🤔Business Decision Making Unit 13 – Decision Making: Case Studies & Applications

Key Concepts in Decision Making

• Decision making involves choosing between alternatives based on available information and desired outcomes
• Rational decision making assumes decision makers have complete information and make choices to maximize utility
• Bounded rationality recognizes limitations in information, cognitive abilities, and time that affect decision making
• Satisficing involves making decisions that are "good enough" rather than optimal due to constraints
• Heuristics are mental shortcuts or rules of thumb used to simplify complex decisions (representativeness, availability, anchoring)
• Biases can distort decision making processes and lead to suboptimal choices
  • Confirmation bias involves seeking information that confirms preexisting beliefs
  • Overconfidence bias leads to overestimating the accuracy of one's judgments
• Group decision making can offer diverse perspectives but may be subject to groupthink and social loafing

Types of Business Decisions

• Strategic decisions are long-term choices that affect the overall direction and scope of an organization (entering new markets, developing new products)
• Tactical decisions involve shorter-term actions to implement strategies and achieve objectives
• Operational decisions are routine, day-to-day choices made to maintain business processes (scheduling, inventory management)
• Programmed decisions are repetitive and have established procedures for handling them
• Non-programmed decisions are novel, unstructured situations that require creative problem solving
• Crisis decisions must be made quickly in response to unexpected events or emergencies (natural disasters, product recalls)
• Investment decisions involve allocating resources to projects or initiatives with the expectation of future returns

Decision-Making Models and Frameworks

• The rational decision-making model follows a structured process: define the problem, identify criteria, generate alternatives, evaluate alternatives, choose the best option, implement, and review
• The garbage can model suggests that decisions result from the random confluence of problems, solutions, participants, and choice opportunities
• The incremental model involves making small, incremental changes to existing policies or practices rather than radical shifts
• The recognition-primed decision model explains how experienced decision makers can quickly identify patterns and make intuitive choices in complex situations
• The vroom-yetton-jago model helps determine the appropriate level of group participation in decision making based on factors like time constraints and decision acceptance
• SWOT analysis assesses an organization's strengths, weaknesses, opportunities, and threats to inform strategic decisions
• PESTEL analysis examines political, economic, social, technological, environmental, and legal factors affecting a business

Real-World Case Studies

• The Challenger Space Shuttle disaster illustrates the dangers of groupthink and flawed decision making processes under pressure
• Blockbuster's failure to adapt to the rise of streaming services highlights the importance of strategic decision making in a changing industry
• Apple's decision to remove the headphone jack from iPhones shows how product design choices can be controversial but ultimately successful
• Volkswagen's emissions scandal demonstrates the consequences of unethical decision making and corporate misconduct
• Airbnb's pivot from air mattresses to a global hospitality platform exemplifies effective entrepreneurial decision making
• Nokia's decline in the smartphone market underscores the risks of failing to make timely strategic decisions
  • Nokia was slow to recognize the shift towards touchscreen smartphones and app ecosystems
  • By the time Nokia partnered with Microsoft to develop Windows Phones, it had lost significant market share to Apple and Android devices

Tools and Techniques for Analysis

• Decision trees visually map out different courses of action and their potential outcomes to calculate expected values
• Cost-benefit analysis weighs the financial costs and benefits of a decision to determine its feasibility and desirability
• Sensitivity analysis examines how changes in key variables or assumptions affect the outcome of a decision
• Monte Carlo simulation uses probability distributions to model the range of possible outcomes for a decision involving uncertainty
• Pareto analysis (the 80/20 rule) prioritizes the vital few factors that have the greatest impact on a decision or problem
• Fishbone diagrams (Ishikawa diagrams) identify the root causes of a problem by categorizing potential contributing factors
• Brainstorming generates a large quantity of creative ideas for solving a problem or making a decision

Ethical Considerations in Decision Making

• Utilitarianism seeks to maximize overall welfare or well-being for all stakeholders affected by a decision
• Deontology focuses on the inherent rightness or wrongness of actions based on moral rules or duties (honesty, fairness, respect for autonomy)
• Virtue ethics emphasizes the moral character of the decision maker and the cultivation of virtues like courage, temperance, and justice
• Ethical egoism holds that moral agents ought to do what is in their own self-interest
• Justice as fairness, developed by John Rawls, proposes that the most ethical decisions are those made from behind a "veil of ignorance" about one's place in society
• Ethical decision making requires considering the interests and rights of all stakeholders, not just shareholders
  • Stakeholders may include employees, customers, suppliers, communities, and the environment
• Corporate social responsibility (CSR) involves businesses making decisions that balance profit with social and environmental concerns

Implementing Decisions in Business

• Developing an action plan outlines the specific steps, timelines, and responsibilities for carrying out a decision
• Resource allocation ensures that the necessary human, financial, and material resources are available to implement a decision
• Change management helps organizations and individuals adapt to and support the implementation of new decisions or initiatives
• Communication plans keep stakeholders informed and engaged throughout the implementation process
• Progress monitoring tracks key performance indicators (KPIs) to assess whether a decision is achieving its intended results
• Contingency planning prepares for potential obstacles or setbacks and develops alternative courses of action
• Celebrating successes and learning from failures helps organizations continuously improve their decision making and implementation processes

Lessons Learned and Best Practices

• Involve diverse perspectives and expertise in the decision-making process to avoid blind spots and biases
• Use data and analytics to inform decisions, but also recognize the limitations and potential biases in data
• Consider the long-term implications and unintended consequences of decisions, not just short-term gains
• Foster a culture of open communication and psychological safety to encourage constructive dissent and avoid groupthink
• Make decisions in a timely manner, but avoid rushing to judgment without sufficient information or analysis
• Be prepared to adapt or pivot when faced with new information or changing circumstances
• Document the decision-making process and rationale to promote transparency and accountability
• Continuously review and improve decision-making processes based on feedback and lessons learned