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Approaches To Decision Making

This document discusses different approaches to strategic decision making. It outlines four main approaches: 1) rational-analytical which assumes rational decision makers choose the optimal alternative; 2) intuitive-emotional which relies on gut feelings and experience; 3) political-behavioral which considers pressures from stakeholders; and 4) administrative which recognizes limits to rationality and aims for satisfactory rather than optimal decisions. Strategic decisions are complex, uncertain, and involve significant risks. Managers must balance rational analysis with intuitive judgments and political realities.

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Ramaswamy Srinivasan
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336 views12 pages

Approaches To Decision Making

This document discusses different approaches to strategic decision making. It outlines four main approaches: 1) rational-analytical which assumes rational decision makers choose the optimal alternative; 2) intuitive-emotional which relies on gut feelings and experience; 3) political-behavioral which considers pressures from stakeholders; and 4) administrative which recognizes limits to rationality and aims for satisfactory rather than optimal decisions. Strategic decisions are complex, uncertain, and involve significant risks. Managers must balance rational analysis with intuitive judgments and political realities.

Uploaded by

Ramaswamy Srinivasan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Strategic management

Decision making approaches


• Strategic decisions are the decisions that are concerned
with whole environment in which the firm operates, the
entire resources and the people who form the company
and the interface between the two.
• concerned with possessing new resources, organizing
others or reallocating others.
• deal with harmonizing organizational resource
capabilities with the threats and opportunities.
• Strategic decisions deal with the range of organizational
activities. It is all about what they want the organization
to be like and to be about.
• Strategic decisions involve a change of major kind since
an organization operates in ever-changing environment.
• Strategic decisions are complex in nature.
• Strategic decisions are at the top most level, are
uncertain as they deal with the future, and
involve a lot of risk.
• Strategic decisions are unstructured and
different from administrative and operational
decisions. Administrative decisions are routine
decisions which help or rather facilitate strategic
decisions or operational decisions.
• 1. Rational-Analytical Approach:
• Rational-analytical approach assumes that the
decision maker is a ‘unique actor who behaves
intelligently and rationally’.
• He is fully aware of all available feasible alternatives
and considers all the alternatives as well as the
consequences and chooses the alternative that
secures the maximum gain.
• Most managers like to think of themselves as rational
decision-makers.
• It rests on the assumption that managers are logical
and rational and they make decisions that are in the
best interests of the organization.
• This approach follows the process as:
• (a) Decision makers have complete information
about the decision situation and possible
alternatives.
• (b) They can effectively eliminate uncertainty to
achieve a decision condition of certainty.
• (c) They evaluate all aspects of the decision
situation logically and rationally.
• 2. Intuitive-Emotional:
• Intuition is an innate belief about something without conscious
consideration.
• Intuitive- emotional approach is opposed to rational decision-
making.
• Managers sometimes decide to do something because it feels
“right”.
• This feeling is not arbitrary but based on habit or experience,
gut feeling, reflective thinking, and instinct, using the
unconscious mental processes.
• An inner sense or emotion may help managers make an
occasional decision without going through a full- blown
rational-sequence of steps.
• Intuitive decision maker considers a number of alternatives
and options.
• Proponents of this approach point out that, in
many cases, judgment may lead to “better”
decisions than “optimizing” techniques.
• In fact, the timing of when to implement a
decision based on the analysis may require an
intuitive feel for what the data are telling you.
• all managers but most especially inexperienced,
should be careful not to rely too heavily on
intuition.
• 3. Political-Behavioural Approach:
• This approach suggests that real decision makers must
consider a variety of pressures from other people who are
affected by their decisions.
• An organization interacts with different stakeholders in
interdependent exchange relationships.
• A stakeholder is any group or individual who can affect or is
affected by the achievement of an organization’s purpose.
• Unions exchange labour for decent wages and job security.
• Customers exchange money for products and services.
• Owners exchange capital for expressed returns on
investment.
• Suppliers exchange inputs for money and on-going business.
• Governments exchange protection and economic
security for taxes.
• Even competitors exchange information with one
another through trade associations or other
contacts.
• More powerful stakeholders have more influence
over decisions because the organization is more
dependent on these stakeholders
• In a labor-intensive firm, more attention may be
paid to union leaders’ demands for better wages
than, to the desires of stockholders for more profit,
because the union might shut the firm down.
• 4. Administrative Approach:
• Herbert A Simon was one of the first person to
recognize that decisions are not always made
with rationality and logic.
• His administrative model holds that managers-
(i) have incomplete and imperfect information,
(ii) are constrained by bounded rationality, and
(iii) tried to satisfice when making decision.
• then the concept of bounded rationality suggests that
although people try to be rational decision makers, their
rationality has limits.
• their values and unconscious reflexes, skills limit decision
makers, and habits; by less-than complete information and
knowledge.
• Satisficing” suggests that rather than conducting an
exhaustive search for the best possible alternative, decision
makers tend to search only until they identify an alternative
that meets some minimum standard of sufficiency.
• A manager looking for a site for a new plant, for example,
may select the first site he find that meets basic
requirements for transportation, utilities, and price, even
though further search might yield a better location.
• Also subjective and personal considerations
often interfere with decision situations.
• Strategic management decisions are, therefore,
made in a typically human way i.e. using the
rational, conscious analysis and intuitive,
unconscious “gut” in light of political realities.

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