Principles of management: Part 3 Decision making, planning and strategy

The classical model of decision making is a prescriptive approach to decision making based on the assumption that the decision maker can identify and evalute all possible alternatives and their consequences and rationally choose the most appropriate course of action. The optimum decision is the most appropriate decision in light of what managers believe to be the most desirable future consequences for their oganization.

The model:

1. List all the alternative courses of action possible and the consequences of the different alternatives -> assumes all information about alternatives is availabe to managers
2. Rank each alternative from least preffered to most preferred according to personal preferences -> Assumes managers possess the mental facility to process this information
3. Select the alternative that leads to desired future consequences -> Assumes that managers know what furute course of action is best for the organization.

An approach to decision making that explains why decision making is inherently uncertain and risky and why management usually make satisfactory rather thatn optimum decisions

Four things lead to incomplete information for decision making

1. Bounded ratioinality. Cognitive limitations that constrain one's ability to interpret, process and act on information
2. Risk. The degree of probability that the possible outcomes of a particular couse of action will occur
3. Uncertainty. Unpredictability. The probailities of alternative outcomes cannot be determined and future outcomes are unknown
4. Ambiguous information. Information that can be interpreted in multiple and often conflictin ways

1. Recognize the need for a decision -> Sparked by an event such as environment changes. Managers must first realize that a decision must be made.
2. Generate alternatives -> Managers must develop feasible alternative couses of action. If good alternatives are missed, the resulting decision is poor. It is hard to develop creative alternatives, so managers need to look for new ideas. 
3. Assess alternatives -> What are the advantages and disadvantages of each alternative? Managers should specify criteria, then evaluate. 
4. Choose among alternatives -> Rank various alternatives and make a decision . Managers must be sure all the information availabe is brought to bear on the problem or issue at hand
5. Implement the cosen alternaitve-> Managers must now carry out the alteranative. Often a decision is make and not implemented
6. Learn from feedback-> Managers should consider what went right and wrong with the decision and learn for the future. Without feedback, managers do not learn from experience and will repeat the same mistake over. 

Legal, Ethical, Econonomical, Practical

1. Compare what actually happend to what was expected to happen as a result of the decision
2. Explore why any expectations for the decsision where not met
   1. Derive guidelines that will help in furute decision making. 

Heuristics

Errors taht people make over and over and that result into poor decision making. 

Prior hypothesis bias - A cognitive bias resultig fro the tendency to base decisions on strong prior beliefs even if evidence shows that those beliefs are wrong. 

Representativeness bias - A cognitive bias resulting from the tendency to generalize inappropriately from a small sample or from a single vivid event or episode. 

Illusion of control -  A source of cognitive bias resulting from the tendency to overestimate one's own ability to control activities and events. 

Escalating commitment - A source of bias bias resulting form the tendency to commit additional resources to a project even if evidence shows that the project is failing. 

Because of the biases imprortant organizational decisions are made by groups or teams of managers rather than by individuals. 

Advantages 

• Choices less likely to fall victim of biases
• Able to drawn on the combined skills, competencies and accumulated knowledge of group members.
• Improve ability to generate feasible alternatives.
• Manager agree to cooperate 
• Higher probability than the implementation is successful

Disadvantages

• Slow
• To achieve cooperation can be difficult, due to different interests and preferences
• Can be undermined by biases. 

A pattern of faulty and biases decision making that occurs in groups whose member strive for agreement among themselves at the expense of accurately accessing information relevant to a decision

Usually occurs when group member rally around a central manage's idea, and become blindly commit to the idea without considering alternatives. The group's influence tends to convince each member that the idea must go forward.

Devil's advocacy & Dialectical Inquiry

Present chosen alternative -> critique chosen alternative -> reassess chosen alternative ( Accept? Modify? Reject?)

Present alternative 1, present alternative 2, pre.....

debate between alternatives

Reassess alternatives ( accept 1 / 2? or combine 1& 2?)

1. Brainsotming
2. Nominal group technique
3. Delphi technique

- A decision-making technique in which group members write down ideas and solutions, read their suggestions to the whole group, and discuss and then rank the altternatives. 

- Useful when an issue is controversial and when different managers might be expected to champion different courses of action. 

A decision-making technique in which group members do not meet face-to-face but respond in writing to questions posed by the group leader

- written approach to creative problem solving

- group leader writes a statement of the problem to which managers respond

- Questionnaire is sent to managers to generate solutions

- Team of managers summarizes the responses and results are sent back to the participants

- Process is repeated until a consensus is reached

1. Determining the organization's mission and goals - define the buniess & establish major goals
2. Formulatin strategy - analyze current situation and develop strategies
3. implementing strategy - allocate resources and responsiblilities to achieve strategies

To permform the plannin gtask, managers: 

1. Establish and discover where an organization is at the present time
2. Determine where it should be in the future, its desired future state
3. Decide how to move it forward to reach that furute state determinign the organisation

1. unity - means taht at any time only one  central, guiding plan is put into operation to achieve an organizational goal
2. Continuity - means that planning is an ongoing process in which managers build and refine previous plans and continually modify plans at all levels, corporate, busniess, and functional, - so they fit together in one brad framework. 
3. Accuracy - means that managers need to make every attempt to collect and use all available information in the planning process
4. flexibility - the planning process should be flexible enough so plans can be altered and changed if the situation changes; managers must not be bound to a static plan

Corporate level - business or division level - functional level

it is about the indended duration of a plan

- short-term plans: duratoin < 1 year

- intermediate-term plans: > 1 year; < 5 years

- long-term plans > 5 years

Standing plans: Are used in situations in which programmed decision making is appropriate

policies general guides to action

rules formal written specific guides to action

standart operation procedures (SOP) specify an exact series of action to follow. 

Single-use plans are developed to handle nonprogrammed decision making in unusual or one-of-a-kind situations

Scenatio planning (Contignency planning) is the generation of multiple forecasts of future conditions

A planning exercise in which managers identify orgnaizational Strength and Weaknesses and environmental Opportunities and Threats. 

Threat of new entrants, rivalra among existing competitors, barbaining power of suppliers, bargaining power of customers, threat of substitude product

• Low-cost strategy - Driving the organization's cost down below the costs of its competitors
• Differentiation strategy - Distinguish an organization's products from the products of competitors on dimesions such as product design, quality, of after-sales service

those two strategies on top are served in many market segments

and those two strategies below are served in a few market segment

• Focuses on low-cost - Serving only one segment of the overall maket and trying to be the lowest-cost organization serving that segment
• Focuses differentiaition strategy - serving only one segment of the overall maket as the most differentiated organization serving that segment

you are stuck in the middle. it is difficult to achieve low cost with the added cost differentiation

• Exporting - making products at home and selling them abroad
• Importing - selling at home products that are made abroad
• Licensing - allowing a foreign organization to take charge of manufacturing and distributing a product in its country in return for a negotiaed fee
• Franchising - selling to a foreign organization the rights to use a brand name and operating know-how in return for a lump-sum payment and a share of the profit
• Strategic alliance - managers pool resources with those of a foreign company, organizations agree to share risk and reward, joint venture
• Wholly owned foreign subsidiary - managers invest in establishing production operations in a foreign country independent of any local direct involvement

1. Improving responsiveness to customers - an organization that treats customers better thatn its rivals do also provides a valuable service some customers may be willing to a higher price for
2. Improving efficiency - the higher the ratio 'output / input' the higher the efficiency
3. Improving innovation, speed and flexibility -  anything new or better about the way an organization operates or the goods and services it produces is the result of innovation
4. Improving quality - quality means producing goods and services that have attributes such as design, styling, performance, and reliabliity, that consumer perceive as being superior to those found in competing products

Tesult in a competitive advantage from low costs & differentiation

The coordinated series or sequence of functional activities necessary to transform inputs such as new product concepts, raw materials, component parts, or professional skills into the finished goods or services customers value and want to buy

The development of a set of functional-level strategies that support a company's bunsiness-level strategy and strenghten its competitive advantage.