Chapter 7 Information and decision-making

Information and decisionmaking

Learning objectives: How is information technology changing the workplace? What are the current directions in information systems? How is information used for decision-making? How do managers make decisions? Why are knowledge management and organisational learning important?

Information technology and the workplace

A knowledge worker is a worker who transforms knowledge or information into a product or service. Intellectual capital is the collective brain power or shared knowledge of a workforce.

Information technology and the new workplace

Information technology (IT)

The

combination of computer hardware, software, networks and databases supporting information use. communication between people online at the same time. PCs directly to one another over the internet.

Instant messaging
Instantaneous

Peer-to-peer file sharing

Connects

How information technology is changing business

Electronic commerce, or e-commerce is the process of buying and selling goods and services electronically through use of the internet and related information technologies. In business-to-consumer e-commerce, or B2C, businesses like Amazon.com and Dell.com sell directly to customers over the internet. In business-to-business e-commerce, or B2B, businesses use the internet to collaborate and make transactions with one another.

Information technology and the workplace

The stages of development in e-commerce are: 1. Secure an online identity (web address and home page) 2. Establish a web presence (online advertising and product information only) 3. Enable e-commerce (website allows products orders) 4. Provide e-commerce and customer relationship management (online customer relationships) 5. Use a service application model.

Information and information systems

Data
Any

quantifiable measured values, observations or statistical counts that, when collated, become useful for decision-making.

Information systems use information technology to collect, organise and distribute data for use in decision-making.

What is useful information?

Five essential characteristics of useful information: 1. Timeliness available when needed. 2. Quality accurate and reliable. 3. Completeness complete and sufficient, current and up-to-date. 4. Relevance the information is appropriate. 5. Understandability easily understood by the user; free from unnecessary detail; and is neither too narrow nor too broad.

Information needs of organisations

Developments in information systems

A DSS allows a computer to help organise and analyse data for problem-solving. Expert systems allow computers to mimic the thinking of human experts by applied problemsolving. Intranets and corporate portals use the web for communication and data sharing within an organisation. Extranets use the web for communication and data sharing between the organisation and its environment. Electronic data interchange uses controlled

Developments in information systems

A management information system (MIS) is a computer system that stores and distributes information on how to successfully manage an organisation. It is usually regarded as a subset of the internal controls of a business. Among the advantage of appropriate MIS use in the managers job are:
Planning advantages Organising advantages Leading advantages Controlling advantages

Information systems and the managers job

Information and decisionmaking

The work of managers involves planning, organising, leading and controlling in the course of daily problem solving. Problem-solving is the process of identifying a discrepancy between an actual and desired state of affairs, and taking action to resolve the deficiency or take advantage of the opportunity. A decision is a choice between alternative courses of action. Information systems help managers gather data, turn them into useful information, and use that information to make problem-solving decisions.

Types of managerial decisions

Programmed decisions
Apply

solutions from past experience to a routine problem. specific solutions crafted for a unique problem.

Non-programmed decisions
Apply

A crisis is an unexpected problem that can lead to disaster if not resolved quickly and appropriately. Managers in progressive organisations expect that crises will occur and plan ahead on how to deal with them.

Decision conditions

Decision conditions

People in organisations make decisions under each of three decision conditions.

Certain

environments offer complete information on possible action alternatives and their consequences. A risk environment lacks complete information, but offers probabilities of the likely outcomes for possible action alternatives. An uncertain environment lacks so much information that it is difficult to assign probabilities to the likely outcomes of alternatives.

How managers approach decisions

People generally approach decision-making using one of three approaches/styles:

Problem

avoiders ignore information, are inactive and do not want to make decisions and deal with problems. Problem solvers are willing to make decisions and solve problems, but they are reactive. Problem seekers actively process information and constantly look for problems to solve or opportunities to explore. True problem seekers are proactive.

How managers approach decisions

Managers also differ in their approach to decisionmaking depending on whether they use systematic or intuitive thinking.
Systematic thinking approaches problems in a rational and analytical fashion. Intuitive thinking approaches problems in a flexible and spontaneous fashion.

It is important not to be diverted from long-term goals when making decisions. Strategic opportunism refers to the ability to focus on long-term objectives while being flexible in dealing with short-term problems.

The decision-making process

Steps in decision-making
Step 1. Find and define the problem. This is a stage of information gathering, information processing and deliberation. Three common mistakes are:
1. 2. 3.

Defining the problem too broadly or narrowly Focusing on the symptoms instead of causes Choosing the wrong problem to deal with.

Steps in decision-making
Step 2. Generate and evaluate possible solutions. More information is gathered, data are analysed, and the pros and cons of possible alternative courses of action are identified. The involvement of other people is vital here in order to maximise information and build commitment. Costbenefit analysis involves comparing the costs and benefits of each potential course of action.

Steps in decision-making
Step 3. Choose a solution. The classical decision model describes decisionmaking with complete information. An optimising decision chooses the alternative giving the absolute best solution to a problem. The behavioural decision model describes decision-making with limited information and bounded rationality. Satisficing decisions choose the first satisfactory alternative that comes to your attention.

Classical, behavioural and judgemental heuristics approaches

Steps in decision-making
Step 4. Implement the solution. This is the stage at which directions are finally set and problem-solving actions are initiated. At this stage, managers need the ability and willingness to implement their decisions. Step 5. Evaluate results. The decision-making process is not complete until results are evaluated. If the desired results are not achieved, the process must be renewed to allow for corrective actions.

Behavioural influences on decision-making

People tend to use simplifying strategies for decision-making. These strategies are called heuristics.
heuristic: Using information readily available from memory as a basis for assessing a current event or situation. Representativeness heuristic: Assessing the likelihood of something occurring based on its similarity to a stereotyped set of occurrences. Anchoring and adjustment heuristic: Making decisions based on adjustments to a previously existing value or starting point.
Availability

Individual and group decisionmaking

Advantages of group decisions:

Greater

information, knowledge and expertise is available The number of action alternatives examined is expanded, tunnel vision is avoided Increased understanding and acceptance of outcomes, increasing member commitment.

Disadvantages of group decisions:

Social

pressure to confirm Lack of timeliness.

Individual and group decisionmaking

Groupthink
When

the group pressure for consensus and demand for unanimity overwhelm the rational evaluation of options.

Characteristics of groupthink include:

Illusions

of invulnerability Negative stereotyping of others Pressure on deviant members Illusions of group morality Self-censorship.

Knowledge management

Knowledge management is the process through which organisations use intellectual capital for competitive advantage. The intellectual assets include such things as patents, intellectual property rights, trade secrets and special processes and methods, as well as the accumulated knowledge and understanding of the entire workforce. Explicit knowledge is codified and shared with others through dialogue, demonstration or media.

Organisational learning

A learning organisation continuously changes and improves using the lessons of experience. The core ingredients of learning organisations:
1. Mental models 2. Personal mastery 3. Systems thinking 4. Share vision 5. Team learning