Decision Making Business Management
Traditionally, decisions are made at the "top" of an organization and communicated to those "lower down" while feedback on the effectiveness of the resulting actions is sent back to the "top".
We can see this pattern in all aspects of life, from
our relationship with our parents, through our education, and on into our
working life. However, in business such a hierarchical structure is not
always an advantage. What options are there for a modern business?
Management science tells us that there are three distinct stages in the
development of decision-making processes within organizations. Each of these
stages has been fuelled by advancements in communication and coordination
technologies, starting with the telegraph (invented in 1832) or even with
fire beacons and smoke signals in more ancient times.
The first stage of decision-making sees decision-makers, who are only aware
of, and responsible to, their immediate environment make decisions
independently of other decision makers in the organization. As the cost and
efficiency of communication falls, information is gathered centrally and
decision-makers become aware of, and responsible for, a wider environment.
These more informed decision makers attempt to make decisions in order to
maximize the benefits to their organization as a whole. Finally, as
communication efficiency continues to improve local decision-makers consult
with other related decision-makers to maximize benefit to both their own
organization and to their wider business environment.
These three decision-making stages of development are characterized as
follows:
Independent Decentralized Control:
In this model, individual units have independent decision-making powers.
They act in order to serve their local needs. However, since there is little
or no coordination between decision makers, it is possible that decisions
made by units locally will conflict with other units' decisions or even the
global objective of the organization as a whole.
Centralized Control:
Here a central body makes all decisions. Changes affecting the whole
organization can easily be made since the impact of the changes across the
organization can be predicted. However, this approach is rigid and forces
each organizational unit to conform to a prescribed set of rules governing
how they act upon instructions from the central body and how they report on
the results of their actions. Furthermore, as the number of distributed
units increase, the information flow to the central point of control
increases, thus this method lacks scalability.
Connected Decentralized Control:
Decentralized control encourages independent decision-makers to take
responsibility for their local environment, however facilities are provided
to allow them to consult with other related decision-makers. Because of this
connectivity local decisions can be made with a view on their global
effects. However, in this model all decision-makers are exposed to all
potential information sources, thus powerful information management systems
are required.
Since decentralized control brings many managerial benefits, companies
usually strive to move from independent decentralized control, through
centralized control and on into connected decentralized control. However, as
organizations progress towards connected decentralized control they must
find a balance between top-down control and bottom-up empowerment.
Too much top-down control will result in a lack of scalability as described
in centralized control model, too much bottom-up empowerment will result in
a chaotic decision making process with unpredictable results.
To achieve the "perfect" balance between centralized and decentralized
control it is necessary to identify conflict points between individual
units. These units must then co-ordinate their decision-making processes and
knowledge bases. Such coordination requires the sharing of vast amounts of
information, which brings with it the potential for "information overload",
a situation in which it becomes impossible to identify the relevant data
from the irrelevant data.
Further to the problems of information overload are the difficulties of
communicating information between decision-makers of differing backgrounds.
For example, how does an accountant communicate the impact of a marketing
overspend, whilst the marketing people communicate the impact on sales if
the budget is not approved, which in turn affects the underlying sales
potential for the firm.
In an independent decentralize model there is no control over such
decisions. In a centralized model we rely on one individual to understand
all three points of view, whilst in a connected decentralized model we rely
on a technique to communicate all information in a meaningful and manageable
way. This need for efficient communications presents considerable
technological challenges since individuals from different backgrounds have
different domains of understanding, different decision making processes and
different data collection, storage and processing techniques.
Today, ICT is moving towards being complete enough to support a full
advancement to Connected Decentralized Control. However, this is not yet
possible with an "off-the-shelf" solution. Information Management Systems
and Decision Support Systems in particular, need considerable customization
and adoption to your organizations needs.
While efficient Information Management Systems can bring massive benefits to
your organization you should be aware that around 75% of large Information
Systems are considered failures by those who commission them. Tread
carefully when commissioning such systems and take your time, be one of the
25% who reap the benefits and continue to grow.
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