Organizational Decision making

Rationality Approach to Decision-making

The most popular approach to decision-making is a rational model which lays emphasis on an organization's stability, effectiveness as well as the accomplishment of goals. This report from the assignment desk assumes that each individual acts rationally, to achieve the desired goals. He is able to analyze the situation in order to make the optimal choice from the set of alternatives based on the evaluation of the related consequences (Turpin and Marais, 2004). In addition to it, this model also states that the decision maker has enough time to collect the relevant information, evaluate the alternatives, and then reach a solution. Thus, it comprises of four basic steps:

• Knowledge of available set of alternatives;
• Identifying the consequences of each alternative;
• Ordered preferences on the basis of which consequences will be evaluated;
• Lastly, rules through which specific alternatives will be selected.

However, this model has some limitations in assuming that preferences are consistent and stable while in reality, they change with time. Moreover, it also presumes that the decision maker is aware of all possible outcomes of a particular action, while in reality individual's ability to find and process information is limited by available resources as well as his cognitive abilities and skills. Thus, it would be right to say that the rational view is just a part of the decision-making process but not a whole process (Tierney, 2008)... This model can be applied to make the long term decisions that affect the organization to a great extent. 

Contingency approach

This model states that an organization is operating in an environment that is ever-changing and it involves the interaction of various factors that in turn influence business operations. So, the organization continually adapts and interacts with the dynamic environment. Further, this theory assumes that there exists a cause-effect relationship between decisions made and their consequences (Starbuck and Hodgkinson, 2008). An organization's rules and policies are appropriate under different situations which in turn help in decision making. The contingency theory also suggests that while making decisions various factors that are internal and external to the firm are required to be considered. Moreover, these forces are also required to be taken into account when management formulate policies and procedures. This theory is well-suited for the organization in the current business environment.

Bounded Rationality

Bounded rationality assumes that the decision-maker does not always have perfect and complete information and is thus bounded by their values and unconscious habits, reflexes, and skills. This model is characterized by Bounded rationality of two different activities i.e. Satisficing and Searching. Under this, firstly the alternatives are searched and then sequentially evaluated. If the alternatives that have been selected satisfy the minimum criteria, then it is said to be satisfice, and further searching is terminated (Morcol, 2006). This model is based on the following assumptions

• Decision-makers respond to problems instead of finding the reasons
• The individual is limited in terms of cognitive thinking and skills that are required in the search process.
• Time pressure exists due to which incomplete information may be used
• Judgment and intuition may be used to make decisions at certain times

Intuitive decision-making approach

While making certain decisions, an individual faces many challenges such as time constraints, uncertainty, ever-changing conditions, etc due to which one does not have enough time to apply a rational model. Thus, in such circumstances, they use an intuitive model of decision making i.e. individual follows his intuition to decide rather than any conscious or logical reasoning (Turpin and Marais, 2004).

System theory to decision making

The system theory of decision-making suggests that in order to make effective organizational decisions, there must be a specific way of conducting business operations and activities. This framework will assist management to make decisions that are optimal as well as productive. The process of decision-making is complex due to the presence of uncertainty in the environment. For instance, an organization with the view to developing new product faces uncertainties such as whether the product will be successful among consumers or not. So making effective decisions, it requires by business organization to carefully examine the various elements internal and external to the firm and then make productive decisions that will lead to the maximization of revenues (Shapira, 2002).

Brandenburger's Use of Game Theory

This theory suggests that managers can use the policies and principles to formulate new strategies for competing. This can be explained by taking the example of General Motors, an automobile company. The organization was facing increased expenses because of retailer's incentives. The company responded to it by allotting new credit cards through which the cardholder can apply a part of their charges towards purchasing the car. This action developed a new system for the company on the basis of which future decision-making was made easy and efficient (Philip, 2012).
Decision making is highly influenced by risks and uncertainties and thus it plays a major role in the decision-making process.  However, there are many other factors that have a huge impact on decisions. Many experts suggest that in complex situations along with the limited time and inadequate skills and conceptual power facilitate the decision makers to follow the bounded-rationality approach to decision making. In contrast, Herbert Simon views that an individual will be able to make rational and economical decisions when he has adequate information (A Brief History of Decision Making, 2006).  It is also affirmed by researchers that there are various factors that are required to be considered before making decisions such as time factor, cost and budget, available resources, consequences of all the alternatives, etc. For example, if a firm wants to expand its market in international countries, in that case, it is very important to consider the external environmental factors like political, economic, technological, and social factors of the country in which the firm would prefer to operate. In addition to it, policies, and financial budgets are also required to be taken into account so as to become successful in that market. Again after deciding the country in which to set up the business, the organization in order to gain competitive success needs to formulate strategies such as whether to operate alone to make strategic alliances or joint ventures with the domestic enterprises. This decision will be of utmost importance for the organization as the growth and success in a completely new market depends on how well the firm is satisfying the local consumers with its product (Daft, 2009).

There are several constraints on decision making which can either be internal or external that influence the decision-making of the organization. It is thus essential for the firm to examine the internal and external constraints before making decisions. In contrast, if the organization makes decisions without taking into account any one of the factors; this will tarnish its prosperity greatly. For instance, a company came up with a new product and positioned it in the market as a high-quality product. The organization didn't consider the economic downturn and thus quoted the high prices for the same product. Eventually, the company faced losses, and even its basic cost of products was also not recovered. This has further impacted its survival. Therefore with this illustration, it is clear that prior to making any type of decision, it is essential to consider all factors (Henderson and McAdam, 2001)

Importance of decision making in organization

In the present highly competitive and dynamic environment, it has become critical for organizations to survive and sustain.  A business enterprise is required to make decisions that will help in supporting the organization to not only survive but also attain competitive success. Decision-making is an essential activity for enhancing organizational effectiveness in terms of its operations as well as management (Lunenburg, 2011). From commencing the business to the end of it, decision plays a key role in each and every operation and activity. It also helps in formulating the policies and procedures on which the organization will operate providing the framework on which all business activities will be based with the aim to attain the goals. Thus, it is rightly said that decision-making is a complex process that flows into every function of an organization whether it is planning the process, organizing the operations and activities, directing the human resources, or monitoring and controlling the entire organization process (Miller and Ireland, 2004).

The first step involved in the decision-making process is identifying the problem and its causes, then developing a set of alternative decisions followed by evaluation on the basis of its consequences and other associated factors. At last, from the given alternatives, the best one is selected and implemented (Tierney, 2008). This can be explained through examples like a restaurant wanting to increase its customer base. After analyzing the market it was found that consumers are becoming more health conscious so they have reduced eating fast food. Now, the company in order to increase its customer base made decisions to add healthy food items to the menu which further helped in regaining the growth of the restaurant. To decide the strategy with a view to entice more customers, the company analyzed the needs and preferences of consumers as well as the current trends in the market. With the help of this, it made the decisions regarding introducing healthy food items that not only facilitated increasing the customer base but also helped in gaining a competitive edge over other rivals (Tatum and et.al, 2003). Thus, with this example, it is clear that sound decisions help to prosper the organization in the long run. Moreover, the decisions being the critical function of the management depend on the availability of the right information at that right time. actors The other aspect that is important as reflected in the above example is the analysis of the business environment which includes various factors like prevailing market trends and other social factors, economic factors, technological factors, etc.

Decisions are basically classified into programmed and non-programmed. Former decisions are routine or repetitive affecting the daily operations of the organization and thus affecting the smooth functioning of the organization (Morcol, 2006). While the latter decisions are non-recurring and are often made under the specific business situation. These decisions do not rely on particular rules or policies and require a deep understanding of the situation and critical thinking to overcome such situations.  The other classifications of organizational decision making can be strategic, tactical, and operational. The strategic decisions provide the long-term direction to the firm and help in attaining the desired goals effectively and efficiently while the tactical decisions are medium-term and are made in context with the strategies such as deciding on what marketing strategy to adopt, what promotional activities to employ in order to gain competitive success, etc. The operational decisions are short-term and are based on routine activities. These decisions help in making the efficacies in organizational operations as well as their performance (Glassman and et.al., 2007).
Decision-making is the pervasive process that takes place at every level of management. Effective decision helps an organization to avail the potential opportunities before competitors and thus attain a competitive advantage (Philip, 2012). It also provides strategic direction to a firm that in turn leads to the accomplishment of desired goals. In a crisis situation, when a certain business issue arises that affects the functioning of the organization, optimal decision-making helps in exploring a better solution to the problem and therefore helps in offsetting it. In sum, it can be said that decisions when effectively made help in gaining the long term survival and prosperity of the organization (Eikenberry, 2012). Decisions may not provide the desired outcomes many a times, but they would help in managing the risks to a great extent.

In an organization, decisions can be either made by individuals or can be group-based activities. A group decision-making process can be defined as involving others in making decisions (Daft, 2009). It takes at different degrees based on the nature of the issue which needs decisions. Generally, it is believed that involving a group brings diverse views and ideas that in turn help in making effective and productive decision making providing desired growth and success.

Conclusion

From the above discussion on the nature and importance of decision-making in the organization, it can be concluded that decision-making is a critical activity for the management of every organization (Austin, 2006). On the one hand, sound decisions will help the organization achieve the desired success in the long term, while ineffective or unproductive decisions will tarnish the reputation of the organization hindering its survival, growth, and success in such a contemporary market. In addition to, the decision-making process requires various internal and external business environment factors to be analyzed beforehand. The constraints that are within the company are referred to as internal constraints (Eberlin and Tatum, 2007). These can be the availability of finance, the company's rules and policies, systems and procedures, employee skills and capabilities, etc that facilitate decision making. On the other hand, external constraints are dynamic and uncontrollable, but they tend to affect the organization greatly. These can be governance, laws and legal policies of the government, economic conditions, technology, needs and preferences of consumers, buying patterns of consumers, etc. There are several theories proposed by different eminent researchers that guide the organization in the decision-making process and help in making rational decisions. These theories can be applied in accordance with the existing situation and the type of decision (Elbanna and Naguib, 2009)

Reference

• Austin, A., 2006. The Healthy Organization: A Revolutionary Approach to People and Management. Leadership & Organization Development Journal.
• Daft, R.L., 2009. Organization Theory and Design. Cengage Learning.
• Eberlin, R. and Tatum, C. B., 2005. Organizational justice and decision making: When good intentions are not enough. Management Decision.
• Eberlin, R. and Tatum, C. B., 2007. Leadership, ethics, and justice in strategic decision making.  Business Strategy Series.
• Elbanna, S. and Naguib, R., 2009. How much does performance matter in strategic decision-making? International Journal of Productivity and Performance Management.

UPTO50%

Avail The Benefit Today!

To View this & another 50000+ free

Enter Email

Submit