Impact of decision-making in organizational performance - Article Example

? Literature Review: Impact of decision-making in organizational performance. Carolina Volpato. Argosy February Literature Review: Impact of decision-making in organizational performance. Organizations in the modern world are complex, and many theories have been developed to explain what makes them work, and how to make them work even more effectively. A key element of organizational performance is the way that leaders make decisions, and then persuade all members of the organization to carry out these decisions in the way that is intended. Without good leadership, businesses become chaotic, and much time is wasted pursuing conflicting agendas. This is why it is important for any organization to develop its own decision making process, with clearly defined leaders who take responsibility for this key function. This literature review examines a number of articles which discuss the decisions that are made by leaders and the factors that influence whether this decision making has positive or negative impact upon the organizations concerned. The focus is on both the people who make decisions, and the process which leads to decisions being made. The personal qualities, skills and style of a leader are all factors which can affect the way that an organization behaves. Leaders have an important role to play in any organization and they can influence the organizational performance because everyone in the organization is expected to follow the leader. Leaders should make sure that the subordinates do not only follow them but take inspiration from them. In this way there are high possibilities that employees of the organization will give maximum output and overall performance of the organization will be enhanced. Owing to the perceived importance of the impact of leadership on performance of the organization, several research studies have been conducted in order to analyze what kinds of leadership exist, and whether there is a relationship between leadership and the organizational performance. This paper presents a critique of several recent articles on the relationship between leadership and organizational performance. The benefits and risks of charisma in a leader. An article about chief executive officer (CEO) charisma (Agle, Nagarajan, Sonnenfeld and Srinivasan, 2006) analyzes organizational performance and identifies its relationship with the charismatic style of leaders, as well as environmental uncertainty. In addition to this, the research also identifies the perceptions of top team management about the charisma of a CEO. The authors emphasize the fact that leadership style and its impact on organizational performance has been one of the most important topics of today’s world as leaders have a key role to play in motivating everyone in the organization and ensuring that the organization performs at its optimum level. In this research article, information has been collected using both primary and secondary research methods in order to perform the analysis. In the primary research part of the article, questionnaires were filled by people in the top management as well as CEOs of different organizations to analyze the relationship between the variables discussed above. Because the article had a large sample size, 770 questionnaires were filled and returned and this means that the results shown by this research are likely to have high validity. There was a sample size of 128 CEOs from different companies and this breadth in the location of the participants is a strength of the study. Another major strength of this article is that the study analyzed organizational performance using different criteria like the return on assets, return on equity, sales growth, return on sales and stock return. These measures provide good empirical evidence on which to judge organizational performance whereas other studies previously conducted have not considered these criteria of measuring organizational performance. One of the major weaknesses of this research study is that it included only firms operating in the United States. If the study had been conducted in other parts of the world it might have had a different result because of differences in organizational culture, organizational procedure and policies. Due to the data collection method, small firms have not been included either, and so the results might not reflect the relationship that exists between leadership style and organizational performance of small firms. The study had to compare a number of very different firms at the same time therefore it had to ignore some important considerations that might have changed the results. Prior performance of the firm, organizational size and organizational structure as well as tenure of CEO are important factors that could have changed the organizational performance and these factors were ignored by the researcher. Another weakness of the study is that the results might have been distorted as the study is unsure whether the sample is skewed towards CEO charisma as CEOs that agreed to participate in the research study might consider themselves as charismatic and the sample of the study has been overly populated with CEOs (Agle et al., 2006). This was a useful study, despite the weaknesses outlined above, because it made an attempt to identify whether there is any relationship between the CEO charisma and organizational performance and the presence of different environmental uncertainties and to explore the overall perception of the top management about CEO charisma. The method of using pre and post questionnaire was helpful for the researcher in the process of collecting data about the organizational performance in two different time periods. Although the research has incorporated the data collected from the CEO of large organizations, it has neglected the participation of small firms. Along with this it would have been more detailed and thorough analysis if data from organizations of different countries had been included. This research study is a good attempt to empirically analyze the topic, but it could have been much better by including data from small firms and different countries. An interesting article by Maccoby (2004) considers the concept of the “Narcissistic Leader” using terminology derived from Freudian psychology. This theoretical study cites mainly anecdotal evidence of highly successful leaders such as the late Steve Jobs of Apple. Maccoby (2004) makes the point that charisma is a potent force in leadership and that this is of tremendous value to an organization, but at the same time there is a dark side to these special gifts which brings considerable risk to a company. The term “narcissist” is derived from the ancient Greek myth of a young man who fell in love with his own reflection in the water and it signifies a certain personality type which tends to attract many followers. This type of leader is characterized by supreme confidence, and an uncanny ability to communicate radical and innovative visions of progress to their followers. They have high energy and great commitment to the success of their organization which makes them ideal for the media conscious business world of today. Maccoby (2004) differentiates between dangerous narcissists and productive ones, the latter being the type that are often seen leading major companies and making their mark in the media of the world. The dark and dangerous side of this type of leader lies precisely in the area of decision making, which can be somewhat erratic due to the inability of the narcissistic leader to take on board constructive criticism from subordinates, and a certain unwillingness to listen to a wider range of opinions. Narcissistic leaders lack empathy with other people, and this can be a liability if the leader becomes highly powerful and successful, and then subsequently faces setbacks and problems. Over confidence without a full and proper appreciation of how others in the organization see the problems can lead to brave or even reckless decision making which does not reflect the new reality: “narcissistic leaders – even the most productive of them – can self-destruct and lead their organizations terribly astray” (Maccoby, 2004, p. 9). They can also react with extreme anger or paranoia if they feel that their own self-image is being challenged in any way. The best feature of this article is that it is written in a concise and memorable way, with everyday examples from international business which illustrate the main points clearly. There are few references to other scholars, and this suggests that the article is intended more for practical use than for theory, and this impression is confirmed by the presence in the 2004 reprint of a side box entitled “working for a narcissist” which lists a number of tips for workers who believe that their boss fits this personality type. The main point of the article is to underline the importance of strong, charismatic personalities as figure heads and to warn against the risk that comes with their exceptional talent. There is also a very clear message that lone decision making in a separate executive level at the top of an organization is not necessarily an ideal process, and that it is better for an organization to find some way of integrating more people into the process. Maccoby suggests that it is better to open up channels through which even people lower down the management hierarchy can feed their views through to the top decision makers. This gives a more balanced and realistic basis for making decisions than just the radical visions of exceptional leaders, even when they are gifted and have an excellent track record. The importance of information in decision making. Some organizations, such as health providers, have to allow for decision making that takes place at many levels, and involving many different kinds of people. There are strategic directions which can be set by governments, and then there are also departments, staff, and even patients, each of which want to have some say in the way that the organization is run, and what its objectives are. A long and detailed article by Bekker et al. (1999) draws together the literature on decision making in this complex kind of organization and makes a bibliographical review. In this case the method is a type of meta-analysis of other work rather than an empirical study which seeks new data. This article is based on all the different kinds of the healthcare related information and interventions that are used to support decision making. In this article it is not just the leader’s personality and style that is important, but also and the kind of information that is used to underpin decisions. . A knowledgeable decision is one where a logical alternative is prepared by logical individuals utilizing significant data or information received about the procedure’s positives and negatives, in agreement with the individual’s viewpoint (Bekker et al., 1999). The study was extremely important because it illuminates how informed decision making is used in complex service related industries such as healthcare. It is remarkable how similar decision making can be between directors, employees or even general people from any industry. Anyone can have an effect on well-versed decision making such as service provision, information change in condition and expenditure. When analyzing the data combination, expressive synopsis and qualitative investigation were done. The article’s main idea is that the best kind of decision making relies on good information, but that there are many different theories which are applied when this information used, and there are many different ways of collecting and presenting information. Some of the theories and information types are more useful than other in different contexts, but the article does not come up with a blueprint for any perfect system. It merely lists previous studies done and points out strengths and weaknesses, and the difficulty that was experienced in measuring one system against another. Clearly information is important to decision making, but there on-going debates about how it should be gathered, presented and used. Further guidance on the use of information in organizations is provided in an article by Courtney on Decision Support Systems (DSS). This is a forward-looking article which takes into account the increasing complexity of modern organizations, and their inter-connectedness with social, environmental and economic concerns (Courtney, 2001). The discipline of systems theory is used to explain how an organization can improve its decision making by recognizing the trend towards more chaotic environments and adopting holistic systems approaches to decision-making. Some repetitive and predictable decisions can be dealt with using routinized and even computerized models, while others which involve less well defined and more novel problems must be left for senior case by case decision making. The idea of DSS is to provide the kind of information that assists in all kinds of problems, from the simplest, to the most difficult. The concept “wicked problems” (Courtney, 2001, p. 21) is introduced, meaning those situations requiring and organization to respond which do not easily fit into clear cut “right” and “wrong” decisions, but rather are more ambiguous and multi-faceted, with a number of likely outcomes which can even be contradictory. A new model for decision making is proposed which involves gathering and then synthesizing different perceptions. This is a valuable article because it brings in new theories to help deal with the challenges that are facing organizations in the post-modern world. The link between decision-making and performance. A study by Dean and Sharfman (1996) looked at the importance of strategic decision making, and in particular on how different decision making processes affect the outcomes of decisions taken at strategic level. This was an empirical study of 52 decisions in 24 companies and it looked at rational and political factors in the way that key decisions were made. Well known theories such as strategic planning and consensus building do not always take into account environmental factors, and so the authors sought ways of embracing all the variables that face organizations which important strategic decisions such as whether to make an acquisition, leave a market area, or enter a new market etc. The authors emphasize the increasing instability of markets, and the need for flexibility as well as a good understanding of the changes and trends that are all around an organization. This shows a development in thinking about organizational leadership and decision making which goes beyond the application of tried and tested methods, and attempts to find ways of dealing with the unpredictable. In an article on information technology and its role in helping organizations to have good decision making and communication processes T.J. Anderson (2001) stresses the value of decentralized decision making. If information is available in different parts of an organization, then it is easier for contributions to be made from all those different parts. Anderson hypothesized that if these systems work well in an intranet within a company, then there will be also be benefits passed on to the outside by the members of staff who have gained useful knowledge using this process (Andersen, 2001). A questionnaire methodology was used and the results confirmed that the more dynamic and innovative the industry is, the more essential it is for an organization in that industry to have many staff able to make decisions based on good information. Organizations that had such IT infrastructure, and made more use of intranet and Internet information demonstrated better profitability, sales growth and innovation, but there are some differences between less dynamic and complex industries and more dynamic and complex industries that merit more study. Conclusion. This short review of some of the recent literature has shown that both the people who make decisions and the processes that are used can have a decisive influence on the outcomes of any organizational decision making. There is an increasing need for flexibility in an ever-changing environment, and a trend towards de-centralizing decisions so that more workers and customers can contribute their valuable knowledge to the process. References (APA) Agle, B., Nagarajan, N., Sonnenfeld, J.,and Srinivasan, D. (2006). Does CEO charisma matter? An empirical analysis of the relationships among organizational performance, environmental uncertainty, and top management team perceptions of CEO charisma. The Academy of Management Journal ARCHIVE. 49(1). Retrieved from http://www.usnews.com/usnews/biztech/features/CEOcharisma.pdf Andersen, T.J. (2001) Information Technology, strategic decision making approaches and organizational performance in different industrial settings. Journal of Strategic Information Systems 10, 101-119. Bekker, H., Thornton, J.G., Airey, C.M., Connelly, J.B., Hewison J., Robinson, M.B. et al. (1999) Informed decision making: an annotated bibliography and systematic review. Health Technology Assessment 3(1), 1-150. Courtney, J.F. (2001) Decision making and knowledge management in inquiring organizations: toward a new decision-making paradigm for DSS. Decision Support Systems 31, 17-38. Dean, J.W. Jr. and Sharfman M.P. (1996) Does Decision Process Matter? A Study of Strategic Decision-Making Effectiveness. The Academy of Management Journal 39 (2). 368-396. Maccoby, M. (2004). Narcissistic Leaders, The incredible pros, the inevitable cons. Harvard Business Review, 92-99. [First printed 2000]. Retrieved from: http://showsupport.typepad.com/odyssey/files/ccc-081208-macoby.pdf Read More