Determining the Means for Deciding

8/16/2019 Determining the Means for Deciding

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D E T E R M I N I N G T H E

M E A N S F O R D E C I D I N G :

T H E M O D E A N D

I N V E S T M E N T I S S U E S


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THE MODE ISSUE

• Who (or what) will make this decision,and how will they approach that task?

• Mode - means determining, from amongmany possible options, how a particular

decision or class of decisions will bemade.


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THE MODE TREE


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CHOIC POINT 1:

AUTHORITY

• concerns decision authority: who orwhat is commonly acknowledged asresponsible for a particular class ofdecision.


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ONE DECIDER OR MORE?

• the rst specic question to resole iswhether to assign authority to anindiidual or to a collectie, for

instance, a committee or a series ofo!cials who must each sign o" on aparticular action.

• What you adocate in any particular

instance should rest on the gains andlosses of collectie ersus indiidualdecision making with respect to the

cardinal decision issues.


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TABLE 4.1 COMMON GAINS AND LOSSES FROM

DECISION MAKING BY COLLECTIVE RATHER THAN

INDIVIDUALSGAINS LOSSES

#$: %&''%*+ %&+-# '$: %&/01-*&0 %&11

#2: 3*+*1*&0 &4 '-5&-03 1/%*-'*6-*&0

'2: %&&3*0-*&0 %&11

#7: +-'8 101**+*9 '7: 1-3 *04&-*&044%

#;: -%%/-0% ';: +-1*&0 &41/&01*5*'*9

#


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GAIN 1: COLLECTIVE

COVERAGE• o a point, we all accept the ma=im, >wo (or

more) heads are better than one. esearch

has shown, though, that we under appreciatehow much better.

• *n one study, for e=ample, people were askedto bring to mind potential solutions to a

parking crisis and then to estimate how manyiable options they had oerlooked, includingoptions that other people might hae broughtto mind.


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• #roups therefore hae much greater potentialthan any single indiidual for bringing to mind

the full panoply of factors that bear on anydecision.

• his point has direct implications for seeral

cardinal decision issues, but especially thoseconcerning options and possibilities.

• (What are the di"erent actions we could take

to deal with this problem, and what couldpotentially happen if we did those things?)


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GAIN 2: DIVISION OF LABOR

AND SPECIALIZATION.• hrough diision of labor and

speciali@ation, groups proide a way todeal with this reality.

• his adantage is especially importantfor the kinds of comple= problems, so

common in business today, thatdemand the e=pertise of numerousspecialists (for instance, lawyers,engineers, and physicians).


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• his has particular signicance for the Audgment issue.

• (Which of the things they care aboutactually would happen if we took that

action?)


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GAIN 3: VALUE SENSITIVITY.

• any decision problems require us toanticipate how people will feel aboutsomething, for e=ample, a new sericeor a change in company compensationpolicies.


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• (Will they hate this policyBto thepoint where they gie us a lot ofgrief?)

• -s with collectie coerage, agroup necessarily has a betterchance than any one indiidual ofbeing in touch with the ariety of

tastes that often spell thedi"erence between a decision thatsucceeds and one that fails.


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GAIN 4: ACCEPTANCE.

• %ollectie decisions hae immediateadantages with respect to theacceptability issue (ow can we getthem to agree to this decision and thisdecision procedure?)

• and, thereby, the implementation issue

(ow can we get it done?), since peoplewho accept a decision rarely try tosabotage its enactment.


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LOSS 2: COORDINATION

COSTS. • 9ou can surely remember countless meetings

where you moaned to yourself, >* could hae

done this in fteen minutes all by myself.• -lthough getting people to work together

productiely is usually not impossibly di!cult,it does require e"ort and timeBand often lots

of both.• hese coordination costs are real in and of

themseles, and they often translate more orless directly into nancial costs for the

company as well.


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LOSS 3: SHARED

INFORMATION EFFECT. • as a substantial line of research has

shown, there is an e=cellent chance thatthose di"erent things will neer actuallyreach the table.

• *nstead of each person o"ering

speciali@ed knowledge, the group willtend to talk about things they all know.ence the term >shared informatione"ect.


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LOSS 4: EVASION OF

RESPONSIBILITY.• >*f itEs eerybodyEs Aob, then itEs

nobodyEs Aob. *t wonEt get done.

•

1uch easion of responsibility is asignicant ha@ard of collectie decisionmaking.

• 0umerous studies hae shown that

eery person in a group feels lessresponsible for what the group achieesBor does not achieeBthan the sameperson would feel if solely responsible.


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LOSS 5: AMPLIFICATION OF

BAD NORMS.• 1uppose that all the members of a group (or

een most of them) adhere to some particular

norm, say, aoiding risk. hen, when the group

works in concert, that norm emerges in

spades.

•*f the norm is supportie of e"ectie decisions,terric.

• 5ut if the norm is problematic, its amplication

in the group can spell real trouble for decision


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RESISTANCE

• 9ou need not worry inordinately aboutresistance from other people whenauthority for some class of decision is

being established for the rst time, asin a new spino".

• 5ut you should worry a lot when you

wish to change authority rules alreadyin place.


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• /art of the resistance created bychanges comes from incumbents

whose authority is diminished andwho feel as if they hae Aust beendemoted.

•

5ut you will almost surely getresistance from others who haeaccommodated themseles towhat was in place before, and who

dread the uncertainty and thework of accommodatingthemseles to the new rules.


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• -ll this means that you should thinktwice before changing decisionauthority assignments.

•

-sk yourself: >#ien all the trouble thiswill cause, is it really worth our whilemaking this change?

• Will the decisions be so much more

e"ectie that itEs worth the hassle? *fthe answer is yes, then make thechange carefully.


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• - second important sense of

culture refers to the collectedcustoms or ways of doing thingsshared by people in a particularpart of the world, for instance,

Fapan as contrasted with 4rance.


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HICH INDIVIDUALS?

• which indiidual or collectieshould get the assignment?

• ow should the company choosewhich person should ll theposition? 9ou will, of course,

consider candidates in light of allthe duties of the position.


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EVALUATING CANDIDATES

• >Who has the best track record

making decisions like these?

• *f such records do not e=ist, the

ne=t best question is, >ow likely

is it that the candidate will makethose decisions well?


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• What is most important is that theleader should hae good group decisionmanagement skills.

• ore specically, the leader shouldunderstand that an e"ectie decisionrests on adequately addressing all thecardinal decision issues and be skilledat making certain that all those issuesare coered well by the group for eerydecision.


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• -s with the leader, it is not essentialthat the other members of the group beespecially good personal decisionmakers. *nstead, adopt a portfolio orteam perspectie when assembling the

group.


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• Fust like an athletic team, a successfulbusiness team includes people whocollectively possess all the knowledge

and skills required for the task at hand.*n the case of a decision team, thatmeans the group collectiely haseerything it needs to assure that eery

cardinal decision issue is adequatelyresoled for the decisions in question.


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CHOIC POINT 2: ORK

ASSIGNM NT

• decision work Bactually thinking a decision

problem throughBis another.

• he party authori@ed to make a decision has

two alternaties, as suggested at %hoice /oint

2 in 4igure ;.$: either gure the problem out

alone or else redirect some or all of that

responsibility elsewhere.

• he former option inoles primary modes of

deciding, the latter secondary modes.


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ORK ASSIGNMENT

CUSTOM 1:

SELF!ASSESSMENT.

• /art of the custom of selfCassessment is thehabit of simply asking oneself, >*s it possible

that *Em not the best person for doing this?We are not naturally inclined to ask thisquestion, partly because it is threatening toour cherished positions as authori@ed

deciders.• hus, you will hae to get buyCin from all

inoled that it is not Aust &G but a positiveresponsibility for authori@ed deciders to askthis question and to answer yes when that isin fact the right answer.


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ORK ASSIGNMENT CUSTOM 2:

AARENESS OF ALTERNATIVE MEANS.

• o assign decision work to a person or deice better

able to perform the task, the decider must know both

who or what those other people and deices are andhow procient they are, particularly relatie to the

decider.


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• he odds of such incidents are greatly reduced whendeciders keep abreast of decision tools and e=perts intheir area and routinely hae their plans for maAor,unusual decisions scrutini@ed by peersBas simple asasking, >ey, what do you think?


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CHOICE POINT 3: ORK

DETAILS• is about how the details of the decision work will

actually be carried out. his choice point di"ers fromthe rst two in that the detail mode that winds up beingused is sometimes not deliberately chosen in the sensethat we normally think of choice.


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• he possible modes di"er according to whether theauthori@ed decider does the workBprimary modesBorhas shifted it elsewhereBsecondary modes.


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PRIMARY DETAIL MODES

• here are three primary detail modes: analytic, ruleC

based, and automatic.


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ANALYTIC MODE:

• -nalytic decision making is the unconstrained,purposeful, and e"ortful reasoning through to aconclusion about what action makes sense to pursue ina gien situation.

• -n important aside: -nalytic decision makingBwhetherby a group or Aust one personBgenerally looks chaotic,but those impressions are deceptie.


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• - big part of your Aob as a decision manager,particularly in your role as a facilitator of groupdeliberations, is ensuring that e"ectie decisionsemerge from the seeming disorder.

• - key to doing that is recogni@ing how peopleEs actionsamount to their attempts to resole particular cardinal

decision issues and then helping them reach goodresolutions.


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RULE!BASED MODE:

• - Hdecision rule has the following form: *f %ondition %

holds, then pursue &ption -.

•- simple e=ample is a retail stocking rule: >eorderwhen only < units remain.

• *n many decision rules, >%ondition % consists of seeral

constituent conditions.


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• uleCbased decision making is the deliberate attempt tomatch the circumstances of a gien situation to theprecondition of a decision rule and then pursue theaction prescribed by that rule.


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AUTOMATIC MODE:

• -utomatic decision making is the e"ortless anduncontrollable eocation of an action sequence.

• 1uch sequences can be denoted compactly like so: S: StI A, where St represents a state of a"airs which, ifperceied (perhaps nonCconsciously) by the person inquestion, automatically and mindlessly triggers action

A.


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• /icture clerk #eorge 5lair working in one of yourcompanyEs stores. -n irate customer suddenly becomesabusie to 5lair, calling him obscene names andgesturing wildly.

• Without thinking, 5lair immediately responds in kind,escalating a nasty scene witnessed in horror by seeralother customers.

•

What they obsered was the manifestation ofautomatic decision making


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• &ne key to doing that is understanding e=actly what

inappropriate application of these modes means.

•-nother is understanding how and why misapplicationoccurs.

• wo special cases highlight the key ideas: problematic

rule-based decision making and problematic automatic

decision making.


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PROBLEMATIC RULE!BASED

DECISION MAKING:• K Performance: -lthough some o!cersE loans

performed e=ceptionally well, defaults on others hurtthe bank badly.

• K onsistency: -s suggested by the obseration onperformance, there was worrisome inconsistency in theo!cersE decisions.

• K ost: -t least some o!cers were slow in making loan

decisions, which translated into unacceptable costs.


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• K !ule performance: he loans made ia the new rules did not, on

aerage, outperform loans etted according to the old system.

• K !ule "t: 'oan o!cers complained that there were often aspects

of applicantsE situations that had implications for the wisdom of

granting loans but were simply not coered in the rules.

• K !esistance: -lthough they did acknowledge that the rules

enabled them to e=plain e=actly why a loan was granted or denied,

on the whole, the loan o!cers hated following the rules for seeral

reasons: deciding >by the book was rigid and unnaturalD it forcedthem to ignore things they felt were pertinentD and it was

demeaning, e"ectiely reducing them to clerks.


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PROBLEMATIC AUTOMATIC

DECISION MAKING:• %oncerns about automatic decision making in business

are mainly (though not e=clusiely) conned todecisions in operational conte=ts, where things happenfast.

• -nalytic IuleC5ased I-utomatic


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SECONDARY DETAIL MODES

K Modeling mode:

• *n this mode, the decider inoles others in the sense of

reaching the decision by simply imitating the action of arespected model.

• 5enchmarking is a good illustration, for e=ample,adopting the same supply chain software as theindustry leader because the industry leader is using it.


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• K Agency mode: ere, an agent is a party the authori@ed

decider commissions to make the decision in question, start to

nish.

• -ll delegations of decisionCmaking authority, as when you turn

oer the hiring of clerical sta" to your secondCinCcommand, are

instances of the agency mode.

• We normally think of decision agents as being people, but they

do not hae to be.

• %omputeri@ed trading programs that buy and sell securities

when particular price targets are hit are good illustrations of

nonhuman agents.


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CONSULTATION MODE:

• a consultant is one who o"ers one or morerecommendations, either for the ultimate action theauthori@ed decider might pursue or, more modestly, for

some element that is required in the decision process.


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• &r the consultant could be more neutral, simplyproiding decisionCreleant information.

• his mode is distinct from the agency mode in that theauthori@ed decider retains the task of making the naldecision.


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" COSTS:

• &ne particular dimension of decision e"ectienesswarrants special attention in this conte=tBcosts.

• 4or e=ample, the modeling mode is essentially free,whereas agents and consultants can be costly indeed,and a company can easily pay too much.

• /rinciples to guide thinking about how much is toomuch are discussed later in this chapter in connectionwith the inestment issue.


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" THE RONG PEOPLE:

• he most serious ha@ard of secondary detail modes is

that a company chooses to rely on the wrong people.


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• 1imilarly, it is easy to pick the wrong agent or consultant.

• &ne reason is that agents and consultants naturally present

themseles in the best light.

• -ccordingly, they emphasi@e features they hae learned impress

clients (or bosses) and deLect attention from eerything else.

• he second reason interacts with the rst: deciders often fail to

demand the things they need to know in order to properly appraise

a prospectie agent or consultant.


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• tch this >5ehaior /rediction 'aw into your

consciousness:

• he best predictor of future behaior is past behaior.


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INCENTIVE MISALIGNMENT:

• he nal ha@ard concerns an agent or consultantEsmoties.

•

9our companyEs deciders must always ask: >heyrecommended M but denigrated 9.

• *f we pursued M, would the consultant be better o"? *fthe answer is yes, there is the potential of incentiemisalignment: your consultant, consciously or

otherwise, might be seeking to sere personal interestsat the e=pense of your own.

• his happens more often than deciders reali@e.


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" THE INVESTMENT ISSUE


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RESOURCE CLASSES


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• #uiding /rinciples

• 8nfortunately, there are no formulas that can tell you

e=actly how much your company should spend makinga gien decision.

• ost business decision situations are far toocomplicated and messy for that.

• here are, howeer, seeral sound principles that

proide useful guidance in thinking about how much toinest in the process of making particular decisions.

PRINCIPLE 1


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PRINCIPLE 1: LIMITS DO NOT INVEST MORE THAN THE POTENTIAL GAIN.

PRINCIPLE 2 REDUCIBLE DECISION RISK


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PRINCIPLE 2: REDUCIBLE DECISION RISK

E#PEND DECISION RESOURCES IN RELATION TO THE DECISION RISK

THAT IS REDUCIBLE

BY THAT E#PENDITURE.

PRINCIPLE 3 DECISION PLANNING AND


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PRINCIPLE 3: DECISION PLANNING AND

BUDGETING

• #evelop a plan for making the given decision $or class

of decisions% that

ade&uately addresses all the cardinal decision issues,

and then budget

resources to ensure that coverage.

PRINCIPLE 4 MINIMIZATION


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PRINCIPLE 4: MINIMIZATION


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THANK YOU

•

03 &4 /- $ &4 9 /&..

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Determining the Means for Deciding

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