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Decision Making in DHL

Introduction: DHL commits its expertise in international express, air and ocean freight, road and rail transportation, contract logistics and international mail services to its customers.A global network composed of more than 220 countries and territories and about 275,000 employees worldwide offers customers superior service quality and local knowledge to satisfy their supply chain requirements.DHL accepts its social responsibility by supporting climate protection, disaster management and education.

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DHL is part of Deutsche Post DHL.

The Group generated revenue of more than 53 billion euros in 2011. I will be discussing DHL from many aspects such as decision making and its effect on the organizational performance from the perspective of Cyert & March and compare it to Bursson theory. Also I will cover Zimmermen theory about rules and apply it to DHL case study. Finally I will examine the macro environment of DHL organization. Body: DHL was the global market leader in international express shipping, overland transport, and air freight, as well as ocean freight and contract logistics.

As of April 2011, its network covered more than 220 countries and territories worldwide in 120,000 destinations. It had many awards to its credit (Refer to Exhibit I for the details of awards won by DHL). According to Ken Allen, CEO, Express Division, DHL, “The express sector is one of the major drivers of global trade and we are excellently positioned to capitalize on this through our services which meet our customers’ domestic and international transport requirements, anywhere around the world. ” Formal organization has its own specific function or functions.

A university for example has the main function of promoting education. But it also promotes artistic, literary, athletic and other interests of the members. The principal function of the church is religion but it also promotes charitable, ethical, athelitic, recreational, educational and other activities. Thus the formal organization may have its latent as well as manifest functions. The formal organization has its own norms or rules of social behavior. Certain conducts are appropriate in certain organization. Formal organization lays down procedure to be followed by the members.

Members of an organization have different statuses. Statuses imply division of labor. The division of labor is characterized of all organizations and in a sense; organization is synonymous with the division of labor. Organized actions in a formal organization are possible because of division of labor. Bureaucracy refers to the administrative aspect of the formal organization. It refers to the arrangement of the organization designed to carry out its day to day business. It is represented by a hierarchy of officials who are assigned different responsibilities and provided with different statuses and roles.

The formal organization is based on rationality. The rationality of formal organizations has two sources- the predominance of rules that have been devised to help achieve definite results and the systematic reliance on knowledge in the operation of the organization. The formal organizations are relatively permanent. Some organizations last for longer time while others perish within a short period of time. According to Zimmerman he illustrates the inadequacy of the rational decision making approach.

He shows that members of an organization are far from adhering to the rules and procedures that should inform their decision making; they instead use & understand these rules in everyday work in creative & adaptive ways. He wants to understand how organizational members actually make sense of & understand what these rules mean in practice. Studies assumes and accept the existence of clear rational , objective rules of decision making but are contrasted with actual practice. Zimmerman objects this view; he offers how these rules become alive: how formal plans are used by members to deal with every day work activities.

He analyses how employees’ use of formal rules is determined by their attempts to achieve their view of their priorities. Activities of bureaucratic actors in a public assistance organization will be examined. To Zimmerman, following rigid or complex procedures impedes effective action. The analysis is concerned with the judgmental work of receptionists in assigning applicants to intake case-workers. This study investigates the variety of practices, operational meaning and situational relevance of policies and procedures for everyday organizational activities.

Rules, policies, formal planning Researchers argue that rules and policies are to some degree abstract and general, and should not be treated as idealizations. Rules cannot completely reflect the changing organizational situations. Informal rules and policies usually develop, where personnel modify and redefine the rules in light of operating conditions. The formal plan of the organization is used and interpreted by personnel in a way that best suits their everyday work activities. Usually, procedures and rules are designed to ensure efficient achievement of formally defined goals.

However, it is not always practical to strictly follow the rules, because of the ever-changing output of the many interactions of individuals. People use and understand the rules in everyday work in creative and adaptive ways. The chapter wanted to understand how organizational members actually make sense of and understand what the rules mean in practice. Receptionists made sense of the rules in subtle ways, and made decisions about when and how to use them in light of their experience and knowledge of applicants and situations.

The problem is then how the formal plan of an organization could be used by its members to deal with everyday work activities and of what are the features that members use to recognize and interpret. Instruct others, about the operational intent & behavioral implications of such a plan. The sense of routine provides employees with: * A way to recognize the exceptional character of a given event. * The good grounds for suspending or otherwise modifying the rule as normally applied Suspension or bending a rule is considered a reasonable solution to minor dilemma.

The use of formally prescribed procedure, viewed from the notion of their competent use becomes. * Not a matter of compliance or deviance (behavior) * But a judgmental work providing for the reasonableness of viewing particular action as essentially satisfying the provision of the rule Rules are not hard and fast social facts but are the result of continual interpretation and negotiation which produces an – ever shifting framework to be taken.

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Rules may be negotiated and changed and new rules also stand over and above organizational actors informing and shaping the emotional life of an organization.

Rules are resources for action, but because contexts vary, they do not determine performance of individuals or their organization. Industry observers felt that like any other successful company, DHL’s success could be attributed to some of the basic strategies it had adopted: knowing the customers and solving their problems, expanding the business, and creating a win-win situation for all stakeholders. According to company officials, the opening of the new European hub at Leipzig/Halle in 2008 was an example of adhering to that old formula.

While deciding on the location of this hub, not only did the DHL authorities focus on optimally locating its facilities, but they also planned for the company’s long-term future. DHL was also faced with having to train large numbers of new personnel. In three years’ time, 2,000 employees were qualified for their respective tasks at the hub. DHL estimated 2,000 employees were working at the hub in September 2008. Their number is expected to rise to approximately 3,500 by 2012. Nearly 90% of the newly employed workers come from the region around the airport.

Two-thirds of them were previously unemployed. Some 7,000 more jobs will likely be created in the surrounding area, bringing the total number of direct and indirect new jobs around the Leipzig/Halle hub to approximately 10,000. In addition, DHL is training young people in the various logistics and IT professions at the airfreight hub. With all the mentioned above DHL is a company who follows and respect the rules and that to succeeds and maintain success. With all the complexity in DHL as a formal organization, decision making can’t be that easy as well.

The political perspective is clearly identified by Cyert, March ; Miller , where they identified theories of decision making that are concerned with politics (Coalition aspect) ; processes (Problemistic search) where an activity is only initiated by an immediate problem rather than an orderly systematic process of search and analysis. ( as for Pettigrew). Here, Pettigrew view organizations and decision making as a political arena in which:; Political behavior follows the unequal distribution of resources ; the creation of specialized loyalties and perspectives thru organizational differentiation.

Organizational units with different or conflicting interest, loyalties and mindsets struggle for advantage with obvious implications for the nature and outcome of decision making. Political activity is central to organizational structures and processes: divisions of interest result from the hierarchical nature of power. Power relations ; politics originate in the structure ; processes of the organization. Structures create specialism’s which develop loyalties which in turn breeds politics. The heart of conflict, politics & co-operation is Power.

Cyert and March propose two major organizing devices: a set of variable concepts and a set of relational concepts. They claim that Theory performs two major functions: * it is an exhaustive set of general concepts. * it has a set of relational concepts The exhaustive set of general concepts, the process of decision making can be analyzing in term of variables that effect organization goals, expectations and the variables that effect organizational choice. Organization goals: A theory of organizational goals considers how goals arise in an organization, how goals change over time, and how the organization attends to these goals.

There are two sets of variables affecting the goals of an organization. As the international express business had been growing steadily over the previous few years and assuming that it would continue to expand in the future as well, the Leipzig/Halle site had developed the potential to become a crucial junction for the express and logistics specialists. At the same time, DHL considered an additional starting and landing capacity in Central Europe to be necessary, as the company’s existing European hub in Brussels had reached its threshold limit.

The organization visions of labor because individuals have limited capacities, and limited time, to devote to any particular aspect of the organizational system, such limitations constrain the bargaining process. As an adaptive response, coalition members are motivated to develop mutual control systems, such as the budget and the allocation of tasks by the division of labor and specialization. Set variables influence the aspiration-level on any particular goal dimension. There are three variables; the organization past goal, the organizations past performance, the past performance of other ‘comparable’ organization.

Organization expectations: Expectations are seen as the result of drawing inferences from available information. Expectations are by no means independent of hopes, wishes, and the internal bargaining needs of subunits in the organization. Therefore a good theory for the organizational expectations should consider variables that affect either the process of drawing inferences or the process by which information is made available to the organization. Organization choice: A theory of organizational choice needs to characterize the process by which the alternatives available to the organization are ordered and selected.

Organizational decisions depend on information estimates and expectations that ordinarily differ appreciably from reality. Choice takes place in response or influence. DHL considered an additional starting and landing capacity in Central Europe to be necessary, as the company’s existing European hub in Brussels had reached its threshold limit. Theory as set relational concepts, there are four fundamental concept to understanding of the decision-making process in a modern, large-scale business organization.

The quasi resolution of conflict; uncertainty avoidance; problematic search and organizational learning. After we went through decision making, I’ll analyze DHL with PEST analysis to understand its macro environment. PEST analysis stands for “Political, Economic, Social, and Technological analysis” and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. Political factors are how and to what degree a government intervenes in the economy.

Specifically, political factors include areas such as tax policy, labor law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include goods and services which the government wants to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods or merit bads). Furthermore, governments have great influence on the health, education, and infrastructure of a nation. In Leipzig/Halle, courier and express services are of vital importance to the efficiency and growth of the Leipzig/Halle economy.

With Leipzig/Halle geographical position which is away from the centre of continental Europe, fast and effective delivery services are essential for Leipzig/Halle businesses involved in international trade. Economic factors include economic growth, interest rates, exchange rates and the inflation rate. These factors have major impacts on how businesses operate and make decisions. For example, interest rates affect a firm’s cost of capital and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy.

Advances in technology and the increasing use of e-commerce, combined with the courier and express sector’s commitment to investing in IT, and have cushioned the industry from the worst effects of the recent global slowdown. Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect the demand for a company’s products and how that company operates. For example, an aging population may imply a smaller and less-willing workforce (thus increasing the cost of labor).

Furthermore, companies may change various management strategies to adapt to these social trends. In DHL a raft of government measures to tackle environmental pollution and congestion have increased costs for the, largely road-based, express logistics sector. Technological factors include technological aspects such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation.

DHL used satellite-based navigation systems. The company planned to improve the system by including and analyzing more information concerning terms of traffic, traffic lights, and construction sites. Conclusion We conclude that DHL can’t operate without rules, it should consider and fear competition as it should take its decisions rationally without complexity. That by applying the above theories and understand them very well as an organization. I will be summering chapter 6 The Irrationality of Action and Action Rationality of: Decisions, Ideologies and Organizations.

A decision is a choice between at least 2 alternatives. Decision making was explained by economists, political researchers as well as, psychologists and sociologists. Some individuals decide and others carry out the decisions. Researchers elaborated in the direction of rationality while other evidence shows that the process does not comply with rationality specially in strategic major issues. People are not clever enough to behave rationally. Therefore decision makers should be carefully selected. Irrationality is inherited in human beings which cannot be changed by training.

Decision makers don’t have enough information on the many variables involved. Therefore, information systems may help to improve the process beside caring about objectives and alternative comparison. An action perspective to explain the process is more acceptable. Since leaders don’t only take decisions but also act and induce others to act on them. Since managers act while making decisions rationality of decisions take in consideration practical internal and external norms. Irrationality as a base of organizational actions 1. Searching for alternatives. 2. Estimating Consequences 3. Evaluating Alternatives . Choosing 5. Making Rational Use of Irrationality Rational decisions create irrational procedures from an action point of view. They should be avoided in order for an action to be taken. References: * Salaman, G. (2002) Decision Making for Business, London, The Open University/The Alden Press, Oxford. * Salaman, G. (2001) Business Behaviour in a Changing World: Module One Study Guide, London, The Open University. * http://www. dhl. com. kw/en/about_us. html * http://en. wikipedia. org/wiki/PEST_analysis * http://www. sociologyguide. com/organization-and-individual/formal-organizations. php

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