CHAPTER 3: INFORMATION AND DECISION-MAKING

© John Wiley & Sons Canada, Ltd.

Business Leadership: Management FundamentalsJohn R. Schermerhorn, Jr., Barry Wright, and Lorie Guest

o Understand the role of information in the management process

o Understand how managers use information to make decisions

o Use the steps in the decision-making process

o Understand the current issues in managerial decision-making

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PLANNING AHEAD —

CHAPTER 3 LEARNING

GOALS

• Knowledge and knowledge workers provide a 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

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• Knowledge and intellectual capital are irreplaceable organizational resources

• The productivity of knowledge and knowledge workers depends on:– Computer competency– Information competency

INFORMATION AND KNOWLEDGE — BASIC LINKAGES (CONT.)

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• Data– Raw facts and observations

• Information– Data made useful for decision-making

• Information drives management functions• Characteristics of useful information:– Timely– High quality– Complete– Relevant– Understandable

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WHAT IS USEFUL INFORMATION?

• Information Technology– Helps to acquire, store, process and transmit

information

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WHAT IS INFORMATION TECHNOLOGY?

FIGURE 3.1 INTERNAL AND EXTERNAL INFORMATION NEEDS OF AN ORGANIZATION

• Facilitation of communication and information sharing

• Operating with fewer middle managers• Flattening of organizational structures• Faster decision making• Increased coordination and control

IMPLICATIONS OF IT WITHIN ORGANIZATIONS

• Helps with customer relationship management

• Helps organizations with supply chain management

• Helps in monitoring outsourcing and other business contracts

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IMPLICATIONS OF IT FOR RELATIONSHIPS WITH EXTERNAL ENVIRONMENT

• Quick decision-making at lower levels translate into higher profit margins

• Top level management well informed

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IMPLICATIONS OF IT FOR RELATIONSHIPS WITH INTERNAL ENVIRONMENT

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CEO JOHN CHAMBERS (HARVARD BUSINESS)

Teamwork and Collaboration, Harvard Business Publishing Series

(external link)

• Information exchanges with the external environment:– Gather intelligence information– Provide public information

• Information exchanges within the organization:– Facilitate decision-making– Facilitate problem solving

INFORMATION NEEDS OF ORGANIZATIONS

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• Information system– Use of the latest IT to collect, organize, and

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

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Management 2e - Chapter 13

FIGURE 3.3 INFORMATION TECHNOLOGY IS BREAKING BARRIERS AND CHANGING ORGANIZATIONS.

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• Planning advantages:– 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 co-ordination and integration

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MANAGERIAL ADVANTAGES OF IT UTILIZATION

• Leading advantages:– Improved communication with staff and

stakeholders– Keeping objectives clear

• Controlling advantages:– More immediate measures of performance

results– Allows real-time solutions to performance

problems

MANAGERIAL ADVANTAGES OF IT UTILIZATION (CONT.)

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Management 2e - Chapter 13

FIGURE 3.4 THE MANAGER AS AN INFORMATION-PROCESSING NERVE CENTRE

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• Problem solving:– The process of identifying a discrepancy between

actual and desired performance and taking action to resolve it

• A decision:– A choice among possible alternative course of

action• A performance deficiency:– Actual performance being less than desired

performance• A performance opportunity:– Actual performance being better than desired

performance

MANAGERS AS PROBLEM-SOLVERS

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• 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

PROBLEM-SOLVING APPROACHES OR STYLES

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Systematic Thinkers• Rational• step-by-step• analytical• breaks problems into

smaller components

TYPES OF THINKING

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Intuitive Thinkers• Rely on hunches and

feelings• Flexible and

spontaneous

• See “big picture”

Multidimensional Thinkers

• Multidimensional thinking applies both intuitive and systematic thinking

• Effective multidimensional thinking requires skill at strategic opportunism

• Sensation Thinkers emphasize the impersonal rather than the personal and take a realistic approach to problem solving.

• Intuitive Thinkers are comfortable with abstraction and tend to be idealistic. Have a spontaneous fashion.

• Intuitive Feelers prefer broad and global issues and are comfortable with intangibles.

• Sensation Feelers emphasize analysis and human relations and tend to be realistic and prefer facts.

COGNITIVE STYLES

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FIGURE 3.6 DIFFERENT COGNITIVE STYLES IN DECISION-MAKING

• Apply solutions that are readily available from past experiences to solve structured problems

• Structured problems are ones that are familiar, straightforward, and clear with respect to information needs

• Best applied to routine problems that can be anticipated

PROGRAMMED DECISIONS

• Develop novel solutions to meet the demands of unique situation that present unstructured problems

• Unstructured problems are ones that are full of ambiguities and information deficiencies

• Commonly faced by higher-level management

NONPROGRAMMED DECISIONS

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• A crisis involves an unexpected problem that can lead to disaster if not resolved quickly and appropriately

• 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”

CRISIS DECISION-MAKING

• Certain environments:– Offer complete information about possible action

alternatives and their outcomes• 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

DECISION ENVIRONMENTS

FIGURE 3.7 THREE ENVIRONMENTS FOR MANAGERIAL DECISION-MAKING AND

PROBLEM SOLVING

• Identify and define the problem• Generate and evaluate possible solutions• Make decision and conduct ethics double check• Implement the decision• Evaluate results

FIVE-STEP DECISION-MAKING PROCESS

FIGURE 3.8 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

DECISION-MAKING PROCESS

Step 2: Generate and evaluate possible solutions• Potential solutions are formulated 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

DECISION-MAKING PROCESS

Step 2: Generate and evaluate possible solutions (cont.)• Criteria for evaluating alternatives:

– Benefits– 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

DECISION-MAKING PROCESS

Step 3: Decide on a preferred course of action• Classical decision model– 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

DECISION-MAKING PROCESS

Step 3: Decide on a preferred course of action (cont.)• Behavioural decision model– 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

DECISION-MAKING PROCESS

FIGURE 3.9 DIFFERENCES IN THE CLASSICAL AND BEHAVIOURAL MODELS OF MANAGERIAL DECISION

MAKING

Step 4: Implement the decision solution• Involves taking action to make sure the solution

decided upon becomes a reality• Managers need to have willingness and ability to

implement action plans• Lack-of-participation error should be avoided

DECISION-MAKING PROCESS

Step 5: Evaluate results• Involves comparing actual and desired

results• 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

DECISION-MAKING PROCESS

• Creativity:– The generation of a novel idea or unique

approach that solves a problem to take advantage of an opportunity

–More likely:• Task expertise – something one is good at

or knows about• Task motivated – people work

exceptionally hard to resolve a problem or exploit and opportunity

– Organizations should create an environment that supports and encourages creativity

CREATIVITY IN DECISION-MAKING

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Super Soaker inventor, Lonnie Johnson

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- DARRYL F. ZANUCK, HEAD OF 2OTH CENTURY FOX, 1946

“Television won’t be able to hold onto any market it captures after the first six months. People will soon get tired of the staring into a box every night.”

“That’s an amazing invention, but who would ever want to use one of them.”

- US PRESIDENT RUTHERFORD B. HAYES, AFTER PARTICIPATING IN A TRIAL TELEPHONE CONVERSATION

BETWEEN WASHINGTON AND PHILADELPHIA, 1876

THOMAS J. WATSON SR., CHAIRMAN OF IBM, 1943

“I think there is a world market for about five computers.”

RIGHT BRAIN VS. LEFT BRAIN

Right Brain

• Imagination• Intuition• Spontaneity• Emotion

Left Brain

• Logic• Order• Method• Analysis

CHARACTERISTICS OF CREATIVE PEOPLE

• Work with high energy• Identify problems, plan,

make decisions• Hold ground in face of

criticism• Accept responsibility for

what happens• Be resourceful, even in

difficult situations• Use both systematic and

intuitive in problem-solving

• Think “outside the box” • Synthesize and find

correct answers • Look at divers ways to

solve problems• Transfer learning from

one setting to others• Be objective, willing to

“step back” and question assumptions

Question: “What is the difference between you and the average person?”Response: “If you asked the average person to find a needle in the haystack, the person would stop when he or she found a needle. I, on the other hand, would tear through the entire haystack looking for all the possible needles."

ALBERT EINSTEIN’S NEEDLE IN THE HAYSTACK

What is one-half of thirteen?

ACTIVITY

• 6.5• Six and one-half• Thir & teen = 4 (4 letters on each side)• 13 = 1,3• XI II = 11, 2• XIII = 8, 8 (Halving horizontally gives us 8 on

the top and 8 on the bottom)

ACTIVITY (CONT.)

CREATIVITY EXERCISE

The diagram represents twelve matchsticks positioned to represent a square made up of four equal squares. Can you, by moving only three of these sides, make three equal-sized squares?

ACTIVITY 1

SOLUTION

2 3

1

• Add one line to the following to make it into a 6.

ACTIVITY 2

I X

SOLUTION

S I X

GROUP DECISIONS

Advantages:• Greater amounts of

information, knowledge and expertise are available

• Expand number of alternatives

• Avoids tunnel vision• Increase understanding

and acceptance of outcomes

• Increase commitments of members to work hard

Disadvantages:• Social pressures to

conform• Minority domination

may occur• Decision making takes

longer thus more costly

• Individual lacks expertise or information• Problem is unclear and hard to define• Acceptance by others needed for effective

implementation• Time is sufficient for group involvement

WHEN GROUP DECISION-MAKING WORKS BEST

• Any decision should meet “ethics double check” mentioned in step 3 of 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 or on the Internet?– Think of a person you know or know of (in real

life or fiction) who has the strongest character and best ethical judgement. Then ask yourself – what would that person do in your situation?

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

ETHICAL DECISION MAKING

• Considering the ethics of a proposed decision may result in better decisions and prevention of costly litigation

• Ethical decisions satisfy the following criteria:– Utility– Rights– Justice– Caring

ETHICAL DECISION MAKING (CONT.)

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