One of the key researchers in the field of management and decision making was a Herbert Simon. He was among the pioneers of artificial intelligence, information processing, decision-making, organization theory and other very important scientific domains. If we think about digital transformation which is one of the most important topics and needed change nowadays, we will see that these topics “play” significant role in today’s industry changes.
One of the most concrete definitions of Digital Transformation we use is - “Digital Transformation is IT for Business”. Basically, this means application of digital capabilities and technologies in business processes, products and models. Moreover, it is a cultural change. It is a change that challenges organizations to be innovative, adaptive and customer-oriented. You can read more about Digital Transformation here or read about grocery chain case study here.
If we now look at the area where Herbert Simon had impact we will see that there is no Digital Transformation without Business Intelligence (among other things, consists of information processing, decision-making,..) and organizational changes.
4 Phases of the Decision-Making Process
Simon’s model defines four phases of decision-making process:
- Intelligence Phase
- Design Phase
- Choice Phase
- Implementation Phase
It’s important to say that first Simon’s model contained only three phases. Implementation Phase was added later. Also, we could add a fifth phase - Monitoring, but monitoring can be viewed as an input for the intelligence phase.
The decision-making process starts with Intelligence Phase. In the first phase, decision makers examine reality and try to identify problems or opportunities correctly. This phase is not only related to the Simon’s decision-making process, but also to other fields and other methodologies. For example, we like to practice Lean Startup methodology which emphasizes importance of right problem definition before building anything (product or business).
Additionally, one of the Digital Transformation pillars is the data. Organizations should become data-driven. That means proper usage and implementation of Business Intelligence (BI) systems. Business Intelligence implementations are considered successful only if you have clear business needs and see real benefits from it. Business Intelligence is not just about data. It should be connected with organizational goals and objectives!
Intelligence phase includes actions like:
- Defining organizational objectives
- Data collection
- Problem identification and classification
The intelligence phase can really last long. But, since decision-making process starts with this phase, it should be long as it needs to be done properly. This is really important step and we are going to write more about this phase in our future blog posts.
The main goal of the design phase is to define and construct a model which represent a system. This is done by properly defining relationships between collected variables. Once we validate the model, we define the criteria of choice and search for several possible solutions for defined problem (opportunity). We wrap up the design phase by predicting the future outcomes for each alternative.
In this phase we are actually making decisions. The end product of this phase is a decision. Decision is made by selecting and evaluating alternatives defined in previous step. If we are sure that the decision we made can actually be achieved - we are ready for the next phase.
All the previous steps we’ve made (intelligence, design and choice) are now implemented. Implementation can be either successful or not. Successful implementation results with a solution to defined problem. On the other hand, failure returns us to an earlier phase.
We described Simon’s model which, even today, serves as the basis of most models of decision-making process. The process describes series of events that precede final decisions. It is important to say that, at any point, the decision maker may choose to return to the previous step for additional validation.
Even Simon’s model was criticized as being general, that is why we need to be aware of importance of decision-making. This model is a concept, a framework of how organizations and managers make decisions. Plus, it is a good background for other topics like Business Intelligence.