Management

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Management

• Planning

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Continuation of strategic planning

• Corporate strategy is for the whole organisation.
  
• It is informed by Steps 1-3 (Mission statement,
  current business model, SWOT)
• Competitive strategy has 3 main directions cost
  leadership, differentiation, focus.
• Any strategy needs to be decided based on
  information (internal and external)

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What is strategic leadership?

• Strategic leadership - the ability to anticipate,
  envision, maintain flexibility, think
  strategically, and work with others in the
  organisation to initiate changes that will create
  a viable and valuable future for the
  organisation.

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Who provides strategic leadership?

• CEO chief executive officer
• Team of top managers
• COO chief operating officer
• CFO chief financial officer
• CIO chief information officer

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Effective strategic leadership (8 factors)
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Need for strategic flexibility

• Strategic flexibility - the ability to recognize
  major external changes, to quickly commit
  resources, and to recognise when a strategic
  decision was a mistake.
• Move quickly!

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Characteristics of strategic flexibility

• Leadership unity
• Flexible in allocating resources
• Creative and problem solving mindset
• Understand current strategies using monitoring
  and measuring results
• Open communication with employees
• New ideas and perspectives from outside the
  organisation
• Multiple alternatives (plan b)
• Reflective and learn from mistakes

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eBusiness strategies

• For any business, to help lower costs.
• Cost Leadership
• On-line activities bidding, order processing,
  inventory control, recruitment and hiring
• Differentiation
• Internet-based knowledge systems, online ordering
  and customer support
• Focus
• Chat rooms and discussion boards, targeted Web
  sites

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Customer service strategies

• Giving the customers what they want
• Communicating effectively with them
• Providing employees with customer service
  training

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Innovation strategies

• Possible Events
• Radical breakthroughs in products
• Application of existing technology to new uses
• Strategic Decisions about Innovation
• Basic research
• Product development
• Process innovation
• First Mover - an organisation that brings a
  product innovation to the market or uses new
  process innovations.

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Being a First Mover?
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Planning

• Decision Making

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Todays lecture

• We will learn
• 8 step decision making process
• How managers make decisions
• Explain decision making conditions
• Styles of decision making
• Biases and errors of decision making
• Identify effective decision-making techniques

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Useful Vocabulary

• Decision criteria
• Rational decision making
• Bounded rationality
• Satisfice
• Intuitive decision making
• Structured problems
• Programmed decision

• Procedure
• Rule
• Policy
• Unstructured problems
• Non-programmed decisions
• Risk
• Linear thinking style
• Heuristics

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What is a decision?

• Decision - making a choice from two or more
  alternatives
• Problem - an obstacle that makes it difficult to
  achieve a desired goal or purpose

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Summary of making a decision

• Identifying a problem and decision criteria and
  allocating weights to the criteria
• Developing, analysing, and selecting an
  alternative that can resolve the problem
• Implementing the selected alternative
• Evaluating the decisions effectiveness

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8 steps process for decision making

• Look at this diagram on p179

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DMP Step 1 Identify the problem

• Characteristics of Problems
• A problem becomes a problem when a manager
  becomes aware of it
• There is pressure to solve the problem
• The manager must have the authority, information,
  or resources needed to solve the problem

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DMP Step 2 Identify decision criteria

• Decision criteria are factors that are important
  (relevant) to resolving the problem, such as
• Costs that will be incurred (investments
  required)
• Risks likely to be encountered (chance of
  failure)
• Outcomes that are desired (growth of the firm)

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Example for Step 2

• If you want to buy a laptop, here are some of the
  decision criteria you are likely to have

Decision Making Criteria
Memory and storage
Battery life
Carrying weight
Warranty
Display quality
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DMP Step 3 Allocating weights

• Decision criteria are not of equal importance
• Assigning a weight to each item places the items
  in the correct priority order of their importance
  in the decision-making process.

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Example for Step 3

• To help you buy the laptop, you give each
  decision criteria a weighting to help decide
  which is most important

Criteria Weighting
Memory and storage 10
Battery life 8
Carrying weight 6
Warranty 4
Display quality 3
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DMP- Step 4 - Alternatives

• Identifying viable alternatives
• Alternatives are listed (without evaluation) that
  can resolve the problem.

Alternatives
HP Probook
Sony VAIO
Lenovo IdeaPad
Apple Macbook
Toshiba Satellite
Sony NW
Dell Inspiron
HP Pavilion
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DMP Step 5 Analysing Alternatives

• Appraising each alternatives strengths and
  weaknesses
• An alternatives appraisal is based on its
  ability to resolve the issues related to the
  criteria and criteria weight.

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Example for Step 5a marks out of 10 for each
laptop
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Example for Step 5b multiplying each mark by
the weighting
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DMP Step 6 Selecting the alternative

• Choosing the best alternative
• The alternative with the highest total weight is
  chosen.

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DMP Step 7 Implementing the alternative

• Putting the chosen alternative into action
• Conveying the decision to and gaining commitment
  from those who will carry out the alternative
• So in this example, that would be convincing
  finance and her manager using her working out
• Helpful to involve people in the decision making
  process

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DMP - Step 8 Evaluating decision effectiveness

• The soundness of the decision is judged by its
  outcomes.
• How effectively was the problem resolved by
  outcomes resulting from the chosen alternatives?
• If the problem was not resolved, what went wrong?
  Did you identify the wrong problem?

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Decisions manager make
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Rational decision making

• Rational Decision-Making - describes choices that
  are logical, in the best interests of the company
  and consistent. Perfect decision making!
• Bounded Rationality - decision making thats
  rational, but limited (bounded) by an
  individuals ability to process information.
• Satisfice - accepting solutions that are good
  enough.

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Intuitive decision making

• Intuitive decision- making
• Making decisions on the basis of
• experience
• Feelings
• accumulated judgment
• Works alongside rational decision making
• Works best if person understands their emotions
  and has experience

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What is intuition?
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Types of decisions
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Programmed and non-programmed decisions

• Programmed Decision - a repetitive decision that
  can be handled by a routine approach, eg, if a
  customer brings in a broken product, you repair
  or replace it.
• Non-programmed Decisions - unique and
  nonrecurring decisions that require a custom-made
  solution, eg, heavy snow might make flying
  dangerous

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Types of programmed decisions

• Procedure - a series of interrelated steps that a
  manager can use to apply a policy in response to
  a structured problem, eg, need to buy 15 laptops,
  follow company purchasing procedure
• Rule - an explicit statement that limits what a
  manager or employee can or cannot do, eg, not
  allowed to smoke in the building
• Policy - a general, flexible guideline for making
  a decision about a structured problem, eg, the
  customer is always right and must be happy.

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Programmed v. non-programmed
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Decision making situations

• Certainty
• can make an accurate decision because the outcome
  of every alternative choice is known, eg,
  choosing a bank account based on interest
  accrued.
• Risk
• a situation in which the manager is able to
  estimate the likelihood (probability) of outcomes
  that result from the choice of particular
  alternatives, eg, expanding a hotel as you have
  lots of data to make the decision

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Decision making situations

• Uncertainty
• Limited information makes it difficult to know
  the outcomes
• Limited information forces managers to rely on
  intuition, hunches, and gut feelings.
• Maximax optimistic, to maximize the maximum
  payoff (assume the best, get the most)
• Maximin pessimistic, maximize the minimum payoff
  (assume the worse, use the best worst)
• Minimax the managers choice to minimize maximum
  regret.

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Payoff matrix Maximax chosing the best payoff
out of all Strategies
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Payoff matrix Maximin chosing the best worst
payoff for each Strategy
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Regret matrix Minimax Best CA payoff
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Regret matrix Minimax Best CA payoff minus
each CA. Then choose least worst S overall
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Decision Making Styles
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Decision making styles

• Linear Thinking Style - a persons tendency to
  use external data/facts the habit of processing
  information through rational, logical thinking.
• Nonlinear Thinking Style - a persons preference
  for internal sources of information a method of
  processing this information with internal
  insights, feelings, and hunches.

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Decision making biases and errors

• Heuristics - using rules of thumb to simplify
  decision making.
• Overconfidence Bias - holding unrealistically
  positive views of oneself and ones performance.
• Immediate Gratification Bias - choosing
  alternatives that offer immediate rewards and
  avoid immediate costs.

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Decision making biases and errors (cont.)

• Anchoring Effect - fixating on initial
  information and ignoring subsequent information.
• Selective Perception Bias - selecting, organizing
  and interpreting events based on the decision
  makers biased perceptions.
• Confirmation Bias - seeking out information that
  reaffirms past choices while discounting
  contradictory information.

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Decision making biases and errors (cont.)

• Framing Bias - selecting and highlighting certain
  aspects of a situation while ignoring other
  aspects.
• Availability Bias - losing decision-making
  objectivity by focusing on the most recent
  events.
• Representation Bias - drawing analogies and
  seeing identical situations when none exist.
• Randomness Bias - creating unfounded meaning out
  of random events.

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Decision making biases and errors (cont.)

• Sunk Costs Errors - forgetting that current
  actions cannot influence past events and relate
  only to future consequences.
• Self-Serving Bias - taking quick credit for
  successes and blaming outside factors for
  failures.
• Hindsight Bias - mistakenly believing that an
  event could have been predicted once the actual
  outcome is known (after-the-fact).

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Todays decision making

• Guidelines for making effective decisions
• Understand cultural differences
• Know when its time to call it quits
• Use an effective decision making process
• Habits of Highly Reliable organisations (HROs)
• Are not tricked by their success
• Defer to the experts on the front line
• Let unexpected circumstances provide the solution
• Embrace complexity
• Anticipate, but also anticipate their limits

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Overview of managerial decision making
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Personal Reflection

• What sort of decision maker are you?
• What was the hardest decision you have ever made?
  How did you make it?
• How did you feel making difficult decisions?
• Which biases and errors are you most likely to
  make?

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Summary

• Today
• Problems and decisions
• Decision making
• Types of decision
• Decision biases and errors
• Tomorrow
• Quiz about all this weeks topics!

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Homework for the Weekend

• Learn this weeks vocabulary
• Finish your Personal Time Management Plan and
  bring it to the tutorial on Monday
• Complete a draft of your Assignment 1, Part A
  plan. Bring it to the tutorial on Monday to get
  some feedback.
• Start to research for your Assignment
• Read Chapter 10 on Organisations