Decision Making

This article discusses decision-making in a business environment. While leaders are ultimately responsible for business decisions, problem-solving is a shared responsibility among top managers who make strategic decisions, middle managers who make tactical decisions and lower level managers who make operational decisions. By having accurate information, decisions are more likely to be based on facts, sound reasoning and intelligence. This article will provide an overview of decision making and includes a discussion of factors that lead to good business decisions.

Keywords Business Intelligence; Conflict; Core Values; Decision Making; Decision Tree; Emotional Intelligence; Information; Inquiry Process; Operational Decisions; Strategic Decisions; System Dynamics; Tactical Decisions

Management > Decision Making

Overview

Leadership & Decision Making

One of the earmarks of an effective leader is someone who makes decisions while motivating people to implement them. He or she must learn to communicate and deal with high and low-performing workers and bring out the best in both employees and managers while demonstrating authority and creativity. While leaders have different decision-making styles, a leader needs to choose the right people to participate in the decision-making process and there are some basics steps they must follow.

Leaders need to spot and solve problems while seeking opportunities to move the company forward. In order to do so, accurate information needs to be obtained, and a number of alternatives need to be developed and evaluated for strengths and weaknesses. Decisions are made after developing a number of ideas, debating a variety of options and encouraging an exchange of opinions in order to find the best course of action (Garvin, 2001).

While leaders are ultimately responsible for making business decisions, problem-solving is a shared responsibility among people at different levels in a company. Further, there are different types of decision-making responsibilities and these include strategic decisions, tactical decisions and operational decisions.

Strategic Decisions

Top managers are often responsible for making strategic decisions or decisions that concern the long-term goals of the company. For example, a company might decide to develop new products or focus its efforts on increasing the volume of an existing product. Strategic decisions establish company policy and these decisions are often complicated because the future is uncertain and accurate information is often limited. In these cases, managers must rely on their past experiences as well as their instincts (Janczak, 2005).

There are four techniques available to senior managers. They must be able to generate conflict that needs to be resolved; employees should be encouraged to question existing assumptions; the work environment should be one that encourages learning, and finally, managers need to be able to distinguish between available resources and services and customer needs (Young, 2005).

Tactical Decisions

Once a company's goals and policies are established by senior management, tactical decisions aimed at achieving a company's goals and implementing company policy need to be made. Such decisions are usually made by middle managers and require managers to focus on specific actions that will bring about the company's objectives. For example, a mid-level manager might devise a plan to provide employees with incentives in order to increase production. This requires mangers to have accurate information so that their decisions are based on facts (Abukari, 2003).

Operational Decisions

Lastly, decisions regarding the day-to-day functions of a business also need to be made. These decisions are considered operational decisions and they are subordinate to strategic and tactical decisions. While these decisions are the responsibility of low-level managers, good decision making is crucial here since such decisions focus on productivity, quality control and employee performance. Moreover, operational decisions can be broken down into:

  • Short term planning needs like ordering supplies, establishing work priorities and enlisting temporary help.
  • Medium term planning like hiring and firing personnel, purchasing equipment, training individuals and modifying procedures.
  • Long term planning like replacing subcontractors, redesigning production facilities and modifying capacity (Copeland, 1986).

Importance of Debate & Open Exchange of Ideas

Although decision-making and problem solving occurs at different levels of a company, leaders are ultimately responsible for every business decision and this requires a leader to have an understanding of strategic, tactical and operational decisions. Further, decision making rests not only on what decisions are made, but who makes them and how they are made. Business decisions often require an inquiry process, developing and debating a number of ideas in order to find the best course of action. This approach to decision making is a test of strength among competing ideas (Garvin, 2001).

In order to encourage debate and a free exchange of ideas, a leader needs to have a high level of emotional intelligence so that he or she can manage conflict that invariably arises in such an environment. Some leaders have a tendency to make decisions that are not based on sound reasoning while other decision makers can be rigid in their dealings with other people. However, leaders that exercise emotional intelligence can motivate people to be creative and to realize a vision (Batool, 2013). In the end, a decision-making process that relies on debating a number of ideas should strive for a balance and a number of factors.

Successful leaders are flexible and open to the ideas of others, but also adhere to a set of core values — essentially an internal determination regarding what a company's goals and aspirations are and how they plan to achieve them. At the same time, decisions must be made with an awareness of the outside world — leaders and managers must be capable of knowing what the truth is outside of the organization. This means understanding what factors are affecting the market. Understanding these factors will allow for good strategic decisions. Further, decision makers need to understand how that market is changing and to what extent the business can contribute to those changes. Such an understanding will lend itself to good tactical decisions. Finally, everyone involved in the decision-making process must understand what the company needs to do in order to be successful in that market as this will result in effective operational decisions (Unseem, 2005).

In the end, all levels of decision-making — strategic, tactical and operational, require access to accurate information. By having accurate information, leaders and managers will be better equipped to make decisions that are based on facts, sound reasoning and intelligence. This information can also be thought of as business intelligence. Effectively employing business intelligence will enable leaders to provide managers with the right information at the right time. Having the right information will ensure that decisions will be based on facts and allow for decisions to be made more quickly. Moreover, because business intelligence relies on factual information, it encourages a rational approach to management (Abukari, 2003).

Applications

Importance of Business Intelligence

Most businesses exist to provide goods and services to their customers and this requires decisions on how to deliver those goods, pricing, the handling of unsatisfied customers, and how to treat repeat or high volume customers (Rhode, 2005). Such decisions require "mission critical business intelligence" and there are technologies that enable businesses to understand "customer buying behaviors and preferences," "product pricing and promotion" and "product assortment." By evaluating this information, a business is better able to make operational decisions (Ross, 2007, p. 25).

Information Gathering

Not only is having access to business intelligence critical for operational decisions, such information also plays a role in strategic and tactical decisions. Supporting such decisions means "gathering actionable information on the competitive environment" (Heath, 1996, p. 52). This type of information has been termed "competitive intelligence" of which there are basically two sources — traditional and nontraditional. Traditional sources of intelligence refer to published material such as newspapers, magazines, government and court documents and company reports, while nontraditional sources include interviews with employees, suppliers, distributors and customers. Having access to this kind of business intelligence will prove valuable as a company makes strategic decisions like whether to enter into a new market. Competitive intelligence will also facilitate tactical decisions regarding how to enter a new market — such as by forming an alliance or merging with a company that already exists in a particular business sector (Heath, 1996).

Manager Instinct

Armed with this information, a successful leader will encourage managers to participate in the decision-making process by debating ideas; however, he or she must also exercise leadership by making the final decision and ensuring that decision is fully understood by employees. Moreover, the final decision must be implemented as soon as possible. Some managers stress intuition and believe they can rely on 'gut instincts' when faced with the necessity for a speedy decision. Some business consultants agree, saying that decision-making is really all about trusting one's intuition (Drury, 2005).

While wisdom may stem from experience, there are many who believe that innovation and invention require a person to be highly intelligent, intellectually and emotionally, and these abilities are not necessarily a matter of experience. Further, decisions are sometimes required in the face of incomplete information. Many managers are able to rely on a minimum amount of information when making decisions in a timely manner. A leader is one who can sense and articulate the aspirations of people and empower them to take action. Even though there are technologies that allow for more timely data analysis, a leader's gut instinct might require a decision that relies on his or her vision more than any technical analysis (Drury, 2005).

Technology Use

In contrast, evaluating more options in less time requires decisions to be based on reason, and relying on gut instincts may lead to unsuccessful outcomes. As situations become more complex, relying on intuition does not lend itself to good decision making since individuals are really basing their decisions on preconceived notions about past events. Technological advances have increased the amount of accessible information and decreased the amount of time available in the decision-making process. At the same time, technology also provides the means to process information more quickly. Today, computer programs are being developed to enhance pre-existing decision-making tools that have been utilized by business people such as system dynamics and decision trees (Bonabeau, 2003).

System dynamics is a way of studying and managing complex feedback systems. This is a method that identifies a problem, explains the cause of the problem, builds a computer model that reproduces those causes, considers alternative ways to solve the problem and finally implements a solution. A decision tree is a tool used when there are choices between several courses of action. Decision trees consider a variety of options and the possible outcomes of choosing those options. They also form a balanced picture of the risks and rewards associated with each possible course of action. In short, these analytical methods assist business people with quickly processing large amounts of information so that the facts about a given situation can be accurately determined. With these facts at their disposal, and after the issues have been thoroughly debated, managers and leaders are in a better position to make good decisions (Bonabeau, 2003).

While there are numerous methods and technologies for analyzing information and a myriad of solutions that can be applied to strategic planning, good decisions ultimately rest on a leader's emotional intelligence and vision. A leader must also be able to make rational decisions and communicate his or her vision and the reason for decisions to all levels of management. In some organizations, however, senior managers often make decisions themselves and then try to persuade people to buy into those decisions. According to Unseem, that approach precludes options and ideas that management may not have even considered. At the same time, all participants need to take responsibility for their involvement in the process. While a leader needs to choose the right people to fulfill managerial roles, it is the leader's job to communicate effectively with the managers. In the end, the role of all employees in a business organization is to represent the company as well as to work together to ensure the business' success. Having the right people engage in an exchange of ideas creates an environment where information flows freely and success is more likely (Unseem, 2005).

Viewpoints

Technological Advancements & Decision Making

The amount of information that people can access has expanded dramatically because of technological advances. In light of these developments, managers and leaders have more choices and data at their disposal, but less time to make decisions.

Communication

As the Internet evolved, many businesses developed their own internal Internets, known as Intranets, and these innovations have enabled employees to become more involved in the decision-making process. Moreover, other Internet-based technologies are being deployed on Intranet systems. Currently, the development of social software like web logs (blogs) and podcasting enables people to communicate and exchange information easily. A blog is a web-based journal written by one or more people. For example, CEOs are using blogs to communicate with the rank and file as well as for different groups in the organization to share their accomplishments. A podcast is an audio file that can be used for broadcasting executive speeches throughout the company. Finally, most businesses today have internal e-mail and instant messaging capabilities that allow people to readily share information (Holtz, 2005). Businesses are also starting to utilize popular social media portals such as YouTube, Facebook, and Twitter to enhance workplace communications (Koster, 2012).

Further, having alternative means of communication can lend itself to creating a constructive environment for engaging in critical debate. But the use of e-mail, Intranets, and social media creates a whole other layer of policies as to their proper use. A wrongly-placed or used word in an e-mail can lead to misunderstandings and even legal action and companies must be aware at all times of those implications (Lieber, 2011).

Use of Consultants

Although technological advances can enable people to process and analyze more information quickly, people-not machines or software programs-ultimately make decisions. There are many factors beyond the technical analysis of data that affect these decisions, such as the managerial and decision-making style of a leader, the interpersonal skills of the staff, as well as the corporate culture in general. According to Sargeant, technology does not allow a company to make determinations about the group dynamic and so objective opinions of managerial consultants are needed. To be effective, consultants need to understand the business and be comfortable addressing a variety of issues such as leadership, finance and organization. Further, consultants can be useful if they are called upon to make assessments in a short time period and assist managers and leaders with communicating the goals of the company to those involved in the decision-making process, getting those individuals to cooperate and also enlisting the cooperation of other divisions within the company (Sargeant, 2005).

The fact that leaders are ultimately responsible for making decisions means that they must often make strategic decisions and then delegate tactical and operational decisions to the right managers. Further, leaders must ensure that middle and low level managers have access to sufficient information as well as the technological assets to analyze that information. In the final analysis, a successful business consists of successful people, and so it is reasonable to expect them to work towards implementing a leader's final decision. However, emotions often become a factor in decision making. To be successful, a leader must be able to manage his or her emotions and also recognize the emotions of others. This skill allows a leader to encourage people to work towards implementing strategic decisions. A leader also needs to be an effective communicator and open to new ideas and different views, especially concerning tactical and operational decisions. One way to accomplish this is by asking questions, pushing employees for more in-depth explanations and in the end, explaining the rationale for the final decision (Garvin, 2004).

There are a number of ways a business can improve its decision-making processes. Whether they rely on advanced technology or the advice of independent consultants, successful decisions really require businesses to establish a set of core values. Doing so will allow an organization to attract employees and customers who are aligned with those values.

Terms & Concepts

Business Intelligence: Accurate information regarding a businesses market.

Conflict: Debate in a business environment aimed at the open exchange of ideas.

Core Values: An internal determination regarding what a company's goals and aspirations are and how they plan to achieve them.

Decision Tree: An analytical tool used by businesses to determine the best course of action among a number of alternatives.

Decision Making: The process employed by a business enterprise that establishes its goals and the strategy to achieve those goals.

Emotional Intelligence: The ability of a person to manage their emotions and recognize the emotions in others.

Information: The data that is available to a business enterprise about its market and products.

Inquiry Process: A decision making process that encourages cognitive conflict in order to bring about the best ideas.

Operational Decisions: Decisions that concern the day to day functions of a business.

Tactical Decisions: Decisions that are aimed at bringing a company closer to its goals and implementing its policies.

Strategic Decisions: Decisions that establish long-term goals and policies of a business.

System Dynamics: A method for studying and managing complex feedback systems in a business environment.

Bibliography

Batool, B. (2013). Emotional intelligence and effective leadership. Journal Of Business Studies Quarterly, 4, 84-94. Retrieved on November 13, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=86874024&site=ehost-live

Bonaneau, E. (2003). Don't trust your gut. Harvard Business Review, 81, 116-123. Retrieved January 29, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=9721855&site=ehost-live

Copeland, R., & Globerson, S. (1986). Improving operational performance in service industries. Industrial Management, 28, 23. Retrieved April 10, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=4983608&site=ehost-live

Cryer, B. (2005). Listen to the heart. Leadership Excellence, 22, 20. Retrieved January 29, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=18419354&site=ehost-live

Drury, M.L. & Kitsopoulos, S.C. (2005). Do you believe in the seven deadly myths? Consulting to Management, 16, 28-31. Retrieved February 1, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=16308648&site=ehost-live

Garvin, D. & Roberto, M.A. (2001). What you don't know about making decisions. Harvard Business Review, 79, 108-116. Retrieved January 29, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=5134704&site=ehost-live

Heath, R.P. (1996). Competitive intelligence. Marketing Tools, 3, 52-59. Retrieved April 10, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9607180715&site=ehost-live

Holtz, S. (2005). The impact of new technologies on internal communication. Strategic Communication Management, 10, 22-25. Retrieved January 29, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=19299476&site=ehost-live

Janczak, S. (2005). The strategic decision-making process in organizations. Problems & Perspectives in Management, 2005, 58-70. Retrieved April 10, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=18427082&site=ehost-live

Koster, K. (2012). Social media tools gain acceptance. Employee Benefit News, 26, 14. Retrieved on November 13, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=82030092&site=ehost-live

Lieber, L. D. (2011). Social media in the workplace-Proactive protections for employers. Employment Relations Today (Wiley), 38, 93-101. Retrieved on November 13, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=66694755&site=ehost-live

Rhode, F. (2005). Little decisions add up. Harvard Business Review, 83 24-26. Retrieved on February 28, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=17276331&site=ehost-live

Ross, D. (2007). What is BI and what do we do with it? Retail Merchandiser, 47, 25. Retrieved April 10, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=24415530&site=ehost-live

Seargeant, J.R. (2005). Saving troubled companies. Consulting to management, 16, 21-24. Retrieved February 1, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=16308642&site=ehost-live

Unseem, J. (2005). Jim Collins on tough calls. Fortune, 151, 89-94. Retrieved January 29, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=17328693&site=ehost-live

Young, D. (2005). Strategic decision making: It's time for healthcare organizations to get serious. Healthcare Financial Management, 59, 86-92. Retrieved April 10, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=19773949&site=ehost-live

Suggested Reading

Connelly, S., Helton-Faith, W. & Mumford, M.D. (2004). A managerial in basket study of the impact of trait emotions on ethical choice. Journal of Business Ethics, 51, 245-267. Retrieved January 29, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=14106986&site=ehost-live

Pech, R. & Durden, G. (2004). Where the decision makers went wrong: From capitalism to cannibalism. Corporate Governance: The International Journal of Effective Board Performance, 4, 65-75. Retrieved on January 29, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=20037815&site=ehost-live

Sayegha, L., Anthony, W. & Perrewe, P. (2004). Managerial decision making under crisis: The role of emotion in an intuitive decision process. Human Resource Management Review, 14, 179-2000. Retrieved January 29, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=13941126&site=ehost-live

Edited by Richa S. Tiwary, Ph.D., MLS

Dr. Richa S. Tiwary holds a Doctorate in Marketing Management with a specialization in Consumer Behavior from Banaras Hindu University, India. She earned her second Masters in Library Sciences with dual concentration in Information Science & Technology, and, Library Information Services, from the Department of Information Studies, University at Albany-SUNY.