Managers must make many different types of decisions. In general, however, most decisions fall into one of two categories: programmed and nonprogrammed.¹⁷ A programmed decision is one that is relatively structured or recurs with some frequency (or both). Starbucks uses programmed decisions to purchase new supplies of coffee beans, cups, and napkins, and Starbucks employees are trained in exact procedures for brewing coffee. Likewise, a College Station Ford dealer may make a decision that he or she will sponsor a youth soccer team each year. Thus, when the soccer club president calls, the dealer already knows what he or she will do. Many decisions regarding basic operating systems and procedures and standard organizational transactions are of this variety and can therefore be programmed.¹⁸

Nonprogrammed decisions, on the other hand, are relatively unstructured and occur much less often. Disney’s decision to buy the Stars Wars properties from George Lucas was a nonprogrammed decision. Managers faced with such decisions must treat each one as unique, investing enormous amounts of time, energy, and resources into exploring the situation from all perspectives. Intuition and experience are major factors in nonprogrammed decisions. Most of the decisions made by top managers involving strategy (including mergers, acquisitions, and takeovers) and organization design are nonprogrammed. Nonprogrammed decisions also include those concerning new facilities, new products, labor contracts, and legal issues.

Just as there are different kinds of decisions, the conditions in which decisions must be made also are different. Managers sometimes have an almost perfect understanding of conditions surrounding a decision, but at other times they have few clues about those conditions. In general, the circumstances that exist for the decision maker are conditions of certainty, risk, or uncertainty.¹⁹

The first step in rational decision making is recognizing that a decision is necessary; some stimulus or spark must initiate the process. The stimulus for a decision may be either positive or negative. Managers who must decide how to invest surplus funds, for example, face a positive decision situation. A negative financial stimulus could involve having to trim budgets because of cost overruns.

Inherent in making such a decision is the need to precisely define the problem. Consider the situation currently being faced in the international air travel industry. Because of the growth of international travel related to business, education, and tourism, global carriers need to increase their capacity. Because most major international airports are already operating at or near capacity, adding a significant number of new flights to existing schedules is not feasible. As a result, the most logical alternative is to increase capacity on existing flights. Thus, Boeing and Airbus, the world’s biggest manufacturers of large commercial aircraft, recognized an important opportunity and defined their decision situations as how best to respond to the need for increased global travel capacity.²³

Once the decision situation has been recognized and defined, the second step is to identify alternative courses of effective action. Developing both obvious, standard alternatives and creative, innovative alternatives is useful. In general, the more important the decision, the more attention is directed to developing alternatives. Although managers should seek creative solutions, they must also recognize that various constraints often limit their alternatives. Common constraints include legal restrictions, moral and ethical norms, and constraints imposed by the power and authority of the manager, available technology, economic considerations, and unofficial social norms. After assessing the question of how to increase international airline capacity, Boeing and Airbus identified three different alternatives: They could independently develop new large planes, they could collaborate in a joint venture to create a single new large plane, or they could modify their largest existing planes to increase their capacity.

The third step in the decision-making process is evaluating each of the alternatives. Some alternatives may not be feasible because of legal or financial barriers. Limited human, material, and information resources may make other alternatives impractical. Managers must thoroughly evaluate all the alternatives to increase the chances that the alternative finally chosen will be successful. For example, Airbus felt it would be at a disadvantage if it tried simply to enlarge its existing planes because the Boeing 747 was at the time already the largest aircraft being made and could readily be expanded to remain the largest. Boeing, meanwhile, was seriously concerned about the risk inherent in building a new and even larger plane, even if it shared the risk with Airbus as a joint venture partner.

Choosing the best available alternative is the real crux of decision making. Even though many situations do not lend themselves to objective, mathematical analysis, managers and leaders can often develop subjective estimates and weights for choosing an alternative. Decision makers should also remember that finding multiple acceptable alternatives may be possible; selecting just one alternative and rejecting all the others might not be necessary. For example, Airbus proposed a joint venture with Boeing. Boeing, meanwhile, decided that its best course of action was to modify its existing 747 to increase its capacity. As a result, Airbus decided to proceed on its own to develop and manufacture a new jumbo jet. Boeing then decided that in addition to modifying its 747, it would develop a new plane to offer as an alternative, albeit one not as large as the 747 or the proposed Airbus plane.

After an alternative has been selected, managers and leaders must put it into effect. Boeing set its engineers to work expanding the capacity of its 747 by adding 30 feet to the plane’s body; the firm also began developing another plane intended for international travel, the 787. Airbus engineers, meanwhile, developed design concepts for a new jumbo jet equipped with escalators and elevators and capable of carrying 655 passengers. Airbus’s development costs alone were estimated to exceed $12 billion.

Managers must also consider people’s resistance to change when implementing decisions. The reasons for such resistance include insecurity, inconvenience, and fear of the unknown. Managers should anticipate potential resistance at various stages of the implementation process. However, even when all alternatives have been evaluated as precisely as possible and the consequences of each alternative have been weighed, unanticipated consequences are still likely. Employees may resist or protest change; they may even quit rather than agree to it. Other factors, such as unexpected cost increases, a less-than-perfect fit with existing organizational subsystems, or unpredicted effects on cash flow or operating expenses, could develop after implementation has begun. Both Boeing and Airbus were plagued by production delays that pushed back delivery of their respective aircrafts by years and ended up costing each company billions of dollars. Airbus got its plane to market first (it began flying in late 2007), but profits have been pushed far into the future because the global recession caused many airlines to cancel or delay orders for several years.

The final step in the decision-making process requires that managers and leaders evaluate the effectiveness of their decision. They should make sure that the chosen alternative has served its original purpose. If an implemented alternative appears not to be working, they can respond in several ways. Another previously identified alternative (the original second or third choice, for instance) could be adopted. Or they might recognize that the situation was not correctly defined to begin with and start the process all over again. Finally, managers and leaders might decide that the original alternative is in fact appropriate but either has not yet had time to work or should be implemented in a different way.

At this point, both Boeing and Airbus are nearing the crucial period when they will learn whether they made good decisions. Airbus’s A380 made its first commercial flight in 2007, though delays continue to push back its production schedule. The plane has also been hampered by technical problems. Meanwhile, Boeing’s 787 faced numerous delays, and widespread use of the plane continues to be delayed by technical issues.²⁴ The expanded 747 was launched on schedule, however, and was in service in 2011. Most airlines have been willing to wait patiently for the 787s, which are designed to be much more fuel efficient than other international airplanes. Given the dramatic surge in fuel costs in recent years, a fuel-efficient option like the 787 could be an enormous success. Indeed, Airbus has begun developing its own fuel-efficient jet, the A350.²⁵ Qatar Airways took delivery of the first A350 in December 2014.

As time passed, though, demand for the expanded 747 stalled and Boeing decided to suspend production. The A380, meanwhile, proved to be only moderately successful and as of 2017 only the airline Emirates still had active orders for the jumbo jet. The 787 and A350, on the other hand, appear to be on track for long-term success.

Political forces contribute to the behavioral nature of decision making. One major element of politics, coalitions, is especially relevant to decision making. A coalition is an informal alliance of individuals or groups formed to achieve a common goal. This common goal is often a preferred decision alternative. For example, coalitions of stockholders frequently band together to force a board of directors to make a certain decision.

The New York Yankees once contacted three major sneaker manufacturers, Nike, Reebok, and Adidas, and informed them that they were looking to make a sponsorship deal. While Nike and Reebok were carefully and rationally assessing the possibilities, managers at Adidas quickly realized that a partnership with the Yankees made a lot of sense for them. They responded quickly to the idea and ended up hammering out a contract while the competitors were still analyzing details.²⁷

When these coalitions enter the political arena and attempt to persuade lawmakers to make decisions favorable to their interests, they are called lobbyists. Lobbyists may also donate money to help elect a candidate who is more likely to pursue their agendas. A recurring theme in U.S. politics is the damaging influence these special interest groups have on politicians, who may feel unduly obligated to favor campaign donors when making decisions.

Intuition is an innate belief about something, often without conscious consideration. Managers sometimes decide to do something because it “feels right” or they have a hunch. This feeling is usually not arbitrary, however. Rather, it is based on years of experience and practice in making decisions in similar situations. Such an inner sense may help managers make an occasional decision without going through a full-blown rational sequence of steps. That said, all managers, but most especially inexperienced ones, should be careful not to rely too heavily on intuition. If rationality and logic are continually flouted for “what feels right,” the odds are that disaster will strike one day.

Another important behavioral process that influences decision making is escalation of commitment to a chosen course of action. In particular, decision makers sometimes make decisions and then become so committed to the course of action suggested by that decision that they stay with it, even when it appears to have been wrong.²⁸ For example, when people buy stock in a company, they sometimes refuse to sell it even after repeated drops in price. They choose a course of action, buying the stock in anticipation of making a profit, and then stay with it even in the face of increasing losses. Moreover, after the value drops, they may rationalize that they can’t sell at such a low price because they will lose money.

The behavioral element of risk propensity is the extent to which a decision maker is willing to gamble when making a decision. Some managers are cautious about every decision they make. They try to adhere to the rational model and are extremely conservative in what they do. Such managers are more likely to avoid mistakes, and they infrequently make decisions that lead to big losses. Others are extremely aggressive in making decisions and willing to take risks.²⁹ They rely heavily on intuition, reach decisions quickly, and often risk big investments on their decisions. As in gambling, these managers are more likely than their conservative counterparts to achieve big successes with their decisions; they are also more likely to incur greater losses.³⁰ The organization’s culture is a prime ingredient in fostering different levels of risk propensity.