The focus of my term paper is the decision making process used by today’s top-level managers. Top-level managers, such as Chief Executive Officers (CEOs), Chief Operations Officers (COOs), and Chief Financial Officers (CFOs), must make critical decisions on a daily basis. Their choices and the resulting outcomes affect the company, the employees, and the stakeholders. Due to the high importance of their decisions, the process they use to reach them merits a close examination.
A study published in the winter 1997 volume of Business Strategy Review suggests the major factor in a decisions success is the decision process itself. The study, by Paul Nutt, suggests that poor decision making processes cost North American businesses billions of dollars each year. The study also proposes that most managers don’t realize the importance of the process, and it’s effect on the success of the decision. Before analyzing the decision process in depth, the measurement of success must be established. Nutt used two broad measures to determine the success of decisions made.
First, was the decision implemented fully. Second, was the decision still effective two years after implementation. Based on these measures, only half of the decisions in the study were considered successful. Nutt concluded that much time and money was therefore wasted on these unsuccessful decisions.
So during what part of the decision making process did these top-level managers go wrong? In general, many managers often rush to a decision and stick by it, even when it continues to fail. Another cause of unsuccessful decisions is that the managers did not include those most affected by the outcome in the decision making process. The implementation method also had an effect on the overall success of the decision. The first step in the decision making process according to our text is establishing specific goals and objectives. The study divided this task into four different areas.
The first area, labeled concept tactic, used a solution to a problem to guide the decision. The second, problem solving, uses an existing problem to direct the decision. The third area, objective setting, uses a preferred performance level to decide the course to follow. The last area, reframing, uses benchmarking to prove that a decision must be made. The last area was implemented more times in the study than the others. I believe that this is because competition is very fierce, and executives often feel that they must keep ahead of others in their industry.
By comparing themselves to others of equal size and direction, companies must act fast if they want to keep their competitive advantage. The next step in the decision making process is to identify the alternatives. According to the author of the study, there are three ways to generate options; by copying, searching, or designing. The first way is to adapt an existing option to fit the need.
The second way, searching, is to find a company that has a prepackaged solution to achieve the goals. The last way, designing, employs consultants to design a solution. The two most successful ways were copying and searching. I believe this is because the third option requires the company to attempt to explain to the consulting group exactly what they need and want. Both the text and the study agree that the next step is to evaluate the options. The study breaks down the evaluation into four areas; analytic, bargaining, judgment, and subjective.
The first approach is very quantitative and can be based on data from a database, a field test, or even a simulation. Bargaining evaluations involve upper level management and stakeholders voting on options based on qualitative data. Judgment evaluations are made with no real explanation, and often are made on a hunch. The subjective evaluations are based on real data from current marketing efforts. Out of the four evaluation methods, bargaining was the most successful. Our text lists many reasons why group decisions are better than individual.
I believe that is why the bargaining method was shown to be the most successful. The final and perhaps most important stage of the decision making process is implementation. The study lists three ways that managers implemented their decisions; participation, persuasion, edict. Participation involves managers assigning key stakeholders to .