chapt-2 strategic decisionmaking
TRANSCRIPT
STRATEGIC DECISION MAKING
What is Decision Making?
Decision makingThe act of choosing one alternativefrom among a set of alternatives
Dimensions of Strategic Decisions
• Top management Decisions• Are future oriented• Require Large amount of resources• Affect long term prosperity of the
firm• Usually have multifunctional
consequences
Characteristics of Strategic Decisions
◆ They are elusive problems that are difficult to define precisely. ◆ They require an understanding of the problem to find a viable solution. ◆ They rarely have one best solution, but often a series of possible solutions. ◆ Questions about trade-offs and priorities appear in the solutions. ◆ Solution benefits are difficult to assess as to their effectiveness, in part because
they lack a clear final end point against which effectiveness can be judged. ◆ Other problems in the organization are connected to solutions for a focal
problem. ◆ High levels of ambiguity and uncertainty are associated with solutions. ◆ Realizing hoped for benefits has considerable risk. ◆ Strategic decisions have competing interests that prompt key players to use
political pressure to ensure that a choice aligns with their preferences.
Types of Decision Making
1.Programmed decisionA decision that is fairly structured orRecurs with some frequency (or both)2.Non programmed decisionA decision that is relativelyunstructured and occurs much lessoften than a programmed decision
Decision Making Conditions The decisionmaker faces
conditions of….
Certainty Risk Uncertainty
Level of ambiguity and chances of making a bad decision
Perspectives/models of Decision Making
1. Classical or Rational Model- Managers are logical and rational and
that they make decisions that are in the best interests of the organization.
2. Behavioral Model :-Managers are not always logical and
they use intuition, and personal judgements in making decisions
Assumptions of Rational Model• 1. Decision makers have complete
information about the decision situation and possible alternatives.
• 2. They can effectively eliminate uncertainty to achieve a decision condition of certainty.
• 3. They evaluate all aspects of the decision situation logically and rationally.
Steps in Rational Decision Making Process
• Objectives to be achieved are determined.
• Alternative ways of achieving these objectives are identified.
• Each alternative is evaluated.• The best alternative is chosen
Behavioral Model of Decision Making
1. Administrative Model:- Managers(1)use incomplete and imperfect
information, (2) constrained by bounded rationality, (3) tend to “satisfice” when makingdecisions
• Bounded rationalityA concept suggesting that decisionmakers are limited by their values andunconscious reflexes, skills, and habits
• SatisfyingThe tendency to search for alternativesonly until one is found that meets
some minimum standard of sufficiency
Because of the inherent imperfection of information, bounded rationality, and satisficing, the decisions made by a manager may or may not actually be in the best interests of the organization. A manager may choose a particular location for the new plant because it offers the lowest price and best availability of utilities and transportation. Or she may choose the location because it is located in a community where she wants to live.
Intuition
• An innate belief about something,without conscious consideration
Escalation of commitment
• A decision maker’s staying with a decision even when it appears to be wrong
Scope of Strategic Decision Making