CHAPTER FOUR Planning and Decision Making

1. CHAPTER FOURPlanning andDecision Making

2. What Would You Do? You are in charge of planning and product development at Google… • Google is today’s leading Internet search site • But, competition is increasing and it’s difficult to break into the corporate market • It’s your job to make sure customers choose Google. What is Google’s long-range planning vision? What new product do you need? How can Google remain flexible?

3. Planning After reading the next three sections, you should be able to: • discuss the costs and benefits of planning. • describe how to make a plan that works. • discuss how companies can use plans at all management levels, from top to bottom.

4. Planning Planning is choosing a goal and developing a strategy to achieve that goal 1

5. Benefits of Planning Persistence Direction IntensifiedEffort Creationof Task Strategies Benefits of Planning 1.1

6. Pitfalls of Planning False Senseof Certainty Impedes Changeand Adaptation Detachmentof Planners Pitfalls of Planning 1.2

7. Set Goals DevelopCommitmentto Goals DevelopEffective Action Plans Track ProgressToward GoalAchievement MaintainFlexibilityin Planning How to Make a Plan That Works Click icon for video 2

8. Specific • Measurable • Attainable • Realistic • Timely Setting Goals S.M.A.R.T.

9. Developing Commitment to Goals • The determination to achieve a goal • Increased by: • Setting goals through participation • Making goals reasonable • Making goals public • Obtaining top management support 2.2

10. Specific Steps An Action Plan Lists: People Resources Time Period Developing Effective Action Plans 2.3

11. Tracking Progress Setting… Gather and provide… Performance Feedback Proximal Goals Distal Goals 2.4

12. Maintaining Flexibility • Option-based planning • keep options open through simultaneous investment • invest more in promising options • maintains slack resources • Learning-based planning • plans need to be continuously adjusted • encourages flexibility, frequent reassessment, and revision of goals 2.5

13. Planning from Top to Bottom Top Managers Middle First-Level Managers Adapted from Exhibit 4.3 3

14. Starting at the Top Strategic Plans Clarify how the company will serve customers and position itself against competitors (2-5 years) Vision An inspirational statement of anorganization’s enduring purpose (2 sentences) Mission Overall goal that unifies efforts towardits vision, stretches and challenges,and possesses a finish line andtime frame. Flows from vision. 3.1

15. Tactical Plans Specify how a company will use resources, budgets, and people toaccomplish goals within its mission. (6 months to 2 years) ManagementbyObjectives Develop and carry out tactical plans • Discuss possible goals • Participatively select goals consistent with overall goals • Jointly develop tactical plans • Meet to review progress Bending in the Middle 3.2

16. Finishing at the Bottom Operational Plans Day-to-day plans for producing or delivering products and services overa 30-day to six-month period 3.3

17. MBO 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 97% What Really WorksManagement by Objectives • MBO is based on goals, participation and feedback • Companies that use MBO are 97% more likely to outperform companies that don’t!

18. Single-Use Plans Plans that cover unique, one-time-only events Standing Plans Plans used repeatedly to handle frequently recurring events. Three kinds are: policies, procedures,and rules and regulations. Budgeting Quantitative planning to decide howto allocate money to accomplish company goals Kinds of Operational Plans 3.3

19. What Is Rational Decision Making? After reading the next two sections, you should be able to: • explain the steps and limits to rational decision making • explain how group decisions and group decision-making techniques can improve decision making.

20. Define the problem 1 Identify decision criteria 2 Weight the criteria 3 Generate alternative courses of action 4 Evaluate each alternative 5 Compute the optimal decision 6 Steps to Rational Decision Making More 4

21. Steps to Rational Decision Making 1 Define the problem • Problem exists when there is a gap between a desired state and an existing state • To make decisions about problems, managers must: • be aware of the gap • be motivated to reduce the gap • have the knowledge, skills, abilities, and resources to fix the problem 4.1

22. Steps to Rational Decision Making 2 Identify decision criteria • Standards used to guide judgments and decisions • The more criteria a potential solution meets, the better that solution should be More 4.2

23. Steps to Rational Decision Making 3 Weight the criteria • Absolute comparisons • each criterion is compared to a standard or ranked on its own merits • Relative comparisons • each criterion is compared directly to every other criterion 4.3

24. Absolute Weighting of Decision Criteria 5 critically important 4 important 3 somewhat important 2 not very important 1 completely unimportant PERFORMANCE CHARACTERISTICS 1. starting and acceleration 1 2 3 4 5 2. fuel economy 1 2 3 4 5 3. handling and steering 1 2 3 4 5 4. shifting/transmission 1 2 3 4 5 5. ride quality 1 2 3 4 5 6. braking 1 2 3 4 5 DESIGN CHARACTERISTICS 1. overall design 1 2 3 4 5 2. interior ergonomics 1 2 3 4 5 3. seating 1 2 3 4 5 4. accessories and amenities 1 2 3 4 5 5. cargo space 1 2 3 4 5 6. fit and finish 1 2 3 4 5 Adapted from Exhibit 4.7 4.3

25. Relative Weighting of Decision Criteria Adapted from Exhibit 4.8 4.3

26. Steps to Rational Decision Making 4 Generate alternative courses of action 5 Evaluate each alternative 4.4

27. Evaluate Each Alternative 4.5

28. Steps to Rational Decision Making 6 Compute the optimal decision • Multiply the rating for each criterion by the weight for that criterion • Sum the scores for each alternative course of action Example from Exhibit 4.9: Amsterdam: (.59 x .32) + (.57 x .44) + (.51 x .64) + (.46 x .31) + (.34 x .56) + (.32 x .25) + (.30 x .37) + (.27 x .34) + (.21 x .35) + (.20 x .98) + (.18 x .31) + (.12 x .38) =1.75 4.6

29. Limits to Rational Decision Making BoundedRationality • Managers try to be rational • restricted by real-world constraints • cannot be completely rational More 4.7

30. Choosing the Optimal Solution • Maximizing decisions • choosing the optimal solution • requires fully rational decision conditions • Satisficing decisions • choosing the “good enough” solution • maximization is not possible due to constraints • fits with bounded rationality 4.7

31. StructuredConflict NominalGroupTechnique DelphiTechnique StepladderTechnique ElectronicBrainstorming Using Groups to Improve Decision Making 5

32. Group Decision Making Advantages • View problems from multiple perspectives • Find and access more information • Generate more alternative solutions • More committed to making chosen solutions work 5.1

33. Disadvantages • Susceptible to groupthink and to considering a limited number of solutions • Takes considerable time • One or two people can dominate group discussion • Members don’t feel personally accountable for decisions and actions Group Decision Making 5.1

34. Groupthink is likely to occur when… • The group is insulated from others with different perspectives • The group leader expresses a strong preference for a particular decision • There is no established procedure for defining problems and exploring alternatives • Group members have similar backgrounds Groupthink 5.1

35. C-Type Conflict Cognitive conflict. Disagreement that focuses onproblem- and issue-related differences of opinion A-Type Conflict Affective conflict. Disagreement that focuses onindividuals or personal issues Structured Conflict 5.2

36. Steps to Establish a Devil’s Advocacy Program • Generate a potential solution • Assign a devil’s advocate to criticize and question • Present the critique of the solution to key decision makers • Gather additional information • Decide whether to use, change, or not usethe originally proposed solution Devil’s Advocacy 5.2

37. Steps to Establish a Dialectical Inquiry Process • Generate a potential solution • Identify the assumptions underlying thepotential solution • Generate a conflicting counterproposal basedon opposite assumptions • Have advocates of each position present theirarguments and engage in a debate in front ofdecision makers • Decide whether to use, change, or not usethe originally proposed solution Dialectical Inquiry 5.2

38. Devil’s Advocacy 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Dialectical Inquiry probability of success 55% probability of success 58% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Considering Negative Consequences 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% probability of success 86% What Really Works: Devil’s Advocacy, Dialectical Inquiry, Negative Consequences 5.2

39. Steps to Establish Nominal Group Technique • During a “quiet time,” group members write down as many problems and solutions as possible • Each member shares one idea at a time • Ideas are posted on flipcharts until all ideas are shared • Group discusses advantages/disadvantages • Ideas are ranked during a second “quiet time” • Members read rankings aloud, and the idea with thehighest average rank is selected Nominal Group Technique 5.3

40. Steps to Establish Delphi Technique • Assemble a panel of experts. • Create a questionnaire of open-ended questions. • Summarize the responses and feed back to the panel until the members reach agreement. • Create a brief report and send to the panel members for agreement/disagreement. • Continue the feedback process until panel reaches agreement. Delphi Technique 5.4

41. Stepladder Technique Member 4 JoinsGroup Shares thoughts, ideas, recommendations Members 1, 2, & 3 Share previous thoughts, ideas, recommendations Discussion is Held and Tentative Group Decision is Made Step 3 Member 3 JoinsGroup Shares thoughts, ideas, recommendations Members 1 & 2 Share previous thoughts, ideas, recommendations Discussion is Held and Tentative Group Decision is Made Step 2 Member 1 Shares thoughts, ideas, recommendations Member 2 Shares thoughts, ideas, recommendations Discussion is Held and Tentative Group Decision is Made Step 1 Adapted From Exhibit 4.10 5.5

42. Four Rules of Brainstorming • The more ideas, the better. • All ideas are acceptable, no matter how wild or crazy. • Other group members’ ideas should be usedto come up with even more ideas. • Criticism or evaluation of ideas is not allowed. Electronic Brainstorming 5.6

43. Advantages of Electronic Brainstorming Electronic Brainstorming • Overcomes production blocking • technology allows everyone to record their ideas as they are created • no ideas lost “waiting your turn” to speak • Overcomes evaluation apprehension • anonymity creates free expression 5.6

44. Disadvantages of Electronic Brainstorming Electronic Brainstorming • Greater expense • No automatic acceptance of ideas because of one’s position • Some find it difficult to express themselves in writing • Lack of typing skills can frustrate participants 5.6