Decision-making Process and its Impact on Business Performance

Decision-making Process and its Impact on Business Performance Free Essay

Abstract

This paper explores several published articles that strive to elucidate the vitality of the decision-making process on business performance. However, there are considerable variances when one is considering the types of decision-making processes suitable for an organization to enhance performance. While some think that the hierarchical approach is the best, others support the consensus system. Others believe that the best approach depends on the circumstances. This paper also explores the different ethical aspects that influence the decision-making process and how they affect business performance. As such, it discusses the evidence-based approach to making high-quality business decisions.

Keywords: decision-making process, business performance, ethical theories

 

The Decision-Making Process and Its Impact on Business Performance

Introduction

Decision making is an essential element in the success of a business. Organizations consistently make decisions at different levels. They vary from strategic decisions all the way through to managerial or operational ones. In business, decision making entails choosing aspects that meet the objectives of a particular venture. Nonetheless, making decisions does not entail just selecting a compromise or a choice. Unless it degenerates into work, then it cannot be regarded as a decision. Efficient decision making can be described as a procedure where alternatives are chosen and managed via implementation to attain business objectives. It emanates from systematic procedures that are accurately defined and uniquely handled.

A number of studies have been conducted on the role of an effective decision-making process in the success of a company. The research strives to explain the most appropriate decision-making process that boosts a company’s progress. Corporations follow different mechanisms to make decisions. For instance, some prefer the top management to make all the decisions, while others support particular chains, incorporating various departments in reaching a decision. In other words, the top management, as well as employees, is involved in the process. In the contemporary world, competition is primarily dependent on the decision making process. If a company makes a wrong choice, the outcomes will lead to limited profits. On the other hand, the right choices result in heightened profits. This paper examines how effective decision making improves business performance. Based on several articles, the paper will strive to compare different kinds of decision making processes and elucidate on the most accurate system that yields the best outcomes. Before demonstrating how decisions enhance business performance, it is vital to comprehend some of the theories that constitute ethical decision-making.

Types of Ethical Theories Affecting Decision-Making

Ethical theories can be divided into three broad categories i.e. consequentialist, non-consequentialist, and agent-centered theories.

Consequentialist theories

There is a total of three approaches in this category. The Utilitarian approach is one of the commonest mechanisms that are utilized when dealing with large groups. It implores one to weigh the varying amounts of right or wrong that emanate from a particular action. As such, the consequences of an action are bound to be good and bad. However, the good outweigh the bad. Another theory is the Egoistic approach. Its mechanism is similar to utilitarianism, but it is more individualistic. It is sometimes regarded as selfishness since a person calculates and determines the decision that provides the highest amount of good to themselves. The last theory, in this case, is The Common Good Approach. It is based on the interests of the society. The actions guided by respect and compassion are implemented for the common good of the society, primarily its vulnerable members (Sheila, 2013).

Non-consequentialist Theories

In this category, there are four key theories. The Duty-Based Approach is also referred to as deontological ethics. The theory suggests that it is our moral duty to perform what is ethically right. People should not be guided by the consequences of their actions. The Rights Approach, on the other hand, states that the best ethical act is that which safeguards the ethical rights of those affected by it. The Justice Approach implies that all people should be treated equally. The Divine Command Approach implies that making decisions based on God’s will is the utmost description of ethics (Sheila, 2013).

Agent-Centered Theories

The notion here is that ethics is deeply personal, so we must keep our own ethical principles in order. Our definite responsibilities are not to concentrate on how our acts cause other agents to do evil; the emphasis of our resounding duties is to keep our agency free of ethical taint. This category has two theories i.e. the virtue and the feminist approaches. The Virtue Approach implies that ethical choices should conform to the ideal human virtues. The Feminist Approach concentrates the entirety of human life when it comes to the impact on the manner we make the ethical decisions (Sheila, 2013). The above theories are essential in the personal and organizational ethical decision-making process.

Literature Review

According to Barends and Briner (2014), good quality decisions ought to integrate both critical thinkings and the best existing evidence. They further state that though many business managers use evidence to make choices, little attention is accorded to its quality. As such, an organization incorporates both aspects but fails to observe the quality of proof. As a result, bad decisions are made, impacting the corporation negatively. The sentiment was echoed by Robert Sutton, a Professor at the Stanford University who defines evidenced-based management (EbM) as the process of finding the best evidence, facing facts, and utilizing them instead of what the commonly accepted practice is. It involves using the collected facts appropriately. Using the evidence to make decisions heightens their quality (Barends, 2014).

The decision-making process is also dependent on moral aspects. In other words, ethically sound decisions tend to result in better business performance. According to Rest’s Four-Component Model, an individual goes through four key phases when facing ethical issues. They include moral sensitivity, judgment, motivation, and character. In moral sensitivity, the person is aware of the ethical issue prior to manifesting a proper behavior. At this stage, a person must be aware of the fact that their actions can harm or assist others. Apart from that, they have several choices to pick from. As such, they choose voluntarily. The person imaginatively constructs probable scenarios and applies empathy and responsibility-taking skills. The second step entails moral judgment. At this juncture, the person evaluates the good or the bad of all their actions. Ethical decisions require one to apply appropriate judgment to determine the best action. As such, this element labels the options, regardless of personal interest. Moral motivation implores one to take a position that regards ethical values as the most important factor. Additionally, it involves taking personal responsibility for the corresponding results. The other element is that moral character entails implementing a particular behavior. Therefore, business performance depends on moral sensitivity, judgment, motivation, and character of the decision makers (Cabello-Medina, & Sanches-Moralez, 2014).

When making decisions to improve business performance, some managers prefer the majority rule mechanism. In this system, if a proposal is seconded by most concerned parties, it is adopted. According to Zhang, Hseeand Xiao (2013), the majority rule serves the interests of many employees within the company; so it results in heightened productivity levels that culminate in a better business performance (Zhang, Hsee, & Xiao, 2013). However, Elizabeth Taylor (2013) discredits these thoughts stating that the majority rule mostly leads to arguments. It creates a poor working environment as the decision makers hold grudges against each other. She further suggests that the majority is not always right. Furthermore, if the decisions are implemented and fail, it would result in a blame game. In that regard, the ones who were against the decision will blame the rest (Taylor et al., 2013). According to her, the consensus approach is the best. Improving business performance mandates all of the involved parties to be on the same page. A typical consensus model is shown below.

According to Taylor (2013), the consensus approach is the best since it works by the rules agreed on by the decision makers. All the members involved in making the decision set guidelines that assist in coming up with the most suitable choice.

As per McLean (1996), the decision making process depends on personal views. In an individual perspective, people are guided by what they perceive to be morally wrong or right. In other words, the kind of choice made is dependent on an individual’s own values. According to Margaret McLean, the choice between right or wrong is made depending on three factors. In the first case, an individual thinks all that matters is the result. As such, why not lie? The outcomes may be bad, and it will hurt people. In the second perspective, individuals are guided by rules. Therefore, why not lie? The rules mandate the truth. In the third case, a person chooses not to lie because of their values. For instance, they can appreciate honesty. Therefore, an individual’s decision-making process is guided by the anticipated results, rules, and character traits. As such, whether a decision is right or wrong depends on the individual’s character. In that regard, business performance is contingent to the abilities of an individual (McClean, 1996).

In supporting the above notions, Craft (2013) hypothesizes that moral competencies and values play a significant role in both individual and organizational decision-making. Furthermore, they influence business performance. They define how human resources are managed and contribute to the attainment of organizational results. The competencies establish the skill, resources, and knowledge required from an employee to meet the organizational targets. From the human resources management perspective, competency at the organizational level refers to the needed characteristics of an individual. From the individual level at the psychological perspective, it relates to the real features owned by a person. Comparing the objective aspects of competence, it refers to the standards required in employment relations on the organizational level. At an individual level, it entails observable employee behaviors from an educational perspective. Sometimes the management utilizes favoritism to employ a person due to an existing relationship. Perhaps, the individual in question is a friend or close relative. They may not have the proper qualifications, thus affecting business performance. Nonetheless, moral competencies and values prevent this aspect from happening and ensure that the decisions made improve business performance (Craft, 2013).

As per Saaty (2008), hierarchical decision-making that entails “top down” management is the most effective in making business decisions. In this procedure, the choices are made by the managers with little consideration of other employees. Improving business sometimes requires making unpopular decisions, especially if the circumstances mandate a fast decision. Saaty further purports that this type of decision-making is faster, since it does not involve many people (Saaty, 2018). In making decisions based on this approach, the four cardinal virtues, i.e. prudence, justice, fortitude, and temperance, are vital. Prudence affects moral judgment, sensitivity, and intention. It is concerned with the knowledge and practical wisdom. Justice, on the other hand, refers to the permanent struggle to perform what is fair. Another virtue temperance refers to the desire to pursue what is just, while avoiding harmful undertakings. The fortitude virtue controls such passions of humans as despair, fear, anger, audacity, and hope. All these elements affect both individual and organizational factors of ethical decision-making. As such, making decisions based on these tenets is bound to improve business performance (Cabello-Medina, 2013).

Discussion

Making business decisions is a complex but important undertaking that affects organizational performance. In 2014, Barends and Briner affirmed that good quality decisions ought to integrate both critical thinking and the best existing evidence. It is a multifaceted system that strives to yield the best outcomes. To enhance business performance, the existing evidence impacting business objectives must be comprehended. For example, consumer preferences must be established before coming up with decisions to increase the supply of products and services. If the process is not undertaken diligently, then performance will be poor.

The above article has relayed the different perspectives surrounding the decision-making process. Above all, they have illustrated how the choices affect business performance. While some studies prefer the hierarchical or the majority rule, other studies champion the consensus approach. However, all of them underline the vitality of ethics in the decision-making process. As such, business performance is dependent on the ethical decision-making process.

Limitations of the Studies

Though the article accurately defines different aspects surrounding the decision-making process, its effectiveness on business performance has some disparities. For instance, the studies do not sufficiently provide reasons why a company may indulge in unethical practices. Intense competition may push an organization into making a morally wrong decision to heighten revenues and stay competitive. As such, the decisions are shaped by the societal, organizational, and industry cultures ( Cramwinckel, Cremer, & Dijke,). However, the studies do not accurately define how these elements affect business performance.

The studies do not provide a broad approach towards this topic. In other words, the type of the decision-making process is dependent on circumstances. It also depends on the kind of decision and the objective it is meant to achieve. For example, top management may want to reduce the number of employees by scaling down to cut costs. Perhaps, cutting down the costs will improve business performance. Therefore, some decisions work well with the hierarchical technique, while consensus suits others.

Conclusion

In order to improve business performance, the quality of decisions must be high. Excellent decisions result in better performance and vice versa. In that regard, the evidence collected must be accurate to enable accurate decisions. Evidence should be scientific, stating facts about the world, customers, or business practices. Moreover, it should come from local institutions or business indicators like metrics or professional experience. The quality of evidence must be high to achieve logical decisions that can lead to better business performance. Nevertheless, more research is needed on the topic of establishing the quality of evidence that can impact the decision-making process and business performance as a whole.


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