Chapter 6

1. Chapter 6 Decision Making

2. the art of making irrevocable decisions based on insufficient knowledge BUSINESS

3. Managerial Decision Making Choice from available alternatives Decision The process through which managers identify and resolve problems and capitalize on opportunities. Decision Making

4. Characteristics of management decision making: Programmability Decision Scope Uncertainty Conflict Risk

5. Types of Decisions Programmed Decisions Nonprogrammed Decisions Sick leave Involve situations that have occurred often and decision rules can be developed and applied Decisions required for unique and complex management problems. Poorly defined Largely unstructured Important consequences Uncertainty is great Routine decision rules for solving the problem do not exist. Managers formulate decision rules so subordinates can make decisions freeing managers for other tasks.

6. Certainty, Risk Uncertaintyand Ambiguity All the information Organizational Problem Know Objectives Don’t Know Probabilities Low Certainty Risk Uncertainty High Ambiguity Possibility of Failure Programmed Decisions Nonprogrammed Decisions Clear-cut objectives Know the probabilities Objectives Unclear Outcomes Unclear Problem Solution

7. Steps in the Decision-Making Process Ignore Recognize Diagnosis and fact gathering Identifying problems and opportunities WHO Symptoms Change Revise SUG Consistency Establishing specific goals and objectives and Specific, Measurable, Attainable Revise Don’t evaluate Generating Alternatives Quantity Brainstorming Revise Evaluation Alternatives Establish criteria Revise Selecting the best Alternative Goals Who What Where When Verify Revise Implementing the Decision Action Plan Revise Decision Process Monitoring & Evaluating the Decision Did It Work? Follow up Plan

8. Factors that limit rational decision making: Escalation of Commitment Organization Politics • The tendency to increase commitment to a previously selected course of action. Emotions and Personal Preferences Illusion of Control

9. Behavioral Influence on Decision Making • Perception: A person's view of the world • Stereotyping - projecting characteristics of a small number of people as characteristics of the entire group • Halo Effect - one characteristic overshadows all other characteristics or aspects of the decision • Subjective Rationality - Thinking logically but within one's own framework • Bounded Rationality - personal, environmental, time, and organizational constraints which place limits on decisions

10. Behavioral Influence on Decision Making • Recency - tendency to ascribe more importance to things that happened most recently • Satisficing - tendency to accept "adequate" decision instead of the best • Values • Personality • Propensity For Risk

11. The Garbage Can Model of Decision-Making Organized Anarchy Streams of events Compose of problems, solutions, participants, choices When they connect a decision gets made Problems Solutions Middle Management Causes & Goals unclear Cause and effect undefined High turnover Problems Solutions Choice Opportunities Participants Participants Participants Choice Opportunities Choice Opportunities Department A Solutions Department B Problems Solutions Choice Opportunities Participants Problems Solutions Choice Opportunities Participants Choice Opportunities Problems Participants Solutions Problems Problems Solutions Participants Participants

12. Probable Relationship Between Quality of Decision and Method Utilized Quality of Decision More Less Average individual Minority control Majority control Individual Consensus

13. Group Considerations in Decision Making Group decision making is becoming more common as organizations focus on improving customer service and push decision making to lower levels.

14. Advantages Disadvantages Advantages and Disadvantages of Group Decision Making: Increased acceptance Greater pool of knowledge Different perspectives Greater comprehension Training ground More time Social pressure Minority domination Logrolling Goal displacement “Groupthink

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

16. Groupthink • Characteristics of Groupthink • Illusions of invulnerability • Collective rationalization • Belief in the morality of group decisions • Self-censorship • Illusion of unanimity in decision making • Pressure on members who express arguments

17. Techniques for Quality in Group Decision Making • Brainstorming • A technique used to enhance creativity that encourages group members to generate as many novel ideas as possible on a given topic without evaluating them. • Freewheeling is encouraged. • Group members will not criticize ideas as they are being generated. • Piggyback on previously stated ideas. • No ideas are evaluated until after all alternatives are generated. • The wilder the ideas the better. • Quality is encouraged.

18. Techniques for Quality in Group Decision Making • Brainstorming • Nominal Group Technique • A structured process designed to stimulate creative group decision making where agreement is lacking or the members have incomplete knowledge concerning the nature of the problem.

19. Techniques for Quality in Group Decision Making • Brainstorming • Nominal Group Technique • Delphi Technique • Uses experts to make predictions and forecasts about future events without meeting face-to-face.

20. Techniques for Quality in Group Decision Making • Brainstorming • Nominal Group Technique • Delphi Technique • Devil’s Advocacy Approach • An individual or subgroup appointed to critique a proposed course of action and identify problems to consider before the decision is final.

21. Techniques for Quality in Group Decision Making • Brainstorming • Nominal Group Technique • Delphi Technique • Devil’s Advocacy Approach • Dialectical Inquiry • Approaches a decision from two opposite points and structures a debate between conflicting views.

22. Techniques for Quality in Group Decision Making • Brainstorming • Nominal Group Technique • Delphi Technique • Devil’s Advocacy Approach • Dialectical Inquiry • Story Boarding A variation of Brainstorming using cards that can be viewed and rearranged

23. Chapter 7 Strategic Management

24. STRATEGY Insight into how to create value

25. STRATEGY Insight into how to create value

26. The Strategic Management Process • Strategic management involves the major decisions, business choices, and actions that chart the course of the entire enterprise.

27. The Strategic Management Process • Strategic management involves both long-range thinking and adaptation to changing conditions. • A strategy is successful if it provides the firm with sustainable competitive advantage. • Competitors will be unable to duplicate what the firm has done or will find it too difficult or expensive.

28. Components of the Strategic Management Process: Analyze internal and external environment Define strategic intent and mission Formulate strategies Implement strategies Assess strategic outcomes

29. Identify • Strategic • Factors: • Opportunities • Threats Scan External Environment • Implement • Strategy via • Changes in: • Leadership • Culture • Human • Resources • Information • and Control • Systems • Formulate • Strategy: • Corporate • Business • Functional • Evaluate • Current: • Mission • Goals • Strategies • Define New: • Mission • Goals • Identify • Strategic • Factors: • Strengths • Weaknesses Scan Internal Environment

30. Scan External • Environment • Evaluate • Current: • Mission • Goals • Strategies

31. External Environmental Analysis A continuous process which includes • Scanning: Identifying early signals of environmental changes and trends • Monitoring: Detecting meaning through ongoing observations of environmental changes and trends • Forecasting: Developing projections of anticipated outcomes based on monitored changes and trends • Assessing: Determining the timing and importance of environmental changes and trends for firms’ strategies and their management

32. The layer of the external environment that affects the organization indirectly.

33. The layer of the external environment that directly influences the organization’s operations and performance.

35. Societal & Task Environment • Identify • Strategic • Factors: • Opportunities • Threats • Scan External • Environment SWOT Analysis • Evaluate • Current: • Mission • Goals • Strategies • Identify • Strategic • Factors: • Strengths • Weaknesses Internal Environment Scan Internal Environment

36. SWOT ANALYSIS STRENGTHS WEAKNESSES are within the organization itself and not usually within the short run control of management

37. SWOT ANALYSIS STRENGTHS WEAKNESSES are within the organization itself and not usually within the short run control of management

38. SWOT ANALYSIS STRENGTHS WEAKNESSES are within the organization itself and not usually within the short run control of management OPPROTUNITIES THREATS are outside the organization, general factors and trends in the societal environmental and specific factors in the task/industry environment

39. SWOT ANALYSIS STRENGTHS WEAKNESSES are within the organization itself and not usually within the short run control of management OPPROTUNITIES THREATS are outside the organization, general factors and trends in the societal environmental and specific factors in the task/industry environment Remember, Opportunities are presented by the External Environment, not company actions

40. Identify • Strategic • Factors: • Opportunities • Threats Scan External Environment • Formulate • Strategy: • Corporate • Business • Functional • Evaluate • Current: • Mission • Goals • Strategies • Define New: • Mission • Goals • Identify • Strategic • Factors: • Strengths • Weaknesses Scan Internal Environment

41. Sustainable Competitive Advantage Internal Environment What the Firm Can Do External Environment What the Firm Might Do Matching Opportunities to Strengths

42. Strategy Formulation Strategy Formulation The process of developing long-range plans to deal effectively with environmental opportunities and threats in light of corporate strengths and weaknesses Composed of Mission Objectives Strategies Policies

43. Mission Mission The purpose or reason for the corporation’s existence. It may be narrow or broad in scope. NarrowBroad Railroad Transportation Insurance Financial Services

44. Levels of Strategy What business should we be in? Corporate Corporation’s overall direction and the management of its businesses How will we compete? Business Emphasizes improving the competitive position of a corporation’s products or units

45. Formulating Corporate Strategy What Business Should We Be IN?

46. Business Unit Business Unit Business Unit Business Unit Key Questions in Corporate Strategy 1. What businesses should the corporation be in? 2. How should the corporate office manage the array of business units? Corporate Strategy is what makes the corporate whole add up to more than the sum of its business unit parts

47. GENERIC CORPORATE STRATEGIES GROWTH STABILITY RETRENCHMENT

48. GENERIC CORPORATE STRATEGIES Up & down the value change Backward - Forward GROWTH Vertical Integration Horizontal Integration Concentric Diversification Conglomerate Diversification Geographic locations Increasing Range of products Related industries Unrelated

49. GENERIC CORPORATE STRATEGIES • STABILITY • Pause/ Proceed with Caution • No Change • RETRENCHMENT • Turnaround • Divestment • Liquidation

50. Formulating Business Strategy How Will We Compete?