minimum payoff (assume the worse, use the best worst) Minimax: the manager’s choice to minimize maximum regret.

Payoff matrix – Maximax – chosing the best payoff out of all Strategies

Payoff matrix – Maximin – chosing the best worst payoff for each Strategy

Regret matrix – Minimax – Best CA payoff

Regret matrix – Minimax – Best CA payoff minus each CA Regret matrix – Minimax – Best CA payoff minus each CA. Then choose least worst S overall

Decision Making Styles

Decision making styles Linear Thinking Style - a person’s tendency to use external data/facts; the habit of processing information through rational, logical thinking. Nonlinear Thinking Style - a person’s preference for internal sources of information; a method of processing this information with internal insights, feelings, and hunches.

Decision making biases and errors Heuristics - using “rules of thumb” to simplify decision making. Overconfidence Bias - holding unrealistically positive views of oneself and one’s performance. Immediate Gratification Bias - choosing alternatives that offer immediate rewards and avoid immediate costs.

Decision making biases and errors (cont.) Anchoring Effect - fixating on initial information and ignoring subsequent information. Selective Perception Bias - selecting, organizing and interpreting events based on the decision maker’s biased perceptions. Confirmation Bias - seeking out information that reaffirms past choices while discounting contradictory information.

Decision making biases and errors (cont.) Framing Bias - selecting and highlighting certain aspects of a situation while ignoring other aspects. Availability Bias - losing decision-making objectivity by focusing on the most recent events. Representation Bias - drawing analogies and seeing identical situations when none exist. Randomness Bias - creating unfounded meaning out of random events.

Decision making biases and errors (cont.) Sunk Costs Errors - forgetting that current actions cannot influence past events and relate only to future consequences. Self-Serving Bias - taking quick credit for successes and blaming outside factors for failures. Hindsight Bias - mistakenly believing that an event could have been predicted once the actual outcome is known (after-the-fact).

Today’s decision making Guidelines for making effective decisions: Understand cultural differences Know when it’s time to call it quits Use an effective decision making process Habits of Highly Reliable organisations (HROs) Are not tricked by their success Defer to the experts on the front line Let unexpected circumstances provide the solution Embrace complexity Anticipate, but also anticipate their limits

Overview of managerial decision making

Personal Reflection What sort of decision maker are you? What was the hardest decision you have ever made? How did you make it? How did you feel making difficult decisions? Which biases and errors are you most likely to make?

Summary Today: Problems and decisions Decision making Types of decision Decision biases and errors Tomorrow: Quiz about all this week’s topics!

Homework for the Weekend Learn this week’s vocabulary Finish your Personal Time Management Plan and bring it to the tutorial on Monday Complete a draft of your Assignment 1, Part A plan. Bring it to the tutorial on Monday to get some feedback. Start to research for your Assignment Read Chapter 10 on Organisations