This document discusses organizational decision making. It begins by noting that while rational decision making models assume no constraints, in reality individuals and organizations are boundedly rational due to limited resources, cognitive abilities, and other factors. Decision making processes in organizations are further complicated by multiple objectives, actors with different interests, and interdependencies. The case of McDonnell Douglas DC-10's defective doors is presented to illustrate how organizational decisions can go wrong due to these complexities. Key lessons are the need for awareness of non-rational factors in decision making and giving consideration to alternative viewpoints and potential mistakes.

1. MANAGING ORGANIZATIONS
Session 14: Organizational Decision Making
Sourav Mukherji
PGP 2012-14 Section C & E
Associate Professor of Organization & Strategy
Term 1:June-September 2012 Indian Institute of Management Bangalore, India

2. INDIVUDUALS ARE INTENDEDLY RATIONAL 2
BUT BOUNDEDLY SO
A sequential process comprising systematic analysis
The rational model assumes
no constraints of resources
and cognitive abilities
1 Monitor environment Develop alternative solutions
5
2 Define problem 6 Evaluate alternative
3 Specify decision objective 7 Choose best alternative
4 Diagnose problem 8 Implement
In real life, individuals are found to „satisfice‟ , i.e., do a neighborhood search and choose
the option that nearly matches their expectation
• High cost of gathering information (decreasing marginal utility)
• In built biases , peer pressure
• Past experiences
• Cognitive limitations
• Unpredictability, causal ambiguity
© S Mukherji

3. 3
CAN RATIONALITY BE JUDGED IN ABSOLUTE TERMS?
People were found to order greater variety
of beer in pubs when order was taken
sequentially and aloud. This resulted in
higher dissatisfaction.
Author portrays this as an evidence of
When they were asked to write down the human beings being “predictably
orders, the variety reduced. This also led to irrational”.
greater satisfaction.
He says “ In essence, people, particularly
There was no difference in ordering pattern those with high need for
for the first person at the table. S/he was uniqueness, may sacrifice personal utility in
also most satisfied in the first case. order to gain reputational utility”
The tendency to order greater variety was
different across different cultures.
Do you think the above behaviour to be irrational ?
Source: “Predictably Irrational” , Dan Ariely, 2008 © S Mukherji

4. A CONTINGENCY MODEL OF ORGANIZATIONAL DECISION MAKING 4
Management Science model
Certain Carnegie model
Rational / Bargaining,
computational coalition Incremental model
Solution or formation Garbage- Can model
Knowledge
Certainty
Judgment, Bargaining,
trial and error, Judgment,
complement trial and error,
Uncertain rationality Non systematic
High Low
Problem Consensus
© S Mukherji

5. RATIONAL MODEL OF STRATEGY FORMULATION 5
AND IMPLEMENTATION
External appraisal Social
Threats and responsibilities
Opportunities
in environment
Assumptions Generating Evaluation
strategic Implementation
and choice
Purpose alternatives
• Resource allocation
• Control systems
Internal appraisal • measures
Strengths and Managerial • incentives
Weaknesses of values • performance
organization evaluation
• feedback
• Supporting structures
and policies
© S Mukherji

6. IN REALITY, INTENDED STRATEGIES ARE 6
PARTIALLY REALIAZED
Intended strategy Objective
Planned, top down environment
Perceived
environment
Deliberate strategy Enacted
environment
Unrealized Realized strategy
strategy
Emergent strategy
Unplanned, bottom-up
Strategy is both a plan , i.e., a direction, a guide, a course of action into the future
and a pattern, i.e., consistency in behaviour over time. On one hand it involves
„thinking ahead‟ and „controlling‟ the way one moves forward, while on the other
hand, it is about „learning‟ and „adaptation‟ en-route
© S Mukherji

7. LEARNING MODEL OF STRATEGY FORMULATION 7
AND IMPLEMENTATION
Perceived / enacted Strategic Structure &
Performance
environment choice c processes
Single loop
Theory of business – learning evaluation
collective wisdom
Error detection
& correction
Double loop
learning
© S Mukherji 7

8. WELL PERFORMING TEAMS LEARN TO DEAL WITH CONFLICTS 8
DURING ORGANIZATIONAL DECISION PROCESSES
Six key characteristics have been identified
Work with more rather than less information Focus on issues rather
1 so that debates are based on facts rather than opinions than personalities
2 Develop multiple alternatives to enrich level of debate
3 Share commonly agreed upon goals
Collaborate to find best possible
solution for the organization
4 Make conscious efforts to reduce hostility and stress
- Use humour
5 Maintain a balance of power structures Establish fairness and equity of
the process – procedural
6 Resolve issues without forcing consensus justice
© S Mukherji

9. 9
MCDONNEL DOUGLAS DC 10’S DEFECTIVE DOORS
What do you think were the problems
that led to the series of crashes of
MD DC10, many of which were traced
to the design of its door?
Why was McDonnell Douglas reluctant
to rectify its mistakes?
What was the business context in which
the events take place?
© S Mukherji

10. 10
MCDONNEL DOUGLAS DC 10’S DEFECTIVE DOORS
What were the reasons for MD to
change the design for the fuselage
and the doors of DC 10?
Light weight, easier maintenance,
technologically advanced
What were the reasons for Convair
Engineers to oppose the change?
Safety
Familiarity with old technology ?
Lack of appreciation for cost and performance
issues ?
© S Mukherji

11. 11
MCDONNEL DOUGLAS DC 10’S DEFECTIVE DOORS
Why did MD not make the changes ?
What role was the FAA playing?
Cost and schedule pressures
Acceptable risk, technology cannot be
perfect
Reluctance to admit mistakes, escalation of
commitment
Structurally it is difficult for FAA to be
“independent”.
FAA did not want Boeing monopoly
Why did Convair not pursue the
changes ? Why did Applegate file
away his memo?
Mandate as per the contract
Lack of power
Cost of modification
Eye on future contracts ?
MD was already aware of the problems – there
was nothing new to be told to them
© S Mukherji

12. INTERORGANIZATIONAL DECISIONS ARE FURTHER COMPLICATED12
BY CONFLICT OF INTERESTS AND RESOURCE DEPENDENCIES
Pressure to come up with an airbus,
Design objectives: McDonnel Douglas Losing market share to Boeing
- Safety
- Ease of maintenance
- Low weight
Dependence for
business, reputation
as a supplier
Outsource, share
Wants competition short term
financial burden
Federal Aviation
Administration (FAA)
Convair
Dependent on airlines
for personnel,
legitimacy Cannot directly report
to FAA
Terms of contract specifying
responsibilities and liabilities
© S Mukherji

13. SO WHERE DOES MD DC-10 DOOR CASE LEAVE US WITH 13
RESPECT TO ORGANIZATIONAL DECISION MAKING?
What can be done about it ?
Decision making in organizations follow a
complex process because of Awareness that decision making is unlikely
multiplicity of objectives, involving several to follow a sequential predicable process,
especially for non-routine decisions that
actors
are visible and that impact the well being of
several people
Constraints of time and resources force
decision making with incomplete • What is the primary objective and what are
information the other objectives that need to be kept
in mind ?
Unpredictability of business environment, • What are the biases as individuals as well as
an organization ?
competitor reactions makes it
• Can we articulate our mistakes and learn
necessary to take risks and deal with from them ?
uncertainty • Is enough voice given to the dissenting
opinion ?
Bounded rationality, biases, group think,
escalation of commitment adds
to the non-rationality that is inherent in such
process
© S Mukherji