Corporate Strategy & Decision Making

Topics: Decision making, Decision theory, Flipism Pages: 6 (2025 words) Published: October 29, 2013
Corporate Strategy and Decision Making
Lecture 3: Rational and Administrative Models of Decision
The rational decision model
Under the rational model of decision making, the assumption is made that participants have agreed in advance that making a decision is the right process to follow and that the rules and language of decision making are understood by all. The rational model aims at making optimal decisions on the basis of a careful evaluation of alternative courses of action. Depending on the complexity of the problem, computational or quantitative techniques may be used to assist this process. The model is claimed to be the basis of much decision making in private and commercial life and is effective under the conditions it assumes: a finite choice situation, relevant and unproblematic data, and clear and uncontroversial choice criteria. The model views the decision-making process as a sequential series of activities leading from an initial recognition of a problem, through the delineation and evaluation of alternative courses of action, and the selection of the preferred alternative, to the implementation of action (Dawson 1986: 182; Minkes 1987: 37–8). This sequential process is depicted below (figure 14.2 in the text).

Consider the decision processes involved in the choice about which of two new products should be launched. If the agreed objective was profitability, rationalists would say that it is a relatively straightforward procedure to estimate incomes and expenditures associated with both proposed products and to determine the preferred alternative. In these circumstances, decision making becomes largely a matter of technical expertise. Where there are adequate information, clear choice criteria and agreed goals, then the rational model is said to work well. However, not all decision situations are as clear cut as the example suggests, and the assumptions indicated above cannot always be presumed. One major assumption is that the rational approach provides ‘one best way’ to reach decisions. However, the advocates of the rational approach pay little heed to the organizational context of decision making. As pointed out by Hickson et al. (1986), this context influences the way problems are defined, information gathered and choice criteria formulated. The use of logical frameworks and quantitative techniques do not of themselves make a decision rational. It would be better to regard such techniques as one input into a process which is influenced by the preferences and interests of key organizational participants (Pfeffer 1981: 31). For example, in the case of the product decision previously discussed, it would be illuminating to know how the organizational agenda was set to allow the emergence of the choice situation, that is, what events led to the decision to offer a new product. Which other potential products did not make it into the final pair of alternatives? What other profit-making alternatives were eliminated or overlooked in the process leading up to the choice situation (i.e. the competing choices)? Which organizational participants stand to gain or lose by the decision? Who supplied the information and to what extent have biases or values influenced the information-gathering process? What groups were not represented in the decision process (i.e. choice suppression)? Thus every organizational decision is influenced by a history, a social context and anticipated consequences for organizational participants. The rational model has been greatly influenced by classical management and economic theory, especially in terms of the notion of a world populated by individuals ‘rationally’ seeking the best rewards, using the best methods to achieve them: that is, profit or ‘utility’ maximization through choice optimisation, as per ‘economic man’. However, in practice, time and cost frequently rule out the search for optimal solutions, and profit maximization is not the only criterion applied to choice...

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