A decision making crisis

2009
Organisational decision making 2007
McKinsey
EIU Alignment of
2006 incentives
61% of with strategic
Teradata executives objectives,
2004 rated realistic
Customer managerial
Nadia Papamichail Capgemini
loyalty and
company
decision
making at their
assessment
of company’s
reputation are execution
Average companies as
nadia papamichail@mbs ac uk
nadia.papamichail@mbs.ac.uk 2003 failure rate the top two moderately
capabilities
casualties of and accurate
i.e. rate of efficient or prediction of
Teradata wrong poor decision worse
Cost IC0602 International Doctoral School making markets are
Increased decisions in areas that
Applying Decision Analysis to Real Problems complexity the UK is need
University of Manchester and volume 24% attention
of data.
Less time to
10 -13 April 2011 take 3
decisions

Learning Objectives Managerial decision making - Important factors

• Determination to seek out the absolute best

solution 9th
• Discuss managerial decision making challenges
1 • Setting clear criteria 2nd
• Willingness to take risks 8th
• Review organisational decision making models • Willingness to listen 3rd
2
• Objectivity 1st
• Personal experience 4 th
• Identify examples of good and bad practice in
decision making and suggest ways for • Confidence in their own ability 5th
3 improvement
• Willingness to revisit the main objective 6th
• Ability to stay calm under pressure 7th
2 • Ability to stick by their decision 10th 4
(Capgemini, 2004)

1 2
 Organisational decision making models Herbert Simon
• Intelligence-design-choice model.
• “Organizational decision making is the process
by which one or more organizational units make Intelligence Design Choice

a decision on behalf of the organization”

(Huber, 1980)

– Rational model (e.g. Howard et al, 1976) Model validation

Reality Solution verification
– Political model (e.g. Pettigrew, 1973)
– Garbage can model (e.g. Cohen et al, 1972)
Yes Success? Implementation
– Process model (e.g. Barnard, 1938)
No
• Bounded rationality. A decision maker seeks to be rational but
his/her rationality is bounded due to cognitive limitations.
5 7

Decision Making James March

Garbage can model (Cohen, March and Olsen, 1972)
Organisations are viewed as ‘organised anarchies’

Chester Barnard
Figure extracted from
Langley et al (1995)

• Organisations are political systems which can be viewed as coalitions of

individuals with conflicting objectives shaped by status
status, ambitions
ambitions, biases
and the way they perceive the future
• Research focus
– How problems arise and organisational units are combined to formulate
decisions.
James March Herbert Simon Henry Mintzberg
– How power is enacted
– What the role of politics is
6 8

3 4
 Henry Mintzberg Decision making skills
The structure of ‘unstructured’
• Make better decisions vs. make better decision makers
decision processes (Mintzberg et al, 1972)

Problem

Objectives

Alternatives

Consequences

Trade-offs

Figure extracted from

Langley et al (1995)
Uncertainty
• Mintzberg et al (1972) explored 25 cases
• A decision is commitment to action Risk Tolerance
• A decision process is a set of actions and dynamic factors (e.g. interrupts,
timing delays, speedups) that starts with the identification of a stimulus (e.g. Linked decisions
opportunity, threat) and ends with commitment to action
9 11
(Keeney, 2004)

Decide how to decide Decision making practices (DMP) framework

Make the right decisions vs. make decisions the right way
Process Bay of Pigs Cuban missile crisis
characteristics
Role of participants Advocates for Skeptical generalists
particular agencies
Information
Role of leader Present at all Absent from
Management
meetings preliminary meetings INTERNAL/
EXTERNAL Efficiency Structures DM
PERFORMANCE
FACTORS
Group norms Adherence to rules of Minimisation of status PROCESS &
OUTCOME

protocol differences
Technology People & Skills
Participation and Exclusion of low-rank Involvement of outside
i
involvement
l t officials
ffi i l experts
t
Use of subgroups One subgroup driving Two subgroups
the process debating alternatives
Alternatives Convergence upon Consideration of two
one alternative alternatives
10 12
(Roberto, 2005)
Papamichail and Rajaram, 2007

5 6
 Examples of good practice and bad practice Decision making: Prescriptive, normative
Information Management structures
Easy to allocate authority and implement
and descriptive interactions
Critical, timely, accurate, relevant
and sufficient information available. decisions, ensure equal access to information,
foster a trusting culture. Prescriptive
Lack of systematic ways for
providing and gathering Communication problems between
Efficiency information. managerial levels, lack of trust,
IImmediate
di t response tto decision
d i i stimulus,
ti l lack of structured approaches,
no delays in the process, no structured debates
right level of resources
PerformanceInformation
and outcome
The decision is perceived as successful,
Ron Howard
Slow DM process, Management
prolonged decision activities,
the problems that evoked the decision wereStructures
Efficiency
solved Howard Raiffa
and any opportunities were wholly taken,
high communication costs
PROCESS
sense of satisfaction DM Process
Diversity of interests in the
Neither short-term nor long-term benefits, decision making body,
Individual Multi-party
Technology
poor decision quality, no sense
People of achievement
& Skills involvement of experts, & decision Normative decision
constructive conflict,
Technology
gy deciding how to decide. bodies makers
Use IT to compile and disseminate
People & skills Rapid convergence upon a single
D i l
Daniel H b
Herbert
information in a thorough and timely
manner, gather and model evidence Active learners, alternative, wrong assumptions, Kahneman Simon &
creative problem-solvers, lack of commitment to action,
Lack of IT or able to use and share information, lack of resources. & Amos James
Technology used but it is not seek to adopt best practice examples Tversky March
secure, nor efficient, nor effective,
no DSS to facilitate DM processes Limited awareness,
lack of interpretation skills,
making inconsistent decisions
13 15
Descriptive (Spetzler, 2010)
Papamichail, 2008

DMP framework
Contextual factors
Final thoughts

• We are seeing a shift:

– From the ‘expert’
p to the ‘user’
– From ‘individual intelligence’ to ‘collective intelligence’

Information • Social networking: Ideas creation/generation

Management
Efficiency Structures

PROCESS
Technology People & Skills

14 16
Papamichail, 2010

7 8