Running Head: Executive Decision Making: Rational Versus Intuitive

Executive Decision Making:

Rational Versus Intuitive

René Cintrón

Capella University

December 23, 2004 Table of Contents

SECTION I: DEFINITION OF THE PROBLEM 3 Background & Statement of the Problem 3 Purpose of the Study & Definition of Terms 4 Limitations of the Study 6 SECTION II: REVIEW OF THE LITERATURE 6 SECTION III: SUMMARY, CONCLUSIONS, AND 9

RECOMMENDATIONS Summary 9 Conclusions & Recommendations 9 REFRENCES 11 SECTION I: DEFINITION OF THE PROBLEM

Background & Statement of the Problem

Executives make decision on a daily basis as part of the responsibility the position holds within the company. They are required to solve a number of issues dealing with the company strategies, structures, quality, performance, and work flow, among many other issues of the business. The decisions made to solve these issues may have considerable consequences for company performance and overall success. Decision making is the cognitive process of reaching a decision (Ireland & Miller, 2004). The decisions executives make are often concluded with uncertainty about the business environment including technology, market, competitors, matters, and many more internal and external environmental factors. Executives must be good at this process (Janney & Dess, 2004). Failing to make the right decision or any decision at all may have costly repercussions for the organization and the person responsible for selecting value-changing choices. Decision making requires continual review and refinement of knowledge and experience gathered from performing decision-making processes in the past (Ireland & Miller, 2004). Rational decision making is a complicated task. Executives often have difficulty with the strategic decision process, partially because of its complexity and partially due to its non-routine nature. Some decision must be accomplished in an expedient manner, which is important for generating positive outcomes. Formal analysis techniques, behaviors, personal characteristics, and politics are all important segments of decision making.

In order to maneuver through the process, executives learn the simple steps of classical decision making. (Ireland & Miller, 2004). The six-step process starts by defining the issue and end with the review of the newly formulated strategy. The between steps include gathering information, assessing the information found, making a choice on the course of action, and making the behavioral changes. The decision making process leading to a strategic plan can consume a large amount of time and effort. (Mankins, 2004). What do executives use to minimize the time of a rational decision making process?

Some utilize their experience and feelings which come in the method of intuition.

Intuition is the ability of utilizing direct knowledge or understanding without the obvious use of rational thinking or logical implication.

Executive have experienced similar situations and know what to do without having to utilize much of rational process, or they have a strong feeling of the right decision to be made. These are the two sides of intuition: experience and feeling (Sadler-Smith & Shefy, 2004). The problem becomes when and how to listen to ones intuitive thinking instead of going thought the often elongated process of rational decision making.

Purpose of the Study & Definition of Terms

The purpose of this research is to examine the options executive have when it comes to strategic decision making, specifically that of when and how to accept their intuitive thoughts instead of rational methods.

Rationality is the influential utilization of information and data to resolve uncertainty around an issue to be decided upon. Rational decision making seems to be of benefit in both stable and dynamic environments (Mueller,

Mone, & III, Vincent, 2000). Most decisions are based on the principles of rational decision making. Rationality involves six distinct behaviors, (1) starting the process proactively, (2) attempting to accomplish specific goals, (3) goals are identified prior to examining the means of achieving the goals,

(4) choosing between the alternatives objectively based on their capacity t accomplish the goals, (5) being comprehensive in the variety of activities involved in decision making, and (6) comprehensively incorporating decisions made with the entire overall strategy. Rational decision making is the process of setting a goal and collecting and analyzing information thoroughly, evaluating the alternatives, and developing a plan (Fredrickson,

1983). Rational decision making involves acquiring knowledge and information through conscious reasoning and deliberation using analytical thinking. The rational method can without any doubt lead to effective decision making (Sadler-Smith & Shefy, 2004).

Intuition is a basic cognitive process commonly known as hunch or suspicion. Executives’ intuition is utilized significantly to make decisions.

Intuition presents the opportunity for turning ideas into action and speeding up the decision making process by not having to go thought the basic and sometimes elongated steps of rational decision making. Intuition is uncontrollable, automatic, and involuntary thoughts people have about a situation. It is sometimes referred to as a gut-feeling (Sadler-Smith & Shefy, 2004). Intuitive judgment can be enhanced by mood. Positive moods may guide individuals to pay more attention to intuition. Optimism may also have the same effect of a person (Dane & Pratt, 2004).

Limitations of the Study

Due to the nature of the study and the time element of the research there are a variety of limitations brought upon this paper. The principal limitation of this study is time. The literature on the topic of decision making is immense. Rational and intuitive decision making processes are discussed in a vast amount of research. Another limitation is that of this being a meta-analysis without its own investigative research. With time permitting a survey or questionnaire answered by executives would have added first hand information and data to evaluate for the study. In some cases, such as those when prior experience is used, intuition is nothing more than an already solved issue that reoccurs. The limitation here is the question of should this situations fall under the category of intuition or as a rational decision that was previously made and is being utilized once again.

SECTION II: REVIEW OF THE LITERATURE Mueller, Mone, and Vincent (2000) review a series of previously published papers dealing with rational decision making and finds that this process is associated with greater economic performance during stable environments and vice-versa, poor economic performance in dynamic environments. They also find that in order to reduce uncertainty rational decision making is used by higher performing companies. Rationale is utilized to resolve uncertainty surrounding an issue that requires a decision.

In this regard, it seems advantageous in both dynamic and stable environments.

Sadler-Smith and Shefy (2004) discuss rational decision making as having superior outcomes under particular sets of circumstance. Inherently, executives use rational decision making and seek to maximize results even when the business environments are considered to be objective and deliberate planning produces successful strategies. Executive perceive the more information the better as being a cool and calm method of strategic thinking without feeling getting in the way. Sadler-Smith and Shefy (2004) continue the discussion by introducing the notion of intuitive decision making as a form of knowing that manifests itself as an alertness of feelings, bodily sense, and cognition in connection with a deeper perception, understanding, and method of creating sense of the world that may not be achieved easily or at all by any other forms.

Intuition is divided into two specific categories: expertise and feelings. Expertise intuition, according to Sadler-Smith and Shefy (2004), are those thoughts of perception and understanding related to previous knowledge. Prior actions and previous experiences of executives and the related inherent learning process are important tools of building intuitive experience. The extent of quality and utility of intuitive experience and knowledge gained from incidental and unplanned learning opportunities relies upon the extent to which feedback is utilized in a positive manner to enhance intuitive skills and evolve good intuitive habits. Intuitive feelings are no more than gut feelings. Learning from these feeling is possible because individuals are prone to emotions, fear, and other sources of bias which may affect the efficiency and accuracy of intuitive decision making.

Over-time, the executive has to learn to determine the validity of these feelings by testing intuition and determine how much trust to place in it. Dane and Pratt (2004) discuss the characteristics of intuition as a process of recognition in which environmental stimuli is matched with some non-conscious pattern. The effectiveness of intuitive decision making depends on an array of conditions dealing with the cognitive framework of the individual, the level of the individual explicit and implicit learning, and the characteristics of the issue at hand.

Intuition is a brain skill, according to Agor (1986), which is useful particularly for decision making in specific management situations such as when there is little precedent, high level of uncertainty, non-scientifically predictable variables exist, facts are limited and not clear regarding direction, time is limited and pressure to be correct exists, and when it is necessary to draw a decision from many possible alternatives.

SECTION III: SUMMARY, CONCLUSIONS, AND

RECOMMENDATIONS

Summary Decision making is the process of choosing from different alternatives the best or better solution to a problem. The two styles discussed used by executives are rational and intuitive. Rational decision making requires an analytical view of the issue at hand. It tends to be time and resource consuming involving information gathering and evaluating. Intuition is a method utilized by executives under certain situations, mainly when uncertainty with the problem exists. Intuition is particularly useful in management climates where uncertainty is high, prior experience and records lack to exist, scientific predictability cannot be utilized, facts are limited and unclear in regards to suggesting a course of action, the pressure is on to be on time and be right, and a large number of reasonable solutions exist. Intuition is developed over time whether it is experience or feeling intuitive decision making. Experience intuition is learned knowledge accumulated through practice and understanding, while intuitive gut feeling can be harnessed to learn when to listen to it and when to pass.

Conclusions & Recommendations

I have found that intuitive decision making is a learned skill. Rational decision making is more elaborate and can be more accurate in stable situations. Experience intuition seems to be a developed and advanced method of rational decision. After doing something for a while people learn from mistakes and know not to do certain things again, so when it comes to deciding on an issue, the more experience the person is, the more intuitive they can be. This type of intuition knows already without having to conduct research on particular information, while the other is a little more unpredictable. In conclusion, rational decision making is more predicable, but time consuming. Intuition as experience is also predictable, not as much as the rational method, but it requires less time. Gut feeling is unpredictable at first until the person learns when to listen and then it can become more predictable; it also has less time constraints.

I recommend that a person starting out their career utilize the rational decision making method while staying alert to their intuitiveness.

Maintaining alertness on the intuitive nature will allow the person to learn from it before acting on it. For a person in mid-career, they can listen more to intuition on issues the individual has confidence in. It all depends on the person’s ability to retain and use information directly without looking it up.

An experienced executive may utilize intuition more as the years of familiarity, knowledge and practice have built the cognitive database. Write down intuitive thoughts and use them in the rational process. REFERENCES Agor, W. H. (1986 January/February). How Top Executives Use Their Intuition to Make Important Decisions. Business Horizons, 29(1), 49- 53.

Dane, E., & Pratt, M. (2004). Intuition: Its boundaries and role in organizational decision-making. Academy of Management Proceedings, 1, 1-6.

Janney, J. J., Dess, G. G. (2004 November). Can real-options analysis improve decision-making? Promises and pitfalls. Academy of Management Executive, 18(4), 60-75.

Fredrickson, J. W. (1983). Rationality in Strategic Decision Processes. Academy of Management Proceedings, 17-21.

Ireland, R. D. & Miller, C. C. (2004, November). Decision-making and firm success. Academy of Management Executive, 18(4), 8-12.

Mankins, M. (2004 May). Making strategy development matter. Harvard Management Update, 9(2), 3-5.

Mueller, G. C., Mone, M. A., & III, Vincent L. B. (2000). Strategic decision making and performance: Decision processes and environmental effects. Academy of Management Proceedings, 1, 1-6.

Sadler-Smith, E. & Shefy, E. (2004 November). The intuitive executive: Understanding and applying 'gut feel' in decision-making. Academy of Management Executive, 18(4), 76-91.