Decision Making In The Theory Of Management Philosophy Essay

The managers’ decisions have a profound impact on the success of the enterprises. The studies regarding the decision-making process are numerous, being elaborated by economists, sociologists and psychologists. Within the representative studies there are two major categories of models that explain the decision behavior: normative models and descriptive models. The normative theory explains the way in which a decision should be made, while the descriptive theories reflects the way the decision-making process takes place in reality.

1. Classical theories of decision-making

1.1. The normative theory

The main assumption of the normative models is that of the rationality of the decision-maker. Generally a human-being is rationale if he is noncontradictory. A second assumption of the normative models is that the decision-maker knows all the alternatives and selects the optimal course of action.

Apart from these two assumptions, other authors add other hypotheses: the number of decision-makers and the unanimity of objectives. The number of decision-makers represents an important issue in the normative models. Some authors consider that the decision-maker represents the core of the normative models, also known as the models with unique actor. The fact that there is a unique actor means that the decision is taken by a single decision-maker or a group of decision-makers that act together, having a common objective. There are no conflicts on the objectives or the decision-making process.

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The hypotheses of the normative models are, as mentioned above, ideatic, hard to be identified in decision-making context in economic life. The rationality does not seem to be anymore a characteristics of the economic life. G. S. Becker notes: “While for a long time the traditional economic theory assumed that human behaviour is rational, at certain moment there was a major contradiction regarding the meaning of the concept rational. For many people the word suggested a older psychology, fast calculus abilities, hedonist motivation and a possible unrealistic behavior. While the economic theory becomes more clear and more precisely formulated, the controversies diminished, and now everybody agrees that a rational behavior implies only the permanent maximization of certain well defined functions such as the utility function or the profit function.”

Still, in adjusted forms, the normative models prove to be useful in decision-making regarding the choice of investment. The most known normative models calculate the expected value or the expected utility.

1.2. The descriptive theory

The descriptive models of managerial decision-making, compared with the normative models, suggest that the difficulty to obtain the information and the limits of processing complicate the decision-making process. In the category of these models, the researchers identified many models such as: the satisfaction model, the incremental model, the garbage can model, the political model.

In the years 50′, Herbert Simon began to study the real behavior of management decision-makers. Instead of the “economic man” Herbert Simon proposed the model of “administrative man” that acts based on “limited rationality”. While the “economic man” maximize by choosing the best alternative, the “administrative man” formulates an aspiration regarding the alternative that need to be identified and when this aspiration is met, then the search is over, the respective alternative is selected as decision. This is the essence of the satisfaction model based on limited rationality.

George P. Huber considers that the managers usually become accustomed with a simplistic approach, even when the costs of investigating a better alternative are justified by a potential winning. It is important to be noticed that the satisfaction model leads to a rush decision and the solution found is, in many cases, a trap hard to avoid.

There are further developments of the limited rationality, such as the interactive rationality. The organizations helps the individual “to get closer to reasonable distance of limited rationality” (H. Simon), respectively the environment can help the individual to focus on elements that must be analyzed and checked with priority, and these elements can ensure coherence to its choices. B. Munier considers that the mimetic of the observable options becomes a rational argument. He considers that the rationality of individuals is in a large part of social origin. In this line many authors consider that the majority of individuals’ capabilities are due to the societies, their groups of belonging rather than their intrinsic qualities.

Another concept resulted from the limited rationality is the embedded rationality. The concept was introduced by K. Polanyi but popularized in the literature by M. Granovetter. The activity of organizations has a powerful determinant in the relationships that are established with other organizations. Their activity is socially embedded, respectively inserted in a network of relationships. The organizations exert their own influences on the other actors from the economic and social environment. Besides social embeddings other authors describes other forms of embeddings such as the political embeddings. The rationality can be regarded as a resultant of inseparable economic, political, sociological and psychological forces.

After H. Simon, James G. March is another remarkable author that focused on the decision-making process. He consider that decision-making is a process that ca be perceived “in the same non-rational way as the painting of Picasso or the poetry of T.S. Elliot”. The complexity and the ambiguity of contexts, present in the decision making are many times underestimated.

In these conditions, J. G. March, together with D. K. Cohen and J. P. Olsen have proposed the model of garbage can regarding the organizational choice. In this model the managers have a random behaviour, quite non-scientific, in non-programmed decision-making situations.

The strategy of the garbage can is used when the manager does not have a preferred objective. This kind of approach can be observed when it lacks a solid strategic management. The outcomes when using this decision-making model are mixed: sometimes favorable but also, in many cases, the consequences are not favorable.

A third model, developed in the literature is the incremental model according to which the managers make efforts to reduce the decision-making situation to a tolerable level. The decisions are made to reach a palliative objective, solving a short-term problem instead of tackling the long-term issue. The same with the satisfaction model, the incremental model does not motivate the managers to process a large quantity of information to elaborate the decision.

The incremental vision of the decision-making developed from the research of Charles Lindblom. He describes two approaches that can be used in the decision-making process: a comprehensive rationale method and a method of limited successive comparisons.

The comprehensive rationale method, also known as root approach, is similar with the normative models of decision-making. Following the root approach, the decision-maker can clearly spot the objectives that are relevant for decision. Also, the decision-maker identifies the compensations that can be made among objectives, respectively the level in which the gains compensate the loses. These compensations are established before a particular problem is to be studied. According to the root approach the decision-maker is considered to have an extensive knowledge about a set of alternative solutions and detailed knowledge regarding the consequences of applying the solutions. Based on this knowledge, a large number of decisional alternatives are compared and the alternative chosen is the one that satisfy in the highest degree the objective.

The root approach is more like an ideal, because it cannot be transposed to the realities of decision-making process. The mental capacity of the decision-maker is not large enough to be confronted with an avalanche of information and alternatives involved in the root approach. In practice, the decision-maker is not confronted with intense mental efforts, because the usual information is incomplete and inadequate, at least from the point of view of high cost involved in information gathering and processing.

In the case of limited successive comparisons method or the branch approach, the decision-maker identifies many alternatives to solve problems. The identified alternatives are not very different from the policy and the actual experience of the enterprise. From these alternatives one is chosen, that is relatively easy to be implemented. Then, if there is the need for improvements, the process starts in the same manner.

the limited successive comparisons methods delivers a pragmatic feature to the process of decision-making and takes into consideration the limited ability of the decision-maker to identify and evaluate a large number of alternatives, ones very different from the actual experience. The branch approach is focused on those solutions that solve the relevant aspects of the problem. While the conventional approach sustains that the means need to be adequate to the goals, the limited successive comparisons method implies the reverse that is the goals should fit the existed means. The existed information should be revised and reinterpreted, the proposals are rethought, the values are permanently modified.

The incremental method has known many critics in time. Y. Dror considered that the incremental model developed by Ch. Lindblom cannot be applicable to all decision-making situations. He accused the incremental method for encouraging the inertia, maintaining of status-quo, ignoring the innovations.

The incremental method has a potential applicability in politics, because it is easy to develop an agreement, a contract, in case the solutions involves minor changes and not profound changes. Ch. Lindblom and H. E. Wrapp have defined in two referential papers the characteristics of the political model, being applicable first in the politics and second in the decision-making process in enterprises. This model is based on the fight for power among the stakeholders of an enterprise. Within the organizational environment, the stakeholders develop strategies to reach solutions in accordance with their personal objectives. The management of the organization, responsible for the decision-making process, has the tendency to choose solutions not based on existing general objectives, but its decisions should conflict as little as possible with the strategies of the stakeholders. The available solutions are limited. In order to avoid seeing his decisions banned by ad-hoc coalitions, the manager tries to figure his position on the map of interests, what H. E. Wrapp was calling “the corridors of indifference”: issues where no clear opinion is expressed or susceptible to be expressed within the organization. In these indifference areas, the manager emits proposals that can be accepted by all the actors involved, because they do not poses any major inconvenience.

Another method of decision-making, widely known, was developed by A. Etzioni. This method was perceived as the third way, opposed to the rational method and to incrementalism. In 1989, A. Etzioni believed that in the years to come decision-making it will be more an art and less a science. The model he proposed, the model of mixed scanning involves different levels of decision-making, respectively a superior level comprising the fundamental decisions (the mission and strategy of the organization and the policies to implement the strategies) and a inferior level comprising incremental decision-making that support the realization of decisions from the superior level. The author considers that this model is an older approach better explained. His model has precedents in medicine. Each doctor has as objective to heal its patient. For this purpose he establish a diagnostic, effectuates the investigations, then he prescribes a treatment. In some cases the treatment is not good enough forcing the doctor to change the treatment. In a similar way acts the decision-maker in an organization when he uses the adaptive model. He identifies the problems, analyzes the difficulties, start an action and if he’s not successful he passes to another course of action, not losing from its sight the mission and strategy of the firm.

In the recent years a new model for decision-making developed: the naturalist model. The model originated from the papers of G. Klein, J. Orăşanu, R. Calderwood and C. Zsambok, published in 1989.

The model specifies that each decision is specific to a certain context and the analysis and understanding of a decision cannot be separated from its specific context. The conditions in which this model can be applied are: changing environment, missing or incomplete information, adjustable objectives, the inexistence of some procedures, of clear tasks, the constraint of time, the necessity of actions in real time as a response to environmental changes, experience and solid expertise of the decision-maker.

Besides these conditions, there are specific features of the model: it works well for a series of interdependent decisions, but is less efficient for isolated decisions; the alternative identified by the decision-maker is reasonable, is a model that leads more to satisfactory decision than to a optimal decision; the evaluation of an alternative is done by mental stimulation and not using statistical or mathematical tools.

2. New models of Decision-Making

Apart from these classical approaches, in the literature there are new developments of decision-making models. In a well known paper H. Mintzberg and F. Westley describe three models of decision-making: the model based on reflection (“thinking first model”), the model based on vision (“seeing first model”) and the model based on action (“doing first model”) .

The model based on reflection is a rational model to which its authors find a series of limits, firstly because it is only a theoretical model, without a larger practical application. Considering this aspect, the two authors propose two new models.

The model based on vision suggests that the decision or the actions can be oriented more by imagination, anticipation rather than reflection. The vision requires the courage to see what others do not see.

The third model proposed by H. Mintzberg and F. Westley is a model based on action. Many decision-makers consider that is much more important to act, after which to analyze this experience and to learn from mistakes. We can learn both from success or failures. When the preoccupation for reflection, in order to act according to a well established plan, becomes a obsession, learning by doing can be discouraged.

In table 1 we present a synthesis of the approaches regarding the decision-making and their evolution in time:

Table 1. Evolution of the decision-making approach

Economic man

Administrative man

Action man

Hazard

Accidental decisions

Emotional man

perfect rationality

limited rationality

pragmatic rationality

incremental rationality

intuition

irrationality

reflection

logic

deduction

routine

experimentation

empiric

induction

past experience

imagination

creativity

emotions

imbold

Source: Adpated after J. S. Nielsen, Cultural dimensions of decision making: Denmark and France compared, Journal of Managerial Psychology, Volume 16, Number 6, 2001.

In the next section we will present two new models of decision-making at organizational level, the so called irrational. In our opinion a proper designation of these models it will be non-rational. We will make a few clarifications to sustain this idea.

The studies in the area of neurobiology showed that there is a difference between the contributions of the two brain hemisphere to the mental life of a person. The left hemisphere is responsible for language, logic calculus, rationality, capacity to analyze and abstractization. The right hemisphere is the universe of thinking without the language, of non-verbal understanding, of spatial perception. Its task is to synthesize and to express the experience of a person in a image. The imagination and intuition are its dominant functions. The approach is intuitive (opposed to the rational one) – it works through ideas association, interactive approach, there is a synthesis of relations among objects in order to rebuild the information in a unitary approach.

Two new concepts need to be clarified to fully understand the last two models: respectively the imagination and the intuition. The imagination is the mental faculty allowing the elaboration of new associations by composing and decomposing the ideas, by combination and recombination, in the end creating objects, situations that never existed in the nature. The intuition refers to the tendency to reach a conclusion or to fulfill an action without detailed explications regarding each step of the process.

The intuitive model of decision-making is not approached in a global manner, thou exists many dispersed approaches. Many authors admit that intuition can play a powerful role in the decision-making process without describing the exact nature of these influences.

M. Le Saget, in his known paper “The intuitive manager” considers that in an ever complex environment there is a tendency toward simplicity, toward what is easy accessible, toward fast understanding. There is the need to equilibrate the logic and analytic thinking by another form of reasoning that will allow to immediately seizing a situation: a intuitive reasoning” .

F. Vaughan considers that the intuition is a psychological function that each individual poses at an acceptable level. C. Jung believed that intuition should not be regarded in antithesis with rationality, only being different. The intuition is defined by some authors as being a more sophisticate type of rationality based on “illumination”, belonging to some specialists with experience in a certain area.

W. H. Agor believes that “the intuition, when is developed represents an effective way toward knowledge. It is fast and of high accuracy. Our system processes a large volume of informations, from different levels and offer signals regarding the possible way of actions.” W. H. Agor also considers that the intuition is a “decisional ability with a pronounced rational character – a subspecies of logical reasoning that is hidden in the unconscious part of the brain” . Karl Weick appreciate that the intuition is a “condensed experience” synthesizing quite powerful the way in which the accumulation of information seem to be the manifestation of the unconscious. There is a difference between the intuition of the leader dominated by emotions and the intuition of experts. The intuition of experts is the result of learning, of experience while the first is the result of basic emotions that also diminish the attention. It will be a grave confusion to overlap the non-rational decision that results from the intuition of expert with the irrational decision that can be generated by stress and negative flows of emotions.

In many cases the intuition is overestimated, being used to justify the idea that there is no longer the need for self-discipline and rigor, in the logic of “if this is what you feel then this is good for you”. Pushed to the extreme this tendency destroys a persons and he can lose contact with reality. The intuition should be seen as a complement of the rational thinking and not as a replacement of this.

The intuition can be used with good results for non-programmed decisions, especially in an unstable environment (in risky and uncertain conditions). This method can also be used when the decision-maker did not met with a similar decisional context and he doesn’t know other similar experiences of other decision-makers; also this method works when there are many decisional alternatives viable that are difficult to evaluate with other tools.

Also the imagination can affect the decision-making process. Related to the decision-making process, the imagination can be used to reach some objectives into a negotiation process, in solving interpersonal conflicts, in building consensus at various meetings, establishing objectives in various contexts, the evaluation of the general conditions of organization, solving abstract problems. In the decision-making process imagination can help to identify the problem (taking into account the symptoms that appear) and in selecting the alternative that must be implemented.

A. Tannenbaum considers that creativity is another useful process for the decision-making situations also ensuring a better communication in organization, allowing a better investigation of the problem and the development of new ideas, solutions and alternatives. A development of this issue belongs to Edward de Bono in his work “Lateral thinking”. In his opinion: “The purpose of reasoning is to get information and to use them in the most efficient possible way. The vertical reasoning deals with the creation of conceptual models. The lateral thinking deals with the restructuration of these models (intuition) and determination of new models (creativity). The lateral thinking and vertical thinking go together in a complementary fashion” .

At E. de Bono we have identified the synthesis in which the creativity can help the decision-making. He believes that there are three types of problems: the first type of problem requires more information and better techniques to handle the information in order to find solutions; the second type of problems does not require new information but only a redistribution of the existing information: an intuitive restructuration; the third type of problems, that is the existing arrangement is optimal, and this stop us to search a better one. The second and the third type of problems require the use of lateral thinking and to discover a solution.

A somehow similar reasoning can be found in the paper of H. B. Gelatt and C. Gelatt, “Creative Decision Making”. The two authors introduce the notion of “positive uncertainty” . They consider that the uncertainty present in quasi-all decision-making contexts should no longer be a something the decision-maker must worry about, but one must embark on positive attitude. Based on this attitude there are several options for the decision-maker and he can manifest a proactive creativity. The reasoning of the two authors is quite simple. If someone is absolutely positive about what should follow, then he things only about this possibility, and if there are no perturbations this will actually happen. When the decision-maker is uncertain about what will follow then he is free, capable of studying many alternatives. In this case he needs the model of creative decision-making. The authors require flexibility saying “If you know exactly where you want to go you will never get somewhere else”.

In this context we have to mention that the emotions of the decision-maker have a strong impact in the configuration of the decision-making process. These can affect the optimal decision-making by distracting attention or by distorting the perception over the options” .

Daniel Goleman, in his well-known book “Emotional Intelligence” was the one that showed the importance of emotions and the management of emotions for the life of a person. Later he developed the subject at the organizational level in his paper “Primal Leadership”.

In this paper there are mentions regarding the role of emotions and the state of spirit for the decision-making process. The moderate anxiety of the decision-maker can be a signal that a certain element requires more attention and precautions. In the same time, a prolonged state of concern can affect the relationships of the decision-maker with the others and can affect the efficiency of the decision-making process, by diminishing the ability of the brain to process the information and to answer promptly.

The negative emotions have negative consequences, by distracting the attention from the activity performed, while the feeling of emotional well being favor the mental efficiency, helping the people to easily understand the information, to apply the decisional rules in the case of difficult judgments and to be more flexible in their reasoning.

Certainly the creativity, the intuition, the imagination, the management of emotions are in the new conditions the necessary ingredients of a efficient decision-making process, but the dispute over the role of rationality seem to be pushed too far. Even if we have to use a cliché, we believe that the truth is somewhere in the middle. In a certain sense, the manager of the future will be “half yogi and half a commissar” .

3. Decision-making within a decisional group

In the end we will make short comments to the specific modalities of decision-making within a decisional group. There are many ways in which a group can make a decision. Generally there are six factors that can be taken into consideration: the type of decision (simple or complex, that affects or not the members of the group); the time period and the resources available; the evolution in time of the group (they work well together, they know each other); the specificity of the tasks that determines this collaboration (debates, simple or complex); the type of climate the members of the group want to establish (independence, authority); the type of situation in which the member of the group work (bureaucracy, fast rhythm).

W. Doise and S. Moscovici describe two particular situations for group decisions: the normalization effect and the polarization effect. In the case of normalization effect the average of opinions and judgment becomes the norm of everybody. The second effect brings a certain change. Instead of searching for a compromise, the members of the group tend to deviate as much as possible from it. They search a position far more extreme, respectively a position that includes the point of view of the most deviant individuals.

The model of James N. Davis regarding the social decisional schemes identify only a small number of explicit and implicit rules based on which the groups makes-decisions: unanimity – the discussion serves to exert pressure on the marginals to conform; the majority wins – the discussion confirms the position of the majority, which is adopted as a group position; the truth wins – the discussion reveals the position that is proven to be correct; majority 2/3 – in case there is no 2/3 majority the group cannot take a decision; first change – in the end the group adopt a decision similar with the direction of the first opinion change proposed by one of the members of the group.

According to E. Schein there are six types of decision-making within a working group: the decision by lacking the answer; the decision taken with the help of authoritarian rules, the decision taken by a minority, the decision taken in conformity with the majority rule; the decision by consensus, the decision by unanimity.

The decision by lacking the answer appears in the case someone is coming with a solution and nobody interferes. E Schein considers that the non-answer can be interpreted as a group decision not to support the respective solution or the one that make the decision, or as a tacit acceptance.

The decision made with the help of an authoritarian rule appears in groups that have a structure of authority that clearly indicates the leader will make all the decisions. According to this method, the leader establish a meeting with the members of the group, presents the situation problem, listen to the points of view of the participants and when he is certain about the content of the decision, the decision is announced to the group. The ability of the leader to listen to the points of view of the members has the major impact on the success of the decision group. On the other side, because the members of the group do not take part to the decision-making process they feel like their opinion makes no sense or they try to impress the leader and to sustain their own solution.

The decision made by a minority can be identified in the situation in which the leader (manager) make a meeting with a minority (there are present less than 50% of the members) of the group, for example a committee or a commission. The members have a certain representativity or are the center of power within the group.

The decision taken in conformity with the majority rule is the method that consists in discussion some alternatives as long as 51% of the members of the group agree with the decision. Thou it seems as a correct solutions, in the case of this method problems can arise: first the minoritaire members might consider that the debate of the decision was shortly and did not allowed them to clearly express their point of view; this can lead to frustration and the vote can separate the group in two sides. The minority considers that their side lost a battle but it is only a matter of time until it will reorganize and will win at its turn. The vote can create coalitions and the preoccupation of the coalition that lost will not be the implementation of what the majority voted, but how to win the next battle.

The decision made following the consensus is the method that requires the longer time. The consensus is defined as an collective opinion resulted from the discussion that take place among the members of the group that work together in an environment allowing for a open communication, so that each member of the group can feel that he has the possibility to influence the decision. When a decision is taken following the consensus all the members of the group understands the decision and are prepared to support the decision.

4. ConclusionS

In our opinion a decision-maker does not use only one of the modalities of decision-making. In his decision-making activity, many times in unconscious manner, there are different modalities to adopt a decision based on the specific of the decisional context. Another hypothesis is that the decision-making should be regarded less as an exact science with quantifiable parameters. Probably is too much to consider the decision-making an art. It is obvious that decision-making has its shadow areas in which the imagination, the intuition, the creativity, the emotions of the decision-maker can bring some light. Further research is needed to investigate the decision-making process by taking into account all the above mentioned elements.