2. To understand the rational approach to decision making
To become aware of techniques that can be used to improve
decision making
To understand reasons why the rational approach is limited in
its practical application to understand what an effective
strategic decision making process looks like.
Strategic Decision Making process
Learning Outcomes:
3. What is Decision Making?
Process of Decision Making
Rational Approach to Decision Making
Risk assessment of strategic options
Limitations on rational decision making in practice
CompetitorsActions
A practical model for effective strategic decision making
Conclusion
Strategic Decision Making process
Contents:
4. What is Decision Making
Is the process of selecting the Best
Solution among Alternatives in order
to solve a problem.
5. Types of Decision Making
1.Programmed decision
A decision that is fairly structured or
Recurs with some frequency (or both)
2.Non programmed decision
A decision that is relatively
unstructured and occurs much less
often than a programmed decision
8. “Based on a normative approach (i.e. how decisions
should be made). ”
Research shows that Rational Decision-Making processes
produce better and more accurate results more often than
intuitive decision making processes.
Facts
Rational Approach to Decision Making
9. “Based on a normative approach (i.e. how decisions
should be made). ”
aim at achieving the end goal
Are conscious, explicit and deliberate.
Intentionally consistent and logical
Are fully informed
Allow for independent means and ends
Involve choice between alternative ends and alternative means,
choices which aim to maximize the end results achieved.
Assume a casual relationship between the means taken and the
end results achieved.
Rational Decisions have the following criteria;
Rational Approach to Decision Making
10. “There are many different approaches to strategic risk
assessment. ”
Industry
Technology
Brand
Competitor
Customer
Project and
Lack of growth risk
Slywotsky and Drzik suggest considering 7 different types of strategic
risks;
Risk assessment of strategic options
11. .
Risk Assessment
1. Consider a range of alternatives:
A key to making the right choice is to consider several options to start with!Many
organization tend to jump straight from analysis to recomendation, without considering
any alternatives.
Consider at least three alternatives:
• Would it be best to go international into one country deeply, into several
countries thinly, or to spread the risk by choosing two or three countries?
• Should we introduce a new product nationally, in a major area first then roll it
out, or a minor area first
The first idea is not always the best.
12. Ideas are cheap ;execution is difficult. It is easier to come up with many
attractive sounding proposals, but there are many hidden practical traps,
each idea takes time to implemement. Successful organization have been
found to be conservative despite growing quickly and being very
profitable. They tended to consider the downside of proposal, and try to
find ways to spread the risk among partners or by spreading the decision
overtime.
2. Be Conservative:
13. Strategic planning is primarily qualitative;
What strategy should we follow ?
What position do we want to achieve in the industry
Do we have the resources - managerial(usually the key constrains),financial,people
,productive capacity,etc..?
Often the returns are not there from the strategic ideas.Even if they
are,this process gives an idea of what the soft spots are,and also gives
confidence in undertaking the proposal and now the quantitative analysis
support that idea.
Risk Assessment
3. Forecast the alternatives:
14. It is the development of a plan for the project, incorporating
timings and action responsibilities, qualitative ideas and
quantitative support, provides a control tool for future
implementation and demonstrate that the idea is well
thought through.
A standard error is to assume that the organization’s action will be
the only change that occurs in the competitive landscape.
Risk Assessment
5. Consider Competitive reactions:
15. There are three limitations in decision making:
1. Individual
2. Organizational
3. Political
Limited/bounded rationality
Managers (and people in general) are unable to hold all the
information required at a particular time to produce the perfect
decision.
Reality and ambiguity
In reality information is known and it is believed that what an
individual perceives and experiences constitutes reality for that
person while ambiguity means that we are unsure of what is true.
Limitations on rational decision making in
Practice
Individual Limitations
16. Continue………
Interpretation
Interpretation can provide a sense of security to an individual where
they interpret new experiences and information in ways that make
them consistent with their own beliefs.
Intuition
In time of pressured environments and faced with information
overload, uncertainty and ambiguity, many managers use intuition to
simplify their decision making.
Individual emotions and values
People have emotions and values, they work in an organizational
culture that has its own values and ethics and people are social and
political, they have their own desires, personality likes and dislikes to
ensure that rational aspect of decision making is not the same as
another person’s.
17. existing organization decision making
Organization creates a set of rules for how decisions are normally made and what
the boundaries of acceptable decisions are.
Groups as decision makers
The rational approach to decision making assumes an individual is making the
decision, but as soon as more than one person is involved in the decision, the
existence of individual raises the possibility of conflict, even if the individuals are
all using a rational model and all perceive themselves as being part of a
corporative group or as partners.
The talk trap
Decisions in organizations are generally made based on verbal arguments, not on
the basis of actual outcomes.
Decision making seen as an event, not a process
Decision made by an individual considering all the information at one point in
time, coming to a conclusion, and beginning the process of implementation leads
to false emphasis on the objective facts and individual rationality as being
important.
Organizational Limitations
18. Individuals/groups in conflict as decision makers
Groups can be corporative, but most groups will include individuals
whose personal preferences, styles, requirements and ambitions
can clash resulting in conflict as much as corporation.
Relationships
One reason for social business occasions, clubs, private business
meetings and the formation of private networks and alliances is to
develop and nurture personal relationships which provide the
source of ability to influence or be influenced by other
organizations through a cell phone call, to assist or be assisted to
partner or be partnered.
Political Limitations
19. The layers of decision making
In larger organisations, a major proposal will be put up to several
individuals or groups (committees) and can fail at any one of the levels.
Therefore, to be successful in getting a decision approved, it is necessary
to understand what the levels are and the connections (e.g. timing,
people involved, information and format of decision) between each.
Where and how decisions are made
In cases where individuals make decisions, we need to understand where
and how decisions are actually made.
informal or informal meetings
Inside or outside work hours
Based on a formal paper, formal discussion, informal discussion or some
predictable combination.
Based on rational arguments
In a single meeting or several occasions.
Continue….
20. In decision making we should allow competitor
reaction as evidence in dynamic approaches to
strategy.
Taking action involving such commitments without
considering the possible actions or reactions of
competitors can be extremely costly.
Competitors Actions
21. .
Involve Several People
Use an ethical framework
Stop Political behaviour
A Model of effective decision making
Agree goals
Search
Evaluate Risk
Make decision
Communicate decision
Engage implementors
Assess Outcomes
Seek win-win
Establish clear criteriaConsider data quality &
quantity
22. Decision making is the process of selecting the BEST Solution
amongALTERNATIVES in order to solve problems.
A model for practical, effective, strategic decision making and
the importance in getting decisions approved is to understand
the practice of organizations decision making processes and to
fit the strategic proposal within that framework.
Decision making however, often tends to vary from one
decision to another, providing hope for any new proposal, but
gloom for those seeking consistent, rational, just and equitable
decisions.
Conclusion
