Organizational
Decision-Making
Chapter
8
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Decision making is the process of choosing a course
of action for dealing with a problem or an
opportunity.
Once in a great while a leader makes a truly game-
changing decision that shifts not only the strategy of
a single company but how everyone does business
as well. These big decisions are counterintuitive —
they go against the conventional wisdom. In
hindsight, taking a different direction may seem
easy, but these bet-the-company moves involve
drama, doubt, and high tension.
What is the single greatest decision of all time?
1914: Henry Ford decides to double his
workers’ wages
1914: Henry Ford decides to double his workers’ wages- Model T
1997: Apple brings back Steve Jobs. In 1996, Apple lost $816 million
on $9.8 billion in sales.
1993: A radical approach to downsizing-Tata Steel
Tata Steel
• Workers under age 40 would be guaranteed their full salary for the rest of
their working lives.
• Older workers would be guaranteed an amount greater than their salary,
from 20% to 50% greater depending on their age. If they died before
reaching retirement age, their families would keep receiving the full
payments until the worker would have reached that age.
• The program wasn’t as economically crazy as it first appeared. While
workers who took the offer would get their full salaries or more, that
amount would stay constant until age 61 instead of increasing, as it would
if they remained employed; nor would Tata Steel have to pay payroll tax
or make retirement-plan contributions.
• Tata Steel’s labor costs began to decline immediately. By 2004, Tata
Steel’s workforce had shrunk from 78,000 to 47,000, with about a third
of the reduction from natural attrition.
• Lower labor costs, combined with over $1 billion of new investment,
turned Tata Steel into a far more efficient, globally competitive firm.
Johnson& Johnson
1982: Do the right thing
Types of Decisions
• Organizational decision making – process of
identifying and solving problems
1. Problem Identification
2. Problem Solution
• Programmed Decisions – repetitive and well
defined. Examples –employee absences,
compensation and other standard HR issues
• Nonprogrammed Decisions – novel and
poorly defined
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Non Programmed Decisions
• Novel and poorly defined
• Demand a special response not available from a decision
inventory
• Extreme type of Non-Programmed decision is the Crisis
Decision where an unexpected problem threatens major
harm and disaster if it is not resolved quickly and
appropriately.
• Acts of terrorism, workplace violence, IT failures and security
breaches, ethical scandals and environment catastrophes
are all examples
• Formal crisis management programs
Programmed vs. Non-programmed Decisions
Characteristics Programmed Non-programmed
decisions decisions
Type of problem Structured Unstructured
Managerial level Lower level Upper level
Frequency Repetitive New, unusual
Information Readily available Ambiguous or
incomplete
Time frame for Short Relatively long
solution
Solution relies on Procedures,rules, and Judgment and creativity
policies
Decision Making in Today’s
Environment
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Individual Decision Making
• Rational approach – ideal method for how
managers should make decisions
– Recognize and define the problem or opportunity
– Identify and analyze alternative courses of action
– Choose a preferred course of action
– Implement the preferred course of action-Lack of
participation error occurs when important people
are excluded from the decision making process
– Evaluate results and follow up as necessary
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12
Steps in the Rational Approach
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Bounded rationality perspective
– how decisions are made under
severe time and resource
constraints
Bounded Rationality Perspective
• There is a limit to how rational managers can
be—time and resource constraints
– Non-programmed decisions
• Constraints and Tradeoffs
– Constraints impinge the decision maker
• The Role of Intuition
– Experience and judgment rather than logic
15
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Constraints and Tradeoffs
During Nonprogrammed Decision Making
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Organizational Decision Making
Management Science Approach
Carnegie Model
Incremental Decision Model
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Management Science Approach
• Use of statistics to identify relevant variables
• Remove human element
• Very successful for military problems
• Good tool for decisions where variables can be
indentified and measured (Next slide)
• A drawback of management science is that
quantitative data are not rich and lack tacit
knowledge
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2. The Carnegie Model
Coalitions
• Why are they needed?
• The Carnegie Model indicates that organization-level
decisions involve many managers and that a final
choice is based on a coalition among those managers.
• A coalition is an alliance among several managers who
agree about organizational goals and problem priorities.
• Coalitions are needed because goals are ambiguous and
inconsistent, and managers are limited and have
constraints
• Useful at problem identification stage and for smooth
implementation
Carnegie Model
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Incremental Decision Model
• Focus on structured sequence of activities from discovery to
solution
• As each step is proposing only a small change; the immediate
effect is minimal and usually not disruptive.
• Other benefits of the incremental model are its simplicity and
flexibility.
• Large decisions are a collection of small choices
• Decision interrupts are barriers
– Identification Phase
– Development Phase
– Selection Phase
– Dynamic Factors
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Incremental Decision Making Model
• Focuses on sequence of events from problem discovery to solution
Problem Identification and
Problem Solution
When problem and problem solution are uncertain
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Garbage Can Model
• Pattern or flow of multiple decisions
• Think of the whole organization
• Explain decision making in high uncertainty -
organized anarchy:
– Problematic preferences
– Unclear, poorly understood technology
– Turnover
• Streams of events instead of defined
problems and solutions
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Streams of Events
Solutions
• Not a sequence of steps Problems Choice
that begins with a problem opportunities
Participants
and ends with a solution
• Problems randomly attach
to solutions in the “Garbage Organization
Can”
The Red Cross: Garbage Can Model
The Red Cross
usesVolunteers,
the fundraisers,
donations to assist
employees
all of the people
affected by
hurricane Sandy
Donations are collected
over the year for the
2012 Red Cross
Hurricane Fund.
Hurricane Sandy hits the
Eastern seaboard and
millions of individuals are in
Consequences?
need of aid.
Consequences of the
Garbage Can Model
1. Solutions may be proposed even when
problems do not exist
2. Choices are made without solving problems
3. Problems may persist without being solved
4. A few problems are solved
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Illustration of Independent Streams of Events in
the Garbage Can Model of Decision-Making
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Decision Making in Your Organization: Cutting through the
Clutter –Mc Kinsey Jan 2016
The ABCD’s of Categorizing decisions
Scope and Impact Level of Familiarity
Adhoc decisions that arise Narrow Unfamiliar, Infrequent
episodically; impact on broader
organization depends upon how
connected they are
Big-bet decisions with major Broad Unfamiliar, Infrequent
consequences for the company,
often involving situations with
unclear right or wrong choices
Cross-cutting decisions that are Broad Familiar and frequent
frequent and require broad
collaboration across organizational
boundaries
Delegated decisions that can be Narrow Familiar and frequent
assigned to individual primarily
accountable or to working team
Decision Biases
• Endowment effect-The endowment effect happens when
someone values something more just by the fact that they
have it. The fact of owning something makes you value it
more.
• Confirmation bias- where people think they know what the
answer is and so they read the data and information in a way
that supports the answer that they want to get to, and they
tend to ignore the arguments or pieces of information that
would sway them away from making the decision that they
want to make.
• Organizations are not very good at communicating decisions
once they’re made.
Special Decision Circumstances
• Today’s environment presents high-stakes, quick decisions
• Managers must deal with:
– High-velocity environments
– Learning from decision mistakes
– Understanding cognitive and personal biases
• Escalating commitment-The tendency to continue to commit
resources to a failing course of action
• Prospect theory-When choosing among several alternatives,
people avoid losses and optimize for sure wins because the
pain of losing is greater than the satisfaction of an equivalent
gain.
• Groupthink-Abilene Paradox
• Encourages dissent and diversity
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Evidence Based Decision Making (Next Slide)
• Evidence Based Decision-Making is a process for making
decisions about a program, practice, or policy that is grounded
in the best available research evidence and informed by
experiential evidence from the field and relevant contextual
evidence. (Next Slide)
• Stages of Decision Making Process:
– Gathering Evidence
– Interpreting evidence
– Applying what you learned from evidence
Encourages dissent and diversity-
Contingency Decision Making
• Decision-making approach is contingent on the organization
setting.
• Two characteristics of organizations that determine the use of
decision approaches:
1. Problem Consensus
– Agreement among managers about the nature of a problem or
opportunity and about which goals and outcomes to pursue.
2. Technical Knowledge about Solutions
– Understanding and agreement about how to solve problems and reach
organizational goals.
Contingency Framework
Certain Uncertain
Problem
1 2
Consensus
Certain Individual:
Individual:
Rational Approach Bargaining, Coalition
Computation Formation
Organization: Organization:
Management Science Carnegie Model
Solution
Knowledge
3 Individual: 4 Individual:
Judgment, Trial-and-error Bargaining and Judgment
Inspiration and Imitation
Organization: Learning Organization:
Incremental Decision Carnegie and Incremental
Process Model Decision Process Models,
Evolving to Garbage Can
Uncertain
Special Decision Circumstances
High Velocity Environments
• Characteristics
• How to overcome them
• “A slow decision is as ineffective as the wrong
decision”
Decision Mistakes & Learning
Escalating Commitment
• Why does it happen?
What can be done to stimulate creativity in
decision-making?
Preparation Concentratio Illumination
– Incubation – Verification –
n –
problem - problem solution solution problem
identified pondered removed
framed found
What can be done to stimulate creativity in decision-making?
• Team creativity drivers
– Situation offers opportunities.
– Restraints on creativity are minimized.
– Creative effort is recognized and rewarded
• Individual creativity drivers
– Task expertise
– High motivation
– High creativity skill set
What can be done to stimulate creativity
in decision-making?
• Ways of fostering creativity
– Record all ideas so that the same ones are not
rediscovered.
– Establish high expectations for creativity.
– Develop a physical space that encourages fun,
divergent ideas.
Design Essentials
• Most decisions are not made in a logical manner
• Individuals make decisions, but organizational decisions are not
made by a single individual
• Conflict exists when problems are not agreed on
• The garbage can model has become a description of decision-
making
• Organizations operate in high-velocity environments
• Allowing biases to cloud decision making can have negative
consequences
41
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