PowerPoint Presentation

to Accompany
Management, 9/e
John R. Schermerhorn, Jr.

Chapter 7:
Information and Decision Making

Prepared by: Jim LoPresti

University of Colorado, Boulder
Published by: John Wiley & Sons, Inc.
 Planning Ahead — Chapter 7 Study Questions

What is the role of information in

the management process?

How do managers use information
to make decisions?

What are the steps in the decision-
making process?

What are the current issues in
managerial decision making?

Management 9/e - Chapter 7 2

Study Question 1:What is the role of information in
the management process?

Information and knowledge — basic

linkages:
 Knowledge and knowledge workers provide a
decisive competitive factor in today’s economy.
 Knowledge worker.
 Someone whose value to the organization

rests with intellect, not physical capabilities.

 Intellectual capital.
 Shared knowledge of a workforce that can be

used to create wealth.

Management 9/e - Chapter 7 3

Study Question 1:What is the role of information in
the management process?

Information and knowledge — basic

linkages (cont.)
 Knowledge and intellectual capital are
irreplaceable organizational resources.
 The productivity of knowledge and knowledge
workers depends on:
 Computer competency.
 Information competency.

Management 9/e - Chapter 7 4

Study Question 1:What is the role of
information in the management process?

Implications of IT within
organizations:
 Facilitation of communication and
information sharing.
 Operating with fewer middle managers.
 Flattening of organizational structures.
 Faster decision making.
 Increased coordination and control.

Management 9/e - Chapter 7 5

Figure 7.1 Information technology is breaking
barriers and changing organizations.

Management 9/e - Chapter 7 6

Study Question 1:What is the role of information in
the management process?

Implications of IT for relationships

with external environment:
 Helps with customer relationship
management.
 Helps organizations with supply chain
management.
 Helps in monitoring outsourcing and
other business contracts.

Management 9/e - Chapter 7 7

Study Question 1:What is the role of
information in the management process?

How IT is changing the office …

 Progressive organizations actively use IT to
help achieve high performance in uncertain
environments.
 IT has dramatically changed nature of offices.

 Key developments in networked offices:

 Instant messaging.
 Peer-to-peer file sharing (P2P).

Management 9/e - Chapter 7 8

Study Question 2: How do managers use
information to make decisions?

What is useful information?

 Data.
 Raw facts and observations.
 Information.
 Data made useful for decision making.
 Information drives management
functions.
 Characteristics of useful information:
 Timely.
 High quality.
 Complete.
 Relevant.
 Understandable.

Management 9/e - Chapter 7 9

Study Question 2: How do managers use
information to make decisions?

Information needs of organizations.

 Information exchanges with the
external environment:
 Gather intelligence information.
 Provide public information.

 Information exchanges within the

organization:
 Facilitate decision making.
 Facilitate problem solving.

Management 9/e - Chapter 7 10

Study Question 2: How do managers use
information to make decisions?

Basic information system concepts:

 Information system.
 Use of the latest IT to collect, organize, and
distribute data for use in decision making.
 Management Information System (MIS).
 Specifically designed to meet the
information needs of managers in daily
decision making.

Management 9/e - Chapter 7 11

Study Question 2: How do managers use
information to make decisions?

Basic information system concepts

(cont.):
 Decision Support System (DSS).
 An interactive information system that

allows users to organize and analyze data

for solving complex and sometimes
unstructured problems.
 Group decision support system (GDSS)

facilitates group efforts to solve complex

and unstructured problems.
 GDSSs use groupware.

Management 9/e - Chapter 7 12

Study Question 2: How do managers use
information to make decisions?

Basic information system concepts

(cont.):
 Artificial intelligence (AI)
 Computer systems with the capacity to
reason the way people do.
 Expert systems (ES).
 Software systems that use AI to mimic
the thinking of human experts.

Management 9/e - Chapter 7 13

 Study Question 2: How do managers use
information to make decisions?

Basic information system concepts (cont.):

 Intranets and corporate portals.
 Allow employees, by password access, to share
databases and communicate electronically.
 Extranets and enterprise portals.
 Allow communication and data sharing between
the organization and the external environment.
 Electronic data interchange (EDI).
 Uses controlled access to enterprise portals and
supporting software to enable electronic
transactions between businesses.

Management 9/e - Chapter 7 14

Study Question 2: How do managers use
information to make decisions?

Managerial advantages of IT
utilization:
 Planning advantages.
 Better and more timely access to useful
information.
 Involving more people in planning.

 Organizing advantages.
 More ongoing and informed
communication among all parts of the
organization.
 Improved coordination and integration.

Management 9/e - Chapter 7 15

Study Question 2: How do managers use
information to make decisions?

Managerial advantages of IT
utilization (cont.):
 Leading advantages.
 Improved communication with staff and
stakeholders.
 Keeping objectives clear.

 Controlling advantages.
 More immediate measures of performance
results.
 Allows real-time solutions to performance
problems.

Management 9/e - Chapter 7 16

Figure 7.2 The manager as an information-
processing nerve center.

Management 9/e - Chapter 7 17

Study Question 2: How do managers use
information to make decisions?

A performance deficiency is …
 Actual performance being less than desired
performance.

A performance opportunity is …
 Actual performance being better than desired
performance.

Problem solving is …
 The process of identifying a discrepancy
between actual and desired performance and
taking action to resolve it.

A decision is …
 A choice among possible alternative course of
action.

Management 9/e - Chapter 7 18

Study Question 2: How do managers use
information to make decisions?

Programmed decisions.
 Apply solutions that are readily available from
past experiences to solve structured problems.
 Structured problems are ones that are familiar,
straightforward, and clear with respect to
information needs.
 Best applied to routine problems that can be
anticipated.

Management 9/e - Chapter 7 19

Study Question 2: How do managers use
information to make decisions?

Nonprogrammed decisions.
 Develop novel solutions to meet the
demands of unique situation that
present unstructured problems.
 Unstructured problems are ones that
are full of ambiguities and information
deficiencies.
 Commonly faced by higher-level
management.
Management 9/e - Chapter 7 20
Study Question 2: How do managers use
information to make decisions?

Crisis decision making.

 A crisis involves an unexpected
problem that can lead to disaster if not
resolved quickly and appropriately.
 Rules for crisis management:
 Figure out what is going on.

 Remember that speed matters.

 Remember that slow counts, too.

 Respect the danger of the unfamiliar.

 Value the skeptic.

 Be ready to “fight fire with fire.”

Management 9/e - Chapter 7 21

 Study Question 2: How do managers use
information to make decisions?

Decision environments:
 Certain environments.
 Offer complete information about possible action
alternatives and their outcomes.
 Risk environments.
 Lack complete information about action
alternatives and their consequences, but offer
some estimates of probabilities of outcomes for
possible action alternatives.
 Uncertain environments
 Information is so poor that probabilities cannot be
assigned to likely outcomes of known action
alternatives.
Management 9/e - Chapter 7 22
Figure 7.3 Three environments for managerial
decision making and problem solving.

Management 9/e - Chapter 7 23

 Study Question 2: How do managers use
information to make decisions?

Problem-solving approaches or styles:

 Problem avoiders.
 Inactive in information gathering and solving
problems.
 Problem solvers.
 Reactive in gathering information and solving
problems.
 Problem seekers.
 Proactive in anticipating problems and
opportunities and taking appropriate action to gain
an advantage.

Management 9/e - Chapter 7 24

Study Question 2: How do managers use
information to make decisions?

Systematic versus intuitive thinking.

 Systematic thinking approaches problems in a
rational, step-by-step, and analytical fashion.
 Intuitive thinking approaches problems in a
flexible and spontaneous fashion.
 Multidimensional thinking applies both intuitive
and systematic thinking.
 Effective multidimensional thinking requires
skill at strategic opportunism.

Management 9/e - Chapter 7 25

Study Question 3: What are the steps in the
decision-making process?

Five-step decision-making process:

 Identify and define the problem.
 Generate and evaluate possible
solutions.
 Choose a preferred course of action
and conduct the “ethics double check.”
 Implement the decision.
 Evaluate results.

Management 9/e - Chapter 7 26

Figure 7.4 Steps in managerial decision making and
problem solving.

Management 9/e - Chapter 7 27

 Study Question 3: What are the steps in the
decision-making process?

Step 1 — identify and define the

problem.
 Focuses on information gathering,
information processing, and deliberation.
 Decision objectives should be established.
 Common mistakes in defining problems:
 Defining the problem too broadly or too
narrowly.
 Focusing on symptoms instead of causes.

 Choosing the wrong problem.

Management 9/e - Chapter 7 28

Study Question 3: What are the steps in the
decision-making process?

Step 2 — generate and evaluate

possible solutions.
 Potential solutions are formulated and
more information is gathered, data are
analyzed , the advantages and
disadvantages of alternative solutions
are identified
 Approaches for evaluating alternatives:
 Stakeholder analysis.
 Cost-benefit analysis.

Management 9/e - Chapter 7 29

Study Question 3: What are the steps in the
decision-making process?

Step 2 — generate and evaluate possible

solutions (cont.).
 Criteria for evaluating alternatives:
 Benefits.

 Costs.

 Timeliness.

 Acceptability.

 Ethical soundness.

 Common mistakes:
 Selecting a particular solution too quickly.

 Choosing a convenient alternative that may

have damaging side effects or may not be as
good as other alternatives.

Management 9/e - Chapter 7 30

Study Question 3: What are the steps in the
decision-making process?

Step 3 — decide on a preferred

course of action.
 Classical decision model.
 Managers act rationally in a certain world.
 Managers face clearly defined problems
and have complete knowledge of all
possible alternatives and their
consequences.
 Results in an optimizing decision.

Management 9/e - Chapter 7 31

Study Question 3: What are the steps in the
decision-making process?

Step 3 — decide on a preferred

course of action (cont.).
 Behavioral decision model
 Managers act in terms of what they
perceive about a given situation.
 Recognizes limits to human information-
processing capabilities.
 Cognitive limitations.
 Bounded rationality.
 Results in a satisficing decision.

Management 9/e - Chapter 7 32

Study Question 3: What are the steps in the
decision-making process?

Step 4 — implement the decision solution.

 Involves taking action to make sure the

solution decided upon becomes a reality.

 Managers need to have willingness and ability

to implement action plans.

 Lack-of-participation error should be avoided.

Management 9/e - Chapter 7 33

Figure 7.5 Differences in the classical and behavioral
models of managerial decision making.

Management 9/e - Chapter 7 34

Study Question 3: What are the steps in the
decision-making process?

Step 5 — evaluate results.

 Involves comparing actual and desired
results.
 Positive and negative consequences of
chosen course of action should be
examined.
 If actual results fall short of desired
results, the manager returns to earlier
steps in the decision-making process.
Management 9/e - Chapter 7 35
 Study Question 4: What are the current issues in
managerial decision making?

Types of heuristics for simplifying decision

making:
 Availability heuristic.
 People use information “readily available” from
memory as a basis for assessing a current event
or situation.
 Representativeness heuristic.
 People assess the likelihood of something
happening based upon its similarity to a
stereotyped set of occurrences.
 Anchoring and adjustment heuristic.
 People make decisions based on adjustments to
a previously existing value or starting point.
Management 9/e - Chapter 7 36
Study Question 4: What are the current issues in
managerial decision making?

Escalating commitment.
 The tendency to increase effort and apply more
resources to a course of action that is not
working.

Ways to avoid the escalation trap:
 Set advance limits and stick to them.
 Make your own decisions.
 Carefully determine why you are continuing a
course of action.
 Remind yourself of the costs.
 Watch for escalation tendencies.

Management 9/e - Chapter 7 37

Study Question 4: What are the current issues in
managerial decision making?

Potential advantages of group

decision making:
 Greater amounts of information,
knowledge, and expertise are available.
 More action alternatives are
considered.
 Increased understanding and
acceptance of outcomes.
 Increased commitment to implement
final plans.

Management 9/e - Chapter 7 38

Study Question 4: What are the current issues in
managerial decision making?

Potential disadvantages of group

decision making:
 Pressure to conform.
 Minority domination may occur.
 Decision making takes longer.

Management 9/e - Chapter 7 39

Study Question 4: What are the current issues in
managerial decision making?

Ethical decision making.

 Any decision should meet “ethics
double check.” mentioned in step 3 of
the decision-making process.
 How would I feel if my family found out
about this decision?
 How would I feel if this decision were
published in the local newspaper?
 Any discomfort in answering these
questions indicates the decision has
ethical shortcomings.

Management 9/e - Chapter 7 40

Study Question 4: What are the current issues in
managerial decision making?

Ethical decision making (cont.)

 Considering the ethics of a proposed
decision may result in better decisions
and prevention of costly litigation.
 Ethical decisions satisfy the following
criteria:
 Utility.
 Rights.

 Justice.

 Caring.

Management 9/e - Chapter 7 41

Study Question 4: What are the current issues in
managerial decision making?

Knowledge management.
 Processes through which organizations
develop, organize, and share knowledge to
achieve competitive advantage.

Chief Knowledge Officer (CKO)
 Energizes learning processes.
 Manages and enhances organization’s
intellectual assets.

Knowledge management requires a
culture that values learning and fosters a
learning organization.

Management 9/e - Chapter 7 42

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