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Decision Making--Business Management
Decision Making--Business Management By ElmerFizz
http://www.elmerfizz.com
Traditionally, decisions are made at the "top" of an
organization and communicated to those "lower down" while
feedback on the effectiveness of the resulting actions is sent
back to the "top". We can see this pattern in all aspects of
life, from our relationship with our parents, through our
education, and on into our working life. However, in business
such a hierarchical structure is not always an advantage. What
options are there for a modern business?
Management science tells us that there are three distinct stages
in the development of decision-making processes within
organizations. Each of these stages has been fueled by
advancements in communication and coordination technologies,
starting with the telegraph (invented in 1832) or even with fire
beacons and smoke signals in more ancient times.
The first stage of decision-making sees decision-makers, who are
only aware of, and responsible to, their immediate environment
make decisions independently of other decision makers in the
organization. As the cost and efficiency of communication falls,
information is gathered centrally and decision-makers become
aware of, and responsible for, a wider environment. These more
informed decision makers attempt to make decisions in order to
maximize the benefits to their organization as a whole. Finally,
as communication efficiency continues to improve local
decision-makers consult with other related decision-makers to
maximize benefit to both their own organization and to their
wider business environment.
These three decision-making stages of development are
characterized as follows:
Independent Decentralized Control:
In this model, individual units have independent decision-making
powers. They act in order to serve their local needs. However,
since there is little or no coordination between decision
makers, it is possible that decisions made by units locally will
conflict with other units' decisions or even the global
objective of the organization as a whole.
Centralized Control:
Here a central body makes all decisions. Changes affecting the
whole organization can easily be made since the impact of the
changes across the organization can be predicted. However, this
approach is rigid and forces each organizational unit to conform
to a prescribed set of rules governing how they act upon
instructions from the central body and how they report on the
results of their actions. Furthermore, as the number of
distributed units increase, the information flow to the central
point of control increases, thus this method lacks scalability.
Connected Decentralized Control:
Decentralized control encourages independent decision-makers to
take responsibility for their local environment, however
facilities are provided to allow them to consult with other
related decision-makers. Because of this connectivity local
decisions can be made with a view on their global effects.
However, in this model all decision-makers are exposed to all
potential information sources, thus powerful information
management systems are
Associated Websites
required.
Since decentralized control brings many managerial benefits,
companies usually strive to move from independent decentralized
control, through centralized control and on into connected
decentralized control. However, as organizations progress
towards connected decentralized control they must find a balance
between top-down control and bottom-up empowerment.
Too much top-down control will result in a lack of scalability
as described in centralized control model, too much bottom-up
empowerment will result in a chaotic decision making process
with unpredictable results.
To achieve the "perfect" balance between centralized and
decentralized control it is necessary to identify conflict
points between individual units. These units must then
co-ordinate their decision-making processes and knowledge bases.
Such coordination requires the sharing of vast amounts of
information, which brings with it the potential for "information
overload", a situation in which it becomes impossible to
identify the relevant data from the irrelevant data.
Further to the problems of information overload are the
difficulties of communicating information between
decision-makers of differing backgrounds. For example, how does
an accountant communicate the impact of a marketing overspend,
whilst the marketing people communicate the impact on sales if
the budget is not approved, which in turn affects the underlying
sales potential for the firm.
In an independent decentralize model there is no control over
such decisions. In a centralized model we rely on one individual
to understand all three points of view, whilst in a connected
decentralized model we rely on a technique to communicate all
information in a meaningful and manageable way. This need for
efficient communications presents considerable technological
challenges since individuals from different backgrounds have
different domains of understanding, different decision making
processes and different data collection, storage and processing
techniques.
Today, ICT is moving towards being complete enough to support a
full advancement to Connected Decentralized Control. However,
this is not yet possible with an "off-the-shelf" solution.
Information Management Systems and Decision Support Systems in
particular, need considerable customization and adoption to your
organizations needs.
While efficient Information Management Systems can bring massive
benefits to your organization you should be aware that around
75% of large Information Systems are considered failures by
those who commission them. Tread carefully when commissioning
such systems and take your time, be one of the 25% who reap the
benefits and continue to grow.
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