Decision Making Case Study

February 12, 2012

Decision making is one of the fundamental functions of organizations, and specifically the leaders in the organizations. Depending on the rank within the organization, whether it is a shift supervisor,  line manager, division director or the CEO of the company, the magnitude of the decisions they make may vary significantly: from routine production line operations decisions to strategic vision formulation and implementation.

Because of the different nature of the organizational decisions at different levels and functions the tools for problem solving and decision making may differ significantly. For the lower level decisions or some specific functional areas within organizations, e.g. production, logistics, finance, the use of more rational and quantitative techniques may seem both appropriate and sufficient. However, in other organizational functions or at the higher executive levels (e.g. marketing, R&D, corporate strategy and planning) the employment of the more abstract judgment and intuition seems to be more suitable and even required (Hayashi, 2001).

On one hand, all these decisions on different levels and in different functional areas can benefit from the structured approaches offered by the scholars and practitioners in the field. On the other hand, these decisions are subject to the same pitfalls. Therefore, it is extremely important for the decision makers of any level to be familiar with the available frameworks and tools designed to assist in the decision making process, as well as be aware of their limitations and constraints.

In the field of research on decision making in the modern organization there are a few distinct approaches, or models, that try to capture the essence of the process. But in spite of minor variations they all could be divided into two major groups: rational and intuitive models.

While some of the proponents of each approach may be very stringent in their adherence to the selected model (to the extent of completely excluding or ignoring the validity of the other method), there is a nascent consensus that the rational and intuitive approaches do not conflict, but actually complement each other. Each of the approaches could be used at the discretion of the decision maker, depending on the nature of the problem to be solved.  Often the synergy of the two models could be leveraged in making decisions at different stages of solving the same complex problem.

This convergence of the approaches has not been possible until the intuitive models became more recognized in the management science just recently. As is noted in Misconception about Intuition, there was a surge of intuition research in the late 1990s fueled by advancements in psychology and neuroscience research (Sinclair, 2010).

Just to illustrate this process of thought  development in decision making we can refer to two books which were published at different periods and their very titles generally reflect the state of decision making science at the time of publishing. One of the books was published in 1965 and was titled The Rational Manager (Kepner, Tregoe, 1965). The other book was published in 1986 and its title was The Intuitive Manager (Rowan, 1986). As a sign of converging of these two opposite approaches taken by the authors, we can refer to the book by Max Bazerman Managerial Decision Making (Bazerman, 1986) which makes an effort to reconcile these two approaches and draws its recommendations from both rational and intuitive perspectives.

As was noted before, there are a number of approaches to decision making in each of the major groups. Among the many models within the rational approach we could use the one offered by Peter Drucker as an illustration to this conceptual framework (Drucker, 1967). His framework encompasses the main premises of the rational models and offers six steps to effective decision making process in problem solving:

1)      Classifying the problem – generic or unique

2)      Defining the problem

3)      Specifying the “boundary conditions”

4)      Deciding what the right answer should be based on “boundary conditions”

5)      Building the implementation steps into the decision

6)      Testing validity of decision based on feedback from its execution

Likewise, there are many intuitive models that ultimately lean to one of the two conceptual approaches: 1) cognitive, and 2) sensory and affective.  The cognitive treats intuition as the subliminal recognition of previously processed and stored chunks, or patterns, of information (Simon, 1987). The sensory approach emphasizes the creative aspect of intuition (Rowan, 1987).

With all the variety of available models in decision making it is important to remember that every one of them, regardless of whether they are associated with the rational or intuitive approach, can be plagued with the omnipresent phenomenon of bias. In rational and quantitative models involving statistical methods it could be sampling bias, for example. Whereas in intuitive models it could be overconfidence. Therefore the manager has to be aware of these elements that can significantly skew the decision making process,  and stay constantly vigilant and alert to the feedback from the reality.

References:

Hayashi, Alden M. (2001) When to Trust Your Gut. Harvard Business Review on Decision Making p169-187

Sinclair, Marta (2010) Misconceptions About Intuition. Psychological Inquiry, 21: 4, p378 — 386

Drucker, Peter F. (1967) The Effective Decision  Harvard Business Review, Jan/Feb67, Vol. 45 Issue 1, p92-98

Simon, Herbert A. (1987) Making Management Decisions: the Role of Intuition and Emotion  Academy of Management Executive (08963789), Feb1987, Vol. 1 Issue 1, p57-64

Rowan, Roy (1987) The Intuitive Manager. New York, Berkley Books

Kepner, Charles and Bregoe, Benjamin (1965) The Rational Manager Princeton, NJ Kepner-Tregoe, Inc.

Bazerman, Max (1986) Managerial Decision Making. John Wiley and Sons, Inc.