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Managerial Decision Making
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Managerial Decision Making
Decision making is not easy
It must be done amid
ever-changing factors
unclear information
conflicting points of view
Managers Challenge: Tupperware
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Decision 1
Walt Disney listened to his wife and named
his cartoon mouse Mickey instead ofMortimer. Entertainment was never the sameafter Mickey and Minnie debuted inStreamboat Willie in 1928
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Decision 2
Frank McNamara, in 1950, found himself
without money in a restaurant, prompting himto come up with the idea of the Diners ClubCard. This first credit card changed thenature of buying and selling throughout the
world.
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Decision 3
Thomas Watson, Jr., of IBM, decided in 1962
to develop the system/360 computer at acost of $5 billion. Although IBMs marketresearch suggested it would sell only twounits worldwide, the result was the first
mainframe computer.
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Robert Woodruff was president of Coca-Cola
during World War II when he committed toselling bottles of Coke to members of thearmed services, for a nickel bottle, startingaround 1941. The decision led to enormous
customer loyalty, including the fact thatreturning soldiers influenced family membersand friends.
Decision 4
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Decision 5
A Hewlett Packard engineer discovered in
1979 that heating metal in a specific waycaused it to splatter. The managementdecision to exploit this discovery launchedthe ink-jet printer business and laid the
groundwork for more than $6 billion inrevenue for HP.
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Decision 6
Ray Kroc liked the McDonald brotherss
stand that sold hamburgers, french fries, andmilk shakes so much that he decided to openhis own franchised restaurant in 1955 andform McDonalds Corp. Kroc soon created a
giant global company and a vast market forfast food.
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Decision 7
Bill Gates, in 1981, decided to license
MS/DOS to IBM, but IBM did not requirecontrol of the license for all non-IBM PCs.The decision laid the foundation forMicrosofts huge success and a downturn in
IBMs prestige and prominence.
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Decisions and Decision Making
Decision = choice made from availablealternatives
Decision Making = process of identifyingproblems and opportunities and resolvingthem
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Categories of Decisions
Programmed Decisions
Situations occurred often enough to enabledecision rules to be developed and applied inthe future
Made in response to recurring organizationalproblems
Nonprogrammed Decisions in responseto unique, poorly defined and largelyunstructured, and have important consequencesto the organization
Ethical Dilemma: The No-Show Consultant
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Conditions that Affect the Possibility
of Decision FailureOrganizational
Problem
Problem
Solution
Low HighPossibility of Failure
Certainty Risk Uncertainty Ambiguity
Programmed
Decisions
Nonprogrammed
Decisions
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Certainty, Risk, Uncertainty, Ambiguity
Certainty all the information the decision maker needs is fully available
Risk decision has clear-cut goals good information is available
future outcomes associated with each alternative are subject tochance Uncertainty
managers know which goals they wish to achieve information about alternatives and future events is incomplete managers may have to come up with creative approaches to
alternatives
Ambiguity by far the most difficult decision situation goals to be achieved or the problem to be solved is unclear alternatives are difficult to define information about outcomes is unavailable
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Selecting a Decision Making Model
Depends on the managers personalpreference
Whether the decision is programmed ornon-programmed
Extent to which the decision ischaracterized by risk, uncertainty, orambiguity
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Three Decision-Making Models
Classical Model
Administrative Model
Political Model
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Classical Model
Assumptions
Decision maker operates to accomplish goals thatare known and agreed upon
Decision maker strives for condition of certainty gathers complete information
Criteria for evaluating alternatives are known Decision maker is rational and uses logic
Normative = describes how a manager should andprovides guidelines for reaching an ideal decision
Logical decision in the organizations best economic interests
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AdministrativeModel
Two concepts are instrumental in shaping
the administrative model Bounded rationality: people have limits or
boundaries on how rational they can be
Satisficing: means that decision makers choosethe first solution alternative that satisfies minimaldecision criteria
Herbert A. Simon
How nonprogrammed decisions are made--uncertainty/ambiguity
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Administrative Model
Managers actually make decisions in difficult situationscharacterized by non-programmed decisions, uncertainty,
and ambiguity
Decision goals often are vague, conflicting and lack consensusamong managers;
Rational procedures are not always used Managers searches for alternatives are limited
Managers settle for a satisficing rather than a maximizing solution intuition, looks to past experience
Descriptive = how managers actually make decisions--not howthey should
How nonprogrammed decisions are made--uncertainty/ambiguity
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Political Model
Closely resembles the real environment in which
most managers and decision makers operate
Useful in making non-programmed decisions
Decisions are complex
Disagreement and conflict over problems andsolutions are normal
Coalition = informal alliance amongmanages who support a specific goal
Closely resembles the real environment
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Characteristics of Classical, Political,and Administrative Decision MakingModels
Classical Model Administrative Model Political Model
Clear-cut problem and goals Vague problem and goals Pluralistic; conflicting goals
Condition of certainty Condition of uncertainty Condition of uncertainty/ambiguity
Full information about Limited information about Inconsistent viewpoints; ambiguous
alternatives and their outcomes Alternatives and their outcomes information
Rational choice by individual Satisficing choice for resolving Bargaining and discussion among
for maximizing outcomes problem using intuition coalition members
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Steps in decision making
Identify and diagnose the problem
Develop alternatives Evaluate alternative solutions
Choose one alternative
Implement the decision Evaluate and control
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Decision Making Process
SRK works in the human resource department atAirtel Communications. He believes he is seeing an
increase in drinking problems among the workforce.He thinks he needs to investigate further. He is atwhat stage of the managerial decision makingprocess?a. Diagnosis and analysis of causes
b. Development of alternativesc. Recognition of decision requirementd. Evaluation and feedbacke. Selection of desired alternatives
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Decision Styles
Differences among people with respect to how
they perceive problems and make decisions
Not all managers make decisions the same
Directive style
Analytical style Conceptual style
Behavioral style
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Personal Decision Framework
Situation: Programmed/non-
programmed
Classical, administrative,
political
Decision steps
Decision Choice:
Best Solution to
Problem
Personal Decision
Style:
Directive
Analytical
Conceptual
Behavioral
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Directive Style
People who prefer simple, clear-cut solutions
to problems Make decisions quickly
May consider only one or two alternatives
Efficient and rational
Prefer rules or procedures
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Analytical Style
Complex solutions based on as much data
as they can gather Carefully consider alternatives
Base decision on objective, rational datafrom management control systems and other
sources Search for best possible decision based on
information available
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Conceptual Style
Consider a broad amount of information
More socially oriented than analytical style Like to talk to others about the problem and possible
solutions
Consider many broad alternatives
Relay on information from people and systems
Solve problems creatively
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Behavioral Style
Have a deep concern for others as individuals
Like to talk to people one-on-one
Understand their feelings about the problem and theeffect of a given decision upon them
Concerned with the personal development of others
May make decisions to help others achieve theirgoals
Experiential Exercise: Whats Your Personal Decision Style?