Making Decisions

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

CHAPTER 8Making Decisions

CHAPTER SUMMARY

A decision is a choice made between two or more available alternatives. There are two basic types of decisions that are at the opposite ends of a continuum: (1) programmed decisions are routine and repetitive, and (2) nonprogrammed decisions are one-shot occurrences and are usually less structured than programmed ones. The scope of the decision is the proportion of the total management system that a particular decision will affect. The broader the scope of a decision, the higher the level of the manager responsible for making that decision. With decisions through consensus, everyone agrees.

Environmental factors influence decision makers as they go through the decision-making process. In order of occurrence, the model of the decision-making process has five steps: (1) identifying the existing problem, (2) listing possible alternatives to solve the problem, (3) selecting the most beneficial of those alternatives, (4) putting the selected alternatives into action, and (5) gathering feedback to find out if the implemented alternative is solving the identified problem.

There are three basic conditions under which decisions are made: (1) The complete certainty condition is the decision-making situation in which the decision maker knows exactly what the result of an implemented opportunity will be; (2) The complete uncertainty condition is the decision-making situation in which the decision maker has absolutely no idea what the results of an implemented alternative will be; (3) The risk condition is the decision-making situation in which the decision-maker has only enough information to estimate how probable the outcome of implemented alternatives will be. Probability theory is a decision-making tool used in risk situations. Probability refers to the likelihood that an event or outcome will occur and allows decision makers to calculate an expected value for each alternative. Another decision-making tool used in risk conditions is a decision tree. A decision tree is typically used to evaluate decisions containing a series of steps.

LEARNING OBJECTIVES

1. A fundamental understanding of the term decision

2. An understanding of each element of the decision situation

3. An ability to use the decision-making process

4. An appreciation for the various situations in which decisions are made

5. An understanding of probability theory and decision trees as decision-making tools

1


6. Insights about groups as decision makers

Chapter’s Target SkillDecision Making Skill: the ability to choose alternatives that increase the likelihood of accomplishing objectives.

CHALLENGE CASEMAKING DIFFICULT DECISIONS AT NBC UNIVERSAL

The Challenge Case, “ Making Difficult Decisions at NBC universal” focuses on events at NBC Universal. The information in this chapter discusses specifics surrounding a decision-making situation and provides insights about the steps that management at NBC Universal might have taken in making these decisions.

“ See all related teaching notes for Challenge Case in the Management Skill Activities”

EXPLORING YOUR MANAGEMENT SKILL: PART 1

CHAPTER OUTLINE

I. CHALLENGE CASE: MAKING DIFFICULT DECISIONS AT NBC UniversalA. The CEO has tough decisions to make regarding late night programming at NBC

Universal.

II. FUNDAMENTALS OF DECISIONSA. Definition of a Decision

1. A decision is a choice made between two or more available alternatives.B. Types of Decisions

1. Programmed Decisions a. Programmed decisions are decisions that are routine and repetitive, and

typically require specific handling methods.2. Nonprogrammed Decisions

a. Nonprogrammed decisions are decisions that typically are one-shot occurrences and usually are less structured than programmed decisions.

3. Information Today: Nestle USA, Inc. Uses Internet to Speed up Decisionsa. The CEO of Nestle USA is replacing meetings with the Internet to help

managers make faster decisions in major operational areas. C. The Responsibility for Making Organizational Decisions

1. One rationale developed to stipulate who within the company has the decision-making responsibility is the scope of the decision.

a. The scope of the decision is the proportion of the total management system that the decision will affect.

b. The broader the scope of a decision, the higher the management level

2


responsible for the decision. (See Figure 8.2)2. Consensus is another method a manager can use in getting a group to arrive at a

particular decision.a. Consensus is agreement on a decision by all individuals involved in making the decision.b. Decisions arrived at through consensus have both advantages and disadvantages.

1. One advantage is that managers can focus "several heads" on making a decision.

2. Another advantage is that individuals in the decision group are more likely to be committed to implementing a decision they

helped make.3. One main disadvantage is that discussions relating to the

decisions tend to be quite lengthy and, therefore, very costly. D. Elements of the Decision Situation

1. Wilson and Alexis speak of several elements in the decision situation.2. The Decision Makers

a. Decision-makers are the individuals or groups who actually make the choiceamong alternatives.

b. According to Dale, weak decision-makers can have four different orientations:

1. Those with a receptive orientation feel that the source of all good is outside themselves; therefore, they rely heavily on suggestions from other organization members. Basically, they want others to make their decisions for them.

2. Those with an exploitation orientation also believe that good is outside themselves, and are willing to steal ideas necessary to make good decisions. They build on the ideas of others, typically extending little or no credit for the ideas to anyone but themselves.

3. The hoarding orientation is characterized by decision-makers who preserve the status quo as much as possible. They accept little outside help, isolate themselves and are extremely self-reliant.

4. Marketing-oriented decision-makers consider themselves only as valuable as the decisions they make. They seek to make decisions thatwill enhance their value and are therefore conscious of what others thinkof their decisions.

c. The ideal decision-making orientation is one that tries to realize the potential of the organization as well as of the decision maker.

3. Goals to Be Serveda. The goals that decision-makers seek to attain are another element of the decision situation.b. These goals most often are organizational objectives. (See Chapter 7)

4. Relevant Alternativesa. A relevant alternative is one that is considered feasible for implementation and for solving an existing problem.

5. Ordering of Alternatives

3


a. The decision situation must have a process that ranks alternatives from mostdesirable to the least desirable.

6. Choice of Alternativesa. The last element of the decision situation is an actual choice between available alternatives.

III. THE RATIONAL DECISION-MAKING PROCESSA. The decision-making process is the steps a decision maker takes to choose an

alternative. (See Figure 8.3)B. The model of the decision-making process is based on three primary assumptions:

1. Humans are economic beings with the goal of maximizing satisfaction or return.2. Within the decision-making situation all alternatives and their possible

consequences are known.3. Decision-makers have some priority system that allows them to rank the

desirability of each alternative. C. Identifying an Existing Problem

1. Decision-making is essentially a problem-solving process that involveseliminating barriers to organizational goal attainment.

2. Chester Barnard identifies three ways problems are typically brought to amanager's attention:a. Orders issued by managers' supervisors.b. Situations relayed to managers by their subordinates.c. The normal activity of the managers themselves.

D. Listing Alternative Solutions1. Once a problem has been identified, managers should list the various possible

solutions.2. There are five limitations on the number of problem-solving alternatives

available:a. Authority factorsb. Biological factorsc. Physical factorsd. Technological factorse. Economic factors

3. Additional factors that can limit managers' decision alternatives: (Figure 7.5) a. Legal restrictionsb. Moral normsc. Ethical normsd. Formal policies and rulese. Unofficial social norms

E. Selecting the Most Beneficial Alternative1. This evaluation consists of three steps:

a. Listing, as accurately as possible, the potential effects of each alternative.b. Assigning a probability factor to each of the potential effects.c. Keeping organizational goals in mind and comparing each alternative's expected effects and their respective probabilities.

4


F. Implementing the Chosen Alternative

1. Put the chosen alternative into action.G. Gathering Problem-Related Feedback

1. After the chosen alternative has been implemented, decision makers must gather feedback to determine the effect of the implemented alternative on the identified problem.

IV. BOUNDED RATIONALITYA. According to Herbert Simon, managers deal with bounded rationality, which

refers to the fact that managers are bounded in terms of time, computational power, and knowledge when making decisions or in other words, managers do not always have access to the resources required to make rational decisions.

B. As a result, managers “satisfice”, which occurs when an individual makes a decision that is not optimal but is “good enough.”

V. DECISION-MAKING AND INTUITIONA. In addition to the potential influence of bounded rationality on rational decision

making, research suggests that individuals may also rely on additional processes when making decisions like “intuition” which refers to an individual’s inborn ability to synthesize information quickly and effectively.

B. Decision-Making Heuristics and Biases1.Research (Kahneman and Tversky ) examined how individuals use heuristics, or simple rules of thumb, to make decisions. When managers rely on rules of thumb when making decisions, these decisions are often flawed.

a.Bias refers to departures from rational theory that produce suboptimal decisions.

b. Kahneman and Tversky’s work spurred a great deal of interested in the discovery and examination of a number of decision making biases.

5

CLASS DISCUSSION HIGHLIGHT: Modern Research and Decision Making Skill

The Influence of Information Speed on Decision Making

We would all like to believe intuitively that information speed improves decision making. However, in this study the subjects receiving information every period performed the worst in terms of making profits.

The authors provided another interesting finding. They divided the subjects into two broad groups. In the first group the information the authors provided to the students was labeled as certain and the other condition was labeled as uncertain (think of consumer demand in stable versus volatile industries). The students receiving feedback every round performed even worse when the information was uncertain. This makes sense, however, as they are constantly given information that contains random elements.

In sum, timely information does not always lead to successful decision making. You may want to use this as an opportunity to explain that the differences between “good” and “bad” information. Having timely access to “bad” information does not improve decision making.


VI. DECISION-MAKING CONDITIONSA. The word "future" is the key to discussing decision-making conditions.B. Complete Certainty Condition

1. The complete certainty condition exists when decision-makers know exactlywhat the results of an implemented alternative will be. Managers have complete knowledge about a decision.

C. Complete Uncertainty Conditions1. The complete uncertainty condition exists when decision-makers have

absolutely no idea what the results of an implemented alternative will be. Thismight be the case if there were no historical data on which to base a decision.

D. Risk Condition1. The risk condition is the decision-making situation in which the decision-maker

has only enough information to estimate how probable the outcome ofimplementing the alternatives will be. The risk condition is somewhere betweencomplete certainty and complete uncertainty.

2. Degrees of risk can be associated with decisions made in the risk situation.3. The lower the quality of information related to the outcome of an alternative, the

closer the situation is to the complete uncertainty situation, and the higher the risk associated with choosing that alternative.

VII. DECISION-MAKING TOOLSA. Probability Theory

1. Probability theory is a decision-making tool used in risk situations—situationsin which the decision-maker is not completely sure of the outcome of animplemented alternative.

2. The expected value (EV) for an alternative is the income (I) it would produce,multiplied by its probability (P) of making that income.

3. EV = I x PB. Decision Trees

1. A decision tree is a graphic decision-making tool typically used to evaluatedecisions containing a series of steps. (See Figure 8.6)

2. To adequately compare the financial consequences of various possible alternatives, management must:a. Study estimates of investment amounts necessary.b. Weigh probabilities of facing different product demand levels for various decision alternatives.c. Consider projected income yields per decision alternative.

VII. GROUP DECISION MAKINGA. Advantages and Disadvantages of Using Groups to Make Decisions

1. One advantage to group decision making is that a group will generally make more and better decision alternatives than the individual. Another advantage

is

6


that once a decision is made, the group tends to support that decision more fervently than if an individual had made the decision. Lastly, groups tend to take more ownership of the decisions they make.

2. Some of the disadvantages to group decision making are that it takes longer to make a decision, the costs incurred by the organization are higher, and the decision quality tends to be lower the higher the friendship level in the group.

B. Processes for Making Group Decisions1. Brainstorming is a process in which negative feedback on any suggested

alternative by any group member is forbidden. All ideas no matter how wild arerecorded and considered.

2. Nominal Group Technique is a decision-making method designed to ensureeach group member has an equal chance to participate asa. Each member writes down his/her ideas.b. Group members offer anonymous responses to the problem through

carefully planned questionnaires.c. All ideas are discussed by the group.d. More solutions are generated by the group as a whole.e. After all discussion is finished a secret ballot is taken to choose the best alternative.

3. The Delphi Technique involves circulating questionnaires on specific problems,sharing the results, and then continuing with a new questionnaire until aconsensus is reached.a. A problem is identified.b. Group members are asked for anonymous responses.c. Responses are compiled and redistributed to group members.d. Individuals are asked to generate new ideas after evaluating the previous alternatives.e. Steps 3 and 4 are repeated until a consensus is reached.

4. Evaluating Group Decision-Making Processesa. Brainstorming encourages the expression of many ideas, but tends to waste a lot of time.b. The nominal group technique offers a structure for submitting ideas without fear of rejection, but you have no idea as to why a person voted the way he or she did. c. The Delphi method offers ideas from different geographical locations, but its members are unable to illicit responses from others in the group.d. No one way is the best, so use the method that best fits your organizational needs.

CHALLENGE CASE AND CHALLENGE CASE SUMMARYMAKING DIFFICULT DECISIONS AT NBC UNIVERSAL

NBC Universal faced a decision with respect to Conan O’Brien, the late night talk show host. There were fears that he would jump ship because he wouldn’t want to play second fiddle to Jay

7


Leno at NBC. To pre-empt this, NBC Universal executives announced that Leno would move to the 10 p.m. slot and Conan would take over the Tonight show. The move misfired when Leno’s show flopped and Conan’s show was beaten to third place in its time slot.

This was a formal decision situation with CEO Jeff Zucker making the call. It was very likely that Zucker used a consensus style of decision making in getting input from his team of managers.

It is possible that NBC Universal considered a host of internal and external factors in making the decision. These factors would have included the company’s resources and viewer reaction to the changes. Financial considerations – for example, the relative costs of making a prime time drama ($3 million per episode) versus the $300,000 for a Leno episode – would have been considered.

DISCUSSION QUESTIONS

1. List three alternatives that NBC management might consider in handling competition from other television networks before making a decision to remodel the company’s programming schedule.

The students’ answers would vary. Some considerations would be coming up with a strong drama show for each of the 5 nights, coming up with news and reality programs for prime time, and a combination of drama and reality shows.

2. What information would management need to evaluate these three alternatives?

The costs of producing prime time drama and news/reality shows would be one key information category. A second would be anticipated audience reaction. Finally, a third would be the reaction of current studio talent (Leno and Conan) to this move.

3. Do you think that you would enjoy making this decision of whether or not to remodel Toys R Us’ stores? Explain.

Students’ answers would vary. What should be pointed out in the discussion is the decision-making process is never enjoyable. The millions of dollars involved and the possible future of the company create a tremendous responsibility that is not enjoyable to endure. The enjoyable comes later if the decision proves successful.

Management Skills ActivitiesUNDERSTANDING DECISION MAKING CONCEPTS

1. Distinguish between programmed versus non-programmed decisions. Use examples to support your response.

A nonprogrammed decision is typically a one-shot decision that is usually less structured than programmed decisions. For example, possible nonprogrammed decisions that the manager of a nightclub would probably have to make could include:

8


a. adding a special two-for-one happy hour promotion,b. increasing the seating capacity of the club by enclosing a side porch, andc. instituting a cover charge.

Programmed decisions are routine and repetitive that the organization typically develops specific ways to handle them. For example, three programmed decisions that the manager of a nightclub would probably have to make could include:

a. ordering napkins for the bar,b. scheduling personnel's work hours, andc. paying monthly mortgage note.

2. Describe the primary steps involved in the rational decision making process.Since decision-making is essentially a problem-solving process that involves eliminating barriers to organizational goal attainment, the first step of the decision-making process must be the identification of these problems or barriers. Second, the decision-maker must determine the various alternatives that could be used to solve these problems. The third step requires the decision-maker to select the most beneficial solution after each of the available alternatives is carefully evaluated. This evaluation should include: (1) a listing of the potential effects of each alternative; (2) the assignation of a probability factor to each alternative to indicate how probable the occurrence of the effect would be; (3) a comparison of each alternative based on expected effect if implemented and the probability that the effect would actually occur; (4) actually putting the chosen alternative into action; and (5) gathering feedback to determine the effect of the implemented alternative on the identified problem.

3. What is the relationship between bounded rationality and satisficing?According to Herbert Simon, managers deal with bounded rationality, which refers to the fact that managers are bounded in terms of time, computational power, and knowledge when making decisions or in other words, managers do not always have access to the resources required to make rational decisions. As a result, managers “satisfice”, which occurs when an individual makes a decision that is not optimal but is “good enough.”

4. Describe the relationship between “System 1” and “System 2” decision-making processes.

Individuals use two different processes when making decisions. The rational decision-making process is known as “System 2.” Complementing this formal system of decision making, individuals also rely on a less formal process based on intuition to make decisions; referred to as “System 1.” Consistent with their framework, System 2 is a process as being slow, comprehensive, and deliberate, while System 1 is described as being fast, automatic, and intuitive. Intuition, in fact, refers to an individual’s inborn ability to synthesize information quickly and effectively. Taken together, some researchers suggest that individuals employ the more sophisticated System 2 process to monitor or override the more automatic System 1 process. Often, however, System 2 does not monitor effectively and in such cases intuition drives decision making.

5. Compare the advantages and disadvantages associated with group decision making.The following are advantages of group decision-making:

9


(1) Groups can come up with more and better decisions.(2) When groups make a decision, they tend to support implementation of the decision

more fervently.(3) Groups tend to perceive a decision as its own.

The following are disadvantages of group decision-making:(1) A groups take longer to make decisions.(2) Groups cost more than individual decisions.(3) Group decisions can become contaminated when group members want to remain

friends.

Exploring Your Management Skill: Part 2

Your Management Skills Portfolio‘Making a Decision at Microsoft’

1. Identify the existing problem.Microsoft is receiving reports that its gaming system, the Xbox 360, is having problems.

2. List possible alternatives for solving the problem.Student’s alternatives may vary but the decision-maker must now determine the various alternatives that could be used to solve the existing problem. Some alternatives might include: inspecting quality control techniques implemented at factory locations, user error, and check Xbox 360’s which are experiencing problems to determine what are the common malfunctions and to see if there is a pattern in the malfunctioning.

3. Select the most beneficial of these alternatives.The decision-maker must now select the most beneficial solution after each of the available alternatives is carefully evaluated. This evaluation should include: (1) a listing of the potential effects of each alternative; (2) the assignation of a probability factor to each alternative to indicate how probable the occurrence of the effect would be; (3) a comparison of each alternative based on expected effect if implemented and the probability that the effect would actually occur.

Based upon the factors analyzed, student responses will vary.

4. Implement the selected alternative.Student responses will vary.

5. Gather feedback to find out if the implemented alternative is solving the identified problem.Student responses will vary.

Experiential Exercise: Decision Making As A GroupA representative of McDonald’s has contacted your group to help make an important decision. Due to the increasing hostility of the press regarding the unhealthy nature of some of the

10


company’s products, top management is concerned about the company’s future. In response, some members of McDonald’s management team would like the company to diversify into other markets/industries that have nothing to do with food products. Use the nominal group technique, which is discussed in the chapter, to address this important issue for McDonald’s. At the end of this exercise, you should have at least one recommendation for McDonald’s top management team. When you have finished this exercise, list the primary advantages and disadvantages of this technique. Be prepared to share your conclusions with the rest of your class.The four steps in the nominal group technique are the following:Step 1—Each group member writes down individual ideas on the decision or problem being discussed.Step 2—Each member presents individual ideas orally. The ideas are usually written on a board for all other members to see and refer to.Step 3—After all members present their ideas, the entire group discusses these ideas simultaneously.Step 4—When discussion is completed, a secret ballot is taken to allow members to support their favorite ideas without fear. The idea receiving the most votes is adopted and implemented.

Recommendations for McDonald’s top management team will vary depending upon student groups.

The primary advantages are that this process is designed to ensure that each group member has equal participation in making the group decision and that, with its secret ballot, this technique offers a structure in which individuals can support or reject an idea without fear of recrimination. The primary disadvantages include the time that this process takes and that group members have no way of knowing why individuals voted the way they did.

Experiential Exercise: You and Your Career

Earlier in the chapter, we discussed the importance of decision making and described a number of factors that influence decision making. Describe a scenario in which poor decision-making skills could hinder your skills as a manager. What are some strategies you might employ to improve your decision making skill? Explain. Describe two examples from your life that help you communicate your decision making skill to potential employers.

Student responses will vary. They should be encouraged to think about decisions that they would typically confront – taking summer classes versus working full-time in the summer – in answering this question.

CASES

Gateway Chief Makes Daring DecisionsRead the case shown below and answer the questions that follow. Studying this case will help you better understand how decision-making concepts can be applied in a company like Gateway.

11


Bill Gates, Michael Dell, and Ted Waitt? Like Gates and Dell, Waitt left college to form a computer company, Gateway. He and Mike Hammond, now senior vice president of manufacturing, started the firm in a farmhouse with a loan secured by a $10,000 CD owned by Waitt’s grandmother. Initially, they sold hardware peripherals and software to owners of PCs made by Texas Instruments; later they expanded into designing and assembling their own fully configured PC systems for direct sale to consumers and businesses.

As his company grew, Waitt used his Midwestern roots to differentiate the South Dakota–based company from competitors such as Dell and Hewlett-Packard. For example, he used eye-catching cow spots to establish a brand image, which can be quite difficult in the standardized computer industry. Every Gateway computer came packed inside a white box with cow-like black spots, and the company served cow-shaped cookies at its annual shareholder meetings. By 1998, the company was reporting net income of $346 million on $7.5 billion in annual revenues.

However, to sustain the company’s extraordinary growth during the coming years, Waitt realized that changes were needed. First, he decided to relocate the top management team to new administrative headquarters in San Diego. Not only would this help Gateway attract top talent, it would bring the office closer to Silicon Valley partners and suppliers. Waitt also decided to reduce the company’s reliance on the cow motif as he courted business customers, who might not see a clear connection between high-quality computers and cows. Gateway’s growth roared on and by 2000, the company had a workforce of 20,000, mainly concentrated in its U.S. manufacturing facilities.

Next, Waitt made an even more expensive change. Instead of taking orders only by phone or via the Web, as rival Dell does, Waitt plunged into retailing. He opened hundreds of Gateway Country stores in the United States, Europe, and Japan so customers could see the different computer models and get advice from knowledgeable sales staff. When much of the world fell into economic recession during 2001, demand for computers dropped off and Gateway’s market share, revenues, and profits started to decline as well. Now the founder faced more challenges. Rather than continue operating the entire retail chain, he ordered some stores closed and had the remaining outlets remodeled to better showcase new merchandise. Another big decision Waitt made was to diversify into popular consumer electronics products such as flat-panel televisions. This put Gateway into direct competition with Sony and other well-known firms—even as it was struggling to hold its own in the computer industry.

By 2004, the company had experienced three years of losses, both financially and in PC market share. It was time to reverse some of the earlier decisions. Waitt cut costs by outsourcing much of the company’s production activities and laying off thousands of employees. He closed all the Gateway Country stores and arranged for the Best Buy chain to purchase the consumer electronics for resale. And the founder made yet another bold decision: He acquired the computer maker eMachines and its CEO, Wayne Inouye, became Gateway’s CEO (Waitt became chairman).

Inouye quickly announced that the company would narrow its product line to make the most of the Gateway brand’s appeal to computer buyers: “The fact is, we were not making a lot of money on the consumer electronics side at all,” he said. “Our route to profitability is to fix our core business, and that’s PCs and PC-related products.” He also made major changes to the distribution strategy by selling PCs under the eMachines and Gateway brands in Best Buy stores, even as he sought shelf space in other national retail chains. Coupled with additional layoffs, these decisions helped Gateway increase its revenues and narrow its losses. Still, some observers wonder whether Inouye and Waitt will be able to complete the turnaround and restore Gateway’s

12


growth and financial success.

Questions1. Knowing that growth is one of Gateway’s long-term objectives, do you agree with Inouye’s

decision to reduce the product line and refocus on PCs? Explain.In order to grow in the future, Gateway needs to survive in the present. Through the reduction of product line and the refocusing on what Gateway was originally known for, the company has a chance of regrouping, building its resources, regaining its positive image to both the business community and the consumers. After it has a firmer foundation, then Gateway can expand and grow.

2. What kind of programmed decisions might have arisen from some of the nonprogrammed decisions made by Ted Waitt and Wayne Inouye during the past few years?

Students will have a variety of opinions. Some of the programmed decisions could involve the routine running of the outlets and developing processes to handle retail sales.

3. Looking at Gateway’s recent history, what would you identify as the top two or three problems that Waitt and Inouye must address today?

Students will have a variety of opinions. Some of the problems would be reclaiming the uniqueness of the Gateway brand, in contrast to all the other computer makers; the fight for shelf space in national retail chains; the impersonal perception created by the growth of Gateway from its Midwest, friendly roots.

VIDEONET EXERCISEDecision Making at Insomnia CookiesRunning Time – 8:38

Video Highlights

Insomnia Cookies recently decided that their business model would be composed of 50% retail sales and 50% delivery sales in any given geography. Previously, the retail component was not a given. The COO explains the thinking behind this decision and talks about how Insomnia Cookies approaches the decision-making process as it relates to new opening stores/operations in new locations/geographies. The CEO and Director of Marketing also chime in.

Discussion Questions

1. Who makes the decisions at Insomnia Cookies? Is this effective?

Decisions appear to be made primarily by consensus at Insomnia Cookies. All of the management team have input into the decision making process. Each brings their individual decision making style as well as their expertise to the process. That being said, it seems from the clip that the CEO/Founder, Seth Berkowitz, may have the final decision making power.

2. What is the most likely decision-making condition when Insomnia Cookies is trying to determine whether to enter a new market? Explain.

13


Based on the information presented in the video, it appears that Insomnia is typically faced with a risk condition when deciding whether to enter a new market. They consider such factors as location, school size, school type, competition, and many other student-related characteristics. Some of these factors could provide a certain situation, however, reaction to the product and potential for repeat purchases (The core of their business.) will always be uncertain outcomes.

3. Which group decision process best describes the decision making method at Insomnia Cookies?

The Delphi Technique probably best describes the decision making method presented in the video. Problems are identified, such as expansion. Group members offer input into the decision. This is discussed and shared among all members until a consensus of some type is reached. The only difference might be that the final decisions are typically made by the CEO/Founder of the organization. However, he makes all decisions with input from the other management team members. Also, the management teams’ individual decision making techniques are different and actually help to balance each other out.

Internet Activity

Go to Insomnia Cookies home page at www.insomniacookies.com. How many locations are currently under operation? How will the decision-making process change as this organization continues to get bigger? There are currently 14 locations of Insomnia Cookies in operation. As the organization continues to grow, the decision making process will face its own evolution. It’s no longer just about cookies. The decisions will have to become more business oriented. The organization will have to make better decisions. The decisions will be different and more difficult. As mentioned in the video, the decision makers will have to be more honest in their decision making with themselves and with investors and less emotional. Also, students may notice on the Web site that there are franchising opportunities available. As this company becomes franchised, the decisions made by the current management team will change dramatically. Their decisions will become higher level, corporate type decisions and will not involve so much the day to day operational type decisions. There will also be decisions to be made concerning how to maintain control of this new, larger organization.

14

Business

Making Decisions