Download - Decision Making in Business
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Decision Making in Business
Higher Business Management
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Decisions? Managers?
Whatever a manager does, he does through making decisions.
These decisions may be a matter of routine. Indeed he may not even realise that he is making them.
Or they may affect the future existence of the enterprise and require years of systematic analysis. But management is always a decision-making process
Peter F Drucker
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Personal Decisions
How many decisions have you made today?
2 minutes to write down as many as possible
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Business Decisions
In order to achieve the organisations aims and objectives managers must make decisions …
… but what about?
2 minutes to write down as many as possible
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Decision Types
• There are 3 main types …
• But due to popular demand they are not be listed here!
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Strategic Decisions
• Long term decisions – looking towards the future
• Set the aims of the organisation
• Made by SMT (CE and BoD)/owners
• No detail about how to achieve
• eg major policy statements
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Examples of Strategic Decisions
• What products will we produce in the future?
• Increase market share by 25% in ten years
• Maximise sales
• To have 100% customer satisfaction (or delight)
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Planning for the Long Term
• Where are we now?
• Where do we want to be in 5, 10, 15 years?
• What resources do we need to achieve this?
• What changes do we need to make in order to achieve our goals?
• How can we do better than the competition?
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Mackie’s of Scotland
• Mackie’s vision is to be a global brand from the greenest company in Britain created by people having fun.
• Mackie’s today is the outcome of effort and foresight of four generations of Mackie’s and their staff.
• Ice Cream is currently the main focus of the business – employing 70 people and producing over 5 million litres of luxury ice cream a year.
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Tactical Decisions
• Medium term decisions – assisting the achievement of strategic decision
• Set the objectives of the organisation
• Detail: How are resources to be used?
• Made by middle management
• Subject to change depending on PESTEC factors(later …)
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Examples of Tactical Decisions
• To increase or decrease the number of staff employed
• To rename the business
• To issue more shares on the stock market to fund a new factory
• To merge with a competitor
• To increase the selling price
• To reduce costs
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Mackie’s of Scotland
• Mackie’s move away from pig farming and milk retailing were tactical decisions in order to achieve the strategic aim of making ice cream the focus of their activities
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Operational Decisions
• Day-to-day decisions – made to achieve the objectives (tactical direction)
• Often made in response to changes in circumstances eg secretary is ill and won’t be coming into work
• Operational decision (in this case) might be to transfer another member of the administrative staff to cover her duties
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Other Operational Examples
• Arranging work rotas
• Dealing with customer complaints
• Ordering materials from suppliers
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Mackie’s of Scotland• Cow welfare is very important, as an unhappy cow does not
produce any milk.
• When the cows are housed during the winter, each cow has its own lying space complete with mattress.
• They have feed available at all times, with fresh food added twice per day.
• Our vet comes on a routine visit once a week and any sick animals are moved to a hospital area.
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On a Mission …
A work force must be able to achieve targets and see relevance to their work.
Why?
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On a Mission …
• Otherwise they are less productive
• Likely to be demotivated
• May become disruptive
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Mission Statement
• A written summary of strategic aims
• Well publicised
• Helps employees understand what the company is working towards
• Often used in marketing the company’s products
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Mission … You will accept!!
• Using your research skills find some examples of mission statements and comment on how they have been written.
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The Manager’s Role
Describe a manager …
2 minutes to think about this
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The Manager’s Role
• A manager:– Gets things done (through others)– Gets things done (with resources)– Controls and supervises– Makes decisions– In charge of subordinates and
department– Is accountable to the owner(s)
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Importance of Managers
The quality and performance of the managers determine the success of a business, indeed they determine survival.
Peter F Drucker
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The Nature of Managerial Work
• A study of what managers do rather than what they ought to do (Mintzberg 1973)
– Interpersonal role
– Informational role
– Decisional role
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5 Functions of Management
• Plans – setting aims, seeing opportunities and problems, devising solutions
• Organises – resources should be in the right place at the right time
• Commands – tell subordinates what to do
• Co-ordinates – everyone working towards the same goals
• Controls – measures, evaluates and compares results
• Delegates – give authority to subordinates
• Motivates – team-work, empowerment, participate in decisions
Studies by Henri Fayol 1913
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Effective GROUP Management
Derek Torrington (et al) Studies 1989
Making Decisions
About
ORGANISATIONS
RESULTS
GOALS
UNCERTAINTY
PEOPLE
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Structured Decision-Making Model
People Often Go Alone to Dance at the Single’s Club In Edinburgh
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Structured Decision-Making Model
• Identify the PROBLEM• Identify the OBJECTIVES• GATHER information• ANALYSE information• DEVISE alternative solutions• SELECT from alternative solutions• COMMUNICATE the decision• IMPLEMENT the decision• EVALUATE
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Structured Decision-Making Model
• (1) Identify the Problem– Where do we want to go? Achieve? What is
wrong?
• (2) Identify the Objectives– What is it we want to achieve?
• (3) Gather Information– Extensive collection of internal and external
info
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Structured Decision-Making Model
• (4) Analyse Information– What is relevant?
• (5) Devise Alternative Solutions– Different courses of action in order to have
flexibility
• (6) Select from Alternatives– Solution most likely to achieve the objectives
successfully
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Structured Decision-Making Model
• (7) Communicate the Decision– to all stakeholders …
• (8) Implement the Decision– Arrange for resources to be in place
• (9) Evaluate– Appraise the effectiveness of solutions and
take remedial action of necessary
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Example No. 1 – Computer Games Industry
The problem is a falling market share …
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Example No. 2 – Upgrading Technology
Apply the
“POGADSCIE” model
to choose a new
laptop for the staff in
your firm.
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SWOT Analysis
Strengths Weaknesses
Opportunities Threats
Internal Factors
External Influences
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SWOT Analysis
Strengths
Where organisation performs well
Weaknesses
Where the organisation performs poorly
Opportunities
Profitable future exploits to gain a competitive edge
Threats
• Competitors• Government• Economic forces
Entrepreneurial skills; Quality of SMT; Market Share; Product Range etc
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SWOT Analysis
Can be used at different levels:
– Person
– Department
– Product
– A range of products
Used at the first 4 stages
of POGA!
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Health Warning!
• All conclusions must be backed up and justified!
• External factors can be assessed in a subjective manner by different people
self confidence to follow business instincts shows
real entrepreneurial
skills
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Costs and Benefitsof POGADSCIE and SWOT
Benefits
• No rash decisions
• Decisions made with all relevant facts
• Alternative solutions considered
• Logical process – enhances innovation
Costs
• Ability to collect info (value of)
• Time consuming
• Range of possible solutions difficult in practice
• Can stifle creativity and gut reactions
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Constraints on Effective Decisions
• Availability of finance• Existing company policy• Staff may resist change (behaviour/attitude)• Staff may have tunnel vision, can’t handle
complex decisions, fail to consult, indecisive)• Lack of technology
• Political (Government and EU legislation)• Economic environment• Social factors• Technological developments• Environmental changes• Competitors’ behaviour
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Which Hat are you?
• Black – all the negative thoughts regarding an issue
• Green –creative suggestions and ideas about the issue
• Blue – control and organise the thinking on an issue
• White – question what the group thinks
• Red – emotional views giving gut feelings
• Yellow – all the positive benefits of the issue
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Outcome of Decisions
• Managers make the decision but are also responsible for their outcome!
• Constantly
• Organisations must be flexible in order to be successful
Alter
Evaluate
Review
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Decentralised Decision Making
Advantages
• SMT more time for other issues
• Reduced stress and burdens on SMT
• Juniors more prepared for promotion; motivated and confident
• Decisions made quickly
• Relieves SMT from routine decisions
• Junior staff may have better knowledge of area– improved quality decision
Disadvantages
• Decisions not for the benefit of the organisation
• Lack of experience
• Not all managers willing
• Procedures carried out differently (ie not standard) in different branches
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Quality Decisions
• Managers who are capable - training
• Ability to use decision-making techniques
• Quantity and quality of information
• Level of risk acceptable
• Personal interests of decision-maker
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ICT in Decision Making
• Store, Retrieve, Process and Print
• ‘What if?’ situations (Excel)
• Internet – trends/competitors’ products
• Reporting and Presentation Packages
• Too much info? (wheat from the chaff)
• Email bombardment – easy to send to everyone!
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Value of Information
Timely
Accurate
Appropriate
Available
Complete
Concise
Cost-effective
Objective
CccOAaaT
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Aids to Decision Making Aids: Brainstorming
Ground rules:
– Focus on quantity: more ideas equals more chance of an effective solution
– Withhold criticism: focus on extending or adding to ideas
– Welcome unusual ideas: suspend all assumptions
– Combine and improve ideas: a single better good idea.
A group of people get together to try
and solve a problem.
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Aids to Decision Making: PEST(EC)
What do you mean by PEST?
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Aids to Decision Making: PEST(EC)
… further detail of Opportunities
and Threats!
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Political
• Government type and stability
• Environmental/consumer protection legislation
• Levels of bureaucracy and corruption
• Social and employment legislation
• Taxation policy
• Changes in the political environment
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Economic• Stage of the business cycle
• Current/projected economic growth, inflation and interest rates
• Unemployment and labour supply
• Labour costs
• Disposable income and distribution
• Globalisation
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Social-Economic
• Population growth rate and age profile
• Population health, education and social mobility
• Population employment patterns, job market freedom and attitudes to work
• Social attitudes and social taboos
• Lifestyle choices
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Technological
• Impact of emerging technologies
• Impact of Internet, reduction in communications costs (remote working)
• Research and development activity
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Congratulations
You have completed
Decision Making in Business
in
Higher Business Management