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This paper discusses topics in managerial decision-making. Some of the topics that are discussed in the paper are bounded awareness and rationality, overconfidence in business, effects of emotion in decision-making, handling emotional team members, escalation of commitment, and revamping the failed process and tools for value creation. The paper provides real-life examples for the different topics.
Decision-making is a process by which everyone considers the various opportunities and risks by evaluating alternatives and pursuing the priorities and the necessary actions. Everyone in their daily life performs decision-making either consciously or subconsciously. The decisions that are made by the people are affected by various factors. According to (Kahneman and Tversky, 1983), Decisions are like speaking or writing, people always do it, intentionally or unconsciously. The decision made is influenced by different factors such as bounded awareness, level of confidence, emotional state, and many more. According to (Polic, 2009), with the knowledge of the decision-making process, one can help in avoiding a bad decision and choosing good ones.
According to (Chugh et. al, 2007), people usually fail to perceive the process stimuli which are easily available. Human psychology usually fails to see and use the information available to them. This phenomenon is described as bounded awareness. The bounded awareness phenomenon can be experienced within the people with some of the tests which shows inattentional blindness and change blindness process. People tend to decide the level of knowledge that they have which can lead to loss of the obvious facts.
An example of bounded awareness that I experienced in my career was the obvious business process that a CEO should have known. In that startup, we were into the development of a product that targeted small-scale firms in case of credit transaction record keeping and reminder for the collection. Before the development phase of the product, the idea should have been validated but since everyone at the office was from an Engineering background, nobody knew the idea of product validation and product market fit. So following the lead we developed a mobile application that helped people store their transactions which were done in credit with features to remind them about the payment date. After the development and release of the mobile application (Munsi), when we visited the small stores and shops, most of them had a problem that we guessed but nobody wanted to use the mobile application platform to solve that problem because they were used to the paper system. Very few young people adopted our solution but the data clearly showed that the solution that we developed was not required for the major percentage of the target market so we had to shut down the project.
After studying some of the books such as Lean Startup, Zero to One, and personal MBA books, the team realized the product development stages and idea validation. The decision taken by the CEO was a bounded awareness which we failed to see. We could have saved around four months if we had a BBA or MBA graduate on the team.
Bounded rationality is a behavioral model in which human rationality is very limited, and very closely linked with the situation and the cognitive power of the human being. Bounded rationality can lead us to the distinction between the normative and descriptive nature of human behavior. This human behavior theory considers the assumption that mental process is either constrained or not constrained. The bounded awareness prevents people from focusing on easily observable and relevant data. From the available options, people make a decision that can lead to bounded rationality. Inattentional blindness and change blindness are some of the phenomena that are experienced by the decision-maker.
(Neisser, 1979) presented a videotape of two visually superimposed teams passing basketballs, one wearing light-colored shirts and the other wearing dark-colored shirts, and asked participants to count the number of passes made between the two teams. Because the players were superimposed on top of each other, the task was moderately difficult. To score accurately, participants had to pay close attention to the task. Yet only 21 percent of participants reported seeing a woman abruptly walking through the group of players carrying an open umbrella. Repeated viewing of the videotape, without the counting task, reveals that the woman is unambiguously visible in the middle of the screen for a significant part of the video.
Change detection researchers have shown that the data they receive visually does not change (Simons, 2000). Interestingly, sometimes people can not explain the change that occurred, but they display traces of their pre-change memories.
An example of bounded rationality can be experienced in day-to-day business decisions. Most of the business decisions taken by individuals can be considered bounded rationality. This is because most people don't have an idea of the decision process and make the decision from the available parameters. The decisions that are not the optimal ones are later realized when other parameters are realized. An example can be considered in a decision that I took to repair my school van for repairing. There was an odd sound produced by the vehicle tire while running. Listening to the sound we changed the back shaft but still sound was there. Later on, performing a full inspection, a tire had a broken bearing which produced the sound. The decision that I took didn’t solve the problem as I was not an expert in the field of automobiles and this led to a bounded rational decision that did not solve the problem.
The emotional state of the decision maker influences the decision. Usually, the emotional state of the decision maker can either speed up the decision or speed down the decision. An emotional state involves a certain set of feelings that arise from a certain activity or under certain circumstances (Duque et. al, 2013). Usually, the person without the knowledge of the influence of emotion on decision-making suffers a lot from this phenomenon. In the case of the organization, the effect of emotion in certain decisions can cause a bias. In the case of the HR department, the hiring and firing can go wrong leading to disruption of the team. That is why fairness-related decision-making is an important decision during the decision-making process. Traditional theories underline the role of inequity and aversion, although recent research shows increasingly that emotion plays a critical role in such decision-making (Zheng el. al, 2017). Positive emotion can speed up the while negative emotion can speed down the decision-making process. Generally, difficult decisions are made with a very low amount of analysis during the influence of positive or negative emotions.
An example of the effect of emotion on decision-making that I experienced was when I got the message that our pet died. I was in the middle of decision-making when I received the message via call. After hearing the news, I couldn’t focus on the meeting and got out by handing over the work to the CEO. I couldn’t work properly that day. I tried to stay away from the decision-making process in the organization that day as I knew that if I made any decisions, it might be suboptimal.
The business workplace consists of a variety of different people. With no doubt, there can be emotional team members. A manager who doesn't have an idea of emotional team members might hurt the feelings of employees unintentionally. That is why managers should learn about handling the emotional team members.
The managers should always read the emotional signals and cues. Such kind of information and data can be an asset for the organization as it can be used to train the managers as well as handle different situations. The manager can read body language, tone of voice, facial expressions, and other cues to find out the emotional state of the person. The manager can also empathize with the team members who are hurt which can lead to a good relationship that can be productive for the team. Managers can study the different triggers of the team members to utilize them for various opportunities in the future. Managers can help people when they get stuck in some of the work as people tend to get emotional. In such conditions, managers can assist the team member but the manager should carefully handle such situations as people need some space in such time. While consulting the team members, managers should be aware of the selection of the word.
As a product manager/COO of Dabali Mart in my professional career, I have to look after the team and their works and guide them. We perform monthly review of each team member to understand them, their problems, and their learnings. Consulting is done in such a meeting. In the last meeting, one of the leads used the word complaint for a team member who was a good performer. That word was offensive to her and triggered her emotional state. However, I convinced her that she was doing great and there was no complaint. After the review, I shared the knowledge of approaching emotional team members with the lead engineer.
People tend to make a potential commitment and then step up the decision to invest time, resources, and money into something to stop. It happens to all and results in a mistaken judgment for private and organizational purposes. Some of the interviews with successfully manufactured entrepreneurs such as Mark Zuckerberg indicate that 'Don't give up' (Bort, 2015) is an easy piece of advice to succeed. However, managers must understand when to quit as it leads to escalation of commitment. Increased commitment is an activity that involves a sustained devotion of resources to the project despite negative feedback from decision-makers on the performance of the project (Brockner, 1992). Escalation has been linked to significant losses due to project failures and delays in the area of management information systems (Desai & Chulkov, 2019). There is little evidence that substitution theories provide a better explanation than self-justification. However, self-justification theories are likely to lead to a more complete explanation for the escalation of commitment (Mark, 2019).
The escalation of commitment that I faced in a larger company was an IT company that had a huge product used by many health analytics firms in the US. The engineering team required a new way of delivering the product as the old one had lots of unmaintainable code. This caused some serious loss in the development of the new features and fixing bugs in the code. This was the result of the escalation of commitment of the engineers who didn’t write the code following an appropriate design pattern and always pushed that task for later.
Currently, that team has implemented correcting the codebase with a new codebase following the design patterns, with proper code review and intense testing of the application. The older process had led the team to chaotic codes. The older style had affected some of the software engineers(stakeholders) who were good and left the organization as they didn’t like the product's architectural design.
Sustainable value creation for a business can help the business achieve a significant opportunity. With the help of the tools for value creation, one can use it for having a significant value creation in the decision-making process. Various fields are to be considered in managerial decision-making for the value creation. With the help of value chain analysis, one can analyze the internal firm's activity. This method helps to know which activities are the most valuable ones. The Porter's value chain model consists of primary activities and support activities. Primary activities consist of inbound logistics, operations, outbound logistics, marketing, and sales and service. The support activities consist of firm infrastructure, human resource management, procurement, and technology. Although primary activities explicitly add value to the production process, they do not necessarily matter more than supporting activities. Competitive advantages nowadays arise primarily from technological improvements and developments in business models or processes. Activities such as IT, research and development, and general management are therefore typically the most important source of distinct advantage.
In the case of Dabali Mart, we are trying to create a competitive advantage tool by using a cost advantage and differentiation strategy. We are trying to provide the products at lower cost and differentiate ourselves from others with better customer satisfaction.
The managerial decision-making topic is an important field that managers should know. With the knowledge of bounded awareness, bounded rationality, overconfidence in business, effect of the emotions in decision-making, handling emotional team members, escalation of commitment, and value creation. With this knowledge, one can make a wise and proper decision. However, with experience of the wrong decisions and knowledge, one can make an optimal decision in their business and organization.
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