Quality of Decisions and Organizational Performance

Quality of Decisions and Organizational Performance

Quality of decisions made is very important for the smooth functioning of an organization. It is a known fact that decision making is not just about selecting the right choices or compromises. Unless a decision has degenerated into work, it is not a decision. It is at best a good intention. Decisions made become effective only after they are implemented.

Organizational management is required to make a large number of decisions on a continuous basis. These decisions are required to be made for the smooth running of the organization. The performance of the organization is greatly influenced by these decisions. Hence, making decisions is a matter of a huge responsibility for the management not only against the organization itself, but against their employees and other stakeholders, as well.

The decision making process can be explained as a proposal considered by the management in the context of the organization and its strategic position. Alternatives, risks and potential outcomes are considered and then a decision is reached. There can also be a post audit and a feedback loop. The decision making process of the management is subject to human error as the management personnel have personalities, prejudices and a self-interest bias. Importantly, they have different attitudes to and appetites for risk.

The decisions of the management are influenced by the decision making environment which consists of a unity of management’s experience, beliefs and perceptions on one side, and decision support tools and techniques on the other side.

For determining the effectiveness of the decision made, the performance of the organization is normally measured on the basis of eight performance parameters. These performance parameters include (i) profitability, (ii) organizational effectiveness, (iii) continuous improvement, (iv) productivity of the processes, (v) quality of the processes and the products, (vi) quality of work life, (vii) safety and health at the workplace, and (viii) social responsibility. In short organizational performance can be defined in a broad sense a measure of association of all the performance variables which influence the functioning of the organization.

As stated earlier, decision making consists of selecting choices or compromises in order to meet the objectives of the organization. It ranges from the managerial decisions to the routine operational decisions. Further, the decisions to be made by the management can be of (i) technical nature, (ii) administrative nature, and (iii) financial nature.  Decisions can also be (i) routine decisions, (ii) tactical decisions, or (iii) strategic decisions. All these types of decisions impact the performance of the organization.

Technical decisions and financial decisions are not the administrative type of decisions and hence they are to be made by those management personnel who are having deep knowledge of the technological processes or financial matters respectively. However, the three types of decisions namely technical, financial, and administrative etc. are not to contradict each other but support each other.

Decisions are made by the management with the considerations of many of the aspects. These aspects include (i) taking into account the environmental factors, (ii) looking for the solutions to solve only the current problem without looking into future, (iii) focusing on the implementation of the decision and monitoring effectiveness of the implemented decision, (iv) depending on and analyzing of the quality of available information, (v) keeping in focus the strategic objectives of the organization, (vi) not diluting the organizational culture, (vii) taking advise from other member/members of the organization if needed for the decision making, (viii) taking into considerations the suggestions given by the employees’ representatives, (ix) involving subordinates for obtaining suggestions, (x) looking into the strengths and the weaknesses of the possible solutions, (xi) keeping in focus ethical principles of the organization, and (xii) finding solution in a routine way without stretching too much for the solution.

There are some decisions which are made by rules of thumb and making short cuts. Also, sometimes decisions are made by sacrificing some part of the problem which means making some compromises. Such decisions are not quality decisions and hence are not very effective for improving the performance of the organization.

There are decisions which are made in normal working environment while there are other decisions which are made under conditions of emergency. There are decisions which are made in a hurry while there can be some other decisions which are delayed. Generally decisions are required to be taken within normal available time to be effective.

There are some decisions which are made at individual level while there are other decisions which are made by a group of management personnel. Either of these decisions can be quality decision and can be effective in improving the performance of the organization. Group level decisions need more time. Generally criticality of the problem decides whether the decision is to be made at the individual level or at the group level.

There are cases when management makes decisions under panic. Panic decisions are also made under conditions of emergency. There are other cases when management is to make decisions under stress. Decisions made under panic as well as under stress are always low in quality and in effectiveness. These decisions normally do not help in improving the organizational performance.

There can be some decisions which are made under pressure. Pressure for certain decisions may come from authorities, regulatory bodies, stakeholders, market, suppliers, or environment. Pressure for certain decisions can also be there because of financial reasons. Decisions made under pressure can have adverse impact on the performance of the organization since these decisions may not be quality decisions.

Some decisions can be made to please certain people while some other decisions can be made out of revenge. Some decisions are made to give favours to someone while denying normal benefits to others. Also there are some decisions which are made to receive certain undue benefits/rewards while some other decisions are made to get popularity. Decisions, which are made because of these reasons, are normally not fair decisions and hence not the quality decisions. Such decisions usually have an adverse impact on the performance of the organization.

There are some decisions which are made in a routine manner. Such decisions are made based on the set procedures in the organization. Usually there are earlier cases of similar decisions for guidance in such cases. These are those decisions which are easier to make. On the other hand there are decisions for which there are no earlier decisions available to management for guidance. Such decisions are difficult to make and management is to follow one of the techniques of decision making to ensure that the correct decisions are made and also to ensure that the decision making is not delayed. However, in all the cases of decision making, it is the ability to make wise, educated decisions which is essential for the management.

Decision making is normally the basis of competitive advantage and value creation in the organization.  Improvement in the decision making can be the key to superior organizational performance. The quality of decision making can become the key differentiator between success and failure in the organization.

Some decisions may not have a major influence on the organizational performance while the other decisions do have a considerable influence on the performance of the organization. Some decisions may have a short time impact while other may have a long time impact. Some decisions may impact the organizational performance immediately while the other decisions may have an impact on the organizational performance after a lapse of certain time. Some decisions may impact the performance in a small way while the impact of some other decisions may be very big on the performance of the organization. Some decisions may have negative influence on the organizational performance, while the other decision can have positive influence on the performance. However, in all the cases, it is the quality of the decision which is an important factor in influencing the organizational performance.

Management while making decisions is to be vigilant and confident. It is also to be ensured by the management while making decisions that all the aspects of the problem have been considered. There are five decision making styles and six decision making strategies which are adopted by the management. These decision making styles and strategies are shown in Fig 1.

Fig 1 Decision making styles and strategies

The five decision making styles of the management are namely (i) rational, (ii) intuitive, (iii) dependent, (iv) avoidant, and (v) spontaneous. The decision making styles have a major influence on the quality of decisions made by the management and hence on the performance of the organization.

Management with rational decision making style make decisions thorough search for logical evaluation of alternatives. In the case of the intuitive decision making style, management rely upon hunches and feelings for making the decisions. In the event of the dependent decision making style, management seek further advice and direction from others for making the decisions. Management while following the avoidant decision making style attempts to avoid decisions with the hope that the problem will solve itself with time. In the case of spontaneous decisions making style, management makes sudden and impulsive decisions.

The six decision making strategies which are normally used by the managements to make decisions, are used either consciously or unconsciously. These strategies help in improving the qualities of decisions.  These six decision making strategies are (i) minimize, (ii) moralize, (iii) muddle, (iv) scan, (v) deny, and (vi) optimize.

Minimize strategy consists of making decisions based on a minimum set of requirements. Such strategy may not result into quality decisions.

Moralize strategy is about making a decision based on a perceived moral obligation. Factors leading to this strategy often include requests by individuals in authority, direct orders, and perceived life and death situations where the management can make the difference. Since these decisions are made without considering different available alternatives, decisions made under the moralize strategy, may not be the best decisions.

Muddle strategy is generally followed during the emergency conditions and consists of incremental decision making. The focus is on crisis management or ‘putting out fires’, rather than selecting a better course of action. This usually starts with minor safety shortcuts that continue until they reach the point where the management finds that some serious mistakes have occurred. Management under such conditions usually downplays the significance of change in the situation by engaging in superficial decision making. Risk management is also not done in such situation. Hence decisions made under such strategy generally are not quality decisions.

Scan strategy of making decisions consists of proper analysis of all the available information before making the decision. Under this strategy available information is classified as either important or unimportant. Scanning is then done on only those alternatives containing important information.

All other alternatives are treated as superficial. Scan strategy generally leads to quality decisions but the strategy needs a lot of time for the decision making which is normally not available in all the situations.

Deny strategy consists of elimination of the problem by denying that it exists. This generally happens when stress is extremely high and management does not find time to deal with all the existing situations. The built in condition in this strategy is that the problem will take care of itself with passing time. Under this strategy, decision making consists of not making the decisions. Deny strategy is not a good strategy for decision making.

Optimizing strategy is the most effective strategy for decision making. It considers a wide range of choices and weighs each of the consequences. In this strategy a well-structured approach is followed for the decision making and hence the decisions made following this strategy are very effective and hence are quality decisions.