Compare reality the rationality of strategic decision-making

Compare
and contrast the strengths and weaknesses of two models of strategic decision
making

 

Introduction

Strategic
decision-making is the process by which top management makes its most
fundamental decision (Das and Teng, 1999). In management literature, strategic
decision making is prevalently rational process: analytical, linear, and step
by step (Calabretta et al., 2017). Decision making is most central process in
organisations and a basic task of management at all level. It is central to
organisation actions and long-term competitiveness.

The free
major approaches to strategic decision making are: the rational approach, the
political approach and the sense-making approach (The Open University, 2014). This
essay compares two of the theoretical models of decision-making with the way
which senior managers make decision in practice. The first part of the essay
focus on the rational decision-making approach. In the rational decision
approach, the senior management team of an organisation would approach a
decision situation in as rational a manner as possible: process of identifying
a problem, carefully weighing the evidence, evaluating the alternatives before
coming to a considered choice. However, in reality the rationality of strategic
decision-making is open to a question. The second part of the essay consider
the impact of organisational politics on strategic decision-making. The senior
management team often have objectives that are conflicting and the outcome of
the decision-making process is the result of compromise and coalition building.
The final part of the essay looks at the differences between the rational and
political approach to decision-making.

The Rational decision-making model

The
rational decision approach to perceiving individual decision-making is based
upon on classical decision-making theory or the rational economic model (Li,
2008). The model is considered as a cognitive and multi-step process for making
choices between alternatives. It assumes economic man, or that people emphasise
logic, objectivity, and analysis over subjectivity and instinct when making
decision (Redmond, 2017). The rational decision-making model is the most usual type
of the decision-making process. Simon (1997) has developed a model of decision
making which has three stages (The Open University, 2014):

·     
Problem recognition – identify the need for a
strategic decision

·     
Develop alternatives – identify possible
courses of action and develop alternatives

·     
Choice – make a choice from among these
alternatives

Based on
this simple framework, a variety of theorist have extended various stages and
sub-stages to this framework. For example, Gore et al. (1992) provide a
compound diagram (Figure 1.) which identify elements of the ‘analysis, choice
and implementation’ to create extensive flow chart of an ideal decision-making
process (The Open University, 2014).

Insert chart p. 63

The rational decision-making model considers
the process to achieve decisions that are optimal, and has various underlying
assumptions:

·      The decision problem is clear and well
understood

·      The decision makers agree on criteria and
weightings to be used in analysing the possible alternative courses of action

·      The decision makers are aware of all possible
courses of action

·      The objectives to be achieved is addressing
the issue are clear, agreed and do not change

·      The final decision will maximise outcomes

·      There is full information available to
decision-makers because there are no time or cost constraints

·      Decision makers are rational and fully
objective

(Redmond, 2017)

The
strength of the rational decision-making model is that the approach is
established on scientifically acquired data that permit informed
decision-making, reducing the chances of errors, subjectivity assumptions, and
all major causes poor judgments (The Open University, 2017). Such an
information and knowledge constructed approach encourage consistent and high-quality
decision and decreases the uncertainties and risk related with decisions. The
model is logic, discipline and step-by-step approach to addressing complex
problems by breaking it down into simple steps, and taking into consideration
all aspects of the problem with all possible solutions before making a final
decision (Redmond, 2017).

A
family owned bakery have an issue with current oven because the oven is decades
old and have a problem with energy supply and also is cost inefficient. The
bakery has a budget to purchase new medium sized oven which will be energy
efficient. The weigh decision criteria for the owners are: size, price,
efficiency, reliability, installation and transportation cost. They researched an
offers of oven suppliers and developed alternatives for right oven. Then they
chose the best alternative from all alternatives based on their weigh decision
criteria. When they finally made the choice from these alternatives then they
implemented the action and buy the oven.

Unfortunately,
most of the assumption of rational approach mentioned above do not really exist
in reality. In these days, the environment is dynamic and very competitive,
usually business have limited time and resources to analyse and consider all
available information to help analysing the problem, evaluate all possible
options and make the best choice among these alternatives.

The model
is pure in term of rationality and somewhat unrealistic. Based on the limits of
rational approach such as timeless, objectivity and completeness of
information, theorist have added a series of more realistic assumptions. Two
most important assumptions developed by Herbert Simon (1916) are bounded
rationality and satisficing (cited in The Open University, 2014). Bounded
rationality refers to the idea that agents are only partly rational (The Open
University, 2014). The approach considers that the decisions are made on
incomplete information or even erroneous, consequences of such a decision
cannot be assessed and valued with absolute accuracy, not all possible
alternatives are considered, and also assume that people employ methods for
problem solving as rules of thumb to simplify decisions (The Open University,
2014). On the other hand, satisficing refers to the decision-making process
(The Open University, 2014). Instead of finding all alternatives, weighting
them up and making decision which would give the best outcome, individuals seek
out the best option from all those that are available. They evaluate each
alternative in turn according to their aspirations, until reaching one which
satisfies these aspirations (The Open University, 2014).

For
example, the family owned bakery from previous case identify that they need to
buy new oven, because the current one just broke down and repair it would be
too expensive. So, they identify that they need new oven as quickly as possible
to do not disturb operation process in bakery. They have a budget and they want
a medium size oven which will fit into their bakery and also will be energy
efficient. They search for the oven supplier and buy from first supplier that
have reasonable price and meet their criteria, because they run out of time and
possible disruption of operational process in the bakery. 

Although
the model of decision process in Figure 1. (above) recognises the existence of
bounded rationality and satisficing, it suggests that the decision makers
should seek to reduce their impacts on the process. For example, they should
try to develop as many alternatives as possible. However, the rational
decision-making model do not consider other aspects of organisational and human
life such as power, intuition, instinct and chance (The Open University, 2014).

The Political decision-making model

This
model is important not only for government or public sector but for firm in any
industry. The main assumption of decision-making approach is that organizations
are coalitions of people with competing interests (Eisenhardt and Zbaracki,
1992). Because an organisation is viewed as a coalition of diverse interest,
organisations are seen as having multiple, conflicting goals which change as
the balance of power changes (Giesecke, 1993). In this system, decisions are
the result of bargaining behaviour. This bargaining behaviour include actions
such as offline lobbying, behind-the-scene coalition, withholding information
and controlling agendas. Individuals and interest group enter into bargaining
situations in an effort to influence goals and decision making in system
(Giesecke, 1993). Influence and power is wielded in a deliberate manner and to
further self-interest. The goals of the coalitions are defined by self-interest
rather than by what is good for the organisations as whole (Turpin and Marais,
2004). For example, some people in a business firm may favour growth while
others may favour profitability or public service.

In the
political model approach, participants are interdependent. They react to the
actions of others and take other participants into account as they plan their
own strategies. Managers have to assess power throughout the organisation as it
is imperative that they accurately diagnose power to use bargaining strategies
ranging from coalition successfully (Giesecke, 1993). Information plays an
important part in the decision-making process. Information is obtained to help
the decision maker in assessing alternatives. The political model emphasises
the cost of obtaining information and recognises that participants may not seek
information on all alternative solutions to a problem. They obtain information
to support their view and then may use that information in their bargaining
process as they try to guess how other participants will respond (Giesecke,
1993).

Example
in Pettingrew’s (1973) study of computer adoption within a British retailer. The
author sketched the firm as a patently political system. He focused on three
managers (Kenny, O’Reilly, and Turner) and their selection of computer vendors
for automating the firm. Consistent with the political model, each manager had
well-defined, yet conflicting, preferences regarding computer vendors. Kenny
favoured the current vendor, Newton, and one specific technical approach. In
contrast, Turner and O’Reilly favoured different vendors and technical
approaches from each other and from Kenny. These preferences arise not only
from genuine disagreements about technology and the quality of the different
vendors, but also from differences in the managers’ positions within the firm
and their perceptions of self-interest (cited in Strategic decision making,
Eisenhardt and Zbaracki).

It can
be argued that sometimes politics emphasize the tactics of opportunism and
timing. It can be seen that executive choice suggested that effective managers
used such politics. Senior executive developed a broad strategy of what they
wished to achieve, but realised that strategy in a series of piecemeal,
opportunistic decisions. This selective approach allows executives to build a
power base for their ideas, to accelerate or delay as necessary, and to be
flexible as the need to change arises (Quinn, 1980).

According
to Eisenhardt and Zbarecki (1992), central ideas of the political approach are:

·     
Organisations are comprised of people with
partially conflicting preferences

·     
Strategic decision making is ultimately
political in the sense that powerful people get what they want

·     
People engage in political tactics such as
co-optation, coalition formation, and use of information to improve their power

(Eisenhardt and Zbaracki,
1992)

Politics
can be seen as ineffective, many people do not like politics, finding them
inefficient, unnecessary, and unpleasant. Generally, politics create animosity,
wastes time, disrupts information channels, and leads to poor information
(Eisenhardt and Zbarecki, 1992).

Differences between the rational and
political decision-making model

In
Table 1, can be seen summarised differences between the rational
decision-making model and political decision-making model.

Organisational
characteristics

Rational Model

Political Model

Goals, preferences

Consistent across participants

Inconsistent, pluralistic within the
organisation

Power and control

Centralised

Decentralised, shifting coalitions and
interest groups

Rules and norms

Norm of optimisation

Conflict is legitimate and expected

Information

Extensive, systematic, accurate

Ambiguous, information used and withheld
strategically

Decision process

Logical, rational, step-by-step

Disorderly, characterised by push and pull of
interests

Decisions

Based on outcome-maximising choice

Result of bargaining and interplay among
interests

Ideology

Efficiency and effectiveness

Struggle, conflict, winners and losers

Table 1. Differences
between Rational and Political decision-making approach (source: Huczynski,
2004)

Conclusion

Strategic
decisions are long term, complicated decisions executed by senior management
which influence the whole direction of a firm. Decision making is the most
central process in organisations. This essay considered two of the three major
approaches to strategic decision making, the rational approach and the
political approach.

The
rational approach is based upon on classical decision-making theory or the rational
economic model. The rational approach is considered as logical, sequential and
multi-step process for making choices between alternatives. It can be argued,
that the rational approach is how it should be done. Unfortunately, the
assumptions about the rational approach do not really exist in reality and have
its limits. In the dynamic and competitive environment, usually business have
limited time and resources. Herbert Simon has developed more realistic
assumptions: bounded rationality and satisficing. Bounded rationality refers to
the idea that agents are only partly rational. Satisfying refers to the
decision-making process where individuals seek out the best option from all
those that are available. Gore et al. (1992) developed a decision process, that
try to eliminate bounded rationality and satisficing by developing as many
alternatives as possible (The Open University, 2014).

According
to the political model, decision makers concentrate on many problems within an
organisation reflecting personal goals of different groups rather than focusing
on a single issue unlike rational model. In this model, participants are
interdependent and decision are the result of bargaining behaviour. Individuals
and interest group enter into bargaining situations in an effort to influence
goals and decision-making. Influence and power is wielded in a deliberate
manner and to further self-interest. Here access to information can be a quite
sensitive issue because in politics, information signifies power. It can be
argued that politics in an organisation can be seen as ineffective, inefficient
and unnecessary. It can create animosity, wastes time and disrupts information
channels and leads to poor information.

The
main differences between rational and political decision-making models are in:
power in rational approach is centralised and in political is decentralised,
shifting coalitions and interest groups; information in rational approach is extensive,
systematic and accurate, in political is ambiguous and withheld strategically;
decision process in rational approach is logical, rational and step-by-step, in
political is disorderly and characterised by push and pull of interest;
decisions in rational approach is based on outcome maximising choice and in
political result of bargaining and interplay among interests.