Schermerhorn Mgmt9 Ch07

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Management, 9/eJohn R. Schermerhorn, Jr.

Chapter 7:

Prepared by: Jim LoPresti

University of Colorado, Boulder

Published by: John Wiley & Sons, Inc.

Chapter 7: Information and Decision Making

Planning Ahead — Chapter 7 Study Questions

�What is the role of information in the management process?

�How do managers use information to make decisions?

Management 9/e - Chapter 7 2

to make decisions?

�What are the steps in the decision-making process?

�What are the current issues in managerial decision making?

Study Question 1:What is the role of information in the management process?

� Information and knowledge — basic linkages:� Knowledge and knowledge workers provide a

decisive competitive factor in today’s economy.


decisive competitive factor in today’s economy.

� Knowledge worker.

� Someone whose value to the organization rests with intellect, not physical capabilities.

� Intellectual capital.

� Shared knowledge of a workforce that can be used to create wealth.


� Information and knowledge — basic

linkages (cont.)

� Knowledge and intellectual capital are

irreplaceable organizational resources.


irreplaceable organizational resources.

� The productivity of knowledge and knowledge

workers depends on:

� Computer competency.

� Information competency.


� Implications of IT within

organizations:

� Facilitation of communication and

information sharing.


information sharing.

� Operating with fewer middle managers.

� Flattening of organizational structures.

� Faster decision making.

� Increased coordination and control.

Figure 7.1 Information technology is breaking

barriers and changing organizations.



� Implications of IT for relationships

with external environment:

� Helps with customer relationship


management.

� Helps organizations with supply chain

management.

� Helps in monitoring outsourcing and

other business contracts.


� How IT is changing the office …

� Progressive organizations actively use IT to

help achieve high performance in uncertain


environments.

� IT has dramatically changed nature of offices.

� Key developments in networked offices:

� Instant messaging.

� Peer-to-peer file sharing (P2P).

Study Question 2: How do managers use

information to make decisions?

�What is useful information?� Data.

� Raw facts and observations.

� Information.� Data made useful for decision making.

� Information drives management


� Information drives management functions.

� Characteristics of useful information:� Timely.� High quality.� Complete.� Relevant.� Understandable.



� Information needs of organizations.

� Information exchanges with the external environment:

� Gather intelligence information.


� Gather intelligence information.

� Provide public information.

� Information exchanges within the organization:

� Facilitate decision making.

� Facilitate problem solving.



� Basic information system concepts:

� Information system.

� Use of the latest IT to collect, organize, and

distribute data for use in decision making.


distribute data for use in decision making.

� Management Information System (MIS).

� Specifically designed to meet the

information needs of managers in daily

decision making.



� Basic information system concepts (cont.):

� Decision Support System (DSS).

� An interactive information system that


� An interactive information system that allows users to organize and analyze data for solving complex and sometimes unstructured problems.

� Group decision support system (GDSS) facilitates group efforts to solve complex and unstructured problems.

� GDSSs use groupware.



� Basic information system concepts

(cont.):

� Artificial intelligence (AI)

Computer systems with the capacity to


� Computer systems with the capacity to

reason the way people do.

� Expert systems (ES).

� Software systems that use AI to mimic

the thinking of human experts.



� Basic information system concepts (cont.):

� Intranets and corporate portals.

� Allow employees, by password access, to share

databases and communicate electronically.

� Extranets and enterprise portals.


� Extranets and enterprise portals.

� Allow communication and data sharing between

the organization and the external environment.

� Electronic data interchange (EDI).

� Uses controlled access to enterprise portals and

supporting software to enable electronic

transactions between businesses.



�Managerial advantages of IT utilization:

� Planning advantages.

� Better and more timely access to useful


� Better and more timely access to useful information.

� Involving more people in planning.

� Organizing advantages.

� More ongoing and informed communication among all parts of the organization.

� Improved coordination and integration.



�Managerial advantages of IT utilization (cont.):� Leading advantages.

� Improved communication with staff and stakeholders.


� Improved communication with staff and stakeholders.

� Keeping objectives clear.

� Controlling advantages.� More immediate measures of performance results.

� Allows real-time solutions to performance problems.

Figure 7.2 The manager as an information-

processing nerve center.


Study Question 2: How do managers use information to make decisions?

� A performance deficiency is …� Actual performance being less than desired

performance.

� A performance opportunity is …� Actual performance being better than desired

performance.


� Actual performance being better than desired performance.

� Problem solving is …� The process of identifying a discrepancy

between actual and desired performance and taking action to resolve it.

� A decision is …� A choice among possible alternative course of

action.



� Programmed decisions.

� Apply solutions that are readily available from

past experiences to solve structured problems.

� Structured problems are ones that are familiar,


� Structured problems are ones that are familiar,

straightforward, and clear with respect to

information needs.

� Best applied to routine problems that can be

anticipated.



� Nonprogrammed decisions.

� Develop novel solutions to meet the

demands of unique situation that

present unstructured problems.


present unstructured problems.

� Unstructured problems are ones that

are full of ambiguities and information

deficiencies.

� Commonly faced by higher-level

management.



� Crisis decision making.� A crisis involves an unexpected problem that can lead to disaster if not resolved quickly and appropriately.

Rules for crisis management:


� Rules for crisis management:

�Figure out what is going on.

�Remember that speed matters.

�Remember that slow counts, too.

�Respect the danger of the unfamiliar.

�Value the skeptic.

�Be ready to “fight fire with fire.”



� Decision environments:

� Certain environments.

� Offer complete information about possible action alternatives and their outcomes.

� Risk environments.


� Risk environments.

� Lack complete information about action alternatives and their consequences, but offer some estimates of probabilities of outcomes for possible action alternatives.

� Uncertain environments

� Information is so poor that probabilities cannot be assigned to likely outcomes of known action alternatives.

Figure 7.3 Three environments for managerial

decision making and problem solving.




� Problem-solving approaches or styles:

� Problem avoiders.

� Inactive in information gathering and solving

problems.


� Problem solvers.

� Reactive in gathering information and solving

problems.

� Problem seekers.

� Proactive in anticipating problems and

opportunities and taking appropriate action to gain

an advantage.



� Systematic versus intuitive thinking.

� Systematic thinking approaches problems in a

rational, step-by-step, and analytical fashion.

� Intuitive thinking approaches problems in a


Intuitive thinking approaches problems in a

flexible and spontaneous fashion.

� Multidimensional thinking applies both intuitive

and systematic thinking.

� Effective multidimensional thinking requires

skill at strategic opportunism.

Study Question 3: What are the steps in the

decision-making process?

Five-step decision-making process:

� Identify and define the problem.

� Generate and evaluate possible

solutions.


solutions.

� Choose a preferred course of action

and conduct the “ethics double check.”

� Implement the decision.

� Evaluate results.

Figure 7.4 Steps in managerial decision making and

problem solving.




� Step 1 — identify and define the problem.

� Focuses on information gathering, information processing, and deliberation.


� Decision objectives should be established.

� Common mistakes in defining problems:

� Defining the problem too broadly or too narrowly.

� Focusing on symptoms instead of causes.

� Choosing the wrong problem.



� Step 2 — generate and evaluate possible solutions.� Potential solutions are formulated and more information is gathered, data are analyzed , the advantages and


more information is gathered, data are analyzed , the advantages and disadvantages of alternative solutions are identified

� Approaches for evaluating alternatives:� Stakeholder analysis.

� Cost-benefit analysis.



� Step 2 — generate and evaluate possible solutions (cont.).� Criteria for evaluating alternatives:

� Benefits.

� Costs.


� Costs.

� Timeliness.

� Acceptability.

� Ethical soundness.

� Common mistakes:

� Selecting a particular solution too quickly.

� Choosing a convenient alternative that may have damaging side effects or may not be as good as other alternatives.



� Step 3 — decide on a preferred

course of action.

� Classical decision model.

Managers act rationally in a certain world.


� Managers act rationally in a certain world.

� Managers face clearly defined problems

and have complete knowledge of all

possible alternatives and their

consequences.

� Results in an optimizing decision.



� Step 3 — decide on a preferred course of action (cont.).� Behavioral decision model

� Managers act in terms of what they perceive about a given situation.


� Managers act in terms of what they perceive about a given situation.

� Recognizes limits to human information-processing capabilities.

� Cognitive limitations.

� Bounded rationality.

� Results in a satisficing decision.



� Step 4 — implement the decision solution.

� Involves taking action to make sure the

solution decided upon becomes a reality.


solution decided upon becomes a reality.

� Managers need to have willingness and ability

to implement action plans.

� Lack-of-participation error should be avoided.

Figure 7.5 Differences in the classical and behavioral

models of managerial decision making.




� Step 5 — evaluate results.

� Involves comparing actual and desired

results.

Positive and negative consequences of


� Positive and negative consequences of

chosen course of action should be

examined.

� If actual results fall short of desired

results, the manager returns to earlier

steps in the decision-making process.

Study Question 4: What are the current issues in

managerial decision making?

� Types of heuristics for simplifying decision making:

� Availability heuristic.

� People use information “readily available” from memory as a basis for assessing a current event


memory as a basis for assessing a current event or situation.

� Representativeness heuristic.

� People assess the likelihood of something happening based upon its similarity to a stereotyped set of occurrences.

� Anchoring and adjustment heuristic.

� People make decisions based on adjustments to a previously existing value or starting point.



� Escalating commitment.

� The tendency to increase effort and apply more resources to a course of action that is not working.

Ways to avoid the escalation trap:


� Ways to avoid the escalation trap:

� Set advance limits and stick to them.

� Make your own decisions.

� Carefully determine why you are continuing a course of action.

� Remind yourself of the costs.

� Watch for escalation tendencies.



� Potential advantages of group decision making:� Greater amounts of information, knowledge, and expertise are available.


knowledge, and expertise are available.

� More action alternatives are considered.

� Increased understanding and acceptance of outcomes.

� Increased commitment to implement final plans.



� Potential disadvantages of group

decision making:

� Pressure to conform.


� Pressure to conform.

� Minority domination may occur.

� Decision making takes longer.



� Ethical decision making.

� Any decision should meet “ethics double check.” mentioned in step 3 of the decision-making process.


the decision-making process.

� How would I feel if my family found out about this decision?

� How would I feel if this decision were published in the local newspaper?

� Any discomfort in answering these questions indicates the decision has ethical shortcomings.



� Ethical decision making (cont.)� Considering the ethics of a proposed decision may result in better decisions and prevention of costly litigation.

Ethical decisions satisfy the following


� Ethical decisions satisfy the following criteria:� Utility.

� Rights.

� Justice.

� Caring.



� Knowledge management.

� Processes through which organizations develop, organize, and share knowledge to achieve competitive advantage.

Chief Knowledge Officer (CKO)


� Chief Knowledge Officer (CKO)

� Energizes learning processes.

� Manages and enhances organization’s intellectual assets.

� Knowledge management requires a culture that values learning and fosters a learning organization.

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Schermerhorn Mgmt9 Ch07

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