Ch 07 information and decision making

Chapter 7

Information and Decision Making

Management 8/e - Chapter 7 2

Planning Ahead — Chapter 7 Study Questions

How is information technology changing the workplace?

What in the role of information in the management process?

How do managers use information to make decisions?

What are the steps in the decision-making process?

What are the current issues in managerial decision making?


Study Question 1: How is information technology changing the workplace?

Information and knowledge — basic linkages:– Knowledge and knowledge workers provide a

decisive competitive factor in today’s economy.– Knowledge worker.

• Someone whose value to the organization rests with intellect, not physical capabilities.

– Intellectual capital.• Shared knowledge of a workforce that can be used

to create wealth.



Information and knowledge — basic linkages (cont.):

– Knowledge and intellectual capital are irreplaceable organizational resources.

– The productivity of knowledge and knowledge workers depends on:

• Computer competency.

• Information competency.



Electronic commerce.– The process of buying and selling goods and services

electronically through use of the Internet.• B2C e-commerce.• B2B e-commerce.

– Stages of development in e-commerce:• Secure an online identity.• Establish a Web presence.• Enable e-commerce.• Provide e-commerce and customer relationship management.• Utilize a service application model.



Implications of IT within organizations:– Facilitation of communication and information

sharing.

– Operating with fewer middle managers.

– Flattening of organizational structures.

– Faster decision making.

– Increased coordination and control.


Figure 7.1 Information technology is breaking barriers and changing organizations.



Implications of IT for relationships with

external environment:

– Helps with customer relationship management.

– Helps organizations with supply chain

management.

– Helps in monitoring outsourcing and other

business contracts.



How IT is changing the office …

– Progressive organizations actively use IT to help

achieve high performance in uncertain environments.

– IT has dramatically changed nature of offices.

– Key developments in networked offices:

• Instant messaging.

• Peer-to-peer file sharing (P2P).


Study Question 2: What is the role of information in the management process?

What is useful information?– Data.

• Raw facts and observations.– Information.

• Data made useful for decision making.– Information drives management functions.– Characteristics of useful information:

• Timely.• High quality.• Complete.• Relevant.• Understandable.



Information needs of organizations.– Information exchanges with the external

environment:• Gather intelligence information• Provide public information

– Information exchanges within the organization:• Facilitate decision making.• Facilitate problem solving.


Figure 7.2 External and internal information needs of organizations.



Basic information system concepts:

– Information system.

• Use of the latest IT to collect, organize, and

distribute data for use in decision making.

– Management information system (MIS).

• Specifically designed to meet the information needs

of managers in daily decision making.



Basic information system concepts (cont.):– Decision support system (DSS).

• An interactive information system that allows users to organize and analyze data for solving complex and sometimes unstructured problems.

• Group decision support system (GDSS) facilitates group efforts to solve complex and unstructured problems.

• GDSSs use groupware.



Basic information system concepts (cont.):– Artificial intelligence (AI)

• Computer systems with the capacity to reason the way people do.

– Expert systems (ES).• Software systems that use AI to mimic the thinking

of human experts.



Basic information system concepts (cont.):– Intranets and corporate portals.

• Allow employees, by password access, to share databases and communicate electronically.

– Extranets and enterprise portals.• Allow communication and data sharing between the

organization and the external environment.

– Electronic data interchange (EDI).• Uses controlled access to enterprise portals and supporting

software to enable electronic transactions between businesses.



Managerial advantages of IT utilization:– Planning advantages.

• Better and more timely access to useful information.

• Involving more people in planning.

– Organizing advantages.• More ongoing and informed communication among

all parts of the organization.

• Improved coordination and integration.



Managerial advantages of IT utilization (cont.):– Leading advantages.

• Improved communication with staff and stakeholders.

• Keeping objectives clear.

– Controlling advantages.• More immediate measures of performance results.• Allows real-time solutions to performance

problems.


Figure 7.3 The manager as an information-processing nerve center.


Study Question 3: How do managers use information to make decisions?

A performance deficiency is …– Actual performance being less than desired performance.

A performance opportunity is …– Actual performance being better than desired

performance. Problem solving is …

– The process of identifying a discrepancy between actual and desired performance and taking action to resolve it.

A decision is …– A choice among possible alternative course of action.



Programmed decisions.

– Apply solutions that are readily available from past experiences to solve structured problems.

– Structured problems are ones that are familiar, straightforward, and clear with respect to information needs.

– Best applied to routine problems that can be anticipated.



Nonprogrammed decisions.

– Develop novel solutions to meet the demands

of unique situation that present unstructured

problems.

– Unstructured problems are ones that are full of

ambiguities and information deficiencies.

– Commonly faced by higher-level management.



Crisis decision making.– A crisis involves an unexpected problem that can lead

to disaster if not resolved quickly and appropriately.

– Rules for crisis management:• Figure out what is going on.

• Remember that speed matters.

• Remember that slow counts, too.

• Respect the danger of the unfamiliar.

• Value the skeptic.

• Be ready to “fight fire with fire.”



Decision environments:– Certain environments.

• Offer complete information about possible action alternatives and their outcomes.

– Risk environments.• Lack complete information about action alternatives and their

consequences, but offer some estimates of probabilities of outcomes for possible action alternatives.

– Uncertain environments• Information is so poor that probabilities cannot be assigned to

likely outcomes of known action alternatives.


Figure 7.4 Three environments for managerial decision making and problem solving.



Problem-solving approaches or styles:– Problem avoiders.

• Inactive in information gathering and solving problems.

– Problem solvers.• Reactive in gathering information and solving

problems.

– Problem seekers.• Proactive in anticipating problems and opportunities

and taking appropriate action to gain an advantage.



Systematic versus intuitive thinking. – Systematic thinking approaches problems in a rational,

step-by-step, and analytical fashion.

– Intuitive thinking approaches problems in a flexible and spontaneous fashion.

– Multidimensional thinking applies both intuitive and systematic thinking.

– Effective multidimensional thinking requires skill at strategic opportunism.


Study Question 4: What are the steps in the decision-making process?

Five-step decision-making process:– Identify and define the problem.

– Generate and evaluate possible solutions.

– Choose a preferred course of action and conduct the “ethics double check.”

– Implement the decision.

– Evaluate results.


Figure 7.5 Steps in managerial decision making and problem solving.



Step 1 — identify and define the problem.– Focuses on information gathering, information

processing, and deliberation.– Decision objectives should be established.– Common mistakes in defining problems:

• Defining the problem too broadly or too narrowly.

• Focusing on symptoms instead of causes.

• Choosing the wrong problem.



Step 2 — generate and evaluate possible solutions.– Potential solutions are formulated and more

information is gathered, data are analyzed , the advantages and disadvantages of alternative solutions are identified

– Approaches for evaluating alternatives:• Stakeholder analysis.• Cost-benefit analysis.



Step 2 — generate and evaluate possible solutions (cont.).– Criteria for evaluating alternatives:

• Benefits.• Costs.• Timeliness.• Acceptability.• Ethical soundness.

– Common mistakes:• Selecting a particular solution too quickly.• Choosing a convenient alternative that may have damaging side

effects or may not be as good as other alternatives.



Step 3 — decide on a preferred course of action.– Classical decision model.

• Managers act rationally in a certain world.

• Managers face clearly defined problems and have complete knowledge of all possible alternatives and their consequences.

• Results in an optimizing decision.



Step 3 — decide on a preferred course of action (cont.).– Behavioral decision model

• Managers act in terms of what they perceive about a given situation.

• Recognizes limits to human information-processing capabilities.

– Cognitive limitations.– Bounded rationality.– Results in a satisficing decision.



Step 4 — implement the decision solution.

– Involves taking action to make sure the solution

decided upon becomes a reality.

– Managers need to have willingness and ability to

implement action plans.

– Lack-of-participation error should be avoided.


Figure 7.6 Differences in the classical and behavioral models of managerial decision making.



Step 5 — evaluate results.

– Involves comparing actual and desired results.

– Positive and negative consequences of chosen

course of action should be examined.

– If actual results fall short of desired results, the

manager returns to earlier steps in the decision-

making process.


Study Question 5: What are the current issues in managerial decision making?

Types of heuristics for simplifying decision making:– Availability heuristic.

• People use information “readily available” from memory as a basis for assessing a current event or situation.

– Representativeness heuristic.• People assess the likelihood of something happening based upon

its similarity to a stereotyped set of occurrences.

– Anchoring and adjustment heuristic.• People make decisions based on adjustments to a previously

existing value or starting point.



Escalating commitment.– The tendency to increase effort and apply more

resources to a course of action that is not working. Ways to avoid the escalation trap:

– Set advance limits and stick to them.– Make your own decisions.– Carefully determine why you are continuing a course of

action.– Remind yourself of the costs.– Watch for escalation tendencies.



Potential advantages of group decision making:– Greater amounts of information, knowledge,

and expertise are available.– More action alternatives are considered.– Increased understanding and acceptance of

outcomes.– Increased commitment to implement final

plans.



Potential disadvantages of group decision

making:

– Pressure to conform.

– Minority domination may occur.

– Decision making takes longer.



Ethical decision making.– Any decision should meet “ethics double check.”

mentioned in step 3 of the decision-making process.

• How would I feel if my family found out about this decision?

• How would I feel if this decision were published in the local newspaper?

• Any discomfort in answering these questions indicates the decision has ethical shortcomings.



Ethical decision making (cont.).– Considering the ethics of a proposed decision

may result in better decisions and prevention of costly litigation.

– Ethical decisions satisfy the following criteria:• Utility.

• Rights.

• Justice.

• Caring.



Knowledge management.– Processes through which organizations develop,

organize, and share knowledge to achieve competitive advantage.

Chief Knowledge Officer (CKO)– Energizes learning processes.– Manages and enhances organization’s intellectual

assets. Knowledge management requires a culture that

values learning fosters a learning organization.

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Ch 07 information and decision making