Holistic Decision Making

INTRODUCTION WHAT DOES HOLISM MEAN

The term holism was introduced by the South African statesman Jan Smuts in his 1926 book, Holism and Evolution. Smuts defined holism as "The tendency in nature to form wholes that are greater than the sum of the parts through creative evolution".

WHAT IS DECISION MAKING

Decision-making is an indispensable component of management process and a managers life is filled with making decisions. Decision-making is the process of choosing a course of action from among alternatives to achieve a desired goal. It consists of activities a manager performs to arrive at a conclusion. Managers take decision-making as their control job because they constantly choose what is to be done, which is to do, when to do, where to do and how to do WHAT IS HOLISTIC DECISION MAKING "Holistic decision-making encourages us to be aware of our actions and their impact on the whole Holistic Approach for Decision-making It means everything is inter-related. Decisions taken in one department would affect other department as well. Managers should keep in mind the entire organisations while taking any decision because his decision would affect the interest of stakeholders of the business. In other words, managers should make decisions keeping in view various interest groups such as workers, customers, suppliers etc. Those decisions should be taken that do not harm the interest of any group, be it society, workers, customers or management. The holistic approach is based on the principles of unity or non-duality. Under the principle of unity, the universe is an undivided whole where every particle is connected with

another particle. Rational versus Holistic When complicated decisions have to be made, whether about salaries, layoffs or growth strategy, executives often rely on their underlying values to help them sort through possible options. Profit maximization and rationality form the basis of one such set of values, one frequently used by executives when making these decisions. "By making things quantifiable and rational, executives can have more confidence in their decisions, even when they create uncomfortable outcomes," explains Nathan Washburn, a management researcher at the W. P. Carey School of Business. "But when it comes to working for these executives, that way of thinking might turn their employees off." That unsettled feeling about the calculated nature of rational decisionmaking, with its emphasis on profits as guiding principle, inspired Washburn to launch a study about rational decision-making. Despite being the dominant management value set today, could rational decision-making actually harbor faults? And, could a less widely accepted, but more forward-thinking, "holistic" approach to management decision-making turn out to be more effective?

IMPORTANCE OF HOLISTIC DECISION MAKING Every single minute of human history is marked by decisions that affect every aspect of life, often far from the site of the decision itself. Collectively, these decisions have brought us to where we are today: to an environment marked by economic unpredictability, social instability and environmental degradation

In general, decisions tend to be overly-focused on the achievement of a single aim or the discovery of a solution to an immediate problem. We generally do not include the broader goals that we have for our organization, and too often, we do not consider the wider social, economic and environmental considerations on which our actions will have an impact. In business, a decision made by a manager is generally considered effective if it solves a given problem; but in todays environment, decisions often have a variety of other consequences -- desired or not -- which can attenuate or enhance the quality of the initial decision. This is why modern managerial decision making requires a holistic approach.

Holistic decision making encourages us to be aware of our actions and their impact on the whole; it ensures that we take responsibility and accept accountability for the decisions we make and empowers us to be part of the ongoing process of change. In order to provide managers with the necessary tools to manage modern organizations with a view to building long-term sustainable competitive advantage, it is imperative that organizations embrace a more holistic approach to problem solving. BENEFITS 1. Effectiveness The first impact dimension of a decision is the extent to which it solves the immediate problem that it was meant to solve. As this can be difficult to measure in complex situations, we are more concerned with the ex ante emphasis on problem solving -- the extent to which a manager takes a particular action, which he believes will be sufficient to solve the immediate problem. We call this the executive dimension of a decision. 2. Operative Learning As a result of having interacted to solve a particular problem, the agents involved have the capacity to learn something. The second impact dimension of a decision is the extent to which it enhances or diminishes the capacity of the two agents, both individually and as a team, to solve similar problems in the future. We refer to this dimension as the operational learning dimension. 3. Relational Learning Each interaction that a manager has with a stakeholder is an opportunity for the two agents to learn about each other, and the decision taken by the manager and its subsequent implementation will influence the extent to which the two agents will want to work with each other in the future. The third impact dimension of a decision is the extent to which the agents involved in it increase their willingness to work together in the future as a result of having interacted on the decision. We refer to this dimension as the relational learning dimension.

To illustrate the holistic decision-making framework, we will focus on the simplest possible relationship between a focal decision maker, whom we refer to as the Active Agent (AA), and a stakeholder, internal or external to the firm, whom we refer to as the Reactive Agent (RA). As depicted in Figure One, the Active Agent (AA) faces a problem, such as falling margins due to erosion in prices. To solve it, he decides to initiate an action (A) so that someone else, whom we will call the Reactive Agent (RA), will initiate a reaction (R), so that together, the action and the reaction can solve the problem. The RA in this case might be a subordinate, who is asked to investigate the causes for the price erosion, or a supplier, who is asked to absorb a reduction in prices. In either case, the AA relies on the reaction of the RA for the decision to take its course. The action and the reaction represent the executive dimension of the decision. If the problem is solved, then the decision and the subsequent action are considered effective; otherwise they are not. In our example, the submission of a report by the subordinate (RA) that allows the AA to arrest the falling margins would lead to the original decision of involving the subordinate being qualified as good. Similarly, a proposal by the manager (AA) to the supplier (RA) for a price reduction would also be considered a good outcome if the latter accepts the proposal. Clearly, the manager (AA) can involve stakeholders in different ways to solve problems. Let us take the case of the subordinate (RA). The manager could either instruct his subordinate to impose a price reduction on the supplier (directive problem solving), or ask him to investigate the reasons behind the falling margins and propose a solution (open ended problem solving). In the first case, the manager might be successful in arresting the decline in margins, but would have enhanced his subordinate's ability to solve a similar problem in the future only marginally, if at all. In the second case, the subordinate might after the appropriate analysis come up with a solution that does indeed require a price reduction from the supplier, or he might come up with a completely different solution. Whatever solution he comes up with, he would have partaken actively in generating it. The manager might require him to explain his solution, and to improve it by taking additional factors into consideration that might have been overlooked. Clearly, in the second case, the manager-subordinate interaction is very different from the first one, because there is greater probability that both the manager and the subordinate will learn from the experience of having worked together to solve the problem of margin erosion. They might even learn about each other's strengths and weaknesses. For example, the manager might learn that the subordinate is highly data driven, and that he

complements the manager's big picture approach. Our point is that by taking into account the operative learning dimension, managers can improve the long-term performance of their firms. The executive and operative learning dimensions are illustrated in Figure One and Figure Two. Figure One: The Executive Dimension: Focusing Only on Effectiveness

Figure 2: The Strategic Dimension: Focusing on Operational Learning and Effectiveness

In the above example of the problem of falling margins, the manager might decide that the solution lies in asking a supplier to reduce prices. Again, there are multiple ways in which this can be achieved. The use of power to force a price reduction might resolve the immediate problem, but it would affect the willingness of the supplier to continue to work with the manager and his firm. The manager must therefore ask himself - Is it fair to ask this supplier to reduce prices? Can we offer something in return -- such as higher purchasing quantities per order or higher annual volumes that might partly offset the impact of the price reduction?

Unfortunately, in the majority of cases, decisions are made based only on dimension #1 (how effective they will be in solving a particular problem), without attention paid in any systematic way to the other two critical dimensions. Figure Three: The Leadership Dimension: Focusing on Effectiveness, Operational Learning and Relational Learning

Ohio State Universitys Paul Nutt profiled 78 case studies of managerial decision making and found that most decision processes were solution centered, which, in his words, seemed to restrict innovation, limit the number of alternatives considered, and perpetuate the use of questionable tactics. According to Nutt, The bias for action causes [managers] to limit their search, consider too few alternatives, and pay too little attention to people who are affected, not realizing that decisions fail for just these reasons. Managers want to find out what is wrong and fix it quickly, and the all-too-frequent result is a hasty problem definition that proves to be misleading. Stanfords James March and Nobel Laureate Herbert Simon have also identified this problem and described the common motivation to use bland alternatives, stating that perceived time pressure begins to mount as decision-making reaches the idea stage, often creating artificial pressure to adopt the first workable idea that is uncovered.

As defined earlier, the executive dimension of a decision maker is her capacity to solve problems and execute her immediate plans flawlessly. Though such a capacity is basically positive, it can lead to failures if the two other dimensions are not considered. Nutt confirmed this through his studies: When the direction set by a manager rapidly narrows, or displaces a solution, little learning can occur; and When managers impose an answer, they create a misleading clarity that sweeps aside important sources of ambiguity and uncertainty. In this context it becomes clear that a possible exchange with the relevant stakeholder might have led to a better decision than the immediate focus on the problems solution. As a result, Nutt found that virtually half of the decisions in organizations fail. His study of 356 decisions in medium-to-large organizations in the U.S. and Canada revealed that these failures can be traced to managers who impose solutions, limit the search for alternatives, and use power to implement their plans. In a recent article, he pointed out that decision makers typically seek to act swiftly, whereas only one in ten decisions actually requires urgent action, and only one in a hundred necessitates crisis management. In closing We have identified three dimensions that every manager must take into account during decision deliberation. By considering the two learning dimensions of our decision making framework in addition to the commonlyconsidered effectiveness dimension, a firm can increase its capability-and knowledge-building competencies and promote stakeholder cohesion. It is important to note that a holistic approach does not by any means provide easy answers. If anything, it highlights the fact that decisions are fraught with complexity. For this reason, we view decision making as a managerial competence that requires deep knowledge of specific products, markets and industries; finely honed skills in managing interpersonal relationships, effective communications, and negotiations; and the right attitude based on professionalism, integrity, and a genuine interest in the development of all stakeholders.

Holistic Decision Making

Our thesis has clear implications for managers on the one hand, and for management educators on the other. Most importantly, it constitutes advice for managers on how to manage their stakeholder relationships. By taking the three decision-impact dimensions into account, managers can immediately begin to enhance the quality of their decision making. And educators can also begin to integrate stakeholder issues into their curriculum by encouraging students to focus on the operative and relational learning dimensions of their decisions.

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