Organizational Decision Making Process Literature Review Unit

OrganizationalDecision Making Process: Literature Review

Unit

Literaturereview

Organisationsare increasingly faced with critical decision making situations inthis age of rapid changes in the business environment. Ability tomake the right decision at the right time is a key aspect thatdefines leadership. Successful leaders have demonstrated this bymaking critical decisions at critical moments in response to changesin the environment. Wrong information can lead to wrong decisionswhile more information does not guarantee right decisions always.Nonetheless, understanding the problem at hand and knowing the needand purpose of the decision, the stakeholders involved, the criteriaand sub-criteria of the decision, and the available alternatives,positions leaders better to make the right decisions (Saaty, 2008:84). The organisation’s behaviour, culture and structure must alsobe supportive to such processes which are integrated into the way ofdoing things. This is because decision making is a continuous processwhere means and ends are linked together. The case of the Rwandangenocide that resulted in over 800 000 deaths and millions displacedwith little intervention by the UN call for is a useful case study toassess theories on decision making processes.

Thereare several theories on decision making processes. As theories, someof them share ideas and concept while others disagree. This implieseach theory has it strengths and weaknesses depending on the basis ofits concepts. Several theories developed by different scholars canbe broadly divided into two distinct camps economics based andsocial/psychological-based. The economics-based approach posits thatorganisations should be considered as mere manifestation ofproduction functions with inputs and outputs. To boost theproductivity of the organisations, human beings make rationaldecisions bounded by their knowledge and also by organisationalprocesses. In contrast, social/psychological-based theories viewsorganisations as dynamic institutions with a human element whereorganisational decisions are dependent on the motivational,attitudinal, past experiences, cognitive biases, beliefs, andrational aspects of human behaviour (Saaty, 2008). This latterapproach thus lays emphasis on the human traits of organisationalleaders and how their personal traits influence organisations. Simplyput, economics approach view organisations as more of mechanicalsystems while management approach views organisations as complexsocial or biological systems.

Oneof the most commonly used decision making theory is the behaviouraltheory of the firm. Vroom and Jago (1974 321) says that this theorywas first developed by Cyert and March (1963) which was viewed as an“advancement of the works” of March and Simon (1958). The majoridentifying aspect of the theory is its suggestion that understandingthe decision making processes of an organisation is fundamental tounderstanding its organisational behaviour. This means that a singledecision making situation is a product of and indicative of thebehaviour of an organisation at large. Mahoney (2004) says that thistheory is based on an economic approach which seeks to maximizeoutcomes. It is also the foundation for other economic theories suchas the transaction cost theory and the dynamic capabilities theory.

Thenormative decision making model is also widely used in aidingdecision making. The theory, developed by Victor Vroom, suggests fivetypes of decision making processes aimed at improving theeffectiveness of the decision making process. They include decide,consult individuals, consult group, facilitate and delegate. Thenormative approach is thus concerned with understanding how peopleshould behave in certain situations. It gives weight to rationaldecision making processes whereby attention is given to maximizingoutcome by choosing the most optimal option. Tools, such ascomputerised decision support tools, have thus been developed toaiding making decisions informed by proper research on the situation.It must be reiterated that decision making processes are largelyinfluenced by research on the ground (Wang, 2011). This is evident inthe case study where Lieutenant-General Romeo Dallaire was sent on afact finding mission into Rwanda to inform his seniors andspecifically the UN on the necessity of a peacekeeping mission in thecountry in twelve days.

Oneof the best pronounced normative theories is the Expected UtilityTheory (EUT). The theory was first developed in 1738 by DaneilBernoulli who was interested in understating the decision makingprocess of gamblers. He figured out that gamblers change money betsdepending on perceived utilities. Johnvon Neumann and Oskar Morgenstern (1944) further advanced the theoryand identified the main aspects of the theory as preferences andaxioms which inform decisions under risk and uncertainty. Risk wasdifferentiated from uncertainty with the former seen as situations inwhich the outcome probabilities were known while the latter wassituations where probabilities were unknown (Suhonen, 2007). Theaxioms used in this theory fall under the basic assumption thatindividuals are rational human beings with clear cut preferences.These axioms are ordering, continuity and independence. Orderingincludes completeness and transitivity where preferences are orderedin a rational manner. Howeer, this rational in human thinking is notautomatic (Aeberge, 2011).

EUThas received its fair share of criticism. The criticism is largelybased on empirical experiments which have shown that decision makersviolate rationality axioms. The Allais paradox, developed by MauriceAllias, shows that two options for gambles where individuals abandonrationality axioms. In the experiment, people were asked to choosebetween two gambles. GambleA:A (100% chance of receiving $1 million), gambleB:B (10% chance of receiving $5 million, an 89% chance of receiving $1million, and a 1% chance of receiving nothing). This was followed byanother choice of two gambles to choose from. GambleC:C ( 11% chance of receiving $1 million, and an 89% chance ofreceiving nothing) and gambleD:D(10% chance of receiving $5 million, and a 90% chance of receivingnothing) (Suhonen, 2007). With the experiment repeated over manytimes, individuals invariably prefer A to B and D to C. Now, why isthis paradox? By choosing A over B, individuals seek to maximizeexpected utility and not expected value. If the same consistency wasto be maintained, then in the second gamble individual should preferC to D but it is not the case. Thisbasically thus shows that EUT is ineffective in predictingrationality in decision making behaviour.

TheRegret theory by Loomes, G. and R. Sugden(1982) and Bell, D. E.,(1982) is one of the main descriptive decision making theories. Thetheory posits that individuals do not only seek to maximize orminimize anything through their decisions but also compare thepossible consequences of alternate decisions foregone. Essentially,this approach ignores transitivity where decisions are orderedaccording to perceived utility but asserts that people maximizeutility by logically avoiding regret or disappointment. A classicexample provided by Suhonen (2007) pertains to the individual who hasto make a decision to buy insurance or gamble simultaneously. Thenature of the individuals, whether risk averse or risk lover,influences the decision taken which is not consistent with EUT butrather seeks to avoid regrets. In such a situation individuals buyinsurance because they fear failure to do can result into regretsafterwards in case of an accident. Correspondingly, individuals alsoregret if they fail to gamble, because in case they were to win, theywill have lost a huge winning prize.

Regretas an emotion is only felt after a decision is made. Furthermore,studies have depicted regret as an inborn feeling that is highlyassociated with intuition. As a consequence, the emotion is innate tothe individual and cannot be trusted for a variety of reason. One ofthem that is commonly cited is that the theory is that a smalladvantage in one scenario may lead to loss of greater advantages inother scenarios depending on the prevailing circumstances.Furthermore, in contrast to what is expected of theories in term ofconsistency, the theory does not provide it because chosenpreferences will definitely change with a change in the alternativesprovided. In the case study, it is clear that the options thatDallaire provided to his seniors at the UN provided a small advantagein cutting costs by having a small mission in Rwanda based on theinformation that they received. However, as it will be discussed inthe next paragraphs, other issues come into play in decision makingprocesses.

Apartfrom avoiding regret and maximizing utility, there are many otherfactors that come in handy for making decisions for organisationalleaders. They include geopolitics, economic reasons, workplacepolitics, ethical influences, organisational environment, leadershipstyles, globalization, and organisational structure among others.Good leaders are expected to have good and well developed heuristicsto aid in decision making and also be ethically conscious (Saat,1999). Ethical considerations are very influential in the decisionmaking process. Where an ethical dimension is involved, it maycontradict the utility maximization and regret avoidanceconsiderations. In most cases, areas that are dominated by ethicaldimensions in organisations pertain to corporate socialresponsibility, fair trade, fair competition, sustainability,psychological contract, customer relations, human resource managementetc (Adler &amp Gundersen, 2007).

Forglobal corporations, geopolitical issues are key determinants ofdecision making processes for leaders. In the case of Rwanda, itsgeopolitical significance was an important aspect in the decisionmade by the UN and key member states on their involvement in peacekeeping missions. The fact that the country lacks major natural orhuman resources implies that the country is of less importancecompared to other countries with higher natural and human resources.He insinuates that Rwanda was literally abandoned by the UN becausethe country did not have much geopolitical significance compared toYugoslavia where the UN committed more resources over a longer periodthan what was required in the case of Rwanda. The attitude towardsAfricans, indicated by the Belgian colonialists and also replicatedby Belgian soldiers serving in the peace mission, hampered anydecision made. This attitude, presumably characteristic of Belgiancolonialists, affected the decision making process. Eventually, theRwanda situation led to a loss of 800 000 lives and millionsdisplaced, something which could have been averted.

Anothercritical issue in decision making processes and leadership thatemerges from the Rwanda case is internal politics, organisationalculture and structure. Adler and Gundersen (2007) say thatorganisational structures describe the formal channels through whichauthority and power flow from the highest to the lowest.Organisational culture on the other hand indicates the informalstructures through alliances are made and information shared. For theUN, there is a definite process to be followed before the deploymentof a peace mission in a conflict zone. From the case, it is indicatedthat the UN process took approximately three months to deploy amission, which can be attributed to the multiple criteria approach inthe decision process (Walleniuset al., 2008).Although Dallaire was fully aware of the severity of the situation,the vertical structure and formal information sharing system watereddown the report. Internal conflicts come into the limelight in thecase. Dallaire observes that there were interdepartmental conflicts,there was no harmonized command of the units from the variouscountries and also the fact that there were inadequate resources tosupport key decisions made.

Fromthe review above, it is clear that decision making processes arecomplex procedures that have deeper underlying issues. None of thetheories discussed above can fully explain the criteria used in adecision making process. There are a variety of issues of at play ina progressive manner. As such, to understand the process underlying aparticular decision, several theories must be employed and thevarious factors that influence decision making processes as mentionedabove. In Rwanda case, the senior leaders at the UN were likelyinfluenced by the geopolitical position of Rwanda, past experience inSomalia peace mission, misinformation or poor information, poorperceived expected utility of the intervention and regret avoidancein a bid to please local populations of key member states as opposedto the people of Rwanda. The final decision made the by internationalbody led to a choice that did not maximise utility in the prevailinguncertainties as predicted by Aeberge (2011).

References

Aaberge,A. (2011). Empirical Rules of Thumb for Choice Under Uncertainty.Theory and Decision 71 (3):431-438.

Hansson,S. (2010). The Harmful Influence of Decision Theory on Ethics.EthicalTheory and Moral Practice13 (5):585-593.

Long,B., Grant, J., Mills, A., Rudderham, E. &amp Warren, A. (2009).Genocidein Rwanda: leadership, ethics an organizational failure in postcolonial context.RMIT. University.

Saaty,T. (1999). Decision Making for Leaders: The Analytic HierarchyProcess for Decisions in a Complex World. London: RWS Publications.

Saaty,T. (2008). Decision making with the analytic hierarchy process.Int. J. Services Sciences,vol. 1, no. 1, 83-96.

Suhonen,N. (2007). Normative and Descriptive Theories of Decision Makingunder Risk: A Short Review. Economics and Business AdministrationUniversity of Joensuu, Finland, paper # 49.

Wang,C. (2011). ManagerialDecision Making Leadership.London: John Wiley &amp Sons.

MohenyJ. (2004). Review of Behavioral Theory of the Firm. New York: Sage.

Wallenius,J., Dyer, J., Fishburn, P., Steuer, R. Zionts, S., Deb, K. (2008).Multiple Criteria Decision Making, Multiattribute Utility Theory:Recent Accomplishments and What Lies Ahead. Management Science, Vol.54, No. 7, pp. 1336–1349

Vroom,V. &amp Jago, A. (1974). Leadership and Decision Making. DecisionSciences,Vol. 5, pp. 743-755.