The Application of Decision Making Theory

Topics: Strategic management, Decision making, Decision theory Pages: 6 (1737 words) Published: August 12, 2013
Learning objectives
1. Understand basic control processes in decision-making, and develop appropriate control systems to support specific strategies 2. Identify and evaluate appropriate performance measures to properly assess performance 3. Recognise the importance and the impact of effective information systems in supporting decisions concerning evaluation and control 4. Describe the determinants of decision success and understand the decision making matrix 2 Introduction

Text based sources for the Notes:
Wheelen and Hunger, Ch 11 (2010) Text Pages 367 - 393
In this module, we will focus on evaluating decisions. In doing so, we will reflect on the operational and strategic decision-making processes and, in relation to the latter, take a closer look at the ‘strategic gap’. We will examine the evaluation and control process within the decision-making process, with a particular focus on measures and steering controls. Finally, we examine what Harrison has labelled as the determinants of strategic decision-making success, as well as his decision-making matrix. 3. Evaluative Frameworks

There are a range of frameworks that we can use to evaluate strategic and other decisions. These include the conventional operational decision making process for rational and bounded rational decisions (considered earlier in the course) and, for strategic decisions, the strategic gap and the strategic decision making process (considered in detail in the last module). Later in this module, we will briefly explore two new frameworks. The first is Harrison’s “determinants of strategic success” and the second is Harrison’s “strategic decision matrix” Before that time, however, we can reflect for a while on the conventional decision-making processes we have witnessed so far in the course (introduced to us in module three) eg the eight stage model and Harrison’s six stage model and we see that it is the last stage of each process that is dedicated to evaluative action. Even in Harrison’s strategic decision-making process seen in module eleven, we saw a specific evaluation stage, together with information flows providing feedback as part of the process. This evaluation and control activity requires careful selection of ‘measures’. Typically, the evaluation and control process occurs as follows:

It is only when performance does not match standards that stage five (corrective action) is needed. If it is, the corrective action is taken and again matched against the pre-determined standards. In the strategic management decision-making process, this evaluation and control process can be much more complex.  One model (appearing in Jeffrey A. Schmidt’s 1998 publication ‘The Strategic Review’) appears in Wheelen & Hunger (Wheelen & Hunger, 2011:331) 4. Measures

The measures selected to assess performance should measure performance against the actual objective(s) identified at the first stage in your decision-making process. Popular measures used in strategy measurement include ROI (return on investment) or EPS (earnings per share). However, not all areas requiring measurement have such readily available measures. Challenges exist in identifying measures for these more recently recognised areas of performance eg corporate social responsibility, employee engagement That is not to say that there are not popular non-financial measures. There are many eg customer satisfaction; customer service; product quality; productivity; market share; service quality; core competencies; new product development; corporate culture; market growth (Stivers & Joyce, 2000 in Wheelen & Hunger, 2011:340) The key is ensuring the right measure is used for the right purpose. Of course, in addition to measuring past performance, many organisations seek to identify measures that predict future performance. These are known as ‘steering controls’ 5. Steering Controls

Every industry will have their own identified steering controls.
For example,...
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