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Decision Making in Organizations


Key Terms

Chapter Outline: 8-1 Decision Making in Organizations

8-2 Power in Organizations

8-3 Politics in Organizations

8-4 Conflict in Organizations

Summary Review Questions Glossary Endnotes

8Decision Making, Power and Politics

bounded rationality Carnegie model coalition incremental decision model intuitive decision making nonprogrammed decisions organizational conflict

organizational decision making organizational politics power programmed decisions rational model of decision making satisficing unstructured model of decision making

W I L L I S , K A S S A N D R A 2 1 6 1 T S



Organizational Theory 8-2

organizational decision making the process of identifying problems or opportunities and finding solutions or courses of action that further the goals of the organization

programmed decisions decisions made on a routine, repetitive basis that are addressed by company policy and procedures

nonprogrammed decisions decisions that involve nonroutine, out-of-the ordinary situations and are generally not covered by existing policy or procedure

This book has emphasized the importance of strategically managing organizations, whether they are operating in the for-profit sector or the not-for-profit sector. The challenge of competitive forces, discussed in chapter 2 on strategy, is reaching a zenith. This fact particularly impacts the first topic of this chapter, which is decision making. Because competition for resources and customers has reached the hypercompetitive level, decisions by organizations must be made quickly and accurately.

8-1 Decision Making in Organizations Why do organizations make decisions? Primarily, decisions are required because organizations represent the merger of people, systems, and technology. Such a complicated conflagration inevitably leads to problems that beg solving or creates opportunities that need courses of action. Hence, organizational decision making is the process of identifying problems or opportunities and finding solutions or courses of action that further the goals of the organization.

When firms are small, such as those usually found in the existence stage of the organizational life cycle, all important decisions and most minor decisions are made by one person or a small group of people. However, as organizations add capacity to produce, employees, and markets, the need for decision making increases exponentially. Modern organizations are pushing this decision making responsibility to the lowest possible levels to increase speed and efficiency. This concept, known as empowerment, puts the responsibility for solving a problem or acting on an opportunity in the hands of those closest to the situation.1

As technology continues to permeate our organizations, markets and competition become global, and productivity increases accelerate, the time available for mulling over important matters in the decision making process shrinks. Fortunately, most decisions faced by organizations are somewhat routine. Decisions made on a routine, repetitive basis addressed by company policy and procedures are known as programmed decisions.

Nonprogrammed decisions involve nonroutine, out of the ordinary situations and are generally not covered by existing policy or procedure. An example of a nonprogrammed decision would be a competitive situation where an organization is faced with a serious threat from a substitute product. Think about the difficulty faced by steel producers when automobile manufacturers began to utilize plastic on a widespread basis in their new cars. This is an example of a strategic threat from the external environment that resulted in a loss of revenue. That is a serious enough issue. However, this substitution led to the utilization of plastic into other products, replacing glass, steel, and even paper.

W I L L I S , K A S S A N D R A 2 1 6 1 T S



Organizational Theory 8-3

rational model of decision-making a decision making process that relies on a step-by- step systematic approach to solving a problem

8-1a The Rational Decision Making Model

Regardless of whether decisions are programmed or nonprogrammed, everyone has a process that they follow when confronted with the need for a decision. As organization theory has evolved over the years, a clear need has been recognized by researchers and practitioners alike for a model for decision makers to adopt. Too many organizational managers were making decisions based only on past experience, or expediency, or whatever might make them look good to their superiors.

Allowing organizational decision-makers to “fly by the seat of their pants” works against the goals and objectives set by most firms. To overcome this problem, a rational or classical model of decision making has been developed. The rational model is a decision making process that relies on a step-by-step systematic approach to solving a problem. This model has been portrayed as anywhere from a three-step2 to a six-step3 to an eight-step4 process. Figure 8.1 depicts a version of the rational model based on a strategic management

Figure 8.1 The Rational Decision Making Model

Each step in Figure 8.1 will be explained using a practical example from the Coca Cola Company headquartered in Atlanta, Georgia. During the early 1980’s Coke began losing market share in supermarkets to Pepsi. Although newly-introduced Diet Coke had recently become the No. 1 diet soft drink, Coke executives were concerned with their competitive position in relation to Pepsi’s. To make matters worse, Pepsi had been running taste test advertisements on television for several years where blindfolded consumers picked Pepsi over Coke based on taste.

Robert Goizeuta, chairman of Coca Cola, initiated a secret project to tinker with Coke’s formula, developed in 1886 by Georgia pharmacist John Pemberton, believing that the sweeter taste of Pepsi was leading to Coke’s loss of market share. By 1984 the company was ready to try the new formula in consumer trials in over 30 cities in America. With the aid of a market research firm, Coke conducted its own taste tests, with close to 40,000 people choosing New Coke over the old classic by 55 to 45 %.