Impacts of Manager Decision Making

Sibony et al. (2017) explored the impacts of behavioural strategy on management practice and identified three types of organizational decision processes namely Investments, Resource allocation and Blue Sky . They also identified the seven levers for designing strategic decision process namely Formality, Layering, Information, Participation, Incentives, Debate and Closure.

They also show how decision processes interact with individual and group biases and propose model for managers to design and deploy these to shape strategy.

The authors argued that organisational strategies should focus on decision  processes at the organisational level, therefore neutralising the effect of individual biases by using the seven levers of decision architecture to calibrate decision outcomes to organisational goals.

A major limitation of this study is the lack of empiricism in the construction of their decision-making framework as behavioural decision research shows individual cognitive biases can distort decision making; but not how managers can manage impact it.

In spite of the above limitation, this study adds to and compliments the vast amount of work done in the area of behavioural decision-making.

Barraquier (2011) analysed the ethical behaviour of managers confronted with legal compliance and ethical demands of salient stakeholders using narratives from a qualitative study in the flavours and fragrances industry.

The findings show that ethical behaviour is determined by a three‐stage intuitive process leading to arbitration between ethics and profit, a process that generates four decision outcomes: fraud, crisis, competition and innovation.

To analyse the strategic implications of these outcomes, Barraquier (2011) proposed a 4 quadrant model with high or low compliance  and perceived profitability.

The limitation of the study is that it based on flavors and fragrance industry. Therefore a wider evidence needed for findings to be generalized.

Despite the limitation stated above, the findings could be of interest for researchers investigating various fields of organisational behaviour such as motivation, stress, individual performance and organisational culture as well as the interaction of ethics and innovation.

Favoreu, C; Carassus, D and Maurel, C (2016) looked into the strategy formulation processes in the public sector and the type of strategic approach that best matches the characteristics of this sector.

They set out to do so by drawing up a theoretical analysis grid based on three main approaches to strategy in the public sector namely The rational approach, The political approach to public strategy and Collaborative strategic governance and management

The study found that the ability to create interactions between a variety of stakeholders, both internal and external, to mobilise and channel collective intelligence towards the definition and implementation of public projects and policies is a key component of the strategic management of public organisations.

The limitation of this study is that it is based on the public sector which has it’s unique cultural barriers and organisational routine and therefore it’s applicability to the non-public sector is questionable.

However, the study underlined, in particular, the importance for public managers to build skills in the development and management of inter-organisational networks and interpersonal relationships.

Smit, H, T. J and Kil, J C. M (2017) studied how managers make acquisition decisions under uncertain conditions and why they neglect uncertainties associated with their decisions.

The study categorised sources of uncertainty in acquisition decision and found four pitfalls that cloud acquisition decisions. These are behavioural biases namely: Executive Illusion of Control Over Acquisition Outcomes, Executive overconfidence and Attribution, Executive Optimism in Acquisition Decision and Vulnerability to confirmation and commitment biases.

Smit, H, T. J and Kil, J C. M (2017) therefore recommended that acquirers should more often use minority stakes as a toehold to test full acquisitions and to guard themselves against the negative effects of uncertainty. In order words, the benefits of toehold acquisition provides ‘sellers insight’ before making a controlled bid.

They also proposed an extended valuation toolkit that requires more managerial attention to uncertainty and behavioral pitfalls can help executives to better identify and value the benefits of minority stake strategies as an alternative to controlling acquisitions in uncertain situations.

The study related to the acquition industry and therefore the applicability of it’s finding to other industry is questionable. However, the study pinpoints the existence of biases in decision-making and proposes a simple way to mitigate their negative impacts on decision outcomes.

Mazutis, D and Eckardt, A (2017) investigated why, despite the overwhelming consensus that climate change will have huge consequences not only on the planet but also for corporate operations, businesses continue to fail to adjust their strategic decision making-process to become more sustainable.

The paper found that cognitive biases are the main reasons why corporate decision-making suffers from climate change inertia namely Perception biases , Optimistic biases, Relevance biases and Volition biases and proposed  a broad range of practical mitigating strategies to overcome these biases.

Although this article builds on existing strategic decision-making models to explain how biases prevent managers from accurately identifying the moral dimensions of climate change, it also offers insights into how biases can have a profound impact on sustainability-related decisions.

Zavala et al (2018) wrote a paper which provided a narrative overview of the literature concerning clinical decision-making processes when staff come under pressure, particularly in uncertain, dynamic and emergency situations by analysing studies conducted between 1980 and 2015.

Their findings indicated the emergence of six themes in the present narrative namely: organisational systems, workload, time pressure, teamwork, individual human factors and case complexity and highlighted that clinical outcomes in emergency situations are the result of these interconnecting factors which may affect the ability of clinical staff in emergency situations to provide quality, safe care in a timely manner.

The findings in this study recommends that medical errors should be seen from ‘whole-of-the system perspective rather than being primarily the responsibility of the individual.

The value in the research is that it challenges researchers to build the body of knowledge concerning the safe management of patients, particularly where clinicians are working under pressure as understanding is important for developing pathways that optimise clinical decision making in uncertain and dynamic environments.

The question arises as to what extent these findings apply to high-pressure clinical scenarios. Are the theoretical frameworks of decision making under normal conditions applicable to high-pressure uncertain situations?

Borrero, S and Henao, F (2017) presented an experimental study involving undergraduate and graduate students where their individual differences, as measured by their hedonic or utilitarian leanings, are linked to two motivational biases, respectively known as confirmation and desirability of choice, and how these biases influence a decision made through multiple-criteria decision analysis (MCDA) techniques.

Results of the study suggested that experimental subjects employ MCDA to confirm previously conceived decisions, rather than using the tool to explore the problem situation, make sense of their preferences and choose the most appropriate course of action accordingly.

This is, it appears that subjects make use of the operations research (OR) tool to support a decision they have already made in their own minds.

Consequently, the effectiveness of MCDA and other strategic or decision-making tools might be affected by individual differences and corresponding motivational biases.

These results also suggest that there is a very fine line between valid, preference-based decisions and biased preconceptions.

These experimental results question the effectiveness of multicriteria analysis tools and therefore postulates that a completely objective, analytical, tool-supported, evidence-based management-might be a utopic endeavor.

The findings might not hold for other contexts, given the particular context of the experiment, with students as respondents and a simulated purchase decision as experimental scenario.

Kull, T, J; Oke, A and Dooley, KJ (2014) conducted a study to test a cognitive model that specifies the determinants of a supplier selection behavior under uncertainty and to extend research challenging the assumption that supply managers act as rational agents of a firm without personal biases or preferences affecting their decisions.

This article uses supply chain management and behavioral decision theories to propose that attributes of the purchasing situation (category difficulty, category importance, and contingent pay) affect cognition that, in turn, affects a supply manager’s choice.

The study found that:

        When the context involves an important or difficult sourcing category, higher risk perceptions exist that increase preference for a supplier with more certain outcomes, even when that choice has a lower expected payoff.

However, the presence of contingent pay decreases risk perceptions through higher perceived supplier control.

        A manager’s risk propensity increases preferences for a supplier with less certain outcomes regardless of perceived risk

The model and results provide a theoretical framework for further study into the cognitive aspects of supplier selection behavior and provide insight into biases that influence practising supply chain managers.

The findings highlight the importance of categorizing components in supply management, giving supply chain executives insight into what unexpected factors might influence supplier selection decisions in different situations. In particular, this study highlights the role that characteristics of a sourcing category play in how risk is perceived as an antecedent of subsequent supplier selections.

Supply managers assess risk based on characteristics of the firm’s external and supply market, and by the strategic ramifications of making the correct supplier selection

Our study also highlights the need for clarity regarding how compensation schemes affect supply chain managers. As we have shown, contingent pay affects the cognitive processes leading to risk taking

The fact that the risk propensity of managers influences decision making under uncertainty has implications in terms risk taking in supply management.

Limitations of this study are as follows:

        The study created an artificial environment in which situations could be completely controlled. Studies of actual supplier selection would provide a better understanding of how other contextual variables may bias prior perceptions of risk.

        Managers might not fully relate to the experiment’s generic descriptions.

        The study used a one-shot experiment with no performance feedback to participants.

        Often, strategic sourcing teams collectively interview and choose among suppliers

Conclusion

It is clear from the forgoing discussions that there are always cognitive biases that influence the decisions made by managers. The challenge is for organisations to implement decision-making tools to assist managers in making decisions that devoid of biases or with less biases and in the interest of the organisation.

References

• SIBONY, O., LOVALLO, D. and POWELL, T.C. (2017) ‘Behavioral Strategy and the Strategic Decision Architecture of the Firm’. California management review, 59(3), pp. 5-21.
• BARRAQUIER, A., (2011) ‘Ethical Behaviour in Practice: Decision Outcomes and Strategic Implication’ British Journal of Management, 22(-), pp. S28.
• FAVOREU, C., CARASSUS, D. and MAUREL, C. (2016) ‘Strategic Management in The Public Sector: A Rational, Political or Collaborative Approach?’ International Review of Administrative Sciences, Volume 82, Issue 382, pp. 435-453.
• SMIT, H. T. J and  KIL, J. C. M. (2017) ‘Toehold Acquisitions as Behavioral Real Options’ California Management Review, Volume 59, Issue 3
•  MAZUTIS, D and ECKARDT, A. (2017) ‘Sleepwalking into Catastrophe: Cognitive Biases and Corporate Climate Change Inertia’ California Management Review, Volume 59, Issue 3
• ZAVALA, A. M; Day, G. E; PLUMMER .D and BAMFORD-WADE, A. (2018) ‘Decision-making Under Pressure: Medical Errors In Uncertain and Dynamic Environments’ Australian Health Review, Volume 42, Issue 4
• BORRERO, S and HENAO, F. (2017) ‘Can Managers Be Really Objective? Bias In Multi-criteria Decision Analysis’ Academy of Strategic Management Journal, 01/2017, Volume 16, Issue 1
• Kull, T. J; OKE, A and DOOLEY, K. (2014) ‘Supplier Selection Behavior Under Uncertainty: Contextual and Cognitive Effects on Risk Perception and Choice’ Decision Sciences, 06, Volume 45, Issue 3