BOH4M – Grade 12 Business Leadership – Information and Decision Making

Chapter 7: Information and Decision Making

 

  • We live in an era of change
  • An important key to organizational performance is the way companies utilize Information Technology (IT): Use of electronic devices that aid in the creation, management and use of information

 

Information Technology and the Changing Workplace

 

  • In this era of information, a major source of competitive advantage is the organizations knowledge workers whose value rests with their intellectual capital, their collective brainpower or shared knowledge
  • Productivity of knowledge and knowledge workers depends on two must have competencies:
    1. Computer competencies: Ability to understand and use computers to advantage
    2. Information competency: Ability to utilize computers and information technology for decision making

 

  • One of the most significant business developments of all time is electronic commerce: The buying and selling of goods and service through use of the Internet
  • IT has fostered the development of:
    • Business-to-consumer (B2C): Businesses selling directly to customers over the Internet
    • Business-to-business (B2B): Businesses using the Internet to collaborate and make transactions with one another
  • IT plays an important role in breaking down barriers within organizations and between the organization and its environment
  • Intra-organizational implications:
    • Easier facilitation of communication and information sharing
    • Flattening of organizational structures
    • Faster decision making
    • Increased coordination and control
    • Structural flexibility

 

 

  • Extra-organizational implications:
    • Helps organization take better care of customers
    • Helps organizations work well with resource suppliers
    • Helps build and manage relationships with strategic partners

 

  • IT has dramatically changed “the office”. Progressive organizations are great advocators of the electronic office: Using computers and IT to streamline work, improve operating efficiencies and make overall performance improvements
  • Instant messaging allow instantaneous communication between people online at work at the same time
  • Peer-to-peer file sharing connects PCs directly to one another over the Internet allowing sharing and collaboration of information

 

 

Information and the Management Process

 

  • Managers are increasingly expected to excel in their information processing roles
  • Data are raw facts and observations. Information is data made useful for decision making
  • Managers need good information and they need it all the time. Characteristics of useful information include: timeliness, quality, completeness, relevance, and understandability

 

  • Internal and external information flows are essential to problem solving and decision making in organizations
  • Information exchanges with the external environment allows the gathering of  intelligence information and the dissemination of public information
  • Information flows vertically and horizontally within an organization
  • Allows top levels to stay informed while freeing lower levels to make speedy decisions and take the actions needed to best perform their jobs

 

  • Information systems use IT to collect, organize and distribute data in such a way that they become meaningful as information
  • A Management Information System (MIS) uses IT to meet the information needs of managers in daily decisions
  • Developments in information systems include:
    • Decision Support System (DSS): Allow users to interact with computers to help organize and analyze data for problem solving
    • Group Decision and Support System (GDSS): “Groupware” that allows several people to simultaneously work on a file or database
    • Artificial Intelligence (AI): Computer systems with the capacity to reason the way that people do
    • Expert systems: Software systems that use AI to mimic the thinking of human experts

 

  • Now very common for organizations to have intranets and corporate portals: Computer networks that use the Web for communicating and data sharing within an organization
  • Extranets and enterprise portals use the Web for communication and data sharing between the organization and its external environment
  • Electronic data interchange use controlled access to enterprise portals to enable firms to electronically transact business with one another

 

  • To be effective, any manager must act as a nerve centre of information flows – gathering, giving, and receiving information from many sources
  • Success in management is increasingly tied to the opportunities of IT

 

 

Information and Managerial Decisions

 

    • Managers use information to solve a continuous stream of daily problems
    • A problem is the difference between an actual and a desired situation
    • Problem situations include:
      • Performance deficiency: Actual performance is less than desired
  • Performance opportunity: Actual situation is better than anticipated or offers potential to be so
  • Problem solving is the process of identifying and taking action to resolve problems
  • A decision is a choice among possible alternative courses of action
  • A managerial problem represents a gap between where the organization is at present and where it needs to be

 

  • Managers must make different types of decisions in day-to-day work:
    • Programmed decisions: Applies a solution readily available from past experiences to solve a structured problem – a familiar, straightforward problem with clear informational needs (routine and anticipated)
    • Non-programmed decisions: Applies to unstructured problems – full of ambiguities and information deficiencies. Specific solution must crafted to meet the demands of a unique problem
  • An extreme type of non-programmed decision must be made in times of crisis: An unexpected problem that can lead to disaster if not resolved quickly and appropriately
  • Many organizations are developing formal crisis management teams and plans to prepare for crises that threaten an organization’s health and well-being
  • Ability to handle crises may be the ultimate test of a manager’s problem-solving capabilities
  • Proactive managers anticipate crises and develop contingency plans for dealing with them

 

  • Three environments for managerial decision making and problem solving:
  1. Certain environment: Offers complete information on possible action alternatives and their consequences or outcomes
  2. Risk environment: Lacks complete information, but offers probabilities of the likely outcomes for possible action alternatives
  3. Uncertain environment: Lacks so much information that it is difficult to

assign probabilities to the likely outcomes of alternatives

 

  • Managers tend to display different approaches to dealing with problems:
  1. Problem avoiders: Inactive in decision making
  2. Problem solvers: Reactive in gathering information and           solving problems
  3. Problem seekers: Proactive in anticipating problems before they occur

 

 

 

 

 

 

 

  • Other distinctions in the way managers approach decisions:
    • Systematic thinking: Approaching problems in a rational, step-by-step, and analytical fashion
    • Intuitive thinking: Approaching problems in a flexible and spontaneous fashion
    • Multidimensional thinking: Applying both intuitive and systematic thinking
    • Strategic opportunism: The ability to remain focused on long-term objectives while being flexible enough to resolve short-term challenges in a timely manner

 

The Decision Making Process

 

 

 

 

 

 

 

 

 

 

Five common steps in decision-making process:

 

  • Step 1 – Identify and define the problem
  • Common mistakes that may occur:
  • Defining problem too broadly or narrowly
  • Focusing on symptoms instead of causes
  • Choosing wrong problem to deal with

 

  • Step 2 – Generate and evaluate possible solutions
  • Common errors in this stage:
  • Selecting a particular solution too quickly
  • Choosing convenient alternative may have damaging side effects
  • Typical criteria for evaluating alternatives include: benefits, costs, timeliness, acceptability, and ethical soundness

 

  • Step 3 – Decide on a preferred course of action
    • Depends on each problem situation
    • Models of decision making:
  1. Classical decision model
    • Views manager as acting with complete information
    • Results in an optimizing decision – The absolute best solution
  2. Behavioural decision model
    1. Views manager as acting in situations of limited information and bounded rationality – Decisions are rational only within boundaries defined by available information
    2. Results in a satisficing decision (Simon) – Choosing first satisfactory alternative that comes to your attention

 

 

 

 

 

 

 

 

 

 

 

  • Step 4 – Implement the decision
  • Once preferred solution is chosen, take action to actually solve the problem 
  • Managers not only need to arrive to a decision, but must have the willingness and ability to implement the decision
  • They also need to avoid a lack-of-participation error: Failure to adequately involve persons whose support is necessary for implementation

 

  • Step 5 – Evaluate results
  • Compare actual and desired results
  • Examine both positive and negative consequences outcomes
  • If actual results fall short of desired results, return to earlier steps in the decision-making process

Decision Making Errors and Traps

 

  • Faced with limited information, time, and even energy, people tend to use heuristics – simplified strategies for decision making that can cause decision making errors.

 

  • Decisions are influenced by three different types of heuristics:
  1. Availability heuristic: Making decisions based on information readily available from memory. Readily available information may however be fallible and irrelevant
  2. Representativeness heuristic: Decisions are based on comparisons with similar circumstances. May mask truly important factors relevant to the situation
  3. Anchoring and adjustment heuristic: Assessing current situation by adjustments to a previously existing value or starting point to make decision. May bias decision toward only incremental movement from the starting point

 

    • Managers can suffer from framing errors – evaluating a problem in the context in which it is perceived, either positive or negative

 

    • Another behavioural tendency and source of potential decision making error is the escalating commitment – tendency to increase effort and apply more resources to a course of action that is not working

 

 

Individual versus Group Decision Making

 

  • One of the important issues in decision making is the choice of making the decision individually or with the participation of a group
  • Advantages of group decision making:
  • Greater amounts of information, knowledge, and expertise
  • More action alternatives are considered
  • Greater understanding and acceptance of outcomes
  • Increased commitment to final plans

 

 

  • Disadvantages of group decision making:
  • Pressure to conform
  • Minority domination
  • Decision making takes longer

 

Ethical Decision Making

 

  • Any decision should meet the “ethics double check”, by asking:
    • How would I feel if my family finds out about this decision?
    • How would I feel if this decision were published in the local paper?

 

  • Ethicist Cavanaugh suggests that managers can proceed with the most confidence when the following criteria are met:
  • Utility – does decision satisfy all stakeholders?
  • Rights – does decision respect the rights of everyone?
  • Justice – is decision consistent with legal requirements?
  • Caring – is decision consistent with my responsibilities to care?
  • Should be done during Step 3 of decision-making process
  • May result in better decisions and prevention of costly litigation

 

Knowledge Management and Organizational Learning

 

  • Knowledge management: Processes through which organizations develop, organize, and share knowledge to achieve competitive advantage
  • Emergence of new executive job title – Chief Knowledge Officer (CKO) –responsible for energizing learning processes and making sure organization’s intellectual assets (patents, intellectual property rights, trade secrets, special processes and methods, the accumulated knowledge of the workforce) are well managed and continually enhanced
  • Knowledge management requires the creation of an organizational culture that truly values learning
  • Progressive organizations strive to build learning organizations that recognize that learning is at the heart of a company’s ability to adapt rapidly in a changing environment