Management Decisions

Traditionally, the process of decision making is very important since it defines the effectiveness of work of individuals, organizations and the entire society. At the same time, often decision making process can play the determinant role in rescue operations, when the life of people can be under a threat, for instance, in case of a fire, traffic accident, or other emergencies. In such a situation, decision making process should be as effective as possible and many specialists (Gilovich, Russo, J. E and P. Shoemaker, Klein) research the problem of decision making in details in order to reveal the epitome of this process and possible ways of the improvement of the quality of decision making, decreasing the time spent on taking decisions and maximize their effectiveness. At this point, it is possible to refer to works by Russo and Shoemaker, “Winning Decisions: Getting it right the first time”¯ Klein, “Sources of Power: How people make decisions”¯. In fact, these specialists focuses on the research of decision making and, in spite of certain similarities of their works, they use quite different approaches to decision making. Russo and Shoemaker use rather traditional view on decision making as a process that needs a lot of training and special preparation of specialists to take decisions right, while Klein uses quite a different, naturalistic approaches, viewing decision making as a natural process where people are guided by innate and learnt skills and habits, which they form in the course of their development. In such a way, the two books represent different, if not to say antagonistic, approaches to decision making that contributes to better understanding of decision making and ways of its improvement.

On analyzing both books, it is important to underline that the authors apparently attempted to make their books interesting to read and, at the same time, their books are comprehensible for the mass audience. In fact, Russo and Shoemaker as well as Klein conducted a profound research of the process of decision making which is amply supported by practical evidences. To put it more precisely, Russo and Shoemaker amply use questionnaires, tools, worksheets, case studies and anecdotes analyzing major decisions made by renowned organizations, such as NASA, Shell Oil, British Airways, and others. In such a way, the authors reveal the ways of practical application of various decision making models and, what is more, they help readers to understand how theoretical developments in the field of decision making work in practice on the basis of real life situations. Along with positive examples of decision making, the authors analyze errors made by some organizations in the process of decision making that helps readers understand the importance of the effective decision making process.

At the same time, the use of questionnaires, case studies, worksheets and other tools facilitates reading of the book since it is not overloaded with theoretical information or reflections of the authors on decision making. On the other hand, it does not mean that the theoretical ground is underdeveloped in the book. In stark contrast, the authors carefully researched and analyzed theoretical developments concerning the evolution of views on decision making. They discussed various approaches and methods used in the decision making process. Furthermore, they use these theoretical assumptions to work out recommendations on effective decision making, which readers can apply in their work and life.

At first glance, structurally the book by Russo and Shoemaker is similar to that of Klein. The latter also researched the problem of decision making. The author attempted to reveal the essence of this process and provide a theoretical ground for his views on decision making. On the basis of theoretical assumptions, Klein discusses the practical application of decision making. In this respect, he also uses case studies in abundance to show how decisions are actually taken in real life situations. However, it is necessary to underline the fact that Russo and Shoemaker mainly refer to the field of management and business administration. Instead, Klein is more concerned on the decision making process being applied by emergency services, especially fire fighters, though he extrapolates his research not only on fire fighting but also other fields, where decision making can be applied. The point is that initially the authors of “Winning Decisions”¯ and the author of “Sources of Power”¯ refer to quite different domains: on the one hand, the routine managerial work and business administration, while on the other hand, extreme situations when decision making can save the life of people. Hence, Klein tends to certain radicalization of the discussion of the decision making process putting it in a very extreme context, such as decisions taking by fire fighters.

In such a context, the book of Klein seems to be more practice-oriented, while the book of Russo and Shoemaker is rather theory-oriented than practice-oriented. However, this impression may be erroneous because of the different context in which the decision making process is discussed by the authors. In actuality, both books combine theory and practical application of decision making.

The most significant difference between the two books discussed is the difference in approaches used by the authors. Russo and Shoemaker use traditional approach to decision making. They stand on the ground that people are unable to take decisions effectively, if they are not trained and prepared professionally to take decisions. This is why the researchers insist on the necessity of the training of specialists taking decisions and policy makers. In such a way, the authors believe to improve the quality of decisions, to make them effective and to minimize the time spent on decision making. Thus, according to Russo and Shoemaker, effective decision making should be based on a long-run training. Otherwise, people are unable to take right decisions and the risk of errors in the decision making process increases dramatically. On the basis of this premise they develop recommendations on effective decision making and development of skills which can improve the process of decision making.

In contrast to the approach used by Russo and Shoemaker, Klein uses a naturalistic approach to the decision making process. The cornerstone of his theoretical assumptions is the idea that people are naturally apt to taking decisions and, what is more, people are able to take right decisions, even if they are totally unaware of the most advanced models of decision making and numerous theories and recommendations developed by specialists concerning the decision making process. In such a way, he totally rejects the fundamental concept supported by Russo and Shoemaker that the decision making process is a product of the long-lasting training aiming at the development of special skills and abilities which can make an individual capable to take right decisions. In actuality, Klein is guided by the idea that humans have innate ability to decision making. Moreover, people naturally shape their decision making abilities along with the acquisition of new experience in the course of their personal development. Hence, decision making, according to Klein, is not a set of drilled skills, but, instead, it is a natural ability of humans to take decisions. He proves his idea by numerous examples taken from real life situations, when people, such fire fighters, have to take decisions in spite of the shortage of time and special training in the field of decision making. At this point, the author is quite convincing since he shows that often people take decisions almost automatically, without spending much time on reflection or evaluation concerning outcomes of decisions they take. On the other hand, it is still necessary to take into consideration, the background of people taking decisions because they have professional experience which can help them in the process of decision making and, therefore, they were directly or indirectly train to take decisions in case of emergency that, at least, partially supports the position of Russo and Shoemaker, as well as other specialists (Gilovich) standing on the traditional ground in their views on the process of decision making.

In order to better understand the position of the authors of both books, it is necessary to apply their approaches to an example of the decision making process. In this respect, it is possible to refer to the process of taking pricing decisions which are taken regularly by many organizations and managers in real life.

Taking into consideration, views of Russo and Shoemaker, the process of taking pricing decision heavily relies on the professional training of specialists taking the decision and their professional skills and ability to assess and evaluate adequately the current market situation, internal and external threats, and prospects of the further development of the market. In such a way. the process of taking pricing decision may be affected by a variety of factors. Basically, it may depend on both external market situation and the situation within a company. At the same time, one of the major constituent elements that affect consistently pricing decision is costs. In actuality, costs and prices are closely interrelated and interdependent and it should be pointed out that the latter are dependent on the former in such a way that the change in costs respectively affects the pricing.

First of all, it should be said that costs of the production are very important and actually define the price at which a product or service should be sold. To put it more precisely, the costs a company spends on the production of a service or product and its delivery to the customer are very important and shape the final price of the product because they determine the expenditure the company should cover through the sale of its product or service. In actuality, the major goal of a company normally is to maximize its profits and, at the same time, maintain its competitive position. This is why the company needs to sale its products or services at the price which could cover the costs of the production, as well as costs of the delivery and sale of a product or service to customers.

In fact, a company cannot sell its products at the price lower than the costs of the production. In such a situation, the production of goods or services would be absolutely ineffective and would lead to the ruin of a company because its financial losses will grow proportionally to the gap between the costs and the price. Consequently, the price of a product or service should cover the costs of the production and basically it should bring some profit to a company. This will provide the company with an opportunity to maintain the stable production and positive market performance as well as high rates of sales as long as the price does not exceed the level acceptable for the particular product in a particular competitive environment, i.e. the final price should meet the average price of a product or service in the industry.

Such a dependence of costs and price, it should be said that pricing decisions are taken on the basis of the costs of the production. As a result, the increase of the costs of the production naturally leads to the increase of the price. At the same time, through the decrease of costs it is possible to maintain the prices at the stable level or even decrease slightly that will increase the competitiveness of the product and, therefore, increase the sales rate that means that the company that manages to minimize costs can have larger opportunity to vary prices in accordance with the current situation in the market, i.e. it can maintain the price to increase its profits or decrease the price to attract a larger amount of customers and increase sales rates that may also increase profits of a company. On the other hand, a company cannot sell products at a price that is lower than the costs of production. At any rate, such a disparity between price and costs cannot last for a long time.

Thus, it is obvious that, according to Russo and Shoemaker, taking an effective pricing decision is impossible without professional training and high qualification of decision makers.

On extrapolating naturalistic approach of Klein to the process of taking pricing decision, it is necessary to underline the fact that this decision is not totally dependent on the training of individuals in the field of decision making. In fact, naturalistic approach implies that people can take a pricing decision on the basis of their personal as well as professional experience which they have acquired in the course of their life. For instance, people can know from their past experience when the pricing policy can be and should be changed to maximize revenues of the organization or to attract a large number of customers. For instance, price cuts occur regularly by the end of the year for the Christmas period. Naturally, individuals taking a pricing decision will reduce price at this period even though they have no training in decision making at all.

Thus, taking into account all above mentioned, it is possible to conclude that Russo and Shoemaker, on the one hand, and Klein, on the other hand, have managed to conduct a profound research of the decision making process and develop their recommendations concerning this process and its improvement. Both books have a solid theoretical basis amply supported by practical examples. Nevertheless, Russo and Shoemaker tend to a more conservative approach to decision making, while Klein is an adept of naturalistic view on the decision making process.

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