Henley business school improving organisational decision making

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  • Organizations need to be able to access, coordinate and integrate knowledge more efficiently than ever before to make sense of the complex and unpredictable forces shaping business conditions. Often knowledge is sourced from diverse yet interconnected networks of individual experts and organisations. In this environment, it is hard to ensure that decisions are based on the best available knowledge and do not work against one another. More alliances and inter-organizational partnerships and various contractual relationships with individuals broaden the range of perspectives and values to be considered, which makes it even harder to determine what a “good” decision looks like.Decision making is an intrinsic part of business activities. Appropriate organisational decisions rely on having the right knowledge in the right place at the right time, to be able to act effectively. “Right” knowledge may be different for every decision –some can be made on surface knowledge, some required more investigation to develop an evidence base, some more reliant on deep expertise, and others need creative insight, intuition and judgement (Snowden and Boone, 2007, Bennet and Bennet, 2008). Knowledge is raw material, work in process and deliverable in any decision (Holsapple, 2001).
  • (Yates and Tschirhart 2006, p422). Yates, J. F. and Tschirhart, M. D. (2006) "Decision-making expertise", Ericsson, K. A., Charness, N., Feltovich, P. J. and Hoffman, R. R. (Eds.) The Cambridge Handbook of Expertise and Expert Performance. New York, Cambridge University PressWe picked this definition because “the specification of beneficiaries is critical, implicating what is arguably the single feature of decision problems that distinguish them most sharply from more general problems –differences among people in the values they attach to decision results”. But, more complex inter-firm relationships and different contractual relationships with individuals mean identifying the beneficiaries of a decision and what they value is becoming more challenging.
  • Barney, J. (1991) "Firm resources and sustained competitive advantage", Journal of Management, Vol. 17, No.1, pp. 99-120.Prahalad, C. and Hamel, G. (1990) "The core competence of the corporation", Harvard Business Review, Vol. 3, No.79-91.Stalk, G., Evans, P. and Shulman, L. (1992) "Competing on capabilities", Harvard Business Review, Vol., No.57-69.Teece, D., Pisano, G. and Shuen, A. (1997) Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509-533.Underpinning theory – RBV / KBV / dynamic capabilities.Organisational success comes from constructing and consolidating distinctive resources and capabilities over the long term. Dynamic capabilities enable adaptation and sustainability. (Barney 1991, Prahalad and Hamel 1990, Stalk et al 1992, Teece 1997)
  • Cyert, R. M. and March, J. G. (1963) A Behavioral Theory of the Firm, Prentice Hall, Englewood Cliffs, NJ.Eisenhardt, K. M. (1999) "Strategy as Strategic Decision Making." MIT Sloan Management Review, Vol. 40, No.3, pp. 65-72Tetlock, P. E. (1991) "An alternative metaphor in the study of judgement and choice: people as politicians", Theory and Psychology, Vol. 1, No.4, pp. 451-475.Hammond, J. S., Keeney, R. L. and Raiffa, H. (2006) "The hidden traps in decision making", Harvard Business Review, Vol. 84, No.1, pp. 118-126.The psychological school of research into decision making starts from the cognitive mechanisms people have developed to cope with their environment - the heuristics that speed up decision making but have potential traps associated with them (Tetlock, 1991). Here, the predictive thinking patterns that underpin the heuristics risk introducing bias, examples being the confirming evidence bias (seeking information that supports own point of view and avoiding information that does not) and the sunk-cost bias (making choices that justify past choices) (Hammond et al., 2006). Examples of BiasAnchoringGiving disproportionate weight to the first information received (2)Status-quoPreferring alternatives that preserve the status quo (2)Sunk-costMaking choices that justify past choices (2)Confirming-evidenceSeeking information that supports own point of view and avoiding information that does not (2)
  • Snowden, D. J. and Boone, M. E. (2007) "A leader's framework for decision making", Harvard Business Review, Vol. 85, No.11, pp. 69-76.Simple decision making contextsStructural capital to support decision making can be most readily formulated. However, ensuring that the systems and processes are used effectively is not necessarily straightforward as cognitive and emotional biases come into play so appropriate human capital investments need to be made alongside the structural capital development. Technology advance in the 1960s and 1970s led to decision support systems that aim to improve consistency in this simple context. For example, decision tree type methods which systematically explore the implications of alternatives can be converted into readily accessible software applications. Artificial intelligence systems focus on well-defined problems and have been particularly effective in operational environments (Yim et al. 2004). Complicated decision making contextsIn Snowden and Boone’s “domain of experts” where complicated decisions are being made and more than one right answer is possible, research has tended to focus on the individual as decision maker. Naturalistic Decision Making” (NDM), revolves round the extremes of expert-based decision-making.As expertise is dynamic, experts need to keep their knowledge base up to date and continue to refine their thinking about how to apply knowledge for impact. Being an effective reflective practitioner is an important characteristic of becoming an expert. This enables the expert to seek out opportunities for deliberate practice to improve their level of expertise, benefit from exposure to new experiences, and build mental models that incorporate new knowledge (Klein 1997). Experts can use technology systems that codify and structure explicit knowledge as a “scaffold” to support their decision making (Pech and Durden 2004). Some companies even try to replace human experts with technology based structural capital investments to extend the reach of their knowledge. Knowledge based expert systems can be effective for operational and tactical decisions, capturing the structure of a knowledge domain by codifying human expertise and integrating it with other computer systems such as forecasting and reporting systems (Yim et al. 2004). Complex decision making contextswe have to “assume that complex problems are managed, not ever fully solved”. Organizations also need ways to ensure that the “right problem” is explored. This means considering multiple perspectives and areas of disagreement. The public sector provides some of the most complex environments for decision making because social policy problems, often labelled “wicked”, are unbounded in time, scope and resources. They are inherently complex because they involve unpredictable interdependencies. Structural capital investments in new collaboration technologies can help support decision making by facilitating multi-participant issue articulation. Relationship capital investments create the collaborative links with diverse external stakeholders. In a business context, strategic decisions fall predominantly within this complex domain. Approaches are needed that build the capacity for collective sensemaking, challenge cognitive biases, manage political differences regarding what is valued and experiment to find patterns in the situation (Eisenhardt 1999). Human capital investments to develop the capacity of individual decision makers need to be supported by structural capital investments in processes that support collective learning about how to make decisions in these contexts.
  • The framework remained robust at this exploratory research stage

Transcript

  • 1. Knowledge Management ForumImproving organisationaldecision makingDr Christine van WinkelenHenley Business School © Henley KM Forum 2010 www.henley.reading.ac.uk
  • 2. Plan for this session• Putting a focus on decision making• The investigation• Framework to build decision making capability• Using the maturity model© 2011 Henley KM Forum 2
  • 3. In a time of cutbacks, reprioritising focus areas. How best to downsize a department. Prioritising access to limited resources in an organisation. Creating a regional structure for the organisation. Merging with another organisation. Renegotiating a major contract with a key supplier. Changing a process so that adaptability is built in. “Joining up” expertise in a specific area across a distributed organisation. Formulating the company’s climate change policy© 2011 Henley KM Forum 3
  • 4. “We are told over and over again, that if anything is central to the new, global information economy it is knowledge…. One of the most critical question any organization can raise is “How do we decide what we should use in order to decide?”” (Mitroff 2008)© 2011 Henley KM Forum 4
  • 5. What is a “good” decision?A “decision” is a commitment to a course of action that is intended to yield results that are satisfying for specified individuals. (Yates and Tschirhart 2006, p422). © 2011 Henley KM Forum 5
  • 6. Adopting a capability-basedapproach to decision-making Our objective: Identify factors that will enable managers to help build decision-making capability in their organizations as the internal and external environment evolves.© 2011 Henley KM Forum 6
  • 7. Human decision making • Flawed people with incomplete information seek to make good enough decisions through negotiation with others. (Cyert and March 1963)• We adopt heuristics to speed up decision making, but these create traps. A large number of cognitive and emotional biases have been identified – mitigating the risks of these biases involves improving access to knowledge or increasing individual or organisational reflection. (Tetlock, 1991) (Hammond, 2006) • The organisational environment influences responses – highly turbulent environments can mean that decision traps potentially have an even greater effect. (Eisenhardt 1999) © 2011 Henley KM Forum 7
  • 8. The context for decision making Decision Characteristic Decision Indicative contributors to making making effective decision making context approach in this domainSimple Clear cause and effect relationships are Best Decision support evident. Right answers exist. practice technology systems and processes.Complicated Cause and effect relationships can be Expertise Using experts effectively. discovered. Expert diagnosis is required and Developing expertise. more than one right answer is possible. Technology based expert systems.Complex There are no right answers, but emergent Emergence Considering multiple and instructive patterns can be seen in perspectives, including retrospect. Efforts need to be made to probe using new collaboration the situation and sense what is happening to technologies, collective find the patterns of relationships. learning about decision making in this context.Chaotic The relationships between cause and effect Rapid Acting to establish order is are impossible to determine: no manageable response needed through directive patterns exist. leadership. © 2011 Henley KM Forum (Categorisation: Snowden and Boone, 2007) 8
  • 9. The investigation• Extensive literature review to create the framework of five factors.• Exploratory research: interviews with 19 senior decision-makers in ten public and private sector organisations, exploring a significant decision with each and considering how these factors were enacted.• A maturity model for the factors was created using focus groups of knowledge managers. This was tested through interviews with knowledge managers in nine further organisations. © 2011 Henley KM Forum 9
  • 10. Working Group• Tim Andrews Stretch Learning• Noelle Brelsford PHSO• David Bruce British Council• Roger Darby Cranfield University• Mollie Dickenson Henley Business School• Susan Frost Ministry of Defence• John Haskey/ Mark Field DCSF• Alex Goodall Friend of the Forum• Sindy Grewal Audit Commission (Co-champion)• Anna Last Information Centre for Health and Social Care• Professor Jane McKenzie Henley Business School (Co-champion)• Dr Christine van Winkelen Henley Business School (Co-champion)• Darryn Warner Balfour BeattyThe organisations who contributed to the interviews:From the public sector: Audit Commission, HMRC, Ministry of Defence, Foreign & Commonwealth Office, National CollegeFrom the private sector: Mills & Reeve, MWH, Permira, Qatar Gas, Syngenta © 2011 Henley KM Forum 10
  • 11. A framework for buildingorganisational decision-making capabilityHuman capital Structural capital Relational capitalIdentifying experts Using technology to Adopting anand developing structure, integrate integrated approachexpertise and provide access to to internal and explicit knowledge external resources collaborationDevelopingindividual’s decision Decision reviewmaking capacity by process to learnsupporting reflective about better decisionpractice making © 2011 Henley KM Forum 11
  • 12. Human capital KM factors Most significant contributions Identifying Decision making in complicated experts and situations. Sense-making and developing identifying options. expertise Supporting Managing cognitive bias, increasing reflective practice range and depth of experience, for individual increasing debate, challenge and learning openness. Developing expertise. Reflection on practice and self-awareness to develop strategic decision making skills.© 2011 Henley KM Forum 12
  • 13. Structural capital Important KM Most significant contributions factors Using technology Access to current and well-structured to structure, explicit knowledge to provide input integrate and for simple decision making. Support provide access to expert decision making. Support explicit data collection and selection phases knowledge of complex decision making. resources Developing Recognising different kinds of decision review decision- making situations. Investing processes for in the development of an appropriate organisational repertoire of decision-making modes learning to suit the context.© 2011 Henley KM Forum 13
  • 14. Relational capital Important KM Most significant contributions factors Adopting an Gathering intelligence. Accessing integrated multiple perspectives to formulate approach to the decision to be made in internal and complex contexts. Making external connections to create knowledge collaboration to generate new options.© 2011 Henley KM Forum 14
  • 15. Constructing a maturity model Using experts Using technology Using internal Organisational Developing Factor and external learning about individuals asLevel collaboration decision making decision makersAmbientAcceptedAppliedAd-HocAware © 2011 Henley KM Forum 15
  • 16. © 2011 Henley KM Forum 16
  • 17. © 2011 Henley KM Forum 17
  • 18. Different organisations place named post-itson their current capability level. A B A A B A A B B B © 2011 Henley KM Forum
  • 19. Use colour to reveal the “river” – the gap betweenthe “banks” is the learning opportunity. A B A A B A A B B B See “Learning to Fly” by Collison and Parcell for more details of this approach. © 2011 Henley KM Forum
  • 20. Identify opportunities for peer learning A B A A B A A B B B © 2011 Henley KM Forum
  • 21. Contact detailsThis work was carried out as part of the research agenda of the Henley Knowledge Management Forum based at Henley Management College in the UK. www.henleymc.ac.uk/kmforumFor further information contact:Christine.vanWinkelen@henley.reading.ac.ukJane.McKenzie@henley.reading.ac.uk © 2011 Henley KM Forum
  • 22. Knowledge Management Forum Excellence in creating, sharing and using knowledge© 2011 Henley KM Forum