Chapter 3 Managerial Decision Making[1]

Chapter 03 - Managerial Decision Making

Chapter 3

MANAGERIAL DECISION MAKING

KEY STUDENT QUESTIONS Managerial decision making in textbooks is heavily theory driven, and most students want to know more more about the practical ins and outs of day-to-day decision making. Two questions drive a host of other concerns: 

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1. “Ho “How can can I mak make e goo good d dec decis isio ion ns?” s?” “How “How can can I make make sure sure I don’t don’t fall fall into into the the decisio decision-ma n-makin king g traps traps you are describing when you talk about things like psychological biases and time pressures?”

To make “good” decisions, students have to master the art of rational decision making, as well as learning to recognize, avoid, and, if appropriate, use, common decision-making pitfalls. Point out that while it is never possible to make the “perfect” decision - training in these areas can help people to make better decisions. •

A variety of practical suggestions for avoiding decision-making pitfalls can be found in the example for Objective 3 in the “Class Roadmap.” While these suggestions are not research based, students will respond to their nononsense advice based on real-world experience. •

CLASS PREWORK ASSIGNMENT OPTIONS OPTION 1: PART 1 SUPPORTING CASE: SSS SOFTWARE IN-BASKET EXERCISE Instructions and answers for the SSS Software In-Basket can be found at the end of this chapter of the IM, or by clicking here. OPTION 2: EXAMINING A DECISION Prior to class, ask students to write a brief paragraph describing a problem they had within the past year or two which required a major decision. After describing the problem, students should make a list of all the alternatives they considered prior to making a final decision. Have the students use their problems and decisions when

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answering Student Discussion Questions 2, 3, 5, 7, 11, and when discussing the pitfalls people can encounter during the decision-making process.

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Teaching Tip: Tip : One way of demonstrating both brainstorming and the effects of group decision making in large lecture sections is to divide students into small groups of no more than five people. Ask each person in the group to briefly describe the problem they faced, without telling the rest of the group what decision they finally made, Have the group pick a problem, and brainstorm solutions, then, as a group, pick the best solution to the problem. Then, the group should compare their decision with the decision of the person who brought the problem to the group, and discuss the differences between the solution proposed by the group and the solution developed by the individual. In this way, students can vividly see that group discussion/brainstorming tends to generate more alternatives to a problem, and that groups are likely to develop different solutions to problems than individuals.

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answering Student Discussion Questions 2, 3, 5, 7, 11, and when discussing the pitfalls people can encounter during the decision-making process.

TT

Teaching Tip: Tip : One way of demonstrating both brainstorming and the effects of group decision making in large lecture sections is to divide students into small groups of no more than five people. Ask each person in the group to briefly describe the problem they faced, without telling the rest of the group what decision they finally made, Have the group pick a problem, and brainstorm solutions, then, as a group, pick the best solution to the problem. Then, the group should compare their decision with the decision of the person who brought the problem to the group, and discuss the differences between the solution proposed by the group and the solution developed by the individual. In this way, students can vividly see that group discussion/brainstorming tends to generate more alternatives to a problem, and that groups are likely to develop different solutions to problems than individuals.

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USING THE “UNFOLDING CASE” WILL FORD’S MANAGERS MAKE THE RIGHT DECISIONS TO STEER THE COMPANY BACK TO PROFITABILITY?

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Teaching Tip: Tip : Ford has put together a great series of videos (there are 30 of them) on the changes occurring at Ford. In “ Ford Ford Bold Moves Ep. 1: Change or Die”” the company sets up the history of Ford and some of the Die problems facing the company. In “ Ford “ Ford Bold Moves Ep. 29: A Year of Bold Moves” Moves ” the company outlines the changes made in 2006, including the introduction of Alan Mulally as CEO of Ford. Use these videos to give students a background for the case. CHAPTER OUTLINE I. OBJECTIVE 1. DESCRIBE THE KINDS OF DECISIONS YOU WILL FACE AS A MANAGER (Figure 3.1) A. Lack Lack of of Stru Structu cture re 1. Lack of structure structure is the usual usual state of affairs in managerial managerial decision-mak decision-making. ing. 2. Programmed Programmed decisions decisions are decisions decisions encounter encountered ed and made before having objectively correct answers, and solvable by using simple rules policies, or numerical computations. 3. Non-programmed Non-programmed decisions are new, new, novel, novel, complex complex decisions decisions having having no proven answers. (Table 3.1) B. Uncert Uncertain ainty ty and and Risk Risk 1. Certainty Certainty exists when decision-m decision-makers akers have have accurate accurate and and comprehens comprehensive ive information. 2. Uncertainty Uncertainty means means the manager has insufficient insufficient information information to know the the consequences of different actions. 3. Risk exists exists when the probability probability of an action being successful successful is less than than 100 percent. Example: Example : A decision made with certainty is a decision made with complete information - for example, a manager who decides to buy a new computer for the office knows exactly how much that computer will cost. A decision made with uncertainty is a decision made with little or no information - for example, a manager who decides to design and manufacture an entirely new product, with no information except a gut feeling on whether or not a market for

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that product exists. Finally, a decision made under risk is made using probabilistic information - for example, the manager who hires a new employee based on a test that says that employee has a 75% chance of success. Roger Mason, a dairy farmer in North Lancashire, England, knew that he had to make changes to his business model in order to compete with large chain supermarkets. He moved his decisions from uncertainty to probability by participating in a collaborative effort with other farmers in his region. Together, Mr. Mason worked with other farmers in the area and with the North West Development Agency to set up the Homebred Initiative, a project looking at the feasibility of developing a regional marketing co-op. This venture provided funding to build a farm shop to sell regional produce, a tea room and education center, which is set to open in December 2007. 1

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Farmer’s Weekly . “Making the right business decision.” June 27,2007.

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C. Conflict 1. Conflict exists when the manager must consider opposing pressures from different sources occur. 2. There are two levels of conflict: 3. Psychological conflict occurs when several options are attractive, or when none of the options is attractive. 4. Conflict arises between individuals or groups.

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Student Discussion Question 1: “Discuss Ford in terms of risk, uncertainty, and how each handled its crisis. What is the current news on this company?” Student Discussion Question 2: “Identify some risky decisions you have made. Why did you take the risks? How did they work out? Looking back, what did you learn?” Student Discussion Question 5: “Recall a recent decision that you had difficulty making. Describe it in terms of the characteristics of managerial decisions.”

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OBJECTIVE 2. SUMMARIZE THE STEPS IN MAKING “RATIONAL” DECISIONS (Figure 3.2) Example: Rational decision-making may seem to be straightforward - a relatively easy process that most people use instinctively. But researchers Thomas Turrentine and Kenneth Kurani found out something interesting about rational decision making with regards to new car purchases and our estimates of cost savings over time based on gasoline consumption - virtually no one uses a rational process! In fact, there are hardly any households that track gas costs over time, or figure them into household budgets. And our knowledge of gas prices disappears almost as soon as we leave the gas station. As a result, most of us simply don’t have the information we need to make a rational decision about gas consumption and cost savings when we are at the dealership shopping for a new car. 2

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A. Identifying and Diagnosing the Problem

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Turrentine, T.S. & Kurani, K.S. “Car buyers and fuel economy?” Energy Policy ; Feb2007, Vol. 35 Issue 2, p1213-1223.

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1. The first stage in the decision-making process is to recognize that a problem exists and must be solved. Questions to ask and answer in this stage include: 2. Is there a difference between what is actually happening and what should be happening? 3. How can you describe the deviation, as specifically as possible? 4. What is/are the cause(s) of the deviation? 5. What specific goals should be met? 6. Which of these goals are absolutely critical to the success of the decisions? B. Generating Alternative Solutions 1. The second stage, problem diagnosis is linked to the development of alternative courses of action aimed at solving the problem. 2. Ready-made solutions are ideas that have been seen or tried before, of follow the advice of others who have faced similar problems. 3. Custom-made solutions must be designed for specific problems and are the combination of ideas into new, creative solutions.

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C. Evaluating Alternatives 1. The third stage involves determining the value or adequacy of the alternatives that were generated. Which solution will be the best? 2. Key questions to ask: 3. Is our information about alternatives complete and current? If not, can we get more and better information? 4. Does the alternative meet out primary objectives? 5. What problems could we have if we implement the alternative? 6. Contingency plans are alternative courses of action that can be implemented based on how the future unfolds. D. Making the Choice 1. To maximize is to make the best possible decision, the greatest positive consequences and the fewest negative consequences. 2. To satisfice is to choose the first option that is minimally acceptable or adequate: the choice appears to meet a targeted goal or criterion. 3. Optimizing means that you achieve the best possible balance among several goals. 

Student Discussion Question 6: “What do you think are some advantages and disadvantages to using computer technology in decision making?”

E. Implementing the Decision 1. 2. 3. 4.

The decision-making process does not end once a choice is made. Decision-makers must understand the choice and why it was made. They must be committed to its successful implementation. They must plan implementation carefully. a. Determine how things will look when the decision is fully operational. b. Chronologically order the steps necessary to achieve a fully operational decision. c. List the resources and activities required implementing each step. d. Estimate the time needed for each step. e. Assign responsibility for each step to specific individuals. 5. Decision-makers should assume that things will not go smoothly during implementation. Useful question to ask are: a. What problems could this action cause? b. What can we do to prevent the problems? c. What unintended benefits or opportunities could arise? d. How can we make sure they happen? e. How can we be ready to act when the opportunities come?

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Student Discussion Question 3: “Identify a decision you made that had important unexpected consequences. Were the consequences good, bad, or both? Should you, and could you, have done anything differently in making the decision?” Management Close-Up Questions: “How would you classify the decisions made by Mulally - maximizing, satisficing, or optimizing? Explain your answer” “Choose one of the decisions made by Malally and identify potential problems and opportunities that might be associated with its implementation.”

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F. Evaluating the Decision 1. 2. 3. 4.

The final stage in the decision-making process is evaluating the decision. Collect information on how well the decision is working. Decision evaluation is useful whether the feedback is positive or negative. If the decision appears inappropriate, it’s back to the drawing board.

III. OBJECTIVE 3. RECOGNIZE THE PITFALLS YOU SHOULD AVOID WHEN MAKING DECISIONS A. THE BEST DECISION 1. Vigilance is a process in which a decision-maker carefully executes all six stages of decision-making, including making provisions for implementation and evaluation. 2. Managers need to know that they did their best to make the best possible decision.

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Student Discussion Question 7: “Do you think that when managers make decisions they follow the decision-making steps as presented in this chapter? Which steps are apt to be overlooked or given inadequate attention? What can people do to make sure they do a more thorough job?” 

Example: Sometimes, coming up with the “best” decision involves a willingness to simply admit failure. Coca Cola’s CEO and Chairman, Neville Isdell, is candid about the fact that success is often built on failed decisions. At Coke’s annual meeting in 2006, Isdell told investors, “You will see some failures. As we take more risks, this is something we must accept as part of the regeneration process.” Isdell believes that drink failures such as “Choglit” (a chocolate milk drink) and “OK Soda” (which tried to capture Gen X drinkers) helped the organization move forward to discover successes such as “Vitamin Water”. 3

B. Psychological Biases 1. Illusion of control is a belief that one can influence events, even when one has no control over what will happen. 2. Framing effects refer to how problems or decision alternatives are phrased or presented, and how these subjective influences can override objective facts. 3. Discount the future is a bias weighing short-term costs and benefits more heavily than longer-term costs and benefits.

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McGregor, Jena. “How failure breeds success.” Business Week , July 10, 2006, Vol. 3992, p 42.

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C. Time Pressures 1. Instead of relying on long-range planning and futuristic forecasts, focus on real-time information. 2. Involve people more effectively and efficiently. 

Student Discussion Question 4: “What effects does time pressure have on your decision making? In what ways do you handle it well and not so well?”

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D. Social Realities 1. Interpersonal factors decrease decision-making effectiveness. 2. Many decisions are the result of intensive social interactions, bargaining, and politicking. IV.

OBJECTIVE 4. EVALUATE THE PROS AND CONS OF USING A GROUP TO MAKE DECISIONS (Table 3.2) A. Potential Advantages of Using a Group 1. More information is available when several people are making the decision. 2. There are a greater number of perspectives on the issues, or different approaches to solving the problem. 3. An opportunity for intellectual stimulation is achieved. 4. People are more likely to understand why the decision was made. 5. Groups lead to a higher level of commitment to the decision. B. Potential Problems in Using a Group 1. 2. 3. 4.

Sometimes one group member dominates the discussion. Satisficing is more likely with groups. Pressure to avoid disagreement can lead to a phenomenon called groupthink. Groupthink occurs when people choose not to disagree or raise objections because they don’t want to break up a positive team spirit. 5. Goal displacement often occurs in groups. 6. Goal displacement is a condition that occurs when a decision-making group loses sight of its original goal and a new, possibly less important goal emerges.

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Teaching Tip: A widely recommended tool to help students understand how decisions are made in groups is the movie “12 Angry Men.” If you can, get the 1957 version. Go through the material above on the advantages and disadvantages of group decision making, then ask the class to watch for examples of each of these things in the movie. This exercise leads to rich discussions of the nature of group decision making and how groups can change and evolve over time. 

Example: Is the evening news an example of groupthink at work? According to Brian Lowry, a reporter for the Daily Variety, journalists propagate groupthink every time they latch onto a story and report it incessantly, almost without thought. Ask students how many have heard of Seung-Hui Cho, the student at Virginia Tech who murdered 32 people and wounded 25 others. In the days after April 14, 2007, how many students worried that something similar 3-11


might happen on their college campus? How many universities scrambled to implement “first alert” systems that might warn students of a shooting or other campus emergency? And yet, the risk of students being killed in a car on the drive to campus is far greater than the possibility of getting shot by a crazed gunman. In 2005, in California alone, 4,304 people lost their lives in automobile accidents, and 292,798 were injured. 4 

Student Discussion Question 7: “Discuss the potential advantages and disadvantages of using a group to make decisions. Give examples from your experience.”

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Data gathered from National Center for Statistics and Analysis of the National Highway Traffic Safety Administration, http://www.nhtsa-tsis.net/trsystems/CrashStat.asp?state=CA&func=query.

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V.

OBJECTIVE 5. IDENTIFY PROCEDURES TO USE IN LEADING A DECISIONMAKING GROUP (Figure 3.3) A. Leadership style 1. The leader of a decision-making body must attempt to minimize processrelated problems. 2. The leader should avoid dominating the discussion. 3. Don’t lose sight of the problem. 4. Make a decision!

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Example: Jared Diamond, the professor of Geography at the University of California, Los Angeles, who wrote “Guns, Germs, and Steel”, tells a story about the Easter Islanders, a Polynesian people who settled a heavily forested island. Over time, the group learned the benefits of chopping down trees to make everything from shelters to canoes. Unfortunately, they continued chopping down trees until the last tree was gone, and most of them died when their food source disappeared and they started eating each other. Diamond offers four reasons for problems with group decision making: 1) failure to anticipate a problem; 2) failure to perceive that a problem exists; 3) failure to even try to solve the problem; and 4) failure of problem-solving attempts. 5 The good news is that knowledge of these four problems can help group leaders to work with groups more effectively in the decision-making process. B. Constructive Conflict 1. The most constructive type of conflict is cognitive conflict, or differences in perspectives or judgments about issues. 2. Affective conflict is emotional and directed at other people. 3. A devil’s advocate has the job of criticizing ideas. 4. The dialectic goes a step beyond devil’s advocacy by requiring a structured debate between two conflicting courses of action. 

EXERCISE 3.1 - COMPETITION ESCALATION: THE DOLLAR AUCTION Objectives 1. To explore the effects of competition on decision-making Suggested responses 5

“Why do some societies make disastrous decisions?” http://www.edge.org/3rd_culture/diamond03/diamond_print.html

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1. The end result would be based on whether or not the auctioneer received more than a dollar in auctioning off currency from the total sum of all bids. If the total is less than a dollar, the auctioneer will lose the difference between the total sum of bids subtracted from a dollar. 2. As the bidding procedure continues the class is likely to become more competitive because it will end up costing them money each time they bid. 3. Individual bids may not exceed one dollar, however total sum of all bids may add up to over a dollar.

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4. Most likely I would like to be involved in the bidding, especially where money can be made. The motivation is to make money. The objectives or goals are to display negotiating skills. 5. To influence bidding actions one will utilize communication skills and non-communications skills. Self-confidence, social skills, and safety needs are all essential prerequisites for objectives to be served and met. TT

Teaching Tips: 1. Start by using imaginary money and then switch to the use of real money to see whether or not the bidding behaviors differ under these circumstances. 2. Ask the students whether or not they felt differently about the auction when they knew it was for real money. 3. Divide the class into a number of teams and allow for discussion and the development of team strategies. 4. Ask the students whether they felt being a member of a team helped or hindered their involvement in the exercise. 5. The auctioneer should keep in mind the contractual basis of a bid/ask procedure. VI.

OBJECTIVE 6. EXPLAIN HOW TO ENCOURAGE CREATIVE DECISIONS A. You are being creative if you: 1. bring a new thing into being (creation) 2. join two previously unrelated thing (synthesis) 3. improve something or give it a new application (modification) 4. Brainstorming is a process in which group members generate as many ideas about a problem as they can; criticism is withheld until all ideas have been proposed. Example: With 9/11, Victorinox and Wenger, manufacturers of Swiss Army Knives faced a dilemma. Sales plunged as people found out that they were not allowed to carry pocket knives on planes. ( Teaching Tip: This is a good brainstorming problem if you want the entire class to work on the same problem. In large lectures, break the class into small groups and give a prize for the most creative idea, the idea closest to the one suggested by the manufacturer, etc.) Thinking creatively, Victorinox and Wenger took two different approaches to the problem. Victorinox modified the knife itself, adding things such as flashlights and a memory stick to its knives, and created detachable blades so that a traveler

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can still take the other components of the knife through airport security. Wenger changed the look and feel of its knives, focusing on giving customers knives that mold to their hands. In addition, the two companies merged as a way of pooling resources 6 . 

Student Discussion Question 11: “Identify some problems you want to solve. Brainstorm with others a variety of creative solutions.”

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Olson, Elizabeth. “Still Swiss and Still Sharp (Digital Memory Optional)”, New York Times, May 1, 2005.

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VII.

OBJECTIVE 7. DISCUSS THE PROCESSES BY WHICH DECISIONS ARE MADE IN ORGANIZATIONS A. Constraints on decision-makers are financial, legal, market, human, or organizational. B. Models of organizational decision processes 1. Incremental model is a model of organizational decision-making in which major solutions arise through a series of smaller decisions. 2. Coalitional model is a model of organization decision making in which groups with differing preferences use power and negotiations to influence decisions. 3. Garbage can model is a model of organizational decision making depicting a chaotic process and seemingly random decisions.

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Example: General Peter Pace, U.S. Marine Corps and Vice Chairman of the Joint Chiefs of Staff, offers the following insights into how decisions are made in the Marine Corps.: 7 •

People who have the responsibility for making decisions must make them. Pace tells the story of being in Vietnam on patrol. Each time the unit came to a fork in the road, Pace asked his commander whether he should go left or right. Finally the commander said “You’re the lieutenant. You’re up there to make the decisions. Figure it out.” • In a crisis, you may not have time to get a lot of input before making a decision. For that reason, it is important to be collaborative in non-crisis situations, because then people will be more likely to trust the decisions you have to make on your own. It is better to be doing something than doing nothing. • The most effective decision may be the least predictable one • - talk about possibilities before making a final decision. Talk about your mistakes, so that both you and others can • learn from them. Don’t ask anyone to do something unless you are willing to • accept the risks and give them the resources to do it. Learning has to be an ongoing process. Put together a • “lessons learned” team to share information and promote better understanding.

C. Negotiations and Politics 1. Decision-makers often need to negotiate, bargain, or compromise. 7

Useem, Jerry. “How I Make Decisions: How the Marine Corps trains leaders”, Fortune, Vol. 151, No. 13, June 27, 2005, pg. 108.

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2. Organizational politics occur when people try to influence organizational decisions so that their own interests will be served and use power to pursue hidden agendas, thereby reducing decision-making effectiveness. 

EXERCISE 3.2 - GROUP PROBLEM SOLVING MEETING AT THE COMMUNITY AGENCY Objectives 1. To understand the interactions in group decision-making situation through role playing a meeting between a chairman and his subordinates.

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Suggested responses 1. The group’s behavior will be dependent upon the way John Cabot communicates to the group. He should set high expectations, ask for their involvement and commitment to this project. Each member will react to John Cabot’s projection and conviction to this project. 2. The group will make a decision based on the input they receive and the commitment they will generate from their enthusiasm to the project. The group is likely to make a positive decision assuming John Cabot strongly believes in this project. 3. The problem may exist of leadership, power, motivation, communication, or perception dependent on how this is received by the group. The group will react in a positive sense assuming there is leadership, power, and nonverbal communication interpreted and given feedback by each member of this group. 4. The group effectiveness will be increased if each member can endorse and commit to this project. There must be a wellrounded discussion. Each member must participate and will act in a positive sense to commit to the project. TT

Teaching Tip: Divide the class into three groups. Two groups of five will act as the role players, and the remaining group will be the evaluators. Have one group perform while the second group is outside the classroom and then switch places. The questions for the evaluating group will then be: Was the outcome of the two meeting the same? If not, what led to the differences?

VIII. OBJECTIVE

8. DESCRIBE HOW TO MAKE DECISIONS IN A CRISIS (Tables 3.3

& 3.4) A. An effective plan for crisis management (CM) should include the following elements: 1. strategic actions 2. technical and structural actions 3. evaluation and diagnostic actions 4. communication actions 5. psychological and cultural actions

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Example: The crises described in the text talk primarily about what a CEO should do when something bad has happened to the organization. But it is also instructive for students to study how the decisions team leaders make in a crises can literally mean the difference between life and death for those caught up in the crisis. One example, the Storm King Mountain incident, is described by Michael Useem as a series of nine decisions made by Smokejumper Don Mackey during a forest fire in 1994. 8 These decisions, some good and some bad, led to the deaths of 12 firefighters, who were less than 100 yards short of safety when they died. Have students review the following decisions and discuss which of the above rules they obey/disobey.

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Useem, Michael A., “In the heat of the moment: Anatomy of a tragedy”, Fortune, Vol. 151, No. 13, June 27, 2005, pp.125-134.

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TT

Teaching Tip: The following website has a good diagram of key points in the Storm King Mountain fire:

http://library.thinkquest.org/C0119184/media/pictures/stormking/overview1.jpg

Time until fire blowu p

Decision Made

Don Mackey, a smokejumper who has leaped into the Storm King fire six hours prior, radios a request for two more firecrews. 10.5 Don Mackey asks for aerial surveillance of the fire - his hrs. request is turned down. Mackey and another smokejumper, Butch Blanco, the 6.5 hrs. leader of another crew, take a helicopter up to survey the fire. Mackey suggests the risky strategy of cutting a fire line 6 hrs. below the flames on the west flank of the ridge - Blanco agrees. Mackey wonders whether he or Blanco is in charge, 2 hrs. but does not talk with Blanco about it. As a result, neither man assigns someone to a lookout position. A local weather forecast predicts strong winds, but no 1.5 hrs. rain. Mackey neither asks for, nor receives, the information. Mackey orders another firefighter, Sarah Doehring, to leave the fire line, and go to the top of the main ridge. 30 min. As a result, Doehring is not killed with the other firefighters. As the fire blows up and becomes a continuous flaming 6 min. front, Mackey sends six firefighters to Lunchspot Ridge, where they all reach safety. Mackey risks and loses his life by going back to the fire 0 min. line to assist crew members in getting to safety on the ridge. 16.5 hrs.

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Student Discussion Question 9: “Suppose you are the CEO of a major corporation and one of your company’s oil tanks has erupted, spilling thousands of gallons of oil into a river that empties into the ocean. What do you need to do to handle the crisis?” Student Discussion Question 10: “Look at the mistaken assumptions described in Table 3.4. Why do such assumptions arise, and what can be done to overcome these biases?” (Table 3.4) 

CONCLUDING CASE: THE WALLINGFORD BOWLING CENTER Case Summary: The owners of the Wallingford Bowling Center wish to increase the profitability of their organization. With a prime location and exemplary facilities, the owners believe the company is capable of producing a larger return on investment to them. They are in the process of conducting a thorough study of the organization (as well as the industry and their competitors) in search of methods to increase the organization’s bottom line profit margin.

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Chapter Topics Related to the Case: • • •

•

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Discuss the concept of decision making Identify advantages of group versus individual decision making Discuss the disadvantages of group versus individual decision making Identify and discuss methodologies for effectively managing group decision-making Identify constraints that face decision-makers of organizations such as Wallingford

Case Discussion Questions: 1. Apply the decision-making process described in the chapter to this case. What is the major problem facing Wallingford? List five specific alternative solutions that could be implemented to solve that major problem. Suggested Responses: As described within the chapter, the decision-making process is comprised of six distinct steps or stages. These include: (1) Identifying and diagnosing the problem, (2) Generating alternative solutions, (3) Evaluating the alternatives, (4) Making the choice of alternatives, (5) Implementing the decision, and (6) Evaluating the results of the selected decision. While students may provide various answers to respond to the questions posed above, the anticipated responses should resemble the following type of information identifies below. As suggested within the case study, the prominent problem facing Wallingford is that of maximizing capacity and sales dollars or more simply stated, filling the vacant time slots with paying customers. The list of five alternative solutions that could be implemented to solve the problem identified above may include (1) Closing the business during the slack time, (2) Offer incentives such as reduced rates during the slack times, (3) Increase advertising that promotes the “special rates” available during the slack times, (4) Provide incentives such as free shirts, free shoe rental to groups and individuals that bowl during the slack times, and (5) Hold contests with small cash prizes for individuals and teams that participate during the slack time. 2. As General Manager of this company, how could you utilize and manage the group decision-making process and technique to

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improve company profits? Which employees would you include in the group? Suggested Responses: As indicated by the text, utilizing group decision-making has potential advantages not afforded by individually made decisions. These advantages include availability of obtaining more information, generation of a variety of perspectives, and generation of intellectual stimulation.

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In the case of Wallingford, group decision-making could be utilized to help alleviate the current problems experienced by the company. By allowing others to have input, more alternatives would be generated. This would bring to light differing ideas and perspectives to the situation facing the company. It would be imperative for the group members to be apprised of the problem at hand and steered toward maintaining focus to that issue. In order to effectively manage the group decision-making process an effective leadership style must be developed, constructive conflict must be accepted, and creativity among the members must be encouraged. A suggested student response for whom to include in the decisionmaking group may include full-time, front-line employees who handle customers during peak times. These individuals would know what customers find appealing or lacking about the company. These people could offer new perspectives and insight for the alternative generation and selection process. Students may offer their own perspectives on this question segment. Additional Discussion Questions: 1. Based on the information provided within the case study and text chapter, do you foresee the Wallingford case as demonstrating a scenario in which utilization of group decision-making may prove to be advantageous to the company? Explain. According to the text information, what are the disadvantages associated with using a group for decision-making? Discuss how the leaders of Wallingford could most effectively combat these disadvantages. Suggested Responses The suggested student responses should resemble the following information. The Wallingford case study does demonstrate a case in which group decision-making would prove advantageous to the company. This would be accomplished by the generation of new ideas and perspectives to apply to resolving the problem. Disadvantages associated with group decision-making include a single member attempting to dominate the process, the occurrence of satisficing, groupthink, and/or goal displacement. Wallingford could most effectively manage its group decisionmaking process by first developing awareness of the potential

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disadvantages indicated above. Once awareness has been achieved, this company would be able to divert the process away from falling into these group “traps or pitfalls”. Wallingford could accomplish this by ensuring group focus remained on the task at hand, establishing a group leader at the start of the process, and encouraging beneficial constructive conflict within the group. 2. The case discusses various methods the owner’s have applied in attempting to resolve the company’s problems. What methods have the owner’s of Wallingford utilized? According to the text chapter, organizational decision-makers face various constraints when making important decisions. Identify these constraints. Discuss how these constraints could impact upon the decision makers of Wallingford.

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Suggested Responses: In order to attempt to resolve the problems at hand, the owner’s of Wallingford have undertaken financial record study, conducted an analysis of the current operation such as identifying peak and slack operating times, and performed a comparative analysis of other industry businesses. Restrictions facing the individuals who make decisions for companies include financial, legal, market, human, and organizational constraints. These constraints could affect the owners – the decision makers of Wallingford by limiting the decision/actions that can be undertaken by them. For instance, the market is only so big for this company so its actions/decisions must keep this in mind. Also, the availability of finances and the number of staff limits the degree to which certain alternatives may be undertaken. SUGGESTED RESPONSES TO THE END-OF-CHAPTER QUESTIONS 1.

Discuss Ford Motor Company in terms of risk, uncertainty, and how each handled their crises. What is the current news on this company? Alan Mulally faced significant uncertainty when he took over Ford Motor Company. No one was sure whether or not the venerable automaker could survive. But Mulally had faced such uncertainty before, at Boeing, and he had proven that he was capable of making over a large organization. In this way, Bill Ford moved the company from uncertainty in the risk-taking arena, to a place where there was at least the probability of success. Mulally has taken an optimizing approach at Ford closing non-productive factories, eliminating companies that are not in line with Ford’s core product, such as Aston-Martin and Volvo, and focusing on creating a small number of well-designed cars with “wow” features such as the “Sync” audio system developed by Microsoft. Results are not in for Ford as of October, 2007. Mulally is still downsizing the company, and he has made a significant number of changes in senior management throughout Ford. Plans are in place to move forward with a reduced number of automobile frames, and to sell the same model car worldwide, rather than spending the money to design and build different cars in different countries. But as Joann Muller, noted in a recent article in Forbes, “Creating one Ford will take years. The automaker needs to recoup the enormous investments in plants and equipment it has already made before it starts consolidating vehicle development. The clock is ticking. The company wants to be profitable again by 2009, but economic headwinds, including higher commodity costs and a housing slowdown that affects pickup truck sales, make it a slog.” 9

9

Muller, J. “Back to the future.” Forbes; 10/15/2007, Vol. 180 Issue 8, p38-40

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2.

Identify some risky decisions you have made. Why did you take the risks? How did they work out? Looking back, what did you learn? Students may have problems relating to this question since they may not see themselves as having made very many “risky decisions.” For some of them, going to college was a risky decision. It certainly represented a major commitment of both time and money. Why did they decide to go to college? How is it working out? What do they think they have learned from the experience? A decision to report a fellow worker for stealing, or for the use of inappropriate language, or a refusal to work overtime might be examples of risky decisions in a work environment, whereas declining to go out with a gang or group of friends or buying a secondhand car might be good examples in a personal context.

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3.

Identify a decision you made that had important unintended consequences. Were the consequences good, bad or both? Should you and could you have done anything differently in making the decision? Very seldom do managers have all the information they need to precisely predict all the consequences of a decision. Even when a manager can assess the likelihood of various consequences, risk exists if the probability of a particular action is less than 100%. Students may describe both positive and negative unintended consequences. Attempt to have them identify or articulate whether the decision was high to low uncertainty and high to low risk. In addition, have students notice whether they used the formal six-stage decision-making model, if they operated purely from intuition, or used some combination of both. In each student’s particular case, ask if one approach would have been more effective than the other would.

4. What effects does time pressure have on your decision making? In what ways do you handle it well and not so well? Time pressure both enhances and inhibits decision making. Students who are procrastinators are likely to respond that they need a deadline or some other form of time pressure in order to make a decision at all. Other students make talk about the fact that making quick decisions may prevent them from making the best decision, because they don’t take time to explore enough options. 5.

Recall a recent decision that you had difficulty making. Describe it in terms of the characteristics of managerial decisions. Students probably will answer this question in very different terms. For example, they might discuss the problems inherent in buying a secondhand car: Lack of structure

There is no specific or structured decision-making process for buying a secondhand car.

Uncertainty

The purchaser, in most cases, knows very little about the car and its condition. Even an expert can be fooled.

Risk

The risk is that they will find they have bought a lemon and thus lost their money.

Conflict

The individual may not want to buy a used car but may not have the money to buy or lease a new one. The individual’s parents may wish him or her to buy a safe, reliable vehicle while a close friend may be urging something sporty.

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6. What do you think are some advantages and disadvantages to using computer technology in decision-making? The advantage of utilizing computers in executing decisions would be that the computer not only makes more information available to the manager for decisionmaking but also enables him or her to apply statistical methodologies to this information. The manager can, for example, input a mass of data into a previously defined model and determine which course of action is consistent with the model. In this sense, computer technology improves the “rationality” of the decision-making process. It is a logical decision given the data provided to the computer and the model that the computer used.

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Disadvantages would include “garbage in, garbage out.” Another disadvantage is where the computer requires judgment or experience on the part of the manager. Judgment cannot be substituted unless an expert system is used. The computer can only handle those aspects of the decision that can be quantified. Many other factors (both organizational and personal) are normally taken into consideration when making a decision. Furthermore, in the end, the manager must still make the final decision. He or she must take into consideration a number of intangible factors before making a final decision. 7.

Do you think that when managers make decisions they follow the decisionmaking steps as presented in this chapter? Which steps are apt to be overlooked or given inadequate attention? What can people do to make sure they do a more thorough job? Figure 4.2 illustrates a six-step process which decision makers should take, beginning with (1) identifying and diagnosing the problem, (2) generating alternative solutions, (3) evaluating alternatives, (4) making the choice, (5) implementing the decision, and (6) evaluating the decision. The key word is “should.” Only rarely does a decision-maker have perfect information and unlimited time in which to make a decision. Most decisions are made under pressure with limited information. As to which steps are apt to be overlooked or given inadequate attention, an argument can be made for each step—under different circumstances: Identifying and diagnosing the problem. While the problem is usually easy to identify, the diagnosis is often bypassed in a rush to implement a change. The result is that managers often implement actions, which do not address the true nature of the problem. 

Generating alternative solutions. The typical manager is often content with two or three whereas further thought might well suggest a far wider range of alternatives—some of them much more creative than those selected. 

Analysis of alternatives. This is possibly the area most overlooked. A manager under pressure is likely to make a decision on qualitative rather than quantitative information and on the available information rather than on perfect information. Furthermore, the analysis is often relatively superficial as opposed to an in-depth evaluation. 

Making the choice. A manager bases his or her decision on the information available at the point in time when a decision has to be made, even if delaying the decision would allow for the gathering of more information and thus a better decision. 

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Implementation of the decision. One often sees wide variations between the original decision and the way it was implemented for two reasons: 

The attention of the individual who made the decision is now often focused on other issues. He or she is no longer focusing on the implementation. •

Implementation is often passed on to a subordinate who may not have a complete understanding of the decision or who may choose to implement it in a very different way from that intended. •

Evaluating the decision. This step is often ignored although it can be a highly valuable step in the learning experience. It is ignored because the manager has other more pressing issues to consider and because there is often a reluctance to conduct a post mortem on one’s actions—especially when the outcome was not the one intended. 

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Managers can do a lot to make sure they do a thorough job. A group meeting, for example, may result in a far better understanding and diagnosis of the problem, and a brainstorming session may result in a far wider, more creative set of alternatives. An analysis of the data needed to make a rational decision will help steps three and four, and a detailed set of implementation procedures accompanied by assigned responsibilities and reporting deadlines will help in implementing the decision. Conducting an evaluation of the decision can be helped by a formalized reporting process (the completion of a form at the end of the project or activity) and by leadership from top management in the interest of ensuring that future decisions are more thorough. 8.

Discuss the potential advantages and disadvantages of using a group to make decisions. Give examples in your experience. Advantages: More information is available when several people are making the decision.  Wider range of perspectives and approaches to problem solving.  Better analysis: “Two heads are better than one.”  Intellectual stimulation: A group session can unleash people’s creativity.  Group members will understand the decision better if they were part of the process.  There will be greater commitment to the decision. 

Disadvantages: Domination of the group process by one individual. A tendency to compromise so that all members of the group are satisfied,  leading too poorer decision-making.  Pressure to avoid disagreement.  Goal displacement with the original goal of the group being replaced by another goal. 

9.

Suppose you are the CEO of a major corporation and one of your company’s oil tanks has erupted, spilling thousands of gallons of oil into a river that empties into the ocean. What do you need to do to handle the crisis? There are a number of very different elements affecting the CEO’s decision-making process under these circumstances, and it may be useful to have the student’s list and prioritize the actions. Students probably will not agree as to the order in which they should be handled. Contact the appropriate local, state, and federal authorities—a number of notifications will be legally required, and this will enable the authorities to mobilize their resources. 

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Alert the communities down river—again so that they can take whatever steps are necessary to minimize the effect of the spill.  Mobilize the company’s own resources to handle the spill—hopefully, the company will have a definitive, written plan of action ready to be implemented.  Prepare a statement for the media indicating the nature of the spill and the steps, which are being taken to minimize the effect.  Ensure that you are available at all time to the media and that you present a realistic and cooperative posture. 

While the spill itself is important, the public relations aspects are equally so and it is important that the CEO handle this aspect of the disaster in a professional manner. The instructor might ask students whether or not they feel the CEO should be totally honest in dealing with the media. Are there dangers inherent in being honest?

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10.

Look at the mistaken assumptions described in Table 3.4. Why do such assumptions arise, and what can be done to overcome these biases? These mistaken assumptions arise because management may: Not be fully aware of the situation.  Not wish to admit (to either itself or to the outside world) that a crisis exists. “If we ignore it, it will go away.”  Have a misplaced belief in their own skills and capabilities or those of their personnel.  Believe (quite sincerely) that the situation, however bad, can be covered up by an effective advertising and public relations campaign. 

11.

Identify some problems you want to solve. Brainstorm with others a variety of creative solutions. This question represents a good opportunity for some lively and amusing discussion. For example, how to get a good grade in this class might be an appropriate topic for discussion! Or how to ask somebody to a dance? Or how to propose marriage? Or you might use the example of the two attorneys who share a reception area and two offices. They want to replace the dark brown color with something more attractive but can’t agree on what color to adopt. Children under 10 can normally suggest 30 or 40 possible solutions (including the shooting of one partner by the other) while college students are usually limited to 20 or less.

PART 1 SUPPORTING CASE SSS SOFTWARE IN-BASKET EXERCISE SUGGESTED RESPONSES TO THE SUPPORTING CASE QUESTIONS Item 1 Student responses will vary. Write a memo to all staff in the department asking staff to come in and introduce themselves. Item 2 Write this information in “note to self.” Recently SSS Software has lost two key personnel, Michael Grant and Janice Ramos from health and hospitals, and finance and banking. How soon will the organization replace Janice Ramos? And with an internal or external hire? Item 3 Memo to Paula Sprague thanking her for this information. It will be valued and kept confidential. This is important for me to have the insight and background of each of

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these managers to better understand their needs and what can be done to improve upon a team effort. Item 4 Memo to Wanda Manners thanking her for the information and asking her to meet with me as soon as possible. “Note to self”: Do we have a problem with “borrowed” algorithms not our design? Item 5 Memo to Paula Sprague thanking her for taking responsibility on this project for C.A.R.E. Item 5 copy No response.

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Item 5C copy No response. Item 6 Voice mail or e-mail to Harry Withers regarding this issue as soon as possible. Item 7 Call Jim Bishop regarding this issue. Set up meeting if needed. Get additional information from Jose Martinez. Item 8 Voice mail to Armand to set up appointment as soon as possible regarding this issue. Get copies of complaints if possible; how many. Item 9 Voice mail to Pat to set up lunch date. Item 10 Memo to Bob Miller to discuss this issue. Need more information as to what was said in the joke. Item 11 Phone call to Lorraine Adams from Westside Hospital regarding conversion of existing software. “Note to self” Michael has offered to do this work (Universal Business Solutions, Inc.) Memo to Paula Sprague, Soto and Woo on C.A.R.E project. Need them and Wilson, if able for project or someone equally qualified FOR Westside Hospital. Item 12 Voice mail to Roosevelt Moore to set up an appointment to talk about this issue. “Note to self” Get information on work record and review before meeting with Roosevelt. Item 13 E-mail or voice mail to set up meeting with Jose Martinez. Get his side of issue then talk with Jim Bishop. Item 14 “Note to self”: John Small recommending Mala Abendano for the position vacated by Janice Ramos. John is involved with Mala. Check work record on Mala. Ask for Paula’s opinion on the matter if Mala applies for position.

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Item 15 E-mail to Roger regarding meeting. “Note to self” review memo of October 15, from Paula Sprague on the management team personnel to propose a group to go to Kenya. Item 16 E-mail to Sharon Shapiro thanking her for the information. “Note to self”: Sharon will keep me updated on the sexual joke issue. May need to review sexual harassment issue with staff. Item 17 No response. Keep for information only.

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LECTURETTE 3.1 – “THE ECO-CARS” The Decision to Catch-up 1. The decision by the Japanese automakers to introduce their eco-car effort into high gear by selling adaptations of current-model cars and sport-utility vehicles equipped with hybrid power trains will occur in the next decade. Honda Motor Co. has decided to sell a hybrid Civic in Japan next year, followed by U.S. automakers. Toyota will have to decide if they are going to compete by introducing a minivan and an SUV within three years. 2. Where’s Detroit? Playing catch-up again. The hybrid decision by U.S. automakers to fight environmentalists’ efforts to toughen federal gas-mileage rules has been the plan of management to become more competitive. U.S. manufacturers are being squeezed by regulations and by competitors who have found a way to sell environmentalism. After borrowing from future allowances to meet federal fueleconomy standards, Ford Motor Co. now must boost mileage in its fleet if it’s to avoid millions of dollars in fines. That’s the reason Ford recently decided to boost by 25% the fuel economy of its SUVs, mostly by improving the efficiency of their gas engines and making new models lighter and more aerodynamic. Hybrid Pickups 1. Ford, GM, and DaimlerChrysler are all scrambling to match Honda and Toyota. Ford plans to introduce a gas-and-electric version of its new Escape SUV that would get 40 mpg, nearly twice the mileage of the gas-powered model. Ford projects to sell as many as 20,000 of the hybrid version annually. The decision has been made by General Motors Corp. to introduce its competitive version of the hybrid automobile in the future. Management has stated it plans to introduce a 20-mpg hybrid version of its hot-selling Chevrolet Silverado. Daimler Chrysler has decided to produce a hybrid Durango SUV to be competitive in this market. 2. Management of the big three points out that Honda and Toyota lose money on each Insight or Prius they sell. Management is hedging by the time its hybrids arrive technology will be more developed and Washington will push it with tax incentives. Daimler Chrysler says it could sell 80,000 hybrid Durango’s if the government turbocharges the market with tax incentives. 3.

Critics state the popularity of the Honda and Toyota cars makes it seem that U.S. automakers are fumbling a huge opportunity. Managerial decision making by the big three has missed it in the past and there’s a good possibility they can make the wrong decision on this one. Hybrids may turn out to be much more than just a stopgap solution. Ultimately, the goal is to make cars that run on fuel cells requiring not one drop of gas, only hydrogen. But carmakers are learning valuable lessons with hybrid cars’ electric systems, which will likely find their way into those nextgeneration vehicles. The decision when consumers first drive eco-cars is whether

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the benefits of owning such a car will exceed the utility derived or one satisfying power of owning such a vehicle. 10 LECTURETTE 3.2 - “EIGHT STEPS TO SUCCESS IN NEGOTIATING” According to Mintzberg an important managerial role is one of decision-making. This important role is analyzed and broken into four steps. One step is that of negotiating where a manager is responsible for negotiating with a labor union, a contractual agreement.

10

Adapted from David Welch “The Eco-Cars”, Business Week, August 14, 1999, p 63-68

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Good negotiating skills are particularly important in today’s volatile business environment. “Americans are the least likely to plan ahead. We’re very impulsive because we’re trying to get more done faster. As a result, we get into conflict sooner. We end up making agreements that don’t stick”, says Kare Anderson, President of The Compelling Communication Group. Consequently, employing the right negotiating tactics is more important than ever. Following are eight fundamental steps to winning at the negotiating game: 1. Take stock of your weaknesses. Most people don’t have a clue about how to get what they want—other than to make demands and dig in their heels. Take time to learn the basics by signing up for a reputable training session. 2. Determine your bottom-line goal. You have to identify the one thing you must come away with. It should be one tangible, concrete objective. If you can’t tell whether or not your goal has been achieved, then it’s not solid enough. 3. Learn as much as possible about the other party. If you’re negotiating with a business, collect company brochures, annual reports, trade journals, and newspapers that cover local business news. You can also search the Internet and commercial databases for information on whom else might be negotiation for the same thing you’re after. 4. Establish a relationship before the negotiation begins. The worst place for the first meeting with the individual with whom you’re negotiating is the negotiation table. Try to have a pre-meeting to get acquainted and let them know you realize this is an important negotiation for both of you and you believe both can benefit by getting a sense of how each other operates. It is also helpful if you get to know the people who are nearest the other party. 5. Create and stick to an agenda. Formulating a blueprint helps keep the discussion on tract and reduces the chances of extraneous issues working their way in. Both parties must have input for blueprints to be acceptable. Make a copy for your consensus and distribute it to the members of both negotiating teams. 6. Don’t let the talks get personal. Emotions can run high when there’s a lot a stake, and it’s easy to vent frustration by lashing out at the other party. The best approach is to sit back and listen, don’t get into it, don’t cave in to the other person, and refuse to fight on their level. Spread out your range of negotiation items. 7. If there’s a stalemate, find the underlying cause. “Stalemates usually develop over small things, not the large matters. Fear and uncertainty are often what kills the deal,” says Michael Hoesly.

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8. When a deadlock looks hopeless, buy time. If there’s a deadlock, take a timeout to think about what’s been said. Take time to review what you’ve been arguing about and try to approach it another way. When all else fails, you can bring in an impartial third party to act as a counter-balance. The experiences and suggestions of business people as well as specialists in the field indicate, negotiators are made, not born. With careful forethought and perhaps a measure of training, just about anyone can develop the ability to win the best deal possible. 11

11

Adapted by Janine S. Pouliot, “Eight Steps to Success in Negotiating, Nation’s Business, April, 1999, 40-42.

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Chapter 3 Managerial Decision Making[1]

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