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Decision Making Approaches

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Category: Business

Autor: anton 23 July 2011

Words: 2714 | Pages: 11

I Introduction

A job for a leader is to make decisions. Most managers or executives have to engage in some aspect of decision making including coming up with ideas, evaluative alternatives, or implementing directives (Brousseau et al., 2006). However, it could be a critical issue for decision makers to build up proper decisions in various situations. Hence, how to adopt suitable technique in decision making processes is a significant text for them. This essay firstly is going to discuss the benefits of automated decision making due to improvement of technology, such as effective quality and services. Yet, abundant limitations including environmental changes and professional shortages will be illustrated in the next part. Furthermore, rational decision making process will be examined. Also, the article will compare the strengths and weaknesses between emotional approach and thinking first technique. The followings are two behavioural findings which emphasising on values, beliefs as well as hidden traps psychologically during the decision making process. Finally, a sort of cognitive approach- analogy- is emerging that can be valuable within novel and complex environment.

II Classical-

Decision making technology

In order to make decisions accurately and efficiently, technology has been developed for decision making processes. Devenport et al. (2005), and Edwards and Fasolo (2001) both examined that technology can reinforce the quality and accuracy of decision making with classical views. Initially, Devenport et al. (2005) outlined that state of the art technology can learn the expertise of knowledge engineers, despite the prior decision-support systems’ obstacles. The new applications do not need people to identify the problems or initiate the analysis. Additionally, they are typically triggered without human intervention. Alternatively, the technology can help organisations reduce labour, improve quality, and respond quickly to customers (Devenport et al., 2005). Edwards and Fasolo (2001) also stated that web-based technology provides recognizable aspects of decision making technology. For instance, browsing the World Wide Web can be a way for decision makers to get more comprehensive information. Technology development improves information input, making it easier to obtain current and more inexpensive information for all levels of decisions.

Nevertheless, there are numerous limitations of automated decision making systems. Devenport et al. (2005) indicated that current automated decision systems are best used for decisions that must be made rapidly and repeatedly such as bank credit decisions. However, the foregoing statements are in a prerequisite condition- there should be a high quality data available electronically. In the Devenport et al. (2005) study, clear criteria for determining is crucial. Moreover, managers are still involved in reviewing and confirming decisions in making actual decisions. Even the most automated systems still need experts and managers to produce and maintain rules and monitor the outcomes (Devenport et al., 2005).

Also, automated decision systems can be programmed to notice changes in the physical environment including the power supply, temperature or rainfall, so that they can quickly respond on the basis of rules (Devenport et al., 2005). However, it is costly to follow the micro- or macro-environmental changes for decisions in a business (for example, changes of legal-political element). Therefore, this point is inconsistent with the classical view, which is monetary- the source of motivation. Ultimately, one of the emerging management challenges for automated decision systems is expert shortage. As previously stated, this system needs someone to look after it. Thus, it is difficult to find experts to direct new systems. This occurs frequently in organisations when their internally trained experts leave for other firms or retire, because no one has used the applications long enough to address the problem (Devenport et al., 2005).

IIISystem-

Rationality

For modifying potential drawbacks of decision making technology, some styles of decision making by thinking and intuition have been created based on systems view. Hence, those decision making processes tend to adapt to the changing environment rapidly. According to Elbanna and Child (2007), environmental uncertainty does not affect the relationship between strategic decision making processes and strategic decision effectiveness. Moreover, the findings outlined that getting used to living with environmental uncertainty can lead Egyptian decision makers to discount the uncertainty while making decisions (Elbanna and Child, 2007). The following sections will discuss different decision making processes. The rational dimension will be presented first.

“Rationality is the reason for doing something and to judge a behaviour as reasonable is to be able to say that the behaviour is understandable within a given frame of reference” (Butler, 2002: 226 cited in Elbanna and Child, 2007; 433). Mintzberg and Westley (2001) also clearly defined rational process: define → diagnose → design → decide. Rational processes have been recognized as a core aspect of the strategic decision making approach in much literature (Elbanna and Child, 2007). Brousseau et al. (2006) claimed that “satisfiers” are ready to act as soon as they obtain enough information to satisfy their needs. Based on the concept, Brousseau et al. (2006) classified four styles of decision making: decisive (little information, one course of action), flexible (little information, many options), hierarchic (lots of data, one course of action) and integrative (lots of data, many options), according to two dimensions of information use and focus. In the thinking mode, executives can make decisions that are broadly defined and consist of multiple courses of action (Brousseau et al., 2006).

Successful managers in organisations are more analytic in their style while they progress in their jobs (Brousseau et al., 2006). Further, Elbanna and Child (2007) prove that rationality has a positive relationship with organisational outcomes.

Nonetheless, some constraints of rational decision making process should be pointed out. Firstly, in Brousseau et al. (2006) study, significant differences of global management culture are demonstrated. For instance, Americans stand apart in using a flexible thinking style more and more when they progress in their position, but the situation is reversed in Latin America. Thus, global management should be aware of differences in culture. Moreover, real-life decision making makes more sense than people think because so much of it is beyond conscious thinking (Mintzberg and Westley, 2001).

Intuition

To date, researchers have emphasised rational decision making processes rather than intuitive processes (Elbanna and Child, 2007). However, all the data or information in the world cannot trump the valuable experiences from lifetime that informs one’s gut instinct, feeling as well as intuition (Matzler et al., 2007). Dane and Pratt (2007) also state that intuition comes from our inborn ability to organise information quickly and effectively, which can be integral to completing tasks within high complexity and short time frames, including performance appraisal, stock analysis as well as corporate planning. Moreover, Seo and Barrett (2007) illustrate that people can experience great feelings in decision making when simultaneously regulating the likely biases caused by those feelings, which may positively lead to their performance. Various studies support the positive relationship between intuition and the outcomes of decision making (Elbanna and Child, 2007; Dane and Pratt, 2007; Matzler et al., 2007; Seo and Barrett, 2007). Individuals who are better able to recognise and identify among their current emotions can accomplish higher decision making performance due to the ability to control the possible biases produced by those feelings (Seo and Barrett, 2007).

While there are effective consequences of intuition as a kind of decision making process, some conditions should be maintained. For example, positive moods, the role of stable individual differences in thinking style, or cultural factors such as masculine versus feminine, could impact the use of intuition (Seo and Barrett, 2007). Research has found that people who have acquired deep wells of knowledge and experiences are able to achieve good intuitive decisions more frequently than individuals who have relatively finite experiences. Well- experienced individuals can be more curious and open to seize opportunities (Matzler et al., 2007). Consequently, intuitive decision making may be limited to certain groups of people (eg. senior managers).

Based on the behavioural view, Schoemaker and Russo (1993) reported two problems which intuitive decision making processes may encounter: inconsistency and distortion. People may apply criteria inconsistently. It is hard for people to realize how much is memory failure, mental limitation, or distraction. Also, fatigue can affect people’s judgments from one time to the next. Distrusting intuition can become the result. Hence, inconsistency is a hidden threat to good decision making. On the other hand, people tend to under or overemphasize some pieces of information, particularly the most recent information people have received. Anyone going to a job interview, for instance, knows the concept of distortion and tries to make a good first impression to the recruiters. Thus, Schoemaker and Russo (1993) concluded that intuition’s successes are exaggerated and their risks are underappreciated.

Clearly, rational thinking and intuitive decision processes both have their own strengths and weaknesses. Alternatively, Mintzberg and Westley (2001) suggested that there may be advantages to integrating both processes in order to be effective. Yet, managers should be careful of the combination because of costs and time. In other words, organisations may need to train those decision makers. This point may conflict with the ultimate objective in the systems paradigm- efficacy.

IV Behavioural-

Ethical decision making

After examining the major decision making approaches, there are some behavioural variables which should be maintained. In decision making, there are several factors which may influence the outcomes. There are two articles from the behavioural paradigm which discuss the values, beliefs and psychological thinking traps that affect decision making. Initially, Fritzsche and Oz (2007) examine the relationship between personal value and ethical dimensions of decision making. Values as a type of social cognition facilitate an individual’s adaptation to the environment. Moreover, values provide the basis for the development of individual attitudes that lead to specific decision making behaviour (Fritzsche and Oz, 2007). The result of the study shows there is a significant positive contribution of altruistic values (free to wars and conflicts, equality and social justice) to ethical decision making.

In contrast, a negative consequence of self-enhancement values (authority, influential and wealth) to ethical decision making is presented. This paper also concludes that candidates with altruistic values may be preferred when hiring. However, this finding only focuses on ethical decision making and does not provide valuable tools for measuring this. Although it is showing that candidates with altruistic values are preferred, there is no effective tool which can be used during the recruitment. Actually, other elements including organisational climate, culture or employees can impact the decision making behaviour as well.

Awareness of thinking traps

Within the thinking process, it is not surprising that people may be at the mercy of the mind’s strange workings. Hammond et al. (2006) indicated several invisible traps which could become judgement disasters. In the article, six psychological traps are demonstrated and relative techniques to overcome each one of these problems are presented. Some decision makers take costly steps to avoid unlikely outcomes, some of them are overconfident, and others allow memorable past events as models to work now. All of these may come from the way we think in decision making. Biases, sensory misperceptions, and irrational anomalies are invisible which may lead to dangerous decisions. Authors suggested that trying to reframe the questions in various ways so that thinking can change for each version. Nonetheless, while people try to keep away from one trap, there are some possibilities that they could fall into another trap.

V System-

Analogy

Analogy is emerging in novel and complex worlds. Gavetti et al. (2005) highlighted that human rationality is limited because thinking is typically premised on simplified cognitive representations of the world. As boundedly rational decision makers, for instance, managers contribute to cognitive simplifications of their decision problems and induce solutions on the basis of such simplifications. Both Gavetti et al. (2005) and Henry (2007) claimed that cognition is the key point to cope with complexity. In novel situations, where deduction is likely to be difficult, past experiences from previous settings can be extremely powerful sources of wisdom. Analogy is a process which can transfer such wisdom into analogical reasoning (Gavetti et al., 2005). Henry (2007) identifies that analogy is an axiomatic framework for making decisions during uncertainty. Additionally, analogy can be tremendously powerful in situations where conceptual and rule-based knowledge is unavailable (Gavetti et al., 2005). Henry’s study (2007) demonstrates that decision makers can transfer likely information from a familiar area to the novel domain.

From the systems aspect, Gavetti et al. (2005) indicated how managers use analogy to tackle novel and complex situations. Managers, as synthesisers, have to identify the traits of the most pertinent setting, think back through prior experiences in other settings with similar features, and recall the broad strategies which worked well in those settings. Analogical reasoning provides managerial cognition a significant hand in strategy making involving pattern recognition, judgment as well as wisdom. According to Gavetti et al. (2005), breadth and depth of experience can be valuable only if a manager has a good representation – a valid approach for categorizing environments and recognise lessons learned. A managerial technique is illustrated below:

“As a result, if top management of a diversified firm believes that business unit managers have a good grasp of what factors drive the choice–performance relationship in their particular business, they should be more willing to rotate managers across divisions, to invest in and exploit breadth of experience. Otherwise, it may be better to keep each business unit manager in a single business for a longer period, to develop depth (Gavetti et al., 2005; 709).”

VI Conclusion

To sum up, the essay focuses on technological, rational, intuitive, behavioural and analogical decision making approaches in order to develop a sound decision making process. Even though automated decision making is seen as an epochal innovation in decision making process which provide rapidly decisions and well quality products aw well as services for repeatedly and fixed work, there are too many limitations involved, such as external environment changes and expert shortage. Then, from the systems view, both rational and intuitive techniques are proved that there are positive relationships between those decision approaches and organisational consequences by adapting to the changing environment. However, those systems approaches have their own shortcomings and advantages. As a result, scholars suggested that integrating both processes when making decisions could be a ultimate solution. Additionally, two behavioural based findings are the next section. The research pointed out that individuals’ values can affect behaviours and then influence ethic decisions. Moreover, several psychological traps should be aware during the thinking procedure to avoid unexpected failure. Eventually, within novel, complex and uncertain worlds, analogy can be the best way to make decisions. Nonetheless, strengthening managers’ breadth and depth of experiences is crucial for maximising use of analogical technique.

References

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Fritzsche, D. J. and E. Oz. 2007. Personal values influence on the ethical dimension of decision making. Journal of Business Ethics, 75:335–343

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Henry, M. 2007. A representation of decision by analogy. Journal of Mathematical Economics, 43: 771–794

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Mintzberg, H. and F. Westley. 2001. Decision making: It's not what you think. MIT Sloan Management Review, 89-93 Spring.

Schoemaker, P. J. and J. E. Russo. 1993. A pyramid of decision approaches. California Management Review, 9-31. Fall.

Seo, M.G. and L. F. Barrett. 2007. Being emotional during decision making – good or bad? An empirical investigation. Academy of Management Journal, 50 (4): 923–940.

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