Table of Content

Introduction ................................................................................................. 2

1.1 Stages of the Decision-Making Process........……............................................. 3

Real-World Applications……………………… .........................................................4

Effect of the Concept on Organizations......................…….......……................... 5

Rational Approach.................................................................................…..... 6

Stages of the Rational Approach .............................………………………….....….... 6

Real-World Example .............................................................................…….... 7

Limitations of the Rational Approach .....…………..................................……..... 8

Bounded Rationality Perspective.......................................…................…........ 9

- Key Concepts ...........… ........................................……......….........……...... 9

- Real-World Example ......................................................................……...... 10

Implications for Organizations ....… ……...............................………………….. ….10

Organizational Decision-Making...............................................................……. 11

Types of Organizational Decision-Making ...............................................……... 11

Real-World Example ..............................................................................…….... 12

Role of Organizational Culture ............................................................……....... 12

The Learning Organization......................................................... …………………….13

Five Disciplines of a Learning Organization ..................................……............... 13

Real-World Example ............................................................................……….... 14

Benefits of a Learning Organization ..........................................................…….. 14

Contingency Decision-Making Perspective............................................…………. 15

Key Factors Influencing Contingency Decision-Making ...........................…….. 15

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 Real-World Example ............................................................................... ………16

- 9.3 Implications for Organizations ......................................................……….. 16

Special Decision Circumstances ..........................................................……… 17

- 10.1 Examples of Special Decision Circumstances .........……...................…….. 17

- 10.2 Real-World Example .................................................................... ……….18

- 10.3 Challenges in Special Decision Circumstances ...............................……… 18

Conclusion .............................................................................................. ...….19

Reference ................................................................................................………. 20

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Introduction

Decision making must be a rudimentary process of every organization because it

defines the organizational performance, capability to meet multiple challenges, and

the competitiveness of the organization. Robbins and Judge (2019), too, classify

decision making as a fundamental function of management because, in the course of

undertaking any activity, one has to choose from several possible actions. This

assignment addresses the rational decisions models of making decisions along with

bounded rationality, the organization’s alternatives, learning, contingency, and

special decision making situations. We hope that by examining these concepts, we

will be able to understand decision making in real life organizations and

consequently understand its impact on the performance and effectiveness of the

organizations.

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1.1 Decision making processes

Decision-making involves identifying a problem, gathering information, and

generating possible solutions. Next, alternatives are evaluated and the best one is

chosen. The decision is then implemented and the results are monitored. This

process helps organizations solve problems efficiently and achieve success.

1.2 Stages of the decision making process

 Identifying the problem

 Gathering information

 Generating alternatives

 Evaluating alternatives

 Choosing the best alternative

 Implementing the decision

 Monitoring and evaluating

1.3 Real-World Applications

 Business: It is observed that organizations engage in decision making processes

involving product and market strategies and organizational restructuring for

operational improvement.

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 Health-care: Health-care providers make choices regarding the patients.

 Government: Policy makers define rules, public infrastructural projects and the

distribution of resources.

1.4 Effect of the Concept on Organizations

Here we find that decision-making can be made more efficient.

The proposed plan therefore aims at improving coordination through the inclusion of

other stakeholders.

Evaluating options better with help of risk management

They also pointed to the creation of more varied options as a benefit arising from the

process used to generate more fresh ideas.

All these elements will enhance problem solving and overall success for the

organizations.

2.1 Rational Approach

Rational decision-making is defined by a logical and structured process. This process

assumes that decision-makers have full knowledge of the situation, are able to

identify every possible alternative, and can assess each possibility without bias. This

method , as a rule, is associated with classical management theories whose aim is to

maximize efficiency and results.

2.2 Stages of the Rational Approach:

1. Identifying the Problem: Recognizing the issue that needs to be addressed.

2. Generating Alternatives: Brainstorming possible solutions or courses of action.

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3. Evaluating Alternatives: Assessing the pros and cons of each option.

4. Selecting the Best Option: Choosing the alternative that best solves the problem.

5. Implementing and Monitoring the Decision: Putting the chosen solution into

action and evaluating its effectiveness.

2.2 Real-World Example:

A notable example of the rational approach can be seen in General Electric (GE)

under the leadership of Jack Welch. Welch implemented a rigorous decision-making

process called the "Work-Out" program, which involved identifying inefficiencies,

generating solutions, and implementing changes systematically. This approach

helped GE streamline its operations and achieve significant cost savings (Welch &

Byrne, 2001).

The rational approach to decision-making can have several significant impacts on an

organization:

 Enhanced Efficiency: By methodically evaluating options and relying on

comprehensive data, organizations can streamline their decision-making

processes, leading to more efficient operations.

 Improved Outcomes: The objective evaluation of all possible alternatives allows

organizations to select the most effective solutions, which can maximize

outcomes and overall success.

 Risk Mitigation: Thorough analysis and logical evaluation help identify potential

risks and develop strategies to mitigate them, reducing the likelihood of

negative consequences.

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 Increased Accountability: The systematic and transparent nature of the rational

approach fosters a culture of accountability, as decisions are based on clear

criteria and documented information.

 Better Resource Allocation: By systematically considering all options,

organizations can allocate resources more effectively, ensuring optimal use of

assets and capabilities.

These impacts contribute to a more effective, adaptable, and successful

organization.

2.3 Limitations of the Rational Approach:

While the rational approach provides a structured framework, it has been criticized

for its assumptions of perfect information and objectivity. In reality, decision-makers

often face constraints such as limited time, incomplete information, and cognitive

biases, which lead to the concept of bounded rationality.

2.4 Bounded Rationality Perspective

In his book, Administrative Behavior, published in 1947, Herbert Simon emphasizes

that the rational model fails to adequately capture how people actually think and

act. He explains that information, time, and even intellect often lay constraints.

Therefore, people often “satisfice” instead of optimizing.

Key concepts

 Satisfying: Choosing a solution that meets the minimum criteria for success

rather than seeking the optimal solution.

 Heuristics: Mental shortcuts that simplify decision-making but may lead to

biases.

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 Cognitive Limitations: The human brain’s inability to process large amounts of

information simultaneously.

2.5 Real-World Example:

A classic example of bounded rationality can be observed in the decision-making

processes of IKEA. When expanding into new markets, IKEA often faces uncertainty

about local consumer preferences and market conditions. Instead of conducting

exhaustive market research, IKEA relies on simplified models and heuristics to make

decisions about store locations and product offerings. While this approach may not

always yield the best possible outcome, it allows IKEA to make timely decisions and

adapt quickly to new markets (Mintzberg, 1979).

2.6 Implications for Organizations:

Bounded rationality highlights the importance of understanding the cognitive

limitations of decision-makers. Organizations can address these limitations by

providing decision-makers with better information systems, training, and decision-

support tools.

3.1 Organizational Decision-Making

There is a distinctive way through which decisions are made in organizations and

structures, cultures, hierarchy and even thinking processes play a role in that, this

aspect is titled as Organizational decision-making. An example can be an

organization being led in a democratic manner as opposed to a dictatorial style

which will determinable if a manager has the final say or not during the decision

making processes.

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3.2 Types of Organizational Decision-Making:

1. Centralized Decision-Making: Decisions are made by top management and

communicated downward. This approach is common in hierarchical organizations

like the military.

2. Decentralized Decision-Making: Decisions are made at lower levels of the

organization, often seen in flat organizations like Google.

3. Participation Decision-Making: Employees at all levels are involved in the decision-

making process, fostering collaboration and innovation.

3.3 Real-World Example:

Google is a prime example of decentralized and participative decision-making. The

company’s flat organizational structure encourages employees to contribute ideas

and participate in decision-making processes. For instance, Google’s "20% Time"

policy allows employees to spend 20% of their time working on projects they are

passionate about. This approach has led to the development of innovative products

like Gmail and Google Maps (Bock, 2015).

3.4 Role of Organizational Culture:

Organizational culture plays a critical role in shaping decision-making processes. In

companies with a strong culture of innovation, such as Tesla, decision-making is

often more flexible and risk-tolerant. In contrast, organizations with a conservative

culture, such as traditional banks, may prioritize stability and risk avoidance in their

decision-making processes.

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4 .1 The Learning Organization

Another important focus is from The Fifth Discipline, a book penned by Peter Senge

in 1990, where he argues that “A learning organization” is crucial because it

encourages organizations to learn from the past and improve in the future. It is

through the systematic embracing of improvement over the course of said

organization’s evolution, saves the organization from stagnant decision making

methods as well.

Five Disciplines of a Learning Organization:

1. Systems Thinking: Understanding the organization as a complex system of

interrelated parts.

2. Personal Mastery: Encouraging employees to continuously develop their skills and

knowledge.

3. Mental Models: Challenging and refining the assumptions that shape decision-

making.

4. Shared Vision: Aligning the organization around a common purpose and goals.

5. Team Learning: Promoting collaboration and knowledge-sharing among teams.

4.2 Real-World Example:

Amazon exemplifies a learning organization. The company continuously gathers

customer feedback and analyzes data to improve its services. For example, Amazon’s

recommendation system learns from customer behavior to suggest products,

enhancing the shopping experience and driving sales. By embracing a culture of

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learning, Amazon has been able to adapt to changing market conditions and

maintain its position as a global leader in e-commerce (Senge, 1990).

4.3 Benefits of a Learning Organization:

Learning organizations are better equipped to respond to changes in the external

environment, innovate, and maintain a competitive advantage. They also foster

employee engagement and satisfaction by encouraging continuous learning and

development.

5.1 Contingency Decision-Making Perspective

To put it simply, the core idea surrounding contingency perspective is that decision

making does not always occur the same way in every circumstance, rather varies

with the context or the situation at hand. Thuis also adds an understanding in the

viewer’s mind, that there is no holistic solution to decision making and even once

such an understanding is obtained, the outside world along with internal resources

determines how best to make decisions.

Key Factors Influencing Contingency Decision-Making:

1. External Environment: Market conditions, competition, and regulatory changes.

2. Internal Factors: Organizational resources, culture, and structure.

3. Nature of the Problem: The complexity and urgency of the decision.

4.1 Real-World Example:

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Netflix demonstrates contingency decision-making. As the market shifted from DVD

rentals to streaming, Netflix adapted its decision-making to focus on digital content.

This flexibility allowed Netflix to remain competitive and grow its subscriber base

globally. Similarly, during the COVID-19 pandemic, many organizations had to make

contingency decisions, such as shifting to remote work or adjusting their supply

chains, to respond to rapidly changing conditions (Mintzberg, 1979).

4.2 Implications for Organizations:

The contingency perspective highlights the importance of adaptability and flexibility

in decision-making, especially in uncertain and dynamic environments. Organizations

must be prepared to adjust their decision-making strategies based on the specific

circumstances they face.

4.3 Special Decision Circumstances

Special decision circumstances pertain to rare or difficult instances that call for

exceptional decision-making techniques. These involve handling a crisis, solving an

ethical problem or making a decision that will have a long term impact.

Examples of Special Decision Circumstances:

1. Crisis Management: Decisions made in response to unexpected events, such as

natural disasters or financial crises.

2. Ethical Dilemmas: Decisions that involve moral or ethical considerations, such as

product safety or environmental impact.

3. High-Stakes Decisions: Decisions with significant long-term consequences, such as

mergers and acquisitions.

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4.4 Real-World Example:

One notable example of special decision circumstances is the Tylenol crisis faced by

Johnson & Johnson in the 1982. When tampered Tylenol capsules led to several

deaths, the company prioritized public safety by recalling all products and

introducing tamper-proof packaging. This ethical decision-making not only restored

public trust but also set a standard for crisis management in the pharmaceutical

industry (Johnson & Johnson, 1982).

4.5 Challenges in Special Decision Circumstances:

Special decision circumstances often require leaders to balance competing priorities,

such as financial performance, ethical considerations, and public perception. These

decisions are typically made under extreme pressure and scrutiny, making them

particularly challenging.

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Conclusion

In conclusion, decision-making is a multifaceted process influenced by various

factors, including information availability, organizational structure, and external

conditions. The rational approach provides a structured framework for making

optimal decisions, while bounded rationality acknowledges the limitations faced by

decision-makers. Organizational decision-making is shaped by hierarchy and culture,

and the learning organization emphasizes continuous improvement. Contingency

decision-making highlights the need for flexibility, and special decision circumstances

require innovative approaches. Together, these perspectives underscore the

complexity of decision-making and its critical role in organizational success.

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By understanding these different approaches, organizations can develop more

effective decision-making processes and improve their ability to navigate challenges

and seize opportunities in a dynamic business environment.

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References

- Robbins, S. P., & Judge, T. A. (2019). Organizational Behavior. Pearson.

- Simon, H. A. (1947). Administrative Behavior: A Study of Decision-Making Processes

in Administrative Organizations. Macmillan.

- Senge, P. M. (1990). The Fifth Discipline: The Art and Practice of the Learning

Organization. Doubleday.

- Mintzberg, H. (1979). The Structuring of Organizations: A Synthesis of the Research.

Prentice-Hall.

- Welch, J., & Byrne, J. A. (2001). Jack: Straight from the Gut. Warner Books.

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- Bock, L. (2015). Work Rules!: Insights from Inside Google That Will Transform How

You Live and Lead. Twelve.

- Johnson & Johnson. (1982). The Tylenol Crisis: A Case Study in Crisis Management.

Journal of Business Ethics.

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