|
How To Make Decisions
in Modern Businesses
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 fueled 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.
1howto.com
--------------------------------------------------
Please
Share Your Tips with Us
|
