Decision Making and Group Dynamics in the Organization - Federal Bank of Australia - Case Study Example

Decision making and group dynamics in the organization Authors Name Institutional Affiliation Abstract The purpose of this report is to analyze the various aspects and theories, and models of decision making process and group dynamics in the workplace and being able to relate them with the activities of the Federal Bank of Australia. Sufficient information about the activities of the bank was readily available and thus guided the overall objective of the report. In order to meet the purpose of this report it is important to understand the meaning of decision making and its different forms and also understanding the importance of group dynamics to an organization. The identification and choice of a solution towards a specific objective is referred to as the decision making process. Decision making involves evaluating the various actions that are relevant to solving a particular problem and making a choice amongst the actions that are available. Decision making takes two forms which include programmed and non-programmed decision making. The nature of programmed decision is that they are automatic and are routinely administered. The decisions are already established in the form of rules and guidelines. Non-programmed decisions on the other hand are initiated by response to an unpredictable or unusual phenomenon within the organization. The nature of this type of decision making is that there are no rules or guidelines that guide the decision. The manager is guided by his/her intuition and also the information that is related to the particular incident. The processes and the characteristic that influence the functioning of a group can be best understood through conducting group dynamics (Van, 2008). A group is defined to as a collection of two or more people who aim at achieving the same goals and objectives in the workplace. The members of the group may more or less share the same norms and identity. There are two types of groups which include formal and informal groups. Formal groups are involuntarily joined due to the fact that they are formed by the manager of an organization and strive towards to achieve the organizational objectives. They are expected to accomplish a set of assigned tasks that may be challenging to an individual. They achieve this through brainstorming and combining individual efforts in order to come up with creative problem solving mechanisms that are able to provide creative solutions for their problems. The group has the responsibility of implementing complex decisions and socializing new members into the organization through the group. Informal groups on the other hand are voluntarily formed by people who agree and share the same problems values and norms. The underlying purpose of such groups is to help the individuals attain their overall goals of issues such as security, self esteem or even economical and social issues. Informal groups are important to individuals because they satisfy their needs such as affiliation, recognition, self esteem and identity within society. The groups moreover provide a platform for individuals to give their thoughts and opinions about social realities. In the work place informal groups are important because they provide the employee with a sense of security and also eliminate the feeling of inferiority in the employee (Van, 2008). Informal groups function as a means by individuals to find solutions for their interpersonal and social problems. Executive Summary: Reserve Bank Australia The Reserve Bank Act of 1959 gave power to the Reserve Bank of Australia as the central bank of the country. The bank is mandated to maintain a stable currency, to employ and to ensure that the country is economically prosperous in order to safe guard the welfare of the people. The bank achieves these objectives by ensuring that the cash rate of the country is in line with the agreed medium term inflation target, maintaining a strong financial system, developing convenient and efficient payment systems and by providing the nation’s currency in form of bank notes. The reserve bank moreover is tasked with the management of the gold and foreign exchange reserves of the country. A central bank is the policy making institution in the country meaning that great public policy is dependent on effective management of the organization. The management of central banks however is difficult to compute as there is lack of performance indicators such as profit and the returns on shareholders. Organizational changes in central banks are influenced by external factors which include the demand for accountability by the citizens and need for independence of the institution. This has thus resulted in group decision making in central banks with respect to monetary policies of the country. Organizational structure Central banks are considered hierarchical organizations due to the fact that here is great importance for them to achieve high levels of quality assurance. The federal bank of Australia has adopted a flatter management structure that involves one or two layers of middle management being removed from the organizational structure. The removal of these layers has greatly been influenced by advancements in technology that have replaced manual processes thus greatly reducing human errors and the eliminating the need for counter checking work. The bank practices horizontal management in controlling their activities. This simply means that the banks management is organized in relation to functional lines. There are two separate divisions within the bank. They include the monetary systems and financial systems for policies. This structure is characteristic of creating groups in relation to their professions with the monetary system forming groups that comprise of individuals who are knowledgeable in macro-economic and the financial systems comprising of individuals who are professionals in accounting, law and micro-economics (Cukierman, 2005). Decision making There are two basic models of decision making which include the rational model and the non rational model. The rational model is characterized with four basic steps which include problem identification, development of solution, choosing between the alternative solutions and implementation and overall evaluation of the decisions. The rational model is associated with constraints that result from lack of adequate information concerning the product. Non rational models of decision making are based on the assumption that the process of decision making is not rational. They are based on the facts that decision making is constraint by lack of information and thus it is an uncertain process. The two main models of decision making are Simon’s normative model and the garbage can model. The garbage can model states that decision making process involves the interaction of factors that include problems, the overall solution, the participants involved and the alternative choices that are available (Hall, 2007). Simon’s model states that decision makers are bounded by their rationality. They decisions are limited by their own personal characteristics and also influenced by internal and external resources (Forest, 2001). The internal influences included factors such as human capital, finances available, technological aspects and internal organizational systems. External constraints on the other hand involve factors such as that cannot be controlled such as the employment rate in the country and government policies and regulations. These limitations cause barriers to access to information and thus result to difficulty in decision making (Gigerenzer, 2002). Satisficing is an aspect of Simon’s normative model and involves the making decisions that meet the meet the minimum requirements that are expected from them. The concept of satisficing simply implies that the managers make decisions that satisfy a particular problem rather than optimal solutions that ensure permanent solutions (Forest, 2001). Satisficing is the most widely employed method by the federal bank of Australia due to the conflicting tasks that it undertakes. For example conflict arises from the different monetary policies that the central bank has to choose from. A major conflict is the choice between maintaining price stability and achieving overall economic growth of the country. Another conflict is usually experienced when there is great concern about a floating exchange rate regime. The choice between domestic price stability and the stability of the exchange rate may cause the interest rate to move into completely different directions (Tuladhar, 2005). These conflicting tasks are the key motivators of satisficing model of decision making in the federal bank of Australia. The market situations are very dynamic and thus there is relevance to making decisions that satisfy the current market needs rather than optimal decisions. Group dynamics The most important factor that determines the effectiveness of a group is conformity. Conformity can be described as behavioral change in an individual in an aim of fitting in a particular group. It can also be considered as the effect of pressure from group members to adhere to certain shared norms and behaviors. There are different types of conformity. Normative conformity is characterized by the individual joining a group because he/she wants to fit in the group. It involves the individual publicly representing the norms and views of the group due to fear of rejection from the group (Mcleod, 2007). Informational conformity on the other hand is characterized by the individual search for knowledge and thus looking for guidance from the group. Internalization is the major component of this type of conformity as the individual readily accepts the views and opinions of the group and thus adopts them in his/her daily endeavors. The Asch effect clearly illustrated the extent of conformity. Solomon Asch in the 1950’s conducted laboratory experiments that showed the extent through which the individual decisions were influenced by those of the majority group members (Haslam, 2011). Asch experiments highlighted the power of conformity in influencing normative social behaviors. The results were evidence that individuals will publicly follow a group’s response to a situation without details of what the group is following. The federal bank of Australia employs the use of informational conformity to form its groups. This is advantageous because employees are able to share information amongst them and thus increase productivity in the banks. These groups also facilitate greater decision making within the bank. The advantages of involving the groups in decision making is due to the fact that they provide different perspectives of solutions to a problem and individuals can improve in execution of their tasks through constant involvement in effective groups. Group cohesiveness is also an important factor in increasing productivity of an organization. Cohesiveness is defined as the measure of the extent through which a group member is connected to his/her group members. Group cohesiveness develops a strong team spirit amongst the group members and also fosters the willingness of the group members to participate in the activities of the group. Compared to members of a non-cohesive group, members of cohesive groups are able to coordinate their efforts in execution of their duties and responsibilities. The factors that lead to group cohesiveness include the size of the group where a smaller group is characterized by high levels of conformity, group identity which is encouraged by the manger to adopt an identity that is unique to its members. Being unique increases the competitive nature of the group thus increasing the loyalty of the members. Success also tremendously affects the cohesiveness of the group. Successful groups increase the efforts of the members of the group thus increasing cohesiveness. The federal Bank of Australia has been able to successfully increase group cohesiveness forming small voluntary teams that work within the same profession. These groups are able to find solutions to various diverse problems that affect the quality assurance of the bank which is their most important objective. Appendix Organizational Structure Federal Bank of Australia References McLeod, S. A. (2007). What is Conformity? Retrieved from http://www.simplypsychology.org/conformity.html Haslam, S. Alexander; Reicher, Stephen D.; Platow, Michael J. (2011). The new psychology of leadership: Identity, influence and power. New York, NY: Psychology Press. Blinder, A. S., (2004), The Quiet Revolution: Central Banking Goes Modern, Yale University Press, New Haven, Connecticut. Hall, C.C., Ariss, L. & Todorov, A. (2007). The illusion of knowledge: When more information reduces accuracy and increases confidence. Organizational Behavior and Human Decision Processes, Gigerenzer, Gerd; Selten, Reinhard (2002). Bounded Rationality: The Adaptive Toolbox. MIT Press Forest, Joelle. (2001) "John R. Commons and Herbert A. Simon on the Concept of Rationality", Journal of Economic Issues (3) 591–605 Cukierman, A., (2005), “Central Bank Independence and Monetary Policymakng Institutions–Past, Present and Future,” Distinguished Lecture Delivered at the Annual Meeting of the Chilean Economic Society, September, Tel Aviv University Tuladhar, A., (2005). Governance Structures and Decision Making Roles in Inflation Targeting Central Banks. IMF Working Paper No.05/183 Van Vugt, M.; Schaller, M. (2008). Evolutionary approaches to group dynamics: An introduction. Group Dynamics: Theory, Research, and Practice. Read More