Managerial Decision Making

 A decision is a choice from among the available alternatives

 Decision making - the process by which managers respond to

opportunities and threats by analyzing options, and making
decisions about goals and courses of action
– Decision making is a key to effective management
– Each of the four primary management functions requires
effective decision making
– Nearly everything a manager does requires decision making

 Judgment - the “thinking” aspects of the decision-making

process

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Managerial Decision Making

 Decisions in response to opportunities:

Managers respond to ways to improve
organizational performance

 Decisions in response to threats:

Occurs when managers are impacted
by adverse events to the organization

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 Types of Problems and Decisions

 Problem Types
– Well-structured: routine, repetitive, normal problems with much
certainty regarding cause-and-effect relationships
– Ill-structured: novel, unknown criteria, have not been
encountered before

 Decision Types
– Programmed: a decision that is repetitive and routine, with a
definite procedure developed for handling it - use management
science, computations, and rules
– Non-programmed: no pre-programmed answer exists because the
problem is complex, extremely important, and/or never before
experienced - reliance is placed on principles and processes with
emphasis on judgment, intuition and creativity

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Decision Making is not Easy

 It must be done amid ever-changing factors:

 Unclear information.

 Often conflicting points of view.

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 Types of Decisions

Decision making the process of identifying problems

and opportunities, then resolving them.

Programmed decisions:
 situations that occur often enough to enable decision rules to be
developed.

Nonprogrammed decisions:
 are made in response to situations that are unique, are poorly
defined and largely unstructured.
 many involve strategic planning.

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 Programmed and Nonprogrammed Decision Differences

 Certainty

 all the information the decision maker needs is

fully available.

 Risk

 decision has clear-cut goals.

 good information is available.
 future outcomes associated with each alternative
are subject to chance.

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 Programmed and Nonprogrammed Decision Differences

 Uncertainty
 managers know which goals they with to achieve.
 information about alternatives and future events is
incomplete.
 managers may have to come up with creative approaches to
alternatives.

 Ambiguity
 by far the most difficult decision situation.
 goals to be achieved or the problem to be solved is unclear.
 alternatives are difficult to define.
 information about outcomes is unavailable.

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Conditions that Affect the Possibility of Decision
Failure

Organizational
Problem

Low Possibility of Failure High

Certainty Risk Uncertainty Ambiguity

Programmed Nonprogrammed
Decisions Decisions

Problem
Solution

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Selecting a Decision Making Model

 Depends on the manager’s personal preference.

 Whether the decision is programmed or non-

programmed.

 Extent to which the decision is characterized by

risk, uncertainty, or ambiguity.

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Three Decision Making Models

Political
Political

Model
Model

Administrative
Administrative

Model
Model

Classical
Classical

Model
Model

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 Classical Model

 Accomplishes goals that are known and agreed

upon.
 Strives for certainty by gathering complete
information.
 Criteria for evaluating alternatives are known.
 Decision maker is rational and uses logic.

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 Administrative Model

 How managers actually make decisions in situations

characterized by non-programmed decisions, uncertainty, and
ambiguity.
 Focuses on organizational, rather than economic.
 Two concepts are instrumental in shaping the administrative
model.
 bounded rationality: means that people have limits or
boundaries on how rational they can be.
 satisficing: means that decision makers choose the first
solution alternative that satisfies minimal decision criteria.
 Is considered to be descriptive.
 It is considered intuitive.

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Political Model

 Closely resembles the real environment in which

most managers and decision makers operate.

 Decisions are complex.

 Disagreement and conflict over problems and

solutions are normal.

 Coalition building is important.

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 Comparisons of:
Classical, Political, & Administrative Models

Classical Model Administrative Model Political Model

 Clear-cut problem  Vague problem and  Pluralistic; conflicting

and goals. goals. goals.

 Condition of  Condition of  Condition of

certainty. uncertainty. uncertainty/ambiguity.

 Full information  Limited information  Inconsistent

about alternatives about alternatives viewpoints; ambiguous
and their outcomes. and their outcomes. information.

 Rational choice by  Satisfying choice for  Bargaining and

individual for resolving problem discussion among
maximizing using intuition. coalition members.
outcomes.

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Six Steps in the Managerial Decision Making Process

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 Decision Making Steps

Step 1 - Recognize The Need For A Decision

Managers must first realize that a decision must be made.
– Sparked by an event such as environmental changes

Step 2 - Generate Alternatives

Managers must develop feasible alternative courses of action.
– If good alternatives are missed, the resulting decision is poor.
– It is hard to develop creative alternatives, so managers need to
look for new ideas.
– Some choice must exist in order to make effective decisions.
When there is no choice, there really is no decision to be made

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 Decision Making Steps

Step 3 - Evaluate the Alternatives: what are the advantages and disadvantages
of each alternative?

– In most decisions, a manager will want to achieve several objectives or

satisfy several criteria

– Examples of criteria for buying a car: price, manufacturer, model,

warranty, service, reliability, repair record, trade-in allowance

– Measure alternatives against previously determined and weighted

criteria

– Involves being able to forecast future events

– Under perfectly rational conditions, a rational decision maker could

carefully assess potential consequences of each alternative

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 Decision Making Steps

Step 6 - Choose Among Alternatives: managers rank

alternatives and decide.
– When ranking, all information needs to be considered
– Under perfect conditions - would be straightforward

Step 7 - Implement the Chosen Alternative: managers must

now carry out the alternative

Step 8 - Evaluate the Decision (Learn from Feedback):

managers should consider what went right and wrong
with the decision and learn for the future
– Without feedback, managers never learn from experience
and make the same mistake over
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 Evaluating Alternatives

 Is it legal? Managers must first be sure that an

alternative is legal both in this country and abroad for
exports.

 Is it ethical? The alternative must be ethical and not hurt

stakeholders unnecessarily.

 Is it economically feasible? Can our organization’s

performance goals sustain this alternative?

 Is it practical? Does the management have the

capabilities and resources to do it?

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Cognitive Biases

 Suggests decision makers use heuristics to deal with

bounded rationality.
– A heuristic is a rule of thumb to deal with complex
situations.
– If the heuristic is wrong, however, then poor decisions
result from its use.

 Systematic errors can result from use of an incorrect

heuristic.
– These errors will appear over and over since the rule
used to make decision is flawed.

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Types of Cognitive Biases

 Prior hypothesis bias: manager allows strong prior beliefs

about a relationship between variables and makes decisions
based on these beliefs even when evidence shows they are
wrong.

 Representativeness: decision maker incorrectly generalizes

a decision from a small sample or one incident.

 Illusion of control: manager over-estimates their ability to

control events.

 Escalating commitment: manager has already committed

considerable resource to project and then commits more
even after feedback indicates problems.
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Improved Group Decision Making

 Devil’s Advocacy: one member of the group acts as the devil’s

advocate and critiques the way the group identified
alternatives.
– Points out problems with the alternative selection.

 Dialectical inquiry: two different groups are assigned to the

Improved Group Decision Making
problem and each group evaluates the other group’s
alternatives.
– Top managers then hear each group present their
alternatives and each group can critique the other.

 Promote diversity: by increasing the diversity in a group, a

wider set of alternatives may be considered

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 Organizational Learning & Creativity

 Organizational Learning: Managers seek to improve member’s ability

to understand the organization and environment so as to raise
effectiveness.

– The learning organization: managers try to improve the

people’s ability to behave creatively to maximize
organizational learning

 Creativity: is the ability of the decision maker to discover novel

ideas leading to a feasible course of action.

– A creative management staff and employees are the key to

the learning organization

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Group Decision Making

Advantages Disadvantages

 Groups can accumulate more  Groups often work more slowly

knowledge and facts than individuals
 Groups have a broader  Group decisions involve
perspective and consider more considerable compromise which
alternative solutions may lead to less than optimal
 Individuals who participate in decision
the decision making process are  Groups are often dominated by
more satisfied with the one individual or a small
decisions and are more likely to clique, thereby negating many
support it of the virtues of group
 Group decision process serves procedures
an important communication  Over-reliance on group
function as well as a political decisions can inhibit
function management’s ability to act
quickly and decisively when
necessary
 Groupthink –biased decision as
striving for agreement
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Management by Objectives Peter Drucker

 Management by Objectives (MBO)

– Relies on the defining of objectives for each

employee and then comparing and directing their
performance against the objectives which have
been set.
– It aims to increase organizational performance
– aligning goals and subordinate objectives
throughout the organization
– Ideally, employees get strong input to identifying
their objectives, time lines for completion, etc
– MBO includes ongoing tracking and feedback in the
process to reach objectives

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MBO principles

 Cascading of organizational goals and

objectives
 Specific objectives for each member
 Participative decision making
 Explicit time period
 Performance evaluation and feedback.

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Objectives, should be 'SMART':

 Management by Objectives also introduced the

SMART method for checking the validity of the
Objectives.

– Specific
– Measurable
– Achievable
– Realistic / Relevant
– Time-related.

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Leadership

“Leadership is the process of persuasion and

example by which an individual (or leadership team)
induces a group to take action that is in accord with
the leader’s purposes or the shared purposes of all.”

- John Gardner

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Leader / Manager

Leader Manager
Do the right things Do things right

Formal or Informal power Formal power

Vision, Change, Future Daily operation, Monitor

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Approaches to Leadership

Trait
Behavioural
Contingency
Contemporary

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Trait Approach
Trait Approach: Centers on the physical, social,
intellectual or personality attributes that distinguish
Leaders from non-leaders

Could there be consistent traits that apply to leaders in

all situations?
Leaders and non-leaders: factors that increase the
likelihood of success
• Ambition & Energy
• Desire to Lead
• Honesty & Integrity
• Self-confidence
• Intelligence
• Job Knowledge
• High self-monitoring

So leaders are born and not made ?

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Trait Theories
Limitations
- Overlook “Followers” part
- Ignore “Situational factors”
- Endless but non-convergent list of traits
- It gives little advice for current or soon-to-be
leaders.

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 Behavioural Approaches

• Because trait leadership researchers could not find a

conclusive list of traits of leaders, researchers shifted
their attention towards leaders’ behavioral styles.

• Main arguments of Behavioral theories: 1940s - 1960s

- Behavioral styles differentiate effective leaders from
ineffective leaders.
- If you show certain behavioral styles, you will be
always an effective leader in any situation.

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 BehavioralBehavioral
Theories Theories (II)

• University of Iowa Studies:

- Authoritarian; Democratic; Laissez-faire styles
- Democratic Style is best.

• Ohio State University Studies:

- 2 dimensions: Initiating structure (high & low) and Consideration
(high & low)
- (High IS, High Consideration) leaders tend to be the most
effective.
• University of Michigan Studies:
- 1 dimension: Production oriented vs. Employee oriented
- Employee oriented leader is generally more effective.

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Managerial Grid by Blake and Mouton

9
1,9: Country Club 9,9: Team Mngt
8 Mngt
concern for people
7
6

3
2 1,1: Impoverished 9,1:Auth.-
Mngt obedience
1
1 2 3 4 5 6 7 8 9
Concern for production

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 Behavioral Theory limitations
Behavioral Theories

• Limitations
- Overlook “Followers” part
- Ignore “Situational factors”
- Divergent findings about the effective
leaders’ behavioral styles

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 Comparison of Trait and Behavioral Theories

• Similarity between two theories

- Focus on “leader” part: Traits or Behavioral styles
- If you have certain characteristics (either personality traits or
behavioral styles), you will be an effective leader in any
situation.

• Differences between two theories

Trait Behavioral
Leaders are Born Leaders can be Made

Selection is important Training is important

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Contingency Theories
Because trait and behavioral leadership researchers
failed to find an effective leader’s traits and/or
behavioral styles, researchers sought to look at
situational factors that possibly affect leadership
effectiveness.

 Main arguments of Contingency theories: 1960s -

– Leadership effectiveness is determined by the degree
of match between leadership styles and situational
factors.

– Many contingency theories are different from each

other in terms of leadership styles and situational
factors suggested by those theories.
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Contingency Theories

Leadership as a function of Interaction of

leader, situation and followers

1. Fiedler Model
2. Hershey and Blanchard’s situational theory
3. Leader-member exchange theory
4. Path-goal
5. Leader – participation model

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Fiedler Model

First theory to put together a contingency

approach
Situation is a function of three dimensions
 Leader-Member relationship
 Degree of task structure
 Leader’s position power

Situation could be favourable or unfavourable

for leader
Situation in combination with Leadership style
– Task or Relationship oriented- determines
effectiveness.

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 Fiedler’s Contingency Theory

• Category I II III IV V VI VII VII

• Leader-Member Good Good Good Good Poor Poor Poor Poor
Relations
• Task Structure High High Low High High High Low Low
• Position Power Strong Weak Strong Weak Strong Weak Strong Weak

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 Hersey Blanchard Situational Leadership

• Right Leadership Style is contingent on the level of

followers’ readiness ( willingness to accomplish a task)
• Four stages of Follower readiness are
D1 – unwilling and unable
D2 - willing but unable
D3 – able but unwilling
D4 – able and willing

• Leadership styles: 4 Styles (based on relationship behavior and task

behavior)
- Telling: Give clear and specific directions about tasks (HT & LR)
- Selling: High task orientation & High relationship orientation
- Participating: Supportive and participative style (LT & HR)
- Delegating: Let subordinates do and decide (LT & LR)
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 Hersey Blanchard Situational Leadership

PARTICIPATING SELLING

Relationship
behaviour

DELEGATING TELLING
ale
*De
r

Task behaviour

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Path- Goal Theory

 Effective leaders clarify the path through support or direction

and lead followers to the desired goals

 A leader could be
– Acceptable
– Motivational

 Identifies four leadership Behaviours

– Directive
– Supportive
– Participative
– Achievement Oriented

 The Contingency variables considered are

– Subordinate characteristics
– Task structure

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Path- Goal Theory

 Directive Leadership: Works in ambiguous tasks or conflict

situations and with subordinates with external locus of control.

 Supportive Leadership: Leads to satisfaction in structured,

bureaucratic task situations.

 Participative Leadership: Works with subordinates with internal

locus of control

 Achievement-Oriented leadership: In ambiguous tasks situations

leads to expectancy of high performance through effort.

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46
Change Management

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Why organisations need to change

Many things cause organisational change. These

include:

 challenges of growth, especially global markets

 changes in strategy
 technological changes
 competitive pressures
 customer pressure, particularly shifting markets
 to learn new organisation behaviour and skills
 government legislation/initiatives.

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The different models of change

The three main, contrasting models are from

– Lewin
– Beer
– Shaw

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Lewin's model
 This model considers that change involves a move
from one static state via a state of activity to
another static status quo. Lewin specifically
considers a three-stage process of managing change:
– Unfreezing,
– Changing and
– Re-freezing.

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 The first stage involves creating a level of
dissatisfaction with the status quo, which creates
conditions for change to be implemented.

 The second stage requires organising and mobilising

the resources required to bring about the change.

 The third stage involves embedding the new ways of

working into the organisation.

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Beer's model
 Beer and colleagues advocate a model that
recognises that change is more complex and
therefore requires a more complex, albeit still
uniform set of responses to ensure its effectiveness.
They prescribe a six-step process to achieve
effective change. They concentrate on 'task
alignment', whereby employees' roles,
responsibilities and relationships are seen as key to
bring about situations that enforce changed ways of
thinking, attitudes and behaving. Their stages are:

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The stages are:
 Mobilise commitment to change through joint
diagnosis.
 Develop a shared vision of how to organise.
 Foster consensus, competence and commitment to
shared vision.
 Spread the word about the change.
 Institutionalise the change through formal policies.
 Monitor and adjust as needed.

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Shaw’s model
 This model looks at change in a different form. Change is seen
as both complex and also evolutionary. The starting point for
their (and a number of other more recent models) model is
that the environment of an organisation is not in equilibrium.
As such the change mechanisms within organisations tend to
be 'messy' and to a certain extent operate in reverse to the
way outlined by Lewin. It is not appropriate to consider the
status quo as an appropriate starting point, given that
organisations are not static entities. Rather the forces for
change are already inherent in the system and emerge as the
system adapts to its environment.
 Such different models will have implications on the way
organisations and their leaders view change, the way they
manage change and the effectiveness of any change initiative.

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Issues in the change management process?
 Organisational issues:
– Individual change initiatives are not always
undertaken as part of a wider coherent change plan,
for example a change that considers a new structure
but fails to establish the need to introduce new
systems to support such a structure is less likely to
succeed.

– Poor communication has been linked to issues

surrounding the effectiveness of in achieving effective
change in various ways. For example, imposed change
can lead to greater employee resistance

– Finally, lack of effective leadership has been

identified as an inhibitor of effective change.
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Individual/group resistance to change

 Resistance to change can be defined as an individual

or group engaging in acts to block or disrupt an
attempt to introduce change.

 Resistance itself can take many different forms from

subtle undermining of change initiatives,
withholding of information to active resistance eg
via strikes.

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Individual/group resistance to change

Resistance to change can be considered along

various dimensions:
 individual versus collective
 passive versus active
 direct versus indirect
 behavioural versus verbal or attitudinal
 minor versus major.

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 Similarly two broad types of resistance can be
considered:

– Resistance to the content of change - for example to

a specific change in technology, to the introduction of
a particular reward system.

– Resistance to the process of change. This concerns

the way a change is introduced rather than the object
of change per se, for example, management re-
structure jobs, without prior consultation of affected
employees.

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Reasons for resistance include
 loss of control
 shock of new
 Uncertainty
 Inconvenience
 threat to status
 competence fears

It is important to try to diagnose the cause of

employee resistance as this will help determine the
focus of effort in trying to reduce/remove the issue.

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What can be done to make change management more
effective?
 Leadership:Effective leadership is a key enabler as it
provides the vision and the rationale for change.
– Different styles of leadership have been identified,
for example coercive, directive, consultative and
collaborative.
– These different styles may each be appropriate
depending on the type and scale of change being
undertaken. For example, when there is a large-scale
organisation-wide change a directive style has been
identified as most effective.

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What can be done to make change management more
effective?
 Training: Appropriate and timely training is
frequently identified as key to effective change.
Examples of training requirements might include:

– Project and programme management skills to ensure

change initiatives are completed both on time and to
budget.

– Change management skills, including communication

and facilitation.

– leadership coaching.

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What can be done to make change management more
effective?
 Communication: Two-way communication with
employees and their active involvement in
implementation has also been identified as a key
enabler of change.

 Active participation is one suggested means of

overcoming resistance to change. (CFT)

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The seven C's of change

 Choosing a team.
 Crafting the vision and the path.
 Connecting organisation-wide change.
 Consulting stakeholders.
 Communicating.
 Coping with change.
 Capturing learning.

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HR’s role in change management
 Involvement at the initial stage in the project
team. 
 Advising project leaders in skills available within the
organisation – identifying any skills gaps, training
needs, new posts, new working practices etc 
 Balancing out the narrow/short-term goals with
broader strategic needs. 
 Assessing the impact of change in one
area/department/site on another part of the
organisation. 

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HR’s role in change management
 Being used to negotiating and engaging across
various stakeholders. 
 Understanding stakeholder concerns to anticipate
problems. 
 Understanding the appropriate medium of
communication to reach various groups. 
 Helping people cope with change, performance
management and motivation.

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Thank you

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