CHAPTER 4: PLANNING AND DECISION MAKING

BENEFITS AND PITFALLS OF PLANNING

 Planning: choosing a goal and developing a method of strategy to achieve that goal.

(A) Benefits of Planning

o Provides direction: allows everyone in the organization to understand how their efforts can
contribute to achieving an organization’s goals.
o Intensifies efforts: plans encourage managers and employees to direct greater efforts toward
activities that help accomplish their goals and away from activities that don’t
o Reduces uncertainty: managers are able to consider future changes and potential problems that
might arise and then develop the appropriate strategies to respond. Planning reduces the
negative impact that can occur as a result of future events.
o Facilitates decision making: managers are able to refer to those pre-planned plans to help guide
current decision making. Without a plan, managers will make decision counterproductive of
their goal.

(B) Planning Pitfalls.

o Impedes change and prevent or slow adaptation: some companies become to committed to
achieving the goals set forth in their plans that they fail to notice when their plans aren’t
working or their goals need to change.
o False sense of certainty: all planning is based on assumption and planning therefore might
create a fall sense of security to planners by making them feel like they know exactly what the
future holds for their competitors, their suppliers, and their companies.
o Detachment of planners: strategic planners and top-level managers are supposed to focus on
the big picture rather than the implementation. But because they are not part of the
implementation process (detachment) planners plan for things they don’t understand.

HOW TO MAKE A PLAN THAT WORKS

(1) Setting Goals

o Goals need to be specific and challenging to direct behavior and increase effort.
o S.M.A.R.T. goals: specific, measurable, attainable, realistic, and timely.

(2) Developing Commitment to the Goals

o Goal commitment: the determination to achieve a goal.
o Goal commitment is not automatic, managers and workers must choose to commit themselves
to it.

(3) Developing Effective Action Plans

o Action plan: lists the specific steps (how), people (who), resources (what), and time period
(when) for accomplishing a goal.

(4) Tracking Progress

o Set short term and long term goals: Short term goals define the preliminary levels of
performance that need to be achieved in order to attain the long term goal.
o Gather and provide performance feedback: allows workers and managers to track their
progress toward goal achievement and make adjustments in effort, direction, and strategies.
 (5) Maintaining Flexibility
o Adopting an options-based approach: keeping options open by making small, simultaneous
investments in many alternative plans. The purpose is to eave those commitments open by
maintaining slack resources – that is a cushion of resources such as extra time, people, money
or production capacity.

PLANNING FROM TOP TO BOTTOM

 Planning works best when everybody pulls in the same direction.

(A) Starting at the Top: Top management is responsible for developing long term strategic plans.
o Strategic Plans: overall company plans that clarify how the company will serve customers and
position itself against competitors over the next two to five years.
o Vision statement: a statement of a company’s purpose and the destination it hopes to reach. It
should be brief and should be enduring, inspirational, clear and consistent.
o Mission statement: a broad statement of an organization’s purpose that distinguishes the
organization from others of a similar type.

(B) Bending in the Middle: Middle management is responsible for developing ad carrying out tactical plans
to accomplish the organization’s mission.
o Tactical Plans: specify how a company will use resources, budgets, and people to accomplish
specific goals within its mission.

(C) Finishing at the Bottom: lower level managers are responsible for developing and carrying our
operational plans.
o Operation plans: are the day-to-day plans for producing and delivering the organization’s
products and services.
 Single-use plans: deal with unique, one-time-only events
 Standing plans: plans that can be used repeatedly to handle frequently recurring
events.
 Policy: indicates the general course of action that company managers should
take in response to a particular event or situation.
 Procedure: is more specific than a policy because it indicates the series of steps
that should be taken in response to a particular course of action.
 Rules and regulations: are even more specific than procedures and policies
because they specify what must or must not happen. They describe how a
particular action should be performed
 Budgeting: is quantitative planning because it forces managers to decide how to
allocate available money to best accomplish company goals.

STEPS AND LIMITS TO RATIONAL DECISION MAKING

 Decision making: the process of choosing a solution from available alternatives.
 Rational decision making: a systematic process in which managers define problems, evaluate
alternatives, and choose optimal solutions that provide maximum benefits to their organizations.

(A) Define the Problem

o Problem: the gap between a desired states (what is wanted) and an exiting state (the situation
you are currently in).
o Managers have to be aware of the gap and have the motivation to reduce gap. Managers must
also have the knowledge, skills and abilities to fix the problems.
 (B) Identify the Decision Criteria: identify the criteria relevant to your situation.
o Decision criteria: are the standards used to guide judgements and decisions. The more criteria a
solution meets, the better that solution will be
(C) Weight the Criteria: deciding which criteria are more or less important.
o Absolute comparisons: where each criterion is compared to a standard or ranked on its own
merits.
 e.g. Consumer Reports uses nine criteria when it rates and recommends vehicles.
o Relative comparisons: where each criterion is compared directly to every other criterion.

(D) Generate Alternative Courses of Action:

o Identifying possible courses of action that could solve the problem.
o The idea is to generate as many alternatives as possible.

(E) Evaluate Each Alternative:

o systematically evaluate each alternative against each criterion.

(F) Compute the Optimal Decision:

o determining the optimal value of each alternative by multiplying the rating for each criterion.

(G) Implement the Decision:

o Management needs to provide a clear and concise communication of the decision to those
affected by it.
o Time should also be given to the allocation of resources and the timing of the execution to
maximize efficiency and effectiveness.

(H) Evaluate the Decision:

o The final stage is to evaluate the outcome of the decision and the success of the
implementation.
o Periodic reports should be used to gauge how the implementation is going and also identify any
potential problems before they occur.

LIMITS TO RATIONAL DECISION MAKING

 Managers in the real world don’t have the resources to test all possible solutions against all the possible
criteria. Managers therefore, satisfice rather than maximize.
 Maximizing: is choosing the best possible alternative
 Satisficing: is choosing a “good enough” alternative due to a managers limited time and limited
resources. Only few alternatives will be assessed against a few decision criteria.

USING GROUPS TO IMPROVE DECISION MAKING

 84% of companies use teams to handle special project.

(A) Advantages of Group Decision Making

o Groups do a better job of defining the problem and generating alternative solutions. Group
members usually possess different skills, experience, and knowledge.

(B) Disadvantages of Group Decision Making: these pitfalls can lead to poor decision making.
o Groups can fall into groupthink. Groupthink occurs in highly cohesive groups when group
members feel intense pressure to agree with one another so that the group can approve a
proposed solution. Most likely to occur:
  The group is insulated from others with different perspectives
 The group leader begins by expressing a strong preference for a particular decision.
 The group has no established procedure for systematically defining problems and
exploring alternatives.
 Group members have similar backgrounds and experiences.
o Time: group decisions takes a long time. It is rare to have groups hold productive task-oriented
meetings to work through the decision process effectively.
o Strong willed group members: strong willed individuals dominates group discussion and puts
limits on how the problem is defined and what the solutions can be.

(C) Structure Conflict

o C-type conflict or cognitive conflict: focuses on problem and issue related differences of
opinion. Member disagree because their different experience and expertise.
 Willingness to examine, compare, and reconcile to produce the best possible solution.
o A-type conflict affective conflict: refers to the emotional reactions that can occur when
disagreements become personal rather than professional.
 Hostility, anger, resentment and distrust. A-type undermines team effectiveness by
preventing teams from engaging in the activities characteristic of C-type conflicts.
o Devil’s advocacy: can be used to create a c-type conflict by assigning an individual or a subgroup
the role of critic and doing five steps:
1. Generate a potential solution.
2. Assign a devil’s advocate to criticize and question the solution.
3. Present the critique of the potential solution to key decision makers.
4. Gather additional relevant information.
5. Decide whether to use, change or not use the originally proposed solution.

(D) Nominal Group Technique

o It begins with a quiet time in which group members independently write down as many problem
definitions and alternative solutions as possible.
o The group leader then asks each group to share one idea at a time with the group.
o Then the group ranks each idea independently and the idea with the highest average rank is
selected.
o Produces poorer decisions than the devil’s advocate approach because even if it decrease a-type
conflict it also decreases c-type conflict.

(E) Electronic Brainstorming

o Brainstorming: where group members build on others’ ideas, is a technique for generating a
large number of alternative solutions. Has 4 rules
1. The more ideas the better.
2. All ideas are acceptable, no matter how wild or crazy they might seem.
3. Other group members’ ideas should be used to come up with even more ideas.
4. Criticism or evaluation of ideas I not allowed.
o Electronic brainstorming: where team members share information online, using computers to
communicate possible solutions.
1. Anonymously generate as many ideas as possible.
2. Edit the generated ideas, categorize them, and eliminate redundancies.
3. Ranking the categorize ideas in terms of quality.
4. Generate a series of action steps, decide the best order for accomplishing these
steps, and identify who is responsible for each step.