Decision making: Definition, types of decision, process, and examples

Decision making: Definition, types of decision, process, and examples

What is decision-making?

Decision-making is defined as a cognitive process in which a choice is made between possible alternatives, even when there is only one possible alternative, there is another potential one: “inaction”, not acting. For example, in the face of a threat where the only alternative to save their lives is to flee, some could become paralyzed, hence the decision must be dominated by rationality. Animals also make decisions, only they don’t do it rationally, they follow their instinct, their impulse. In the human being, it is different, the decision will satisfy an immediate demand, but it goes further, toward the future.

The Lego company was founded in 1932 by carpenter Ole Kirk Christiansen, Lego was for decades an expanding toy manufacturer. He made a variety of figures, such as baby balls and small plastic trinkets. It was not until 1958 that the current format of “blocks” emerged, which work with a principle of the union by means of small tubes. This innovation made it a unique toy, with unlimited construction possibilities. However, the crisis came during the 1990s, when the rise of video games captured the interest of children. Seeing its market shrink, Lego made a brilliant decision: it raised the difficulty of assembling its models. The objective? Make your pieces much more than games: make them real challenges so that children feel attracted. Another of his innovations consisted of generating a cult around his characters. It is no longer just about the “blocks”; now it also presents movies and generates its own content, through its alliances, growing the business with action figures from the most diverse franchises.

Types of decisions

Decisions vary according to your organizational level: the registrations are strategic, like those taken by the owners of a sports club. For example, the Cincinnati Reds: investment in players, stadium rental, rights collection, etc. The decisions at the mid-level would be those of the team manager: referring to how to best implement the talent of the players to win the championship and how to compensate for weaknesses, for example, get the most out of pitching and compensate for any flaws that may arise. have the bat The decisions at the supervisory level would be those made by the technical team, such as the pitching coach, or the hitting coach; in the game, they indicate to the players how they should act to optimize each play, eg: “touch the ball”, “let the next one pass”.

The big problem with companies is that many of their control panels do not assume their role and, being top managers, they want to supervise everything, or, on the contrary, being supervisors, they pretend to see themselves as strategists and neglect the operation. The strategist must break paradigms and feed “downstream”.

The AVIS company became a world leader in its car rental industry when its strategists decided that no one could get into a management position without spending a month renting cars at an agency as part of their induction. The manager must talk to the players, he must exchange with the coaches, even with the public, but not lose his essence as a manager, that is, the one who wins the championship.

Due to the above, the primary classification of decisions is by the hierarchy of who makes them.

Types of decisions according to their Hierarchy

Strategic decisions

The strategic decision refers to the choice that goes to the ultimate goal: “how do we win the war?”, it is made by top management with an eye on resources, for example: “We will change the service, based on the knowledge of our people and compensating for their lack of training in serving the public”.

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Tactical decisions

Tactical decisions refer to the method, that middle management takes: for example, “How would we train all the staff under the same care scheme, how many hours? Who would be the priority?”

Operational decisions

The operational decision is directed at the tasks. It is the type of choice that supervisors must make, for example: “How do we guarantee that all staff attend the course, at what time, what logistics will we use, what measures do we take to exchange training shifts?”

The NETFLIX company was 1997 a modest online CD rental business. In 2007, ten years later, they broadcast their first video online, and three years later they reached 20 million subscribers to their streaming serviceThe secret, the strategists had a vision of change, their middle level knew how to adapt and innovate in the methods and the operational level was able to absorb the new tasks, as well as assimilate different professionals for what the new times needed. Innovating and improving is not only the role of the strategist, participation is not only democratic, it is also a source of efficiency as established by the Argyris Maturity-Immaturity model. We require thinking and proactive workers.

Types of decision according to Your Method

Decisions can also be classified according to their method, into “Scheduled” and “Unscheduled”.

Programmed decisions

are those provided for routine situations, for example, “What to do if the user does not have an identity document because he left it or lost it?” It is said that everything foreseeable must be programmed. “Routine” means that it can be taken on a route, not that it is “boring” or “everyday”; For example, in the event of a fire there must be a programmed decision: what to do? Where to go out?

Unscheduled decisions

They are those that apply to new, unusually important problems, where there is no method to solve them; Therefore, the creativity and criteria of the decision-making personnel must be used. Example: the irruption of a competitor that sweeps the market.

For excellent service, you as a leader must guarantee that everything that is foreseeable can be solved by the personnel who attend to the people, that was the secret of the miracle of Jan Carlson at the head of the Swedish airline SAS during the 80s of the 20th century, that in two years it went from an operator with average performance to be the best in Europe, because the base personnel was empowered to solve everything that could foreseeably and possibly happen to an air traveler. Carlson says that no matter how much we have invested in advertising, furniture, or infrastructure; If the contact between the operator and the client fails, we are failing at the ” Moment of Truth “, therefore this encounter must be constantly and fully optimized.

Types of decisions according to the number of those who make it

So far we have looked at the decision in a general way and examined how it is classified in a hierarchical way: strategic, tactical, and operational; or based on your method: scheduled or unscheduled. However, due to the number of individuals that make it, it can be said that the decision is individual or collective.

Collective decision

It is said that the collective decision has the potential to be better compared to the individual one, because it has more contrasting points of view, which brings it closer to reality. However, studies reveal that it can also lead to the worst decisions due to a distortion produced in the group’s judgment.

  • Chaotic decision. It is the one that arises from a lack of leadership. The mob can be momentarily influenced by someone or something and taking a certain course is surely wrong.
  • Magic decision. It comes out of an act of faith by the group, with little support, something that points to an ideal of the type: “our goal this year is to change the culture of the company.”
  • authoritative decision. It arises from a group where the majority will echo the leader uncritically. They are “filler” participants. To avoid this, the leader must create a “culture of truth.”
  • The decision by the majority. It is the one that is taken in divided form, “winning” the most against the least. Its disadvantage is that the minority may be right.
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It has been shown that the most efficient decisions are those that are made collegiately and by consensus.

Advantages and Requirements of the consensual decision

The consensual collegiate decision consists of a cooperative process where all the participants are part of the election. It requires taking place within a framework that is given by the existence of a common purpose, a deep understanding of the problem, and the presence of a leader-facilitator who favors the participation of all.

It should not be confused with “ultra-democratism” because the mere presence of a “collective” does not lead to making the right decisions if the participants lack knowledge of the problem or there is no clarity regarding the purpose.

The consensual decision is as motivating as the “magic” but more realistic, being nevertheless higher in its ideal than the “majority decision” because it does not create exclusion, nor winners or losers; or that the “authoritarian decision”, for being critical and subjecting the criteria used to reflection.

The types of decision-making according to its hierarchy, its method, and the number of individuals that make it

Relevance of the decision-making process

The study of the decision-making process empowers us in reality: we have an advantage if when facing a problem we follow a systematic rational process by which we gather the information, we will weigh the possible alternatives, and choose the best one. It is that every decision is assumed by reason in an optimal way. Falling in love can be an effective process, but getting married is a rational decision. I can be fond of the medical profession, but undertaking medical studies has to follow a rational process to be optimal.

The absence of rationality in decisions can lead us to lose our lives. If someone points a gun at you and asks for your cell phone, obviously the offender’s interest is the phone, but what is your interest? The phone? The answer is no, your interest is life and how can you decide, if you follow a rational process you will realize that saving your life for a phone will be advantageous to you, instead of deciding, for example, for an impulse that you could take the gun from the attacker or run away. In this case, he would be doing something unbalanced by reason.

The inventor of the quartz watch was a Swiss. But in Switzerland, the mecca of watches with their exact precision machines, a thing that told time using batteries was not a watch. The invention affected the self-respect and emotional inclination of Swiss manufacturers for their watches with sophisticated mechanisms, so they rejected the invention. So the inventor went to Japan, the Japanese adopted him and in 10 years they dominated 80% of the world watch market. The Swiss decision was perhaps emotionally successful but business disastrous.

The process of decision making

Let’s begin to study the decision-making process, from its beginning, when we encounter the problem, until we make the choice. The complete process also includes other aspects such as testing, evaluating, and adjusting; That is why we speak of the beginning: the “crucial” point, where we find the diversity of paths. By assuming one of them we are giving up the benefits that the other alternatives could have.

The beginning is to define the problem, the problem in the cited case of robbery is not: ” They are going to take my cell phone ” but ” My life is at risk .” Although defining the problem sounds obvious, it is not so obvious when affective barriers and cognitive paradigms get in the way.

Then analyzing the problem means breaking it down into its parts, breaking it down to get a better look at it. Let’s dwell on it, and note that it is not “synthesize”, “simplify” or “reduce” but to break it down, separate it. For example, in a negotiation the conflict must be separated from the person and the conflict must be separated into positions (what people say they want) and interests (what they want).

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The third step is to generate the options. If when faced with a problem we see only one alternative, it is possible that we have not analyzed it properly. Examples abound.

Kodak, the world’s leading photography company, discovered the digital camera at the beginning of the 80s, analyzed the problem, and gathered information, transforming to digital would be more expensive and threatened its large market for traditional photo-developed film, the alternatives it generated were: expanding market, trusting that digital would be temporary because people liked printed photos and not launching the first digital camera to delay that threatening technology. The result was the worst, in 10 years the competitors sank it and the photographic roll became obsolete.

In short, in decision making a good start is beneficial, seeing the problem objectively, breaking it down, and generating good alternatives is the key.

Demands in decision making

Decision-making has some requirements so that it is correct and an obstacle does not occur on the part of the emotional or the cognitive paradigm that affects it.

The first thing to ask is what is the difference between the “Current Operating State” and the “Desired Operating State”. It is not the difference between the current ideal state and the future ideal state. It’s the operating state in the present moment versus the operating state as I want it to be.

If it is about the service, I say, for example: “My current state is that the operators chat on the phone while they are serving the public, they are not friendly, they arrive late, etc.” And my desired operating state is that for example: “they are focused on the user, they are friendly, they are empowered in programmed decisions and they arrive on time”. It is useless to ask myself for decision-making something as abstract as “I want people committed to the mission and vision.”

Thorough knowledge of this difference in its details is key because this way the decision will be oriented to the real problem and not to affective preferences or thought paradigms produced by tradition, authority, or beliefs.

The Western Union company is an example of survival based on anticipating the change of environment that could have killed it. It was born as a telegraph company in 1851, and reached its peak in 1921, sending 200 million telegrams. However, in 1935 it introduced the invention of the fax, in 1974 it launched the first telecommunications satellite, in 1982 it created the first commercial email and today it is a giant in money transfers in the world.

Decision-making stages

The phases in decision-making begin with the will to make the decision, that is, the awareness that there is a need to do something to obtain a benefit or avoid harm. Thus, Decision Making begins with an individual or group resolution to act.

The second step is to generate and study the possible alternatives. To the extent that these alternatives are good, respond to the environment, and are realistic, the decision will increase their quality.

The third step is the rational selection of the best alternative. This is the one that generates the greatest benefits at the lowest cost.

The fourth step is to inform the executors about the best-chosen alternative.

In the 1990s, the French company Lacoste was saved from bankruptcy by changing its target from sportswear to fashion clothing. The key to its success was carefully informing its brand’s distributors what it was up to, which allowed it to align its effort.

The fifth step is to implement the decision by studying its impact.

The sixth is to evaluate the consequences of the implemented decision, with objectivity and realism.

Finally, the seventh is to review the possibilities of change in any aspect of the decision that generates negative elements.

The Starbucks company started selling coffee, but in 2006 they entered the world of entertainment, and despite recording two films they verified that the financial effort was unfeasible, so in 2009 they backed down and returned to what they knew how to do well: selling coffee. Thus, after having closed 900 stores, they managed to rebuild and end 2015 with profits of more than 19,000 billion dollars.

Questions to verify decision making

Thought is effective when it is reflective, that is, when its cycle is over, it returns to a new turn of higher consideration, with more information. It is thought judging itself through questions. Here are the 5 most important questions to ask when making a decision:

First, “ the truth ”: Do we need the chosen alternative? What do we want it for?

Second, “ the reality ”: What is the chance that I will make it? It is not enough to decide, the decision must be viable.

In 1997, the Apple company faced imminent bankruptcy, it was hard for it to conceive that it could ally itself with Microsoft and allow the return of Steve Jobs, the Apple company did it, and the restructuring yielded benefits of more than 3,500% of the investment made in 2015.

Third, “ Who does it depend on? ” Decision-making requires us to ask ourselves whether the chosen alternative depends on those who make it or on others. The further a choice moves out of my circle of action, the less control I have over it and its consequences.

Fourth, is “ efficiency ”, if we can achieve it, is it at a cost that we are willing to pay?

Fifth, “ reflexive suspicion ”: are we the ones who need that decision or is it someone else who is inducing us to it, or the environment, or the situation? A well-carried reflective process can bring about surprising transformations.

Few know that Samsung was a seller of fish and vegetables since 1938 in China. At the end of World War II, with Korea already independent, he trusted the information gathered from the future that dedicating himself to food processing would have, then, since the early 1960s, he closely followed the data that indicated the competitive advantage that opening a business would have. supplier subsidiary in the electronic field: Samsung Electronics, whose success was such that it became the center of the business.

Optimizing information management is directly proportional to making better decisions. Deciding is choosing taking into account the greatest quantity and quality of information relevant to the problem. Today, Big Data allows the analysis of large amounts of information, forecasting of users and competitors, knowing the needs of users, as well as quick access to the processes in which the company is involved.

Digital transformation is a trendy concept. Sometimes society changes so fast that adapting can mean breaking completely with the past. As Miguel de Unamuno said, “Progress consists in renewal”.

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