Decision-making

processes
Daniela Pianezzi
[email protected]

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In the previous lessons...

 Organizations studies: theories and key

concepts
 Fundamentals of organization structures
 Organization as open systems : the external
environment
 Organization size, life cycle, and decline
 Organization culture and control
 Interorganizational relationships
 Business ethics & social impact
 Today’s lesson: Decision-making processes!

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Learning objectives

By the end of this lesson, you should be

able to:
 Define the organizational decision-
making process
 Explain the rational approach to decision
making
 Compare the rational model with other
models of decision making
 Describe the benefits of employee
involvement in decision making
 Discuss organizational interventions that
aim at improving group decision making
The decision making process

Organizational decision-making is the process

of choosing between alternatives with the
intention of moving towards a desired course of
action.
 It implies the choice between different
alternatives of action;
 It is a process that involves more than just
the final choice between alternatives;
 This process involves a commitment of
resources, such as money, personnel or
time;
 The notion of "choice" refers to the role of
power.
The stages of organizational decision-making

the problem identification stage

the problem solution stage is when
information about environmental and
alternative courses of action are
organizational conditions is monitored to
considered and one alternative is
determine if a performance is
selected and implemented
satisfactory and to diagnose the cause of
shortcomings

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The importance of decision making processes

 Decision-making processes can

be thought of as the brain and
nervous system of an
organization.

 The study of the decision-making

process helps to understand how
organizations and organizational
actors behave.
Types of organizational decisions

Herbert Simon (1977) has observed that different types of decisions can be
processed in different ways.

PROGRAMMED DECISIONS
are repetitive and well defined and NON-PROGRAMMED DECISIONS
procedures exist for resolving the problem.
Pre-established rules provide guidance to are novel and poorly defined, and no
employees on what to do, how to do it, and procedure exists for solving the problem.
when to do it. Eg Strategic decisions, such as an
Eg reordering of stock items that have investment in energy saving technology.
fallen below a certain level on a
supermarket shelf. HIGH RISK
LOW RISK

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Programmed vs. not programmed decisions

Pragrammed Decisions Not Programmed Decisions

Types of decisions Routine Strategic
Problems Well defined Poorly defined
Risks High Low
Consequences Minors Major
Level Employees Top management
Involvement Individual Group
Time frame Short Long
The rational economic model

The model has its roots in neoclassical

economic theory.

 The rational model is an ideal not fully

achievable in the real world of
uncertainty, complexity and rapid
change
The Rational Approach to Decision-Making

 This model stresses the need

for systematic analysis of a
problem followed by choice and
implementation in a logical,
step-by-step sequence
A problem is the gap between
"what is" and "what should be".
An opportunity is a deviation from
current expectations and a
potentially better situation that
was not previously anticipated.
Key assumptions of the rational approach

The rational decision-making model is based on a series of assumptions:

Clarity of the
Known options Clear preferences
problem

No time or cost
Constant preferences Maximum profit
constraints
The limitations of the rational approach

 The rational approach examines a theoretical rationality, detached

from empirical effectiveness (it tends to assume a non-dynamic
context).
 It does not consider the limits that the decision maker may
encounter:
 In understanding the problem
 In the acquisition of information
 Calculation limits due to cognitive abilities

In many cases where decisions need to be made, there are time

constraints, internal and external influences and high complexity of the
problem that make a clear and systematic approach impossible.
The theory of bounded rationality

Herbet Simon (1957,1977), Nobel Prize in Economics 1978 developed

the theory of bounded rationality.

The expression 'bounded rationality'

is used to designate a rational
choice that takes into account the
cognitive limits of the decision
maker - limits of knowledge and
calculation ability. Simon (1978)
Constraints and Trade-offs during Non-programmed
Decision-Making
The constraints of decision making

Individual rationality is constrained by a number of factors.

We consider four of them:
1. Difficulty in processing information
2. Intuition
3. Emotions
4. Subconscious biases
Difficulty in processing information

Absolute rationality: the manager will Bounded rationality: the manager will use the criterion of
come to choices according to an satisfaction, choosing the first alternative that satisfies the
requirements of the problem to a satisfactory degree, rather
optimization criterion, in search for the
than the "best" alternative. This occurs due to information
best solution ever. overload.

Information overload: is the receipt of more information than is necessary to make effective
decisions. Rather than improving decision making, information overload can lead to errors,
omissions, delays and shortcuts. More information does not necessarily lead to optimal
decisions.
Intuition

Tacit knowledge: knowledge that is based on

Intuition is the ability of our mind to
personal experience, intuition, rules of thumb
understand something without the need for
and judgement, and cannot be easily codified
conscious reasoning.
and passed on to others in written form.

 In intuitive decision-making, experience and judgement rather than sequential logic or

explicit reasoning are used to make decisions.
 Intuition is not arbitrary or irrational because it is based on years of practice and hands-
on experience, often stored in the subconscious(tacit knowledge)
 Intuiition is rarely the only factor in decision making. Individuals quite often analyze the
available information, and then turn to their intuition to complete the process (quasi-
rationality).
Test: tacit knowledge?

We know more than we

know. Michael Polanyi,
The Tacit Dimension
(1966).
The role of emotions

The neoclassical rational model neglects to consider the effects

of emotions on individual decision making.

The three primary emotions of fear, hope and

pleasure , for example. The first two are associated
with the notion of trust, which is the determining
factor in how people deal with the challenges they
face. Fear is the absence of trust.
• If our working life is dominated by fear, we are
concerned about the present and expect the
future to become increasingly unstable. On the
contrary, hope is an expression of trust.
Subconscious biases

Individuals make imperfect decisions due to misperceptions.

Source: https://www.educationandemployers.org/17497-2/
Escalating Commitment

A much more dangerous mistake is to

persist in a course of action when it is
failing.

Why do managers keep investing in a

solution despite strong evidence that it is not
working?
 They block or distort negative information
when they are personally responsible for a
negative decision.
 Consistency and persistence are valued
in contemporary society.
Group thinking

In organizations, decisions are often made by groups.

 Groups often inhibit open thinking.
 Tendency of Group Members to Repress Differing Opinions:
Groups tend to polarize the initial preferences of group
members, and group dynamics could sometimes even lead to
more cautious decisions.
 Pressures to comply.
The Asch’s Experiment (1951)

The Asch Experiment - YouTube

A political approach to decision-making

According to this model, organizations include groups that have

separate interests, goals and values, and power and influence
are needed to make decisions.
 Managers find themselves within a dynamic arena where they
compete for resources, power and status. Therefore, managers
can attach great importance to forming alliances and building
networks of cooperative relationships with other important
decision makers in their organization.
The Carnegie model

A model based on the work of Richard Cyert, James March and Herbert Simon,
who were all associated with Carnegie-Mellon University in Pittsburgh, USA.
 Organization-level decisions involves many managers and a final choice is based
on a coalition among those managers.
 A coalition is an alliance among several managers who agree about
organizational goals and problem priorities.
The Carnegie model

Coalitions are necessary for two reasons:

• Organizational goals are often ambiguous, and operative goals of
departments are often inconsistent. When goals are ambiguous and
inconsistent, managers will naturally tend to disagree about
problem priorities.
• Individual managers intend to be rational but function with human
cognitive limitations and other constraints
The decision making process in the Carnegie
model

Uncertainty:
Information is limited Search:
Managers have many • Conduct a simple local search
• Use established procedures if appropriate
constraints Coalition Formation: • Create a solution if needed
• Hold joint discussion and
interpret goals and problems
• Share opinions
Conflict: • Establish problem priorities
Managers have diverse goals, • Obtain social support for
opinions, values, and problem, solution Satisficing Decision Behaviour:
experiences Adopt of the first alternative that
is acceptable to the coalition
The garbage can model (1)

Developed by Michael Cohen, James March and Johan Olsen, this model
analyses the structure of decision making in organized anarchies, organic
organizations that deal with high uncertainty.

Characteristics of organized anarchies are:

 Problematic preferences (ambiguity characterises
decision processes);
 Unclear and poorly understood technology (cause-effect
relationships that are difficult to identify);
 High turnover.
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The garbage can model (2)

Decisions are the outcome of independent streams of events within the

organization. The organization becomes a large “waste container” in which
flows mix to solve problems or leave them unresolved.

The four relevant flows are:

 Problems (a gap between desired performance
and current activities);
 Potential solutions (an idea somebody proposes
for adoption);
 Participants (employees);
 Opportunity for choice (occasions when an
organization usually makes a decision).
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The garbage can model (3)

The garbage can model illustrates the messy, disorderly quality of

much complex decision making. Problems and solutions could
behave as independent events.
The consequences of the decision-making process are:
 Solutions may be proposed even when problems do not exist.
 Choices are made without solving problems.
 Problems may persist without being solved.
 A few problems are solved.

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Incremental Decision Process Model

In this model, Mintzberg and his collaborators identified each step in

the decision sequence from the discovery of a problem to its solution.

Key ideas:
 Major organization choices are usually a series of small choices that
combine to produce the major decision.
 Organizations move through several decision points and may hit
barriers along the way. Mintzberg called these barriers decision
interrupts.
 An interrupt may mean an organization has to cycle back through a
previous decision and try something new.
A critical analysis of these theories

Critical approaches to the study of organizational decision-making argue that these

theories do not give sufficient importance to the following aspects:

• The social context, i.e. the social relations and the broader
social structures in which non-programmable decisions are
embedded;
• The effects of culture, gender and race on decisions;
• How social norms and expectations fit into problem
definition and decision making;
• The fact that power is the key factor in explaining how
decisions are made.
Contingency Decision-Making Framework

The use of classical decision-making models is conditioned by

the characteristics of the organization. Two organizational
variables that condition the use of decision approaches are:
 Problem consensus: refers to the agreement among managers
about the nature of a problem or opportunity and about which
goals and outcomes to pursue; This variable ranges from
complete agreement to complete disagreement.
 Technical knowledge about the means to solve those problems:
it refers to understanding and agreement about how to solve
problems and reach organizational goals.
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Contingency Decision-Making Framework (2)

 The contingent model brings

together the two dimensions of
problem consensus and technical
knowledge about solutions.

 Each cell represents an

organizational situation that is
appropriate for the decision-
making approaches.

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The voice of employees in decision making

The terms "employee voice" or "employee involvement and participation" (EIP )

are used to describe employment practices that are designed to allow
employees some input into decision making and how their organizations are
run.

Indirect involvement refers to those Direct involvement refers to those

forms of worker participation where forms of participation where
representatives or delegates of the individual workers are involved in the
main body of workers participate in decision making processes that affect
the strategic decision-making their everyday work routines, albeit
process. often in a very limited way.
An example

Direct or indirect
involvement?

Opinion | Workers on Corporate Boards? Germany’s Had Them

for Decades - The New York Times (nytimes.com)
Some reasons for EIP

The involvement of the employees in decision-making processes

can be motivated with various arguments:

 Workers should be involved in decision making when the

outcomes of those decisions impact on their lives.
 Groups bring more input and diversity of views into the decision
process.
 Decisions made collectively tend to lead to increased
acceptance of a solution.
 EIP potentially reduces employees misbehaviour
The involvement–commitment cycle

Involving people in
decision making potentially
increases their
commitment to the
organization’s goals, and
that will in turn result in
enhanced performance.
How to develop skills of decision making?

What can be done to improve decision making and its results?

Five techniques help improve decision making:
1. Brainstorming
2. The nominal group technique
3. The ladder technique
4. computer-mediated brainstorming
5. the Delphi technique
Brainstorming

Brainstorming is a group technique to

encourage creative thinking and
alternatives to problems. It focuses on
the generation of ideas and options,
rather than on their evaluation.
Brainstorming requires group members
to abide by four rules:
1. Speak freely.
2. Multiple ideas.
3. No criticism.
4. Build on the new ideas.
The nominal group technique

This technique attempts to unite individual

creative thinking with group dynamics.
1. A problem or question is presented to the group.
2. Each member independently writes down her or his
ideas to solve the problem.
3. Each member in turn describes one idea to the
group. This process is repeated until all the ideas
have been presented and recorded.
4. Members discuss and evaluate each idea.
5. Each member independently ranks the ideas
presented. The idea or solution with the highest
ranking determines the final decision.
The stepladder technique

This newer structured group decision-making technique begins with a

discussion with a randomly selected dyad regardless of how many members
are in the group.

These two initial group members discuss the relevant information,

assumptions and ideas. After a period of time, a new member is then added
to form a triad. The new member has a specified period of time to present
information and ideas individually to the original dyad, and this is then
followed by a group discussion.

New members are added one at a time in the same manner until all the
members have joined the group and presented their ideas, and the group
has discussed them. The complete group makes a final decision at the end
of the process.

Benefits?
Computer-mediated brainstorming

An online facilitator begins the process by

posting a problem or question.
Members then post their answers or ideas
on their computer terminal. All the group’s
ideas are posted anonymously and
randomly on the computer screens.
Members individually rank or vote
electronically on the ideas or solutions
presented.
Typically, face-to-face discussion follows the
computer-mediated process.
Benefits?
The Delphi technique

This technique methodically collates the collective

knowledge of experts on a particular subject to scan
the environment, predict the future, make decisions or
identify opposing views. Its name derives from the
future-telling ability of the famous Greek Delphic oracle.
 Delphi attendees don't meet face to face.
 Typically, Delphi group members submit ideas or
possible solutions to the facilitator in response to a
series of questionnaires.
 The respondents’ replies are then compiled and
returned to the group for a second round of
comments. This process may be repeated a couple
more times until consensus or dis-consensus
emerges.
 The ‘experts’ taking part do not actually make a final
decision: they provide expert advice and information
for the organization’s decision makers
Take-away messages

 Most organizational decisions are not made in a logical, rational manner. Most
decisions do not begin with the careful analysis of a problem, followed by
systematic analysis of alternatives, and finally implementation of a solution.
 Decision processes are characterized by conflict, coalition building, trial and error,
speed and mistakes. Managers operate under many constraints that limit
rationality; hence, intuition and hunch often are the criteria for choice.
 Individuals make decisions, but organizational decisions are not made by a single
individual. Organizational decision-making is a social process.
 New models, such as the Carnegie model and the garbage can model, explain
how decision making is influenced by group dynamics and is by no means linear.
 The critical and contingent approach emphasize that it is important to investigate
the decision-making process in relation to the social context.
 Groups do not necessarily lead to better decisions but there are various
techniques for improving group decisions.
Thank you!
Questions? Comments?
Sources

 Bratton, J. (2015) Introduction to work and organizational behavior . New

York: Macmillan Education Palgrave.
 Daft, RL (2021). Organization theory and design. Seventh edition. Chapter
11. Maggioli Editore.
 Knights (2009) Introducing Organizational Behavior and Management .
 Available here: https://www.ilsole24ore.com/art/fca-psa-novita-che-sa-
germania-lavoratori-cda-ACSNU36