Decision making is essentially a problem-solving process that involves eliminating barriers to organizational goal attainment. The first step in this elimination process is identifying exactly what the problems or barriers are, for only after the barriers have been adequately identified can management take steps to eliminate them.

As a classic example of making decisions to overcome a problem, consider how Canadian brewer Molson handled a barrier to success: a free-trade agreement that threatened to open Canadian borders to U.S. beer. Although the borders were not due to open for another five years, Molson decided to deal immediately with the impending threat of increased beer competition from the United States by increasing production and sales of its other product line: specialty chemical products. Within four years, Molson’s chemical sales exceeded its beer sales. Essentially, the company identified its problem—the threat of increased U.S. competition for beer sales—and dealt with it by concentrating on sales in a different division.¹⁷

Chester Barnard stated that organizational problems are brought to the attention of managers mainly by the following means:¹⁸

1. Orders issued by managers’ supervisors

2. Situations relayed to managers by their subordinates

3. The normal activity of the managers themselves

Once a problem has been identified, managers should list the various possible solutions. Few organizational problems are solvable in only one way. Managers must search out the numerous available alternative solutions to most organizational problems.

Before searching for solutions, however, managers should be aware of five limitations on the number of problem-solving alternatives available:¹⁹

1. Authority factors (e.g., a manager’s superior may have told the manager that a certain alternative is not feasible)

2. Biological or human factors (e.g., human factors within the organization may be inappropriate for implementing certain alternatives)

3. Physical factors (e.g., the physical facilities of the organization may be inappropriate for certain alternatives)

4. Technological factors (e.g., the level of organizational technology may be inadequate for certain alternatives)

5. Economic factors (e.g., certain alternatives may be too costly for the organization)

Figure 6.4 presents additional factors that can limit a manager’s decision alternatives. This diagram uses the term discretionary area to depict all the feasible alternatives available to managers. Factors that limit or rule out alternatives outside this area are legal restrictions, moral and ethical norms, formal policies and rules, and unofficial social norms.²⁰

Finally, managers should be aware of the negative effects of generating too many alternatives. Intuitively, generating more alternatives would seemingly lead to more effective decision making. Research suggests, however, that having too many alternatives may actually demotivate decision makers, which harms decision making; this is known as the paradox of choice.²¹

In order to reduce the influence of the paradox of choice, individuals may reduce the number of alternatives from which they must choose to form a smaller and more manageable set of alternatives. Research indicates that there exist two types of strategies that individuals use to reduce the number of alternatives. Inclusion occurs when individuals choose a smaller set of the most desirable alternatives from a larger set of alternatives. Exclusion occurs when individuals exclude the least desirable alternatives from a larger set of alternatives. Research suggests that compared to inclusion, exclusion results in a larger consideration set. Therefore, the risk of eliminating a potentially desirable alternative is greater using inclusion than it is using exclusion.²²

Decision makers can select the most beneficial solution only after they have evaluated each alternative carefully. This evaluation should consist of three steps. First, decision makers should list, as accurately as possible, the potential effects of each alternative as if the alternative had already been chosen and implemented. Second, they should assign a probability factor to each of the potential effects; that is, they should indicate how probable the occurrence of the effect would be if the alternative were implemented.²³ Third, keeping organizational goals in mind, decision makers should compare each alternative’s expected effects and the respective probabilities of those effects.²⁴ After these steps have been completed, managers will know which alternative seems most advantageous to the organization. Managers should be aware, however, that research suggests that past decisions often influence current choices of alternatives.²⁵ Consequently, managers should try to avoid the natural tendency to make the same choices repeatedly.

The next step is to put the chosen alternative into action. Decisions must be supported by appropriate action if they have a chance of success.

After the chosen alternative has been implemented, decision makers must gather feedback to determine the effect of the implemented alternative on the identified problem. If the identified problem is not being solved, managers need to seek out and implement another alternative.

We just described the rational decision-making process. Herbert Simon, however, questioned the ability of managers to make rational decisions. In his opinion, managers are not able to make perfectly rational decisions. Instead, Simon put forth the idea that managers deal with bounded rationality, which refers to the fact that managers are bounded in terms of time, computational power, and knowledge when making decisions.²⁶ In other words, managers do not always have access to the resources required to make rational decisions. As a result of bounded rationality, Simon suggested that managers satisfice, which occurs when an individual makes a decision that is not optimal but is “good enough.” For example, a manager may hire the first person who is acceptable according to the hiring criteria and not interview the remaining candidates. In this example, a better candidate may exist, but the manager has satisficed by selecting the first “acceptable” candidate.