DECISION MAKING PROCESS

Decision Making Process

Decision Making Process

Introduction

Reference to the scenario effective executives do not make a great many decisions. They concentrate on the important ones. They try to think through what is strategic…rather than [simply] solve problems (Drucker, 1967a, p. 113).

According to Hambrick and Snow (1977, p. 109), “Strategic decisions are those which normally fall within the purview of top management. Broadly speaking, strategic decisions are those which are important to the organization… Because of their importance, strategic decisions must be closely linked with each other to form a consistent pattern for directing and unifying the organization.” This pattern of decisions reflects the strategy of the organization.

In a very real sense, strategy is the determination of the basic purposes and managerial objectives of the organization along with the adoption of particular courses of action and the selection of specific resource allocations. Strategic choice is the critical variable in strategy. It is the means by which perennially scarce resources are rationally committed to fulfill managerial expectations for success. By their very nature strategic decisions constitute the most important responsibility of top management. Effective organizations are managed by executives who make effective strategic decisions. And, by definition, effective strategic decisions are those that result in the attainment of their objectives within the constraints that have to be observed to bring about such attainment. For example, a strategic choice resulting in the attainment of its objective within time, cost, and environmental constraints is most likely to be designated effective. Conversely, another strategic choice resulting in the attainment of its objective at the expense of the organization or some of its principal stakeholders is less likely to be viewed as effective. And a strategic choice that doesn't result in the attainment of its objective is likely to be judged ineffective, even in the presence of extenuating circumstances.

Background

Organizations must be cognizant of conditions within their own industries. Industry-related turbulence increases the complexity and the range of issues managers scrutinize when trying to make decisions. The external environment creates problems for organizations because it is a source of uncertainty and constraints. Some organizations are directly affected by only a few environmental factors, while others are affected by a large number of environmental factors. Organizations that have to interact with a large number of environmental factors, over which they have little or no control, face complexity and turbulence.

Economic conditions change; interest rates fluctuate; unemployment levels change; consumer preferences change; government regulations are modified; and new technologies are introduced in many industries. All of these changes create turbulence. Firms dealing with turbulent environments must not only constantly monitor changing environmental conditions, they must also try to forecast and predict future conditions and develop strategies to cope. They must respond quickly.

More turbulence raises the amount of information that is required to successfully manage. Managerial preference about how to handle turbulence affects decisions about the resources, competences, and organizational structures that will become the underpinning of the firm's competitive advantage. Information technology is such a ...