Decision Making in Business

Higher Business Management

Decisions? Managers?

Whatever a manager does, he does through making decisions.

These decisions may be a matter of routine. Indeed he may not even realise that he is making them.

Or they may affect the future existence of the enterprise and require years of systematic analysis. But management is always a decision-making process

Peter F Drucker

Personal Decisions

How many decisions have you made today?

2 minutes to write down as many as possible

Business Decisions

In order to achieve the organisations aims and objectives managers must make decisions …

… but what about?

2 minutes to write down as many as possible

Decision Types

• There are 3 main types …

• But due to popular demand they are not be listed here!

Strategic Decisions

• Long term decisions – looking towards the future

• Set the aims of the organisation

• Made by SMT (CE and BoD)/owners

• No detail about how to achieve

• eg major policy statements

Examples of Strategic Decisions

• What products will we produce in the future?

• Increase market share by 25% in ten years

• Maximise sales

• To have 100% customer satisfaction (or delight)

Planning for the Long Term

• Where are we now?

• Where do we want to be in 5, 10, 15 years?

• What resources do we need to achieve this?

• What changes do we need to make in order to achieve our goals?

• How can we do better than the competition?

Mackie’s of Scotland

• Mackie’s vision is to be a global brand from the greenest company in Britain created by people having fun.

• Mackie’s today is the outcome of effort and foresight of four generations of Mackie’s and their staff.

• Ice Cream is currently the main focus of the business – employing 70 people and producing over 5 million litres of luxury ice cream a year.

Tactical Decisions

• Medium term decisions – assisting the achievement of strategic decision

• Set the objectives of the organisation

• Detail: How are resources to be used?

• Made by middle management

• Subject to change depending on PESTEC factors(later …)

Examples of Tactical Decisions

• To increase or decrease the number of staff employed

• To rename the business

• To issue more shares on the stock market to fund a new factory

• To merge with a competitor

• To increase the selling price

• To reduce costs

Mackie’s of Scotland

• Mackie’s move away from pig farming and milk retailing were tactical decisions in order to achieve the strategic aim of making ice cream the focus of their activities

Operational Decisions

• Day-to-day decisions – made to achieve the objectives (tactical direction)

• Often made in response to changes in circumstances eg secretary is ill and won’t be coming into work

• Operational decision (in this case) might be to transfer another member of the administrative staff to cover her duties

Other Operational Examples

• Arranging work rotas

• Dealing with customer complaints

• Ordering materials from suppliers

Mackie’s of Scotland• Cow welfare is very important, as an unhappy cow does not

produce any milk.

• When the cows are housed during the winter, each cow has its own lying space complete with mattress.

• They have feed available at all times, with fresh food added twice per day.

• Our vet comes on a routine visit once a week and any sick animals are moved to a hospital area.

On a Mission …

A work force must be able to achieve targets and see relevance to their work.

Why?

On a Mission …

• Otherwise they are less productive

• Likely to be demotivated

• May become disruptive

Mission Statement

• A written summary of strategic aims

• Well publicised

• Helps employees understand what the company is working towards

• Often used in marketing the company’s products

Mission … You will accept!!

• Using your research skills find some examples of mission statements and comment on how they have been written.

The Manager’s Role

Describe a manager …

2 minutes to think about this

The Manager’s Role

• A manager:– Gets things done (through others)– Gets things done (with resources)– Controls and supervises– Makes decisions– In charge of subordinates and

department– Is accountable to the owner(s)

Importance of Managers

The quality and performance of the managers determine the success of a business, indeed they determine survival.

Peter F Drucker

The Nature of Managerial Work

• A study of what managers do rather than what they ought to do (Mintzberg 1973)

– Interpersonal role

– Informational role

– Decisional role

5 Functions of Management

• Plans – setting aims, seeing opportunities and problems, devising solutions

• Organises – resources should be in the right place at the right time

• Commands – tell subordinates what to do

• Co-ordinates – everyone working towards the same goals

• Controls – measures, evaluates and compares results

• Delegates – give authority to subordinates

• Motivates – team-work, empowerment, participate in decisions

Studies by Henri Fayol 1913

Effective GROUP Management

Derek Torrington (et al) Studies 1989

Making Decisions

About

ORGANISATIONS

RESULTS

GOALS

UNCERTAINTY

PEOPLE

Structured Decision-Making Model

People Often Go Alone to Dance at the Single’s Club In Edinburgh

Structured Decision-Making Model

• Identify the PROBLEM• Identify the OBJECTIVES• GATHER information• ANALYSE information• DEVISE alternative solutions• SELECT from alternative solutions• COMMUNICATE the decision• IMPLEMENT the decision• EVALUATE

Structured Decision-Making Model

• (1) Identify the Problem– Where do we want to go? Achieve? What is

wrong?

• (2) Identify the Objectives– What is it we want to achieve?

• (3) Gather Information– Extensive collection of internal and external

info

Structured Decision-Making Model

• (4) Analyse Information– What is relevant?

• (5) Devise Alternative Solutions– Different courses of action in order to have

flexibility

• (6) Select from Alternatives– Solution most likely to achieve the objectives

successfully

Structured Decision-Making Model

• (7) Communicate the Decision– to all stakeholders …

• (8) Implement the Decision– Arrange for resources to be in place

• (9) Evaluate– Appraise the effectiveness of solutions and

take remedial action of necessary

Example No. 1 – Computer Games Industry

The problem is a falling market share …

Example No. 2 – Upgrading Technology

Apply the

“POGADSCIE” model

to choose a new

laptop for the staff in

your firm.

SWOT Analysis

Strengths Weaknesses

Opportunities Threats

Internal Factors

External Influences

SWOT Analysis

Strengths

Where organisation performs well

Weaknesses

Where the organisation performs poorly

Opportunities

Profitable future exploits to gain a competitive edge

Threats

• Competitors• Government• Economic forces

Entrepreneurial skills; Quality of SMT; Market Share; Product Range etc

SWOT Analysis

Can be used at different levels:

– Person

– Department

– Product

– A range of products

Used at the first 4 stages

of POGA!

Health Warning!

• All conclusions must be backed up and justified!

• External factors can be assessed in a subjective manner by different people

self confidence to follow business instincts shows

real entrepreneurial

skills

Costs and Benefitsof POGADSCIE and SWOT

Benefits

• No rash decisions

• Decisions made with all relevant facts

• Alternative solutions considered

• Logical process – enhances innovation

Costs

• Ability to collect info (value of)

• Time consuming

• Range of possible solutions difficult in practice

• Can stifle creativity and gut reactions

Constraints on Effective Decisions

• Availability of finance• Existing company policy• Staff may resist change (behaviour/attitude)• Staff may have tunnel vision, can’t handle

complex decisions, fail to consult, indecisive)• Lack of technology

• Political (Government and EU legislation)• Economic environment• Social factors• Technological developments• Environmental changes• Competitors’ behaviour

Which Hat are you?

• Black – all the negative thoughts regarding an issue

• Green –creative suggestions and ideas about the issue

• Blue – control and organise the thinking on an issue

• White – question what the group thinks

• Red – emotional views giving gut feelings

• Yellow – all the positive benefits of the issue

Outcome of Decisions

• Managers make the decision but are also responsible for their outcome!

• Constantly

• Organisations must be flexible in order to be successful

Alter

Evaluate

Review

Decentralised Decision Making

Advantages

• SMT more time for other issues

• Reduced stress and burdens on SMT

• Juniors more prepared for promotion; motivated and confident

• Decisions made quickly

• Relieves SMT from routine decisions

• Junior staff may have better knowledge of area– improved quality decision

Disadvantages

• Decisions not for the benefit of the organisation

• Lack of experience

• Not all managers willing

• Procedures carried out differently (ie not standard) in different branches

Quality Decisions

• Managers who are capable - training

• Ability to use decision-making techniques

• Quantity and quality of information

• Level of risk acceptable

• Personal interests of decision-maker

ICT in Decision Making

• Store, Retrieve, Process and Print

• ‘What if?’ situations (Excel)

• Internet – trends/competitors’ products

• Reporting and Presentation Packages

• Too much info? (wheat from the chaff)

• Email bombardment – easy to send to everyone!

Value of Information

Timely

Accurate

Appropriate

Available

Complete

Concise

Cost-effective

Objective

CccOAaaT

Aids to Decision Making Aids: Brainstorming

Ground rules:

– Focus on quantity: more ideas equals more chance of an effective solution

– Withhold criticism: focus on extending or adding to ideas

– Welcome unusual ideas: suspend all assumptions

– Combine and improve ideas: a single better good idea.

A group of people get together to try

and solve a problem.

Aids to Decision Making: PEST(EC)

What do you mean by PEST?

Aids to Decision Making: PEST(EC)

… further detail of Opportunities

and Threats!

Political

• Government type and stability

• Environmental/consumer protection legislation

• Levels of bureaucracy and corruption

• Social and employment legislation

• Taxation policy

• Changes in the political environment

Economic• Stage of the business cycle

• Current/projected economic growth, inflation and interest rates

• Unemployment and labour supply

• Labour costs

• Disposable income and distribution

• Globalisation

Social-Economic

• Population growth rate and age profile

• Population health, education and social mobility

• Population employment patterns, job market freedom and attitudes to work

• Social attitudes and social taboos

• Lifestyle choices

Technological

• Impact of emerging technologies

• Impact of Internet, reduction in communications costs (remote working)

• Research and development activity

Congratulations

You have completed

Decision Making in Business

in

Higher Business Management