Strategic Decision Making Models

There are several different approaches on understanding and presenting decision making process. The process-oriented view argues that decision making should be seen as a process. According to Forman & Selly decision making is a process of choosing an alternative from a set of alternatives in order to achieve defined objectives and goals.

Various models are listed

Rational Decision Making Model

This model, also known as “the rational comprehensive” model, is based upon the famous economic approach in which the ultimate goal of any action or change is maximizing the efficiency of specific criteria by choosing the best option. This model is usually divided into 6 specific steps:

• Defining goals
• Recognizing alternatives
• Examining the consequences of each alternative
• Making decision based on the specific criteria
• Monitoring implementation
• Modifying the initial decision based on the feedback

This model is widely used by practitioners mostly because of its attractiveness and simplicity. This model offers a structured approach to address issue or opportunity and help managers reach the decision. This model overlooks any uncertainty and it is best suited for well-structured and simple problems in predictable industries. Based on its feature, the main application of this model is in technical environment where goals are accurately defined and there is an agreement on the criteria and measurement of goals. For instance, NASA uses the rational model since engineering factors, procedures, and goals are relatively clear and less ambiguous. This model is difficult to use in the organizations which operate in dynamic and political environment. The issues and opportunities in the dynamic environment are complex, therefore the unmanageable number of possible options should be considered before making decisions in this approach.

In addition, the existing complexity and uncertainty in the dynamic environments would also decrease the confidence of the decider in evaluating different alternatives.

Bounded-Rationality or Behavioral Model

Herbert Simon, Nobel Laureate, criticized the rational decision making approach and introduced the concept of “bounded rationality” (5-4). According to this concept:

• Humans cannot make fully rational decisions mainly because they can process and consider a little amount of data at the moment.
• Expertise, information, and time in each situation are limited; therefore the comprehensive analysis is very hard and almost impossible in most cases.
• Humans can not consider and recognize all possible limitations and constraints of an issue, thus not all of the possible alternatives are analyzed in the rational decision making process.

In real world, considering the rational limitations the managers usually simplify the problem and restrict themselves to just several main options. Decision makers usually identify a few numbers of criteria and usually assess the options that have worked for their organization or other similar companies before. Unlike the rational model, the behavioral model does not address just one best solution for a problem. The advocates of this theory believe that managers based on the factors such as managers’ characteristics, organization’s situation, and other factors can find various solutions for their problems. Simon asserted that since all the information is not available for a decider, the managers who use the bounded-rationality model, unlike rational model, seek “satisfaction” for their problems and not “maximization”. (Simon) In other words, this model shows a decider the “good enough” options to meet minimum selected criteria at the decision making time. In this model, the “criteria weighting” plays an important role in making ultimate decision.

Bargaining Model

The main application of this model is in the situations where two or more parties engaging in the decision may have conflict of interest. The representatives of the organizations should learn and know the principles of negotiation. Senior managers select this approach in the strategic decisions which involve tradeoff between different organizations or between different parties within the organization. In this model, the managers or negotiators seek the mutual benefits or common interests to maximize the chance of reaching to the appropriate decision. The resulting decision should be acceptable by all the involved sides.

The bargaining model is highly used in politics mainly because in this context many active parties are fed from the same financial and non-financial resources and these resources are limited. However, some argue that using bargaining model in politics can lead to distribute power equally that consequently decrease the effect of power which is sometimes essential in the society, organization, and other communities. The bargaining model is useful for getting multiple views before making decision; and it can help managers make the more sustainable decision.

The bargaining model gives each party involving in the decision a position for reflecting their interests. Bargaining model pays a great deal of attention to the competitors and their actions in decision making process. One of the disadvantageous of this model is its time consuming feature in some cases since parties try to resolve disagreements. Although the interests of all parties are relatively considered in the negotiations, the wishes of the most powerful sides are more likely to be met than needs and wishes of the least powerful parties. In practice, some managers exclude some parties from bargaining model for getting agreements more quickly and saving time, but this approach threatens the success of the resulted decision since some parties may not support the actions pertaining to the decision. To sum it up, the larger pool of participants in bargaining decision making model leads to better yet more time consuming decisions.

Participative Decision Making Model

The bargaining decision making model is expanded and formed the participative decision making model. The participative decision making model tries to bring all the people who directly influenced by the decision into decision making process. This model is known as the most democratic decision making process. However, the participation of people in the process of decision making in this model plays just the “consultation” role and not “deciding” role. In other words, this model provides people the opportunities to bring ideas and information to the table but they do not have real decision making power. Any stakeholder group within the organization may have its own agenda and interests to pursue; therefore in this model, the stakeholders are encouraged to present their key concerns before decisions are made. It is worth mentioning that stakeholder groups are sometimes strong enough to hinder the process of decision making if they are not included in the process of decision making. Participative decision making model can be seen in NATO, United Nations, and other global bodies.

The major disadvantages of participative decision making model are its expensiveness and slowness. Information in this decision making model act as double-edged sword, while the information from different perspectives can clarify various aspects of the issue, the huge amount of unstructured information is somehow a problem for managers. For having successful participative decision model, participants should try to subordinate their own interests in pursuit of common objectives.

Garbage Can Model

According to Cohen, March, and Olsen, many decisions are made based on unorganized interactions of agents and opportunities, chance, and the current available human skills and other resources within the organization. (25) This model implies that organizations and managers have dynamic, ill-defined, and inconsistent preferences, and organizations are run on a basis of trial and error. Stakeholders partially understand the processes in the organization, and the deciders act randomly and impulsively. Based on the illustrated framework, Cohen et al. argued that managers within the organizations think of many solutions when they have not faced problems yet. They keep these solutions and use them when the problems occur within the organization. They asserted that: “decisions are dumped in a holding can – the garbage can for future use.”

Managers use garbage can model in highly ambiguous environments which called structured anarchies. Cohen et al. argued that deciders are as likely to identify their goals through actions as they are to discover them prior to decision. In addition, they argued that due to existing organized anarchies within the organization some technologies used in the organizations are unclear. Moreover, they argued that managers have loose understanding of goals and means at the beginning. Cohen et al. argue that organizational participants learn through trial and error actions without understanding the causes. They also argued that in most cases the decision making participants come and go into the process constantly and their involvement vary because of their interest, energy, and time (Cohen et al., 1972). Thus, it’s very difficult to recognize who will actually participate in a decision (Cohen et al., 1972). The garbage can model introduces four streams of randomness: 1) randomness in opportunities 2) solutions 3) participants 4) problems. Therefore, the decision making process is full of randomness and the resulted decision can be selected randomly. Summarily, Cohen and his colleagues argued that decisions are not the outcome of rational analysis or coalition of powers but rather random events. On the other hand, some scholars argue that garbage can model does not offer a theoretical framework and this is its main disadvantageous and cannot be widely used in real world.

Mintzberg’s Model

According to Mintzberg, the modes of strategic decisions- making are:

Entrepreneurial mode

Formulation of strategy is done by a single person in this mode. The focus is on opportunities. Strategy is guided by the founder’s vision and is characterized by bold decisions. In the Indian set-up, we can cite the case of Wipro InfoTech as an example of this mode of strategy formulation.

Adaptive mode

This mode of decisions making is referred to as “muddling through”. It is characterized by reactive solutions rather than a proactive search for new opportunities. We can again cite the example of Wipro InfoTech introducing the sale of customized Personal Computers in response to Dell Computers entering the Indian market.

Planning mode

This mode of decision making involves systematic information gathering for situational analysis, generating alternate strategies and selection of the appropriate strategy. As could be inferred, this mode includes both the proactive mode and the reactive solutions to current problems. For example, entry of MNCs into the automotive markets in India has made the lead player Maruti Suzuki to come out with new models and discard/slow down production of non-moving and old models.

Sometimes organizations may adopt a fourth mode, called the logical incrementalisation mode. This is a synthesis of all the three modes of strategic decision making listed above. Quninn describes logical incrementalisation as: “An interactive process in which the organization probes the future, experiments and learns from a series of partial (incremental) commitments rather than through global formulation of total strategies.”

Comparison of Models

The most used decision making model is BOGSAT, an acronym for Bunch Of Old Guys Sitting And Talking. The term may be a bit rude, but holds a bit of truth in it. In many cases, the decision making models and processes are not thought enough, at least in organizations with fewer resources to allocate into processes other than the core business functions. Even though some tools supporting decision making can have been used and “old guys” may have experience and vision, cognitive limitations can hinder the outcome. Therefore decision making and the decision making process can be improved by adapting tested tools and practices.

Forman & Selly suggest that Herbert Simon’s three phased decision making process model is the most widely accepted. However, Kansola goes through different schools of thought in both defining decision making and differences in describing the process, including Simon’s model. Kansola states that Mintzbergs strategic decision making process is one of the most well-known descriptions and the most comprehensive, as figure shows.

Mintzberg, Raisinghani, & Theoret (1976) argue that at the same time, strategic decision processes are extremely complex and dynamic, but still they can be rationalized into structures, which the Mintzberg model is one example of. The model was created by observing and analyzing 25 different decision processes in different organization types ranging from institutional organizations to governmental, manufacturing companies and service companies. The decisions ranged from purchasing new equipment and the development of new products to HRM decisions. The model is formulated by observing different processes and finding similarities and variations between the processes.

In the Mintzberg model the process of decision making is divided into three stages. The first stage is identification that includes recognizing the need for a decision and a diagnosis. The recognition of the need for a decision emerges from seeing a difference in present and desired situation. However it takes effort for the decision maker to recognize the need(s) from all the information that passes through him/her. The diagnostics is about going through present information sources and possibly gathering some new ones.

The next stage is developing the alternatives, a process that consists of two different kinds of routines: Searching and planning. Searching, is a process like the name indicates, searching for the alternatives. Searching can be divided into four parts: assessing organizational and/or personnel knowledge, passive “waiting”, employing “agents” for search, and finally active searching. Planning is about building a solution.

The final stage is the selection. The alternatives gathered in the last step are screened and the remaining alternatives evaluated and finally the chosen alternative is validated by getting authorization from the management. Evaluation has three different methods: Judgment evaluation, analysis evaluation and bargaining evaluation. Judgment means the internal decision making between people, bargaining means multiple persons using judgment and then settling their choice between them, where analysis decision process is based on valid facts, making it the “cold logic” method. Mintzberg’s model for process decision making is very comprehensive so this is only a summary.