A note on decision-making
The purpose of presenting decision making processes in this way is to give those who wish for it a full evaluation of the issues and factors involved.
The decision making process is more complex than might at first appear. Whatever the size, nature or purpose of the organisation, and management style adopted, effective decision-making processes are required. Decisions are taken at all levels - strategic and policy; operational, divisional and departmental; managerial and supervisory; and individual. Whatever the level, there are certain fundamental considerations to be considered if the process is to be effective and successful. There are also different stages that have to be understood and followed.
This is the context in which elements and process are considered as follows (see Figure 7.1).
PROGRESSION 2. PROCESS
Purpose: to draw the distinction between the two elements of progress and process. The former is a schematic approach; the latter is that from which the former arises, and which refines it into its final format. Effective and successful decision-making requires the confidence that is generated by continued operation of the process.
Figure 3 A Decision-Making Model
Decision-making, organisations and their environment
The key features are as follows; and each has to be considered in its full context and in the light of:
- what organisations and their managers would like to do
- what is possible in the circumstances
- what is not possible in the circumstances
- personal choices, and self interest (enlightened and otherwise)
- demands of key and dominant stakeholders
- external and internal pressures, drives and restraints
Problem or issue definition
This is the starting point of the process. Once this is defined, the likely effects and consequences of particular courses of action can begin to be understood. Failure to do this may lead to considerable waste of time, effort and resource. This means establishing clear, achievable and acceptable objectives, and relating these to the full context.
Management by Objectives
One approach was – and remains – management by objectives. The concept of management by objectives grew out of the attention given by Drucker and others to the need for establishing means by which the success and failure of managerial performance could be measured. It also provided the means for focusing on results rather than activity, by translating corporate objectives into measures of individual, group and departmental performance. It concentrated on:
- Key tasks, key results, performance standards and area of activity. It also provided for control data, the availability and use of information against which task performance could be measured. These were established in both quantitative (measurable) and qualitative (not so easily measurable) areas.
- Work improvement plans, setting key tasks against action plans, target dates, and again using control data to monitor performance.
- Regular performance reviews based on participation and agreement and concentrating on future directions as well as assessment of the present.
- Potential reviews and previews, based on concepts of career development and succession planning, and concerned with the capability and likelihood of success in the next job (whatever that was to be). This included attention to training and development needs, as well as attention to performance outputs and requirements.
The main pitfalls and criticisms of the approach are:
- That it tends to cast activities in stone unless attention is also paid to the need for flexibility, dynamism, adaptability and responsiveness.
- That it tends to assume a state of stability over the period; the process is easily disrupted in practice by changes in superior subordinate relations, new work demands and priorities, operational constraints and crises, the changes in technology and work practices.
- That is can be very bureaucratic and time-consuming to establish. This tends to reinforce the perception that once established, it is to be religiously followed because so much time and resource has been taken to set it up in the first place. People do not like to perceive that their time has been wasted.
- That is focuses on objectives in ways that leave little room for judgement or initiative. It also does not address the key managerial issues of sympathy, empathy, identity and understanding of the broad context.
The tangible aspects of managing by objectives are as follows.
- Market standing, reputation and position, sales performance.
- Innovation, enterprise, pioneering, research and development, general attention to the future.
- Productivity and output performance.
- Use of physical human premises, capital and other financial resources.
- Productivity, profitability and effectiveness.
The intangible aspects of managing by objectives are as follows.
- Managerial performance and development.
- Worker performance and attitude.
- Public responsibility.
Attention is necessary in each area. While the balance will vary between organisations, neglect in any one area is likely to weaken the whole. It is also designed to ensure that the organisation is not blinded by extremes of performance in one area to the detriment of the others. For example, excellent sales performance may lead to feelings of complacency and lack of attention to the need for new products when the current range becomes obsolete. Conversely, poor sales performance may be seen in isolation as a crisis; or as long as the rest of the activities are considered to be fundamentally sound, this would lead to focusing managerial attention to bring this aspect of performance up to the standards of the rest.
Much of this depends on culture, structure, environmental and other pressures on the organisation or department involved. It also depends on ways of working and the personalities and groups involved. There may also be key groups - staff, customers, vested interests, pressure groups - who must be consulted on particular matters. Not to do this, in spite of the fact that the decision may be 'right' is likely to minimise or even nullify the whole effect. One approach is to asses the conditions under which the process is to operate as fully as possible. SWOT or PEST can be used; and Cartwright (2001) takes a more detailed approach still to assessing the organisational, environmental and operational factors, features and constraints under which activities have to be conducted and decisions taken. He identified a ten-point approach under the acronym SPECTACLES as follows.
- Social: changes in society and societal trends; demographic trends and influences.
- Political: political processes and structures; lobbying; the political institutions of the UK and EU; the political pressures brought about as the result of, for example, the Social Charter, market regulation.
- Economic: referring especially to sources of finance; stock markets; inflation; interest rates; government and EU economic policy; local, regional, national and global economies.
- Cultural: international and national cultures; regional cultures; local cultures; organisational cultures; cultural clashes; culture changes; cultural pressures on business and organisational activities.
- Technological: understanding the technological needs of business; technological pressures; the relationship between technology and work patterns; the need to invest in technology; communications; e-commerce; technology and manufacturing; technology and bioengineering; technological potential.
- Aesthetic: communications; marketing and promotion; image; fashion; organisational body language; public relations.
- Customer: consumerism; the importance of analysing customer and client bases; customer needs and wants; customer care; anticipating future customer requirements; customer behaviour.
- Legal: sources of law; codes of practice; legal pressures; product liability; service liability; health and safety; employment law; competition legislation; European legal pressures; and whistle blowing.
- Environmental: responsibilities to the planet; responsibilities to communities; pollution; waste management; farming activities; genetic engineering; cost benefit analyses; legal pressures.
- Sectoral: competition; cartels, monopolies and oligopolies; competitive forces; cooperation within sectors; differentiation; and segmentation.
Cartwright states that his intention is: 'to widen the scope of analysis that needs to be carried out in order to include a more detailed consideration of the environment and culture within which an organisation must operate, the customer base, competition within the sector, and the aesthetic implications, both physical and behavioural, of the organisation and its external operating environment'.
This approach requires managers to take a detailed look at every aspect of their operations within their particular environment and niche. It requires managers to understand fully the broadest range of environmental constraints within which they have to conduct effective operations. It is also much more likely to raise specific, precise, detailed - and often uncomfortable - questions that many managers (especially senior managers) would rather not have to address.
Above all, the approach can be used by managers at any organisational level in order to make themselves think more deeply about all the issues and constraints present in their own particular domain, in order to be able to operate effectively.
Source: R. Cartwright (2001) Mastering the Business Environment - Palgrave Masters
Time is involved heavily in process determination. There is also a trade off between the quality and volume of information that can be gathered and the time available to do this. The longer the timescale, the better the chance of gaining adequate information and considering it and evaluating it effectively. However, this also increases the cost of the eventual course of action. On the other hand, a quick decision may involve hidden extras at the implementation stage if insufficient time has been spent on the background.
Organisational and managerial timescales
Organisation and managerial time is viewed from a variety of points of view as follows.
- Steady-state: the total time frame required in order to engage in, produce, deliver, develop and enhance activities.
- Produce-non-productive balance: the amount of time that is actually taken on productive activities; the amount of time that is taken on non-productive activities; the balance of this; and the reasons for this.
- Maintenance time: in which periods of equipment and technology maintenance are in-built to organisational activities.
- Downtime: in which activities are not taking place. It is again essential to establish the reasons for this.
- Development time: as a proportion or percentage of total time available to the organisation; and again, subject to continuous monitoring, review and evaluation.
- The primary function/non-primary function balance: in which organisations assess the volume of total time available to them, in terms of the amount of time spent on dealing with production, service and customer management activities; and the amount of time spent on administration and support.
- Wasted time: all organisations have this, and it is essential that this part of time management is assessed in order to understand the reasons for this, and where wastage can be reduced.
These act as a general discipline on the organisation and as specific performance constraints on groups and individuals. Timescales also have to be considered when specific decisions are being taken and implemented; whatever is considered must be capable of achievement and implementation in the time allowed.
Very few decisions are taken with perfect information; conversely, decisions made without any information are pure guesswork. Both quality and volume of information are required; and means for the understanding, evaluation and review of that which is gathered are also essential.
The result of the process is that alternative courses of action become apparent. At the very least there is always the choice of doing nothing.
This is the point of action. It arises as the result of working through each of the previous elements. The choice made affects future courses of action; as well as the choice, the reasons for which it was made should be understood.
This is an attempt to provide a rationale for courses of action that often have to be taken in ways that are not fully logical. Part of the purpose is therefore to recognise where the non-rational elements lie and, in recognising these, how they can best be accommodated. It is not a prescription for providing perfect decisions. It is rather, the means by which opportunities and consequences of following particular courses of action may be understood, assessed and evaluated.
Risk and uncertainty
Uncertainty occurs where no information exists. This in itself underlines the need to gain as much knowledge and understanding as possible, in advance of choosing a particular course of action. However, there is an element of risk in all decision taking. This is reduced by the quality and volume of information available, and the accuracy of its evaluation.
Purpose: to illustrate proposed courses of action, and likely and possible outcomes of them, from a given starting point.
In this particular example, option X - CANCEL - is evidently not on the agenda, as the consequences of this are not extrapolated.
What is illustrated are the ramifications that accrue once the decision is taken to progress; and assuming two positive choices (i.e. other than cancellation) at each stage.
The tree is a useful illumination of the complexity and implications of the process, and of the reality of taking one decision.
Figure 4 The Decision Tree
Participation and consultation
This is necessary where a wide measure of support from among the workforce community or public at large is required. The purpose here is to generate understanding and acceptance of courses of action.
It may also be necessary to consider:
- legal constraints, affecting all aspects of business and organisation practice;
- public interest, public pressure, lobby and special interest groups;
- economic, social and political groups - including consumer groups, environmental lobbies, local and public authorities, public agencies and statutory bodies, industrial lobbies and staff representative bodies;
- committees and other formally constituted boards.
This is where the process is limited or constrained, based on each of the factors indicated. The normal result is that the organisation alters, adjusts or limits its activities in some way as the result.
Sufficient time and resource must be set aside to deal with these, if what is proposed is to be supported and accepted.
Effective decisions are therefore arrived at through a combination of the preferred and chosen direction, together with recognising and accommodating a means which this chosen direction can be made successful. A large part of the consultation, participation, staff and public communication processes are directed at generating understanding and acceptance of particular courses of action. Organisations must accept that everyone is much more likely to follow a course of action if this is understood. If they do not understand what they are being asked to do, people tend either to reject the matter outright, or else view it with suspicion and uncertainty.
Many of these limitations on decision making were first identified by H.A. Simon (1967). The risks, uncertainties and needs for adjustment were so complex as to reduce many managers to concentrating on what could easily be achieved, and what would be satisfactory or acceptable to stakeholders. This was described by Simon as the process of achieving satisfactory performance - or ‘satisficing’. Simon identified three levels of performance:
- Excellent: high achievement, output, and quality, leading to high levels of profit effectiveness and satisfaction. This was in reality achieved by very few.
- Unsatisfactory: low and unacceptable achievement, output, quality and volume leading to losses, inefficiency, ineffectiveness and dissatisfaction. This would be remedied by training, development (disciplinary activities where necessary) and greater management focus on acceptable performance.
- Satisfactory: achieved by most and producing acceptable levels of output, volume, quality and leading to steady acceptable - and therefore satisfactory - levels of profit and effectiveness. In practice he found this was an acceptable and likely state of organisation performance. It included attention to volume rather than quality of work; and the freedom of managers to set their own agenda as long as organisation objectives were met at least partly. It recognised that organisations would tend not to try and measure the overtly unquantifiable. Satisfactory performance was apparent where the organisation continued to exist for a long period of time.
Simon coined the word ‘satisficing’ to explain this. It is defined as 'the ability to achieve satisfactory performance'. This also influenced decision-making processes; managers would tend to take decisions based on the ability to achieve some measure of satisfaction rather than seeking high levels of performance which were not always achievable (especially where the latter had high attendant risks or requirements for increases in commitment that could not always be made).
Problems are also caused when any of the following occur.
- Insufficient attention to the behavioural aspects of operations, above all in creating effective and suitable conditions and support systems as the basis for carrying out the work. This also includes insufficient attention to the need to motivate and value the staff engaged in the work.
- Insufficient attention to the quantifiable performance requirements of management and to the establishment of proper aims and objectives in managerial, administrative and support functions.
- Prioritising short term results at the expense of the long-term future together with the over-consumption of resources in this way. This normally occurs because the organisation can see easy results if it pursues the short term. It also occurs because of the need for triumphs on the part of a key figure or particular department.
- Artificial constraints and deadlines, driven by budget systems and reporting relationships, requiring energy and resources to be used in non-productive and often counter-productive activities, rather than as a check on continuous performance.
- Establishment of priorities for reasons other than performance effectiveness and especially for reasons of publicity, kudos, status and the demands of key figures for their own purposes.
- Setting unreasonable deadlines for the achievement of particular objectives.
- Casting plans, aims and objectives as 'tablets of stone' - once they are written they are never to be changed or modified.
- Failure to recognise that which cannot be controlled, and which may nevertheless have great effects on organisational activities. This includes changes in customer demands and expectations; legislative changes; the activities of competitors; loss of sources of supply; change in relationships with distributors; and so on.
- Complacency, often based on a long history of success, continuity and achievement in the past, and which tends to lead to feelings of infallibility and immortality. This leads to loss of commitment to purpose, loss of focus and what constitutes truly effective performance.
- Attention to means rather than ends and the confusion of hard work with productive work. Sheer volume of work therefore becomes the measure of performance rather than the purpose for which it is being conducted.
A system is a collection of interrelated parts and components that form a whole. Typical organisation systems are production, communication and electronic data systems. Systems may first be defined as either closed or open. Decision making processes have to be capable of effective operation within the systems and processes of the organisation, and the expertise and technology which drives them and makes them effective. It is useful here to explain briefly the main systems and processes likely to be present.
Closed systems are those that are self-contained and self-sufficient, and do not require other interactions to make them work. There are very few systems that are genuinely closed. Some domestic central heating systems are more or less closed. In these cases the components are assembled. The system is switched on and must operate continuously or else breakdown. Even in these cases they are dependent upon being fed a constant supply of energy to ensure continuity of operation. They are also dependent upon maintenance, both to prevent breakdowns and to make repairs when faults occur.
Open systems are those that require constant interaction with their environment to make them work (see Figure 7).
The characteristics are:
- The need to provide inputs and energy to make sure that the process - the system - is able to operate. Inputs and energy come from elsewhere in the environment.
- The discharge of outputs - production waste and energy residue and exhaust - into the environment.
- The operation of the system itself as the conversion process.
Figure 7 An Open System
Systems may also be:
- Formal: devised and developed by the organisation with specific purposes in mind and with the view that effective operations are dependent upon those that are put in place.
- Informal: devised by individuals and groups to facilitate their own place and well-being in the organisation and to fill those gaps left by the formal approach.
- Networks: the combination of the formal with the informal, networks are normally based on human interaction and information exchange (and sometimes information hoarding and trading). Their purpose is to support both the operations of the organisation and also to ensure the continuity and stability of the position of individuals and groups.
Organisation systems may now be shown as follows (see Figure 8). They convert human activity, energy, information resources, components of raw materials into products and services, usable information, by-products and waste.
Figure 8 Organisation Systems
Main systems are those devised to ensure that the organisation can pursue its core purposes successfully. They are normally the production service and information systems essential to well-being and success. They may be largely:
- human or social, where achievement of the core purpose depends greatly on interactions between people;
- technological; where achievement of the core purpose depends greatly on the output of large volumes of items;
- socio-technical, in which the interaction between the two is critical.
In practice, a mix of the social and technical invariably occurs. The system itself therefore consists of the combination of technical and social components as follows (see Figure 7.5).
Technical System Components Social System Components
• Materials • Personal and organisational
• Apparatus capabilities
• Energy • Social needs
• Equipment • Social interactions
• Production and service • Psychological needs
processes • Professional needs
• Physical locations • Training and development
• Process structures • General relationships
• Equipment maintenance • Communications and information
• Equipment replacement • Work patterns
• Supplies • Work development
Technical System Social System
Figure 9 Socio-Technical Systems
Support systems are devised in the same way in order to harmonise and order the rest of the work to ensure that the prime activities are provided with the resources and sub-activities necessary to remain effective.
These are devised in order to prevent and blockages occurring and to put these right where they do happen. Maintenance systems require attention to both social and technical aspects. A part of organisation and individual development is concerned with maintaining the human resource. This includes attention to morale and commitment, as well as skills, knowledge and expertise.
Technological maintenance consists of regular servicing of equipment, depreciation and replacement. It also includes the purchasing and introduction of new hardware and software - and the training and development of staff so that it can be used effectively.
Systems for the handling of customer complaints are also forms of maintenance and should have the purpose of putting things right and maintaining standards; and of making a general contribution to the development of the effectiveness of work.
These are devised and put in place on the basis that they are seldom to be used - but nevertheless when they are required they can be speedily energised. Emergency systems are clear examples of this. So also are systems for the handling of operational input and distribution breakdowns and hiatuses, and in these cases these will normally consist of hot line arrangements for emergency supplies, activities and distribution.
In this context, the specific concerns of systems are:
- Production and service outputs and the management of operations and projects.
- Research and development, innovation and concern with the future.
- Maintenance functions.
- Attention to resource management matters and activities including culture formation and development.
- Marketing, public relations and other activities concerned with building images and giving impressions of quality and confidence.
- Sales and distribution - the delivery of products and services to market.
- Purchasing and supply - ensuring regularity and required volume of inputs.
- Resource gathering, organisation and prioritising.
- The means of conflict resolution, containment and management.
- Communication and information.
For all systems to operate effectively the following characteristics must be present.
- Energy: required to give the systems life, make them work and continue.
- Returns: part of the returns on output will be used to ensure the fresh flow of inputs into the processes.
- Steadiness and stability: most systems work best to a steady flow of work rather than having to accommodate peaks and troughs; if peaks, pressures and over-pressure do occur, steps should be taken to recognise these, establish the reasons for them and where possible remedial and modifying action should be taken.
- Balance: of input, process and output to ensure a steady flow of work and the avoidance of blockages and bottlenecks.
- Flexibility and adaptability: concerned with the ability to respond effectively to changes in the environment, markets, perceptions and tastes; and toe structure the work so that speedy responses can be made when necessary.
- Coordination and control characteristics: to ensure that as far as possible steadiness and balance is maintained and to take remedial action where peaks and troughs start to become apparent; also to ensure the maximisation and optimisation of resources at each stage.
- Equifinality: the concept that similar outputs can be achieved from a variety of systems and processes; that there is no one right way of doing things; that there are many different routes to the same destination; that no-one's system, process or approach will be right in all situations.
At their best, these start with the performance of others. They are created to provide a process for evaluation of performance, organisation adaptation, coordination of activities and taking decisions.
- Evaluation of performance: the actual performance of the system will be evaluated through constant monitoring and review, and the results achieved analysed to show why success has been achieved and where and why any failures have occurred. This will also indicate general areas for attention, capabilities for improvements and progress; it will also include establishing the reasons for success so that these may be built on for the future in other areas.
- Adaptation and change: this is concerned with the future of the organisation, the development of structures, attitudes, values, skills, knowledge and expertise for the purpose of achieving aims and objectives and planning for longer term strategies and directions.
- Coordination and control: this is the harmonisation process, the ordering of the disparate and divergent elements, conflict resolution, balancing and ordering of priorities and resources.
- Decision-making: this is attention to the processes by which effective decisions are made and the elements that contribute to this.
For effective performance in each of the processes to take place, a systematic approach is required. This is to ensure that sufficient attention is paid and examination of each area takes place on the basis of depth and breadth of knowledge, so that in turn a full basis of judgement, analysis and assessment is achieved and ensured.
Personal considerations affect he ways in which systems work; and in many cases managers will seek to create systems that they can control, energise and make work to their advantage. Examples of personally driven systems include:
- committee systems and working parties, convened either to produce a particular and pre-ordained result, or else to kill off a specific initiative
- project development systems, controlled by those who seek either high profile triumphs, or conversely to avoid blame for disasters
- financial management systems that cause departments divisions and functions to compete with each other for resources, influence and status and prestige.
It is therefore essential to recognise that all decision making processes have a high degree of human behaviour and therefore subjectivity and personal choice attached to them; and all decision making has to be seen in this context as well as the above.