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Chapter 6. Decision Making. the art of making irrevocable decisions based on insufficient knowledge. BUSINESS. Managerial Decision Making. Choice from available alternatives. Decision.

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slide1

Chapter 6

Decision Making

slide3

Managerial Decision Making

Choice from

available alternatives

Decision

The process through which managers identify and resolve problems and capitalize on opportunities.

Decision

Making

characteristics of management decision making
Characteristics of management decision making:

Programmability

Decision Scope

Uncertainty

Conflict

Risk

slide5

Types of Decisions

Programmed Decisions

Nonprogrammed Decisions

Sick leave

Involve situations that have occurred often and decision rules can be developed and applied

Decisions required for unique and complex management problems.

Poorly defined

Largely unstructured

Important consequences

Uncertainty is great

Routine decision rules for solving the problem do not exist.

Managers formulate decision rules so subordinates can make decisions freeing managers for other tasks.

certainty risk uncertainty and ambiguity
Certainty, Risk Uncertaintyand Ambiguity

All the information

Organizational

Problem

Know Objectives

Don’t Know Probabilities

Low

Certainty

Risk

Uncertainty

High

Ambiguity

Possibility of Failure

Programmed

Decisions

Nonprogrammed

Decisions

Clear-cut objectives

Know the probabilities

Objectives Unclear

Outcomes Unclear

Problem Solution

slide7

Steps in the Decision-Making Process

Ignore

Recognize

Diagnosis and fact gathering

Identifying problems and opportunities

WHO

Symptoms

Change

Revise

SUG

Consistency

Establishing specific goals and objectives and

Specific, Measurable, Attainable

Revise

Don’t evaluate

Generating Alternatives

Quantity

Brainstorming

Revise

Evaluation Alternatives

Establish criteria

Revise

Selecting the best Alternative

Goals

Who

What

Where

When

Verify

Revise

Implementing the Decision

Action Plan

Revise

Decision

Process

Monitoring & Evaluating the Decision

Did It Work?

Follow up Plan

factors that limit rational decision making
Factors that limit rational decision making:

Escalation of Commitment

Organization Politics

  • The tendency to increase commitment to a previously selected course of action.

Emotions and Personal Preferences

Illusion of Control

behavioral influence on decision making
Behavioral Influence on Decision Making
  • Perception: A person\'s view of the world
    • Stereotyping - projecting characteristics of a small number of people as characteristics of the entire group
    • Halo Effect - one characteristic overshadows all other characteristics or aspects of the decision
  • Subjective Rationality - Thinking logically but within one\'s own framework
  • Bounded Rationality - personal, environmental, time, and organizational constraints which place limits on decisions
behavioral influence on decision making10
Behavioral Influence on Decision Making
  • Recency - tendency to ascribe more importance to things that happened most recently
  • Satisficing - tendency to accept "adequate" decision instead of the best
  • Values
  • Personality
  • Propensity For Risk
the garbage can model of decision making
The Garbage Can Model of Decision-Making

Organized Anarchy

Streams of events

Compose of problems, solutions, participants, choices

When they connect a decision gets made

Problems

Solutions

Middle Management

Causes &

Goals unclear

Cause and effect undefined

High turnover

Problems

Solutions

Choice

Opportunities

Participants

Participants

Participants

Choice Opportunities

Choice Opportunities

Department A

Solutions

Department B

Problems

Solutions

Choice

Opportunities

Participants

Problems

Solutions

Choice

Opportunities

Participants

Choice

Opportunities

Problems

Participants

Solutions

Problems

Problems

Solutions

Participants

Participants

slide12

Probable Relationship Between Quality

of Decision and Method Utilized

Quality of Decision

More

Less

Average individual

Minority control

Majority control

Individual

Consensus

group considerations in decision making
Group Considerations in Decision Making

Group decision making is becoming more common as organizations focus on improving customer service and push decision making to lower levels.

advantages and disadvantages of group decision making
Advantages

Disadvantages

Advantages and Disadvantages of Group Decision Making:

Increased acceptance

Greater pool of knowledge

Different perspectives

Greater comprehension

Training ground

More time

Social pressure

Minority domination

Logrolling

Goal displacement

“Groupthink

groupthink
Groupthink

An agreement-at-any-cost mentality that results in ineffective group decision making.

groupthink16
Groupthink
  • Characteristics of Groupthink
    • Illusions of invulnerability
    • Collective rationalization
    • Belief in the morality of group decisions
    • Self-censorship
    • Illusion of unanimity in decision making
    • Pressure on members who express arguments
techniques for quality in group decision making
Techniques for Quality in Group Decision Making
  • Brainstorming
  • A technique used to enhance creativity that encourages group members to generate as many novel ideas as possible on a given topic without evaluating them.
  • Freewheeling is encouraged.
  • Group members will not criticize ideas as they are being generated.
  • Piggyback on previously stated ideas.
  • No ideas are evaluated until after all alternatives are generated.
  • The wilder the ideas the better.
  • Quality is encouraged.
techniques for quality in group decision making18
Techniques for Quality in Group Decision Making
  • Brainstorming
  • Nominal Group Technique
  • A structured process designed to stimulate creative group decision making where agreement is lacking or the members have incomplete knowledge concerning the nature of the problem.
techniques for quality in group decision making19
Techniques for Quality in Group Decision Making
  • Brainstorming
  • Nominal Group Technique
  • Delphi Technique
  • Uses experts to make predictions and forecasts about future events without meeting face-to-face.
techniques for quality in group decision making20
Techniques for Quality in Group Decision Making
  • Brainstorming
  • Nominal Group Technique
  • Delphi Technique
  • Devil’s Advocacy Approach
  • An individual or subgroup appointed to critique a proposed course of action and identify problems to consider before the decision is final.
techniques for quality in group decision making21
Techniques for Quality in Group Decision Making
  • Brainstorming
  • Nominal Group Technique
  • Delphi Technique
  • Devil’s Advocacy Approach
  • Dialectical Inquiry
  • Approaches a decision from two opposite points and structures a debate between conflicting views.
techniques for quality in group decision making22
Techniques for Quality in Group Decision Making
  • Brainstorming
  • Nominal Group Technique
  • Delphi Technique
  • Devil’s Advocacy Approach
  • Dialectical Inquiry
  • Story Boarding

A variation of Brainstorming using cards that can be viewed and rearranged

slide23

Chapter 7

Strategic Management

strategy
STRATEGY

Insight into

how to

create value

strategy25
STRATEGY

Insight into

how to

create value

the strategic management process
The Strategic Management Process
  • Strategic management involves the major decisions, business choices, and actions that chart the course of the entire enterprise.
the strategic management process27
The Strategic Management Process
  • Strategic management involves both long-range thinking and adaptation to changing conditions.
  • A strategy is successful if it provides the firm with sustainable competitive advantage.
    • Competitors will be unable to duplicate what the firm has done or will find it too difficult or expensive.
slide28

Components of the Strategic Management Process:

Analyze internal and external environment

Define strategic intent and mission

Formulate strategies

Implement strategies

Assess strategic outcomes

slide29

Identify

  • Strategic
  • Factors:
  • Opportunities
  • Threats

Scan External

Environment

  • Implement
  • Strategy via
  • Changes in:
  • Leadership
  • Culture
  • Human
  • Resources
  • Information
  • and Control
  • Systems
  • Formulate
  • Strategy:
  • Corporate
  • Business
  • Functional
  • Evaluate
  • Current:
  • Mission
  • Goals
  • Strategies
  • Define New:
  • Mission
  • Goals
  • Identify
  • Strategic
  • Factors:
  • Strengths
  • Weaknesses

Scan Internal

Environment

slide30

Scan External

  • Environment
  • Evaluate
  • Current:
  • Mission
  • Goals
  • Strategies
external environmental analysis
External Environmental Analysis

A continuous process which includes

  • Scanning: Identifying early signals of environmental changes and trends
  • Monitoring: Detecting meaning through ongoing observations of environmental changes and trends
  • Forecasting: Developing projections of anticipated outcomes based on monitored changes and trends
  • Assessing: Determining the timing and importance of environmental changes and trends for firms’ strategies and their management
slide33

The layer of the external environment that directly influences the organization’s operations and performance.

slide35

Societal & Task

Environment

  • Identify
  • Strategic
  • Factors:
  • Opportunities
  • Threats
  • Scan External
  • Environment

SWOT Analysis

  • Evaluate
  • Current:
  • Mission
  • Goals
  • Strategies
  • Identify
  • Strategic
  • Factors:
  • Strengths
  • Weaknesses

Internal

Environment

Scan Internal

Environment

slide36

SWOT ANALYSIS

STRENGTHS

WEAKNESSES

are within the organization itself

and not usually within the short run control of management

slide37

SWOT ANALYSIS

STRENGTHS

WEAKNESSES

are within the organization itself

and not usually within the short run control of management

slide38

SWOT ANALYSIS

STRENGTHS

WEAKNESSES

are within the organization itself

and not usually within the short run control of management

OPPROTUNITIES

THREATS

are outside the organization,

general factors and trends in the societal environmental

and specific factors in the task/industry environment

slide39

SWOT ANALYSIS

STRENGTHS

WEAKNESSES

are within the organization itself

and not usually within the short run control of management

OPPROTUNITIES

THREATS

are outside the organization,

general factors and trends in the societal environmental

and specific factors in the task/industry environment

Remember, Opportunities are presented by the External Environment, not company actions

slide40

Identify

  • Strategic
  • Factors:
  • Opportunities
  • Threats

Scan External

Environment

  • Formulate
  • Strategy:
  • Corporate
  • Business
  • Functional
  • Evaluate
  • Current:
  • Mission
  • Goals
  • Strategies
  • Define New:
  • Mission
  • Goals
  • Identify
  • Strategic
  • Factors:
  • Strengths
  • Weaknesses

Scan Internal

Environment

slide41

Sustainable

Competitive

Advantage

Internal Environment

What the Firm Can Do

External Environment

What the Firm Might Do

Matching Opportunities to Strengths

strategy formulation
Strategy Formulation

Strategy Formulation

The process of developing long-range plans to deal effectively with environmental opportunities and threats in light of corporate strengths and weaknesses

Composed of

Mission

Objectives

Strategies

Policies

mission
Mission

Mission

The purpose or reason for the corporation’s existence. It may be narrow or broad in scope.

NarrowBroad

Railroad Transportation

Insurance Financial Services

levels of strategy
Levels of Strategy

What business should we be in?

Corporate

Corporation’s overall direction and the management of its businesses

How will we compete?

Business

Emphasizes improving the competitive position of a corporation’s products or units

formulating corporate strategy

Formulating Corporate Strategy

What Business Should We Be IN?

key questions in corporate strategy

Business Unit

Business Unit

Business Unit

Business Unit

Key Questions in Corporate Strategy

1. What businesses should the corporation be in?

2. How should the corporate office manage the array of business units?

Corporate Strategy is what makes the corporate whole add up to more than the sum of its business unit parts

generic corporate strategies
GENERIC CORPORATE STRATEGIES

GROWTH

STABILITY

RETRENCHMENT

generic corporate strategies48
GENERIC CORPORATE STRATEGIES

Up & down the value change

Backward - Forward

GROWTH

Vertical Integration

Horizontal Integration

Concentric Diversification

Conglomerate Diversification

Geographic locations

Increasing

Range of products

Related industries

Unrelated

generic corporate strategies49
GENERIC CORPORATE STRATEGIES
  • STABILITY
    • Pause/ Proceed with Caution
    • No Change
  • RETRENCHMENT
    • Turnaround
    • Divestment
    • Liquidation
formulating business strategy

Formulating Business Strategy

How Will We Compete?

business level strategy
Business-Level Strategy

an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets

porter s competitive strategies
Porter\'s Competitive Strategies

Unique/different

  • Differentiation
  • Cost Leadership
  • Focus

Components of value chain

Competitive/market segment

slide53
POTENTIAL ENTRANTS Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost independent of size Government policy

RIVALRYNumber of competitors Rate of industry growth Product characteristics Amount of fixed costs Capacity Height of exit barriers Diversity of rivals

TASK/INDUSTRY ANALYSIS

SUBSTITUTES

BUYERS

STAKEHOLDERS

SUPPLIERS

slide54

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Support

Activities

Primary Activities

slide55

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Support

Activities

Inbound

Logistics

Primary Activities

slide56

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Support

Activities

Inbound

Logistics

Operations

Primary Activities

slide57

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Support

Activities

Inbound

Logistics

Outbound

Logistics

Operations

Primary Activities

slide58

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Support

Activities

Marketing

& Sales

Inbound

Logistics

Outbound

Logistics

Operations

Primary Activities

slide59

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Support

Activities

Service

Marketing

& Sales

Inbound

Logistics

Outbound

Logistics

Operations

Primary Activities

slide60

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Support

Activities

Procurement

Service

Marketing

& Sales

Inbound

Logistics

Outbound

Logistics

Operations

Primary Activities

slide61

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Support

Activities

Technological Development

Procurement

Service

Marketing

& Sales

Inbound

Logistics

Outbound

Logistics

Operations

Primary Activities

slide62

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Human Resource Management

Support

Activities

Technological Development

Procurement

Service

Marketing

& Sales

Inbound

Logistics

Outbound

Logistics

Operations

Primary Activities

slide63

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Firm Infrastructure

Human Resource Management

Support

Activities

Technological Development

Procurement

Service

Marketing

& Sales

Inbound

Logistics

Outbound

Logistics

Operations

Primary Activities

slide64

Value Chain Analysis

Identifying Resources and Capabilities That Can Add Value

Firm Infrastructure

Human Resource Management

Support

Activities

MARGIN

Technological Development

Procurement

Service

Marketing

& Sales

Inbound

Logistics

Outbound

Logistics

MARGIN

Operations

Primary Activities

slide65

Outsourcing

Strategic Choice to Purchase Some Activities From Outside Suppliers

Firm Infrastructure

Human Resource Management

Support

Activities

MARGIN

Technological Development

Procurement

Service

Marketing

& Sales

Inbound

Logistics

Outbound

Logistics

MARGIN

Operations

Primary Activities

slide66

Identify

  • Strategic
  • Factors:
  • Opportunities
  • Threats

Scan External

Environment

  • Implement
  • Strategy via
  • Changes in:
  • Leadership
  • Culture
  • Human
  • Resources
  • Information
  • and Control
  • Systems
  • Formulate
  • Strategy:
  • Corporate
  • Business
  • Functional
  • Evaluate
  • Current:
  • Mission
  • Goals
  • Strategies
  • Define New:
  • Mission
  • Goals
  • Identify
  • Strategic
  • Factors:
  • Strengths
  • Weaknesses

Scan Internal

Environment

benchmarking involves four stages
Benchmarking involves four stages:
  • Identifying activities or functions that are weak and need improvement.
  • Identifying firms that are known to be at the leading edge of these activities or functions.
  • Studying the leading-edge firms by visiting them, talking to managers and employees, and reading trade publications.
  • Using the information gathered to redefine goals, modify processes, and acquire new resources to improve the firm’s functions.
strategy68
STRATEGY

Insight into

how to

create value

slide69

Identify

  • Strategic
  • Factors:
  • Opportunities
  • Threats

Scan External

Environment

  • Implement
  • Strategy via
  • Changes in:
  • Leadership
  • Culture
  • Human
  • Resources
  • Information
  • and Control
  • Systems
  • Formulate
  • Strategy:
  • Corporate
  • Business
  • Functional
  • Evaluate
  • Current:
  • Mission
  • Goals
  • Strategies
  • Define New:
  • Mission
  • Goals
  • Identify
  • Strategic
  • Factors:
  • Strengths
  • Weaknesses

Scan Internal

Environment

slide72

Societal & Task

Environment

  • Identify
  • Strategic
  • Factors:
  • Opportunities
  • Threats
  • Scan External
  • Environment

SWOT Analysis

  • Evaluate
  • Current:
  • Mission
  • Goals
  • Strategies
  • Identify
  • Strategic
  • Factors:
  • Strengths
  • Weaknesses

Internal

Environment

Scan Internal

Environment

generic corporate strategies73
GENERIC CORPORATE STRATEGIES

GROWTH

STABILITY

RETRENCHMENT

porter s competitive strategies74
Porter\'s Competitive Strategies
  • Differentiation
  • Cost Leadership
  • Focus
slide75

Identify

  • Strategic
  • Factors:
  • Opportunities
  • Threats

Scan External

Environment

  • Implement
  • Strategy via
  • Changes in:
  • Leadership
  • Culture
  • Human
  • Resources
  • Information
  • and Control
  • Systems
  • Formulate
  • Strategy:
  • Corporate
  • Business
  • Functional
  • Evaluate
  • Current:
  • Mission
  • Goals
  • Strategies
  • Define New:
  • Mission
  • Goals
  • Identify
  • Strategic
  • Factors:
  • Strengths
  • Weaknesses

Scan Internal

Environment

slide78

Chapter 9

Managing the Structure and Design of Organizations

organizing defined
Organizing Defined

The process of determining the tasks to be done, who will do them, and how those tasks will be managed and coordinated.

The deployment of organizational resources to achieve strategic goals.

Coordination

Integration

authority
Authority
  • Formal and legitimate right of a manager to make decisions, issue orders, and allocate resources
  • Vested in organizational positions, not people
line staff
Line & Staff
  • Line employees: directly involved in fulfillment of the primary mission of the organization

operations

sales

  • Staff employees: provide specialized service to support line efforts

HR

chain of command

President

CEO

Manufacturing

Accounting

Human Resources

Chain of Command

An unbroken line of authority that links all persons in an organization and shows who reports to whom.

Unity of Command

A principle that each employee in the Organization is accountable to one, and only one, supervisor.

the vertical dimension of organization structure
The Vertical Dimension of Organization Structure:
  • Responsibility
    • the manager’s duty to perform an assigned task.
  • Accountability
    • the manager (or other employee) with authority and responsibility must be able to justify results to a manager at a higher level in the organizational hierarchy.
delegation
Delegation
  • Process to transfer authority and responsibility to positions below
  • Delegate authority to the lowest possible level.

But manager

ultimately responsible

span of control

Narrow Span of Control

Manager

Wide Span of Control

Manager

Span of Control

Number of employees reporting to a supervisor

Tradition has recommended a span of management of four to seven

the vertical dimension of organization structure86
The Vertical Dimension of Organization Structure:
  • Centralization – the location of decision authority at the top of the organization hierarchy.
  • Decentralization – the location of decision authority at lower levels in the organization.
  • Formalization – the degree of written documentation that is used to direct and control employees.
organization design
Organization Design
  • The selection of an organization structure that best fits the strategic goals of the business.
  • Basic organization designs:
    • Mechanistic
    • Organic
    • Boundaryless
  • These designs incorporate vertical and horizontal structural elements.
departmentation

Departmentation

The fundamental principle by which individuals are grouped into departments and departments into the organization

functional

Functional

+

Departments based on similar skills and resource use.

Deep expertise

President

CEO

Efficiency

Manufacturing

Accounting

Human Resources

-

Lack of

innovation

Lack of

communication

divisional

Divisional

Self contained

Encourages decentralization

Focus

President

CEO

Speed

Product

Program

Geography

Division 1

Division 2

HR

Man

Acct

HR

Man

Acct

Generalists

Competition

Redundancy

matrix

Matrix

One employee reports to 2 bosses

at same time

Cross functional Teams

Innovative

Creative

President

CEO

Human Resources

Manufacturing

Accounting

Employee caught in Middle

Product 1

Product 2

Conflicting demands

Time

slide94

Team

interacting closely shared commitment

Cross functional

Creativity

True team = mutual accountability

Faster response to change

Time

High Maintenance

network

Subcontracts many functions to other companies

Network

Virtual organization

Designer

Manufacturing

Best of the Breed

Changed quickly

Hub

Give up control

Human Resources

Marketing

coordination mechanisms
Coordination Mechanisms

Organization-wide Reward Systems

Meetings

Task Forces and Teams

Liaison Roles

Integrating Managers

Organizational Culture

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