Being defined as a process of identifying and solving problems, decision making, is the activity most companies would take part in every day. It can be categorized into two parts: the first is programmed decision which is well defined and there are procedures exist for resolving the problem; the second is non-programmed decision which is poorly defined, and there are no procedures exists for solving the problems. A good decision could contribute to growth of firm’s revenue, increasing market shares and putting the company on a good wicket. For example, considering the increasing number of middle class in China, the UK luxury group – Burberry Corporation – increases its direct-sales stores into 100 in China and had a 30 percent growth in sales. In contrast, a bad decision make lead to a disaster for the company. Take Starbuck as an example. In order to meet its growth goals, Starbuck choose the store location with lower standards and could not support so many new stores. As a result, it closed hundreds of underperforming stores in 2008.
Thesis statement: The evidence given seems to suggest that making a good decision plays a critical role in company.
Model 1 Rational model
The rational model stresses the need for systematic analysis of a problem followed by choice and implementation in logical step by step sequences. The particular example is U.S. Marine which adopts a series of mental routines to help the soldier analyze the situation and take action. There are two assumptions for this model: the known objectives and organization possess a single, super ordinate goal. The decision making process can be divided into three section. In the problem identification stage, the company should recognize the problem and then define the characteristic of the problem by gathering more information. In the development stage, the company should seek out alternatives and design a custom solution. The final stage is the selection where company should evaluate the selection. When final choices falls upon a single decision maker, and the choice involves judgment based upon experience.
Case 1: Cuba missile crisis
Case 2: GE Capital Mortgage Insurance Company used rational analysis to improve the decision making of loss management representatives. Using Loss Mitigation optimizer to analyzes and measures relevant variables. Hence, GE improves its cure rates from 30 percent to more than 50 percent while representatives were taking 30 percent to 50 percent less time per deal.
There are several critiques of this model.
1. Many decisions follow the basic phases of problem identification, development and selection, but they cycle through the various stages, frequently repeating, and going deeper. Nutt points out those pieces of the rational model are valid but they do not necessarily follow a simple, causal sequence. So it is not just the linear cause – effect process. Agreeing this, the Bradford group states the amount of cycling and shape of the process depends on how complex and political the decision is. Case:
2. Decision processes are often bounded rational. Bounded rationality means there are imperfect information and time pressure. The manager of the company could not collect all relevant information and he should make the decision in a short time. Also, the processing and storing capacity of manager is limited and hence could not analyze the information deeply. Anderson points out that in order to avoid high risk, decision maker often selected alternatives that even they did not expect to solve the problem. Therefore, decision makers satisfy instead of optimize, rarely engage in comprehensive search, and discover their goals in the process of searching. (improve the rationality: using more information and create more diverse viewpoints – group thinking)
3. A critical assumption for this model is that the object is known by decision makers....
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