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Wednesday, September 22, 2010

Describe different types and models of decision-making process.

Describe different types and models of decision-making process. Discuss how decision-making is followed in your organisation or an organisation you are familiar with. Suggest how it could be improved. Briefly describe the organisation you are referring to.

Types and models of decision-making process
There are several models of decision-making which are as follows :-
1.The economic rationality model
This model comes from the classical economist models, in which the decision maker is perfectly and completely rational in every way. In this, following conditions are assumed.
a. The decision will be completely rational in means ends sense.
b. There is a complete and consistent system of preferences that allows a choice among alternatives.
c. There is a complete awareness of all the possible alternatives.
d. Probability calculations are neither frightening nor mysterious.
e. There are no limits to the complexity of computations that can be performed to determine the best alternatives.
2.The social model :-
At the opposite extreme from the economic rationality model is the social model drawn from psychology. Sigmund Freud viewed humans as bundles of feelings, emotions and instincts, with their behaviour guided by their unconscious desires. These processes have even an impact in the international arena as they provide some basic rules of protocol.
3.Simon’s bounded rationality model :-
To present a more realistic alternative to the economic rationality model, Herbert Simon proposed an alternative model. He felt that management decision-making behaviour could be described as follows
a. In choosing between alternatives, manager attempt to satisfy or looks for the one which is satisfactory or “good enough”. Examples of satisfying criteria would be adequate profit or share or the market and fair price.
b. They recognise that the world they perceive is drastically simplified model of the real world. They are content with the simplification because they believe the real world is mostly empty anyway.
c. Because they satisfy rather than maximise, they can make their choices without first determining all possible behaviour alternatives and without ascertaining that these are all the alternatives.
d. The managers treat the world as empty, they are able to make decision with simple rule of thumb. These techniques do not make impossible demands upon their capacity for thought.
4.Judgemental heuristics and biases model:-
The judgemental heuristics and biases model is drawn mostly from kahnernan and Tuersky, cognitive decision theorists, who suggested that decision makers rely on heuristics. Such judgmental heuristics reduce the information demands on the decision maker and realistically help in the following ways .
a. Summarise past experiences and provide an easy method to evaluate the present.
b. Substitute simple rules of thumb or ‘standard operating procedures’ for complex information collection and calculation.
c. Save considerable mental activity and cognitive processing.
5. Participative decision-making techniques :-
All four above techniques are behaviourally oriented techniques. Used as decision-making technique, participation involves individuals or groups in the process. It can be formal or informed and it entails intellectual and emotional as well as physical involvement. The actual amount in making decisions ranges from one extreme of no participation, wherein the manager makes the decision and asks for no help or ideas from anyone, to the other extreme of full participation, where everyone connected with, or affected by, the decision is completely involved. In practice, the more open and constructured the task, the more participation there will tend to be.
In today’s organisations, there is an awakened interest in participation. Interest in participation among American mangers, unions and workers has been spurred by the competitive assault on U.S companies by companies with more participatory industrial relation systems, by the challenges of new production techniques and by the disappointing productivity performance of American companies. Participative techniques have been talked about ever since the early human relation movement, and now some organisations and individual managers are actually trying them.
Introduction to the organisation
Nike organisation grew out of an idea Philip Knight expressed in graduate school paper. In 1964, he and Bill Bowerman started an athletic shoe company call Blue Ribbon sports to evoke the image of the winner. In 1972, Blue Ribbon sports become Nike, named after mythological goddess of victory.
Decision-making model (Rational)
Nike previously used rationality model of decision-making model. One new venture was Nike Town concept. It was a sports museum, part store and part amusement park and was intended as a celebration of Nike’s energy and youth vitality. According to David Monfred this is an opportunity to have direct control over how your company is presented to the world. The idea here was not discounted. When the Chicago Nike town opened, it attracted 5000 customers a week who spent about $50 each.
To keep up with the changing market place, Nike managers have already started diversifying. In 1992, Nike opened retailed outlets in which apparel shoes and Nike paraphernalia are sold. Nike managers attribute a $100 million increase in gross profits in 1992, to it retail division, which operates 30 Nike owned outlets for factory seconds and the two Nike town stores. The stores promote the growth of the Nike Apparel business, which is experiencing must faster growth than the athletic shoe business.
I prefer the use of modern decision-making method such as game theory rather than using old and traditional rational model. Game theory is the study of people making interdependent choices. A game is a situation involving at least two people in which each person makes choices based, in part, on what he or she expects the others to do. Game theory highlights the explicit role of human relationships and interactions in decisions. For example, in 1993, Nike managers focussed on range of women’s product. The decision to focus on women was not a quick decision. Many seemed to feat that growing the women’s business would undermine the company’s image and decrease it appeal to men.
Though long hours of brainstorming, the team arrived at series of ads featuring women a powerful, capable person.
The women’s marketing and advertising team, their supervisors and their competitors within Nike’s organisation ate all decision-making in the context of each other’s making decision. By game theory, the decision to proceed with dialogue is the joint result of their individual decisions. At the same time, this resulting decision is being played out in a world where forces of turbulence are at work.

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