MGT420(Chap06)

PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie CookThe University of West AlabamaThe University of West Alabama

© 2007 Thomson/South-Western. All rights reserved.© 2007 Thomson/South-Western. All rights reserved.

Managerial Managerial Decision Decision MakingMaking

ChapterChapter

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Part 2 Planning Challenges in the 21st CenturyPart 2 Planning Challenges in the 21st Century

© 2007 Thomson/South-Western. All rights reserved. 6–2

Sources of Organizational and Sources of Organizational and Entrepreneurial DecisionsEntrepreneurial Decisions

• Decision makingDecision making The process through which managers and leaders The process through which managers and leaders

identify and resolve problems and capitalize on identify and resolve problems and capitalize on opportunities.opportunities.

• ProblemProblem A condition that occurs when some aspect of A condition that occurs when some aspect of

organizational performance is less than desirable.organizational performance is less than desirable.

• OpportunityOpportunity Any situation that has the potential to provide Any situation that has the potential to provide

additional beneficial outcomes.additional beneficial outcomes.


Figure 6.1Figure 6.1 Seven Steps in the Decision-Making ProcessSeven Steps in the Decision-Making Process

Identifying opportunities and diagnosing problems

Identifying objectives

Generating alternatives

Evaluating alternatives

Choosing implementation strategies

Monitoring and evaluating

Reaching decisions


Figure 6.Figure 6.3 3 Two Contrasting Decision ModelsTwo Contrasting Decision Models


Ethics and Decision MakingEthics and Decision Making

• Ethical DilemmaEthical Dilemma A situation in which a person must decide whether or not to do A situation in which a person must decide whether or not to do

something that, although benefiting oneself or the organization, something that, although benefiting oneself or the organization, may be considered unethical and perhaps illegal.may be considered unethical and perhaps illegal. Have you accurately assessed the problem?Have you accurately assessed the problem? Do you have all the necessary information?Do you have all the necessary information? Where are your loyalties?Where are your loyalties? Have you generated a list of possible alternatives and considered Have you generated a list of possible alternatives and considered

how each will affect the other parties involved?how each will affect the other parties involved? Have you tested each alternative by asking whether it is legal, fair, Have you tested each alternative by asking whether it is legal, fair,

and just to all parties involved?and just to all parties involved? Would your decision change if you were to disclose it to your family, Would your decision change if you were to disclose it to your family,

your boss, or society as a whole?your boss, or society as a whole? Does your decision have any symbolic potential?Does your decision have any symbolic potential? Could it be misunderstood?Could it be misunderstood?


Behavioral Decision ModelBehavioral Decision Model

• Acknowledges the human limitations that make Acknowledges the human limitations that make rational decisions difficult to achieve. rational decisions difficult to achieve. A manager’s cognitive ability to process information is A manager’s cognitive ability to process information is

limited.limited. Managers usually attempt to behave rationally within Managers usually attempt to behave rationally within

their limited perception of a situation. their limited perception of a situation. The complexity of most organizational situations The complexity of most organizational situations

forces managers to view problems within sharply forces managers to view problems within sharply restricted bounds.restricted bounds.

The behavior of managers can be considered The behavior of managers can be considered rational, but only in terms of their simplified view of rational, but only in terms of their simplified view of the problem.the problem.


Concepts Important to the Behavioral Concepts Important to the Behavioral Decision ModelDecision Model• Bounded RationalityBounded Rationality

Recognizes that people are limited by organizational Recognizes that people are limited by organizational constraints such as time, information, resources, and constraints such as time, information, resources, and their own mental capabilities.their own mental capabilities.

• IntuitionIntuition An unconscious analysis based on past experience.An unconscious analysis based on past experience.

• SatisficingSatisficing The search and acceptance of something that is The search and acceptance of something that is

satisfactory rather than perfect or optimal.satisfactory rather than perfect or optimal.


Concepts Important to the Decision Concepts Important to the Decision Model (cont’d)Model (cont’d)• Escalation of CommitmentEscalation of Commitment

The tendency to increase commitment to a previously The tendency to increase commitment to a previously selected course of action beyond the level that would selected course of action beyond the level that would be expected if the manager followed an effective be expected if the manager followed an effective decision-making process.decision-making process.


Fostering Quality in the Decision-Fostering Quality in the Decision-Making ProcessMaking Process• VigilanceVigilance

Being concerned for and attentive Being concerned for and attentive to the correct decision-making to the correct decision-making procedures can make a good procedures can make a good decision more likely.decision more likely.


Group Considerations in Decision Group Considerations in Decision MakingMaking• Group decision making is becoming more Group decision making is becoming more

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


Participative ModelsParticipative Models

• Vroom and Yetton ModelVroom and Yetton Model Helps managers determine when group decision Helps managers determine when group decision

making is appropriate.making is appropriate. Postulates that there are five decision-making styles Postulates that there are five decision-making styles

arranged along a continuum.arranged along a continuum.The decision methods become progressively more The decision methods become progressively more

participative as one moves from the highly participative as one moves from the highly autocratic style (AI) to the group style (GII), where autocratic style (AI) to the group style (GII), where the manager allows the group to decide.the manager allows the group to decide.


Situational Contingencies Affecting Situational Contingencies Affecting Decision Making ParticipationDecision Making Participation

• Decision significanceDecision significance

• Importance of commitmentImportance of commitment

• Leader expertiseLeader expertise

• Likelihood of commitmentLikelihood of commitment

• Team supportTeam support

• Team expertiseTeam expertise

• Team competenceTeam competence


Figure 6.Figure 6.4 4 Vroom and Jago Decision ModelVroom and Jago Decision Model

Instructions: The matrix operates like a funnel. You start at the left with a specific decision problem in mind. The column headings denote situational factors which may or may not be present in that problem. You progress by selecting High and Low (H or L) for each relevant situational factor. Proceed down from the funnel, judging only those situational factors for which a judgment is called for, until you reach the recommended process.


Participative Models (cont’d)Participative Models (cont’d)

• Vroom and Jago ModelVroom and Jago Model The nature of the decision itself determines the The nature of the decision itself determines the

appropriate degree of participationappropriate degree of participation——diagnostic diagnostic questions help managers select the appropriate level.questions help managers select the appropriate level.

• A participative decision style is desirable when:A participative decision style is desirable when: Subordinates have useful information and share the Subordinates have useful information and share the

organization’s goals.organization’s goals. Subordinates commitment to the decision is essential.Subordinates commitment to the decision is essential. Timeliness is not crucial.Timeliness is not crucial. Conflict is unlikely.Conflict is unlikely.


What is Groupthink?What is Groupthink?

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

• Characteristics of GroupthinkCharacteristics of Groupthink

Illusions of invulnerabilityIllusions of invulnerability

Collective rationalizationCollective rationalization

Belief in the morality of group decisionsBelief in the morality of group decisions

Self-censorshipSelf-censorship

Illusion of unanimity in decision makingIllusion of unanimity in decision making

Pressure on members who express argumentsPressure on members who express arguments


Techniques for Quality in Group Techniques for Quality in Group Decision MakingDecision Making

• BrainstormingBrainstorming

• Nominal Group TechniqueNominal Group Technique

• Delphi TechniqueDelphi Technique

• Devil’s Advocacy ApproachDevil’s Advocacy Approach

• Dialectical InquiryDialectical Inquiry


BrainstormingBrainstorming

• BrainstormingBrainstorming A technique to enhance creativity by encouraging A technique to enhance creativity by encouraging

group members to generate as many novel ideas as group members to generate as many novel ideas as possible on a given topic without evaluating them.possible on a given topic without evaluating them.

• Rules of BrainstormingRules of Brainstorming Freewheeling is encouraged.Freewheeling is encouraged. Ideas are not criticized as they are being generated.Ideas are not criticized as they are being generated. Quality is encouraged.Quality is encouraged. The wilder the ideas, the better.The wilder the ideas, the better. Piggyback on previously stated ideas.Piggyback on previously stated ideas. Ideas are evaluated after alternatives are generated.Ideas are evaluated after alternatives are generated.


Other Decision-Making TechniquesOther Decision-Making Techniques

• Nominal Group Technique (NGT)Nominal Group Technique (NGT) A structured process designed to stimulate creative A structured process designed to stimulate creative

group decision making where agreement is lacking or group decision making where agreement is lacking or the members have incomplete knowledge concerning the members have incomplete knowledge concerning the nature of the problem.the nature of the problem.

• Delphi TechniqueDelphi Technique Uses experts to make predictions and forecasts about Uses experts to make predictions and forecasts about

future events without meeting face-to-face.future events without meeting face-to-face.


Other Decision-Making Techniques Other Decision-Making Techniques (cont’d)(cont’d)• Devil’s AdvocacyDevil’s Advocacy

An individual or subgroup appointed to critique a An individual or subgroup appointed to critique a proposed course of action and identify problems to proposed course of action and identify problems to consider before the decision is final.consider before the decision is final.

• Dialectical InquiryDialectical Inquiry Approaches a decision from two opposite points and Approaches a decision from two opposite points and

structures a debate between conflicting views.structures a debate between conflicting views.


Classifying Decision SituationsClassifying Decision Situations

• Programmed decisionProgrammed decision A decision made in response to a situation that is A decision made in response to a situation that is

routine or recurring.routine or recurring. Example: starting your automobileExample: starting your automobile

• Nonprogrammed decisionNonprogrammed decision A decision made in response to a situation that is A decision made in response to a situation that is

unique, unstructured, or poorly defined.unique, unstructured, or poorly defined. Example: deciding to get a tattooExample: deciding to get a tattoo


Strategic Decision-Making ToolsStrategic Decision-Making Tools

• Strategic Decision MakingStrategic Decision Making Selection of a strategy that will define the long-term Selection of a strategy that will define the long-term

direction of the firmdirection of the firm——occurs at the highest levels of occurs at the highest levels of the organization.the organization.

• Two important areas for strategic decision Two important areas for strategic decision making are:making are:

Strategy selectionStrategy selection

Evaluation of portfoliosEvaluation of portfolios


Strategy SelectionStrategy Selection

• The Strategic Decision-Making MatrixThe Strategic Decision-Making Matrix

A two-dimensional grid used to select the best A two-dimensional grid used to select the best strategic alternative in light of multiple strategic alternative in light of multiple organizational objectives.organizational objectives.

Management usually assigns the weights based Management usually assigns the weights based on its subjective assessment of the importance of on its subjective assessment of the importance of each objective.each objective.


Table 6.Table 6.4 4 Strategic Decision-Making MatrixStrategic Decision-Making Matrix

Objectives

Increased Increased Total Increased Share Output Weighted Profit Market Production Score

Alternative 0.5 0.3 0.2 Strategies/Weight

Product 2 2 3 0.5(2) 1 0.3(2) 1 0.2(3) 5 2.2 development

Horizontal 4 2 2 0.5(4) 1 0.3(2) 1 0.2(2) 5 3.0 integration

Joint venture 5 3 3 0.5(5) 1 0.3(3) 1 0.2(3) 5 4.0


Evaluation of PortfoliosEvaluation of Portfolios

• Business Portfolio MatrixBusiness Portfolio Matrix

A two-dimensional grid that compares the strategic A two-dimensional grid that compares the strategic positions of each of the organization’s businesses.positions of each of the organization’s businesses.

Most frequently used matrices:Most frequently used matrices:

Growth-share matrix.Growth-share matrix.

Industry attractiveness/business strength matrix.Industry attractiveness/business strength matrix.


Boston Consulting Group (BCG) MatrixBoston Consulting Group (BCG) Matrix

• Business portfolio matrix that uses market Business portfolio matrix that uses market growth rate and relative market share as the growth rate and relative market share as the indicators of the firm’s strategic position.indicators of the firm’s strategic position. Market growth rateMarket growth rate

A measure of the annual growth percentage of the A measure of the annual growth percentage of the market in which the business operates.market in which the business operates.

Relative market shareRelative market share

The firm’s market share divided by the market The firm’s market share divided by the market share of its largest competitor.share of its largest competitor.


Figure 6.Figure 6.5 5 The BCG Growth-Share MatrixThe BCG Growth-Share Matrix


BCG Matrix: Stars and Cash CowsBCG Matrix: Stars and Cash Cows

• StarsStars

Businesses that fall into the high market growth/high Businesses that fall into the high market growth/high market share cell of the BCG matrix.market share cell of the BCG matrix.

Offer attractive profit and growth opportunities.Offer attractive profit and growth opportunities.

• Cash CowsCash Cows

Businesses that fall into the low market growth/high Businesses that fall into the low market growth/high market share cell of a BCG matrix.market share cell of a BCG matrix.

Generate substantial cash surpluses.Generate substantial cash surpluses.

Generally yesterday’s stars that have matured.Generally yesterday’s stars that have matured.


BCG Matrix: Dogs and Question MarksBCG Matrix: Dogs and Question Marks

• DogsDogs Businesses that fall into the low market growth/low Businesses that fall into the low market growth/low

market share cell of a BCG matrix.market share cell of a BCG matrix. Typically generate low profits, and in some cases Typically generate low profits, and in some cases

may even lose money.may even lose money.

• Question MarksQuestion Marks Businesses that fall into the high market growth/low Businesses that fall into the high market growth/low

market share cell of a BCG matrix.market share cell of a BCG matrix. Businesses that look attractive from an industry Businesses that look attractive from an industry

standpoint, however, their low market share makes standpoint, however, their low market share makes their profit potential uncertain.their profit potential uncertain.


Table 6.Table 6.6 6 Illustration of Industry Attractiveness and Business Strength Illustration of Industry Attractiveness and Business Strength ComputationsComputations

Source: Adapted from Strategic Management: Text and Cases on Business Policy by Hesmer, © 1984. Reprinted by permission of Prentice Hall, Upper Saddle River NJ.


The Industry Attractiveness/BusinessThe Industry Attractiveness/BusinessStrength Matrix (GE Matrix)Strength Matrix (GE Matrix)

• Business portfolio matrix that uses several Business portfolio matrix that uses several factors to assess industry attractiveness and factors to assess industry attractiveness and business strength.business strength.

• Uses multiple factors in determining both Uses multiple factors in determining both industry attractiveness and business strength for industry attractiveness and business strength for each firm in the portfolio.each firm in the portfolio.


Figure 6.Figure 6.6 6 The GE Industry Attractiveness/Business Strength MatrixThe GE Industry Attractiveness/Business Strength Matrix

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