IGNOU Study Notes BRL-003 | CH-4 [ DECISION MAKING PROCESS ]

Chapter-4
Decision Making Process

4.2 RATIONALITY IN DECISION MAKING

One of the most vital aspects of decision making is rationality. Rationality is the process of carefully considering the pros and cons of alternative courses of action before taking a decision and choosing a specific alternative.

The satisfying the concept of retionality.

1. The manager must have a clear perception about the various alternatives or the courses of action.
2. The manager should have the ability to analyze and evaluate the alternatives in the light of the goal he seeks to attain.
3. Finally, the manager must be having the desire to maximize the benefits by selecting the alternative.

Decision making is also a part of the planning process. Another important factor to be noted is that decision are future oriented.

4.3 BASIS OF DECISION MAKING

1. Experiene: Relying on past experience of employee is vital in decision making. This is true in the case of executives who have been pormoted to the top ranks from the lover cadres. Such managers feel that their past accomplishments, inputs and mistake are the guides to future. If experience is carefully analysed rather than blindly followed, and if the reasons for success or failure are objectively analysed, experience serves as a useful guide for decision making.

2. Experimentation: Experimentation is mostly used in scientific enquiry to see what happens when an alternative is tried. Experimentation is really a good basis for decision making, provided one is capable of bearing the heavy expenditure in capital, personnel and equipment.

3. Research and analysis: Research involves systematic collection or relevant data and information the same taking into consideration the problem on hand. Research based decision are generally become rational decisions.

4. Decision Tree: Decision tree analysis is the technique available to executives dealing with uncertainties where they would like to know the size and nature of the risk involved in choosing a particular course of action. Decision tree analysis make s use of the probability technique in statistics. It is a diagrammatic decision.

4.4 PHASE IN DECISION MAKING PROCESS

There are at least four phases in decision making process, The phases are:

• Diagonsis of the problem (also called as problem definition phase).
• Alternative formulation
• Alternative evolution
• Decision making

Let us learn the phases in detail.

Diagonsis of the problem: There is a general saying that a problem well defined is half solved. If a person understands clearly what the problem is and the right reason for the prbolem, he or she will be in a positions to find out right solution. Right diagonal leads to right decision making and wrong diagonsis leads to wrong decision making.

Alternative Formulation: Every problem has multiple ways of solving it. The next challenge for the manager is in identifying the various ways in which the problems can be solves. Alternative are the possible solution to hte current problem. The reason identified at the diagonsis phase for the low foot falls at the retail music outlet was low awareness, the alternative courses of action may be :

• Release of advertisement daily in news papers
• A sales promotion program
• Door to door campaign by sales personal
• Sponsoring a major event
• Erecetion of hoardings at important locations and so on.

Alternative Evaluation: Once all the alternative have been identified the next important step is to examine each alternative carefully to arrive at the best possible alternative that can help reslove the problem. This is the point of ultimate decision making. The process of evalution of alternative involves two factors, namely the tangible and intangible factors. Both are of vital importance in the process of evolution and ignorance of any one is likely to have several consequences on the final decision.

Decision Making: This is the ultimate one. The best alternative is selected from among various alternatives evaluated. The selected alternative will becomes the decision.

4.5 RETAIL MANAGEMENT DECISIONS

In this section specific reference will be made to key decisions with reference to retail organization. The basis input for decision making is the understanding of the retail enviroment.

4.5.1 Understanding the World of Retailing

The first step in the retail management decision process is getting an understanding of the world of reatiling. Retail Managers need to understand their enviroment, especially their customers and competition, before they take decision on various issues.

The critical enviromental factors in the world or retailing are:

1. The macro enviroment

2. The micro enviroment

The macro enviroment consists of forces like economic, demographic, political and legal, social and cultural, technological, etc. These forces wil have either direct or indirect influence on the business.
The micro enviroment consists or persons or organization, goverment machinery, etc. The micro enviroment generally will have a direct bearing on the functioning of the retail organization.

Competition and consumers are the key elements of hte micro enviroment of retailing.

1. Competitors: At first glarice, identifying competitors apperars easy. A retailer's primary competitors are those with the same forms a department store competes against other department stores and a supermarket against other super markets. This competition between the same types of retailes is called intra type competition.

To appeal to a broader group of consumers and provide one-stop shopping many retailer are increasing their variety of merchandize. Variety is the number of different merchandize categories within a store or department. All retailers compete against each other for the money consumers spend on goods and services. But the intensity of competition is greatest among retailers located close together with retail offerings that are viewed as very similar. Understanding the different types of retailers and how they compete with each other is critical to developing & implementing a retail strategy.

2. Customers: Customer needs are changing at an ever increasing rate. Reatilers are responding to broad demographic and lifestyle trends in our society, such as the growth in elderly and minority segments of Indian population and importance of shopping & convenince to the rising number of two-income families. To develop and implement and effective strategy, retailers need to understand why customers shop, how they select a store, and how they select among that store's merchandize.

4.5.2 Formulating Retail Strategy

The next stages in retail management decision making process, formulating and implementing a retail strategy, are based on an understanding of macro and micro enviroments developed in the pervious phase.
The retail strategy indicates how the firm plans to focus its resource to accomplish in objectives. It indentifies.

1. The target market, or markets, toward which the retailer will direct its efforts

2. The nature of hte merchandize and service that the retailer will offer to satifsy the needs of the target markets, and

3. How the retailer will build a long-term advantages over competitors.

Strategic Decision Areas

The key strategic decision areas are determining a market strategy, financial strategy Organizational structure and human resource strategy, information systems and supply chain strategies and customer relationship menagement strategies.

1. Marketing Strategy: Selection of a retail market strategy is based on analyzing the enviroment and the firm's strengths and weaknesses. When major enviromental changes occur, the current strategy and reasoning behind it are reexamined. The marketing strategy includes selection of target market, marketing mix strategy (decision on service offerings, pricing, promotion, distribution, service quality, physical enviroment, etc.

2. Financial Strategy: Retailing business requires finances according to the product category and size of operations. Finding the creditors and financial institutions for support and utilizing finances appropriately is a ceritical decision area.

3. Location Strategy: Decision concering location strategy are important for both customer and competitive reasons. First, location is typically consumer's top consideration when selecting a store. Second, location offers an opportunity to gain long-term advantages over competition. When a retailers has the best location a competing retailer has to settle for the second-best location.

4. Organization Structure and Human Resource Strategy: A retailer's organization desing and human resource management strategy are intimately related to its market strategy. The organization structure is developed by grouping the activities of organization according to the requirement of job and by deciding the hierarchy of job positions. The human resource planning, recruitment, selection, training, motivation, etc;. are all important components of human resource management.

5. Information System and Supply Chain Management: Retail information and supply chain management systems will offers significant opportunity for retailers to gain strategic advantage. It is also important to understand how some of the retailers are developing sophisticated computer and distribution systems to monitor flows of information and merchandize form vendors to retail distribution centers to retail stores.

6. Customer Relations Management: Customer Relationships Management (CRM) is a business philosophy and set of strategies, programs, and systems that focuses on indentifying and building loyalty with a firm's most valued customers. There need to be some of the data analysis methods retailers use for indentifying their most-valued customers. Once these customers are identified, special programs are designed to build their loyalty.

4.5.3 Implementing Retail Strategy

To implement a retail strategy, management develops a retail mix that satisfies the needs of its target market better than its competitors. The retail mix is the combination of factors retailers use to satisfy customer needs and influence purchase decisions. Elements in the retail mix include: the type of merchandize and services offered, merchandize pricing, advertising and promotional programs, store designm merchandize display, assistance to customers provided by sales people, and convenince of the store's location.
Store manager must determine how to recruit, select and motivate sales associtates, where and how merchandize will be displayed, and the nature of services to be provided to customers.

4.6 INDIVIDUAL VERSUS GROUP DECISION MAKING

The following are the advantages and disadvantages of group decision making process:-

Advantages	Disadvantages
Groups can accumualate more knowledge and facts.	Groups often work more slowly than individuals.
Groups have a broader perpective and consider more alternative solution.	Group decision involves considerable compromise which may lead to less optimal decisions.
Individuals who participate in decisions are more satisfied with the decision and more likely to support it.	Groups are often dominated by one individuals or a small clique, thereby negating many of the virtues of group procedures.
Group decision processes serve an important communication function as well as a useful political function.	Over-reliance on group decision making can inhibit managements ability to act quickly and decisively when necessary.

There are two phenomena that have commonly been observed to commonly inhibit group decision process.

1. Risky Shift Phenomenon: Contrary to the popular belief that group ar usually more conservative than individuals there is abundant evidence to support the porposition that groups make riskier decisions rather than individuals. There are four possible reasons. First, risk takers are persuasive in getting more cautious companions to shift thier position. Second, as members of a group familiarize themselves with the issues and arguments they seem to feel more confident about taking risks. Third, the responsibility for decision making can be diffused across members of the group. Fouth, there is the suggestion that in our culture people do no like to appear cautious in a public context.

2. Groupthink: Closely related to risky-shift, but more serious, is the phenomenon known as 'groupthink'. This phenomenon first discussed by Janis (1971). refers to a mode of thinking in a group in which the seeking of concurrence among members becomes so dominant that it over-rides any realistic appraisal of alternative course by action.

4.7 OVERCOMING BARRIERS TO EFFECTIVE DECISION MAKING

The following can be the gateways than can be used to overcome the barriers:-

• Group leaders can encourage each member to be critical evaluators of various proposals.
• When groups are given a problem to solve, leaders can refrain from stating their own position and instead encourage open enquiry and impartial probing of a wide range of alternatives.
• The organization can give the same problem to two different independent group and compare teh resulating solutions.
• Beforee the group reaches a final decision, members can be required to take repite at intervals and seek advice from other wings of the organization before returning to make decision.
• Outside experts can be invited to group meetings and encouraged to challenge the views fo group members.
• At every group meeting, one member could be appointed as a devils advocate to challenge the testimony of those advocating the majority position.
• When considering the feasiblility and effectiveness of various alternative, divide the group into two sections for independent dicussions and compare results.
• After deciding on a preliminary consenus on the first choice for a course of action, shedule a second meeting during which memebers of the group express their residual doubts and rethink the entire issue priors finalizing teh decision and initiating actions.