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Summary AQA AS/A-level 3.2 managers leaders and decision making
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3.2 Managers, leaders and decision makingWhat do Managers do? Small business
§ Set objectives for their department and § Managers and leaders are often the same
subordinates
§ Analyse and interpret data- employee Larger businesses:
performance, sales, production, costs
As businesses grow the role of leaders and managers
§ Review performance
become distinct
§ Managers make decisions
§ Appraise their employees § A focus on long term vision and direction is
§ Lead their staff often needed, role of a leader to provide this
§ Managers focus on ensuring tasks are
There’s a difference between managing and leading. completed and deadlines are met, to support
Managing means telling people what to do and the long term vision and direction of the leader
organising resources to get the job done,
coordinating and planning. Leading means motivating and inspiring them to do things; decide on
direction of the business, clear vision. Managers with good leadership skills can persuade their staff
that their decisions are the right ones.
Different management and leadership styles:
Authoritarian- the leader makes decision on their own. They identify the objectives and say exactly how they’ll be
achieved. It’s useful when dealing with lots of unskilled workers and crisis management. Can demotivate intelligent
workers.
§ Autocratic leaders hold onto as much power and decision-making as possible
§ Focus of power is with the manager
§ Communication is top-down & one-way
§ Formal systems of command & control
§ Minimal consultation
§ Use of rewards & penalties
§ Very little delegation
§ McGregor Theory X approach
§ Most likely to be used when subordinates are unskilled, not trusted and their ideas are not valued
Paternalistic-softer form of autocratic style. Leader consults the workers before making decisions, explains decisions to
persuade them that the decisions are in their interest. Paternalistic leaders think that getting involved and caring about
human relations is a positive motivator.
§ Leader decides what is best for employees
§ Links with Mayo – addressing employee needs
§ Akin to a parent/child relationship – where the leader is seen as a “father-figure”
§ Still little delegation
§ A softer form of authoritarian leadership, which often results in better employee motivation and lower staff
turnover
§ Typical paternalistic leader explains the specific reason as to why he has taken certain actions
,Democratic style- the leader encourages the workforce to participate in the decision making process. Democratic
leaders have to be good communicators. This style shows leaders have a lot of confidence in the workforce- increased
employee motivation.
§ Focus of power is more with the group as a whole
§ Leadership functions are shared within the group
§ Employees have greater involvement in decision-making – but potentially this slows-down decision-making
§ Emphasis on delegation and consultation – but the leader still has the final say
§ Perhaps the most popular leadership style because of the positive emotional connotations of acting
democratically
§ A potential trade-off between speed of decision-making and better motivation and morale?
§ Likely to be most effective when used with skilled, free-thinking and experienced subordinates
Laissez faire style
§ Laissez-faire means to “leave alone”
§ Leader has little input into day-to-day decision-making
§ Conscious decision to delegate power
§ Managers / employees have freedom to do what they think is best
§ Often criticised for resulting in poor role definition for managers
§ Effective when staff are ready and willing to take on responsibility, they are motivated, and can be trusted to
do their jobs
§ Importantly, laissez-faire is not the same as abdication
,Tannenbaum and Schmidt Continuum:
§ Tells: authoritarian management style. Zero involvement in decision making. Divisive between management
and workforce
§ Sells: the manager makes the decision but tries to present it to the workforce as having a sound rationale.
Workforce ask questions- do not influence decisions
§ Suggests: decision is outlined allowed to discuss and ask questions. Helps them feel their opinions are
considered
§ Consults: manager proposes a tentative decision and invites discussion. Decision open to being modified-
recognises insight and value of workforce participation
§ Joins: manager proposes a problem, workforce discuss. Manager makes the final decision
§ Delegates: the manager outlines the problem and sets the constraints. Team discusses solutions and makes the
final decision; manager is accountable for the outcome. Delegation of authority shows a high level of trust that
the manager is placing on the team
§ Abdicates: team define and solve the problem. Ultimate level of freedom of the workforce. The team are
trusted to use their expertise to make decisions which should be highly motivating for the team. Manager is still
accountable for the decision so must be sure the team can handle the responsibility.
, Management Decision Making
Scientific decision making-
involves making decisions
based on evidence and
adopting a systematic
approach (quantitative)
§ Logical and structured approach
§ Data driven = evidence base
§ Risk averse approach
§ Removes some (but not all) subjective judgement from decisions
Drawbacks Intuition: decisions based on hunch, gut feeling or instinct,
experience
§ Personal experience- data isn’t always
reliable manager may be more § Speed- decision can be instant rather than waiting for
comfortable with gut feeling results
§ Costly and time consuming § No expense
§ Takes away human element – less creative § Qualitative approach
§ Doesn’t guarantee correct result § Creative and innovative
§ May ignore the crucial aspect of business
experience However basing decisions on intuition can be risky; can be
§ Reliable up to date data – otherwise it irrational and not based on logical reasoning
becomes unreliable
, Opportunity Cost- the next best alternative foregone
Idea that money or time spent doing one thing is likely mean missing out on doing something else
Other Factors
§ The decision must support business objectives otherwise the decision will not be in the businesses interest
§ Ethical positions- decisions made must comply with the ethical position of the business especially if this is
used as a USP for the business. If it wasn’t it would abandon their commitment there would be serious
consequences for their reputation
§ External environment- PESTLE, these all must be considered as well as competition. They must take these
factors into consideration as it may reduce competitiveness
§ Resources- business must consider the availability of its resources. E.g. they may not have the funds to
support a campaign, or limited resources (employees)
, Decision Trees:
Decision Trees- A mathematical model used by managers to make decisions. Logical approach, mapping out different
available options. Uses estimates and probabilities to calculate the expected value or net gain
Decision Tree analysis combines probability and expected pay off
Net gain is the financial gain after initial costs have been calculated. Net Gain= EV- initial costs
Advantages:
§ Makes managers think about the probability and potential payoff.
§ Visual representation of potential outcomes
§ Choices are set out in a logical way
§ Allow managers to compare options quantitatively and objectively rather than going for the fashionable option
§ Useful in familiar situations – where a business has enough experience to make accurate estimate of probabilities
and benefits
§ Potential options and choices are considered at the same time
§ Uses of probabilities enables the risk of the options to be addressed
§ Likely costs are considered as well as potential benefits
§ Easy to understand and tangible results
Disadvantages:
§ Quantitative- ignore qualitative data. This could be employees opinions
§ Probabilities are hard to predict accurately. Estimated pay offs are assumed.
§ If either estimates are based on dodgy information – decision is flawed
§ In reality there’s a wider range of potential outcomes than the tree suggests.
§ Assignment of probabilities and expected values prone to bias. Not dynamic
§ Decision making technique doesn’t necessarily reduce the amount of risk
, Stakeholders and decision making:
A Stakeholder is an individual, group or institution with a direct, vested interest in the activities
and performance of an organisation or in a project to be undertaken.
An organisations survival depends to a large extent the support it gets from stakeholders
§ Different stakeholders have different needs- overlap and some conflict
Internal Stakeholders:
§ Owners are the most important stakeholders. They make a profit and decide what happens
§ In a limited company Shareholders are the owners- high dividends and high share price
§ Employees- interested in job security and promotion aspects. Want to earn a decent wage and have pleasant
working conditions. Managers have extra concerns- get some of the blame if the company does badly
External Stakeholders- people outside the business
§ Customers- high quality products, low prices
§ Suppliers want to be paid a fair price and on time, otherwise cash flow problems
§ Local community will gain if the business provides local employment and sponsors local activities. Community will
suffer- pollution, noise, lose jobs , lose uniqueness
§ Governments get more in taxes- business makes good profits. May be concerned with monopolies (+25% of MS)
§ Creditors are those who the business owes money to. A bank will want loans paid back on time
§ Competitors
Different stakeholders have different objectives:
Stakeholders all have their own objectives which are conflicting
Businesses have to strike a balance to keep all stakeholders happy. Employees can be paid well, suppliers have reliable
business
§ Importance balance is between short term profit and social responsibility
§ Profit – stakeholders happy, employees paid well, suppliers have reliable business, shareholders dividends. To
increase profits, cut labour costs. E.g. relocating abroad, labour = cheaper. May satisfy shareholders if profit
increases. Loss of jobs and suppliers business = bad news
§ Company has to satisfy as many groups as possible and still survive financially. Prioritise groups if not possible
§ Stakeholders don’t always disagree, making them happy= increase productivity and raise profits.
The Win – Win approach to meeting stakeholder needs occurs when attempts to satisfy the needs of one group leads to
a favourable impact on another group of stakeholders. E.g. improving product quality, benefit customers and lead to
increased sales and profits thus benefiting shareholders
The Win – Lose approach: attempts to satisfy the needs of one stakeholder group leads to adverse effects on another
group of stakeholder’s e.g. lower prices may satisfy customers but lower profits for shareholders
, Stakeholder mapping considers Power and Interest
Managers have to think about which stakeholder group is most important to them
Relationships with stakeholders are important:
During a recession – business focuses on not going bankrupt, may not be able to fund projects in the local community. May
have to cut wages & not pay dividends
Businesses need to manage their relationships with stakeholders. Satisfying one may come at the expense of another. It
could result in staff leaving or going on strike. Managing these relationships prevent this from happening.
One way of managing relationships – consulting key stakeholders. They feel valued if their opinions are considered.
Stakeholder hold specialist knowledge- benefit business
Good communication. Keeping employees informed about changes = included. Businesses can use social media and their
website to communicate with customers
Stakeholder theory:
shareholders are the most
important, maximise profit.
Traditional view, profits=
direction of business
Alternative stakeholders:
organisation gives
prominence on alternative
views
Managing stakeholder power and interest
Stakeholder mapping evaluation:
§ Theory to try manage dissatisfaction
of different stakeholder groups
§ But it is only theoretical, always going
to be a conflict= decision made= how
stakeholders consulted- how
important stakeholders are
Stakeholder mapping= Mendelows grid
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