Specifics of Decision Making in Modern Business Systems: Regularities and Tendencies 978-1-78756-692-7

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SPECIFICS OF DECISION MAKING IN MODERN BUSINESS SYSTEMS

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SPECIFICS OF DECISION MAKING IN MODERN BUSINESS SYSTEMS: REGULARITIES AND TENDENCIES EDITED BY ELENA G. POPKOVA Institute of Scientific Communications, Russian Federation

ALINA V. CHESNOKOVA Russian State University of Tourism and Service, Russian Federation

IRINA A. MOROZOVA Volgograd State Technical University, Russian Federation

United Kingdom – North America – Japan – India – Malaysia – China

Emerald Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2019 Copyright © 2019 Emerald Publishing Limited Reprints and permissions service Contact: [email protected] No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters’ suitability and application and disclaims any warranties, express or implied, to their use. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-78756-692-7 (Print) ISBN: 978-1-78756-691-0 (Online) ISBN: 978-1-78756-693-4 (Epub)

Table of Contents

List of Figures and Tables

xi

List of Contributors

xix

Foreword

xxv

Introduction

1

Elena G. Popkova, Victoria N. Ostrovskaya and Yuliya G. Tyurina

PART I: THEORETICAL FOUNDATIONS OF STUDYING MODERN BUSINESS SYSTEMS Chapter 1

The Concept of Business System: The Main Notions and Their Essence Elena G. Popkova, Alina V. Chesnokova, Aidarbek T. Gyiazov, Irina A. Morozova and Olga V. Fetisova

5

Chapter 2

The Main Stages of Evolution of Modern Business Systems 13 Aleksei V. Bogoviz, Tatiana M. Rogulenko, Svetlana V. Ponomareva, Elena N. Lapina and Leonid V. Kolyadov

Chapter 3

Approaches to Classification of Modern Business Systems Svetlana V. Lobova, Anna V. Bodiako, Liudmila V. Dontsova, Yevgeniy An and Viktor N. Salin

21

vi

Table of Contents

PART II: THE CONCEPT OF DECISION MAKING IN MODERN BUSINESS SYSTEMS Chapter 4

Chapter 5

Chapter 6

Chapter 7

The Basic Principles of Functioning and Development of Modern Business Systems Aleksei V. Bogoviz, Svetlana V. Lobova, Julia V. Ragulina, Alexander N. Alekseev and Arutyun A. Khachaturyan The Essence of the Process of Decision Making as a Choice of the Existing Alternatives Olga G. Tretyakova, Olga P. Osadchaya, Elena I. Kostyukova, Mikhail V. Sirotenko and Irina V. Gimelshtein Algorithm of Making of Managerial Decisions in the Conditions of Constant Changes Olesya A. Stroeva, Innara R. Lyapina, Elena V. Sibirskaya, Elena V. Petrukhina and Liubov V. Plakhova The Place and Role of Decision Making in the Process of Modern Enterprise Management Olga V. Danilova

31

39

47

57

PART III: METHODOLOGICAL PROVISION OF STUDYING THE PROCESS OF DECISION MAKING IN MODERN BUSINESS SYSTEMS Chapter 8

Chapter 9

Theoretical and Methodological Approaches to Decision Making in Modern Business Systems Olga V. Danilova and Anastasiya V. Sorokina Dependence of Risk of Making Wrong Decisions in Modern Business Systems on Their Organizational Structure Nikolai G. Sinyavsky

71

85

Table of Contents

vii

Chapter 10 Dependence of the Process of Decision Making in Modern Business Systems on Their Organizational Structure 115 Evgeniy G. Molchanov, Angelika K. Musaelyan, Ruslan G. Mikhaylenko and Elena N. Smertina Chapter 11 Connection between Organizational Culture and Specifics of the Process of Decision Making in Modern Business Systems Aleksei V. Bogoviz, Leonid F. Malinovski, Tamara G. Stroiteleva, Maxim M. Sharamko and Vera V. Dvoretskaya

123

PART IV: MANAGERIAL ASPECTS OF DECISION MAKING IN MODERN BUSINESS SYSTEMS Chapter 12 The Role of Leadership in the Process of Decision Making in Modern Innovational Business Systems Irina A. Morozova, Alina V. Chesnokova, Olga V. Fetisova and Liudmila S. Maksimenko Chapter 13 Decision Making in Modern Business Systems by the Principles of Outsourcing Aleksei V. Bogoviz, Andrei V. Berezhnoi, Igor S. Mezhov, Olga V. Titova and Olga G. Kryukova Chapter 14 Delegating Authorities in the Process of Decision Making in Modern Business Systems: The Traditional and New Concepts Valentina N. Parakhina, Olga A. Boris, Galina S. Shelkoplyasova and Gelani I. Khanaliev Chapter 15 Regularities and Tendencies of Decision Making in Business Systems by the Example of Modern Russia Margarita V. Melnik, Tatiana V. Skryl, Elena A. Gureeva, Irina F. Vetrova and Aleksandr V. Vetrov

133

141

149

161

viii

Table of Contents

PART V: REGIONAL MODELS OF DECISION MAKING IN MODERN BUSINESS SYSTEMS Chapter 16 Asian Model of Decision Making in Modern Business Systems Irina A. Morozova, Valeriya P. Chayka, Alexey V. Tolmachev, Alina V.Chesnokova and Yulia I. Dubova Chapter 17 American Model of Decision Making in Modern Business Systems Alina V. Chesnokova, Yulia I. Dubova, Tatiana N. Yudina and Olga I. Kontorovich Chapter 18 European Model of Decision Making in Modern Business Systems Tatiana N. Litvinova

171

179

187

PART VI: MESO-LEVEL RESULTS OF DECISION MAKING IN MODERN BUSINESS SYSTEMS Chapter 19 Conceptual Approaches to Determining, Diagnostics, and Forecasting the Region’s Consumer Market O.K. Lukhovskaya, O.Y. Guryeva, V.I. Perov, I.V. Malova and T.S. Kochetkova Chapter 20 Regional Mechanisms of Modernization of Infrastructure of Regions and the Country in the System of Innovational Development Al-Muttar Mohammed Yousif Oudah, Anna V. Shokhnekh, Olga S. Glinskaya, Mohammed-Ikbal Shokhnekh and Ivan A. Chusov Chapter 21 Organizational Model of Restoration and Development of Country’s Infrastructure on the Platform of Individual Physical and Practical Forces Al-Muttar Mohammed Yousif Oudah

197

209

229

Table of Contents

Chapter 22 Innovational Development of Cluster of the Hospitality Industry in the System of Region’s Economic Security: A Strategy of Activation of Small Business Anna V. Shokhnekh, Olga A. Mironova, Lidiya A. Sizeneva, Marina N. Semenova and Al-Muttar Mohammed Yousif Oudah

ix

253

Conclusions Elena G. Popkova, Victoria N. Ostrovskaya and Yuliya G. Tyurina

277

Index

279

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List of Figures and Tables Figures

Figure 1.1 Figure 2.1 Figure 4.1 Figure 5.1 Figure 6.1 Figure 6.2 Figure 7.1 Figure 7.2 Figure 7.3 Figure 7.4 Figure 8.1 Figure 8.2 Figure 8.3 Figure 8.4 Figure 8.5 Figure 8.6

Conceptual Model of Modern Business System . . The Main Stages of Evolution of Modern Business Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The System of Basic Principles of Functioning and Development of Modern Business System . . . . . . The Algorithm of Making of Managerial Decisions in Modern Business Systems. . . . . . . . . . . . . . . . Limitations during Making of Managerial Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Algorithm of Making of Managerial Decisions . . Basic Management Functions. . . . . . . . . . . . . . . Relations between Management Theory and Decision Making. . . . . . . . . . . . . . . . . . . . . . . . Models of Decision Making in Different Schools of Management . . . . . . . . . . . . . . . . . . . . . . . . . . Features of Managerial Decision Making in Russian Organizations . . . . . . . . . . . . . . . . . . . . Scientific Approaches to the Process of Solving Management Problems . . . . . . . . . . . . . . . . . . . System Approach in Management. . . . . . . . . . . . The Nature and Characteristics of the Functional Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nature and Characteristics of the Integrated Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Multidimensional Nature of the Integrated Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Essence and Characteristics of the Innovative Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7 15 35 41 51 53 58 59 60 64 73 74 76 76 77 77

xii

List of Figures and Tables

Figure 8.7

Essence and Characteristics of the Integration Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure 8.8 The Essence and Characteristics of the Regulatory Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure 8.9 Essence and Characteristics of the Virtual Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure 8.10 The Essence and Characteristics of the Standardization Approach . . . . . . . . . . . . . . . . . Figure 8.11 The Essence and Characteristics of the Behavioral Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure 9.1 Transfer of Information in Organizational Structure Consists of Two Levels. The Second Level Contains One Element. . . . . . . . . . . . . . . . . . . . . . . . . . . Figure 9.2 Transfer of Information in Organizational Structure Consisting of Three Levels. The Second Level Has Two Elements, and the Third Level Has One Element . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure 9.3 Transfer of Information in Organizational Structure Consisting of Three Levels. The Second Level Contains Three Elements, and the Third Level Contains Two Elements . . . . . . . . . . . . . . . . . . . Figure 9.4 Organizational Structure, Which Is Shown in Fig. 9.3, in the Integrated Form . . . . . . . . . . . . . . . . Figure 9.5 Transfer of Information in the Organizational Structure Consisting of Four Levels. The Second Level Contains Two Elements, the Third Level Contains Two Elements, and the Fourth Level Contains One Element. . . . . . . . . . . . . . . . . . . . Figure 9.6 Transfer of Information in Organizational Structure Consisting of Four Levels. The Second Level Contains Three Elements, the Third Level Contains Four Elements, and the Fourth Level Contains Two Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure 9.7 Organizational Structure (Fig. 9.6) in the Integrated Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure 9.8 General Scheme of Organizational Structure in the Integrated Form . . . . . . . . . . . . . . . . . . . . . . . . Figure 11.1 Classification of Types of Organizational Culture of Modern Business Systems According to the Criterion of Involvement of Employees in Decision Making . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

78 79 80 81 81

89

90

91 91

92

93 94 95

125

List of Figures and Tables

Figure 12.1 Classification of Leadership in Modern Business Systems as to Criterion of Decision Making. . . . . Figure 13.1 Possible Variants of Decision Making in a Modern Business System by the Principles of Outsourcing and Their Consequences . . . . . . . . . . . . . . . . . . Figure 14.1 Share of Decisions According to Their Types (According to Table 14.2), Which Are Delegated and Could Be Delegated and Total, in % of the Total Number of Decisions . . . . . . . . . . . . . . . . Figure 14.2 Barriers in Delegating Authorities and Paths of Overcoming Them. . . . . . . . . . . . . . . . . . . . . . . Figure 16.1 Asian Model of Decision Making in Modern Business Systems . . . . . . . . . . . . . . . . . . . . . . . . Figure 17.1 American Model of Decision Making in Modern Business Systems . . . . . . . . . . . . . . . . . . . . . . . . Figure 18.1 European Model of Decision Making in Modern Business Systems . . . . . . . . . . . . . . . . . . . . . . . . Figure 19.1 The System of Trapezoid Functions of Belonging on 01-Bearer. . . . . . . . . . . . . . . . . . . . . . . . . . . Figure 19.2 Dynamics and Forecast of Change of Turnover of Material Production and Consumer Market in the Structure of Economy of Ivanovo Oblast, % . . . . Figure 20.1 System of Foresight Control Over Modernization and Development of Infrastructure of Regions and the Country . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure 21.1 Classification of Infrastructure According to the Functional and Target Principles of Economic Subjects in the Sphere . . . . . . . . . . . . . . . . . . . . Figure 21.2 Classification of Infrastructure on the Basis of the Factor Approach of O. V. Inshakov and E. G. Rusakova . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure 21.3 Classification of Infrastructure by A. N. Kochetov and D. A. Kharitonov on the Basis of Functional Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure 22.1 Innovational Development of Cluster of the Hospitality Industry, Aimed at Receiving Consumers’ Expectations from Territorial Concentration of Offers in the System of Region’s Economic Security . . . . . . . . . . . . . . . . . . . . . . Figure 22.2 Conditions of Formation of Cluster of Innovational Development of the Hospitality Industry . . . . . . . Figure 22.3 Value Innovation . . . . . . . . . . . . . . . . . . . . . . .

xiii

136

146

153 156 173 181 189 204

207

226

232

233

235

259 261 270

xiv

List of Figures and Tables

Figure 22.4 Life Cycle of Demand and Offer in the Blue Ocean Figure 22.5 The Process of Creation of the Blue Ocean of Foresight Development for Forecasting and Leveling the Risks of Strategic Drift of Economic Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

271

271

List of Figures and Tables

xv

Tables

Table 2.1 Table 3.1 Table 4.1

Table 9.1 Table 9.2

Table 9.3

Table 9.4

Table 9.5

Table 9.6

Table 9.7

Comparative Characteristics of the Main Stages of Evolution of Modern Business Systems . . . . . . . . Approaches to Classification of Modern Business Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Basic Principles of Functioning and Development of Modern Business Systems, Their Essence, and Decisive Factors . . . . . . . . . . . . . . Structure of Incoming New Information to a Person Making a Decision (PMD). . . . . . . . . . . . . . . . . Results of Evaluation of Information Quality for Two-level Structure with One Element at the Second Level . . . . . . . . . . . . . . . . . . . . . . . . . . Results of Evaluation of Information Quality for Three-level Structure. The Second Level Contains Two Elements, and the Third Level Contains One Element . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Results of Evaluation of Information Quality for Three-level Structure. The Second Level Contains Three Sources of Information, and the Third Level Contains Two Sources . . . . . . . . . . . . . . . . . . . . Results of Evaluation of Information Quality for Four-level Structure. The Second Level Contains Two Sources of Information, the Third Level Contains Two Sources, and the Fourth Level Contains One Element. . . . . . . . . . . . . . . . . . . . Results of Evaluation of Information Quality for Four-level Structure. The Second Level Contains Three Elements, the Third Level Contains Four Elements, and the Fourth Level Contains Two Elements (Initial Data) . . . . . . . . . . . . . . . . . . . Results of Evaluation of Information Quality for Four-level Structure. The Second Level Contains Three Elements, the Third Level Contains Four Elements, and the Fourth Level Contains Two Elements (Results). . . . . . . . . . . . . . . . . . . . . . .

16 23

33 86

96

97

98

99

100

101

xvi

List of Figures and Tables

Table 9.8

Influence of the Quality of Pure Information Obtained at the Second Hierarchical Level of dP Organizational Structure (Derivative dp 0 ). Low 0

Table 9.9

Requirements to Quality of Information . . . . . . . Influence of Quality of Pure Information That Is Obtained at the Second Hierarchical Level of dP Organizational Structure (Derivative dp 0 ). High

102

Requirements to Quality of Information . . . . . . . Influence of Quality of Pure Information That Is Obtained at the Third Hierarchical Level of Organizational Structure (Derivative dpdP0 ). Low

103

Requirements to Quality of Information . . . . . . . Influence of Quality of Pure Information That Is Obtained at the Third Hierarchical Level of Organizational Structure (Derivative dpdP0 ). High

104

Requirements to Quality of Information . . . . . . . Influence of Quality of Pure Information That Is Obtained at the Fourth Hierarchical Level of Organizational Structure (Derivative dpdP0 ) . . . . . . .

105

0

Table 9.10

11

Table 9.11

11

Table 9.12

21

Table 9.13

Table 9.14

Table 9.15

Table 9.16 Table 9.17

Table 9.18

Table 10.1

Comparison of Influence of Quality of Information That Is Obtained at Various Hierarchical Levels on the Quality of Decision Making . . . . . . . . . . . . . Analysis of Obtained Quantitative Evaluations of Influence of Information Quality on Quality of Made Decisions . . . . . . . . . . . . . . . . . . . . . . . . Example of Structure of Information That Is Used by Person Making a Decision (PMD) for Decision Making . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Examples of Wrong Decisions . . . . . . . . . . . . . . Specific Examples of the Content of Information That Causes Wrong Decisions for Person Making a Decision (PMD) . . . . . . . . . . . . . . . . . . . . . . . . Specific Examples of Information for Person Making a Decision (PMD) That Stimulates Making of Right Decisions . . . . . . . . . . . . . . . . . . . . . . Dependence of the Process of Decision Making in Modern Business Systems on Their Organizational Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

106

106

107

110 110

111

112

118

List of Figures and Tables

Table 11.1

Table 12.1 Table 13.1

Table 14.1

Table 14.2 Table 15.1

Table 16.1

Table 17.1

Table 18.1

Table 19.1 Table 19.2 Table 21.1

Connection between Organizational Culture and Specifics of the Process of Decision Making in Modern Business Systems . . . . . . . . . . . . . . . . . The Role of Leadership During Decision Making in Modern Business Systems . . . . . . . . . . . . . . . . . Perspective Directions, Advantages, and Drawbacks of Application of Outsource for Decision Making in Modern Business Systems at Various Stages of This Process . . . . . . . . . . . . . . Situations of Delegating Authorities for Decision Making in Modern Business Systems and Their Ratio to Concepts . . . . . . . . . . . . . . . . . . . . . . . Types of Decisions in Business Systems and Inclination to Their Delegation. . . . . . . . . . . . . . Regularities and Tendencies of Decision Making in Business Systems in Modern Russia Under the Influence of Factors of Their Development . . . . . Characteristics and Evaluation of the Level of Correspondence of the Largest Business Systems in Countries of Asia to the Asian Model of Decision Making by the Example of Mitsubishi UFJ Financial, Samsung Electronics, PetroChina, and ICBC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Characteristics and Evaluation of the Level of Correspondence of the Largest Business Systems in Countries of North America to the American Model of Decision Making by the Example of JPMorgan Chase, General Electric, Exxon Mobil, and Royal Bank of Canada . . . . . . . . . . . . . . . . Characteristics and Evaluation of the Level of Correspondence of the Largest Business Systems in Countries of Europe to the European Model of Decision Making by the Example of HSBC Holdings, Royal Dutch Shell, Volkswagen Group, and BNP Paribas . . . . . . . . . . . . . . . . . . . . . . . Results of Studying the Connection between Model Variables (Correlation Matrix) . . . . . . . . . . . . . . Structure of Consumer Market in Gross Regional Product (GRP) of Ivanovo Oblast . . . . . . . . . . . Structural Elements of the Organizational Model of Controlling of Development of Country’s Infrastructure on the Platform of Individual Physical and Practical Forces . . . . . . . . . . . . . . .

xvii

127 136

144

151 152

163

175

183

191 201 206

247

xviii

List of Figures and Tables

Table 22.1 Table 22.2 Table 22.3

Diversity of Notions “Hospitality” and “the Hospitality Industry.” . . . . . . . . . . . . . . . . . . . . Treatments of Definition “Cluster.” . . . . . . . . . . Classification of Factor Provision of Possibilities for Formation of Innovational Cluster of Regions in the Hospitality Industry . . . . . . . . . . . . . . . . . . .

256 257

263

List of Contributors

Alexander N. Alekseev Yevgeniy An Andrei V. Berezhnoi

Anna V. Bodiako

Aleksei V. Bogoviz Olga A. Boris

Valeriya P. Chayka Alina V. Chesnokova Ivan A. Chusov

Olga V. Danilova Liudmila V. Dontsova

Yulia I. Dubova

Plekhanov Russian University of Economics, Russia Al-Farabi Kazakh National University, Kazakhstan Federal State Budgetary Educational Institution of Higher Education “Kuban State Agrarian University named after I.T. Trubilin”, Russia Federal State-Funded Educational Institution of Higher Education “Financial University under the Government of the Russian Federation” Russia National Research University Higher School of Economics, Russia Federal State Autonomous Educational Institution “North Caucasus Federal University”, Russia Russian State Agrarian University, Russia Russian State University of Tourism and Service, Russia Russian University of Cooperation, Volgograd Cooperative Institute (branch), Russia State-Funded Educational Institution of Higher Education, Russia Federal State-Funded Educational Institution of Higher Education “Plekhanov Russian University of Economics”, Russia Volgograd State Technical University, Russia

xx

List of Contributors

Vera V. Dvoretskaya

Federal State-Funded Educational Institution of Higher Education “Financial University under the Government of the Russian Federation”, Russia Olga V. Fetisova Volgograd State University, Russia Irina V. Gimelshtein Irkutsk National Research Technical University, Russia Olga S. Glinskaya Volgograd Cooperative Institute (branch) of Russian University of Cooperation, Russia Elena A. Gureeva Plekhanov Russian University of Economics, Russia O.Y. Guryeva G.V. Plekhanov Russian University of Economics (Ivanovo branch), Russia Aidarbek T. Gyiazov Batken State University, Kyrgyzstan Arutyun A. Khachaturyan Federal State Budgetary Institution Scientific “Institute of Market Problems of the Russian Academy of Sciences”, Russia Gelani I. Khanaliev Federal State Budget Educational Institution “Grozny State Oil Technical University named after Academician M.D. Millionshchikov”, Russia T.S. Kochetkova G.V. Plekhanov Russian University of Economics (Ivanovo branch), Russia Leonid V. Kolyadov National University of Oil and Gas “Gubkin University”, Department of Financial Management, Russia Olga I. Kontorovich Financial university under the Government of the Russian Federation, Russia Elena I. Kostyukova Federal State Budgetary Educational Institution of Higher Education “Stavropol State Agrarian University”, Russia Olga G. Kryukova State-Funded Educational Institution of Higher Education “Financial University under the Government of the Russian Federation”, Russia Elena N. Lapina Federal State Budgetary Institution “Stavropol State Agrarian University”, Russia Tatiana N. Litvinova Volgograd State Agrarian University, Russia

List of Contributors

Svetlana V. Lobova O.K. Lukhovskaya

xxi

Altai State University, Russia G.V. Plekhanov Russian University of Economics (Ivanovo branch), Russia Innara R. Lyapina Orel State University, Russia Liudmila S. Maksimenko North Caucasus Federal University, Russia Leonid F. Malinovski State Educational Institution of Higher Professional Education Moscow Region “Moscow Regional State University”, Russia I.V. Malova G.V. Plekhanov Russian University of Economics (Ivanovo branch), Russia Margarita V. Melnik Federal State-Funded Educational Institution of Higher Education “Financial University under the Government of the Russian Federation”, Russia Igor S. Mezhov Polzunov Altai State Technical University, Russia Ruslan G. Mikhaylenko Rostov State University of Economics, Russia Olga A. Mironova Federal State-Funded Educational Institution of the Higher Education “Volga Region State Technological University”, Russia Evgeniy G. Molchanov Rostov State University of Economics, Russia Irina A. Morozova Volgograd State Technical University, Russia Angelika K. Musaelyan Rostov State University of Economics, Russia Olga P. Osadchaya Rubtsovsk industrial Institute (branch) Federal state budgetary educational institution of higher professional education “Altai State Technical University named after I. I. Polzunov”, Russia Al-Muttar Mohammed Al-Ayen University, Iraq Yousif Oudah Valentina N. Parakhina Federal State Autonomous Educational Institution “North Caucasus Federal University”, Russia V.I. Perov G.V. Plekhanov Russian University of Economics (Ivanovo branch), Russia Elena V. Petrukhina Orel State University, Russia Liubov V. Plakhova Orel State University of Economics and Trade, Russia

xxii

List of Contributors

Svetlana V. Ponomareva

St. Petersburg State University of Economics (UNECON), Russia Elena G. Popkova Institute of Scientific Communications, Russia Julia V. Ragulina Peoples’ Friendship University of Russia (RUDN University), Russia Tatiana M. Rogulenko Federal State Budgetary Educational Institution for Higher Professional Education “State University of Management”, Russia Viktor N. Salin Federal State-Funded Educational Institution of Higher Education “Financial University under the Government of the Russian Federation”, Russia Marina N. Semenova Volgograd State Agricultural University, Russia Maxim M. Sharamko Federal State-Funded Educational Institution of Higher Education “Kazan Federal University”, Russia Galina S. Shelkoplyasova Federal State Autonomous Educational Institution “North Caucasus Federal University”, Russia Anna V. Shokhnekh Volgograd State Socio-Pedagogical University, Russia Mohammed-Ikbal Scientific and Research Economic Models of Shokhnekh Governance, Accounting and Taxation LLC, Russia Elena V. Sibirskaya Plekhanov Russian University of Economics, Russia Nikolai G. Sinyavsky Financial University under the Government of the Russian Federation, Russia Mikhail V. Sirotenko Federal State Budgetary Institution of the Higher Education “Altai State University”, Russia Lidiya A. Sizeneva Volgograd State Agricultural University, Russia Tatiana V. Skryl Plekhanov Russian University of Economics, Russia Elena N. Smertina Rostov State University of Economics, Russia

List of Contributors

Anastasiya V. Sorokina

Tamara G. Stroiteleva

Olesya A. Stroeva Olga V. Titova Alexey V. Tolmachev Olga G. Tretyakova

Aleksandr V. Vetrov

Irina F. Vetrova

Tatiana N. Yudina

xxiii

Russian University of Transport (RUT -– MIIT), Institute of Economics and Finance, Russia Federal State Budgetary Institution of the Higher Education “Altai State University”, Russia Russian Presidential Academy of National Economy and Public Administration, Russia Altai State University, Russia Kuban State Agrarian University, Russia Federal State-Funded Educational Institution of Higher Education “Financial University under the Government of the Russian Federation”, Russia Federal State Budgetary Educational Institution of Higher Education “State University of Management”, Russia Federal State-Funded Educational Institution of Higher Education “Financial University under the Government of the Russian Federation”, Russia Sochi State University, Russia

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Foreword

This collective monograph contains the results of studying the regularities and tendencies that are peculiar for the modern Russian practice of decision making in business systems and authors’ decisions for its optimization in view of new challenges and opportunities. The collective monograph is devoted to scientific study of the process of decision making in modern business systems. It described the algorithm of decision making, considers the existing practical models, and offers recommendations for optimization of this process. The obtained conclusions could be used in higher educational establishments in specialties “Microeconomics,” “Corporate economics,” “Economic theory,” “Organizational design,” “Theory of decision making,” and “Business management.” Competitive advantages of this book, as compared to the existing analogs, include universal setting of the problem – decision making in modern business systems, and its solution with the help of conceptual substantiation of the necessity for modernizing the process of decision making in modern business system with provided practical recommendations. Due to this, the book will be interesting for representatives of academic community (scholars, researchers, and postgraduates) and all business subjects that use decision making in their activities.

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Introduction Elena G. Popkova, Victoria N. Ostrovskaya and Yuliya G. Tyurina Modern business systems become complicated under the influence of globalization, integration, technical progress, and other external factors. This is accompanied by growth of responsibility of business managers in the process of making of managerial decisions and increase of requirements to this process – growth of the number of decisions, reduction of time for decisions, large number of factors and criteria, etc. Despite the high topicality for modern science and economic practice, there are no highly effective scientific and methodological approaches to organization of the process of decision making in modern business systems. This is due to two key problems. The first problem is connected to the secondary role assigned to management of business systems. Conceptual foundations of this philosophical approach to doing business were set in the second half of the twentieth century by the scientific school of the Canadian Professor Henry Mintzberg. Economic study of this school envisages division of business processes into production, which are directly related to provision of services and manufacture of goods, and nonproduction, which are not connected to these processes. According to this conceptual setting, production business processes are considered to be vital for functioning and development of the business system, as they determine the effectiveness of using its resources and final efficiency. Competitiveness of a business system is treated as a derivative from production business processes. Nonproduction (marketing, organizational, and managerial) business processes are considered to be providing for production. The existing classification of business processes led to treatment of making of managerial decisions as low-priority economic activities, despite the general acknowledgment of its importance and significance. The second problem consists in insufficient attention to possibilities that open in modern conditions. Formation of digital economy started the Fourth Industrial Revolution, within which, under the guidance of the leading developed (OECD, G7) and developing (BRICS) countries, transition to a new technological mode – Industry 4.0 – takes place. This is studied in the works of Bogoviz (2018), Popkova (2018), Popkova, Ragulina, and Bogoviz (2018), and Sergi and Popkova (2018).

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New technological capabilities are used primarily for improving the production business processes. Despite the industrial direction of the fourth technological mode, not only industry but also other spheres of national economy, including service sphere, are to take the path of transition to it. However, the established division of business processes restrains modernization of management and, in particular, making of managerial decisions due to their indirect attitude to production activities of business systems. The fundamental working hypothesis of this monograph is that insufficient attention to the process of making of managerial decisions has become one of the reasons of the 2008 global economic depression. That’s why a current task of the modern economic science and practice is reconsideration of the role of the process of making of managerial decisions in modern business systems and reconsideration of scientific and methodological approaches to its implementation. The monograph tries to achieve this goal and contains the results of studying regularities and tendencies that are peculiar for the modern Russian practice of decision making in business systems as well as development of authors’ recommendations for its optimization in view of new challenges and opportunities.

References Bogoviz, A. V. (2018). Industry 4.0 as a new vector of growth and development of knowledge economy. Studies in Systems, Decision and Control, 169, 85–91. Popkova, E. G. (2018). Preconditions of formation and development of industry 4.0 in the conditions of knowledge economy. Studies in Systems, Decision and Control, 169(1), 65–72. Popkova, E. G., Ragulina, Y. V., & Bogoviz, A. V. (2018). Fundamental differences of transition to industry 4.0 from previous industrial revolutions. Studies in Systems, Decision and Control, 169, 21–29. Sergi, B. S., & Popkova, E. G. (2018). Industry 4.0, the IoT, and Russia’s sustainable industrial development. In B. S. Sergi (Ed.), Exploring the future of Russia’s economy and markets. Bingley: Emerald Publishing.

PART I: THEORETICAL FOUNDATIONS OF STUDYING MODERN BUSINESS SYSTEMS

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Chapter 1

The Concept of Business System: The Main Notions and Their Essence Elena G. Popkova, Alina V. Chesnokova, Aidarbek T. Gyiazov, Irina A. Morozova and Olga V. Fetisova

1.1 Introduction The modern global economic system is a business economy – business has the central role in it. Firstly, activity is the basis of economic growth. Business determines socioeconomic progress, which is the main strategic goal of development of modern economic systems. Business is also the main subject of manifestation of innovational activity in economy and, thus, ensures its innovational development and is a driver of technological progress. Secondly, business provides satisfaction of public needs. Business is the central link of production and distribution processes in economy, being a creator of benefits and an intermediary between their creator beyond the national economy and domestic consumers. Successfulness of business determines the possibilities of domestic production of benefits and is thus the basis of national economic security. Thirdly, business represents national economy in the global arena, defining its export specialization and global competitiveness. Fourthly, business is the largest taxpayer. Tax fees that are paid by business account for a large part of state (federal) budget in most modern countries. That’s why stability and effectiveness of business determine financial possibilities of the state and sustainability of the national budget system. Thus, the basic object of most modern macroeconomic studies is business and the object of microeconomic studies is the business system (structural entity of business). However, despite its fundamental role, there is no generally recognized concept of business system, which causes a lot of treatments and contradictions of scientific studies and complicates building the conclusions of scientific research into the economic theory. This problem is to be solved in this chapter.

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1.2 Materials and Method In the modern economic literature, the basic economic agent in microeconomics is the economic subject. Based on the works of El Bousty et al. (2018), Fonfara, ´ Ratajczak-Mrozek, and Leszczynski (2018), Kummamuru and Mandaleeka (2016), Popkova (2017), Rawwas, Wang, Zhao, and Javed (2018), Rinkinen and Harmaakorpi (2018), Safar, Sopko, Bednar, and Poklemba (2018), and Sukhodolov, Popkova, and Litvinova (2018, pp. 1–384), classification of economic was performed and the following types were distinguished:

• •

• •

organization: social association, where subjects are unified by the common ´ goal and management – Moreira and Mart´ınez-Avila (2018) and Arboit (2018); company: independent separate economic subject (with emphasis on production activities) that is capable and inclined to showing innovational activity – Bogoviz, Ioda, Ioda, Kuranova, and Bobrova (2017), Morozova, Popkova, and Litvinova (2018), Popkova, Morozova, and Litvinova (2017), and Popkova, Tyurina, et al. (2017); corporation: unification of capital (large economic structure) – Veselovsky, Izmailova, Bogoviz, Lobova, and Alekseev (2018) and Veselovsky, Izmailova, Bogoviz, Lobova, and Ragulina (2018); business structure: economic subject that conducts production activities for the purpose of obtaining profit – Lobova and Bogoviz (2017), Popkova, Morozova, et al. (2017), Popkova, Tyurina, et al. (2017), and Veselovsky, Izmailova, Bogoviz, Lobova, and Alekseev (2017).

However, certain scientific works mix the notions – the above types of economic subjects are selected for research without clear logic. This causes absence of system in existing scientific knowledge, as most economic studies of economic subjects use different tools despite the focus on the same object. We think that the most universal notion of economic subject is business system, as its name emphasizes its systemic organization and the key role in business economy – the models of development of modern socioeconomic systems. Here a generalized notion of business system is offered – as a clearly organized corporate economic subject that conducts entrepreneurial activities for obtaining income (profit). For studying it, the methodology of the systemic approach is used.

1.3 Results The following conceptual model of modern business system is used (Fig. 1.1). As is seen from Fig. 1.1, business system functions in a business environment, which is treated as external environment of a business system. Business environment is a sectorial market with dynamic situation – specifics and susceptible to changes conditions of competition of business systems. External regulation of business includes state management of the business environment (and its business

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External regulation of business

Business environment Business system 1

Business system 1

Business system 3

external business communications Business system n Managerial staff

internal business communications incoming business flows (x)

Business entity 1 – business processes

business strategy business structure business culture

Business entity 1 – business processes

outgoing business flows (x+α)

capital Infrastructure of business system

Fig. 1.1

Conceptual Model of Modern Business System. Source: Compiled by the authors.

systems) and pressure from the society. External regulation has the following goals:

• • • •

stimulating competition: supporting competitive struggle and high effectiveness of business systems through state anti-monopoly regulation; intensification of innovational activity: growth of flexibility and dynamics of development of business systems through state standards and tendencies of demand; provision of observation of normative provision: functioning of business systems according to the current law through state monitoring and control (e.g., licensing and tax administration); development and implementation of responsible approach to doing business: voluntary initiatives of business on implementation of public priorities (environment protection, preferences for employees) through tendencies of demand.

Business system is one of many economic subjects in the business environment. Its structural elements are as follows:

•

managerial staff: the brain center of the business system, which defines its course at development and controls and coordinates the actions of business entities, being responsible for decision making on internal and external issues/ problems;

8

•

Elena G. Popkova et al. business entities: structural departments of the business system, which are subject to the managerial staff. Each of them seeks its own tactical goals, performs certain functions, and bears responsibility for them. Business entities are separated but usually interact with each other.

Structural elements of the business system are separated and at the same time closely interconnected. Characteristics of a business system that determine the specifics of its functioning and development are as follows:

• • • • • • •

business strategy: course at long-term development of business system, which includes the tree of goals and supposed methods of their achievement, as well as priorities; business structure: organizational structure that defines peculiarities of internal organization of managerial staff and business structures and their interaction and hierarchy in the business system (e.g., linear, functional); business culture: totality of established organization’s norms, values, and models of behavior of all participants of the business system (e.g., totalitarian, democratic); business process: activities conducted by the business entity on transformation of incoming business flows (information, production resources) into outgoing (benefits) with the help of capital (financial, human, and technological); capital: totality of business system’s material, financial, human, technical, and technological possibilities and resources that are used for its functioning and development; internal business communications: interaction (by the conditions of cooperation and/or competition) of business entities with managerial staff; external business communications: interaction (by the conditions of cooperation and/or competition) of the business system with other business systems within their common business environment.

The role of the business system in the business environment depends on its adaptability and is defined by

• • •

market share: ratio of the volume of goods that are sold in the business environment by this business system to the total volume of goods that are sold in the business environment; market power: possibility to influence the business environment, changing it in its own interests; business connections: profitable and sustainable external business communications.

Business system is based on infrastructure – provision of the business environment, which includes resources (human, material, communication and logistics, technological) and entities (state regulators, financial institutes, public associations, business associations). For performing the main role – obtaining

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income (profit) – the business system transforms incoming business flows into outgoing ones with the help of business processes. The result of the work of business system is creation of goods (a). That’s why outgoing flows (x 1 a) are always larger than incoming flows (x). Incoming flows are information and production resources that enter the business system and are used by it for functioning and development. Outgoing flows are results of transformation of incoming flows in the process of the work of the business system as a reaction to requirements of the business environment. Thus, the offered conceptual model of modern business system is a “black box” with a generalized internal structure. This model reflects the foundations of functioning and development of modern business system, which are specified in practice.

1.4 Conclusions Thus, the specified concept of business system allowed unifying within one scientific category the existing concepts of economic subjects (organizations, companies, corporations, and business structures). The developed concept possesses the following advantages as compared to the existing concepts of economic subjects (organizations, companies, corporations, and business structures) in economics:

•

•

•

systemic character: category of the business system takes into account social (as organization), production, innovational (as company), legal, financial (as corporation), and managerial (as business structure) features of a modern economic subject. Due to this, the category could be used during research in the sphere of management, economics, and law; universal character: the offered concept allowed reflecting internal and external environment of the business system, ensuring its higher detalization than in case of its presentation as a “black box” and emphasizing its connection to business environment. This allows conducting microeconomic and macroeconomic research on the basis of the concept of business system; clarity: the offered concept reflects the essence of the notions of business system and illustrated it, thus simplifying perception of the mechanism of its functioning and development.

The presented conceptual model of a modern business system is to become a foundation for theoretical and empirical studies – including interdisciplinary. A logical continuation of the performed research is considering the main stages of the evolution of modern business systems.

Acknowledgments The book in the part of material was performed within the grant of the Russian Foundation for Basic Research No. 18-010-00103 A.

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References Arboit, A. E. (2018). Knowledge organization: From term to concept, from concept to domain. Knowledge Organization, 45(2), 125–136. Bogoviz, A. V., Ioda, E. V., Ioda, Y. V., Kuranova, V. B., & Bobrova, V. V. (2017). Cluster development of innovational entrepreneurship: New possibilities and priorities in the conditions of the innovational economy creation. European Research Studies Journal, 20(3), 530–538. El Bousty, H., Krit, S.-D., Elasikri, M., Dani, H., Bendaoud, K., & Kabrane, M. (2018). Investigating business intelligence in the era of big data: Concepts, benefits and challenges. ACM International Conference Proceeding Series, 24(1), 78–91. ´ Fonfara, K., Ratajczak-Mrozek, M., & Leszczynski, G. (2018). Change in business relationships and networks: Concepts and business reality. Industrial Marketing Management, 70, 1–4. Kummamuru, S., & Mandaleeka, N. (2016). Modeling the business system by applying cybernetic concepts. In 2016 IEEE Conference on Norbert Wiener in the 21st Century, 21CW 2016, 75–87 (pp. 50–55). Lobova, S. V., & Bogoviz, A. V. (2017). El Entorno en L´ınea como Territorio de ´ del Mercado de Comercio Electronico ´ Negocios: Revision Ruso. [Online environment as a business territory: Review of the Russian e-commerce market.] Espacios, 38(61), 28–34. ´ D. (2018). Concept relationships in knowledge Moreira, W., & Mart´ınez-Avila, organization systems: Elements for analysis and common research among fields. Cataloging & Classification Quarterly, 56(1), 19–39. Morozova, I. A., Popkova, E. G., & Litvinova, T. N. (2018). Sustainable development of global entrepreneurship: Infrastructure and perspectives. The International Entrepreneurship and Management Journal, 2(1), 1–9. Popkova, E. G. (Vol. Ed. & Series Ed.). (2017). Economic and legal foundations of modern Russian society: A new institutional theory. In Advances in research on Russian business and management. Charlotte, NC: Information Age Publishing. Popkova, E. G., Morozova, I. A., & Litvinova, T. N. (2017). New challenges for human capital from the positions of its infrastructural role in the system of entrepreneurship. In Human capital: Perspectives, challenges and future directions (pp. 257–275). Hauppauge, NY: Nova Science Publishers, Inc. Popkova, E. G., Tyurina, Y. G., Sozinova, A. A., Bychkova, L. V., Zemskova, O. M., Serebryakova, M. F., & Lazareva, N. V. (2017). Clustering as a growth point of modern Russian business. Contributions to Economics, 97–103, 55–63. Rawwas, M. Y. A., Wang, Y., Zhao, B., & Javed, B. (2018). A comparison between North and South business ethics: The concepts of Renzhi and Fazhi in China. Asia Pacific Business Review, 24(5), 585–601. Rinkinen, S., & Harmaakorpi, V. (2018). The business ecosystem concept in innovation policy context: Building a conceptual framework. Innovation, 31(3), 333–349. Safar, L., Sopko, J., Bednar, S., & Poklemba, R. (2018). Concept of SME business model for industry 4.0 environment. TEM Journal, 7(3), 626–637. Sukhodolov, A. P., Popkova, E. G., & Litvinova, T. N. (2018). Models of modern information economy: Conceptual contradictions and practical examples. Bingley: Emerald Publishing.

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Veselovsky, M. Y., Izmailova, M. A., Bogoviz, A. V., Lobova, S. V., & Alekseev, A. N. (2017). Business environment in Russia and its stimulating influence on innovation activity of domestic companies. Journal of Applied Economic Sciences, 12(7), 1967–1981. Veselovsky, M. Y., Izmailova, M. A., Bogoviz, A. V., Lobova, S. V., & Alekseev, A. N. (2018). Innovative solutions for improving the quality of corporate governance in Russian companies. Quality – Access to Success, 19(162), 60–66. Veselovsky, M. Y., Izmailova, M. A., Bogoviz, A. V., Lobova, S. V., & Ragulina, Y. V. (2018). System approach to achieving new quality of corporate governance in the context of innovation development. Quality – Access to Success, 19(163), 30–36.

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Chapter 2

The Main Stages of Evolution of Modern Business Systems Aleksei V. Bogoviz, Tatiana M. Rogulenko, Svetlana V. Ponomareva, Elena N. Lapina and Leonid V. Kolyadov 2.1 Introduction Current static state of modern business systems is studied in detail by the economic theory, while dynamics of their development is neglected – though it poses higher scientific interest due to the three following reasons. The first reason is that business is a social institute. Studying the process of institutionalization of socioeconomic phenomena allows determining causal connections of them acquiring their current characteristics. The compiled institutional model of a modern business system could be studied with application of the methodology of the institutional economic theory. The second reason is that without comparison to other stages it is impossible to determine specifics of a modern stage of evolution of modern business systems. As business has the main role in development of economy, modern science and practice is most interested in the issue of correspondence of the current model of business systems to current needs of economy and the issues of adaptation features of this model. Insufficiency of these features is the basis of the idea that business systems cannot fully conform to modern challenges and need increase of regulation. Accordingly, sufficiency of adaptation features is an argument in favor of deregulation of modern business systems. The third reason is the necessity for forecasting the future scenarios of development of modern business systems for highly effective management of this process. Systemic study of dynamics of development of modern business systems will allow determining tendencies, factors, and regularities of their development. In view of the central role of business in the modern economy, this will open a possibility for determining the perspectives of development of not only business systems but the economy on the whole. The compiled forecasts make development of modern business systems more predictable and will allow managing this process in the interests of optimization of business systems (with emphasis on adaptation to current needs of economy). Specifics of Decision Making in Modern Business Systems, 13–19 Copyright © 2019 by Emerald Publishing Limited All rights of reproduction in any form reserved doi:10.1108/978-1-78756-691-020191003

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Based on the above, genesis of modern business systems requires thorough elaboration. The purpose of the work is to study the process of evolution of modern business systems, to distinguish its main stage, and to determine the peculiarities of the modern stage of this process. For compilation of the most complete dynamic model of evolution of modern business systems, this research is conducted by the example of modern Russia, which is one of the most vivid representatives of countries with transitional (forming market) economy and is thus peculiar for most intensive transformation processes in business as compared to the countries that traditionally implement the concept of market economy.

2.2 Materials and Method The theoretical basis of the research includes materials of scientific works on the issues of business systems in various time periods during the last 30 years: Akhmetshin et al. (2018), Golik and Izvekov (2018), Kapitsinis (2018), Kehoe, Midrigan, and Pastorino (2018), Pattnaik, Lu, and Gaur (2018), Poczter (2018), Popkova (2017), Popkova et al. (2017), Popkova, Bogoviz, Lobova, and Romanova (2018), Popkova, Gornostaeva, and Tregulova, 2018, Stranjik, Turˇci´c, and Jozi´c (2014), Veselovsky, Izmailova, Bogoviz, Lobova, and Alekseev (2017), and Bogoviz et al. (2018). The performed content analysis of these works showed the fragmentary character of research of this problem – the existing publications reflect the essence and peculiarities of certain stages of evolution of modern business systems. This does not allow for comprehensive description of this process and determination of regularities of its development. Therefore, the process of evolution of modern business systems requires further complex study, which is done in this chapter. The methodology of the chapter includes the method of logical analysis (analysis of causal connections) and the method of comparative historical analysis – which are used for distinguishing regularities of development of modern business systems and comparing the stages of their evolution. The method of formalization is used for graphic presentation of genesis of modern business systems.

2.3 Results As a result of studying the process of evolution of modern business systems in Russia, we determined that the initial point of this process is 1991, when transition to business economy was started. Four main stages are distinguished (Fig. 2.1). As is seen from Fig. 2.1, the first stage (1991–1997) is called “Paternalism” – as the conceptual platform of functioning of business systems at this stage was transitional economy, in which the features of planned economy dominated, that is, state paternalism of business was observed. The platform of the second stage “Commercialization” (1998–2007) was market economy, which was the success of commercial interests and settings.

The Main Stages of Evolution of Modern Business Systems Stage 1. Paternalism 1991

Stage 2. Commercialization 1998

Stage 3. Balancing 2008

Conceptual platform of functioning of business systems Market Transitional Circular economy economy economy

15

Stage 4. Technologization 2018 Innovational economy

Business economy

Fig. 2.1.

The Main Stages of Evolution of Modern Business Systems. Source: Compiled by the authors.

The third stage “Balancing” (2008–2017) envisaged development of modern business systems on the basis of the concept of circular economy, which reached its peak in 2015, due to the UN’s adopting the Sustainable Development Goals. At present (2018), the fourth stage “Technologization” of modern business systems started due to formation of innovational economy, the manifestations of which are knowledge economy, digital economy, and the Fourth Industrial Revolution (transition to Industry 4.0). Comparative characteristics of the distinguished main stages of evolution of modern business systems are given in Table 2.1. As is seen from Fig. 2.1, at the stage of paternalism, business environment was peculiar for monopoly and state form of ownership for business systems. Their regulation was intensive and was conducted by the state, with domination of large business system. Material capital dominated, with emphasis on internal communications. The mission of business systems was to provide public benefits, and the strategic goal was to implement state plans and programs. Business culture was peculiar for high complexity and low flexibility. The key business process was production. At the stage of commercialization, business environment was peculiar for private competition and domination of the private form of ownership for business systems. Their regulation was moderate and was conducted by the state, with domination of small business systems. Financial capital dominated, with emphasis on external communications. The mission of business systems at that stage was provision of economic benefits, and the strategic goal was to maximize commercial profit of owners of business systems. Business culture was peculiar for low complexity and medium flexibility. The key business process was distribution (sales). At the stage of balancing, business environment was peculiar for global (and, thus, very high) competition, with domination of private form of ownership for business systems. Their regulation was intensive and was conducted by the state and society, with domination of medium business systems. Human capital dominated, with emphasis on external communications. The mission of business systems at that stage was provision of public and economic benefits and the strategic goal, sustainable development of business systems. Business culture was peculiar for medium complexity and high flexibility. The key business process was organization.

Financial External Provision of economic benefits

Material Internal Provision of public benefits

Source: Compiled by the authors.

Maximization of commercial profit Low Medium Distribution

Private competition Private Moderate state Small

Commercialization

Technologization

Technological

Provision of public Stimulating the and economic goods formation of innovational economy Sustainable Innovational development development Medium High High Very high Organization Management

Human

Intensive state and public Medium Mega (very large)

Global competition

Balancing

Stage of Evolution of Modern Business Systems

State monopoly State Intensive state Large

Paternalism

Strategic goal of business systems Implementation of state plans/programs Complexity of business structure High Flexibility of business culture Low Key business process Production

Business environment Dominating form of ownership Regulation of business systems Dominating size of business systems Dominating type of capital Dominating communications Mission of business systems

Characteristics

Table 2.1. Comparative Characteristics of the Main Stages of Evolution of Modern Business Systems.

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At the current stage of technologization, business environment is peculiar for global (and, thus, very high) competition, with domination of private form of ownership for business systems. Their regulation is intensive and is conducted by the state and society, with domination of mega (very large) business systems, including transnational. Technological capital dominates, with emphasis on external communications. The mission of business systems at the current stage is to stimulate the formation of innovational economy (though provision of public and economic goods remains), and the strategic goal is innovational development of business systems. Business culture is peculiar for high complexity and high flexibility. The key business process is management. The current stage of evolution of modern business systems just started and will continue for several years. The determined features of this stage allow compiling two following forecasting scenarios of further development of modern business systems, oriented at the period until 2025: (1) scenario of well-balanced development of modern business systems. Within this scenario, under the condition of standardization and norming of innovational activity of business systems by the state and growth of demand for this activity from all interested parties (intermediaries, employees, investors, and consumers), massive growth of innovational activity of business systems is expected. This activity will become massive normal practice; (2) scenario of increase of disproportions in development of modern business systems. Within this scenario, under the condition of absence of clear requirements, standards, and norms of innovational activity of business systems from the state and interested parties, business structures are supposed to be divided into innovations-active (drivers of growth of innovational economy) and innovations-passive. Implementation of provided scenarios is possible in any modern socioeconomic system. Depending on strategic goals and priorities, each system could select an optimal scenario and conduct the corresponding management of development of modern business systems.

2.4 Conclusions As a result of the conducted research, four stages of evolution of modern business systems are distinguished: paternalism (1991–1997), commercialization (1998–2007), balancing (2008–2017), and technologization (2018). Each stage has its features, and the following regularities and tendencies of development of modern business systems in the process of their evolution are observed:

• • •

increase of competition in business environment; increase of regulation of business from the state and society; increase of size of business systems, which leads to complication of their structure, with growth of flexibility of business culture.

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It is determined that each stage of evolution of modern business systems, connected to their transformation, is caused by changes of the state and needs of economy (e.g., formation of market relations or the global financial crisis). The change of the conceptual platform of modern business systems leads to domination of public and state interests in development of modern business systems. At each distinguished stage of evolution, these systems correlate with the conceptual platform. This shows sufficiency of adaptation features with modern business systems. Concluding the performed research, it should be noted that each new stage of evolution of modern business systems is connected to emergence of their new types. However, this does not mean that dominating types of business systems lose importance and cease to exist. On the contrary, evolution stimulates growth of diversity of the types of business systems, whose combination in the business environment and economy allows achieving the goals and priorities of their functioning and development. Thus, approaches to classification of modern business systems should be further studied.

References Akhmetshin, E., Danchikov, E., Polyanskaya, T., Plaskova, N., Prodanova, N., & Zhiltsov, S. (2018). Analysis of innovation activity of enterprises in modern business environment. Journal of Advanced Research in Law and Economics, 8(8), 2311–2323. Bogoviz, A. V., Litvinova, T. N., Lobova, S. V., & Ragulina, Y. V. (2018). Infrastructural provision of international entrepreneurship: Theory and practice. International Journal of Trade and Global Markets, 11(3), 190–199. Golik, N. V., & Izvekov, A. I. (2018). Modern business philosophy: The brand as a phenomenon of culture. International Journal of Engineering & Technology, 7(3.5 Special Issue 5), 94–97. Kapitsinis, N. (2018). Interpreting business mobility through socio-economic differentiation. Greek firm relocation to Bulgaria before and after the 2007 global economic crisis. Geoforum, 96, 119–128. Kehoe, P. J., Midrigan, V., & Pastorino, E. (2018). Evolution of modern business cycle models: Accounting for the great recession. The Journal of Economic Perspectives, 32(3), 141–166. Pattnaik, C., Lu, Q., & Gaur, A. S. (2018). Group affiliation and entry barriers: The dark side of business groups in emerging markets. Journal of Business Ethics, 2(1), 1–16. Poczter, S. (2018). Business groups in emerging markets: A survey and analysis. Emerging Markets Finance and Trade, 54(5), 1150–1182. Popkova, E., Gornostaeva, Z., & Tregulova, N. (2018). Role of innovations in provision of competitiveness and innovational development of economy and overcoming of “underdevelopment whirlpools” in Russia and countries of Eastern Europe. Journal of Entrepreneurship in Emerging Economies, 10(3), 511–523. doi: 10.1108/JEEE-12-2017-0100.

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Popkova, E. G. (Vol. Ed. & Series Ed.). (2017). Economic and legal foundations of modern Russian society: A new institutional theory. In Advances in research on Russian business and management. Charlotte, NC: Information Age Publishing. Popkova, E. G., Bogoviz, A. V., Lobova, S. V., & Romanova, T. F. (2018) The essence of the processes of economic growth of socio-economic systems. Studies in Systems, Decision and Control, 135, 123–130. Popkova, E. G., Tyurina, Y. G., Sozinova, A. A., Bychkova, L. V., Zemskova, O. M., Serebryakova, M. F., & Lazareva, N. V. (2017). Clustering as a growth point of modern Russian business. Contributions to Economics, 97–103, 55–63. Stranjik, A., Turˇci´c, M., & Jozi´c, S. (2014). Druˇstvena odgovornost suvremenog poslovanja u funkciji mehanizma za svladavanje krizne situacije u poduze´cu. [Social responsibility of modern business as the function of the mechanism for overcoming crisis situation in the company.] Collegium Antropologicum, 38, 35–45. Veselovsky, M. Y., Izmailova, M. A., Bogoviz, A. V., Lobova, S. V., & Alekseev, A. N. (2017). Business environment in Russia and its stimulating influence on innovation activity of domestic companies. Journal of Applied Economic Sciences, 12(7), 1967–1981.

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Chapter 3

Approaches to Classification of Modern Business Systems Svetlana V. Lobova, Anna V. Bodiako, Liudmila V. Dontsova, Yevgeniy An and Viktor N. Salin

3.1 Introduction Despite the functioning at one (technologization) stage of evolution, modern business systems have different sets of characteristics, and their limitation conforms to the interests of all interested parties. Business owners prefer the organizational and legal classification of modern business systems, which they need for selecting the most favorable business environment and for maximization of commercial profit from doing business. From the state, classification of modern business systems defines specifics of regulation of business environment, aimed at implementing the mission that is set upon these systems. At the modern stage of evolution of business systems, their mission consists in stimulating the formation of innovational economy and traditionally covers stimulation of economic growth and solving of social problems (including provision of public benefits and creation of jobs). From employees of business systems, classification of modern business systems allows selecting the optimal job for the fullest implementation of labor and intellectual potential, creation of career, and maximization of income. From society, classification of modern business systems defines consumer preferences depending on adopted social norms, values, and priorities. While from the positions of the above categories of the interested parties the limitation of modern business systems is studied in detail by economics and is used successfully in economic practice, classification of these systems from the positions of business managers is poorly studied. This led to the purpose of this chapter – to study the approaches to classification of modern business systems from the side of business managers through the prism of making of managerial decisions.

Specifics of Decision Making in Modern Business Systems, 21–28 Copyright © 2019 by Emerald Publishing Limited All rights of reproduction in any form reserved doi:10.1108/978-1-78756-691-020191004

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3.2 Materials and Method As a result of content analysis of the existing scientific literature in management, economics, and law and systematization of scientific knowledge, five conceptual approaches to classification of modern business systems are determined as follows: (1) organization-oriented approach, within which modern business systems are classified according to organizational characteristics. This approach is presented in the works of scholars such as Gabryelczyk and Roztocki (2018), Hashmi and Governatori (2018), and James, Bradshaw, Coe, and Faulconbridge (2018); (2) externally-oriented approach, according to which during classification of modern business systems the main attention is paid to their functioning in external (market) environment. This approach is described in the works of Krivtsov (2014), Krivtsov (2015), Krivtsov, Polinova, Ivankina, Chubarkova, and Prokubovskaya (2016), and Miglietta, Battisti, Carayannis, and Salvi (2018); (3) management-oriented approach, which representatives focus on managerial issues during classification of modern business systems. This approach is seen in research materials of Popkova (2017), Popkova et al. (2017), Popkova, Gornostaeva, and Tregulova (2018), and Santos, Afonseca, Lopes, F´elix, and Murmura (2018); (4) socially-oriented approach, within which modern business systems are classified depending on peculiarities of their interaction with society. This approach is used in the works of researchers such as Sukhodolov, Popkova, and Litvinova (2018, pp. 1–38), Veselovsky, Izmailova, Bogoviz, Lobova, and Alekseev (2017), Bogoviz, Lobova, et al. (2018), and Bogoviz, Ragulina, et al. (2018); (5) innovations-oriented approach, according to which classification of modern business systems takes place depending on specifics of their innovational activities. This approach is presented in the works of Bandara, Bailey, Mathiesen, McCarthy, and Jones (2018), Bhatia and Awasthi (2018), and Edelson, Senk, and Stock (2018). Despite the fact that the distinguished approaches are described in detail in the existing publications, specifics of making of managerial decisions in modern business systems of different types are studied insufficiently and require further elaboration. For this, the methods of classification, comparative and systemic analysis, induction, deduction, and formalization are used.

3.3 Results Criteria of classification and distinguished types of modern business systems within each of the existing conceptual approaches are presented in Table 3.1. Let us consider peculiarities of the given classifications of modern business systems within the distinguished approaches from business managers through the

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Table 3.1. Approaches to Classification of Modern Business Systems.

Organizations-oriented

Approach

Criterion of Classification

Sectorial structure of business environment

Types of Modern Business Systems

• • •

Size of business systems

• • •

Externally-oriented

Sphere in which business systems function Business system’s involvement in business environment External integration of business systems

Scale and complex level of business environment of business systems

• • • • • • • • •

Management-oriented

• Internal integration of business systems

•

Organizational and legal form of business systems

•

•

• •

Business systems that function in the conditions of monopoly Business systems that function in the conditions of oligopoly Business systems that function in the conditions of competition Small (including micro-) business systems Medium business systems Large (including mega-) business systems Service business systems Industrial business systems Agricultural business systems Internal business systems External business systems Externally disintegrated (separated) business systems Externally integrated business systems Business systems that are oriented at internal business environment Business systems that are oriented at external business environment Business systems that are oriented at internal and external business environment Internally integrated business systems Internally disintegrated business systems Business structures in the organizational and legal form of society Business structures in the organizational and legal form of partnership Etc.

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Table 3.1. (Continued) Approach

Criterion of Classification

Business structure of business systems

Types of Modern Business Systems

• • •

Innovations-oriented

Socially-oriented

• Business culture of business systems

•

Types of goods that are sold by business systems

•

Level of legitimacy of business systems Responsibility of business systems Innovational activity of business systems

• • • • •

Technological mode of business systems

•

• •

• •

Business structures with linear business structure Business structures with functional business structure Business structures with divisional business structure Business structures with matrix business structure Business structures with totalitarian business culture Business structures with liberal business culture Business systems that sell public goods Business systems that sell economic goods Shadow business systems Official business systems Responsible business systems Irresponsible business systems Innovations-passive business systems Innovations-active business systems Business systems of the technological mode 3.0 Business systems of the technological mode 4.0

Source: Compiled by the authors.

prism of making of managerial decisions. Within the organizations-oriented approach, the sectorial structure of business environment determines the level of concentration of this environment, of which the most general (i.e., with additional classifications) are monopoly, oligopoly, and competition (enumerated in the order of increase of concentration). The higher the level of concentration of business environment, the more complex the process of making of managerial decisions, as business systems are peculiar for less sustainable position in the business environment.

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The size of business systems (could be small, including micro-, medium, and large, including mega-) influences the scale and hierarchy of managing business systems. The smaller the business system, the more managerial decisions are made by the business manager and, therefore, the larger the business system, the larger the number and the more complex the hierarchy of business managers, of which some make strategic decisions and others make tactical decisions. The sphere of the business system (the largest spheres are service, industry, and agriculture) determines the priority of business processes (under the condition that management is the key business process in all modern business systems). Thus, for example, organization is the most important aspect in the service sphere, while production, in industry. According to the externally oriented approach, involvement of business system in business environment determines loyalty of the subjects that function in this environment and of state regulators. According to this criterion, business systems could be as follows:

• •

internal – that is, parts of the business environment, in which they function. In scientific literature, they are called domestic or local business systems. Loyalty of economic subjects and state regulators is the highest; external – that is, the ones that came to the business environment from outside – from other countries and regions. In scientific literature they are often called foreign. Loyalty of economic subjects and state regulators to them is usually lower.

The lower the loyalty of economic subjects and state regulators to business systems, the more complex and more responsible the process of making of managerial decisions in them. External interaction of business systems defines the character of their interaction and cooperation with economic subjects in the business environment. According to this criterion, externally disintegrated (separated) business systems and externally integrated business systems are distinguished as – they are parts of integration associations – economic clusters, special economic areas, technological parks, and innovational networks. The making of managerial decisions of externally integrated business systems is more complex, as it requires coordination with other participants of integration associations. Scale and complexity of business environment of business systems is always compared in scientific economic literature to foreign economic activities, which complicates the process of making of managerial decisions. Within the management-oriented approach, internal integration of business systems determines the character of interaction of business entities with managerial staff. In internally integrated business systems, feedback is available and welcome, and in internally disintegrated business systems, it is unavailable and unwelcome. The organizational and legal form (e.g., society and community) and the business structure (the main ones are linear, functional, divisional, and matrix) determine the specifics of organization of work of the managerial staff.

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According to the socially-oriented approach, the type of goods that are sold by business systems defines the specifics of outgoing business flows. The possibilities of obtaining commercial profit are limited when selling public goods, which complicates the process of making of managerial decisions and predetermines their increased flexibility and originality. The lower the level of legitimacy of business systems according to which shadow and official business systems are distinguished, the higher the risk component of business, and the lower and more responsible the process of making of managerial decisions. Responsibility of business systems (social and/or ecological) determines loyalty to them from employees, society, and the state and sets high requirements to managerial decisions. Within innovations-oriented approach, the higher the level of innovational activity of business systems, the higher the risk component of business, and the more complex the process of making of managerial decisions. At the same time, innovations-passive business systems face the problem of provision of competitiveness, which also complicates the making of managerial decisions. In the conditions of the Fourth Industrial Revolution, which envisages transition to Industry 4.0, we offer a new classification of modern business systems according to the criterion of their technological mode and distinguish the systems of mode 3.0 and mode 4.0. Transition to the new technological mode is accompanied by additional business risks, which complicate the process of making of managerial decisions.

3.4 Conclusions Thus, five conceptual approaches to classification of modern business systems are distinguished: organizations-oriented, externally-oriented, management-oriented, socially-oriented, and innovations-oriented. Within each of them, various (mutually supplementing) criteria of classification are used, which allow distinguishing many types of modern business systems. The performed analysis of classification of modern business systems from the side of business managers showed that all peculiarities of these systems influence the process of making of managerial decisions in them, including the sectorial structure of business environment, size of business systems, the sphere in which business systems function, involvement in business environment, internal and external integration of business systems, scale and complex level of business environment of business systems, organizational and legal form, business structure and business culture of business systems, type of goods that they sell, level of legitimacy, responsibility, innovational activity, and technological mode of business systems. The shown dependence of making of managerial decisions in modern business systems on their specific features emphasizes the necessity for the concept of decision making in modern business systems, which reflects their general features. Thus, it is expedient to determine the basic principles of functioning and development of modern business systems.

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References Bandara, W., Bailey, S., Mathiesen, P., McCarthy, J., & Jones, C. (2018). Enterprise business process management in the public sector: The case of the Department of Human Services (DHS) Australia. Journal of Information Technology Teaching Cases, 8(2), 217–231. Bhatia, M. S., & Awasthi, A. (2018). Assessing relationship between quality management systems and business performance and its mediators: SEM approach. International Journal of Quality & Reliability Management, 35(8), 1490–1507. Bogoviz, A. V., Lobova, S. V., Saveleva, N. A., Lysak, I. V., & Makarenko, S. N. (2018). Highly-effective management of the process of innovations commercialization as a basis of development of modern human society. Advances in Intelligent Systems and Computing, 622, 298–304. Bogoviz, A. V., Ragulina, Y. V., & Sirotkina, N. V. (2018). Systemic contradictions in development of modern Russia’s industry in the conditions of establishment of knowledge economy. Advances in Intelligent Systems and Computing, 622, 597–602. Edelson, S. A., Senk, C. C., & Stock, K. L. (2018). Using an integrated business experience to take the place of “introduction to management” in an integrated curriculum. The Journal of Education for Business, 93(7), 331–339. Gabryelczyk, R., & Roztocki, N. (2018). Business process management success framework for transition economies. Information Systems Management, 35(3), 234–253. Hashmi, M., & Governatori, G. (2018). Norms modeling constructs of business process compliance management frameworks: A conceptual evaluation. Artificial Intelligence and Law, 26(3), 251–305. James, A., Bradshaw, M., Coe, N. M., & Faulconbridge, J. (2018). Sustaining economic geography? Business and management schools and the UK’s great economic geography diaspora. Environment and Planning A, 50(6), 1355–1366. Krivtsov, A. I. (2014). Fair value assessment of investment capital when ensuring coherence of managerial decision–making processes. Actual Problems of Economics, 161(11), 307–313. Krivtsov, A. I. (2015). Business development strategy and business processes diversification. Actual Problems of Economics, 165(3), 17–24. Krivtsov, A. I., Polinova, L. V., Ivankina, M. S., Chubarkova, E. V., & Prokubovskaya, A. O. (2016). Corporate information management system and its influence on increase of changes productivity. International Journal of Environmental & Science Education, 11(15), 7627–7635. Miglietta, N., Battisti, E., Carayannis, E., & Salvi, A. (2018). Capital structure and business process management: Evidence from ambidextrous organizations. Business Process Management Journal, 24(5), 1255–1270. Popkova, E., Gornostaeva, Z., & Tregulova, N. (2018). Role of innovations in provision of competitiveness and innovational development of economy and overcoming of “underdevelopment whirlpools” in Russia and countries of Eastern Europe. Journal of Entrepreneurship in Emerging Economies, 10(3), 511–523. doi: 10.1108/JEEE-12-2017-0100. Popkova, E. G. (Vol. Ed. & Series Ed.). (2017). Economic and legal foundations of modern Russian society: A new institutional theory. In Advances in research on Russian business and management. Charlotte, NC: Information Age Publishing.

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Popkova, E. G., Tyurina, Y. G., Sozinova, A. A., Bychkova, L. V., Zemskova, O. M., Serebryakova, M. F., & Lazareva, N. V. (2017). Clustering as a growth point of modern Russian business. Contributions to Economics, 97–103, 55–63. Santos, G., Afonseca, J., Lopes, N., F´elix, M. J., & Murmura, F. (2018). Critical success factors in the management of ideas as an essential component of innovation and business excellence. International Journal of Quality and Service Sciences, 10(3), 214–232. Sukhodolov, A. P., Popkova, E. G., & Litvinova, T. N. (2018). Models of modern information economy: Conceptual contradictions and practical examples. Bingley: Emerald Publishing. Veselovsky, M. Y., Izmailova, M. A., Bogoviz, A. V., Lobova, S. V., & Alekseev, A. N. (2017). Business environment in Russia and its stimulating influence on innovation activity of domestic companies. Journal of Applied Economic Sciences, 12(7), 1967–1981.

PART II: THE CONCEPT OF DECISION MAKING IN MODERN BUSINESS SYSTEMS

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Chapter 4

The Basic Principles of Functioning and Development of Modern Business Systems Aleksei V. Bogoviz, Svetlana V. Lobova, Julia V. Ragulina, Alexander N. Alekseev and Arutyun A. Khachaturyan 4.1 Introduction The process of decision making in modern business systems is largely predetermined by peculiarities of their functioning and development. This is explained by the fact that, firstly, these peculiarities determine the accessible variant of decisions. The more favorable the business environment and the stronger the influence on the business system, the wider the list of accessible solutions to current problems and tasks. Requirements of interested parties and state regulators narrow down the list by increasing the norms and standards and influencing the reputation of business. Specifics of business environment also determine the criteria of optimality of managerial decisions, influencing the risk component, expenditures for implementation of decisions, and their consequences for the business system. Secondly, the more dynamic the change of business environment, the less the time left for decision making. Each decision could be considered optimal only with preservation of the set conditions, and change of conditions requires new decision making. Quick optimal decisions are more resource intensive, as they require the application of new technologies and/or attraction of a larger number of business managers. That’s why during making of managerial decisions in modern business systems it is necessary to take into account factors under whose influence the business environment forms and changes, as it is possible to make optimal decisions that ensure long-term competitiveness of business system and its sustainable functioning in this business environment. The working hypothesis of the research is that, despite a wide diversity of modern business systems and uniqueness of each business environment, it forms and changes under the influence of a strictly determined list of key factors, which leads to functioning and development of business systems on the basis of universal basic principles. The purpose of the work is to determine the basic principles of functioning and development of modern business systems. Specifics of Decision Making in Modern Business Systems, 31–37 Copyright © 2019 by Emerald Publishing Limited All rights of reproduction in any form reserved doi:10.1108/978-1-78756-691-020191005

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4.2 Materials and Method As a result of overview of the existing scientific literature on the issues of decision making in modern business systems, we determined that the factors that influence business environment are studied thoroughly. The main factors are state regulation, fluctuations of the global economic system, tendencies of demand, and technological progress. The essence of these factors and their influence on business environment are studied in the works of Akhmetshin et al. (2018), Arboit (2018), El Bousty et al. ´ (2018), Fonfara, Ratajczak-Mrozek, and Leszczynski (2018), Golik and Izvekov (2018), Kapitsinis (2018), Kehoe, Midrigan, and Pastorino (2018), Kummamuru ´ and Mandaleeka (2016), Moreira and Mart´ınez-Avila (2018), Pattnaik, Lu, and Gaur (2018), Poczter (2018), Rinkinen and Harmaakorpi (2018), and Safar, Sopko, Bednar, and Poklemba (2018). The existing publications also study characteristics of business environment, in which modern business systems develop and function. The most popular characteristics include uncertainty (complexity of forecasting of the change of business environment due to its susceptibility to a lot of factors, most of which have social nature) and instability (susceptibility to constant changes even in the short term). Overview of these min and additional characteristics is performed in the works of Krivtsov (2015), Popkova (2017), Popkova et al. (2017), Popkova, Ragulina, and Bogoviz (2019), Popkova, Gornostaeva, and Tregulova (2018), Sukhodolov, Popkova, and Litvinova (2018, pp. 1–38), Veselovsky, Izmailova, Bogoviz, Lobova, and Alekseev (2017), Bogoviz, Alekseev, et al. (2018), Bogoviz, Chernukhina, et al. (2018), and Bogoviz, Litvinova, et al. (2018). However, despite the high level of elaboration of the problem of the research, the principles of functioning and development of modern business systems (not business environment) are poorly studied. For this, the method of logical analysis (analysis of causal connections), the method of systematization, and the method of formalization are used.

4.3 Results As a result of studying the peculiarities of business environment, the factors are determined and analysis of their influence on modern business systems is performed. This allowed determining the basic principles of functioning and development of modern business systems and their essence (Table 4.1). As is shown in Table 4.1, one of the decisive factors of business environment is competition. The level of competition could be various but is present in any modern business environment. Even natural monopolies (e.g., railroad transport) are involved in competitive struggle, whose participants are not only similar products (goods, works, and services) but also substitute products – car, water, and air transport. For functioning and development in the conditions of competition, modern business systems form, support, and develop their uniqueness. This is manifested

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Table 4.1. The Basic Principles of Functioning and Development of Modern Business Systems, Their Essence, and Decisive Factors. Decisive Factors

Principles

Competition

Uniqueness

Market relations

Marketing activity

Essence of Functioning and Development of Modern Business Systems According to the Principles

• • • • •

Deficit of resources

Effectiveness

• •

Globalization

Openness

• • • •

Innovational economy

Flexibility

• •

Striving to maximum originality Focus on own peculiarities Founding on the results of marketing research Implementation of marketing communications Managing the loyalty of interested parties Rational usage of existing resources Minimization of waste of business Break-even functioning Striving for expansion of sales markets Considering the possibility of participation in integration associations of business systems Optimization of chains of supply and sales Systemic modernization of business processes with technological progress Optimization of structure, directions, and scale of innovational activity

Source: Compiled by the authors.

in striving for maximum originality during development of products, its promotion in business environment, for communication with interested parties, etc. Modern business systems focus on their peculiarities – in order to be different from the rivals. These peculiarities should create additional value for interested parties (primarily, consumers), but even if it is absent, business systems have competitive advantages due to their peculiar features.

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Another decisive factor of business environment is market relations. The tendency of marketization has spread even for business environment in which public services are provided (e.g., educational or medical services, roads, bridges, parks). Due to this, the basic principle of functioning and development of modern business systems is marketing activity, whose manifestations are as follows:

• • •

founding on the results of marketing research: these results are considered during making of managerial decisions, as they provide the most precise and correct information on the business environment; implementation of marketing communications: they allow forecasting consequences of implementing alternative decisions; managing loyalty of interested parties: this expands the list of accessible managerial decisions for modern business systems.

Though the level of marketing activity could be various, it is an inseparable component of successful functioning and development of modern business systems. Another decisive factor of business environment is deficit of resources. It is a traditional factor that is connected to fundamental conditions of doing business. However, recently its influence on business environment increased, as deficit of resources is very urgent and may lead to ecological crisis. Under the influence of this factor, the principle of functioning and development of modern business systems is effectiveness, which covers not only the economic aspect (receipt of commercial profit due to income’s exceeding expenditures) but also the social and ecological aspects (responsible business). This principle is implemented not only through traditional rational usage of existing resources and break-even functioning of business systems but also through minimization of business waste. The decisive factors of business environment include globalization, due to which the principle of functioning and development of modern business systems is openness. It is manifested in susceptibility of business systems to the destabilizing influence of external factors (e.g., global crises) and in additional opportunities (e.g., access to cheaper resources). Being open, modern business systems strive for expansion of sales markets for maximizing the turnover and stable income. They take into account the possibility of participation in integration unions of business systems – economic clusters, innovational networks, technological parks, and special economic areas; and possibility of reorganization (e.g., mergers and acquisitions). Modern business systems also optimize the chains of supply and sale, establishing the most profitable relations with intermediaries at previous and next links of the added value chain. Openness means free exchange of resources, information, and finished products with the business environment. The decisive factors of business environment include innovational economy. This is a specific feature of modern “technologization” of the stage of evolution of business systems, related to acceleration of the technological progress and start of the Fourth Industrial Revolution. Thus, flexibility is also a principle of functioning and development of modern business systems.

The Basic Principles of Functioning and Development Factors: Competition Market relations

Deficit of resources Globalization Innovational economy

Business environment

35

openness flexibility

uniqueness Business system effectiveness

Results: competitiveness; sustainable functioning and development in this business system.

marketing activity

Fig. 4.1. The System of Basic Principles of Functioning and Development of Modern Business System. Source: Compiled by the authors. While innovational activity (voluntary conduct of R&D, implementation of innovations into business processes, and implementation of innovational products) is manifested by not all modern business systems, a mandatory condition of support for competitiveness and sustainability is systemic modernization of business processes with technological progress, as well as optimization of the structure, directions, and scale of innovational activity. The system of basic principles of functioning and development of modern business systems, which are formed under the influence of the above factors of business environment, and results of following these principles are shown in Fig. 4.1. Fig. 4.1 shows the basic principles of functioning and development of modern business system with italics. The core of provision of competitiveness and sustainable functioning and development in the business environment is the principle of uniqueness. The principles of internal organization of modern business system are effectiveness and flexibility, and the principles of external organization are openness and marketing activity.

4.4 Conclusions Thus, the working hypothesis is proved; the basic principles of functioning and development of modern business system are determined: uniqueness, marketing activity, effectiveness, openness, and flexibility. They form under the influence of such factors of business environment as competition, market relations, and deficit of resources, globalization, and innovational economy. Only under the condition of observation of all these principles the business system can achieve and preserve competitiveness and function and develop in a business environment. These principles determine the following features of managerial decisions in modern business systems:

•

constant monitoring of external environment for determining new opportunities and current problems and determining the need for managerial decisions;

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Aleksei V. Bogoviz et al. founding on materials of marketing research, conduct of marketing communications for informing and supporting the loyalty of interested parties in the process of implementation of the decisions; striving for supporting or at least preserving the uniqueness and effectiveness of business system during decision making (criteria of optimality of decisions). It is expedient to study the essence of the process of decision making.

References Akhmetshin, E., Danchikov, E., Polyanskaya, T., Plaskova, N., Prodanova, N., & Zhiltsov, S. (2018). Analysis of innovation activity of enterprises in modern business environment. Journal of Advanced Research in Law and Economics, 8(8), 2311–2323. Arboit, A. E. (2018). Knowledge organization: From term to concept, from concept to domain. Knowledge Organization, 45(2), 125–136. Bogoviz, A. V., Alekseev, A. N., Kletskova, E. V., Kuznetsov, Y. V., & Cherepukhin, T. Y. (2018). Territories of advanced economic development as the most favorable environment for the development of a modern man. Quality – Access to Success, 19(S2), 161–165. Bogoviz, A. V., Chernukhina, G. N., & Mezhova, L. N. (2018). Subsystem of the territory management in the interests of solving issues of regional development. Quality – Access to Success, 19(S2), 152–156. Bogoviz, A. V., Litvinova, T. N., Lobova, S. V., & Ragulina, Y. V. (2018). Infrastructural provision of international entrepreneurship: Theory and practice. International Journal of Trade and Global Markets, 11(3), 190–199. El Bousty, H., Krit, S.-D., Elasikri, M., Dani, H., Bendaoud, K., & Kabrane, M. (2018). Investigating business intelligence in the era of big data: Concepts, benefits and challenges. ACM International Conference Proceeding Series, 24(1), 78–91. ´ Fonfara, K., Ratajczak-Mrozek, M., & Leszczynski, G. (2018). Change in business relationships and networks: Concepts and business reality. Industrial Marketing Management, 70, 1–4. Golik, N. V., & Izvekov, A. I. (2018). Modern business philosophy: The brand as a phenomenon of culture. International Journal of Engineering and Technology (UAE), 7(3.5 Special Issue 5), 94–97. Kapitsinis, N. (2018). Interpreting business mobility through socio-economic differentiation. Greek firm relocation to Bulgaria before and after the 2007 global economic crisis. Geoforum, 96, 119–128. Kehoe, P. J., Midrigan, V., & Pastorino, E. (2018). Evolution of modern business cycle models: Accounting for the great recession. The Journal of Economic Perspectives, 32(3), 141–166. Krivtsov, A. I. (2015). Business development strategy and business processes diversification. Actual Problems of Economics, 165(3), 17–24. Kummamuru, S., & Mandaleeka, N. (2016). Modeling the business system by applying cybernetic concepts. In 2016 IEEE Conference on Norbert Wiener in the 21st Century, 21CW 2016, 75–87 (pp. 50–55).

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´ Moreira, W., & Mart´ınez-Avila, D. (2018). Concept relationships in knowledge organization systems: Elements for analysis and common research among fields. Cataloging & Classification Quarterly, 56(1), 19–39. Pattnaik, C., Lu, Q., & Gaur, A. S. (2018). Group affiliation and entry barriers: The dark side of business groups in emerging markets. Journal of Business Ethics, 2(1), 1–16. Poczter, S. (2018). Business groups in emerging markets: A survey and analysis. Emerging Markets Finance and Trade, 54(5), 1150–1182. Popkova, E., Gornostaeva, Z., & Tregulova, N. (2018). Role of innovations in provision of competitiveness and innovational development of economy and overcoming of “underdevelopment whirlpools” in Russia and countries of Eastern Europe. Journal of Entrepreneurship in Emerging Economies, 10(3), 511–523. doi: 10.1108/JEEE-12-2017-0100. Popkova, E. G. (Vol. Ed. & Series Ed.). (2017). Economic and legal foundations of modern Russian society: A new institutional theory. In Advances in research on Russian business and management. Charlotte, NC: Information Age Publishing. Popkova, E. G., Ragulina, Y. V., & Bogoviz, A. V. (2019). Industry 4.0: Industrial revolution of the 21st century. In J. Kacprzyk (Ed.), Studies in systems, decision and control. Berlin: Springer. Popkova, E. G., Tyurina, Y. G., Sozinova, A. A., Bychkova, L. V., Zemskova, O. M., Serebryakova, M. F., & Lazareva, N. V. (2017). Clustering as a growth point of modern Russian business. Contributions to Economics, 97–103, 55–63. Rinkinen, S., & Harmaakorpi, V. (2018). The business ecosystem concept in innovation policy context: Building a conceptual framework. Innovation, 31(3), 333–349. Safar, L., Sopko, J., Bednar, S., & Poklemba, R. (2018). Concept of SME business model for industry 4.0 environment. TEM Journal, 7(3), 626–637. Sukhodolov, A. P., Popkova, E. G., & Litvinova, T. N. (2018). Models of modern information economy: Conceptual contradictions and practical examples. Bingley: Emerald Publishing. Veselovsky, M. Y., Izmailova, M. A., Bogoviz, A. V., Lobova, S. V., & Alekseev, A. N. (2017). Business environment in Russia and its stimulating influence on innovation activity of domestic companies. Journal of Applied Economic Sciences, 12(7), 1967–1981.

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Chapter 5

The Essence of the Process of Decision Making as a Choice of the Existing Alternatives Olga G. Tretyakova, Olga P. Osadchaya, Elena I. Kostyukova, Mikhail V. Sirotenko and Irina V. Gimelshtein

5.1 Introduction Decision making is a usual practice of economic activities. That’s why during decision making in the process of management of modern business systems, business managers often use intuition, striving for saving time, human, and financial resources. This approach to managerial decisions could be justified only in the period of the phase of crisis (decline) of business system, when it experiences a deficit of resources and requires quick decisions. In the period of stable functioning of business system, intuitive approach to managerial decisions is inadmissible, as it cannot guarantee the optimality of the process. Firstly, intuitive approach might lead to solutions to problems that are not topical for the business system or do not require management, while other problems might remain without attention. Secondly, intuition cannot guarantee evaluation of the whole totality of potential advantages and expenditures for implementation of managerial decisions, which distorts the characteristics of accessible alternative variants of solving the problems and leads to nonoptimal decisions. Thirdly, in case of the intuitive approach, it is impossible to fully evaluate the risks of implementing the alternative managerial decisions, and without the risk component, it is impossible to choose the optimal alternative. Thus, the scientific approach to managerial decisions in modern business systems is preferable – it allows for clear structuring of this process and offers the tools for optimal decisions. The purpose of the work is to study the essence and to determine the algorithm and methodology of decision making as a choice of existing alternatives according to the scientific approach to the process of managing the modern business systems.

Specifics of Decision Making in Modern Business Systems, 39–45 Copyright © 2019 by Emerald Publishing Limited All rights of reproduction in any form reserved doi:10.1108/978-1-78756-691-020191006

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5.2 Materials and Method The theoretical basis of the research includes the materials of the works devoted to the essence of the process of making of managerial decisions in modern business systems: Krivtsov (2014), Krivtsov (2015), Krivtsov, Polinova, Ivankina, Chubarkova, and Prokubovskaya (2016), Popkova (2017), Popkova et al. (2017), Popkova, Ragulina, and Bogoviz (2019), Popkova, Gornostaeva, and Tregulova (2018), Sukhodolov, Popkova, and Litvinova (2018, pp. 1–38), and Veselovsky, Izmailova, Bogoviz, Lobova, and Alekseev (2017). The performed content analysis allowed determining the following gaps in the system of the existing scientific knowledge in the sphere of making of managerial decisions in modern business systems:

• • •

lack of clarity of the algorithm of making of managerial decisions in modern business systems: contradictory opinions on the number and essence of stages of this process; studying the methodology of managerial decisions without connection to the stages of this process; lack of systemic character of the methodology of decisions as a choice of existing alternatives.

These gaps in the scientific approach to making of managerial decisions in modern business systems are to be filled by this chapter. The methodology includes the process analysis, which allows determining the stages of making of decisions in modern business systems and determining its algorithm; the method of formalization, which allows for clear presentation of the obtained algorithm; and the method of comparative analysis, which allows comparing the existing methods of decision making as a choice of existing alternatives.

5.3 Results As a result of generalization and systematization of the existing scientific knowledge in the sphere of making of managerial decisions in modern business systems and reconsideration (logical analysis) of this process, the following algorithm is compiled (Fig. 5.1). As is seen from Fig. 5.1, four stages of the algorithm of making of managerial decisions in modern business systems are distinguished, and methodological tools for each stage are determined. The first stage is to determine the needs of business system in making of managerial decisions. For this, internal monitoring and control of functioning and development of business system through interaction between managers and business entities are conducted, and the current state and dynamics of change of the external environment are analyzed.

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marketing Stage 1: Determining the needs of business system for making of managerial decisions

Managerial tools

Methodological tools: marketing; collection of internal feedback.

Business entities

Determining the needs for making managerial decisions Methodological tools: using models; Alternative decisions “brainstorm”; 2 1 Stage 2: Determining intellectual technologies the needs of business … of decision making. system for making n managerial decisions Detalization of alternative variants of managerial decisions Stage 3: Comparing alternative variants of managerial decisions

Alternative 2 (+/-) Alternative 1 (+/-)

Methodological tools: method of evaluation of effectiveness; game method.

Selecting the optimal decision on the set criteria Stage 4: Implementing the managerial decision and further evaluation of its optimality (reflection, accumulation of experience, reconsideration of criteria and methods)

Fig. 5.1. The Algorithm of Making of Managerial Decisions in Modern Business Systems. Source: Compiled by the authors. At that, the method of marketing is used for conducting marketing research and external marketing communications of the business system and interested parties. Marketing allows collecting the following information:

• • •

position of company in business system (competitiveness, sustainability), which is compared to business strategy, and their difference is a problem, which requires managerial decisions; desires, offers, remarks, and dissatisfaction of interested parties and changes in their requirements to the business system. Mismatch between characteristics of business system to requirements of interested parties is a problem that requires managerial decisions; the state, tendencies of development, and future perspectives of the change of business environment. If the signs of aggravation of the state of the business environment are determined (including the coming crisis), the business system requires business decisions.

Also, the method of collection of internal feedback from participants of business entities (employees) is used. Their messages regarding failures in the works of business system are a basis for managerial decisions. All determined

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problems and possibilities of development of business environment are analyzed, and aggregate needs of the business system for managerial decisions are determined: current possibilities and problems are systematized, connections between them are established, and their danger for business system and allowable time for their solution are set. The second stage is devoted to determining the possibilities of the business system in making of managerial decisions. It determines alternative managerial solutions to current problems and perspectives of implementation of the opportunities of the business system – separately and jointly. The methodological tools of this stage include the following:

• •

•

using models: if the company faces the same problems again and again, it can develop models for their solutions, which were successfully used in the past – at that, it is necessary to consider the current peculiarities of the business environment; “brain storm”: this method envisages offering various solutions to the problems and implementation of the business system’s possibilities. This method could be used individually (by business manager) or collectively, with involvement of not only participants of the managerial level (business managers) but also participants of business entities (employees) within outsource; intellectual technologies of decision support for decisions: this method envisages digital modeling of business system and usage of specialized managerial computer software, which offers patterns and original variants of managerial decisions. This method allows for partial authomatization of this stage of the studied algorithm.

The result of the stage is systematization and detalization (detailed description of parameters) of alternative variants of managerial decisions in the business system. At the third stage, alternative managerial decisions are compared, their advantages and drawbacks are determined, and the optimal solution according to the set criteria – which are unique for each business system – is selected. Generalized criteria include the minimum expenditures, maximum result, and minimum risk level. Each stage may feature one (or both) of the following methods. The first one is the method of evaluation of effectiveness – it envisages the usage of the following formula for evaluating the effectiveness of each managerial decision: "

n



+ bd;i ppd;i

Ef d ¼



i¼1

m

#

pNd 

Cmtd 1 Crzd 1 + ld;j ppd;j



(5.1)

j¼1

where Ef – effectiveness of managerial decision, shares of 1; d – managerial decision, quantitative indicator (d 5 1…‘); b – advantages (profit), gained by the business system during implementation of the business decision, in monetary terms;

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p – probability, shares of 1; i – given advantage, whole numbers (i 5 1…n); n – advantages, whole numbers (n 5 1…‘); N – the necessity for making (and implementation) of a decision (determined objectively by the expert method), shares of 1 (N 5 0,1…1). Cmt – aggregate expenditures for development of the decision, in monetary terms; Crz – aggregate expenditures for implementing a decision, in monetary terms; l – losses of the business system from implementing the decision in monetary terms; j – the losses, whole numbers (j 5 1…m); m – number of losses, whole numbers (m 5 1…‘). According to this method, the optimal solution is the one for which the value Ef is the largest. The second – game – method envisages founding on the theory of games and usage of the following formula for evaluating the effectiveness of each managerial decision: Decision Scenario Advantages Expenses Probability

d1

1 … n

… dm

b1

C1

p1

bn

Cn

pn

Result

Rd 5 (b1/C1) * p11… 1(bn/Cn) * pn

Rb

Within this method, scenarios of practical implementation are determined for each decision d (d 5 1…‘). Each scenario corresponds to advantages (b, monetary units), expenses (C, monetary units), and probability (p, shares of 1); sum of probabilities for all scenarios constitutes 1. The result of each decision (R) is calculated as the sum of products of probabilities of each scenario and ratio of advantages to expenditures. The optimal decision is the one with the highest value R. The fourth stage envisages implementing the managerial decision and further evaluation of its optimality. It is implemented with the help of the method of reflection and envisages accumulation of experience and possible reconsideration of criteria of optimality of managerial decisions and methods that are used at all stages of the algorithm.

5.4 Conclusions Thus, the algorithm of managerial decisions in modern business systems is compiled. The developed algorithm has the following advantages as compared to the existing scientific descriptions of the process:

•

completeness of the algorithm of managerial decisions in a modern business system: it includes all stages, from determining the need to implementing the

44

• • •

Olga G. Tretyakova et al. decision, not only selection and comparison of alternatives – which ensures systemic character of the process of decision making in a business system; a complex solution to the problems of business system through making of managerial decisions: instead of traditional solution of each problem separately, the developed algorithm allows solving all problems, thus reducing expenses and achieving synergetic effect; connection of methodology of managerial decisions to each stage of the algorithm: this simplifies practical implementation of the algorithm; systemic character of the methodology of decision making as a choice of existing alternatives: opposing the method of evaluation of effectiveness to the game method, which allows each business system to select the most accessible and preferable method.

The essence of decision making as a choice of existing alternatives allows determining the role and place of decision making in the process of management of a modern company.

References Krivtsov, A. I. (2014). Fair value assessment of investment capital when ensuring coherence of managerial decision–making processes. Actual Problems of Economics, 161(11), 307–313. Krivtsov, A. I. (2015). Business development strategy and business processes diversification. Actual Problems of Economics, 165(3), 17–24. Krivtsov, A. I., Polinova, L. V., Ivankina, M. S., Chubarkova, E. V., & Prokubovskaya, A. O. (2016). Corporate information management system and its influence on increase of changes productivity. International Journal of Environmental & Science Education, 11(15), 7627–7635. Popkova, E., Gornostaeva, Z., & Tregulova, N. (2018). Role of innovations in provision of competitiveness and innovational development of economy and overcoming of “underdevelopment whirlpools” in Russia and countries of Eastern Europe. Journal of Entrepreneurship in Emerging Economies, 10(3), 511–523. doi: 10.1108/JEEE-12-2017-0100. Popkova, E. G. (Vol. Ed. & Series Ed.). (2017). Economic and legal foundations of modern Russian society: A new institutional theory. In Advances in research on Russian business and management. Charlotte, NC: Information Age Publishing. Popkova, E. G., Ragulina, Y. V., & Bogoviz, A. V. (2019). Industry 4.0: Industrial revolution of the 21st century. In J. Kacprzyk (Ed.), Studies in systems, decision and control. Berlin: Springer. Popkova, E. G., Tyurina, Y. G., Sozinova, A. A., Bychkova, L. V., Zemskova, O. M., Serebryakova, M. F., & Lazareva, N. V. (2017). Clustering as a growth point of modern Russian business. Contributions to Economics, 97–103, 55–63. Sukhodolov, A. P., Popkova, E. G., & Litvinova, T. N. (2018). Models of modern information economy: Conceptual contradictions and practical examples. Bingley: Emerald Publishing.

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Veselovsky, M. Y., Izmailova, M. A., Bogoviz, A. V., Lobova, S. V., & Alekseev, A. N. (2017). Business environment in Russia and its stimulating influence on innovation activity of domestic companies. Journal of Applied Economic Sciences, 12(7), 1967–1981.

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Chapter 6

Algorithm of Making of Managerial Decisions in the Conditions of Constant Changes Olesya A. Stroeva, Innara R. Lyapina, Elena V. Sibirskaya, Elena V. Petrukhina and Liubov V. Plakhova

6.1 Introduction Effectiveness and efficiency of the work of subjects depends on precision of making of managerial decisions. Management – as one of characteristics of decision making – depends on correctness of selecting the algorithm and stage-bystage concentration of identifying actions. Modern economy is peculiar for the high level of changeability of the external environment. External environment transforms under the influence of the processes in the national economy and regenerates final result of making of economic decision. Effectiveness of this decision decreases. Managerial decision has a conventional character. Topicality of the issue that is studied in this chapter is brought down to the following theses. Firstly, making of managerial decisions is an important function of corporate management. Together with planning, control, and motivation, making of managerial decision determines the processes of management. The final result is aimed at managerial transformation, which further on forms a comprehensive picture of corporate management. Secondly, the purpose of making of managerial decisions is to reduce consequences or to eliminate the existing problems. Simply speaking, managerial decision allows achieving the ideal result in the future. Based on the achievement of the set goal, models and algorithms that determine systemic measures on making of managerial decisions are developed. Violation of the system leads to the change of the set goals. Transformation of changes automatically transforms the system of making of managerial decisions. An important component of this process is the possibility to terminate the process of destructuration. Thirdly, the life cycle of organization influences the making of managerial decision. The stages of formation of organization are distinguished within the

Specifics of Decision Making in Modern Business Systems, 47–56 Copyright © 2019 by Emerald Publishing Limited All rights of reproduction in any form reserved doi:10.1108/978-1-78756-691-020191007

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concept of development of the theory of constant growth. According to this theory, making of managerial decision should have progressive character. The stage of development of organization sets other characteristics for making of managerial decision. First of all, development is based on integrity, functionality, high level of risk, and strategic thinking. Within this stage, making of managerial decision has complex and tactical character. The stage of maturity is aimed at supporting a certain level of development of organization. Making of managerial decisions at this stage is brought down to formation of formalized measures. The aspect of support and transformation is peculiar for making of managerial decisions at the stage of aging of organization. Fourthly, making of rational and refusal of irrational managerial decisions. Within this circumstance, making of managerial decision should have rational character. Irrationality, together with other factors, is a conceptual basis of development of modern organizational structures. Irrationality should not be refused. It should be replaced by the factors that are connected to selection of alternative decisions. Fifthly, impulsiveness of making of managerial decisions has a negative character. As was established above, transformation of processes into external environment transforms the systems of measures on making of managerial decisions. Within one factor, an important role belongs to impulsiveness of the subject that makes managerial decisions. Impulsiveness is a feature that is developed by emotional background of the subject. Rationality is always an opposite characteristic of impulsiveness. Absence of methods of inspection and control over making of managerial decisions in the period of impulsiveness has a deregulating character. A lot of managerial structures distinguish impulsiveness as a moment that allows forming the most interesting idea. Subjects that focus on impulsiveness refuse the aspect of inertia of making of managerial decision. According to this, it is necessary to find balance between impulsiveness and inertia of making of managerial decision. These circumstances allow concluding that the selected topic is rather significant. Thus, the goal of the chapter is to study the process of formation of the algorithm of making of managerial decisions in the age of constant changes. The tasks that are part of achievement of this goal include the following:

• • •

considering categorical tools of the aspect of making of managerial decisions; distinguishing limitations of making of managerial decisions; forming the algorithm of making of managerial decisions.

6.2 Materials and Method The methodology of the chapter is based on the tools that are aimed at determining the theoretical peculiarities of making of managerial decisions as follows:

•

method of theoretical foundations – formation of the foundations of considering the given problems;

Algorithm of Making of Managerial Decisions in the Conditions

• • •

49

method of theoretical differentiation of categorical tools – considering definitions of the object of the research from various positions that define features of this notion; method of algorithmization – formation of instruction that describes the stageby-stage order of improving the research object; method of adaptive perception – implementation of scientific research within its implementation into practical activities of the management sphere.

The methods of theoretical foundations and theoretical differentiation of categorical tools consist in positions that are formed by Russian and foreign scholars. A well-known adaptation of the notion “making of managerial decision” is given in the article by L. F. Alarcon and D. B. Ashley These authors treat it as a process of conducting managerial activities, based on formation of managerial decisions by means of management subject’s having leader’s qualities (Alarcon & Ashley, 1998). This notion is classic and its important components include managerial decision and leader qualities. Managerial decision is a method of expression of actions that characterize the final goal. Leader qualities are always secondary. The subject that makes managerial decisions may possess leader’s qualities. Stating the possibility shows unclear establishment of this functional load of the subject that makes managerial decisions. According to this, the notion “making of managerial decisions” should vary as a process of implementation of activities, confirmed by presence of leader’s qualities of the subject of management and formation of managerial decision as a final product. The definition of “making of managerial decision” by A. V. Tebekin and P. A. Tebekin is different. These authors see making of managerial decision as the final function of management that reflects the planned characteristics of managerial activities, aimed at reduction of the risk component (Tebekin & Tebekin, 2017). In this definition, factor components are changed. Functions of management, managerial activities, and risk are of top priority here. Functions of management specify the role of making of managerial decisions. Managerial decisions plan, organize, motivate, and control. Functions of management are closely connected to the style of management. Authoritarian style of management shows individual decision making. Democratic style envisages the factor of group work. The selected style of management influences the managerial activities. Managerial activities – like making of managerial decisions – are caused by the process. The process of managerial activities is predetermined by clear setting of tasks, control over responsibilities, and final reflection. The aspect of reflection changes according to the level of risk. Risk characterizes the situation that reflects the level of uncertainty. Uncertainty has a character of probability. According to this, the process of making of managerial decisions is relative and depends on a lot of conditions. Constant changes increase the character of relativity for making of managerial decisions. Making of managerial decisions is a result of a lot of actions that are aimed at solving of problems. Making of managerial decisions envisages alternative result of analysis and forecasting the final decision that conforms to the goals of the management subject (Yamilov, 2015). The process of making of managerial

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decisions has a lot of stages. The above aspects come down to analysis and forecasting. Analysis of managerial decisions distinguishes the key parts that are to be unified within the obtained results. Analysis is aimed at determining the problem aspects of the organization. The problem aspect concentrates on obtaining the adaptive final result. Adaptive final result is predetermined by forecasting. The method of forecasting is applied at various stages of making of managerial decisions. At that, the methodology of forecasting and effectiveness of its application are the main drawbacks of making of managerial decisions. The method of forecasting is subjective. It cannot be used for making of various managerial decisions. The method of forecasting is usually adapted to the existing conditions. However, the tools aimed at obtaining the probable result cannot be always transformed under the existing conditions. According to this conclusion, it is possible to state that the process of making of managerial decisions does not come down to analysis and forecasting. Managerial decision cannot be ensured without studying the features of this process (Holian, 2002). In the aspect of studying making of managerial decisions, the notion given by O. V. Dyakova is used: making of managerial decisions is specific activities that are formed of features and qualities of the problem situation (Dyakova, 2013). The key features of making of managerial decision are as follows:

• • • • •

means of making of managerial decisions – channel of transfer, based on verbal or nonverbal perception of information; stages of life cycle of organization – characteristics that are preferable at each stage of development of organization (Vlek, 2010); goal of making of managerial decisions – implementation of the idea that is to be achieved by the subject of management in this process (has dual character: commercial and noncommercial); sphere of activities of the subject that makes managerial decisions – differentiates approaches and changes that are to be taken into account during implementation of the managerial function; form of reflection of the managerial decision – formalization of actions on solving the given problems.

The factor of formalization of making of managerial decisions is very important. Formalization is a condition of external transfer of the made managerial decision (Lowe, Wellman, & Taylor, 2003). The definition has to reflect not the condition but final tool of implementation of managerial decision. This, the tools of external implementation of managerial decisions, should include programs and plans, orders and decrees, concepts and strategies, and rules and instructions. On the whole, categorical foundation of making of managerial decisions could be considered from various sides. Firstly, it is a process that forms the necessary result. Making of managerial decisions is an action with short-term or long-term character. The time factor of this action determines the result of managerial decision. Secondly, making of managerial decision is a function of management.

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The distinguished function has the final character. Functions of making of managerial decisions are aimed at showing the activities of the organization. Thirdly, despite the usage in the process of making of managerial decisions of methods of analysis and forecasting, these tools are not final. Analysis and forecasting have uncertain character. Fourthly, the risk component provokes uncertainty of the process of decision making. This uncertainty is connected to constant changes and limitations of making of managerial decision.

6.3 Results Limitations during making of managerial decisions are connected to the factors that have subjective character. Within this research, six key limitations that hinder managerial decisions are distinguished (Fig. 6.1).

6.4 Theory as a Limitation during Making of Managerial Decisions The first limitation within making of managerial decisions is the theory. Within this category, concepts, programs, and strategies that described the mechanism of making of managerial decisions are described. The theories are formed within the managerial schools. The importance of managerial school is not absolute for its usage in all situations during making of managerial decisions. Theory is the basis in which development for a specific managerial situation is mandatory. Theory provides preconditions and directions, but does not ensure the functional results of making of managerial decision.

6.5 Standards as a Limitation during Making of Managerial Decisions The second limitation is standards. Standard is a model of quality. Within making of managerial decisions, standards are used for determining the limits of the existing problems. Standards are of private character. This definition is caused by

Personal characteristics

Forecasting

Standards

Limitations

Risk

Fig. 6.1.

Theories

Time

Limitations during Making of Managerial Decisions.

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Olesya A. Stroeva et al.

the fact that during making of managerial decisions, it is necessary to refer to certain standards and rules with legislative and regulating character. Limitation in the form of standards states that the subject that makes managerial decisions cannot deviate from the existing norms. This situation standardizes the process of making of managerial decisions. Effectiveness of managerial decision depends on the elaboration of the selected standard.

6.6 Time as a Limitation during Making of Managerial Decisions Time is the third limitation. Time is one of the most unpredictable factors. Uncertainty of time frames in making of managerial decisions is connected to its topicality. Speed of changes that take place in society forms the time cycle differently. Making of managerial decision is short-term. The cycle of making of managerial decision is reduced. Large number of stages of making of managerial decision is ineffective. According to this, algorithms of decision making reduce. The key time factors are flexibility, expectation, and frequency of implementation of the managerial decision. Thus, effectiveness of the managerial decision depends on its correspondence to the factors.

6.7 Risk as Limitation during Management of Managerial Decisions The fourth limitation is risk. Risk is a situation of uncertainty that appears in unfavorable conditions. Risk during making of managerial decisions should be always taken into account. The aspect of minimization of risk is compatible to efficiency of actions within the algorithm of making of managerial decisions. Risk always presupposes certain loss. Within making of managerial decisions, it’s loss in ineffectiveness. Ineffective managerial offer could be acknowledged if it does not solve the problem set before the subject of management. Risk includes expectation. Expectation is a time factor. According to this, it is possible to conclude that risk and time are interconnected. In the contexts of making of managerial decisions, risk depends on time. The lesser the time for making of managerial decision remains, the higher the risk of its final result.

6.8 Forecasting as a Limitation during Making of Managerial Decisions Forecasting is the fifth limitation. Forecasting allows determining the factors that are required for making an effective managerial decision. Standardization of the methods of forecasting is aimed at identical receipt of final result. Making of managerial decision is not built on the basis of mathematical models, and result could have a qualitative character. At that, determining the forecasting values is based on quantitative characteristics. Forecasting requires the presence of objective data on the situation, features of the object, and necessary functions. However, the process of making of managerial decisions could be limited by

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information and data on the studied object. Within this situation, a drawback of falsification of the obtained results could take place.

6.9 Personal Characteristics as Limitations during Making of Managerial Decisions The last limitation is personal characteristics. This aspect is of the psychological character. It depends on personality of the subject of management. Character and methods of management, subjective evaluation of development of the object of management, external features, and mentality influence managerial decisions. This limitation is subjective. It is impossible to eliminate it. Psychological character is not a part of the aspect of algorithmization of making of managerial decision, but influences the final result. Algorithmization is a tool that allows forming the mechanism of actions on making of managerial decisions. Based on theoretical totality, which was considered above, an algorithm of making of managerial decision is compiled (Fig. 6.2). timeliness comprehensiveness f lexibility optimality

STUDIED MANAGERIAL DECISION Essential and functional

Uncertain

Numerical

Directed

ROUTINE

INTUITIVE

RATIONAL

IRRATIONAL

PROCESS OF DECISION MAKING

Internal diagnostics

Conducting situational analysis

Identification

Modeling situation

Determining alternatives

Determining the morphological foundation

Determining the effect from implementation

Evaluating the alternatives

Decision making DECISION MAKING

Fig. 6.2.

Algorithm of Making of Managerial Decisions.

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The algorithm of making of managerial decisions is based on the principles that characterize the final result. Timeliness of making of managerial decisions allows eliminating the time limitation in this process. Timeliness is a principle and quality. Within making of managerial decisions, timeliness is a certain type of relations that allows leading the result to the corresponding time period. The final result is brought down to the comprehensive principle of making of managerial decision. Comprehensive characteristics regulate the multitude of actions of the final result. Simply speaking, there are alternatives of decision making. This principle partially forms flexibility of the managerial decision. Flexibility envisages correction and changeability. Transformation of economic processes supposes the possibility of correction of the managerial decision. Despite this, the managerial decision should be optimal. Optimality is envisaged in the context of adaptation. In most algorithms on making of managerial decisions, the first stage of implementing this process is analysis of external environment. According to this research, the authors came to the conclusion that this peculiarity is incorrect. The aspect of making of managerial decisions envisages determining its generic characteristics for determining the generic type of final result. Four general characteristics are distinguished as follows: (1) functional – the decision that is substantiated by the formed idea and analytical evaluation; (2) uncertain – impulsive decision, which is not limited by qualitative evaluation; (3) numerical – quantitative decision that is based on statistical evaluation of parametric indicators for the basic and current periods; (4) targeted – inertia decision, based on long generation of the idea and conduct of specifying actions. After selecting the generic typology of the decision, it is necessary to determine the action within which it will be made. Characteristics of the actions are dual. The first one envisages routing decision making. This action is aimed at gradual, analyzed, and implicated making of managerial decision. The purpose of this process is making of rational managerial decision. According to this, the process of making of managerial decision is based on the following stages. Conducting internal diagnostics – this stage includes the necessity for analysis of the existing problem. According to this, internal structure of project making of managerial decision is formed. The main parts of internal structure of project making of managerial decision are ideas, goals, tasks, methods, significance of the problem, and approaches. Internal diagnostics allows identifying the problem. Identification establishes the value of situational development of the research object that is similar to the existing problem. First of all, causal connections are established. Within the established connections, alternatives are developed. Alternatives are multiple, and rational choice is identical. The only correct decision is the one that has the largest effect from its implementation. Despite the distinguished algorithm, solving certain problems has intuitive character. Intuitive characteristics of making of managerial decisions are irrational. Irrationality envisages multitude of decision making. In this algorithm,

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multitude is brought down to alternativeness. Situational analysis is used for making an intuitive managerial decision. Situational analysis envisages a complex of factors that influence the studied problem. According to this analysis, the factors of external environment that lead to existence of negative situation are distinguished. Based on these factors, the new situation is modeled. Based on usage of the model, the ways of making of managerial decision are modeled. Each of the presented ways of managerial decisions is evaluated as to alternativeness. The formed authors’ algorithm of making of managerial decisions allows reflecting two key sides of this process. Firstly, making a justified decision is rational. Secondly, making an intuitive decision is irrational. These characteristics are of top priority for implementing the process of making of managerial decisions. Effective selection of algorithm actions defines effectiveness of the decision.

6.10 Conclusions The above research led to the following conclusions: (1) The problems of the aspect of making of managerial decisions are obvious. Absence of effective algorithm does not allow forming the most precise managerial decision. The essence of management is brought down to the minimum. According to this, functions of management are not implemented in full. (2) Categorial structure of the definition “making of managerial decision” is based on various notions. There are different definitions of this notion. The most popular positions that reflect the basis of making of managerial decision are functions of management, process of managerial activities, decision making on the basis of risk, and action aimed at solving problems. (3) The aspect of making of managerial decisions is limited. The limitations influence the final result of managerial decision. The limitations of making of managerial decision include theory, standards, time, risks, personal factor, and forecasting. (4) The proprietary algorithm of making of managerial decisions is formed on the basis of implementation of a dual function. On the one hand, the algorithm allows organizing the process of making of decisions that have rational character. This aspect is connected to elaboration and analysis of the performed actions. On the other hand, the algorithm is aimed at consideration of intuitive managerial decisions. Intuitive managerial decisions are irrational. This type of managerial decisions is confirmed by the alternative approach.

References Alarcon, L. F., & Ashley, D. B. (1998). Project management decision making using cross-impact analysis. International Journal of Project Management, 16(3), 145–152. Dyakova, O. V. (2013). Methodology of making of managerial decisions on increase of effectiveness of management. Scientific Overview, 12, 294–298.

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Holian, R. (2002). Management decision making and ethics: Practices, skills and preferences. Management Decision, 40(9), 862–870. Lowe, T., Wellman, N., & Taylor, R. (2003). Limit-setting and decision–making in the management of aggression. Journal of Advanced Nursing, 41(2), 154–161. Tebekin, A. V., & Tebekin, P. A. (2017). Economic methods in the system of methods of making of managerial decisions in management. Academic Bulletin of the Rostov Branch of the Russian Customs Academy, 2(27), 43–48. Vlek, C. (2010). Judicious management of uncertain risks: II. Simple rules and more intricate models for precautionary decision–making. Journal of Risk Research, 13(4), 545–569. Yamilov, R. M. (2015). The problem of sense aberrations of the signal in the managerial process during making of managerial decisions. Bulletin of IzhTU, 18(3), 74–76.

Chapter 7

The Place and Role of Decision Making in the Process of Modern Enterprise Management Olga V. Danilova

7.1 Introduction Management as a process of bringing the system to a certain required state essentially represents a set of management decisions, the development and adoption of which are aimed at achieving the goals. Decisions that managers of any level take in accordance with their position determine not only the short-term efficiency of the enterprise but also its viability and sustainable development in a highly integrated economy. Particular importance of management decisions is associated with the role of the head, his professionalism, responsiveness in difficult situations, and knowledge of modern methods of dynamic and computer modeling.

7.2 Materials and Method The theory of decision making appeared as a result of the development of management science and is associated with the rejection of the “mechanistic” concept of change, considering the company as a machine, all components of which (shops, departments, personnel) work in accordance with rigidly fixed rules and laws, which ensures the coherence of the movement of all parts, and the formation of the concept of “living organization,” considering the enterprise as a single organism, as “a set of reactions to social needs.” The main objectives of the enterprise, as well as any organism, were recognized not so much profit, as survival and growth. And if before the approval of the concept of the enterprise as a living system in a relatively stable environment from managers needed to optimize, that is to improve, the same process, in the middle of the last century, the emphasis was on decision making in an ever-changing environment. Managers had to take full responsibility for their decisions under uncertainty. Decision making has become an important component of business success or failure. Optimization models and methods have become effective tools for managing Specifics of Decision Making in Modern Business Systems, 57–67 Copyright © 2019 by Emerald Publishing Limited All rights of reproduction in any form reserved doi:10.1108/978-1-78756-691-020191008

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modern organizations, and management has been recognized as a special art and occupation.

7.3 Discussion Theoretical and practical issues of management decisions have become the subject of research of many Russian and foreign scientists who studied the nature of managerial decisions (Daft, 2009, 600 pp.; Gerter Gitte, 2015, pp. 21–54; Laux, 2006, pp. 44–60; Simon, 1959), creating mathematical modeling methods (Madera, 2015, pp. 34–56; Tarasenko, 2010, pp. 80–99), technology development, and selection of optimal solutions to strategic, tactical, and operational management tasks (Korotkov, 2004, 893 pp.; Lapygin & Lapygin, 2009, pp. 12–48; Litvak, 2002, pp. 54–92). The review of the modern literature on the problem showed the lack of elaboration of alternative tools for the development and management decision making, ensuring its effectiveness and feasibility in modern conditions of uncertainty and high risks of business.

7.4 Results Management, as a function of biological, social, and technical organizational systems, ensures the preservation of the structure and supports a certain mode of their activities. The essence of any concept is manifested in the functions performed by it. Each function expresses one of the aspects of the essence of the phenomenon, and the implementation of the functions in full allows us to understand the nature and possibilities of the evolution of the phenomenon in the economic system. The main control functions are shown in Fig. 7.1. The main component of each of these functions is decision making. The management decision connects all aspects of the manager’s activities – from the definition of the goal, research, and diagnosis of the situation and identification of the problem (s) to the development of possible alternatives, the choice of the optimal solution to the problem, and achievement of the goal. The definition of objectives, planning, organization, motivation, control, and coordination of the implementation of the whole process of implementation of managerial decisions is largely dependent on the correctness of the set problem, its relevance and importance for the control object, its size, production, and economic specificities.

Planning

Organization Coordination

Control

Fig. 7.1.

Motivation

Basic Management Functions.

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Yielding to digital technology in speed and accuracy of calculations, the person, at the same time, has unique abilities. He quickly assesses the situation, highlights the significant, to set aside the secondary, compares conflicting estimates, ambiguities and uncertainties fill their own hypotheses. These unique qualities have saved humanity throughout the historical development. How management makes decisions about why some companies succeed where others fail – all of this needs to be addressed. Concretization of management theory can be traced in the process of development of management systems. The development of management thought and the emergence in practice of new tools and mechanisms of management is a process of dialectical unity of opposites, between which there is both direct and feedback (Fig. 7.2). Intensive development and use in practice of methods of solving complex management problems has developed in the scientific discipline and has been widely used in the practice of management of organizations in 1950–1960. In this extremely difficult period for national economies, the management science was tasked with developing effective management technologies, models, and methods (quantitative and qualitative) to solve complex management problems in a resource-limited environment. The system of management decision making methods has become an integral part of the special scientific disciplines: operations research, system analysis, management of technical systems, etc., and the specific name of the created areas in management was determined by those aspects of the management process, which was the main focus. Modern organization is an open system consisting of many interrelated elements. As a social system, an organization includes technical and biological systems. In each particular country there is a special management model adapted to national conditions, which is a product of evolution and is determined by a number of factors: the political system, legislation and regulations governing the rights and obligations of all parties involved, the current economic system, the conditions and opportunities for the formation of a particular management structure, traditions and corporate culture, etc. The national model of management is understood by us as a system of management relations, formed as a result of the evolution of management practices and typical for the vast majority of organizations in the country. In the Russian practice of the 1990s, operational methods of enterprise management prevailed.

The development of the management theory

Improving decision making

The emergence of new ideas and the formation of new concepts

Management practice

Fig. 7.2.

Relations between Management Theory and Decision Making.

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The solution of operational issues averaged 70–80% of the total volume of decisions. The growth of competition, uncertainty, and economic instability in international markets required to shift the focus of management to address the problems of strategic development. The world practice of management shows that the organization of highly efficient production depends on the effectiveness of the management system, the quality of developed and adopted decisions, professionalism and competence of the organization’s management, approaches, tools, and models of management decision making. In the world practice of management there are three basic models of decision making – American, Japanese, and German (Fig. 7.3).

Diagnosis of the problem

Problem statement Search (extraction) of formation

The wording of the criteria and restrictions

Evaluation Diagnosis of the problem

Taking decision B

Assessment of alternatives

Diagnosis, formulation and justification of the problem

Final choice А

The problem

Formulation of constraints and criteria

Problem statement

Identification of factors

Proposal of alternative solutions

Development of solutions

Formulation and selection of possible solutions

Choosing the best В solution

Evaluation and decision making

Evaluation and decision making

C

D

E

A, American model; B, German model; C, Japanese model; D and E, Russian model

Fig. 7.3.

Models of Decision Making in Different Schools of Management.

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The American model of management, formed at the turn of the nineteenth to twentieth centuries, is associated with the leader of “scientific management” by Taylor and technical progress in large industrial enterprises. The American school of management connects the success of the company with internal factors of efficiency: rational organization of labor, rational use of resources, specialization of individual employees and structural units, and a strict division of responsibilities. The American management system is characterized by a hierarchical model of management, differentiation of strategic and operational decision making, individual actions, the prevalence of personal gain and competition as a way to motivate the productive activities of employees. Unity of command and individualization in the payment of managers, entrepreneurship in achieving leadership, and individual methods of stimulating employees to perform assigned work with maximum responsibility – all of the above distinguishes the American type of management from the Japanese and to some extent from the Western European type of management. The American style in management is not a movement from the present to the future, but the future is seen as the idea of the company’s development in the present. Strategy as an idea of the company’s development, planning for the future, forecasting and marketing, and allowing to understand the consumer and adjust to his requirements, to anticipate market changes, and to take the necessary measures in the production sphere in a timely manner (Sorokina, 2016a, 2016b). The German school considers the decision making component of a wellthought-out planned procedure for the organization of the management process. Priority is given to the order of elaboration processes and achieves efficiency in accordance with the detailed thought-out plan. The main criteria for the rationality of the management decision include its usefulness, financial aspects, first of all, saving material, administrative and labor costs, satisfaction with the results of the implementation of the decision, the number and quality of decisions. The brevity of the decision making process demonstrates the idea of the German management of the decision, as part of the planning and control of production and economic activities. The Japanese management system, clearly accepted as the most effective in the world practice, developed as a result of the influence of national traditions, American management ideas, popular in the country after WWII, the need to combat postwar poverty and devastation. Built on the philosophy of “we are one family,” Japanese management relies on the establishment of normal “family” relations between employees of the company. Japan was the first in the world to create a management system with a “human face,” based on the involvement of all employees in solving the problems of the company. Keeping and focusing attention in the management process on national values, Japanese management constantly uses advanced technologies, approaches, and methods of management, adapts them to local conditions, and forms a special style of relationship between management and employees of the company. A common feature for all modern organizations is a fairly complex organizational structure of management and, as a consequence, the presence of a

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significant number of not only senior and middle managers but also a relatively large number of professionals who are not in fact even managers. The structurallevel concept of the management decision making process that has developed in the world practice describes this process in the form of several levels. Autocratic, autonomous, local peer, integrative, and collegial metacollegially levels of decision making are of particular specificity, positive and negative sides. The autocratic level of decision making has two main features: firstly, the solutions to the problem are developed by the head individually, separately from subordinates, demonstratively “closing” the decision making process; secondly, when making a decision, the head does not take into account the position of subordinates, guided solely by his own interests. Formally being a part of the organization, maintaining its status and position, the head actually opposes himself to the team, positioning himself “outside the organization.” The difference between the autonomous levels of decision making is the maximum acceptance of the head of the interests and opinions of other members of the workforce. Being aware of belonging to the group, understanding the need to respect its interests, the head makes decisions independently, keeping the individual form. The elements of collegiality at the autonomous level mean that the leader is already the bearer of group interests, norms, and values. At the local collegial level, the decision making process is collective, formed on the basis of interpersonal contacts of all members of the team. In accordance with the specifics of delegation of authority, they should develop and make decisions that are relevant to the organization. The core of organizational culture is teamwork and rationality of decisions. Practice shows that employees who work together for a long time generate an atmosphere of self-motivation and selfstimulation. The result of competent management is the creation of a team of like-minded people, motivated by a common goal and set to solve clearly defined tasks. The Russian specificity lies in the combination of autocratic and autonomous levels, the inclusion of procedures of local collegial style of decision making. The central face of a modern Russian company is a leader, a specific person who has a good command of business information and can achieve the required results due to authoritarian pressure on employees. The main emphasis is on the authoritarian style of management. The manager, who combines the owner and the chief manager in one person, identifies himself with the company and is convinced of his own importance and irreplaceability. Implementing and controlling the decisions taken, the modern Russian leader is obliged to respond flexibly to the changes taking place in the external environment, to provide feedback, and to make decisions based on short-term subjective goals. “Manual control” has actually become the main method of decision making of the Russian management. In such a situation, the manager helps experience, which gives information about the variability of events, what can happen with the greatest probability. In this case, the probability estimate is always subjective. When dealing with new, atypical problems, when the factors to be taken into account are so new and complex that it is impossible to obtain enough information about them, an important component is the risk

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assessment. As a result, the probability of a particular solution cannot be estimated with a sufficient degree of reliability. Uncertainty, the lack of clear prospects in public policy and global economic development, does not allow to make decisions in the long term. The professionalism of the decision maker depends on his competence and is reduced to the prediction and adoption of corrective management actions. In the current Russian management model, the manager is able to assess the situation well today and work successfully on a small scale of business. As part of the performance of their duties, the head develops and implements various kinds of functional orientation and management decisions. Decisions are made at each stage of the management process, are associated with all aspects of management, and to make effective decisions, the manager must possess modern technologies of managerial decision making. In addition to the specific role of the head, the Russian management practice is characterized by the predominance of personal, friendly relations. The lack of professionalism, the practice of relationships with the workforce on the basis of informal principles does not allow to build a system of regular management, to ensure the work of the company without urgent unplanned work and unproductive losses. Decision making on vital issues in the “emergency style” prevents the company’s management to carry out the planned changes, to solve strategic problems (Sorokina, 2018, pp. 22–64). Management decisions in the Russian practice have their own characteristics depending on the industry and the sphere of activity of a particular organization. At the state level, the specific features of solutions are the breadth of coverage of the affected problems and the number of employees involved in their solution, the importance and high social responsibility for the results of the implemented solutions – financial, sociopolitical, environmental, moral, and ethical (Danilova, 2016). The specificity of the decisions made and implemented in the industrial organization is largely determined by the high importance of technical and technological equipment of production, high requirements and characteristics of relationships with consumers, the use of automated control systems, the complexity of the organizational structure, and the need to solve social problems and meet environmental standards. The presence of high-tech and innovative processes and production adds high uncertainty and the need to make decisions taking into account the risks and planning of technological losses, high requirements for the skills and experience of employees, the complexity of the development of methods of motivation and assessment of the contribution of specialists in the creation and production of high-tech products. Obligatory condition of successful activity of service organizations is their customer-oriented approach. From this point of view, management decisions should be made with the direct participation of the consumer, production capacities are established according to the “peak demand” of the consumer (rather than the average demand), a high degree of individualization of the finished product and mandatory social and psychological skills of employees, significant costs for marketing research, and high labor intensity of work. An important factor that affects the process and cost of decisions is the size of the organization. The larger the organization and the more complex the hierarchy

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of decision making levels, the more expensive these decisions are and the more likely they are to cause pathologies. At each of the three main levels of decision making – operational, tactical, and strategic – the priority of goals is set, a list of the most important tasks is formed, methods, technologies, and tools for the development and implementation of management decisions are determined. For small business firms when taking decisions, of particular importance is the high dependence from the user, resource limitations and problems of credit difficulties with the selection of qualified personnel and uniform distribution of resources, and lack of information about the state of the market (Sorokina, 2016a, 2016b). Features of management decision making in Russian organizations are shown in Fig. 7.4.

Sensitivity to the sphere of organization's activities

• Top-priority goals for the organization are obtaining profit. Depending on the sphere of activities, economic innovational and motivational decisions are made, with emphasis on economic, political or scientific problems as opposed to social or ethical aspects.

Dependence on specific circumstances in which decisions are made

•Development, selection, and implementation of the variants of decisions are influenced by the factors of external and internal environments. With large dependence on sectorial belonging, the share of standard decisions (for a specific sphere of company’s activities) is high.

High level

•High level of risks during decision making in all spheres of economy, connected to uncertainty and crisis phenomena, instability in economic, political, and social spheres. The necessity for considering these factors is reflected on quality of the decisions.

Low predictability of consequences of the decisions

Fig. 7.4.

•Sizes and sectorial belonging of the organization directly influence the complexity of managerial decisions. If organization is large and regionally significant, the management’s decisions might seriously influence the socio-economic situation of the territories. In the key and socially important spheres, decisions may have serious socioeconomic consequences. Decisions of this kind should be treated with special care.

Features of Managerial Decision Making in Russian Organizations.

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The set of parameters of the chosen alternative, satisfying a particular consumer (consumers) and ensuring the reality of its implementation is defined as the quality of the management decision. The criterion of quality of solutions is their practical implementation. In the practice of Russian organizations, the indicator is used to indirectly assess the quality of management decisions based on the number of decisions made: K ¼ RV 2 PH=RPp100;

where: K – coefficient of quality of managerial decisions; RP – number of management decisions; RV – the number of executed management decisions; PH – the number of poor-quality solutions. Determined in percentage terms, this indicator allows to have an idea of the quality of decisions with a certain degree of probability. The main conditions for making quality management decisions include the following:

• • • • • • • •

use of scientific management approaches (system, situational, complex, functional, etc.) in the development of management decisions; study of objective economic laws and their impact on the effectiveness of decisions; availability of reliable quality information about the object of management, accurate data on the parameters of “input,” “output,” “external environment,” and “business processes,” and the availability of information for the decision maker; application of methods of functional cost analysis, forecasting, modeling, and economic justification of decisions; structuring problems and challenges with using the “decision tree,” the comparability of the generated alternatives, the provision of multivariant solutions; legislative and regulatory support of decisions; automation of the process of collecting and processing information, development and control of the implementation of decisions; formation of an effective system of responsibility and motivation of quality execution of decisions, personal responsibility for the implementation of decisions.

The decisions made are the result of management activities, and therefore, to assess their quality, it is fair to use the criteria used to assess the effectiveness of conventional products, works, and services – efficiency, effectiveness, and productivity. In Russian practice, the following parameters of the effectiveness of management decisions are used:

•

organizational effectiveness as a result of achieving organizational goals through less effort, fewer employees, or less time;

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• • • • • •

Olga V. Danilova legal effectiveness is measured by the degree to which the legal objectives of the organization and staff are achieved in a shorter time, by fewer employees or by lower financial costs; economic efficiency as a ratio of the value of the additional product obtained through the implementation of a specific management decision and the cost of its preparation and implementation; social efficiency is seen as the result of achieving social goals for more employees and the organization in a shorter time, fewer employees, less financial costs; the result of social efficiency can be a good sociopsychological climate in the unit, mutual assistance, informal relationships in the team; technological efficiency is the result of achieving the industrial, national, or global technological level of production, planned in the business plan, in a shorter time or less financial costs; psychological effectiveness is the result of achieving psychological goals for more workers or the population in a shorter time, with fewer workers, or less psychological costs; environmental efficiency represents the achievement of the environmental goals of the organization and staff in a shorter time, with fewer employees, or less economic costs.

7.5 Conclusions Management decision, always the choice of alternatives associated with the conscious and purposeful nature of human activity, exists at all stages of the management process and is an essential element of the implementation of all management functions. Decision making is not a one-time act but is the result of the process of development and selection of the best option, which has a certain duration and structure. By its nature, the decision making process is a cyclic sequence of actions of the subject of management aimed at solving the actual problems of the organization and consists in analyzing the situation, generating alternatives, and choosing the best one and its implementation. Management decision making belongs to the category of creative operations in management technology. In its content, this process is a logical and mental activity performed mainly by senior staff on the basis of accumulated knowledge, intuition, and creative abilities. On the other hand, the manager must be professionally able to make a competent informed choice from a variety of alternatives. Only scientific approaches and management principles, careful choice of tools and methods, models and mechanisms of development and decision making can provide such an opportunity. As the main criterion of effectiveness, it is proposed to consider the effectiveness of the managed object. The quality and rationality of management decisions should be the most important indicator of assessing the effectiveness of the management potential of the organization, which is implemented in both material and intellectual forms: the costs and expenses for the development of management tools and technologies, the volume of management actions, the

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nature of management work, and the realization of the interests of all stakeholders in achieving the goals of successful development of the organization.

References Daft, R. (2009). Theory and practice of organization for psychologists and economists. Manage your organization correctly. How? (pp. 43–57). St. Petersburg: PrimeEuroznak. Danilova, O. V. (2016). Mechanisms of interaction between government agencies and business structures in the regions of presence of large business. The Economy in the Industry, 1, 26–33. Gerter Gitte. (2015). Decision making. Yes? No? Or something third? Kharkov: Humanitarian center, 196C, 21–54. Korotkov, E. M. (2004). The concept of Russian management (893 pp.). Moscow: DECA. Lapygin, Y. N., & Lapygin, D. Y. (2009). Management decisions: A training manual (448 pp., pp. 17–51). Moscow: Eksmo. Laux, G. (2006). Fundamentals of the organization: Management of decision-making (600 pp., pp. 53–71). Moscow: Business and Service (DaS). Litvak, M. E. (2002). Development of managerial decisions: Textbook (pp. 46–85). Moscow: Delo. Madera, A. G. (2015). Modeling and decision making in management (pp. 34–66). Moscow: LKI Publishers. Simon, H.A. (1959). Theories of decision-making in economics and behavioral science. The American Economic Review, 49(3), 253–283. Sorokina, A. V. (2016a). Regulatory framework for strategic management in companies with state participation. Science and Technology of Transport, 2, 57–60. Sorokina, A. V. (2016b). The concept of interrelation of strategy, operational planning and system of key indicators of the company. Economics and Entrepreneurship, 102(75), 311–314. Sorokina, A. V. (2018). Strategic management in companies with state participation. Moscow: Izvestia. Tarasenko, F. P. (2010). Applied system analysis. Moscow: Knorus.

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PART III: METHODOLOGICAL PROVISION OF STUDYING THE PROCESS OF DECISION MAKING IN MODERN BUSINESS SYSTEMS

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Chapter 8

Theoretical and Methodological Approaches to Decision Making in Modern Business Systems Olga V. Danilova and Anastasiya V. Sorokina

8.1 Introduction The most important requirement for modern management is to ensure the effectiveness of management decision making in conditions of uncertainty and risk inherent in the market environment of functioning and development of the organization. Modern head at different levels of the management hierarchy should not only have the practical skills of professional activity but also be theoretically literate, possess special knowledge, and be able to apply them in the adoption and implementation of effective administrative decisions in the conditions of high degree of entropy of the external and internal environment, taking into account factors of uncertainty and risk (Danilova, 2017). Management decisions being made without in-depth study allow the head to do enough jumping to conclusions about the processes occurring in the system, there is no vision, and the overall picture changes as well as the real issues. To successfully perform their professional duties, managers need to know the theory and methodology of management of modern complex systems of different nature and to argue and choose the basic version of the alternative in accordance with the nature of the tasks of operation and development of production systems. The theory of decision making, being an integral part of the science of management, summarizes the main characteristics, reveals the laws of the decision making process, forms methods, technologies, and methodological tools for decision making, and formulates the most important practical recommendations for effective and quality solutions to complex production, economic, and social problems.

8.2 Materials and Method The methodology as a logical organization of activities is to determine the purpose and subject of the study, the establishment of approaches and guidelines, the Specifics of Decision Making in Modern Business Systems, 71–83 Copyright © 2019 by Emerald Publishing Limited All rights of reproduction in any form reserved doi:10.1108/978-1-78756-691-020191009

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choice of methods and tools to achieve the best result on the basis of in-depth study, and compliance with the principles of organization of work in the chosen direction (Kotler, 1999, p. 896). Scientific approaches as a set of basic ways of obtaining new knowledge and methods of solving problems in any science represent a set of fundamental (conceptual) ideas that allow us to consider management as a multifaceted, complex, and dynamic process that depends on the internal state and the external environment of the organization (Newton, 1989, 688 pp.). The variety of approaches to management decision making reflects the different aspects of management processes taking place at the state and industry level, in the management of a particular business system. In the process of development of management theory, views on the need to use one or another approach in making management decisions have undergone various changes (Danilova, 2016). Domestic and foreign literature describe a variety of approaches in which decision making is considered as a multifaceted, complex, and changing process, determined by a variety of factors. In the middle of the twentieth century, a large number of new theories, concepts, and areas of special science management were formed. Initially, the historical approach with the use of the chronological principle of periodization of the stages of development of management science was supplemented by new approaches in accordance with the changing nature of the business environment.

8.3 Discussion The number of works on the theory of decision making, devoted to the development of scientific problems of the theory and its practical applications, is constantly increasing (Ackoff, 1982, p. 224; Simon, 1959; Smirnov, 2002, p. 271). In the process of managing an organization, managers make decisions in three main areas: investment, production, and financing. Analytical procedures and management decision making in each block are, on the one hand, a source of quality information, and on the other hand, the basis and factor for ensuring the quality of decisions in adjacent blocks. System, situational, process, and quantitative approaches are recognized as universal in modern management. These approaches have a specific individual purpose, are used to solve specific management problems, do not duplicate, but complement each other. In the deep study of major problems that need to be solved, there is a need to expand the range of approaches, to apply not only traditional – stereotyped – but also innovative, corresponding to advanced management technologies. The issues of applied approaches in making production, financial, and investment decisions and the responsibility of the manager for making the appropriate decision in the financing of commercial activities and business organization remain debatable.

8.4 Results Management decisions are specific to the development and adoption, depending on the industry or sphere of activity of the business system, its size and form of

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ownership, the level of management training, target functions, and social orientation. Currently, the need to apply 13 scientific approaches in the development of management decisions is generally recognized (Fig. 8.1). The idea of the importance of the external environment and the need to take into account the processes taking place outside the organization in management thought appeared in the late 1950s. A significant contribution of the system approach to management theory was the justification for the need to consider each specific organization as a whole set of interrelated elements, each of which, in turn, represents an independent system associated with the outside world. The founders of the system approach, L. B., A. Bogdanov, G. Simon, P. Drucker, and A. Chandler, for the first time presented the organization as an object representing a whole set of elements in a set of relations (Pivovar, 2003). The system approach is not so much a method of problem-solving as a method of problem setting. The principle of hierarchy of the system means the presence of a set (minimum of two) of elements located on the basis of their subordination – the elements of the lowest level are subject to the elements of the highest level. In accordance with the essence of the system approach, the production management

Scientific approaches to management decision making System approach Logical approach Integrated approach Integration approach Standardization approach

Exclusive approach Process approach

Reproductive-evolutionary approach Innovative approach Global approach Virtual approach Marketing approach Functional approach

Structural approach

Situational (contingency) approach Optimization approach

Behavioral approach

Fig. 8.1.

Policy (administrative) approach Business approach

Scientific Approaches to the Process of Solving Management Problems.

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system should consist of an external environment and an internal structure (Fig. 8.2). Each individual element of the system has the features of the whole system, which allows you to apply a variety of cybernetic, economic, and mathematical models for the characteristics of both individual elements and the system as a whole. The implementation of this principle in the organization means the interaction of the control and managed subsystems. The functioning of the system is determined not so much by the properties of its individual parts as by the properties of the entire organizational structure. The situational approach focuses on the appropriateness of a particular method of management, depending on the situation. The emergence in management theory in the 1970s of the term “strategic management” meant the emergence of new and modification of existing approaches in the new paradigm of strategic development (Sorokina, 2016a, 2016b). The methodological basis of strategic management is clearly a system, situational analysis, and process approach to the management of business systems. The situational approach ensures the solution of tasks to achieve the goals of the business system (primarily strategic goals), taking into account the constantly changing external environment. A business system that is effective in some environmental conditions is ineffective in other external circumstances. Applying the situational approach, the company’s management should have a high professional level of management tools, be able to anticipate the likely consequences, correctly interpret the situation and identify key factors, and calculate the likely effect of changes in one or more variables (Sorokina, 2016a, 2016b). The situational approach is currently the main approach in making management decisions in large domestic transport companies (along with the policy approach). Recognition of the organization as a single system involves a clear organization of the production process. The process approach considers the general management functions as interrelated, and the management process is represented by a chain of continuous actions on strategic marketing, planning, process organization, accounting and control, motivation, and regulation. The central task of the manager when using the process approach is to coordinate the work on forecasting the standards of competitiveness on the basis of strategic market

Control subsystem

Input Providing the subsystem

Scientific justification of the system

Output The target subsystem

Managed subsystem

Feedback

Fig. 8.2.

System Approach in Management.

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segmentation and the establishment and preservation of the values of objects that allow strengthening the competitive advantages of the company and stable profit (Sorokina, 2016a, 2016b). The application of the process approach to the organization of management of the railway industry is designed to ensure the rejection of the territorial principle of the organization of management of a single technological process. The formation of the management system based on the process approach by types of activities in the largest Russian transport company JSC “Russian Railways” and the organization of relations between the directorates and enterprises on the principle of “customer–supplier” ensured the rejection of planned tasks and operational orders (Sorokina, 2016a, 2016b). The transition to market relations requires the abandonment of the decision making approach, effective in the administrative system and ineffective in the framework of the modern model of management of the railway holding JSC “Russian Railways.” The application of the process approach is based on the decomposition of strategic goals, allowing to build interconnected long-term, medium-term, and operational (annual) plans for the implementation of the strategy, as well as to structure the control over the implementation of the company’s development strategy (Sorokina, 2016a, 2016b). For the organization to function successfully, it must define and manage multiple interrelated activities. Scientific approach, considering the activities of the organization as a set of functions that must be performed to achieve these goals, is a functional approach. In accordance with the selected functions, the optimal project is established, a chain of innovation process is formed, in which the criteria of efficiency are the optimal indicators of the main functions. The essence of the functional approach is manifested in its methodology – the analysis of the dependence of the system on the environment, determining the patterns of certain reactions to changes, to determine the stability of external relations (Fig. 8.3). The information obtained is the basis for predicting the behavior of the system in some given current or future conditions, measures for its strategic development (Sorokina, 2016a, 2016b). The functional purpose of the system and its processes to achieve strategic goals determine the organizational structure of management. A structural approach to management issues is to determine the importance and priorities among the factors, methods, principles, and other tools in their totality in order to find their rational correlation and reasonableness of resource allocation. The structural approach is used to establish the optimal balance of functional responsibilities of managers at different hierarchical levels. The ratio of strategic, tactical, and operational tasks in the structure of the working day of top management (head of the company and his deputies) is recommended to be taken equal to 6:2:2, and in the manager of the lower level – 1:2:7. Senior management (institutional level) is responsible for the development of the company’s strategy, the middle level (management level) develops tactics for solving strategic tasks, and the heads of the lower level (technical level) are responsible for their implementation. Before applying a structural approach, it is recommended to structure the problem.

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Olga V. Danilova and Anastasiya V. Sorokina Functional approach

Essence approach to management decision making

The essence of the functional approach is that the need is considered as a set of functions that need to be performed to meet it. After the functions are established, several objects are created to perform these functions, and the one that requires the minimum total cost per object life cycle per unit of its useful effect is selected. The chain of development of the object: requirements - functions - indicators of the future facility change or the formation of the structure of the system.

Fig. 8.3.

Characteristic approach to management decision making Functions, as well as processes, are equivalent concepts of management, and cannot exist in isolation from each other. The result of the functional approach is the simultaneous design of the organizational structure (functional areas). The functional approach essentially postulates the initial set of standard functions, which are further detailed and tied to a particular enterprise. The functional approach answers the question "what to do?"

The Nature and Characteristics of the Functional Approach.

An integrated approach involves the simultaneous development of technical, environmental, economic, organizational, psychological, and other aspects of management in their relationship (Fig. 8.4). The integrated approach has much in common with the system approach because it requires the management of the business system to take into account all its components and the relationship with the external environment. At the same time, the use of an integrated approach to a greater extent allows versatility, from different points of view and positions to consider the managed object (Fig. 8.5). The innovative approach is focused on the development of the organization on the basis of activation of its innovative activity, that is, on the basis of development and implementation of innovations that ensure qualitative growth and efficiency of processes (products) demanded by the market (Fig. 8.6).

Integrated approach Essence approach to management decision making

Characteristic approach to management decision making

When applying an integrated interdisciplinary approach technical, environmental, economic, social, psychological and other aspects of management and their interrelation are taken into account.

In the design of new means of labor, environmental and ergonomic indicators are sometimes given secondary attention, so they immediately become uncompetitive. Social and psychological aspects are not always taken into account in the formation of new structures or the reorganization of old ones. The effectiveness of investment projects will be insignificant or negative, if, for example, technical problems are solved brilliantly, the mentioned aspects. of management will be missed.

Fig. 8.4.

Nature and Characteristics of the Integrated Approach.

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Economic policy Process organization Aspects of the problem Psychology & sociology

Ecosystem conservation

Technique & technology Safety features

Fig. 8.5.

The Multidimensional Nature of the Integrated Approach. Innovative approach to management decision making

Essence approach to management decision making The essence of the innovative approach to management is to focus the development of the organization to enhance innovation in the field of basic knowledge-intensive industries.

Fig. 8.6.

Characteristic approach to management decision making Factors of production and investment should be the means of science-based innovation of the organization, not its purpose.

The Essence and Characteristics of the Innovative Approach.

Factors of production and investment should be the means of science-based innovation, not the stages of economic development. In developed market economies, the approach is based on a clear understanding that management work is inseparable from information and is always associated with its production, processing, transfer, and use. In the process of development and management decision making, there is an objective need to streamline and formalize the use of information. The integration approach in management decision making means deepening the interaction of management entities and their integration and strengthening the coherence and interconnectedness between the hierarchies of the management system (Fig. 8.7). The integration approach focuses management activities on research and strengthening of relationships:

• •

between individual subsystems and system components; between the stages of the life cycle of the control object;

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Olga V. Danilova and Anastasiya V. Sorokina Integration approach to management decision making

Essence approach to management decision making

Characteristic approach to management decision making

The integration approach to management is aimed at studying the relationships between the individual subsystems and components, between the stages of the life cycle of the management object (strategic marketing, organizational and technological preparation of production, production, between the levels of management vertically, between the subjects of management horizontally.

Integration by stages of the life cycle of the management object is provided by the formation of a single coordinated information management system, including indicators of quality, quantity, costs, etc. by stages of strategic marketing, R & d, etc. The vertical integration is achieved by combining legally independent companies in order to provide new competitive advantages through the creation of powerful research databases, information technology, sophisticated equipment, etc. On the basis of unified information technologies and automated control systems and development of ties vertically between the Federal and municipal authorities and business structures. Integration allows to accelerate the commissioning and control of the implementation of new legal acts, the introduction of advanced achievements of scientific and technological progress. Horizontal integration of organizations, institutions, firms means the performance of various services on the principle of mutual assistance.

Fig. 8.7.

• •

Essence and Characteristics of the Integration Approach.

between vertical control levels; between the subjects of the control horizontally.

The application of the integration approach gives managers additional opportunities to improve the quality of products, enhances the interaction of management elements as a result of the expansion of cooperation of the organization’s divisions, and opens up significant opportunities for finding new competitive advantages. Normative approach to management requires the establishment of management standards for all management subsystems: target, providing, managed, managing. The bank of standards must meet the requirements of complexity, efficiency, validity, and prospects of application in scale and time. The high proportion of reasonable and quantified standards increases the organization, the level of automation of strategic planning, and regulation of all levels of the management system. It is important for the organization to strictly comply with the developed standards (especially legal and environmental) and to take an active part in the development of the system of environmental standards (Fig. 8.8). Norms should:

•

be developed on the established nomenclature and types of works on the uniform methodical basis;

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Normative approach to management decision making

Essence approach to management decision making The essence of the regulatory approach is to establish management standards for all subsystems of CSR. Standards should be established on the most important elements of subsystems: target, providing, managed and managing. These standards should meet the requirements of complexity, efficiency, validity and prospects of application in scale and time.

Fig. 8.8.

• • •

Characteristic to management decision making Rationing is the process of analyzing the use of resources or the status of other parameters of the management system, the development, harmonization and approval of standards and norms. Standards are the element-by-element components of norms can be only individual and characterize: * specific consumption of the rationing element per unit mass, area, volume, productivity, capacity, number and the like when performing production processes; * size of technological waste and losses by types of production processes; • dimensions of profits (economic standards); * composition and structure of social needs of workers (social standards). There are the following methods of developing norms: • settlement and analytical; • experienced; • reporting and statistical; • economic and mathematical.

The Essence and Characteristics of the Regulatory Approach.

be periodically reviewed and improved; take into account the achievements of scientific and technological progress; contribute to the maximum mobilization of internal reserves while meeting the requirements for quality and social standards.

The reproductive approach is focused on the constant resumption of production activities of the organization in order to meet the needs of a particular market with less (compared with the best similar object in this market) total cost per unit of benefit. Each new model should be better replaceable. An important feature is the use of advanced comparison base. Private indicators of quality and resource intensity of the updated object should be determined not by the time of planning and development of the product (work), and later, by the time of purchase of the product by the consumer. The task of management is to create a production and technical–technological base of the organization in accordance with the strategic directions of development of the company and the achievements of scientific and technological progress. The virtual approach is to use the global Internet, cellular phone, and other means of electronic communication in order to create virtual organizational

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structures, receive, process, use, and transfer information to meet the organization of production and commercial activities. By interacting globally without direct contact with customers and partners, you can virtually “overcome” huge distances (Fig. 8.9). On the basis of the virtual approach, virtual organizations are being created, many transactions are being carried out, etc. The virtual organization is primarily a joint property and strategic alliance, linking together specific goals and coordinated efforts of partners. The main goal of the virtual organization is to combine key technologies and competencies to meet the emerging needs in the market. The standardizing approach is to establish standard, uniform for any system (organization, region, industry, country, world community) norms, rules, and characteristics in order to ensure security, technical and information compatibility and interchangeability, uniformity of measurements, saving resources and improving quality (Fig. 8.10). The marketing approach provides for the orientation of the control subsystem to the consumer in solving any problems. As a priority, the following management criteria are chosen: improving the quality of the object (system output) in accordance with the needs of consumers; saving consumer resources by improving the quality of the object and its service and other factors; and saving resources in the production of the object due to the implementation of scale factors, scientific and technological progress, resource saving, improvement of the management system of the organization. Behavioral approach in management is a way of managers, based on the study of typical behavior of subordinates. The purpose of the behavioral approach is to Virtual approach to management decision making

Essence approach to management decision making The essence of the virtual approach is the use of the Internet, cellular and other electronic means of communication in order to create virtual organizational structures, receive, process, use and transfer of information to meet the relevant needs, if possible, to act at the local level, to compete globally without direct contact with customers and partners.

Fig. 8.9.

Characteristic to management decision making Distinctive features of virtual organizations: • intermittent functioning; • implementation of control actions connections on the basis of integrated and local information systems and telecommunications; • relationships with partners and other interested organizations through a series of agreements, contracts and mutual ownership; • formation of temporary alliances, organizations in related fields; • contractual relations of employees with the administration; • use of information technologies and telecommunication processes; • combining key technologies and structures; • accelerated production and service; • joint work of customers and suppliers, managers and executors, state bodies.

Essence and Characteristics of the Virtual Approach.

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Standardization approach to management decision making

Essence approach to management decision making

Characteristic to management decision making

Organization of activities, formulation, rational unification of concepts, components of any object or its infrastructure.

The idea of a standardized approach to managing the competitiveness of facilities is being implemented first, by choosing the optimal ratio between standard and individual solutions in the formation of objects, second, through the development and implementation of a system of standards in the relevant category.

Fig. 8.10.

The Essence and Characteristics of the Standardization Approach.

assist the employee in understanding their own capabilities, creativity through the application of the concepts of behavioral sciences to the construction and management of the company. The priorities are aimed at motivating labor as a process of motivation to work for the implementation of both the general goals of the company and the personal goals of each individual employee. The characteristic of the behavioral approach is shown in Fig. 8.11. The specificity of the company’s

Behavioral approach to management decision making

Essence approach to management decision making

Characteristic to management decision making

The purpose of the behavioral approach is to assist the employee in understanding his capabilities, creativity through the application of the concepts of behavioral Sciences to the construction and management of the company. The main objective of this human resources approach. The correct application of behavioral science will always improve the efficiency of both the individual employee and the business system as a whole

In order to effectively move toward the goal, the leader must coordinate the work and enforce, encourage and convince people to implement it. Managers translate their decisions into concrete actions, applying various management methods and principles of motivation in practice.

Fig. 8.11.

The Essence and Characteristics of the Behavioral Approach.

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management work is that it solves production, economic, technical, and social problems in an organizational manner, influencing the staff, organizing and motivating people to solve the tasks. To implement the management function, the manager must integrate the management system into a single whole and coordinate the actions of his units. Knowledge of management decision making methodology is important in this process. The ability to apply a particular approach as a system of methods, tools, and mechanisms to achieve the objectives is essential to ensure the coherence of the management system as a whole.

8.5 Conclusions A key aspect of management is recognizing the role and importance of others. A competent manager knows that to perform the tasks facing the organization, the participation of all employees is necessary. In order to determine the direction of development of the entire organization, provide leadership, and make decisions on the effective use of organizational resources, the manager needs to know the methodology of management. Knowledge of universal and special approaches to the management of modern business systems is a necessary competence of the manager in the field of object specifics, development and decision making, and .application of the most appropriate models and tools of influence. As there is no “panacea for all diseases,” and the use of any one, even enough effective approach will not allow to solve all management problems in the business system. The application of an approach depends on the specific situation and is determined by the range of tasks that management.

References Ackoff, R. (1982). The art of problem solving (pp. 54–107, pp. 200–217). Moscow: Mir. Danilova, O. V. (2016). Mechanisms of interaction between government agencies and business structures in the regions of presence of large business. The Economy in the Industry, 1, 26–33. Danilova, O. V. (2017). Social risks in the activities of Russian companies: Methods and tools of management. Transport Business of Russia, 6, 54–57. Kotler, F. (1999). Marketing management. St. Petersburg: Peter Com. Newton, I. (1989). In A. N. Krylov (Trans.), “Mathematical Principles of Natural Philosophy”, the third part “System of the World” (688 pp.). Translation from Latin and notes. Moscow: Nauka. Pivovar, A. G. (2003). In V. I. Osipov (Ed.), A large financial and economic dictionary (2nd ed., 960 pp.). Moscow: Publishing House “Examination”. Simon, H.A. (1959). Theories of decision-making in economics and behavioral science. The American Economic Review, 49(3), 253–283. Smirnov, A. A. (2002). Development of managerial decisions: Textbook for universities (pp. 48–86). Moscow: UNITY.

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Sorokina, A. V. (2016a). Regulatory framework for strategic management in companies with state participation. Science and Technology of Transport, 2, 57–60. Sorokina, A. V. (2016b). The concept of interrelation of strategy, operational planning and system of key indicators of the company. Economics and Entrepreneurship, 102(75), 311–314.

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Chapter 9

Dependence of Risk of Making Wrong Decisions in Modern Business Systems on Their Organizational Structure Nikolai G. Sinyavsky

9.1 Introduction According to the interaction model of organization (Prigozhin, 2014), any company is a totality of formal and informal relations of employees with their own interests that correlate with purposes of the organization. Thus, according to one of the authors, C. Barnard, results of organization are related to achievement of its goals and execution of employees’ wishes (Barnard, 1938, p. 60). This is a source of risk during decision making. Actuality of studying the interaction between persons within the organization and outside the organization during assessment of communicative ties during development of decisions in modern business systems is caused by realia of modern economy, which is peculiar for changing conditions. Decision making requires information. In its turn, quality of information depends on a lot of factors. Very often, maximum volume of information base is accumulated, with further determination of useful information. With such approach, it is possible to make a mistake, while thinking that quantity of information will turn into quality. Also, usage of information channels, access to which could be easily organized, raises the risk of a wrong decision – that is, organization of information flows can expand its volume but can become a source of information chaos for a person who makes a decision (Asaul, Knyaz, & Korotaeva, 2007). This chapter studies the issue of interconnection between the quality of information, which is obtained at various levels of hierarchy of organizational structure, and quality of decision, made by the corresponding party. At that, hierarchy is considered not from the point of view of subjection but as a stage-bystage process of transfer of information to the person who makes a decision. It is supposed that information can reach each hierarchical level in a pure form, or in a changed form. In the latter case, it has the form of decisions and opinions. Such

Specifics of Decision Making in Modern Business Systems, 85–113 Copyright © 2019 by Emerald Publishing Limited All rights of reproduction in any form reserved doi:10.1108/978-1-78756-691-020191010

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approach allows considering various styles of management – from orientation at managers to orientation at performers (Tannenbaum & Schmidt, 1973). Quality of decisions, opinions, and pure information, which come from the lower hierarchical level to the upper, are assessed with probability of their errorfree character – that is, usefulness for the upper hierarchical level as a basis for decision making and development of the opinion. Such approach is of a general character, but an example of a person making a decision (PMD) is a manager of a company. The decisions made should be formulated based on analysis of all significant factors and comprehensive study of information, as well as organizational structure of business system.

9.2 Methods PMD could be a person or a group of persons that select a decision from a variety of decisions and are responsible for the choice (Suleymanova, 2012). PMD makes the final decision, based on the results of experiment and other additional information. In our case, PMD makes a decision using new complex information that includes results of decisions that were made by other interested parties, opinions of interested parties, and net information that comes from other sources (Golubkov, 2003). In a certain sense, the procedure of decision making is universal. However, there are various schools of decision making. According to the principles of the Japanese school, discussions that precede decision making may include top management and ordinary employees. At that, emphasis is made on determining the level of the problem’s urgency. The Western school envisages solution of the set task by a narrow circle of persons (King, 1982). The process of decision making depends on (Suleymanova, 2012):

• • •

personal characteristics of PMD (subjective approach); instability of environment (behaviorism of B.F. Skinner) (Skinner, 1978, pp. 9–11); combination of the first two groups of factors (concept of combination). The structure of new information that comes to PMD is given in Table 9.1.

Table 9.1. Structure of Incoming New Information to a Person Making a Decision (PMD). Source Information

Upper hierarchical level Level of the studied PMD Lower hierarchical level Environment beyond the hierarchy Source: Compiled by the author.

Decisions and Opinions Other Information

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Let us distinguish right and wrong decisions of PMD. The information that comes to PMD – decisions, opinions, and pure information – could be divided into information that stimulates right decisions and information that stimulates wrong decisions. If a wrong decision is made or new information stimulates wrong decisions, let’s say that we’re in a situation of a mistake, a wrong situation. In the opposite case, let’s say that we’re in a situation that is not wrong. We suppose that wrong or right character of the PMD’s decision is not determined fully by quality of the decisions, opinions, and pure information that become available to PMD. This is due to diversity of decisions that people can make. As a matter of fact, decisions are influenced by the character of person that makes them. Thus, there are well-balanced decisions that conform to the initial idea; impulsive decisions that are made without preliminary evaluation of risks; inertia decisions, in which control actions dominate over innovations; risky decisions, which reflect a high level of confidence of PMD; and careful decisions that are peculiar for high level of opposition to innovations (Modeling the process of managerial decision making, 2018). At that, let us think that PMD can make right decisions when the situation with receipt of new information is wrong – that is, when new information leads to wrong decisions. Generation of right decisions is possible here due to the following reasons:

• •

PMD processes information according to his methodology and PMD also uses previously accumulated information and associative long-term memory (Suleymanova, 2012).

We also think that PMD can make wrong decisions in case of receipt of new information that stimulates right decisions – that is, information that creates a situation that is not wrong. Such opportunity could be caused by:

• • • • • • •

bad processing of information, which leads to errors; emotional and time factors; security concerns; incorrect assessment of perspectives; too large volume of information; incomplete information; too aggregated information.

These are the following drawbacks of the information complex of business systems:

• • • •

insufficient information of the data of financial accounting and absence of a special accounting system; possibility for PMD to use only periodic new data of financial accounting; orientation at financial accounting and lack of coordination of procedures of compilation of plans and control over their execution; unsatisfactory level of employees’ qualification.

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Sometimes, right and wrong decisions – regardless of other opinions – are made by manager or ordinary employee who is confident in correctness of his approach (Peters & Waterman, 1982). Let us define notion “right decision” in the following way. Let us view the following task in the moment of time t. J½xðTÞ→max; u½°

(9.1)

dx ¼ w½xðtÞ; uðtÞ; dt

(9.2)

xðtÞ2Xt ; uðtÞ2Ut ; t2½t; T;

(9.3)

where J – set criterion [t, T] – set time period w – set function x – state of the object of consideration Xt – allowable number of the states of the object of consideration at the moment of time t u – management of the object of consideration Ut – allowable number of managements at the moment of time t u[°] – totality of managements u(t) at period [t, T] Solution of this task – u*(t). Let us view another totality of managements u0[°], which conforms to conditions (9.2) and (9.3). Then management u0(t) is a “right” decision in the moment of time t if it conforms to the condition
   N J x0 ðTÞ ; J½xp ðTÞ # N 0 ;

(9.4)

where N0 is a set norm that reflects distances between the states x0(T) and x*(T) x0 – state of the object of consideration during usage of management u0 x* – state of the object of consideration during usage of management u* In practice, PMD determines his decision not based on solution to task (9.1)–(9.3) but by optimizing a certain criterion K[u(t)], that is, the task of decision making could have the following form K½uðtÞ→

max uðtÞ

with limitations uðtÞ2Wt ;

where Wt – set multitude.

(9.5) (9.6)

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Problems of optimization according to such private criterion for a production company are described in Korbet (2009, 240 pp.). Decision making is related to risk. One person cannot analyze all accessible information. Substantial decisions are formed collectively with participation of experts and advisers (Suleymanova, 2012). Generally speaking, risk could be positive and negative result. Here risk is treated as a possibility of a wrong decision and possibility of strong deviation from target values (Goldstein, 1997). Various decisions, made by companies’ employees, are of a risky character. Risk assessment is studied in Chapman and Ward (2003, pp. 55–76). According to ISO/IEC 31010:2009, “risk assessment is a process that unified identification, analysis, and comparative assessment of risk. Risk could be assessed for the whole organization, its branches, separate projects, activities, or specific dangerous event. That’s why various methods of risk assessment could be used in different situations. Risk assessment provides understanding of possible dangerous events, their reasons, consequences, and probability of their emergence and decision making.” As tasks (9.1)–(9.3) and (9.5)–(9.6) are different, the values of the criterion that are close to extreme (9.1) could be achieved randomly. Let us view the question of dependence of the quality of decision making of PMD on quality of new complex information, consisting of decisions, opinions, and pure information that comes from outside. Quality of decision making is to be assessed by evaluating the probability of a right decision in cases when complex information is not wrong or, on the contrary, creates a wrong situation. Let us consider the issue of ration of probabilistic assessment of quality of new pure information and probability of quality of decision making for organizational structures of various complexities. Fig. 9.1 shows the scheme of PMD’s obtaining new complex information in the structure that consists of two levels. The second level contains one element. It is envisaged that information does not contain decisions and opinions of intermediaries. Here, a0 is probability of wrong decision under the condition that incoming information stimulates right decision, that is, does not create wrong situation; b0 – probability of wrong decision under the condition that incoming information stimulates wrong decision, that is, creates wrong situation; p00 – probability of the fact that pure information stimulates wrong decision, that is, creates wrong situation.

Fig. 9.1. Transfer of Information in Organizational Structure Consists of Two Levels. The Second Level Contains One Element.

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Large influence on decision making from the possibility of information being unreliable is noted in Goldstein (1997). Let us find the probability of PMD’s making a right decision. P ¼ ð1 2 a0 Þf0 1 ð1 2 b0 Þð1 2 f0 Þ;

(9.7)

where f0 – probability of the fact that decisions and opinions of intermediaries and other information that is obtained by PMD stimulate a right decision. Let us view the change of probability P with change of probability p00 . For this, ∂P let us use derivative ∂p 0. 0

∂P ∂f0 ¼ ðb0 2 a0 Þ 0 : ∂p00 ∂p0

(9.8)

Let us view a more complex structure that is presented in Fig. 9.2. This structure contains three levels. The second level contains two elements, and the third level contains one element. One of the elements of the second level generates information in the form of decisions or opinions, and the second element provides pure information. That is, this scheme and the following schemes have sources of information on decisions and opinions and sources of pure information. The tasks of decision making, with preliminary (expert recommendations) and final decisions (decisions of PMD), are viewed in Evlanov (1984, 176 pp.). For the structure in Fig. 9.2, the corresponding additional ratio will have the following form. p11 ¼ a11 f11 1 b11 ð1 2 f11 Þ; ∂P ∂f0 ∂f11 ¼ ðb0 2 a0 Þða11 2 b11 Þ : ∂p11 ∂p011 ∂p011

Here, p11 – probability of the fact that decision or opinion of intermediary (1,1) is wrong; a11 – probability of the fact that intermediary (1,1) makes wrong decision or formulates wrong opinion, receiving information that is not wrong; b11 – probability of the fact that intermediary (1,1) makes a wrong decision or formulates a wrong opinion, receiving wrong information; p011 – probability of the fact that intermediary receives (1,1) wrong pure information; f11 – probability of

Fig. 9.2. Transfer of Information in Organizational Structure Consisting of Three Levels. The Second Level Has Two Elements, and the Third Level Has One Element.

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the fact that complex information that is obtained by intermediary (1,1) is not wrong. Fig. 9.3 show the structure containing three levels and three sources of new information for PMD at the second level and two sources of new information at the third level. Fig. 9.4 shows the same structure, but in the integrated form.

Fig. 9.3. Transfer of Information in Organizational Structure Consisting of Three Levels. The Second Level Contains Three Elements, and the Third Level Contains Two Elements.

Fig. 9.4.

Organizational Structure, Which Is Shown in Fig. 9.3, in the Integrated Form.

92

Nikolai G. Sinyavsky For the structure in Figs. 9.3 and 9.4, we receive the following. p12 ¼ a12 f12 1 b12 ð1 2 f12 Þ;  ∂P ∂f0 ∂f11 ∂f0 ∂f12 : ¼ ðb 2 a Þ ða 2 b Þ 1 ða 2 b Þ 0 0 11 11 12 12 ∂p11 ∂p011 ∂p12 ∂p011 ∂p011 

Here, p 5 (p11, p12); p01 5 (p011 , p012 ); p12 – probability of the fact that solution or opinion of intermediary (1,2) is wrong; a12 – probability of the fact that intermediary (1,2) makes a wrong decision or formulates a wrong opinion, receiving the information that is not wrong; b11 – probability of the fact that intermediary (1,2) makes a wrong decision or formulates a wrong opinion, receiving wrong information; p012 – probability of the fact that intermediary (1,2) receives wrong pure information; f12 – probability of the fact that complex information that is received by intermediary (1,2) is not wrong. Let us view the simplest four-level structure, which contains two elements at the second and third levels and one element at the fourth level (Fig. 9.5). For such structure, we receive: p21 ¼ a21 f21 1 b21 ð1 2 f21 Þ; ∂P ∂f0 ∂f11 ∂f21 ¼ ðb0 2 a0 Þða11 2 b11 Þða21 2 b21 Þ ; ∂p11 ∂p21 ∂p021 ∂p021

where p21 – probability of the fact that decision or opinion of intermediary (2,1) is wrong a21 – probability of the fact that intermediary (2,1) makes a wrong decision or formulates wrong opinion, receiving information that is not wrong

Fig. 9.5. Transfer of Information in the Organizational Structure Consisting of Four Levels. The Second Level Contains Two Elements, the Third Level Contains Two Elements, and the Fourth Level Contains One Element.

Dependence of Risk of Making Wrong Decisions

93

b21 – probability of the fact that intermediary (2,1) makes a wrong decision or formulates a wrong opinion, receiving wrong information p021 – probability of the fact that intermediary (2,1) receives wrong pure information f21 – probability of the fact that complex information that is received by intermediary (2,1) is not wrong. Also, the four-level structure is presented in Fig. 9.6. However, this structure contains three elements at the second level, four elements at the third level, and two elements at the fourth level. The same structure, but in the integrated form, is presented in Fig. 9.7. Additional ratios for this structure. p22 ¼ a22 f22 1 b22 ð1 2 f22 Þ;

Fig. 9.6. Transfer of Information in Organizational Structure Consisting of Four Levels. The Second Level Contains Three Elements, the Third Level Contains Four Elements, and the Fourth Level Contains Two Elements.

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Nikolai G. Sinyavsky

Fig. 9.7.

Organizational Structure (Fig. 9.6) in the Integrated Form.

" 8 ∂f0 ∂f11 > > ða21 2 b21 Þ ða11 2 b11 Þ > < ∂p ∂p 11 21 ∂P ¼ ðb0 2 a0 Þ  > ∂p021 > ∂f ∂f > : ða12 2 b12 Þ 0 ða21 2 b21 Þ 12 ∂p12 ∂p21

# 9 ∂f21 ∂f11 ∂f22 > 1 ða22 2 b22 Þ 1> > = ∂p22 ∂p021 ∂021  >; > ∂f21 ∂f12 ∂f22 > ; 1 ða22 2 b22 Þ ∂p22 ∂p021 ∂p021

where p2 5 (p21, p22) p02 5 ðp021 ; p022 Þ p22 – probability of the fact that decision or opinion of intermediary (2,2) is wrong a22 – probability of the fact that intermediary (2,2) makes a wrong decision or formulates a wrong opinion, receiving information that is not wrong b22 – probability of the fact that intermediary (2,2) makes a wrong decision or formulates a wrong opinion, receiving a wrong information p022 – probability of the fact that intermediary (2,2) receives wrong pure information f22 – probability of the fact that complex information that is received by intermediary (2,2) is not wrong. Let us consider a general case. The scheme of movement of information in a general case in the integrated form is given in Fig. 9.8. Dependencies for a general case have the following form:     P ¼ ð1 2 a0 Þf0 p1 ; p00 1 ð1 2 b0 Þ 1 2 f0 p1 ; p00 ;         p11 ¼ a11 f11 p2 ; p01 1 b11 1 2 f11 p2 ; p01 ; …p1n ¼ a1n f1n p2 ; p01 1 b1n 1 2 f1n p2 ; p01 ;         pm1 ¼ am1 fm1 p0m 1 bm1 1 2 fm1 p0m ; …pmn ¼ amn fmn p0m 1 bmn 1 2 fmn p0m ;

where pi 5 ðpi1 ; …; pin Þ; p0i 5 ðp0i1 ; …; p0in Þ;

i 5 1; …; m:

Dependence of Risk of Making Wrong Decisions

Fig. 9.8.

95

General Scheme of Organizational Structure in the Integrated Form.

Then the derivative as to the value of probability of wrong pure information for initial elements of the last line of the hierarchy will have the following form. 111 0 0

 ∂pm 2 2;1 ∂pm 2 1;1 ∂pm1 ∂pm 2 1;1 ∂pm2 1 1… CCC B B B ∂p 0 0 ∂pm1 ∂pm1 ∂pm2 ∂pm1 CCC B B B m 2 1;1 CCC B B B 0 1 CCC B B B ∂p ∂p ∂p ∂p m 2 1;n m1 m 2 1;n m2 CC B ∂f0 B∂p11 B ∂P 1 1… C CC; B ¼ ðb0 2 a0 ÞB …B 0 B ∂pm1 ∂p0 CC ∂p CC B B B 0 ∂p m2 m1 m1 ∂pm1 CC C C B∂p11 B∂p21 B ∂pm 2 2;n B B C CC CC B B B1 B C CCC B B B ∂pm 2 1;n @ A ∂pm 2 1;n ∂pmn AAA @ @ @ 1 ∂pmn ∂p0m1 0

∂p11 ∂f11 ¼ ða11 2 b11 Þ ; ∂p21 ∂p21  ∂fm 2 2;1 ∂pm 2 2;1 ¼ am 2 2;1 2 bm 2 2;1 ; ∂pm 2 1;1 ∂pm 2 1;1 ∂pm1 ∂fm1 ¼ ðam1 2 bm1 Þ 0 ; ∂p0m1 ∂pm1

 ∂fm 2 1;1 ∂pm 2 1;1 ¼ am 2 1;1 2 bm 2 1;1 ; ∂pm1 ∂pm1

 ∂fm 2 1;1 ∂pm 2 1;1 ¼ am 2 1;1 2 bm 2 1;1 ; ∂pm2 ∂pm2

 ∂fm 2 2;n ∂pm 2 2;n ¼ am 2 2;n 2 bm 2 2;n ; ∂pm 2 1;n ∂pm 2 1;n ∂pm1 ∂fm1 ¼ ðam1 2 bm1 Þ 0 ; ∂p0m1 ∂pm1 ∂pm2 ∂fm2 ¼ ðam2 2 bm2 Þ 0 ; ∂p0m1 ∂pm1

∂pm2 ∂fm2 ¼ ðam2 2 bm2 Þ 0 ; ∂p0m1 ∂pm1

 ∂fm 2 1;n ∂pm 2 1;n ¼ am 2 1;n 2 bm 2 1;n ; ∂pm1 ∂pm1

 ∂fm 2 1;n ∂pm 2 1;n ¼ am 2 1;n 2 bm 2 1;n ; ∂pm2 ∂pm2

96

Nikolai G. Sinyavsky  ∂fm 2 1;n ∂pm 2 1;n ¼ am 2 1;n 2 bm 2 1;n ; ∂pmn ∂pmn

∂pmn ∂fmn ¼ ðamn 2 bmn Þ 0 : ∂p0m1 ∂pm1

9.3 Results Let us view certain quantitative evaluations for probability of right decision making. Let us consider two variants of formation of a decision in case there are several sources of new information for decision making or development of opinion: (1) the first variant supposes that new complex information is not wrong if at least one source of new information supplies right information; (2) in the second variant, we consider that totality of new complex information is not wrong only if all sources of new information supply right information. Let us consider that the corresponding random events are independent. (1) For the scheme that is presented in Fig. 9.1 we have the following: 1; 2Þ

f0 ¼ 1 2 p00 ;

∂f0 ¼ 2 1; ∂p00

∂P ¼ ða0 2 b0 Þ: ∂p00

Results of assessment of influence of information quality are given in Table 9.2. (2) For scheme in Fig. 9.2 we have the following: 1Þ

f0 ¼ 1 2 p00 p11 ;

 ∂f0 f11 ¼ 1 2 p011 ; 0 ¼ 2 p11 ; ∂p0

∂P ¼ ða0 2 b0 Þp11 ; ∂p00

∂P ¼ ðb0 2 a0 Þða11 2 b11 Þp00 ; ∂p011 2Þ

 f0 ¼ 1 2 p00 ð1 2 p11 Þ;

 f11 ¼ 1 2 p011 ;

∂P ¼ ða0 2 b0 Þð1 2 p11 Þ; ∂p00

 ∂P ¼ ðb0 2 a0 Þða11 2 b11 Þ 1 2 p00 : ∂p011

Results of evaluation of influence of information quality are given in Table 9.3.

Table 9.2. Results of Evaluation of Information Quality for Two-level Structure with One Element at the Second Level. b0

a0

p00

dP dp00

0.9 0.8 0.7 0.6 0.5

0.2 0.3 0.4 0.5 0.6

0.1 0.1 0.1 0.1 0.1

20.7 20.5 20.3 20.1 0.1

97

Dependence of Risk of Making Wrong Decisions

Table 9.3. Results of Evaluation of Information Quality for Three-level Structure. The Second Level Contains Two Elements, and the Third Level Contains One Element. dP dp00

dP dp011

b0

a0

p00

b11

a11

p011

p11

1)

2)

1)

2)

0.9 0.8 0.7 0.6 0.5

0.2 0.3 0.4 0.5 0.6

0.1 0.1 0.1 0.1 0.1

0.9 0.8 0.7 0.6 0.5

0.2 0.3 0.4 0.5 0.6

0.1 0.1 0.1 0.1 0.1

0.18 0.26 0.34 0.42 0.5

20.189 20.175 20.129 20.051 0.059

20.511 20.325 20.171 20.049 0.041

20.049 20.025 20.009 20.001 20.001

20.245 20.125 20.045 20.005 20.005

(3) For the scheme in Figs. 9.3 and 9.4, we have the following: 1Þ

f0 ¼ 1 2 p00 p11 p12 ;

f11 ¼ f12 ¼ 1 2 p011 p012 ;

∂P ¼ ða0 2 b0 Þð1 2 p11 p12 Þ; ∂p00 2Þ

∂P ¼ ðb0 2 a0 Þp00 p012 ½p12 ða11 2 b11 Þ 1 p11 ða12 2 b12 Þ; ∂p011

 f0 ¼ 1 2 1 2 p00 ð1 2 p11 Þð1 2 p12 Þ;

  f11 ¼ f12 ¼ 1 2 p011 1 2 p012 ;

∂P ¼ ða0 2 b0 Þð1 2 p11 Þð1 2 p12 Þ; ∂p00   ∂P ¼ ðb0 2 a0 Þ 1 2 p00 1 2 p012 ½ð1 2 p12 Þða11 2 b11 Þ 1 ð1 2 p11 Þða12 2 b12 Þ: ∂p011

Results of evaluation of influence of information quality are given in Table 9.4. (4) For the scheme in Fig. 9.5, we have the following: 1Þ

f0 ¼ 1 2 p00 p11 ;

∂P ¼ ða0 2 b0 Þp11 ; ∂p00

f11 ¼ 1 2 p011 p21 ;

f21 ¼ 1 2 p021 ;

∂P ¼ ðb0 2 a0 Þða11 2 b11 Þp00 p21 ; ∂p011

∂P ¼ ðb0 2 a0 Þða11 2 b11 Þp00 p011 ; ∂p021 2Þ

 f0 ¼ 1 2 p00 ð1 2 p11 Þ;

 f11 ¼ ð1 2 p21 Þ 1 2 p011 ;

∂P ¼ ða0 2 b0 Þð1 2 p11 Þ; ∂p00

f21 ¼ 1 2 p021 ;

 ∂P ¼ ðb0 2 a0 Þða11 2 b11 Þ 1 2 p00 ð1 2 p21 Þ; 0 ∂p11

  ∂P ¼ ðb0 2 a0 Þðb11 2 a11 Þða21 2 b21 Þ 1 2 p00 1 2 p011 : ∂p021

Results of evaluation of influence of information quality are given in Table 9.5.

a0

0.2 0.3 0.4 0.5 0.6

b0

0.9 0.8 0.7 0.6 0.5

0.1 0.1 0.1 0.1 0.1

p00

0.9 0.8 0.7 0.6 0.5

b11

0.2 0.3 0.4 0.5 0.6

a11

0.1 0.1 0.1 0.1 0.1

p011

0.9 0.8 0.7 0.6 0.5

b12

0.2 0.3 0.4 0.5 0.6

a12

0.1 0.1 0.1 0.1 0.1

p012

0.21 0.31 0.4 0.5 0.6

1)

p11

0.33 0.4 0.46 0.52 0.58

2)

0.11 0.21 0.3 0.4 0.5

1)

p12

0.25 0.31 0.38 0.44 0.5

2)

2)

20.3492 20.2075 20.1017 20.0270 0.0210

1)

20.0157 20.0314 20.0368 20.0201 0.0300

dP dp00

20.0017 20.0014 20.0008 20.0001 0.0001

1)

dP dp011

20.5994 20.2859 20.0983 20.0123 20.0041

2)

Table 9.4. Results of Evaluation of Information Quality for Three-level Structure. The Second Level Contains Three Sources of Information, and the Third Level Contains Two Sources.

98 Nikolai G. Sinyavsky

a0

0.2 0.3 0.4 0.5 0.6

b0

0.9 0.8 0.7 0.6 0.5

0.1 0.1 0.1 0.1 0.1

p00

0.9 0.8 0.7 0.6 0.5

0.2 0.3 0.4 0.5 0.6

0.1 0.1 0.1 0.1 0.1

0.9 0.8 0.7 0.6 0.5

0.2 0.3 0.4 0.5 0.6

0.1 0.1 0.1 0.1 0.1

b11 a11 p011 b21 a21 p021

0.26 0.35 0.43 0.51 0.59

1)

2)

0.84 0.76 0.67 0.59 0.51

p11

0.9 0.9 0.9 0.9 0.9

1)

2)

0.9 0.9 0.9 0.9 0.9

p21 2)

20.1141 20.1225 20.0981 20.0409 0.0491

1)

20.1841 20.1725 20.1281 20.0509 0.0591

dP dp00

20.0441 20.0225 20.0081 20.0009 20.0009

1)

2)

1)

dP dp021

2)

20.0441 20.0034 20.2778 20.0225 20.0013 20.1013 20.0081 20.0003 20.0219 20.0009 0 20.0008 20.0009 0 0.0008

dP dp011

Table 9.5. Results of Evaluation of Information Quality for Four-level Structure. The Second Level Contains Two Sources of Information, the Third Level Contains Two Sources, and the Fourth Level Contains One Element.

Dependence of Risk of Making Wrong Decisions 99

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(5) For the scheme in Figs. 9.6 and 9.7 we have the following: 1Þ

f0 ¼ 1 2 p00 p11 p12 ;

f11 ¼ 1 2 p011 p012 p21 p22 ;

∂P ¼ ða0 2 b0 Þp11 p12 ; ∂p00

f21 ¼ f22 ¼ 1 2 p021 p022 ;

∂P ¼ ðb0 2 a0 Þp00 p012 p21 p22 ½p12 ða11 2 b11 Þ 1 p11 ða12 2 b12 Þ; ∂p011

 ) ðb11 2 a11 Þp12 p00 ða21 2 b21 Þp22 p011 p012 p022 1 ða22 2 b22 Þp21 p011 p012 p022 ∂P ¼ ðb 2 a Þ ;   0 0 ∂p021 1 ðb12 2 a12 Þ ða21 2 b21 Þp22 p011 p012 p022 1 ða22 2 b22 Þp21 p011 p012 p022 2Þ

   f0 ¼ 1 2 p00 ð1 2 p11 Þð1 2 p12 Þ; f11 ¼ ð1 2 p21 Þð1 2 p22 Þ 1 2 p011 1 2 p012 ;     f12 ¼ ð1 2 p21 Þð1 2 p22 Þ 1 2 p011 1 2 p012 ; f21 ¼ f22 ¼ 1 2 p021 1 2 p022 ∂P ¼ ða0 2 b0 Þð1 2 p11 Þð1 2 p12 Þ; ∂p00   ∂P ða11 2 b11 Þð1 2 p12 Þð1 2 p21 Þð1 2 p22 Þ 1 2 p00 1 2 p012   ; ¼ ðb 2 a Þ 0 0 1 ða12 2 b12 Þð1 2 p11 Þð1 2 p21 Þð1 2 p22 Þ 1 2 p00 1 2 p012 ∂p011

9       8 > ðb 2 a11 Þð1 2 p12 Þ 1 2 p00 ða21 2 b21 Þð1 2 p22 Þ 1 2 p011 1 2 p012 1 2 p022 1 > > < 11 = " #    ∂P 0 0 0 ¼ ðb 2 a Þ  ða21 2 b21 Þð1 2 p22 Þ 1 2 p11 1 2 p12 1 2 p22 1 0 0 0 0 > ∂p21 : 1 ðb12 2 a12 Þð1 2 p11 Þ 1 2 p0 >    > ; 1 ða22 2 b22 Þð1 2 p21 Þ 1 2 p011 1 2 p012 1 2 p022

Results of evaluation of influence of information quality are given in Tables 9.6 and 9.7. Tables 9.8–9.13 show generalized data on influence of quality of pure information (that does not contain decisions and opinions) on quality of decisions for

Table 9.6. Results of Evaluation of Information Quality for Four-level Structure. The Second Level Contains Three Elements, the Third Level Contains Four Elements, and the Fourth Level Contains Two Elements (Initial Data). b0

a0

p00

b11

a11

p011

b21

a21

p021

b22

a22

p022

0.9 0.8 0.7 0.6 0.5

0.2 0.3 0.4 0.5 0.6

0.1 0.1 0.1 0.1 0.1

0.9 0.8 0.7 0.6 0.5

0.2 0.3 0.4 0.5 0.6

0.1 0.1 0.1 0.1 0.1

0.9 0.8 0.7 0.6 0.5

0.2 0.3 0.4 0.5 0.6

0.1 0.1 0.1 0.1 0.1

0.9 0.8 0.7 0.6 0.5

0.2 0.3 0.4 0.5 0.6

0.1 0.1 0.1 0.1 0.1

0.2003 0.3005 0.4005 0.5003 0.5996

1)

2)

0.3964 0.3261 0.2627 0.2061 0.1564

p11

0.2003 0.3005 0.4005 0.5003 0.5996

1)

2)

0.3964 0.3261 0.2627 0.2061 0.1564

p12

0.2070 0.3050 0.4030 0.5010 0.5990

1)

2)

0.3330 0.3950 0.4570 0.5190 0.5810

p21

0.2070 0.3050 0.4030 0.5010 0.5990

1)

2)

0.3330 0.3950 0.4570 0.5190 0.5810

p22

20.0281 20.0451 20.0481 20.0250 0.0360

1)

2)

1)

dP dp011

2)

20.2550 20.0001 20.2132 20.2271 20.0001 20.0999 20.1631 20.0001 20.0317 20.0630 0 20.0030 0.0712 0 20.0024

dP dp00

0 0 0 0 0

1)

20.3597 20.1121 20.0167 20.0002 20.0002

2)

dP dp021

Table 9.7. Results of Evaluation of Information Quality for Four-level Structure. The Second Level Contains Three Elements, the Third Level Contains Four Elements, and the Fourth Level Contains Two Elements (Results).

Dependence of Risk of Making Wrong Decisions 101

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Table 9.8. Influence of the Quality of Pure Information Obtained at the dP Second Hierarchical Level of Organizational Structure (Derivative dp 0 ). Low 0 Requirements to Quality of Information. Number of Elements at the Second Level

1

2

3

“Level of Autonomy” (b2a)

0.7 0.5 0.3 0.1 20.1 0.7 0.5 0.3 0.1 20.1 0.7 0.5 0.3 0.1 20.1

Total Number of Levels in the Structure 2

3

4

20.7 20.5 20.3 20.1 0.1 – – – – – – – – – –

– – – – – 20.189 20.175 20.129 20.051 0.059 20.0156 20.0314 20.0368 20.0201 0.0300

– – – – – 20.1841 20.1725 20.1281 20.0509 20.0591 20.0281 20.0451 20.0481 20.0250 20.0360

the cases of relatively low and high requirements to quality of information. These data are given depending on the level of difference between values of vectors (b0, b11, b12, b21, b22) and (a0, a11, a12, a21, a22) in the aspect of a measure that is called “level of autonomy of PMD.” For the considered quantitative example, this measure is obvious. Accordingly, the higher the difference, the lower the “level of autonomy”; the lower the difference, the higher the “level of autonomy.” Quality of decision is assessed by probability of making a right decision. Quality of information is assessed by probability of its being wrong. The level of influence of information quality on quality of decision is assessed by derivative of quality of decision on information quality. Table 9.13 shows the results of comparison of the influence of quality of information that is obtained at various hierarchical levels on quality of decision making.

9.4 Discussion Definition of the notion “right decision,” which is given in this article, is based on the idea that real systems have an interval of indifference.

Dependence of Risk of Making Wrong Decisions

103

Table 9.9. Influence of Quality of Pure Information That Is Obtained at the dP Second Hierarchical Level of Organizational Structure (Derivative dp 0 ). High 0 Requirements to Quality of Information. Number of Elements at the Second Level

1

2

3

“Level of Autonomy” (b2a)

0.7 0.5 0.3 0.1 20.1 0.7 0.5 0.3 0.1 20.1 0.7 0.5 0.3 0.1 20.1

Total Quantity of Levels in the Structure 2

3

4

20.7 20.5 20.3 20.1 0.1 – – – – – – – – – –

– – – – – 20.511 20.325 20.171 20.049 0.041 20.3492 20.2075 20.1016 20.0270 0.0210

– – – – – 20.1141 20.1225 20.0981 20.0409 20.0491 20.2550 20.2271 20.1631 20.0630 0.0712

The given methodological approach with the usage of graphic presentation of ties in the production system and probabilistic assessments of the quality of processes is given in Sinyavski (2017). Here it is considered in another aspect and given in detail for avoiding errors. Let us view the process of decision making by a manager of industrial company. The manager uses decisions and opinions of workers regarding probabilistic assessments and possible solutions. He takes into account decisions of other people. For example, he makes decisions that have been prepared by his employees (Suleymanova, 2012). Table 9.14 contains analysis of the obtained quantitative assessments of influence of information quality on quality of made decisions. Let us describe situations of decision making by the example of a company of timber processing complex. Let us suppose that PMD is the manager who every day makes decisions of the following character:

• • •

determining the structure of company payments; determining the structure of sales and purchase of assets; determining the structure of sales and purchase of rights.

104

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Table 9.10. Influence of Quality of Pure Information That Is Obtained at the Third Hierarchical Level of Organizational Structure (Derivative dpdP0 ). Low 11 Requirements to Quality of Information. Number of Elements at the Third Level

Total Number of Levels in Structure “Level of Autonomy” (b2a)

3

4

0.7 0.5 0.3 0.1 20.1 0.7 0.5 0.3 0.1 20.1 0.7 0.5 0.3 0.1 20.1

20.049 20.025 20.009 20.001 20.001 20.0017 20.0014 20.0008 20.0001 20.0001 – – – – –

– – – – – 20.0441 20.0225 20.0081 20.0009 20.0009 20.0001 20.0001 20.0001 0 0

1

2

4

Example of the structure of information that is used by PMD for decision making is shown in Table 9.15.

9.5 Conclusions This chapter studies the issues of the influence of qualitative characteristics of information that come to interested parties who are at various levels of the hierarchy of organizational structure. Hierarchical relations are analyzed in the general case not from the point of view of power relations but according to the stages along which the information flow passes in the way to the person who makes a decision. Two types of information that comes to a PMD are viewed. Information of the first type is reflection of opinions of interested parties or performed actions. The second type is “pure” information that is given without preliminary processing, which has features of the person who processed it. Quality of decisions, opinions, and pure information, which come from lower hierarchical levels to upper levels, is assessed here by probability of their

Dependence of Risk of Making Wrong Decisions

105

Table 9.11. Influence of Quality of Pure Information That Is Obtained at the Third Hierarchical Level of Organizational Structure (Derivative dpdP0 ). High 11 Requirements to Quality of Information. Number of Elements at the Third Level

1

2

4

Total Number of Levels in the Structure “Level of Autonomy” (b2a)

2

3

0.7 0.5 0.3 0.1 20.1 0.7 0.5 0.3 0.1 20.1 0.7 0.5 0.3 0.1 20.1

20.441 20.225 20.081 20.009 20.009 20.5994 20.2859 20.0983 20.0123 20.0041 – – – – –

– – – – – 20.0441 20.0225 20.0081 20.0009 20.0009 20.2132 20.0999 20.0317 20.0030 20.0024

correctness – that is, usefulness for the upper hierarchical level as a basis for decision making and development of opinion. Such general approach could be used not only for managers of the company but also for any workers who make decisions. The examples study specific problems that manager of a forestry complex company faces. As a result of the research, a variant of the model of integral risks assessment is offered (Sinyavsky, 2017) – as a tool for evaluating dependence of the risk of wrong decisions in modern business systems on their organizational structure. Such model of interconnection between risks is formed by determining private derivatives from probability of making of wrong decisions accordingly due to wrong pure information. This model can help evaluating the influence of various factors on the level of influence of information quality on quality of decisions or measuring the level of autonomy of PMD – that is, the level of independent making of decisions as to received complex information.

106

Nikolai G. Sinyavsky

Table 9.12. Influence of Quality of Pure Information That Is Obtained at the Fourth Hierarchical Level of Organizational Structure (Derivative dpdP0 ). 21

Number of Elements at the Fourth Level

1

2

“Level of Autonomy” (b2a)

Low Requirements to Quality of Information

High Requirements to Quality of Information

0.7 0.5 0.3 0.1 20.1 0.7 0.5 0.3 0.1 20.1

20.0034 20.0013 0 0 0 0 0 0 0 0

20.2778 20.1013 20.0219 20.0008 0.0008 20.3597 20.1121 20.0167 20.0002 20.0002

Table 9.13. Comparison of Influence of Quality of Information That Is Obtained at Various Hierarchical Levels on the Quality of Decision Making.

Hierarchical Level

1

2

3

“Level of Autonomy” (b2a)

0.7 0.5 0.3 0.1 20.1 0.7 0.5 0.3 0.1 20.1 0.7 0.5 0.3 0.1 20.1

Requirements to Quality of Information Low

High

20.7 20.5 20.3 20.1 0.1 20.0001…20.0491 20.0001…20.025 20.0001…20.009 0…20.001 0…20.001 0…20.0034 0…20.0013 0 0 0

20.7 20.5 20.3 20.1 0.1 20.441…20.5994 20.225…20.2859 20.081…20.0983 20.009…20.0123 20.0041…20.009 20.2778…20.3597 20.1013…20.1121 20.0167…20.0219 20.0002…20.0008 20.0002…0.0008

Influence drops substantially with growth of the number of elements at the second level

Influence decreases slightly with increase of elements at the second level

Influence of information quality on quality of decision with low “level of autonomy”

Influence of quality of information on quality of decision with high “level of autonomy”

Increase of the level of autonomy does not lead to large reduction of difference in percentage between influence of higher and lower number of elements

Influence drops slightly or grows with growth of the number of elements of the second level. Influence grows with growth of the number of hierarchical levels

2 Characteristics of Requirements to Quality of Organizational Information Structure Low High

4

Large reduction of influence with movement of information to higher levels

Large reduction of influence with movement of information to higher levels

Growth of the number of elements at the fourth level leads to reduction of influence

–

Influence grows substantially with growth of the number of elements at the third level

Relatively low reduction of influence with movement of information to higher levels Substantial reduction of influence with movement of information to higher levels

Increase of the number of elements at the fourth level leads to growth of influence

Influence is very low. However, increase of the number of elements substantially reduces the influence

Influence grows substantially with growth of the number of the elements at the third level

Influence drops substantially with growth of the number of elements at the third level

Influence drops substantially with growth of the number of elements at the third level

High

Low

High

Low

Requirements to Quality of Information

High

Requirements to Quality of Information

Comparison of Levels of Hierarchy

Low

Requirements to Quality of Information

3

Level of Hierarchy

Table 9.14. Analysis of Obtained Quantitative Evaluations of Influence of Information Quality on Quality of Made Decisions.

Dependence of Risk of Making Wrong Decisions 107

Existences of extremes in the value of influence with change of the level of autonomy

Could take place

Is not a factor Influence of that reduces increase of the the influence number of hierarchical levels on the level of influence of quality of information on quality of decisions

High

Extremes are not observed

Is not a factor Growth of the that reduces number of the influence levels reduces influence substantially

Low

Requirements to Quality of Information

3

Level of Hierarchy

Could take place Extremes are not observed

Is a factor that reduces the influence. However, effect of the factor reduces or leads to growth of influence with increase of the number of elements at the first level and narrowing of “gates”

2 Characteristics of Requirements to Quality of Organizational Information Structure Low High

Table 9.14. (Continued)

4

High –

Extremes are not observed

Low –

–

Requirements to Quality of Information

Extremes are not observed

–

Low

Extremes are not observed

–

High

Requirements to Quality of Information

Comparison of Levels of Hierarchy

108 Nikolai G. Sinyavsky

Influence of change of quality of information on quality of decision in a paradox (a . b)

Aggravation of quality of information improves quality of decision

Aggravation of quality of information improves quality of decision

Aggravation of quality of information improves quality of decision

Aggravation of quality of information improves quality of decision

– Aggravation of quality of information could improve quality of decision (one element at the third level) or aggravate quality of decision (two elements at the third level)

Aggravation of quality of information could improve quality of decision or aggravate quality of decision

Aggravation of quality of information could improve quality of decision or aggravate quality of decision

Dependence of Risk of Making Wrong Decisions 109

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Table 9.15. Example of Structure of Information That Is Used by Person Making a Decision (PMD) for Decision Making. Level from Which Information Comes

Level of the company that is superior as to PMD Level of the company that coincides with PMD

Character of Decisions and Opinions

Character of Other Information

All specter of issues of PMD

Forecast of payments, structure of sales and purchase of assets, sales and purchase of rights

All specter of issues of PMD

Forecast of payments, structure of sales and purchase of assets, sales and purchase of rights. Information on cost of assets and rights Forecast of payments, structure of sales and purchase of assets, sales and purchase of rights. Information on cost of assets and rights Forecast of payments. Plan of control operations

Level of the company that is inferior as to PMD

All specter of issues of PMD

External interested parties

Structure of payments and control operations

Let us view examples of wrong decisions (Table 9.16).

Table 9.16. Examples of Wrong Decisions. Structure of Payments

Structure of sales and purchases of assets Structure of purchases and sales of rights

Payment of Taxes without Preliminary Optimization. Payment of Debts without Preliminary Analysis. Irrational Priority of Payments. Sales of assets without preliminary pricing elaboration. Purchase of assets without risk assessment. Sales of rights without preliminary pricing elaboration. Purchase of rights without risk assessment

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Let us view specific examples of the content of information that causes wrong decisions for PMD (Table 9.17).

Table 9.17. Specific Examples of the Content of Information That Causes Wrong Decisions for Person Making a Decision (PMD). Level from which Information Comes

Level of the company that is superior to PMD Level of company that coincides with the level of PMD

Level of company that is inferior to PMD

External interested parties

Contents of Decisions and Opinions

Contents of Other Information

Priority of payments to transport railroad company

Threat of losing reputation

Payment of taxes without preliminary establishment of the limit of payments. Purchase of rights for timber harvesting by corruption schemes. Selling forestry machines and transport means and rights for timber procurement according to the corruption schemes Priority in the structure of payments for payment of wages, spare parts, and diesel fuel without preliminary evaluation of rational priorities of payments Priority in the structure of payments for payment of taxes and resources without preliminary evaluation of rational priorities of payments

Errors in evaluation of effectiveness of sales and purchase of assets and rights

Mistakes in evaluation of risk of the situation within the company

Mistakes in evaluation of the risk of the situation in interrelations with external interested parties

Let us view specific examples of information that stimulates making of right decisions for PMD (Table 9.18). Quantitative evaluations of the level of influence of pure information quality on quality of decision are made depending on the following factors:

• •

level of autonomy of PMD; number of elements that supply information at the hierarchical levels of organizational structure;

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Table 9.18. Specific Examples of Information for Person Making a Decision (PMD) That Stimulates Making of Right Decisions. Structure of payments

Structure of sales and purchase of assets

Structure of purchase and sales of rights

• •

Establishment of the limit of tax payments. Determination of priority (energy sources, wages, taxes, resources) and volumes of payments in view of real conditions. Substantiation of directive reduction of company’s employees. Information on real effectiveness of mass purchase of transport vehicles in view of risk. Determining the buyers of forestry machines, vehicles, and real estates based on economic expedience Arguments for refusing the rights for timber procurement. Substantiating the scheme of receipt of paid rights. Real assessment of profitability of selling rights for timber procurement

number of hierarchical levels in organizational structure; level of requirements to quality of information.

Level of autonomy is an important factor, which action could be different depending on other studied factors. Change of the level of autonomy leads to extremes in the values of the level of influence of information quality on quality of decisions in case of sources of information being on upper levels of hierarchy. Growth of the number of sources of information at the studied hierarchical level:

• •

leads to large reduction of the influence of information quality on quality of decisions with low requirements to quality of information; does not cause large reduction of influence of information quality on quality of decisions or even stimulates growth of such influence with high requirements to information quality.

Number of hierarchical levels in organizational structure is not a significant factor of influence on the level of influence of information quality on quality of decisions with low requirements to quality of information and, on the contrary, becomes a significant factor with increase of requirements to information flow. Change of the level of requirements to quality of information influences the dependence of decisions’ quality on quality of information in different ways, if these requirements are low or high. The article provides examples from the practice of decision making during management of a Russian company of forestry complex. The examples show that

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the possibility of manager’s making wrong decisions is increased by insufficient elaboration of rational money flows and regular attempts of workers to use corruption and fraud schemes.

References Asaul, A. N., Knyaz, I. P., & Korotaeva, Y. V. (2007). In A. N. Asaul (Ed.), Theory and practice of decision making for overcoming crises by organizations (224 pp.). St. Petersburg: ANO IPEV. Barnard, C. (1938). The functions of the executive. Cambridge, MA: Harvard University Press. Chapman, C., & Ward, S. (2003). Project risk management processes techniques and insights. Chichester: John Wiley & Sons. Evlanov, L. G. (1984). Theory and practice of decision making. Moscow: Ekonomika. Goldstein, G. Y. (1997). Foundations of management. Lectures. Taganrog: TRSU. Retrieved from http://www.aup.ru/books/m26/6.htm. Accessed on April 18, 2018). Golubkov, E. P. (2003). Essence and peculiarities of managerial decisions. Management in Russia and Abroad, 1, 122–134; 2, 105–123. Retrieved from http:// www.mevriz.ru/articles/2003/2/1123.html. Accessed on April 8, 2018. ISO/IEC 31010:2009 Risk management — risk assessment techniques (IDT). King, W. (1982). In W. King & D. Kleeland (Trans.) and G. B. Kochetkov (Eds.), Strategic planning and economic policy (399 pp.). Moscow: Progress. Korbet, T. (2009). Managerial accounting for TOS. Kyiv: NiD. Peters, T. J., & Waterman Jr, R. H. (1982) In search of excellence (lessons from America’s best-run companies). New York, NY: Harper & Row. Prigozhin, A. I. (2014). In G. V. Osipov & L. N. Moskvichev (Eds.), Sociological dictionary (pp. 470–471). Russia: INFRA-M, NORMA. Sinyavski, N. G. (2017). Management of integrated risk of industrial enterprise. In E. G. Popkova (Ed.), Overcoming uncertainty of institutional environment as a tool of global crisis management (pp. 88–104). Contributions to economics. Cham: Springer International Publishing AG. Skinner, B. (1978). Wasist Behaviorismus? Reinbekbei Hamburg: Rohwolt. Suleymanova, S. R. (2012). Development and making of managerial decisions. Retrieved from http://www.rumvi.com/. Accessed on April 18, 2018. Tannenbaum, R., & Schmidt, W. H. (1973). Retrospective commentary. Harvard Business Review, 51(3), 162–180.

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Chapter 10

Dependence of the Process of Decision Making in Modern Business Systems on Their Organizational Structure Evgeniy G. Molchanov, Angelika K. Musaelyan, Ruslan G. Mikhaylenko and Elena N. Smertina

10.1 Introduction At present, business systems have a lot of variants of organizational structure – due to patterns, large number of organizational and legal forms, and development of consulting in the sphere of organizational design. During formation of organizational structure of modern business systems, a complex of factors is used. One of them is taxation. For tax optimization, modern business systems design their organizational structures so as to achieve balance of preferences in simplicity of tax accounting, volume of tax load, and scale of business. Another factor is marketing goals of business systems. Striving for increase of market positions, they conduct integration processes (e.g., mergers and acquisitions), which leads to complication of their organizational structure. Another factor of design of organizational structure of modern business systems is their financial goals. The initial structure of capital and the necessity for attraction of additional capital determine the structure of business owners and terms of ownership for business, which limit the set of available organizational and legal forms. Decision making during formation of organizational structure of modern business systems is not considered as a factor. The process of decision making is organized based on the selected business structure, and it may not fully conform to strategic interests of functioning and development of business system, not allowing opening the potential of its competitiveness and ensuring the necessary stability against the business environment. The purpose of the research is to determine dependence of the process of decision making in modern business systems on their organizational structure and to substantiate the necessity for considering the requirements to the process of decision making during design of organizational structure of a business system.

Specifics of Decision Making in Modern Business Systems, 115–121 Copyright © 2019 by Emerald Publishing Limited All rights of reproduction in any form reserved doi:10.1108/978-1-78756-691-020191011

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10.2 Materials and Method Overview of the existing publications on the topic of organizational design showed that they study dependence of the process of decision making in modern business systems on their organizational structure (according to the offered conceptual model of a modern business system [Chapter 1]; the term “business structure is also used”). This dependence is studied on the basis of classification of organizational structures according to the criterion of distribution of authorities and responsibility in the system of managerial staff of business system, according to which the main types of organizational structures are linear, divisional, and matrix, and a lot of additional types are distinguished. Similar research are performed in the works of Krivtsov (2014), Krivtsov (2015), Krivtsov, Polinova, Ivankina, Chubarkova, and Prokubovskaya (2016), Popkova (2017), Popkova et al. (2017), Popkova, Ragulina, and Bogoviz (2019), Popkova, Gornostaeva, and Tregulova (2018), Sukhodolov, Popkova, and Litvinova (2018, pp. 1–38), and Veselovsky, Izmailova, Bogoviz, Lobova, and Alekseev (2017). A serious drawback of the existing studies of dependence of the process of decision making in modern business systems on their organizational structure is founding on generalized types of organizational structures that may cross each other in practice. For example, organizational structure of managerial staff could be linear, structure of one business entity – functional, of another business entity – matrix, and the structure of business system on the whole could be divisional. Due to this, practical application of received conclusions and provided recommendations on the basis of the existing classification is difficult, as modern business systems won’t be able to precisely determine their organizational structure. For solving this problem, a simplified classification of organizational structure of business systems according to the criterion of complexity is offered and its two main types are distinguished. First type: organizational structure of low complexity. It is peculiar for business structures of small (including micro) and medium size, regardless of distribution of authorities and responsibility in the system of managerial staff. With such organizational structure, the distance between managerial staff and business entities is minimum, and internal communications are simplified and accessible. Second type: organizational structure of high complexity. It is peculiar for business structures of large (including mega) size, also regardless of distribution of authorities and responsibilities in the system of managerial staff. With such organizational structure, managerial staff is far from business entities and internal communications are difficult or inaccessible. According to the Federal Law of the Russian Federation dated December 20, 2008, No. 307-FZ “Regarding audit activities” (Government of the RF, 2018), the factors that complicate the organizational structure of modern business systems are described as follows:

• • •

Organizational and legal form of joint-stock company; turnover of securities of business system in the stock market; functioning in the financial sphere of national economy;

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• •

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annual revenues exceed RUB 400 million/or the sum of assets of financial balance at the end of the year exceeds RUB 60 million; provision of annual corporate reports.

The above factors cause the mandatory character of external audit of business system and increase the hierarchy character of managerial staff. An additional factor that complicates organizational structure of a modern business system is presence of branches (including in different countries), as this causes hierarchy of not only managerial staff but also of business system on the whole.

10.3 Results According to the offered classification, we determined dependence of the process of decision making in modern business systems on complexity of their business structure (Table 10.1). As is seen from Table 10.1, dependence of the process of decision making in modern business systems on complexity of their organizational structure is manifested at each stage of the process of making of managerial decisions. At the first stage – determining the needs of the business system for managerial decisions – an advantage of business structure of low complexity is accessibility of internal feedback due to sustainable communications between managerial staff and business entities. Its drawback is deficit of marketing resources, due to which possibilities and problems of business system, related to business environment, may be omitted or not determined precisely. Contrary to this, an advantage of business structure of high complexity is sufficiency of marketing resources for full, precise, and authentic determination of needs of the business system for managerial decisions. Its drawback is complexity of collection and processing of internal feedback, due to which internal problems and possibilities of the business system might remain hidden or neglected during making of managerial decisions. At the second stage, devoted to determining the possibilities of the business system in making of managerial decisions, business structure of low complexity faces deficit of human resources and the risk of determining of possibilities of managerial decisions – however, its advantage is speed of decision making. Organizational structure of high complexity is peculiar for completeness of determination of possibilities and duration and labor intensity of this process. At the third stage, devoted to comparing the alternative variants of managerial decisions, with organizational structure of low complexity, business systems do not have automatization, and the risk of nonoptimal decisions is very high – though decision could be made very quickly. Organizational structure of high complexity is peculiar for high probability of optimal decisions, but it requires coordination of decisions and causes the problem of overlapping of authorities of structural elements of managerial staff – which extends the process of decision making. At the fourth stage – implementing the made managerial decision and further evaluation of its optimality – business structure of low complexity ensures quick

Accessibility of feedback

Deficit of marketing resources

Sufficiency of marketing resources

Complexity of collection and processing of feedback

1

2

1

2

1. Determining Needs

Note: “1”, advantages; “2”, drawbacks. Source: Compiled by the authors.

High

Low

Complexity of Business Structure

Inaccessibility of authomatization, risk of nonoptimal decisions High probability of optimal decisions

3. Comparing Alternatives

Speed of implementation of decisions Sufficient control

4. Implementation, Reflection

Successful accumulation of experience, improvement of decision making in the future Duration and resource Necessity for Long, multiple, and intensity of the process of coordinating decisions, resource-intensive control determination of overlapping of (including audit) possibilities authorities

Deficit of human resources, risk of incomplete determination of possibilities Completeness of determination of possibilities

Speed of decision making

2. Determining Possibilities

Stage of the Process of Decision Making

Table 10.1. Dependence of the Process of Decision Making in Modern Business Systems on Their Organizational Structure.

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implementation of made decisions, but control over this process is insufficient. In its turn, business structure of high complexity ensures successful accumulation of experience and improvement of the process of decision making in the future, but it is peculiar for long resource intensive control (including internal and external audit).

10.4 Discussion Business systems with organizational structure of low complexity dominate in Russia. According to the Federal State Statistics Service, in 2018, the total number of business system constitutes 4,764,500: 5.39% – business systems of small size (256,700). The share of business systems of small (including micro) and medium size in Russia in 2018 constitutes 87.54% (4,170,900) (Single register of subjects of small and medium entrepreneurship, 2018). The most vivid examples of modern Russian business systems with the organizational structure of high complexity are Sberbank (2018), Lukoil (2018), Gazprom (2018), and Rosneft (2018). The structure of corporate management of these business systems is peculiar for high hierarchy level – it includes general meeting of shareholders, supervisory council, various committees (e.g., audit, strategic planning, risk management, etc.), internal control and audit services, external auditor, revision commission, presidium, board, management, etc. Formation of organizational structure of high complexity and supporting its functioning are resource intensive and are thus inaccessible to most modern business systems. Moreover, the expected advantages, related to high probability of making of optimal managerial decisions, are not always obtained in practice. This is shown by the fact that out of four studied examples of modern Russian business systems with the organizational structure of high complexity only Sberbank is among the top 50 business systems of Russia as to quality of corporate management in the national rankings of corporate management of Russia according to the Russian Institute of Directors (2018). This ranking takes into account completeness of observation of legal requirements and risks of losses of owners due to imperfection of corporate management. Therefore, with complication of the organizational structure, expenditures for decisions making increase and, despite substantial reduction of the risk component, the probability of nonoptimal decisions remains. The period of decision making is extended – and by the moment of implementation they might not be topical.

10.5 Conclusions Thus, the process of decision making in modern business systems depends on the complexity of their organizational structure. Increase of complexity of business structure leads to increase of resource intensity of decision making and duration of this process, but the risk of nonoptimal decisions decreases. Organizational structure of low complexity is usually peculiar for business systems that have

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deficit of financial and human resources, which does not allow using optimization means and controlling the process of decision making. However, in this case, managerial decisions are made much quicker. In the conditions of modern market economy, it is necessary to make quick optimal decisions, which cannot be achieved within organizational structure of either low or high complexity. Thus, it is necessary to search for the means of quick optimal managerial decisions beyond design of organizational structure. For this, it is expedient to study connection between organizational culture and specifics of the process of decision making in modern business systems.

References Federal State Statistics Service (Rosstat). (2018). Russia in numbers: A short statistical collection. Retrieved from http://www.gks.ru/bgd/regl/b18_11/Main.htm. Accessed on October 18, 2018. Gazprom. (2018). Structure of corporate management. Retrieved from http:// www.gazprom.ru/investors/corporate-governance/. Accessed on October 18, 2018. Government of the RF. (2018). Federal Law of the RF dated December 30, 2008, No. 307-FZ “Regarding audit activities”. Retrieved from http://docs.cntd.ru/document/ 902135946. Accessed on October 18, 2018. Krivtsov, A. I. (2014). Fair value assessment of investment capital when ensuring coherence of managerial decision–making processes. Actual Problems of Economics, 161(11), 307–313. Krivtsov, A. I. (2015). Business development strategy and business processes diversification. Actual Problems of Economics, 165(3), 17–24. Krivtsov, A. I., Polinova, L. V., Ivankina, M. S., Chubarkova, E. V., & Prokubovskaya, A. O. (2016). Corporate information management system and its influence on increase of changes productivity. International Journal of Environmental & Science Education, 11(15), 7627–7635. Lukoil. (2018). Report on corporate management. Retrieved from http://www.lukoil.ru/ InvestorAndShareholderCenter/RegulatoryDisclosure/CorporateGovernanceReport. Accessed on October 18, 2018. Popkova, E., Gornostaeva, Z., & Tregulova, N. (2018). Role of innovations in provision of competitiveness and innovational development of economy and overcoming of “underdevelopment whirlpools” in Russia and countries of Eastern Europe. Journal of Entrepreneurship in Emerging Economies, 10(3), 511–523. doi: 10.1108/JEEE-12-2017-0100. Popkova, E. G. (Vol. Ed. & Series Ed.). (2017). Economic and legal foundations of modern Russian society: A new institutional theory. In Advances in research on Russian business and management. Charlotte, NC: Information Age Publishing. Popkova, E. G., Ragulina, Y. V., & Bogoviz, A. V. (2019). Industry 4.0: Industrial revolution of the 21st century. In J. Kacprzyk (Ed.), Studies in systems, decision and control. Berlin: Springer. Popkova, E. G., Tyurina, Y. G., Sozinova, A. A., Bychkova, L. V., Zemskova, O. M., Serebryakova, M. F., & Lazareva, N. V. (2017). Clustering as a growth point of modern Russian business. Contributions to Economics, 97–103, 55–63.

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Rosneft. (2018). Corporate management. Retrieved from https://www.rosneft.ru/ governance/. Accessed on October 18, 2018. Russian Institute of Directors. (2018). National ranking of corporate management of Russia. Retrieved from http://rid.ru/nacionalnyj-rejting/rezultaty-nrku. Accessed on October 18, 2018. Sberbank. (2018). The system of corporate management. Retrieved from https:// www.sberbank.com/ru/investor-relations/corporate-governance/corporate-governance-sb. Accessed on October 18, 2018. Single register of subjects of small and medium entrepreneurship. (2018). Statistics of small and medium entrepreneurship. Retrieved from https://rcsme.ru/ru/statistics. Accessed on October 18, 2018. Sukhodolov, A. P., Popkova, E. G., & Litvinova, T. N. (2018). Models of modern information economy: Conceptual contradictions and practical examples. Bingley: Emerald Publishing. Veselovsky, M. Y., Izmailova, M. A., Bogoviz, A. V., Lobova, S. V., & Alekseev, A. N. (2017). Business environment in Russia and its stimulating influence on innovation activity of domestic companies. Journal of Applied Economic Sciences, 12(7), 1967–1981.

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Chapter 11

Connection between Organizational Culture and Specifics of the Process of Decision Making in Modern Business Systems Aleksei V. Bogoviz, Leonid F. Malinovski, Tamara G. Stroiteleva, Maxim M. Sharamko and Vera V. Dvoretskaya 11.1 Introduction Organizational culture is one of the key characteristics of modern business system due to a range of reasons. Firstly, organizational culture determines uniqueness of business system and its competitiveness. Secondly, depending on organizational culture, business system could be flexible or stable – which predetermines its capability for adaptation and preservation of sustainability. Thirdly, organizational culture of business system determines the values of its employees, setting foundations for their motivation and stimulation in the interests of growth of efficiency and effectiveness of the business system. Nevertheless, despite the multi-aspect study and application of organizational culture of modern business systems, its connection to the process of decision making is usually considered indirectly as an addition to other components of functioning and development of the business system. Due to this, specifics of decision making in business systems are a result of the organizational culture. Current requirements of state regulators, society, and intermediaries (e.g., high innovational activity) are taken into account during management of organizational culture of modern business systems, but its influence on the process of decision making is not considered. That is, organizational culture develops spontaneously (it not controlled) in the aspect of decision making. The working hypothesis of the research consists in the idea that spontaneous (in the aspect of decision making) formation and development of organizational culture of modern business systems is unacceptable, and this process requires management – based on the set criteria of decision making (high speed or low resource intensity). The purpose of the work is to determine the connection between organizational culture and specifics of the process of decision making in Specifics of Decision Making in Modern Business Systems, 123–130 Copyright © 2019 by Emerald Publishing Limited All rights of reproduction in any form reserved doi:10.1108/978-1-78756-691-020191012

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modern business systems and to determine the directions of management of organizational culture depending on the set criteria of decision making.

11.2 Materials and Method The performed literature overview showed that in the existing publications the influence of organizational culture on functioning and development of modern business system is studied through the prism of its components as follows:

• • •

production: organizational culture is classified according to inclination to innovations, and the culture that stimulates innovational activities of employees and culture that restrains these activities are distinguished; distribution (marketing): organizational culture is classified according to susceptibility to the influence of external environment and adaptation to changes; culture that focuses on internal environment and culture that focuses on external environment are distinguished; organization: organizational culture is classified according to the level of strictness (standardization and norming); culture that strictly regulates business processes and business communications and culture that allows for free organization of business processes and business communications are distinguished.

Influence of organizational culture on the above components of modern business systems is studied in detail by the multiple examples and described in the works of such scholars and experts as Al-Hadi, Al-Yahyaee, Hussain, and Taylor (2018), Bae, Masud, and Kim (2018), Belouettar et al. (2018), Bobillo, Rodr´ıguezSanz, and Tejerina-Gaite (2018), Gait´an, Herrera-Echeverri, and Pablo (2018), Keay and Zhao (2018), Krivtsov (2014), Krivtsov (2015), Krivtsov, Polinova, Ivankina, Chubarkova, and Prokubovskaya (2016), Marques, de Sousa Ribeiro, and Barboza (2018), Popkova (2017), Popkova et al. (2017), Popkova, Ragulina, and Bogoviz (2019), Popkova, Gornostaeva, and Tregulova (2018), Singareddy, Chandrasekaran, Annamalai, and Ranjan (2018), Sukhodolov, Popkova, and Litvinova (2018, pp. 1–38), Thomsen (2016), Veselovsky, Izmailova, Bogoviz, Lobova, and Alekseev (2017), Bogoviz (2019), Bogoviz et al. (2019), and Nechaev et al. (2019). At that, the managerial component – in particular, the process of decision making – is poorly studied from the positions of organizational culture and requires further elaboration. For this, classification of the types of organizational culture of modern business systems according to the criterion of involvement of employees in decision making is offered (Fig. 11.1). As is seen from Fig. 11.1, two measurements of involvement of employees in decision making are used for classifying the types of organizational culture of modern business systems. First measurement: interest of business manager in involvement of employees in the process of decision making. Second measurement: inclination of employees to participation in the process of making of

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high Interest of business manager in involvement of employees into the process of decision making Collection of feedback by business manager with low interest to it from employees

Collective decisions by employees and business manager

low

high Employees’ inclination to participation in the process of making of managerial decisions Independent decision making by business manager without participation of employees

Collective discussion, but decision made by business manager

low

Fig. 11.1. Classification of Types of Organizational Culture of Modern Business Systems According to the Criterion of Involvement of Employees in Decision Making. Source: Compiled by the authors.

managerial decisions. These measurements are influenced by the following factors:

•

• •

•

successful experience of involvement of employees in decision making in this business system: the more examples of this involvement and the more effective it is, the higher the interest of business manager and inclination of employees to participation in the process of making of managerial decisions; sphere of national economy of the business system: production specifics of functioning of business system can stimulate or hinder the involvement of employees into the process of decision making; specifics of ownership for capital or the organizational and legal form of business system: the more complex the structure of ownership for capital (the most complex structure is peculiar for joint-stock companies), the less possibilities for involvement of employees in the process of decision making; personal features of business manager and employees of business system: for successful involvement of employees in the process of decision making, business manager and employees should have such competences as team work, creative skills, etc.

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At the crossing of these two measurements, four types of organizational culture of modern business systems according to the criterion of involvement of employees in decision making appear as follows: (1) independent decision making by business manager without participation of employees: with low interest from business manager and low inclination of employees to participation in this process; (2) collective discussion, but decision made by business manager: with high inclination of employees but low interest of business manager in involvement of employees in this process; (3) collection of feedback by business manager with low interest from employees: with high interest of business manager but low inclination (lack of initiative) of employees to participation in this process; (4) collective decision making by employees and business manager: with high interest of business manager and high inclination of employees to participation in this process.

11.3 Results According to the offered classification, connection between the types of organizational culture and specifics of the process of decision making in modern business systems at each stage of this process is determined (Table 11.1). As is seen from Table 11.1, independent decisions by business manager do not allow determining most needs and possibilities of the business system in decision making. Business manager cannot be aware of all problems that emerge during implementation of business processes, and a lot of problems remain without attention and without collection of feedback. The process of determination of needs and possibilities is peculiar for high resource intensity, as it requires target monitoring of the business system. However, in this case, decisions are made very quickly, though the probability of dissatisfaction of employees with decisions and of protest against their implementation is very high. Collective discussion but decision by business manager and collection of feedback by business manager with low interest to it from employees influence the specifics of the process of decision making in modern business systems in the same way. These specifics are connected to incomplete determination of the needs and possibilities of the business system for making of managerial decisions, the possibility of quick decision making if necessary, and the possibility of quick implementation of decisions if necessary – though, employees’ support is not guaranteed. Collective decision making by employees and business manager ensures the most complete determination of needs and low resource intensity of this process, as involvement of employees is a variant of cheap outsource and allows reducing managerial expenditures. Due to active involvement of employees into the process of decision making, the most complete determination of possibilities and low resource intensity of this process are achieved.

Source: Compiled by the authors.

Collection of feedback Collective decision making by employees and business manager

Most complete determination of needs, low resource intensity of this process

No determination of most needs, high resource intensity of this process Incomplete determination of needs of business system for making of managerial decisions

Independent decision making by business manager

Collective discussion

1. Determining the Needs

Type of Organizational Culture

Possibility of fast decision making if necessary

The fastest decision making

3. Comparing the Alternatives

High probability of dissatisfaction of employees by decisions made Possibility of quick implementation of made decisions if necessary, but is not guaranteed

4. Implementation, Reflection

Most complete The longest decision Employees’ support, determination of making quick implementation possibilities, low of made decisions resource intensity of this process

No determination of most possibilities, high resource intensity of this process Incomplete determination of possibilities of business system in making of managerial decisions

2. Determining the Possibilities

Stage of the Process of Decision Making

Table 11.1. Connection between Organizational Culture and Specifics of the Process of Decision Making in Modern Business Systems. Connection between Organizational Culture and Specifics 127

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However, this type of organizational culture is peculiar for the longest decision making. This is caused by the necessity for providing all interested employees with possibility and time for independent comparison of accessible alternatives and further collective discussion and joint decision – which will conform to the interests of most employees and business manager. In this case, active support from employees is achieved, as well as quick implementation of the decisions.

11.4 Conclusion Thus, connection between organizational culture and specifics of the process of decision making in modern business systems according to the criterions of the level of involvement of employees in decision making is determined. The minimum level of involvement envisages independent decision making by business manager without participation of employees. In this case, a lot of problems of business system remain without attention, and possibilities are not used. Resource intensity of decision making is the highest, and their practical implementation is difficult due to dissatisfaction of employees, but this process is conducted very quickly. The average level of involvement envisages either collective discussion but decision by business manager or collection of feedback by business manager with low interest from employees. In this case, resource intensity of decision making is lower, and decisions are made and implemented much quicker. The highest level of involvement is connected to collective decisions by employees and business manager. This allows for full determination of problems and usage of possibilities of the business system with minimum expenditures of resources. Though duration of the process of decision making is the highest, solutions are implemented very quickly due to support from employees. The determined specifics confirm the offered hypothesis and show the necessity for considering the influence of organizational culture on specifics of decision making in modern business systems. Depending on the set criteria (completeness, speed, and resource intensity) of decision making, the following directions of management of organizational culture are recommended:

•

•

for comprehensive solving of problems and usage of possibilities of the business system, as well as reduction of resource intensity of the process of decision making, it is necessary to create favorable conditions for maximum involvement of employees into this process, by development of accessible and effective collection of feedback (internal communications of managerial staff and business entities); for accelerating the process of decision making, it is necessary to limit participation of employees in this process, blocking the channels of collection of feedback in the business system.

It should be concluded that no type of organizational culture of modern business system according to the criterion of involvement of employees in decision

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making can provide a guarantee of optimal decisions. This is due to susceptibility of involvement of employees in the process of decision making to the following risks:

• • •

risk of collective discussion becoming a conflict; risk of employees seeking their own interests not in favor of interest of the business system during decision making; risk of insufficient competence of employees in the aspect of making of managerial decisions.

Thus, managerial aspects of decision making in modern business systems require thorough study. Also, attention should be paid to the role of leadership in the process of decision making in modern business systems.

References Al-Hadi, A., Al-Yahyaee, K. H., Hussain, S. M., & Taylor, G. (2018). Market risk disclosures, corporate governance structure and political connections: Evidence from GCC firms. Applied Economics Letters, 25(19), 1346–1350. Bae, S. M., Masud, M. A. K., & Kim, J. D. (2018). A cross-country investigation of corporate governance and corporate sustainability disclosure: A signaling theory perspective. Sustainability, 10(8), 11–26. Belouettar, S., Kavka, C., Patzak, B., Koelman, H., Rauchs, G., Giunta, G., … Daouadji, A. (2018). Integration of material and process modelling in a business decision support system: Case of COMPOSELECTOR H2020 project. Composite Structures, 204, 778–790. Bobillo, A. M., Rodr´ıguez-Sanz, J. A., & Tejerina-Gaite, F. (2018). Corporate governance drivers of firm innovation capacity. Review of International Economics, 26(3), 721–741. Bogoviz, A. V. (2019). Industry 4.0 as a new vector of growth and development of knowledge economy. Studies in Systems, Decision and Control, 169, 85–91. Bogoviz, A. V., Lobova, S. V., Alekseev, A. N., Yankovskaya, V. V., & Shabarchina, I. V. (2019). Transformation of the Russian labor market as a result of development of internet technologies. Advances in Intelligent Systems and Computing, 726, 972–979. Gait´an, S., Herrera-Echeverri, H., & Pablo, E. (2018). How corporate governance affects productivity in civil-law business environments: Evidence from Latin America. Global Finance Journal, 37, 173–185. Keay, A., & Zhao, J. (2018). Transforming corporate governance in Chinese corporations: A journey, not a destination. Northwestern Journal of International Law and Business, 38(2), 187–232. Krivtsov, A. I. (2014). Fair value assessment of investment capital when ensuring coherence of managerial decision–making processes. Actual Problems of Economics, 161(11), 307–313. Krivtsov, A. I. (2015). Business development strategy and business processes diversification. Actual Problems of Economics, 165(3), 17–24.

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Krivtsov, A. I., Polinova, L. V., Ivankina, M. S., Chubarkova, E. V., & Prokubovskaya, A. O. (2016). Corporate information management system and its influence on increase of changes productivity. International Journal of Environmental & Science Education, 11(15), 7627–7635. Marques, T. A., de Sousa Ribeiro, K. C., & Barboza, F. (2018). Corporate governance and debt securities issued in Brazil and India: A multi-case study. Research in International Business and Finance, 45, 257–270. Nechaev, V. I., Bogoviz, A. V., & Saifetdinova, N. R. (2019). Theoretical aspects of state regulation of agriculture within the classical and physiocratic schools: A modern view. Advances in Intelligent Systems and Computing, 726, 870–884. Popkova, E., Gornostaeva, Z., & Tregulova, N. (2018). Role of innovations in provision of competitiveness and innovational development of economy and overcoming of “underdevelopment whirlpools” in Russia and countries of Eastern Europe. Journal of Entrepreneurship in Emerging Economies, 10(3), 511–523. doi: 10.1108/JEEE-12-2017-0100. Popkova, E. G. (Vol. Ed. & Series Ed.). (2017). Economic and legal foundations of modern Russian society: A new institutional theory. In Advances in research on Russian business and management. Charlotte, NC: Information Age Publishing. Popkova, E. G., Ragulina, Y. V., & Bogoviz, A. V. (2019). Industry 4.0: Industrial revolution of the 21st century. In J. Kacprzyk (Ed.), Studies in systems, decision and control. Berlin: Springer. Popkova, E. G., Tyurina, Y. G., Sozinova, A. A., Bychkova, L. V., Zemskova, O. M., Serebryakova, M. F., & Lazareva, N. V. (2017). Clustering as a growth point of modern Russian business. Contributions to Economics, 97–103, 55–63. Singareddy, R. R. R., Chandrasekaran, S., Annamalai, B., & Ranjan, P. (2018). Corporate governance data of 6 Asian economies (2010–2017). Data in Brief, 20(1), 53–56. Sukhodolov, A. P., Popkova, E. G., & Litvinova, T. N. (2018). Models of modern information economy: Conceptual contradictions and practical examples. Bingley: Emerald Publishing. Thomsen, S. (2016). The nordic corporate governance model. Management and Organization Review, 12(1), 189–204. Veselovsky, M. Y., Izmailova, M. A., Bogoviz, A. V., Lobova, S. V., & Alekseev, A. N. (2017). Business environment in Russia and its stimulating influence on innovation activity of domestic companies. Journal of Applied Economic Sciences, 12(7), 1967–1981.

PART IV: MANAGERIAL ASPECTS OF DECISION MAKING IN MODERN BUSINESS SYSTEMS

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Chapter 12

The Role of Leadership in the Process of Decision Making in Modern Innovational Business Systems Irina A. Morozova, Alina V. Chesnokova, Olga V. Fetisova and Liudmila S. Maksimenko

12.1 Introduction Formation and development of organizational culture and, in particular, organization of the process of making of managerial decisions are based on leadership. According to the modern concept of scientific management, the style of leadership determines the peculiarities of the practice of involvement of employees in the process of making of managerial decisions. One of these peculiarities is behavioral stereotypes in the process of making of managerial decisions. As business manager, who is the leader of a business system, is also responsible for making of managerial decisions, he forms traditions and customs of this process, organizing and implementing them. Another peculiarity is the norms of organization of the process of making of managerial decisions. The leader (business manager) establishes the standards of making of managerial organizations in a business system that regulate this process and participation of employees in it. Another peculiarity is connected to the values that determine criteria of organization of the process of making of managerial decisions. Depending on preferences and strategic priorities of development of business system, the leader sets the criteria of optimality of managerial decisions (efficiency, risk component) and effectiveness of this process (speed, resource intensity). Due to specified connection between organizational culture and specifics of the process of decision making in modern business systems, the role of leadership in this process deserves separate research. The working hypothesis of this chapter is that style of management is not the only main characteristic of leadership in modern business system in the aspect of decision making. The purpose of this chapter is to study the characteristics of leadership and to determine its role in the process of decision making in modern business systems, as well as to determine

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the possibilities of increase of effectiveness of this process through changing the characteristics of leadership.

12.2 Materials and Method The performed overview of the existing literature on scientific management showed that during study of leadership in the process of decision making in modern business systems the emphasis was made on style of management, according to which two types of leadership are distinguished: (1) authoritarian: style of leadership at which business manager makes managerial decisions independently, without participation of employees; (2) democratic: style of leadership at which the manager involves employees in the process of decision making, collecting feedback and organizing collective discussion of made managerial decisions. Also, certain researchers distinguish a liberal style of leadership, at which business manager is detached from the process of making of managerial decisions, passing it to internal outsource – collective discussion by the employees. However, this type of leadership is very rare. That is, the existing concept of scientific management acknowledges the influence of leadership on the process of decision making in modern business systems, but indirectly through formation and development of organizational culture. This opinion is presented in the works of Al-Hadi, Al-Yahyaee, Hussain, and Taylor (2018), Bae, Masud, and Kim (2018), Belouettar et al. (2018), Bobillo, Rodr´ıguez-Sanz, and Tejerina-Gaite (2018), Gait´an, Herrera-Echeverri, and Pablo (2018), Keay and Zhao (2018), Krivtsov (2014), Krivtsov (2015), Krivtsov, Polinova, Ivankina, Chubarkova, and Prokubovskaya (2016), Marques, de Sousa Ribeiro, and Barboza (2018), Popkova (2017), Popkova et al. (2017), Popkova, Ragulina, and Bogoviz (2019), Popkova, Gornostaeva, and Tregulova (2018), Singareddy, Chandrasekaran, Annamalai, and Ranjan (2018), Sukhodolov, Popkova, and Litvinova (2018, pp. 1–38), Thomsen (2016), and Veselovsky, Izmailova, Bogoviz, Lobova, and Alekseev (2017). This point of view formed due to the fact that the main object of research within scientific management is leadership, and its influence on the process of decision making is studied indirectly in connection to organizational culture. The performed target research of the influence of leadership on the process of decision making in modern business systems on the basis of the systemic approach allowed determining two additional characteristics of leadership, apart from management style. First characteristic: contradiction of leaders in a business system. Contrary to the existing opinion, according to which managerial decisions are made by the sole leader – business manager – we distinguish three leaders in modern business systems: (1) formal leaders: business managers, who are hired employees of the managerial staff of a business system;

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(2) informal leaders: hired employees of business entities of a business system, who are informal (unrecognized owners of business) leaders; (3) general leaders: owners of business, who are not employees of managerial staff or business entities. Simultaneous participation of two or all distinguished leaders in the process of making of managerial decisions in a business system causes contradiction of leaders due to complexity of distribution of authorities and responsibility, as well as possible difference of their interests. Second characteristics: authority of the formal leader (business manager) in a business system and his competence as to involvement of employees in the process of making of managerial decisions, which includes the following capabilities:

• • • • • •

involving employees into the process of making of managerial decisions in the business system; motivating and stimulating active participation of employees in the process of making of managerial decisions in the interests of business system; organizing highly effective collective promotion of alternative managerial decisions and their discussion by employees of the business system; explaining to employees their task and criteria of optimality of managerial decisions; leveling contradictions of interested parties that participate in making of managerial decisions; summing up the results of collective discussion and making independent optimal decision, being ready to bear responsibility for it.

Depending on combination of the above characteristics, we offer the following classification of leadership in modern business systems as to the criterion of decision making (Fig. 12.1). Fig. 12.1 shows the following four types of leadership in modern business systems as to the criterion of decision making: (1) independent decision making by the business manager: with low contradiction among leaders and low competence of business manager as to involvement of employees; (2) collective making of decisions by business managers: with high contradiction between leaders and low competence of business manager as to involvement of employees; (3) ineffective involvement of employees: with high contradiction between leaders and high competence of business manager as to involvement of employees; (4) highly effective involvement of employees: with low contradiction between leaders and high competence of business manager as to involvement of employees;

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Irina A. Morozova et al. high Competence and authority of formal leader (business manager) in business system as to involvement of employees into the process of making of managerial decisions Highly effective involvement of employees in the process of decision making

Ineffective involvement of employees in the process of decision making

low

high Contradiction between leaders in the business system Collective decision making by business managers

Independent decision making by the business manager low

Fig. 12.1. Classification of Leadership in Modern Business Systems as to Criterion of Decision Making. Source: Compiled by the authors.

12.3 Results Advantages and drawbacks of the distinguished types of leadership during decision making in modern business systems are given in Table 12.1. As is seen from Table 12.1, an advantage of independent decision making by the business manager is the quickest making of decisions, and the drawbacks are high

Table 12.1. The Role of Leadership During Decision Making in Modern Business Systems. Type of Leadership as to Decision Making

Independent decision making by business manager

Specifics of Making of Managerial Decisions Advantages

•

Quickest decision making

Drawbacks

• • •

High resource intensity of decision making Incomplete solution of problems and usage of capabilities Complexity of implementation of decisions due to protest of employees

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Table 12.1. (Continued) Type of Leadership as to Decision Making

Collective decision making by business managers

Specifics of Making of Managerial Decisions Advantages

•

Involvement of all interested participants of managerial staff in the process of decision making

Drawbacks

• • • •

Ineffective involvement of employees

•

Highly effective involvement of employees

• • •

Involvement of all interested participants of business system in the process of decision making.

•

Low resource intensity of decision making Complete solution of the problem and usage of capabilities Simplicity of implementation of decisions due to support for employees

•

•

Large duration of the process of decision making Higher resource intensity of decision making Incomplete solution of problems and usage of possibilities Complexity of implementation of decisions due to protest of employees Critical duration of decision making Relatively high resource intensity of decision making Large duration of the process of decision making

Source: Compiled by the authors.

resource intensity of this process, incomplete solution of problems and usage of capabilities, and complexity of implementation of decisions due to protest of employees. Collective decision making by business managers allows involving all interested participants of managerial staff in the process of decision making, but it envisages large duration of the process of decision making, higher resource intensity of decision making, incomplete solution of the problems and usage of capabilities, and complexity of implementation of decisions due to protest of employees.

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Ineffective involvement of employees ensures involvement of all interested participants of business system in the process of decision making but envisages large duration of the process of decision making and relatively high resource intensity of decision making. Highly effective involvement of employees envisages low resource intensity of decision making, the most complete solution of the problems and usage of capabilities, and simplicity of implementation of decisions due to support of employees, but also large duration of the process of decision making.

12.4 Conclusions Thus, the offered hypothesis is confirmed; it is determined that apart from management style, the most significant characteristics of leadership in a modern business system in the aspect of decision making are, firstly, contradiction between leaders in the business system and, secondly, authority of the formal leader (business manager) in the business system and his competence as to involvement of employees in the process of making of managerial decisions. The most preferable type of leadership in a modern business system according to the criterion of decision making is highly effective involvement of employees in the process of making of managerial decisions. Possibilities of increasing the effectiveness of the process of making of managerial decisions in a modern business system through changing the characteristics of leadership are related to transition to this type of leadership by:

• •

overcoming the contradiction between leaders in a business system and increasing competence of the formal leader (business manager) in a business system as to involvement of employees in the process of making of managerial decisions through his training.

Like organizational structure and organizational culture, leadership in business system determines only certain characteristics of the process of making of managerial decisions, and no type of leadership can guarantee optimal decisions. However, with highly effective involvement of employees in the process of making of managerial decisions, the probability of making of optimal decisions is the highest – so this type of leadership is the most perspective for modern business systems. Thus, internal managerial aspects of decision making in modern business systems, which cover organizational structure, organizational culture, and leadership, are studied in detail. Now it is expedient to study external aspects, among which an important role belongs to decision making in modern business systems by the principles of outsource.

References Al-Hadi, A., Al-Yahyaee, K. H., Hussain, S. M., & Taylor, G. (2018). Market risk disclosures, corporate governance structure and political connections: Evidence from GCC firms. Applied Economics Letters, 25(19), 1346–1350.

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Bae, S. M., Masud, M. A. K., & Kim, J. D. (2018). A cross-country investigation of corporate governance and corporate sustainability disclosure: A signaling theory perspective. Sustainability, 10(8), 11–26. Belouettar, S., Kavka, C., Patzak, B., Koelman, H., Rauchs, G., Giunta, G., … Daouadji, A. (2018). Integration of material and process modelling in a business decision support system: Case of COMPOSELECTOR H2020 project. Composite Structures, 204, 778–790. Bobillo, A. M., Rodr´ıguez-Sanz, J. A., & Tejerina-Gaite, F. (2018). Corporate governance drivers of firm innovation capacity. Review of International Economics, 26(3), 721–741. Gait´an, S., Herrera-Echeverri, H., & Pablo, E. (2018). How corporate governance affects productivity in civil-law business environments: Evidence from Latin America. Global Finance Journal, 37, 173–185. Keay, A., & Zhao, J. (2018). Transforming corporate governance in Chinese corporations: A journey, not a destination. Northwestern Journal of International Law and Business, 38(2), 187–232. Krivtsov, A. I. (2014). Fair value assessment of investment capital when ensuring coherence of managerial decision–making processes. Actual Problems of Economics, 161(11), 307–313. Krivtsov, A. I. (2015). Business development strategy and business processes diversification. Actual Problems of Economics, 165(3), 17–24. Krivtsov, A. I., Polinova, L. V., Ivankina, M. S., Chubarkova, E. V., & Prokubovskaya, A. O. (2016). Corporate information management system and its influence on increase of changes productivity. International Journal of Environmental & Science Education, 11(15), 7627–7635. Marques, T. A., de Sousa Ribeiro, K. C., & Barboza, F. (2018). Corporate governance and debt securities issued in Brazil and India: A multi-case study. Research in International Business and Finance, 45, 257–270. Popkova, E., Gornostaeva, Z., & Tregulova, N. (2018). Role of innovations in provision of competitiveness and innovational development of economy and overcoming of “underdevelopment whirlpools” in Russia and countries of Eastern Europe. Journal of Entrepreneurship in Emerging Economies, 10(3), 511–523. doi: 10.1108/JEEE-12-2017-0100. Popkova, E. G. (Vol. Ed. & Series Ed.). (2017). Economic and legal foundations of modern Russian society: A new institutional theory. In Advances in research on Russian business and management. Charlotte, NC: Information Age Publishing. Popkova, E. G., Ragulina, Y. V., & Bogoviz, A. V. (2019). Industry 4.0: Industrial revolution of the 21st century. In J. Kacprzyk (Ed.), Studies in systems, decision and control. Berlin: Springer. Popkova, E. G., Tyurina, Y. G., Sozinova, A. A., Bychkova, L. V., Zemskova, O. M., Serebryakova, M. F., & Lazareva, N. V. (2017). Clustering as a growth point of modern Russian business. Contributions to Economics, 97–103, 55–63. Singareddy, R. R. R., Chandrasekaran, S., Annamalai, B., & Ranjan, P. (2018). Corporate governance data of 6 Asian economies (2010–2017). Data in Brief, 20(1), 53–56. Sukhodolov, A. P., Popkova, E. G., & Litvinova, T. N. (2018). Models of modern information economy: Conceptual contradictions and practical examples. Bingley: Emerald Publishing.

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Thomsen, S. (2016). The nordic corporate governance model. Management and Organization Review, 12(1), 189–204. Veselovsky, M. Y., Izmailova, M. A., Bogoviz, A. V., Lobova, S. V., & Alekseev, A. N. (2017). Business environment in Russia and its stimulating influence on innovation activity of domestic companies. Journal of Applied Economic Sciences, 12(7), 1967–1981.

Chapter 13

Decision Making in Modern Business Systems by the Principles of Outsourcing Aleksei V. Bogoviz, Andrei V. Berezhnoi, Igor S. Mezhov, Olga V. Titova and Olga G. Kryukova

13.1 Introduction At present, the innovative management tool of outsourcing is popular in business systems. This is caused by the fact that a characteristic of modern business systems at the current stage of their evolution is openness. Outsourcing is a prospective means of usage of possibilities of business environment in the interests of business systems. Due to outsourcing, modern business systems can refuse from independent execution of unprofitable business processes and maximize their effectiveness and competitiveness. Another characteristic of modern business systems at the current stage of their evolution is growing demand for innovations. Manifestation of flexibility in the necessary volume is not always accessible for business systems due to deficit of resources, so a lot of innovational business processes are passed to outsourcing. In addition to this, business systems may set a demand for innovational technologies, which are inaccessible to them due to necessity for additional training for employees and deficit of resources. Outsourcing allows obtaining temporary access to new technologies. Characteristics of modern business systems at the current stages of their evolution also include domination of business systems with organizational structure of low complexity. Outsourcing allows starting business with a minimum set of resources, thus reducing entrance barriers for new business systems into the business environment. After strengthening of positions on the business environment, certain business systems refuse outsourcing and develop their own necessary business processes and others continue using outsourcing, building competitive advantages on its basis. Despite high intensity of application of outsourcing by modern business systems, directions of its application are limited by production, distributive, and organizational business processes. While managerial processes, including the process of decision making, are considered a prerogative of business systems and

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are not subject to outsourcing. In this chapter, the hypothesis that outsourcing is a prospective tool of making of managerial decisions in modern business systems is offered. The purpose of the work is to determine the possibilities and consequences of decision making in modern business systems by the principles of outsourcing.

13.2 Materials and Method As a result of the overview of scientific economic literature, it is determined that the existing publications study the essence, peculiarities, and advantages of practical application of outsourcing in modern business systems within the following business processes:

• • •

production: in the conditions of digital economy, electronic business systems are developing, among which the possibility to pass production processes to outsourcing is very popular. Thus, it is possible to develop trading business systems; distribution: transport and logistical business processes of modern business systems are often passed to outsourcing in all spheres of national economy. Due to this, modern business systems save on expenditures for own transport and logistics business entities and avoid transport and logistics risks; organization: certain organizational business processes are also passed to outsourcing by modern business systems. For example, business systems with the organizational structure of low complexity prefer to pass independent financial and tax accounting to outsourcing. Also, there are examples of modern business systems that use outsourcing for artificial reduction of staff. Due to outsourcing, employees of business system perform their function by the conditions of outsourcing, which allows reducing taxation base of business systems, decreasing the wages fund.

These issues are studied in detail in publications Al-Hadi, Al-Yahyaee, Hussain, and Taylor (2018), Bae, Masud, and Kim (2018), Belouettar et al. (2018), Bobillo, Rodr´ıguez-Sanz, and Tejerina-Gaite (2018), Gait´an, Herrera-Echeverri, and Pablo (2018), Keay and Zhao (2018), Krivtsov (2014), Krivtsov (2015), Krivtsov, Polinova, Ivankina, Chubarkova, and Prokubovskaya (2016), Marques, de Sousa Ribeiro, and Barboza (2018), Popkova (2017), Popkova et al. (2017), Popkova, Ragulina, and Bogoviz (2019), Popkova, Gornostaeva, and Tregulova (2018), Singareddy, Chandrasekaran, Annamalai, and Ranjan (2018), Sukhodolov, Popkova, and Litvinova (2018, pp. 1–38), Thomsen (2016), Veselovsky, Izmailova, Bogoviz, Lobova, and Alekseev (2017), Bogoviz et al. (2019a, b), and Bogoviz et al. (2018). At the same time, managerial business processes are traditionally considered to be unfit for outsourcing due to their high complexity and social nature. During studying the perspectives of decision making in modern business systems by the principles of outsourcing, the method of logical analysis (analysis of causal connections), the method of structural and functional analysis, and the method of formalization (for table and graphic presentation of authors’ conclusions) are used here.

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13.3 Results Perspective directions, advantages, and drawbacks of application of outsourcing for decision making in modern business systems at all stages of this process are determined (Table 13.1). As is seen from Table 13.1, advantages of application of outsourcing for decision making in modern business systems are attraction of additional resources, information and consultation support from professionals, preservation of optimal organizational structure, and possibility for automatization of the process of making of managerial decisions with low expenditures for resources business systems. At the first stage of the process of decision making – determining the needs of business systems for making of managerial decisions – the perspective directions of application of outsourcing are as follows:

• •

conducting marketing research for determining external problems and possibilities of business system, at which a drawback of outsourcing is limitation of marketing communications of outsourcing system as compared to own communications of the business systems; developing internal feedback and processing its results; here a drawback of outsourcing is temporary character of feedback and limitation of obtained positive effect as compared to stationary feedback, established by the business systems.

At the second stage of the process of decision making – determining the possibilities of business systems in making of managerial decisions – the perspective directions of application of outsourcing are as follows:

• • •

access to models that are successfully used by other business systems – a drawback is the necessity for adapting the models to peculiarities of this business system as compared to its own models that were successfully used in the past; attracting additional human resources for a more efficient “brain storm” – a drawback in outsourcing is complexity of organizing tem work of own business managers and invited experts; access to intellectual technologies of decision support – a drawback is long setting of technologies (transfer of information into digital form, testing programs, correction of methodologies, etc.);

At the third stage of the process of decision making – comparing the alternative variants – the perspective directions of application of outsourcing are as follows:

•

attracting additional human resources for comparing alternatives – a drawback is complexity of organization of teamwork of own business managers and invited experts;

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Table 13.1. Perspective Directions, Advantages, and Drawbacks of Application of Outsourcing for Decision Making in Modern Business Systems at Various Stages of This Process.

3: Comparing the alternatives

2: Determining the possibilities

1: Determining the needs

Stage Directions of Application of Outsourcing for Decision Making in Modern Business Systems

Advantages of Application of Outsourcing

Drawbacks of Application of Outsourcing

Attraction of additional resources, information and consultation support from professionals, preserving the optima; organizational structure, possibility for automatization of the process of Access to models that making of are successfully used by managerial decisions other business systems with low Attraction of additional expenditures for resources of business human resources for systems more efficient “brain storm” Access to intellectual technologies of decision support

Limitation of marketing communications

Attraction of additional human resources for comparing the alternatives Access to intellectual technologies for decision support for comparing alternatives

Complexity of organizing team work

Conduct of marketing research for determining external problems and possibilities of business systems Developing internal feedback and processing its results

Temporary character of feedback Necessity for adaptation of models Complexity of organizing team work Long setting of technologies

Long setting of technologies

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Table 13.1. (Continued)

4: Implementation; reflection

Stage Directions of Application of Outsourcing for Decision Making in Modern Business Systems

Implementing the made inaccessible optimal decisions Attraction of additional human resources for reflection Access to intellectual technologies for reflection

Advantages of Application of Outsourcing

Drawbacks of Application of Outsourcing

Complexity of control Complexity of organizing team work Long setting of technologies

Source: Compiled by the authors.

•

access to intellectual technologies of decision support for comparing alternatives – a drawback is long setting of technologies (transfer of information into digital form, testing programs, correction of methods, etc.).

At the fourth stage of the process of decision making – implementing the decisions and reflection – the perspective directions of application of outsourcing are as follows:

• • •

implementing the made inaccessible optimal decisions – a drawback is complexity of control over implementation of the decisions; attraction of additional human resources for reflection – a drawback is complexity of organization of team work of own managers and invited experts; access to intellectual technologies for reflection – a drawback is transition of information into digital form, testing programs, correction of methodologies, etc.

The possible variants of decision making in a modern business system by the principles of outsourcing and their consequences are shown in Fig. 13.1. As is seen from Fig. 13.1, the variants are classified according to periodic character of usage of outsourcing during making of managerial decisions and as to scale of managerial decisions that are given to outsourcing:

•

outsourcing as information and consultation support for decisions: rare usage of outsourcing for certain managerial decisions;

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Scale of managerial decisions that are passed to outsourcing Sets of decisions within business processes

Separate decisions

Usage of outsourcing for business system’s overcoming the crisis

Outsourcing – consultation support Rare usage

Role of outsourcing in the process of decision making Loss of independent of business system, path to its reorganization

Using outsourcing for optimization of certain business processes

Frequent usage

Periodic character of usage of outsourcing during making of managerial decisions

Fig. 13.1. Possible Variants of Decision Making in a Modern Business System by the Principles of Outsourcing and Their Consequences. Source: Compiled by the authors.

• • •

usage of outsourcing for business system’s overcoming the crisis: rare usage of outsourcing for sets of decisions within business processes; usage of outsourcing for optimization of certain business processes: systemic usage of outsourcing for certain decisions; loss of independence of business systems, path to its reorganization: systemic usage of outsourcing for sets of decisions within business processes.

With growth of the scale and frequency, the role of outsourcing in the process of decision making in business system changes: from peripheral to central.

13.4 Conclusions As a result of the research, it is possible to conclude that the offered hypothesis is proved: it is shown that outsourcing is really a perspective tool of making of managerial decisions in modern business systems. Various directions of usage of this tool are accessible at each stage of the process of making of managerial decisions in a modern business system. Advantages of making of managerial decisions by the principles of outsourcing are attraction of additional resources, access to possibilities of automatization, and low expenditures, and drawbacks are brought down to complexity of organization of this process and temporary character of obtained advantages. Too active usage of outsourcing and transition of most managerial decisions to it may lead to loss of independence of business systems and increase of risk of its reorganization. That’s why the principles of outsourcing are recommended for making of certain managerial decisions by business systems in the period of crisis and by newly formed business systems and those that experience deficit of resources.

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References Al-Hadi, A., Al-Yahyaee, K. H., Hussain, S. M., & Taylor, G. (2018). Market risk disclosures, corporate governance structure and political connections: Evidence from GCC firms. Applied Economics Letters, 25(19), 1346–1350. Bae, S. M., Masud, M. A. K., & Kim, J. D. (2018). A cross-country investigation of corporate governance and corporate sustainability disclosure: A signaling theory perspective. Sustainability, 10(8), 11–26. Belouettar, S., Kavka, C., Patzak, B., Koelman, H., Rauchs, G., Giunta, G., … Daouadji, A. (2018). Integration of material and process modelling in a business decision support system: Case of COMPOSELECTOR H2020 project. Composite Structures, 204, 778–790. Bobillo, A. M., Rodr´ıguez-Sanz, J. A., & Tejerina-Gaite, F. (2018). Corporate governance drivers of firm innovation capacity. Review of International Economics, 26(3), 721–741. Bogoviz, A. V., Lobova, S. V., Alekseev, A. N., Yankovskaya, V. V., & Shabarchina, I. V. (2019). Transformation of the Russian labor market as a result of development of internet technologies. Advances in Intelligent Systems and Computing, 726, 972–979. Bogoviz, A. V., Ragulina, Y. V., Lobova, S. V., Chernitsova, K. A., & Shkodinsky, S. V. (2019). Internet tools for development of knowledge economy: Essence, tendencies, and perspectives. Advances in Intelligent Systems and Computing, 726, 39–45. Bogoviz, A. V., Ragulina, Y. V., & Sirotkina, N. V. (2018). Systemic contradictions in development of modern Russia’s industry in the conditions of establishment of knowledge economy. Advances in Intelligent Systems and Computing, 622, 597–602. Gait´an, S., Herrera-Echeverri, H., & Pablo, E. (2018). How corporate governance affects productivity in civil-law business environments: Evidence from Latin America. Global Finance Journal, 37, 173–185. Keay, A., & Zhao, J. (2018). Transforming corporate governance in Chinese corporations: A journey, not a destination. Northwestern Journal of International Law and Business, 38(2), 187–232. Krivtsov, A. I. (2014). Fair value assessment of investment capital when ensuring coherence of managerial decision–making processes. Actual Problems of Economics, 161(11), 307–313. Krivtsov, A. I. (2015). Business development strategy and business processes diversification. Actual Problems of Economics, 165(3), 17–24. Krivtsov, A. I., Polinova, L. V., Ivankina, M. S., Chubarkova, E. V., & Prokubovskaya, A. O. (2016). Corporate information management system and its influence on increase of changes productivity. International Journal of Environmental & Science Education, 11(15), 7627–7635. Marques, T. A., de Sousa Ribeiro, K. C., & Barboza, F. (2018). Corporate governance and debt securities issued in Brazil and India: A multi-case study. Research in International Business and Finance, 45, 257–270. Popkova, E., Gornostaeva, Z., & Tregulova, N. (2018). Role of innovations in provision of competitiveness and innovational development of economy and overcoming of “underdevelopment whirlpools” in Russia and countries of Eastern

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Europe. Journal of Entrepreneurship in Emerging Economies, 10(3), 511–523. doi: 10.1108/JEEE-12-2017-0100. Popkova, E. G. (Vol. Ed. & Series Ed.). (2017). Economic and legal foundations of modern Russian society: A new institutional theory. In Advances in research on Russian business and management. Charlotte, NC: Information Age Publishing. Popkova, E. G., Ragulina, Y. V., & Bogoviz, A. V. (2019). Industry 4.0: Industrial revolution of the 21st century. In J. Kacprzyk (Ed.), Studies in systems, decision and control. Berlin: Springer. Popkova, E. G., Tyurina, Y. G., Sozinova, A. A., Bychkova, L. V., Zemskova, O. M., Serebryakova, M. F., & Lazareva, N. V. (2017). Clustering as a growth point of modern Russian business. Contributions to Economics, 97–103, 55–63. Singareddy, R. R. R., Chandrasekaran, S., Annamalai, B., & Ranjan, P. (2018). Corporate governance data of 6 Asian economies (2010–2017). Data in Brief, 20(1), 53–56. Sukhodolov, A. P., Popkova, E. G., & Litvinova, T. N. (2018). Models of modern information economy: Conceptual contradictions and practical examples. Bingley: Emerald Publishing. Thomsen, S. (2016). The nordic corporate governance model. Management and Organization Review, 12(1), 189–204. Veselovsky, M. Y., Izmailova, M. A., Bogoviz, A. V., Lobova, S. V., & Alekseev, A. N. (2017). Business environment in Russia and its stimulating influence on innovation activity of domestic companies. Journal of Applied Economic Sciences, 12(7), 1967–1981.

Chapter 14

Delegating Authorities in the Process of Decision Making in Modern Business Systems: The Traditional and New Concepts Valentina N. Parakhina, Olga A. Boris, Galina S. Shelkoplyasova and Gelani I. Khanaliev 14.1 Introduction Information on peculiarities of decision making in modern business systems, presented in previous chapters, puts a question of necessity for delegating authorities, which is a target setting for increasing the quality and effectiveness of functioning of business systems. Without delegating authorities for recurrent, specific, quick, private, and providing decisions, a modern business system has limited perspectives due to top management being loaded with current affairs. Even with framework recommendations, delegating authorities is a complex, contradictory task – as it requires consideration of peculiarities of functioning and development of business systems, current situation in its surroundings, and personnel’s attitude toward expansion and acceptance and implementation of authorities and responsibility. Thus, the process of delegating authorities could be too complex and contradictory, and decisions may lead to opposition from personnel, remaining unrealized. Apart from that, without real idea of the possibilities of delegation, its conditions, criteria, and detailed essential settings, modern business systems may – instead of timely making of strategic decisions – face constant “band-aid approach” due to unpredicted circumstances. Besides, a new model of delegation should be adopted and developed to the level of managerial “business process” – it should take into account the opinion of employee, his competences, motivation, and strategic orientation. Thus, between the old concept of delegation, which is very popular today, and its new model, which does not have contradictions during implementation, the time difference is not large and obvious during development of delegation as a constantly implemented business process. The purpose of the chapter is to develop the conditions, criteria, and principles of delegation as to its new concept. Specifics of Decision Making in Modern Business Systems, 149–159 Copyright © 2019 by Emerald Publishing Limited All rights of reproduction in any form reserved doi:10.1108/978-1-78756-691-020191015

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14.2 Materials and Method The essence of delegation as organizational function and a tool of management of socioeconomic systems are reflected in Henderson and Nutt (1980), Vickers (1985), Castelfranchi and Falcone (1998), Conger and Kanungo (1988), Johnston (2000), Colombo and Delmastro (2004), and Bezrukova et al. (2017). The concepts of delegating authorities, financial and general factors and approaches, are studied in the works Bhardwaj (2001), Lambertini and Trombetta (2002), Corts and Neher (2003), Harris and Raviv (2005), Graham, Harvey, and Puri (2015), and Kostikova, Tereliansky, Shuvaev, Parakhina, and Timoshenko (2016). The processes of delegating authorities have specific characteristics and problems in the strategic aspect, which is shown in the works Fershtman, Judd, and Kalai (1991), Goering (1996), Ishibashi (2001), Kockesen and Ok (2004), and Davenport and Leitch (2005). Peculiarities of a new model of delegation with participation of personnel in the process (participating management) are studied in the works Singh (1986), Johnston (2000), Devaro and Kurtulus (2010), Lee and Bass (2014), and Parakhina, Ustaev, Boris, Maximenko, and Belousov (2017). The performed content analysis of the existing scientific literature showed that the offered approaches to delegating authorities do not provide a clear idea of a difference between conditions, criteria, and principles of its implementation as to the old and new concept. This makes certain principles and criteria obscure, and delegating becomes optional – and sometimes it even hinders the routine work of management, which requires development of comparative content of the old and new concepts of delegation. Methodology of the chapter is based on the method of comparative analysis and the method of studying causal connections, which allow determining the necessity and conditions of delegation and difference between principles and criteria of successfulness and assessing and comparing advantages of delegation in the process of decision making in modern business systems.

14.3 Results Delegation is transfer of tasks and authorities1 to a person who accepts responsibility for their execution. Responsibility is an obligation to perform the existing tasks and be responsible for their satisfactory solution. The manager has to pass authorities and responsibility (both), and the subordinate has to accept the authorities and responsibility (both). The manager strives to pass responsibility, and the subordinate strives to accept authorities. Thus, a conflict of interests appears. In the process of delegation, it is important to reduce the risk of emergence of conflict or solve it with a positive result – that is, pass authorities and responsibility, thus receiving a subordinate who’s motivated for solving the set task. 1

Authorities are a limited right to use resources of organization and use efforts of certain employees for execution of certain tasks.

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In the process of decision making in modern business systems, both known concepts of delegation could be used: classical (authorities are considered to be delegated when manager has passed them to subordinate) and new, modern (authorities are considered to be delegated after a subordinate has accepted them). Let us view various situations in which it is expedient to pass authorities for decision making to a subordinate (Table 14.1).

Table 14.1. Situations of Delegating Authorities for Decision Making in Modern Business Systems and Their Ratio to Concepts. Acceptable Concept Situation

Subordinate knows the problem and can do the job better than the manager. The main qualification of the manager, in which he had to be better than any subordinate, consists in the skill to mobilize and coordinate, as well as apply subordinates’ entire capabilities, skills, and knowledge. Delegating to subordinates the right to make decisions in the sphere where they have competences, manager gives them a chance to show their capabilities. This allows improving the quality of decisions made. It is achieved due to the fact that decisions are made at lower levels, at which information is not yet distorted – as well as experience and skill of narrow specialists. Current problems and tasks overload the manager. Delegation is a means of fighting everyday problems; it helps freeing time and strength for important and perspective tasks. With clever behavior of the manager, delegation is treated by subordinates as a special trust. This is one of the types of moral bonuses. In this case, the “effect of boss’s trust” is at work. It is necessary to form personnel reserve (deputy manager) and delegate a limited circle of tasks. Time relations of subordination allow determining the most efficient groups and relations between the employees and observing the informal structure.

Old

New

1

1

12

1

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As comparison of situations of delegating authorities shows (Table 14.1), the option of “soft” delegation of authorities (new concept) is more acceptable. Analysis of the types of decisions shows that most of them do not envisage usage of participating management or full transfer of authorities for decision making to groups of performers (Table 14.2). The main principles: everything that could be decided by employees should be delegated, but there has to be a system of result control. Following this principle, manager can free 15–20% of his time. Survey of managers of 20 Russian companies showed that management delegates 35–40% of decisions, and this number could be raised (according to them) to 55–60%. As to the forms of decisions, this ratio has the following form (Fig. 14.1). According to the existing approaches to delegating authorities, 10 principles of successful delegation are formulated, including the following: (1) common, peculiar for any concept of delegation: determination of goal, certainty, parity of rights and responsibility, adequate support, and motivation of effective decision; (2) specifics, peculiar for the new concept: participation, finite character, structural limitation, complex character of tasks, succession, and vision of perspective.

Table 14.2. Types of Decisions in Business Systems and Inclination to Their Delegation. Delegate Types of Decisions

1. Decisions of routine and recurrent character 2. Decisions in the sphere of specialized activities, in which influence of performer’s qualification is significant 3. Solving private issues 4. Preliminary work for decision making 5. Urgent nonstandard decisions 6. Regular usual decisions 7. Final formulation of goals 8. Strategic, very important decisions 9. Motivational decisions 10. Innovational, high-risk decisions 11. Confidential decisions

Yes

No

1 1

1 1

1 1

1 1 1 1 1 1

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2 - delegated

- could be delegated

- total

Fig. 14.1. Share of Decisions According to Their Types (According to Table 14.2), Which Are Delegated and Could Be Delegated and Total, in % of the Total Number of Decisions. Common principles (for both concepts): (1) Determination of goal – clear determination of results that are expected from the subordinate, provided with authorities for decision making. Special attention to responsibility for results. The same task is not allowed to be given to two employees without their awareness. (2) Certainty – establishment of specific deadlines and graph of accountability, as well as frameworks in which employee can show initiative and its level (0 – waiting for orders; 1 – specifying what to do; 2 – starting the job after receipt of recommendations; 3 – showing initiative with instant reports on the results; 4 – independent decisions, reporting on results in the planned order); it is not recommended to interfere with the work process without solid reasons. (3) Parity of rights and responsibility – well-known and common principle of delegating authorities. Transfer of authorities and competence together with the task (up to right of signature, if necessary). (4) Adequate support (consulting, organizational, and information) during decision making. The manager has to teach subordinates to get necessary resources, as one manager cannot supply them with everything necessary. Subordinate has to be sure that in case of difficulties or problems he can always seek counsel from the manager. (5) Motivation for effective solution to the set task. Subordinates have to realize consequences of the set tasks. They are better at understanding the set task and showing initiative if they know the bonus or perspectives that wait for them in case of success – how this will influence final consumer or organization’s mission. Delegation without motivation and stimulation may lead to aggravation of efficiency of the organization’s activities. Employees could be motivated directly in the process of delegation.

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Principles of the new concept of delegation are connected to interaction between parties in the process of delegation. The most significant ones are as follows: (1) Participation – employee’s participation in consideration of the issue on delegating authorities. It supposes accessibility of manager, whom it is possible to consult, and stimulates the strengthening of bilateral communication and climate of trust. Delegation is based on adequate evaluation of capabilities and possibilities of employees. At that, transfer of authorities should be continued to the lowest organizational level at which the task is performed. The people who directly participate in implementation of a decision are attracted to its making. (2) Finite character – no return of delegated authorities. Attempts of their return should be checked openly and fairly. One of the methods that allow avoiding return of authorities consists in the following: firstly, complications of this issue were discussed in the process of transfer of authorities; secondly, employees have to implement their own decisions. It is necessary to help evaluating the offered options of its solution and their acceptability. At that, during the process of delegation, it is necessary to determine the terms of delegation: is it a one-time action or constant delegation. (3) Succession of delegation means that manager delegates authorities constantly – not only when he’s overloaded. Both pleasant and unpleasant tasks are delegated. If the task is complex and new, it is necessary to use a five-stage method. The stages of this method have a certain psychological essence as follows:

• • • •

preparing the employee (motivation); explaining the task (detailed instruction); showing how the work is done (providing a model); trusting employee with the job under observation and correction of his actions; • transferring the whole to the employee, retaining control only. (4) Complexity of task – the task should be delegated in full, not as partial isolated tasks. (5) Seeing the perspective – while delegating the authorities, providing the subordinate with a possibility to see his future, career growth, and further professional study for better execution of given tasks. The possibility of delegation of certain decisions to the subordinate could be assessed stage-by-stage, by giving tasks on the following: a) preliminary formulation of goals, plans, programs, and projects, for which the manager makes decision; b) participation on behalf of the manager in meetings where the developed projects and offers are given; c) convincing employees in correctness of decisions, etc.

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The procedure of delegation should be developed and mastered by the manager as a basic managerial business process. Design of the business process for delegating authorities should be started from formulation of its stages: (1) before managerial communication, (2) managerial communication, (3) execution of work and control, and (4) evaluation of results and motivation. Each stage has its peculiarities that determine its contents. Thus, at the first stage, before communication with subordinate on the issue of delegation, it is necessary to answer the following questions: What? (What tasks, rights, and responsibilities are delegated, and what should be the final result?) Who? (Who’s the most appropriate candidate for delegation?) Why? (Why should these tasks and authorities be delegated?) How? (How could the problem be solved? What methods and means should be applied? Which normative documents should be used? Who is to be informed on difficulties and results? How is control to be conducted?) When? (When should the work be started and finished? When should the manager be informed on the decision? When should the manager control the course of the task execution?) At the second stage, it is necessary to show significance of delegated authorities, the subordinate’s possibility to implement them, offer any help for the candidate, and try to solve the emerging problems. At the stage of implementation, it is not recommended to interfere with the delegate’s business until he asks himself. The result, if necessary, should be checked. At the fourth stage, it is necessary to evaluate results of work, support good results, use constructive criticism, and, if necessary, delegate authorities until competences and capabilities of the worker are used in full. A lot of managers have internal psychological barriers that do not allow them delegating anything. They are described in the work Parakhina et al. (2012). Besides, according to the survey of managers of more than 20 companies, the most significant barriers of delegation were determined. After ranking the obtained results, the following list of typical barriers from both sides was created (Fig. 14.2). They could be overcome with certain measures, which include the following:

• • • • •

improvement of briefing of the subordinate; clearer determination of responsibilities and work obligations; adequate evaluation of capabilities and competences of subordinate; orientation at business and results from both sides; manager’s developing the controlling, motivating, and partially regulating and integrating function.

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PROCESS OF DELEGATION OF AUTHORITIES

Adequate assessment of capabilities and competences of subordinate

Overload

Incapability to manage, convince, and explain

Improvement of briefing of subordinate

Fear of mistakes and criticism

Mistrust to subordinates

Orientation at business and results from both sides

Reluctance to accept responsibility

Development of functions: controlling, motivating, regulating, and integrating

Absence of motivation

Reluctance to delegate

Incapability to motivate

Fear of loss Barriers from manager

Fig. 14.2.

Clearer definitions of responsibilities and work obligations

Absence of resources

Stimulates delegation of authorities

Barriers from subordinate

Barriers in Delegating Authorities and Paths of Overcoming Them.

Barriers from the manager include the following:

• • • • •

Mistrust to subordinates: “It’s difficult for me to trust the job to others; I’m not sure in competences and motivation of my subordinates.” Incapability to manage: “I have no time for spending it for explanations and then for mistakes.” Incapability to motivate: “I feel discomfort when loading subordinates with new additional work.” Fear of losing power: “I’m afraid that others can do the job better than me and I’m going to lose my importance.” Reluctance to delegate: “I do not want to give interesting tasks to subordinates.”

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Subordinates mostly avoid responsibility or even offer countermeasures for limiting it. There are several reasons as follows:

• • • • • •

Reluctance to take responsibility: subordinate thinks that it’s better to ask the manager than to solve the problem. Fear of mistakes and criticism: subordinate is afraid of criticism for performed mistakes, as larger responsibility increases the possibility of making a mistake. Absence of resources: subordinate does not have information and resources that are necessary for successful execution of the task. Overload: the volume of subordinate’s work is sufficient and he cannot do more. Lack of confidence: subordinate is not qualified enough and there’s no confidence in execution of the given task. Lack of motivation: subordinate is not offered additional stimuli due to increase of responsibility.

14.4 Conclusions Delegation is not a method of avoiding responsibility but the form of division of managerial labor, which allows increasing its effectiveness. Delegation simplifies manager’s work but does not free him of the responsibility to make final decisions. This responsibility is what makes an employee a manager. Delegation could be made more effective if the work of manager is a wellbalanced business process, which follows 11 basic principles:

• •

general: determination of goal, certainty, parity of rights and responsibility, adequate support, and motivation of effective decision; specific: coparticipation, “finite” character, structural limitation, complexity of tasks, succession, and vision of perspective.

Knowledge of barriers for delegation and ways of overcoming them allows developing own style of delegation and finding the ways of improving it. Thus, delegating authorities is a necessary process of freeing the manager of routing and standard decisions and works for their preparation for the sake of making of substantiated, timely, and effective strategic and innovational decisions for development of business systems.

References Bezrukova, T. L., Stepanova, Y. N., Boris, O. A., Savtsova, A. V., Zulpuyev, R. A., & Bezrukov, B. A. (2017). Conceptual features of management tools of enterprise structures under the conditions of globalization of the world market. In E. Popkova, V. Sukhova, A. Rogachev, Y. Tyurina, O. Boris, & V. Parakhina (Eds.), Integration and clustering for sustainable economic growth (pp. 423–432). Cham: Springer International Publishing AG.

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Bhardwaj, P. (2001). Delegating pricing decisions. Marketing Science, 20, 143–169. Castelfranchi, C., & Falcone, R. (1998). Towards a theory of delegation for agentbased systems. Robotics and Autonomous Systems, 24, 141–157. Colombo, M. G., & Delmastro, M. (2004). Delegation of authority in business organizations: An empirical test. The Journal of Industrial Economics, 52(1), 53–80. Conger, J. A., & Kanungo, R. N. (1988). The empowerment process: Integrating theory and practice. Academy of Management Review, 13(3), 471–482. Corts, K., & Neher, D. (2003). Credible delegation. European Economic Review, 47, 395–407. Davenport, S., & Leitch, S. (2005). Circuits of power in practice: Strategic ambiguity as delegation of authority. Organization Studies, 26(11), 1603–1623. Devaro, J., & Kurtulus, F. A. (2010). An empirical analysis of risk, incentives and the delegation of worker authority. Industrial and Labor Relations Review, 63(4), 641–661. Fershtman, C., Judd, K., & Kalai, E. (1991). Observable contracts: Strategic delegation and cooperation. International Economic Review, 32, 551–559. Goering, G. (1996). Managerial style and the strategic choice of executive incentives. Managerial and Decision Economics, 17, 71–82. Graham, J. R., Harvey, C. R., & Puri, M. (2015). Capital allocation and delegation of decision-making authority within firms. Journal of Financial Economics, 115(3), 449–470. Harris, M., & Raviv, A. (2005). Allocation of decision-making authority. Review of Finance, 9(3), 353–383. Henderson, J. C., & Nutt, P. C. (1980). The influence of decision style on decision making behavior. Management Science, 26(4), 371–386. Ishibashi, K. (2001). Strategic delegation under quality competition. Journal of Economics, 73, 25–56. Johnston, M. A. (2000). Delegation and organizational structure in small businesses. Influences of manager’s attachment patterns. Group & Organization Management, 25(1), 4–21. Kockesen, L., & Ok, E. (2004). Strategic delegation by unobservable incentive contracts. The Review of Economic Studies, 71, 397–424. Kostikova, A. V., Tereliansky, P. V., Shuvaev, A. V., Parakhina, V. N., & Timoshenko, P. N. (2016). Expert fuzzy modeling of dynamic properties of complex systems. ARPN Journal of Engineering and Applied Sciences, 11(17), 10222–10230. Lambertini, L., & Trombetta, M. (2002). Delegation and firms’ ability to collude. Journal of Economic Behavior & Organization, 47, 359–373. Lee, D. W., & Bass, E. J. (2014). Delegation for authority and autonomy: An assignment and coordination model. In 2014 IEEE international conference on systems, man, and cybernetics (pp. 1744–1751). San Diego, CA: IEEE. Parakhina, V. N., Perov, V. I., Bondarenko, Y. R., Boris, O. A., Ganshina, L. N., Kalyugina, S. N., … Shelkoplyasova, G. S. (2012). Samomenedzhment. [Self-management.]. Moscow: Izdatelstvo Moskovskogo universiteta. (in Russian). Parakhina, V. N., Ustaev, R. M., Boris, O. A., Maximenko, L. S., & Belousov, I. N. (2017). Study of tendencies of formation and evaluation of HR innovational

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potential of the regions of the Russian Federation. In E. Popkova (Ed.), Overcoming uncertainty of institutional environment as a tool of global crisis management (pp. 295–301). Cham: Springer International Publishing AG. Singh, J. V. (1986). Performance, slack, and risk taking in organizational decision making. Academy of Management Journal, 29(3), 562–585. Vickers, J. (1985). Delegation and the theory of the firm. The Economic Journal, 95, 138–147.

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Chapter 15

Regularities and Tendencies of Decision Making in Business Systems by the Example of Modern Russia Margarita V. Melnik, Tatiana V. Skryl, Elena A. Gureeva, Irina F. Vetrova and Aleksandr V. Vetrov 15.1 Introduction With evolution of modern business systems, changes in the process of making of managerial decisions take place. The newest stage of evolution of a modern business system (“technologization”) has just begun. Thus, modernization of business environment and adaptation of the process of making of managerial decisions in modern business systems to requirements of modern times and new possibilities take place. Studying regularities and tendencies of decision making in business systems is a current task of modern economic science and practice due to the following reasons. Firstly, knowledge of these regularities and tendencies is necessary for targeting highly effective state regulation of the process of development of modern business systems for accelerating the rate of economic growth. The task of the state is to determine, popularize, and stimulate more active usage of leading practices of making of managerial decisions in modern business systems. Secondly, the society – primarily consumers – has to be aware of peculiarities of making of managerial decisions for successful influence on the process of development of modern business systems in the interests. Thirdly, modern business systems are interested in using the leading practices of making of managerial decisions for optimization of their activities and successful cooperation with intermediaries. Despite the openness of modern business systems, their exchange of experience is usually complicated due to striving for preserving uniqueness in the interests of supporting competitiveness. This complicates translation of innovations in making of managerial decisions and slows down development of business. Increase of awareness of business systems on current changes allows them to show high flexibility and successful adaptation to the business environment with the help of optimization of the process of making of managerial decisions. Specifics of Decision Making in Modern Business Systems, 161–167 Copyright © 2019 by Emerald Publishing Limited All rights of reproduction in any form reserved doi:10.1108/978-1-78756-691-020191016

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Thus, the purpose of the work is to determine regularities and tendencies of decision making in business systems by the example of modern Russia.

15.2 Materials and Method The theoretical basis of the research includes materials of scientific works on transformation processes that take place in a modern business environment, their internal and external factors, and possibilities and perspectives of managing them. For this, the following works are used: Popkova (2017), Popkova et al. (2017), Popkova, Ragulina, and Bogoviz (2019), Popkova, Gornostaeva, and Tregulova (2018), Singareddy, Chandrasekaran, Annamalai, and Ranjan (2018), Sukhodolov, Popkova, and Litvinova (2018, pp. 1–38), Thomsen (2016), Veselovsky, Izmailova, Bogoviz, Lobova, and Alekseev (2017), Bogoviz et al. (2018), and Veselovsky et al. (2018). Also, the studies in the sphere of organization of the process of making of managerial decisions in modern business systems at the current stage of their evolution are used. These issues are elaborated in the following works: Al-Hadi, Al-Yahyaee, Hussain, and Taylor (2018), Bae, Masud, and Kim (2018), Belouettar et al. (2018), Bobillo, Rodr´ıguez-Sanz, and Tejerina-Gaite (2018), Gait´an, Herrera-Echeverri, and Pablo (2018), Keay and Zhao (2018), Krivtsov (2014), Krivtsov (2015), Krivtsov, Polinova, Ivankina, Chubarkova, and Prokubovskaya (2016), and Marques, de Sousa Ribeiro, and Barboza (2018). The performed content analysis of the above works showed that despite the high level of elaboration of the problem of transformation of modern business environment and adaptation of business systems to current changes, regularities and tendencies of decision making in business systems are not studied sufficiently and require further research. For this, the method of logical analysis (analysis of causal connections) and the method of dynamic analysis of development of socioeconomic systems are used. These methods are used based on current statistical and analytical information. The information and analytical basis of the research includes the materials of the Federal State Statistics Service of the RF for 2018.

15.3 Results As a result of studying the transformation processes that take place in business environment of modern Russia in early twenty-first century, the factors of functioning and development of modern business systems are determined. These factors are divided into long-term, which influence business systems during the whole studied time period and are preserved in the midterm (until 2025), and short-term, which have been influencing business systems only during recent 10 years and will probably deplete the potential of its influence and will be eliminated in the midterm. Influence of the determined factors on managerial decisions of modern business systems and regularities and tendencies of decision making are described in Table 15.1.

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Table 15.1. Regularities and Tendencies of Decision Making in Business Systems in Modern Russia Under the Influence of Factors of Their Development. Factors of Functioning and Development of Modern Business Systems

Short-term

Long-term

Transfer of economy, society, and business into digital form, development of electronic business systems Liberalization of state regulation of business systems

Marketization of economy and growth of market concentration (competition) under the influence of globalization Popularization and growth of demand for responsible business, course at sustainable development, and formation of circular economy Change of technological mode due to formation of digital economy and transition to Industry 4.0 Reduction of effective demand and violation of external economic ties in the conditions of a crisis

Source: Compiled by the authors.

Influence of Factors of Managerial Decisions

Regularities and Tendencies of Decision Making

Reduction of resource provision of business systems

Striving for saving resources during decision making

Accessibility of various types of organizational structure and managerial tools (outsource) Complication of decisions due to growth of the number of alternatives

More active usage of new managerial tools of during decision making Striving for acceleration of the process of making of complicated managerial decisions

Growth of the number of criteria of optimality of decisions

Accessibility of new (digital and intellectual) technologies of decision making

More active usage of new technologies during decision making

Growth of the risk Striving for component of decisions minimization of risks of made decisions

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As is seen from Table 15.1, among long-term factors of functioning and development of modern business systems, we distinguish transition of economy, society, and business into the digital form and related development of electronic business systems. Thus, according to statistical information provided by an expert company that specializes on studying online business, Shopolog (2018), in 2000, the share of online business systems in the total structure of Russian business constituted less than 1%. As of now, it constitutes 9%. By 2025, it is expected to reach 15–20%. Under the influence of this factor, reduction of resource provision of modern business systems takes place, as online business strives for possessing a minimum set of assets for supporting its high flexibility and reduction of business risks. This led to striving of modern business systems to economy of resources during making of managerial decisions. Thus, business managers often face deficit of resources for making and implementation of managerial decisions. Another long-term factor is liberalization of state regulation of modern business systems. According to the Federal State Statistics Service, the share of private business in 2018 constitutes 86.3%, having increased by 1.15 times as compared to 2000, when it constituted 75.0%. Private business implemented innovations into its activities very actively. Under the influence of this factor, accessibility of various types of organizational structure and managerial tools (e.g., outsource) increases. A regularity of decision making in modern business systems is more active usage of new managerial tools during decision making. The factors of long-term influence also include marketization of economy and growth of market concentration (competition) under the influence of globalization. According to the Federal State Statistics Service, the number of business structures in Russia grew in 2018 by 36.3%, as compared to 2000 (4,561,700 vs 3,346,500). This factor leads to complication of made decisions due to growth of the number of alternatives. Modern business systems have wide possibilities of external integration (clusters, innovational networks, etc.) and in the sphere of formation of supply and sales chains during cooperation with foreign intermediaries and presence in world markets. When studying long-term factors, it is necessary to pay attention to popularization and growth of demand for responsible conduct of business, course at sustainable development, and formation of circular economy. This factor is caused by acceptance of global goals in the sphere of sustainable development of the UN in 2015. Under the influence of growth of demand for the largest Russian business systems (e.g., Lukoil, Rosneft, and Gazprom), they have been publishing reports in the sphere of social responsibility and sustainable development and implementing the corresponding initiatives since 2003. Under the influence of this factor, the number of criteria of decisions’ optimality grows. Modern business systems should be governed not only by traditional criteria of economic effectiveness (reduction of expenditures, increase of financial advantages) but also by new criteria of social (creation of favorable conditions for opening human potential, minimization of negative social consequences of functioning, and development of business) and ecological (reduction of resource capacity, minimization of production waste) effectiveness.

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A logical response to the changes that take place under the influence of the last two factors is striving of modern business systems to accelerating the process of making of complicated managerial decisions. Making of complicated managerial decisions and comparison of a lot of alternatives according to a large number of criteria requires much more time. However, business managers do not have time for managerial decisions, as business environment changes dynamically, and decisions quickly lose their topicality. Therefore, modern business systems use any accessible means of accelerating the process of making of managerial decisions with preservation of high probability of making of optimal decisions. A short-term factor of functioning and development of modern business systems is the change of technological mode due to formation of digital economy and transition to Industry 4.0 – this accessibility of new (digital and intellectual) technologies of decision making grows. This leads to a tendency of more active usage of new technologies during decision making. Thus, according to the Federal State Statistics Service, the number of used leading technologies in the sphere of integrated management and control (4,693) grew by 46.1% in 2018 as compared to 2013 (3,213). The last determined fact that has short-term influence on functioning and development of modern business systems is reduction of effective demand and violation of external economic ties in the conditions of crisis. As business environment became difficult in the aspect of forecasting, the risk component of decisions grew. Thus a tendency of business systems’ striving for minimization of risks of managerial decisions was caused.

15.4 Conclusions Thus, the factors of functioning and development of modern business systems, related to development of online business, liberalization of state regulation of business systems, growth of their competition and corporate responsibility, change of the technological mode, and crisis, were determined in this chapter. Influence of these factors on managerial decisions is related to reduction of resource provision of business systems, accessibility of new managerial tools, complication of decisions (growth of the number of accessible decisions), growth of the number of criteria of decisions’ optimality, accessibility of new technologies of decision making, and growth of the risk component of decisions. Due to this, regularities and tendencies of decision making lead to increase of contradiction during making of managerial decisions in modern business systems, connected to growth of complexity of this process and simultaneous reduction of resources and time that are available to business managers. To solve this contradiction, it is necessary to implement cardinal changes in the process of making of managerial decisions in modern business systems, which allow – with minimum managerial costs – determining multiple alternative variants of solutions to the whole specter of current problems of business systems and comparing them as to multitude of mutually excluding criteria, thus quickly making complex decisions.

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To determine the perspectives of solving this contradiction, it is necessary to generalize the existing experience of decision making in modern business systems. In this context, the Russian model of decision making in modern business systems deserves more attention.

References Al-Hadi, A., Al-Yahyaee, K. H., Hussain, S. M., & Taylor, G. (2018). Market risk disclosures, corporate governance structure and political connections: Evidence from GCC firms. Applied Economics Letters, 25(19), 1346–1350. Bae, S. M., Masud, M. A. K., & Kim, J. D. (2018). A cross-country investigation of corporate governance and corporate sustainability disclosure: A signaling theory perspective. Sustainability, 10(8), 11–26. Belouettar, S., Kavka, C., Patzak, B., Koelman, H., Rauchs, G., Giunta, G., … Daouadji, A. (2018). Integration of material and process modelling in a business decision support system: Case of COMPOSELECTOR H2020 project. Composite Structures, 204, 778–790. Bobillo, A. M., Rodr´ıguez-Sanz, J. A., & Tejerina-Gaite, F. (2018). Corporate governance drivers of firm innovation capacity. Review of International Economics, 26(3), 721–741. Bogoviz, A. V., Gimelshteyn, A. V., Shvakov, E. E., Maslova, E. V., & Kolosova, A. A. (2018). Digitalization of the Russian education system: Opportunities and perspectives. Quality – Access to Success, 19(S2), 27–32. Federal State Statistics Service. (2018). Russia in numbers: A short statistical collection. Retrieved from http://www.gks.ru/wps/wcm/connect/rosstat_main/rosstat/ru/ statistics/publications/catalog/doc_1135075100641. Accessed on October 20, 2018. Gait´an, S., Herrera-Echeverri, H., & Pablo, E. (2018). How corporate governance affects productivity in civil-law business environments: Evidence from Latin America. Global Finance Journal, 37, 173–185. Keay, A., & Zhao, J. (2018). Transforming corporate governance in Chinese corporations: A journey, not a destination. Northwestern Journal of International Law and Business, 38(2), 187–232. Krivtsov, A. I. (2014). Fair value assessment of investment capital when ensuring coherence of managerial decision–making processes. Actual Problems of Economics, 161(11), 307–313. Krivtsov, A. I. (2015). Business development strategy and business processes diversification. Actual Problems of Economics, 165(3), 17–24. Krivtsov, A. I., Polinova, L. V., Ivankina, M. S., Chubarkova, E. V., & Prokubovskaya, A. O. (2016). Corporate information management system and its influence on increase of changes productivity. International Journal of Environmental & Science Education, 11(15), 7627–7635. Marques, T. A., de Sousa Ribeiro, K. C., & Barboza, F. (2018). Corporate governance and debt securities issued in Brazil and India: A multi-case study. Research in International Business and Finance, 45, 257–270. Popkova, E., Gornostaeva, Z., & Tregulova, N. (2018). Role of innovations in provision of competitiveness and innovational development of economy and overcoming of “underdevelopment whirlpools” in Russia and countries of Eastern

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Europe. Journal of Entrepreneurship in Emerging Economies, 10(3), 511–523. doi: 10.1108/JEEE-12-2017-0100. Popkova, E. G. (Vol. Ed. & Series Ed.). (2017). Economic and legal foundations of modern Russian society: A new institutional theory. In Advances in research on Russian business and management. Charlotte, NC: Information Age Publishing. Popkova, E. G., Ragulina, Y. V., & Bogoviz, A. V. (2019). Industry 4.0: Industrial revolution of the 21st century. In J. Kacprzyk (Ed.), Studies in systems, decision and control. Berlin: Springer. Popkova, E. G., Tyurina, Y. G., Sozinova, A. A., Bychkova, L. V., Zemskova, O. M., Serebryakova, M. F., & Lazareva, N. V. (2017). Clustering as a growth point of modern Russian business. Contributions to Economics, 97–103, 55–63. Shopolog. (2018). What form will E-commerce have in 2018–2019? Retrieved from https://www.shopolog.ru/metodichka/analytics/kakoy-stanet-elektronnaya-kommerciya-v-2018-godu-i-dalee/. Accessed on October 20, 2018. Singareddy, R. R. R., Chandrasekaran, S., Annamalai, B., & Ranjan, P. (2018). Corporate governance data of 6 Asian economies (2010–2017). Data in Brief, 20(1), 53–56. Sukhodolov, A. P., Popkova, E. G., & Litvinova, T. N. (2018). Models of modern information economy: Conceptual contradictions and practical examples. Bingley: Emerald Publishing. Thomsen, S. (2016). The nordic corporate governance model. Management and Organization Review, 12(1), 189–204. Veselovsky, M. Y., Izmailova, M. A., Bogoviz, A. V., Lobova, S. V., & Alekseev, A. N. (2017). Business environment in Russia and its stimulating influence on innovation activity of domestic companies. Journal of Applied Economic Sciences, 12(7), 1967–1981. Veselovsky, M. Y., Izmailova, M. A., Bogoviz, A. V., Ragulina, Y. V., & Lobova, S. V. (2018). System approach to achieving new quality of corporate governance in the context of innovation development. Quality – Access to Success, 19(163), 30–36.

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PART V: REGIONAL MODELS OF DECISION MAKING IN MODERN BUSINESS SYSTEMS

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Chapter 16

Asian Model of Decision Making in Modern Business Systems Irina A. Morozova, Valeriya P. Chayka, Alexey V. Tolmachev, Alina V. Chesnokova and Yulia I. Dubova

16.1 Introduction An important position among regional models of socioeconomic systems traditionally belongs to the Asian model. The practice of making of managerial decisions in modern business systems of Asian countries is a current direction for scientific research due to the following reasons. Firstly, the Asian region of the global economic system is located on a large territory and is an important participant of international economic relations. This region has developed and developing countries, which, despite their own peculiarities, have a lot of common features (e.g., production specialization on industry, high value of traditions, and low inclination for innovations), which allows modeling the Asian economic practice with high precision – dye to correspondence to the regional model of most economic systems of Asian countries. Secondly, in the mid-twentieth century, Asian countries showed “economic wonder” (South Korea and Japan) and have a high rate of economic growth (China). Asian business systems are among the largest transnational corporations in the global arena. That’s why Asian business practice and, primarily, its important component – the process of making of managerial decisions – deserve scientific research. Thirdly, Asian countries implement a unique approach to globalization, due to which they develop according to the tendencies of the global economy, and their business systems are globally integrated and presented in the world markets – but, at the same time, their globalization is moderate and selective. Due to this, Asian traditions of doing business are preserved – which allows defining Asian model of decision making in modern business systems as a specific phenomenon in the global practice, but which does not merge with it. The purpose of this work is to study peculiarities of the practice of making of managerial decisions in modern business systems in countries of Asia and to

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compile the Asian model of this process, as well as to determine possibilities and perspectives of making of optimal decisions according to this model.

16.2 Materials and Method The methodological platform of this chapter includes the publications that are devoted to studying the practice of making of managerial decisions in modern business systems of Asian countries: Chen (2018), Kandil, Shahbaz, Mahalik, and Nguyen (2017), Karimi and Daiari (2018), Krivtsov (2014), Krivtsov (2015), Krivtsov, Polinova, Ivankina, Chubarkova, and Prokubovskaya (2016), Li et al. (2018), Mahmood and Alkahtani (2018), Marques, de Sousa Ribeiro, and Barboza (2018), Mungunzul and Chang (2018), Popkova (2017), Popkova et al. (2017), Popkova, Ragulina, and Bogoviz (2019), Popkova, Gornostaeva, and Tregulova (2018), Sandıkcı, Peterson, Ekici, and Simkins (2016), Sapkota, Oni, Kumar, and Linwei (2018), Singareddy, Chandrasekaran, Annamalai, and Ranjan (2018), Sukhodolov, Popkova, and Litvinova (2018, pp. 1–38), and Veselovsky, Izmailova, Bogoviz, Lobova, and Alekseev (2017). The above works reflect the following peculiarities of doing business in Asian countries:

• • •

organization of mass production for gaining “scale effect”; business systems’ founding on accessible and cheap human resources; active attraction of direct foreign investments into business, etc.

However, despite the detailed research of macroeconomic peculiarities of economic development of Asian countries, the microeconomic aspect of this process, connected to making of managerial decisions in modern business systems, is studied insufficiently. This microeconomic aspect is studied in this chapter; for this, the methods of logical and systemic analysis, modeling of socioeconomic processes and systems, and formalization are used.

16.3 Results The compiled Asian model of decision making in modern business systems is presented in Fig. 16.1. As is seen from Fig. 16.1, as compared to the Russian model of decision making in modern business systems (Chapter 14), the Asian model is more complex – though the process of making of managerial decisions is also performed in six consecutive stages. Top management of business systems, which does not participate in decision making but is at the top of the managerial staff (e.g., the board of directors), sets before the top manager (e.g., CEO) the goals of development of the business systems. At the first stage of making of managerial decisions, the top manager conducts marketing research and analyzes the obtained marketing information and corporate reports of business systems. Based on the set goals, he formulates

173

Asian Model of Decision Making in Modern Business Systems Business system Managerial staff Top management

Manager 1

Manager 2

3 collection and analysis of feedback, determination of problems

Fig. 16.1.

…

Manager n

5 tactical decisions and their implementation

Business environment

Controllers goals 1 analysis of 1 analysis of marketing information corporate Top manager reports 1. marketing 2 preferable models of 2 strategic decisions, priorities off 6 control decisions management 4 making of tactical decisions according to models 6 control

Business entities 1,2,…n

Asian Model of Decision Making in Modern Business Systems. Source: Compiled by the authors.

strategic decisions, connected top long-term plans of development of the business system, and determines priorities of management and preferable models of tactical decisions. They are passed to linear managers, who control various linear business processes of the business system (e.g., supply, production, finances). That is, organizational structure of the managerial staff in the Asian model is linear – contrary to the Russian functional structure. The first stage includes collection and analysis of feedback from business entities by linear managers – the business entities are not divided according to the functional principles, like in the Russian model, but are subject to all managers simultaneously. Based on the obtained feedback, current tactical problems of the business system are determined. At the fourth stage, each linear manager selects and compares alternatives and chooses an optimal managerial decision within his competence. At that, he’s guided by the set priorities and orients at available models of managerial decisions that exist in the business system. At the fifth, the tactical decisions are passed for practical implementation to business entities under management of linear managers within distribution of authorities and responsibility. At the sixth stage, control of adopted and implemented managerial decisions in the business system by the top manager (through collection and analysis of corporate reports) and from top management through controllers (internal and external audit) is conducted. Then, the cycle of making of managerial decisions in the business system is closed, and return to the preliminary stage (consideration of goals) and the first stage (in view of results of the conducted control) takes place.

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Thus, the following peculiarities of the Asian model making of managerial decisions in modern business systems are determined:

•

•

• •

•

independent making of tactical decisions by linear managers: linear character of the organizational structure of management causes clear limitation between authorities and responsibilities between managers. At that, decentralization of power is observed – instead of decision making by top management, decision making by linear managers is observed; employees are not involved in the process of decision making. This allows for quick decision making; usage of model decisions: contrary to the Russian model, time is not spent for determining new alternatives during decision making – instead, fitting model decisions are selected. This allows for effective usage of past experience of business systems and accelerates the process of decision making; increased control: as managerial decisions are made not by the top manager (as in the Russian model) but by the linear managers, this process is controlled by the top manager and top management (through controllers/auditors); conducting marketing only at the level of top management: an advantage of the Asian model, as compared to the Russian model, is usage of marketing information during making of managerial decisions. However, this information is used only at the level of the top manager, and tactical decisions are made by linear managers without it. On the one hand, it allows for quick decision making, but, on the other hand, the probability of making of optimal decisions is low; presence of feedback only with linear managers: as in the Russian model, the Asian model envisages feedback, but only with linear managers. Employees are not involved in the process of making of managerial decisions, and feedback is used only for determining the current problems and possibilities of business systems.

16.4 Discussion Characteristics and evaluation of the level of correspondence of largest (BCB, 2018) business systems in Asian countries to the Asian model of decision making by the example of Mitsubishi UFJ Financial, Samsung Electronics, PetroChina, and ICBC are given in Table 16.1. The data of Table 16.1 show that the largest and most successful business systems in Asian countries – Mitsubishi UFJ Financial (Japan), Samsung Electronics (South Korea), PetroChina (China), and ICBC (China) – fully (according to all studied parameters) conform to the Asian model of decision making. Therefore, this model is representative, that is, reflects the practice of making of managerial decisions in most business systems of Asian countries and, secondly, ensures successful functioning and development of business systems in the long term.

Yes Yes Yes 21.7 196.3 174.4

Yes Yes Yes 11.9 2,653.1 85.7

18.3 347.8 261.2

Yes

Yes Yes

China Oil and gas Yes

PetroChina

37.8 2,800.0 237.3

Yes

Yes Yes

China Banking sphere Yes

ICBC

Source: Compiled by the authors based on Mitsubishi UFJ Financial (2018), Samsung Electronics (2018), PetroChina (2018), and ICBC (2018).

South Korea Electronics Yes

Japan Car industry Yes

Country of management Sphere of activities Linear character of organizational structure of management, yes/no Usage of model decisions, yes/no Conduct of marketing only at the level of top management, yes/no Feedback only with linear managers, yes/no Volume of profit, USD billion Assets, USD billion Market capitalization, USD billion

Samsung Electronics

Mitsubishi UFJ Financial

Characteristics of Business Systems

Business Systems of Modern Asia in 2018

Table 16.1. Characteristics and Evaluation of the Level of Correspondence of the Largest Business Systems in Countries of Asia to the Asian Model of Decision Making by the Example of Mitsubishi UFJ Financial, Samsung Electronics, PetroChina, and ICBC.

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16.5 Conclusions Thus, in the course of studying the practice of making of managerial decisions in modern business systems in Asian countries, the Asian model of this process is compiled; it has the following features: independent making of tactical decisions by linear managers, usage of model decisions, increased control, marketing only at the level of top management, and feedback only with linear managers. The determined peculiarities are oriented at maximum acceleration of the process of making of managerial decisions in business systems. Another aspect of this advantage is insufficient accounting of internal (due to absence of employees’ involvement into the process of promotion and discussion of decisions) and external (due to weak marketing support) possibilities of the business systems. Thus, the Asian model is most adapted to making of managerial decisions in the conditions of dynamic business environment, when the most important criterion of optimality is speed of decision making.

References BCB. (2018). 100 largest companies of the world. Retrieved from https://bcb.su/100krupnejshih-kompanij-mira.htm. Accessed on October 23, 2018. Chen, X. (2018). Globalisation redux: Can China’s inside-out strategy catalyse economic development and integration across its Asian borderlands and beyond? Cambridge Journal of Regions, Economy and Society, 11(1), 35–58. ICBC. (2018). Overview of business. Retrieved from http://www.icbc.com.cn/ICBC/ EN/AboutUs/BriefIntroduction/. Accessed on October 23, 2018. Kandil, M., Shahbaz, M., Mahalik, M. K., & Nguyen, D. K. (2017). The drivers of economic growth in China and India: Globalization or financial development? International Journal of Development Issues, 16(1), 54–84. Karimi, M. S., & Daiari, E. H. (2018). Does institutions matter for economic development? Evidence for ASEAN selected countries. Iranian Economic Review, 22(1), 1–20. Krivtsov, A. I. (2014). Fair value assessment of investment capital when ensuring coherence of managerial decision–making processes. Actual Problems of Economics, 161(11), 307–313. Krivtsov, A. I. (2015). Business development strategy and business processes diversification. Actual Problems of Economics, 165(3), 17–24. Krivtsov, A. I., Polinova, L. V., Ivankina, M. S., Chubarkova, E. V., & Prokubovskaya, A. O. (2016). Corporate information management system and its influence on increase of changes productivity. International Journal of Environmental & Science Education, 11(15), 7627–7635. Li, F., Wang, X., Liu, H., Li, X., Zhang, X., Sun, Y., & Wang, Y. (2018). Does economic development improve urban greening? Evidence from 289 cities in China using spatial regression models. Environmental Monitoring and Assessment, 190(9), 541–544. Mahmood, H., & Alkahtani, N. S. (2018). Human resource, financial market development and economic growth in Saudi Arabia: A role of human capital. Economic Annals-XXI, 169(1–2), 31–34.

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Marques, T. A., de Sousa Ribeiro, K. C., & Barboza, F. (2018). Corporate governance and debt securities issued in Brazil and India: A multi-case study. Research in International Business and Finance, 45, 257–270. Mitsubishi UFJ Financial. (2018). Corporate management. Retrieved from https:// www.mufg.jp/english/profile/governance/structure/. Accessed on October 23, 2018. Mungunzul, E., & Chang, T. (2018). The effect of foreign direct investment on the economic development of Mongolia. Journal of Electronic Commerce in Organizations, 16(3), 12–21. PetroChina. (2018). Investor relations. Retrieved from http://www.petrochina.com.cn/ ptr/gszljg/gszljg.shtml. Accessed on October 23, 2018. Popkova, E., Gornostaeva, Z., & Tregulova, N. (2018). Role of innovations in provision of competitiveness and innovational development of economy and overcoming of “underdevelopment whirlpools” in Russia and countries of Eastern Europe. Journal of Entrepreneurship in Emerging Economies, 10(3), 511–523. doi: 10.1108/JEEE-12-2017-0100. Popkova, E. G. (Vol. Ed. & Series Ed.). (2017). Economic and legal foundations of modern Russian society: A new institutional theory. In Advances in research on Russian business and management. Charlotte, NC: Information Age Publishing. Popkova, E. G., Ragulina, Y. V., & Bogoviz, A. V. (2019). Industry 4.0: Industrial revolution of the 21st century. In J. Kacprzyk (Ed.), Studies in systems, decision and control. Berlin: Springer. Popkova, E. G., Tyurina, Y. G., Sozinova, A. A., Bychkova, L. V., Zemskova, O. M., Serebryakova, M. F., & Lazareva, N. V. (2017). Clustering as a growth point of modern Russian business. Contributions to Economics, 97–103, 55–63. Samsung Electronics. (2018). Investor relations. Retrieved from https://www.samsung.com/ru/aboutsamsung/home/. Accessed on October 23, 2018. ¨ Peterson, M., Ekici, A., & Simkins, T. (2016). Development and quality Sandıkcı, O., of life in Turkey: How globalization, religion, and economic growth influence individual well-being. Journal of Macromarketing, 36(3), 304–320. Sapkota, K., Oni, A. O., Kumar, A., & Linwei, M. (2018). The development of a techno-economic model for the extraction, transportation, upgrading, and shipping of Canadian oil sands products to the Asia-Pacific region. Applied Energy, 223, 273–292. Singareddy, R. R. R., Chandrasekaran, S., Annamalai, B., & Ranjan, P. (2018). Corporate governance data of 6 Asian economies (2010–2017). Data in Brief, 20(1), 53–56. Sukhodolov, A. P., Popkova, E. G., & Litvinova, T. N. (2018). Models of modern information economy: Conceptual contradictions and practical examples. Bingley: Emerald Publishing. Veselovsky, M. Y., Izmailova, M. A., Bogoviz, A. V., Lobova, S. V., & Alekseev, A. N. (2017). Business environment in Russia and its stimulating influence on innovation activity of domestic companies. Journal of Applied Economic Sciences, 12(7), 1967–1981.

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Chapter 17

American Model of Decision Making in Modern Business Systems Alina V. Chesnokova, Yulia I. Dubova, Tatiana N. Yudina and Olga I. Kontorovich

17.1 Introduction During studying regional specifics of making of managerial decisions in business systems, it is expedient to consider this practice in the countries of North America – USA and Canada – which, in the international classification of countries (including within JEL classification) are separated from countries of South America, which are peculiar for lower level of socioeconomic development. The practice of making of managerial decisions in business systems of countries of North America is very interesting for science, as these countries have high level of global competitiveness and ecological effectiveness of economy – that is, efficiency of decisions that are made in their business systems is very high. The practice of doing business in the countries of North America is considered to be leading; in recent decades, it was proclaimed as a landmark for other countries – that is, the North American business systems are at the head of the process of development of business and are leaders of modern globalization of business. The first and most successful transnational corporations were created in countries of North America. This shows that specifics of doing business, in particular making of managerial decisions in business systems countries of North America, are popular in the world and have high flexibility, which allows adapting them to peculiarities of various business systems. At the same time, the recent global economic crisis started in the countries of North America, after which it spread in the whole world. This means that North American business systems are peculiar for low sustainability and instability of functioning and development. That’s why studying their experience is useful not only from positions of analysis of success but also from the positions of reconsideration of their failure in interests of preventing future crisis of business systems, as well as improvement of the model of making of managerial decisions in the aspect of increasing sustainability of business systems.

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Thus, the purpose of the chapter is to analyze the experience of making of managerial decisions in modern North American business systems, to develop an American model of decision making in modern business systems, to determine the possibilities of making of optimal decisions according to this model, and to substantiate the perspectives of its improvement.

17.2 Materials and Method The conceptual and empirical platform for the research includes materials of publications with overview and case analysis of the practice of making of managerial decisions in modern business systems of countries of North America: Durand, Barr, Walsh, and Elwyn (2015), Ilie and Cardoza (2018), Krivtsov (2014), Krivtsov (2015), Krivtsov, Polinova, Ivankina, Chubarkova, and Prokubovskaya (2016), Maiorano (2018), Popkova (2017), Popkova et al. (2017), Popkova, Ragulina, and Bogoviz (2019), Popkova, Gornostaeva, and Tregulova (2018), Sander (2018), Sukhodolov, Popkova, and Litvinova (2018, pp. 1–38), and Veselovsky, Izmailova, Bogoviz, Lobova, and Alekseev (2017). The performed literature overview on the selected topic showed that peculiarities of doing business in countries of North America are thoroughly studied in the existing publications and include the following:

• • •

specialization in service sphere; developed culture of corporate social and ecological responsibility; active involvement in the processes of globalization.

However, the practice of decision making in modern business systems of countries of North America is not studied sufficiently. Here it is studied with the help of the methods of systemic, problem, and logical analysis, as well as the method of modeling and formalization.

17.3 Results As a result of studying the modern North American practice of making of managerial decisions in business systems, we compiled the following structural model of this process. As is seen from Fig. 17.1, similarly to the Russian (Chapter 14) and Asian (Chapter 19) models, the American model envisages making of managerial decisions in six consecutive stages – however, the essence of these stages differs from the previously studied models. The very organizational structure of North American business systems is specific. This structure is divisional and envisages appointing divisional directors (business managers) by top management (e.g., meeting of shareholders, board of directors). Each director is at the head of the corresponding committee (e.g., committee on finance, committee on logistics) and business entity.

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181

Business system Managerial staff goals, principles, priorities, stimuli Director 1

Director 2

…

Committee 1

Committee 2

…

Fig. 17.1.

3 offering and discussing alternatives Business … entity 2

5 implementing decisions

1 feedback

Business entity n 6 reports

Business ment environment

Business entity 1

4 decision making in view of opinions of interested parties, their informing on the decisions 2 information Director n 5 6 1 systemic Committee n marketing

6 reports

Top management

American Model of Decision Making in Modern Business Systems. Source: Compiled by the authors.

Before making of managerial decisions, top management appoints directors (elected positions, annually), sets before them strategic goals and priorities of development of business systems, and determines the principles of management and stimuli (system of sanctions and bonuses for directors). Thus, business managers (directors) seek not only the interests of development of business systems but also their own interests, connected to stimulation of their labor. Striving for maximization of income, business managers can make risky decisions (expecting extraordinary results of the business systems), which may differ from interests of supporting stability and sustainable development of business systems. At the first stage of the process of making of managerial decisions, managerial committees conduct marketing (which is conducted systematically) and collect feedback from business entities. At the second stage, information that is received from business entities and marketing information are sent to directors, who determine current opportunities and problems of the business system. At the third stage, the directors, committees, and business entities jointly offer and discuss alternative solutions of the problems. At the fourth stage, the business manager (director) takes into account opinions of interested parties for making managerial decisions and informs interested parties on the decisions that are made. Everything is conducted within marketing of business systems. At the fifth stage, the made decisions are passed for implementation by business entities under the control of committees. At the sixth stage, reports are compiled, within which each level of organizational structure reports to the superior level: business entities to committees, committees to directors, and directors to top management regarding the decisions that were made and the results of their implementation.

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The compiled American model of decision making in modern business systems showed the following peculiarities of this practice:

• •

•

• •

decentralization of making of managerial decisions with divisional organizational structure: managerial decisions are made by divisional directors independently, without participation of external management; systemic monitoring at all stages of the process of making of managerial decisions: marketing is conducted not only for determining the problems or external possibilities of solving them, but regularly, regardless of managerial needs of business systems. Marketing is conducted not only in the interests of business systems but also in the interests of interested parties for informing and involving them in the process of decision making; collection of feedback and involvement of employees in the process of discussion of managerial decisions during their making by business managers: internal communications are conducted in the business system not only for determining the problems but also for offering and discussing alternative variants of solving the problem and implementing the opportunities; making of decisions in view of opinions of interested parties and informing regarding the made decisions: to achieve high level of corporate responsibility of business system, it is necessary to consider opinions of interested parties on all managerial decisions; systemic reports at all levels of organizational structure of business systems: directors and top management study regular corporate reports and other reports on adoption, course, and implementation of managerial decisions.

17.4 Discussion Characteristics and evaluation of the level of correspondence of the largest (according to BCB, 2018) business systems in countries of North America to the American model of decision making by the example of JPMorgan Chase, General Electric, Exxon Mobil, and Royal Bank of Canada are shown in Table 17.1. According to the data of Table 17.1, all studied examples of modern business systems in North America, which function in various spheres of economy, correspond to the American model of making of managerial decisions, which confirms the compiled model and its reflection of the specifics of decision making, which are peculiar for modern business systems in modern North America.

17.5 Conclusions As a result of the research, we compiled the American model of decision making in modern business systems, which is based on the divisional organizational structure. This model is contradictory and, like other regional models, possesses advantages and drawbacks. On the one hand, an important advantage of the

Industry Yes Yes Yes Yes Yes

13.6 685.3 243.7

Finances Yes Yes Yes Yes Yes

21.3 2,359.1 191.4

44.9 333.8 400.4

Yes

Yes

Yes Yes

Oil Yes

USA

Exxon Mobil

7.7 838.5 87.2

Yes

Yes

Yes Yes

Banking Yes

Canada

Royal Bank of Canada

Source: Compiled by the authors based on JPMorgan Chase (2018), General Electric (2018), Exxon Mobil (2018), and Royal Bank of Canada (2018).

USA

USA

Country of location of management Sphere of activities Divisional organizational structure, yes/no Systemic marketing, yes/no Collection of feedback and involvement of employees, yes/no Increased attention to corporate responsibility, yes/no Systemic reports at all levels of the organizational structure, yes/no Volume of profit, USD billion Assets, USD billion Market capitalization, USD billion

General Electric

JPMorgan Chase

Characteristics of Business System

Business Systems of Modern North America in 2018

Table 17.1. Characteristics and Evaluation of the Level of Correspondence of the Largest Business Systems in Countries of North America to the American Model of Decision Making by the Example of JPMorgan Chase, General Electric, Exxon Mobil, and Royal Bank of Canada.

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American model is making of well-balanced managerial decisions, which conform to interests of all interested parties in the business system (investors, management, employees) and beyond it (consumer, society). This advantage is achieved due to active and systemic marketing, which ensures the fullest accounting of the possibilities of the business environment and the highest adaptability of the business system to its changes. Readiness of managers to take a risk allows them to make nonstandard decisions, thus strengthening uniqueness and competitive advantages of the business system. On the other hand, high risk component of the made managerial decisions leads to unstable development of business systems in countries of North America and their strong susceptibility to internal and external crises. Another drawback of the American model of decision making in modern business systems is low rate of this process due to necessity for considering the opinions of all interested parties and marketing at all stages. That’s why in the conditions of crisis, the American model cannot ensure timely managerial decisions and, therefore, leads to their nonoptimality. Though this model describes the practice of making of managerial decisions in countries of North America (USA and Canada) very precisely, it does not conform to this practice in the countries of South America, which defines narrow limits of its practical application.

References BCB. (2018). 100 largest companies of the world. Retrieved from https://bcb.su/100krupnejshih-kompanij-mira.htm. Accessed on October 23, 2018. Durand, M.-A., Barr, P. J., Walsh, T., & Elwyn, G. (2015). Incentivizing shared decision making in the USA – Where are we now? Healthcare, 3(2), 97–101. Exxon Mobil. (2018). Corporate governance. Retrieved from https://corporate.exxonmobil.com/en/investors/corporate-governance. Accessed on October 24, 2018. General Electric. (2018). Corporate governance. Retrieved from https://www.ge.com/ ru/content/ge-B-Mирf. Accessed on October 24, 2018. Ilie, C., & Cardoza, G. (2018). Estilos de pensamiento, g´enero y toma de decisiones en la gerencia latinoamericana: Una perspectiva internacional comparada. [Thinking styles, gender, and decision making in Latin American management: A comparative study with the USA.]. Academia Revista Latinoamericana de Administraci´on, 31(1), 29–42. JPMorgan Chase. (2018). Corporate governance. Retrieved from https:// www.jpmorganchase.com/corporate/About-JPMC/ab-corporate-governance-principles.htm. Accessed on October 24, 2018. Krivtsov, A. I. (2014). Fair value assessment of investment capital when ensuring coherence of managerial decision–making processes. Actual Problems of Economics, 161(11), 307–313. Krivtsov, A. I. (2015). Business development strategy and business processes diversification. Actual Problems of Economics, 165(3), 17–24.

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Krivtsov, A. I., Polinova, L. V., Ivankina, M. S., Chubarkova, E. V., & Prokubovskaya, A. O. (2016). Corporate information management system and its influence on increase of changes productivity. International Journal of Environmental & Science Education, 11(15), 7627–7635. Maiorano, J. (2018). Beyond technocracy: Forms of rationality and uncertainty in organizational behaviour and energy efficiency decision making in Canada. Energy Research and Social Science, 44, 385–398. Popkova, E., Gornostaeva, Z., & Tregulova, N. (2018). Role of innovations in provision of competitiveness and innovational development of economy and overcoming of “underdevelopment whirlpools” in Russia and countries of Eastern Europe. Journal of Entrepreneurship in Emerging Economies, 10(3), 511–523. doi: 10.1108/JEEE-12-2017-0100. Popkova, E. G. (Vol. Ed. & Series Ed.). (2017). Economic and legal foundations of modern Russian society: A new institutional theory. In Advances in research on Russian business and management. Charlotte, NC: Information Age Publishing. Popkova, E. G., Ragulina, Y. V., & Bogoviz, A. V. (2019). Industry 4.0: Industrial revolution of the 21st century. In J. Kacprzyk (Ed.), Studies in systems, decision and control. Berlin: Springer. Popkova, E. G., Tyurina, Y. G., Sozinova, A. A., Bychkova, L. V., Zemskova, O. M., Serebryakova, M. F., & Lazareva, N. V. (2017). Clustering as a growth point of modern Russian business. Contributions to Economics, 97–103, 55–63. Royal Bank of Canada. (2018). Investor relations. Retrieved from http:// www.rbc.com/investorrelations/index.html. Accessed on October 24, 2018. Sander, G. (2018). Ecosystem-based management in Canada and Norway: The importance of political leadership and effective decision-making for implementation. Ocean & Coastal Management, 163, 485–497. Sukhodolov, A. P., Popkova, E. G., & Litvinova, T. N. (2018). Models of modern information economy: Conceptual contradictions and practical examples. Bingley: Emerald Publishing. Veselovsky, M. Y., Izmailova, M. A., Bogoviz, A. V., Lobova, S. V., & Alekseev, A. N. (2017). Business environment in Russia and its stimulating influence on innovation activity of domestic companies. Journal of Applied Economic Sciences, 12(7), 1967–1981.

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Chapter 18

European Model of Decision Making in Modern Business Systems Tatiana N. Litvinova

18.1 Introduction Among regional business models in the modern global economic system, an important role belongs to the European model. European practice of making of managerial decisions in modern business systems poses interest for economic science and practice, as it covers a lot of countries and various spheres of economy. European business systems do not have any certain specialization and are presented as spheres of industry, agriculture, and service. Due to this, the European model of decision making covers experience of diverse business systems and, therefore, is universal. Due to integration of European economies, they have similar practices of doing business and, in particular, making of managerial decisions, which opens wide opportunities for aggregation and comparison of precise and correct European model of decision making in modern business systems. European business systems occupy important positions in world markets, and they have successful transnational corporations; at the same time, they show sustainable growth and development, with moderate flexibility and balance between traditions (model managerial decisions) and innovations (risky nonstandard decisions). The European practice of doing business, including making of managerial decisions, combines the elements of the Asian and American models, averaging their advantages and drawbacks. That’s why the European model of decision making in modern business systems should be the most harmonious and well balanced. However, as the recent economic crisis showed, European business systems develop most successfully in the period of stability, and at the downward phase of economic cycle they are susceptible to crises. The purpose of this chapter is to determine specifics of making of managerial decisions in business systems of modern European countries, to compile a European model of decision making in modern business systems, and to determine its capability for ensuring optimal decisions.

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18.2 Materials and Method The European practice of doing business is thoroughly studied in the existing publications: Calabrese, Iandolo, Caputo, and Sarno (2018), Groesser and Jovy (2016), Hvastov´a (2016), Krivtsov (2014), Krivtsov (2015), Krivtsov, Polinova, Ivankina, Chubarkova, and Prokubovskaya (2016), Popkova (2017), Popkova et al. (2017), Popkova, Ragulina, and Bogoviz (2019), Popkova, Gornostaeva, and Tregulova (2018), Ramadani, Zendeli, Gerguri-Rashiti, and Dana (2018), Sukhodolov, Popkova, and Litvinova (2018, pp. 1–38), Tseng, Chiu, and Liang (2018), and Veselovsky, Izmailova, Bogoviz, Lobova, and Alekseev (2017). The above works state similarity between the European practice and Asian and American practices. In particular, the following is noted:

• •

European business is inclined for manifestation of high corporate social and ecological responsibility, as well as high marketing activity – which makes it similar to the American business; European business is peculiar for moderate innovational activity and inclination for usage of model decisions, as well as linear organizational structure, which makes it similar to the Asian business.

These characteristics reflect the specifics of business systems in countries of Europe but do not open the essence and features of the practice of making of managerial decisions by European business systems. For filling this gap in the existing economic knowledge, the authors use the methods of systemic and problem analysis, the method of comparative analysis (for comparing the European practice of making of managerial decisions to practices of other regions), and the method of modeling and formalization.

18.3 Results The conceptual foundations and specifics of making of managerial decisions in modern business systems in countries of Europe are reflected by the compiled model (Fig. 18.1). As is seen from Fig. 18.1, in the European model – unlike other studied regional models – the process of making of managerial decisions has seven consecutive stages. Also, the organizational structure of European business systems is very specific; it envisages clear limitation between production (connected to the main activities on production of goods and/or provision of services), nonproduction (organizational and managerial, not connected to main production), and marketing activities. Organizational structure is linear, and it envisages feedback from production business entities only with the production managerial committee. Before the process of making of managerial decisions, top management sets the goals, principles of management, and priorities of making of managerial

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Business system Managerial staff

Top management goals, principle, priorities, 7 reports models Director on non production activities

Director on production activities

Director on marketing activities

2 information Non production committee

1 systemic collection of feedback o Production business entity

Fig. 18.1.

1 systemic marketing

5 implementation of managerial decisions

Business environment

3 collective discussion 4 collective decision making 6 collective reflection

Production committee

Marketing committee

European Model of Decision Making in Modern Business Systems. Source: Compiled by the authors.

decisions, as well as preferable models of decisions and passes them to linear directors. At the first stage, marketing committee conducts systemic marketing, and production committee, systemic collection of feedback from business entities. At the second stage, the received information is passed to the director on production activities and/or other directors, whose competence includes determination of internal and external opportunities and problems of business systems – let us study the process of decision making by the example of production problems. At the third stage, collective discussion of determined current opportunities and problems is conducted and the potential solutions are offered. This process involves directors, committees, and business entities. Due to the fullest involvement of internal interested parties, the largest number of potential managerial decisions is offered. At the fourth stage, collective managerial decisions are made with participation of the above internal interested parties, which allows making the most well-balanced decisions. At the fifth stage, the made managerial decisions are implemented by business entities. As they were involved in the process of decision making, they are interested in their practical implementation. Due to support from employees, the managerial decisions are implemented very quickly, and this process does not usually meet any barriers and obstacles. At the sixth stage, collection reflection is conducted – discussion of accumulated experience of making and implementation of managerial decisions. At the seventh stage, directors report to top management, and the cycle of decision making is thus finished.

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As a result of the performed analysis, we determine the following specific features of the European model of decision making in modern business systems:

• • •

•

Collective offering, discussing, and making managerial decisions and reflection: the European model envisages maximum involvement of all internal interested parties in the process of decision making – however, external interested parties (as in the American model) are not involved in this process; Presence of independent marketing committee, which conducts systemic marketing: marketing activities are conducted regularly, and specialization of a separate committee on marketing activities ensures its high effectiveness; Internal communication of business entities only with production committee: while in other regional models of making of managerial decisions, collection of feedback is performed by all functional, linear, or divisional business managers in the managerial staff, in the European model, feedback is collected only by the production business manager. This is due to cleared limitation between authorities and responsibility in European business systems; Sustainability of horizontal ties between committees with the linear organizational structure: contrary to other regional models, in which actions of committees are coordinated by the top manager, in the European models, actions of committees do not require participation of the top manager. This ensures more coordinated actions of business management.

18.4 Discussion Characteristics and evaluation of the level of correspondence of the largest (BCB, 2018) business systems in countries of Europe to the European model of decision making by the example of HSBC Holdings, Royal Dutch Shell, Volkswagen Group, and BNP Paribas are given in Table 18.1. The data of Table 18.1 show that business structures from different spheres of economy and different countries of Europe conform to the European model of making of managerial decisions, which confirms correctness of this model and its applicability to the European region of the modern global economic system.

18.5 Conclusions It could be concluded that the compiled European model of making of managerial decisions in modern business systems has the following features: collective offering, discussion, and making managerial decisions, presence of independent marketing committee that conducts systemic marketing, internal communication of business entities only with the production committee, and sustainability of horizontal ties between committees with the linear organizational structure. Due to these features, the following advantages of the European model are achieved: making of well-balanced managerial decisions from the positions of all internal interested parties, low expenditures for decision making due to usage of possibilities of internal outsource, high effectiveness of marketing activities and

Yes 26.6 360.3 213.1

Yes 14.3 2,684.1 201.3

28.6 408.2 94.4

Yes

Germany Car industry Yes Yes Yes

Volkswagen Group

8.6 2,504.2 71.3

Yes

France Banking sphere Yes Yes Yes

BNP Paribas

Source: Compiled by the authors based on HSBC Holdings (2018), Royal Dutch Shell (2018), Volkswagen Group (2018), and BNP Paribas (2018).

Netherlands Oil and gas Yes Yes Yes

UK Finances Yes Yes Yes

Country of location of management Sphere of activities Collective decision making, yes/no Independent marketing committee, yes/no Internal communication of business entities only with the production committee, yes/no Sustainability of horizontal ties between committees, yes/no Income, USD billion Assets, USD billion Market capitalization, USD billion

Royal Dutch Shell

HSBC Holdings

Characteristics of Business Systems

Business Systems Modern of Europe in 2018

Table 18.1. Characteristics and Evaluation of the Level of Correspondence of the Largest Business Systems in Countries of Europe to the European Model of Decision Making by the Example of HSBC Holdings, Royal Dutch Shell, Volkswagen Group, and BNP Paribas.

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integration of the managerial staff, which allows for complex solution of current problems of the business systems. However, in case of the European model, the process of making of managerial decisions is the longest among all the studied regional models. That’s why application of the European model of making of managerial decisions in modern business systems allows achieving high effectiveness of this process in the period of stability, and during a downward wave of the economic cycle this model cannot ensure high effectiveness of making of managerial decisions. Thus, organizational and managerial characteristics of modern business systems cannot ensure guaranteed making of optimal managerial decisions. Due to this, it is necessary to consider the existing technologies of support for decision making in modern business systems and perspectives of optimization of this process on the basis of new technologies.

References BCB. (2018). 100 largest companies. Retrieved from https://bcb.su/100-krupnejshihkompanij-mira.htm. Accessed on October 23, 2018. BNP Paribas. (2018). About the company. Retrieved from https://group.bnpparibas/ en/. Accessed on October 25, 2018. Calabrese, M., Iandolo, F., Caputo, F., & Sarno, D. (2018). From mechanical to cognitive view: The changes of decision making in business environment. New Economic Windows, 97, 223–240. Groesser, S. N., & Jovy, N. (2016). Business model analysis using computational modeling: A strategy tool for exploration and decision-making. Journal of Management Control, 27(1), 61–88. HSBC Holdings. (2018). Group results and reporting. Retrieved from https:// www.hsbc.com/investor-relations/group-results-and-reporting. Accessed on October 25, 2018. Hvastov´a, J. (2016). Exploring ethical decision making in business management. Quality – Access to Success, 17(155), 136–142. Krivtsov, A. I. (2014). Fair value assessment of investment capital when ensuring coherence of managerial decision–making processes. Actual Problems of Economics, 161(11), 307–313. Krivtsov, A. I. (2015). Business development strategy and business processes diversification. Actual Problems of Economics, 165(3), 17–24. Krivtsov, A. I., Polinova, L. V., Ivankina, M. S., Chubarkova, E. V., & Prokubovskaya, A. O. (2016). Corporate information management system and its influence on increase of changes productivity. International Journal of Environmental & Science Education, 11(15), 7627–7635. Popkova, E., Gornostaeva, Z., & Tregulova, N. (2018). Role of innovations in provision of competitiveness and innovational development of economy and overcoming of “underdevelopment whirlpools” in Russia and countries of Eastern Europe. Journal of Entrepreneurship in Emerging Economies, 10(3), 511–523. doi: 10.1108/JEEE-12-2017-0100.

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Popkova, E. G. (Vol. Ed. & Series Ed.). (2017). Economic and legal foundations of modern Russian society: A new institutional theory. In Advances in research on Russian business and management. Charlotte, NC: Information Age Publishing. Popkova, E. G., Ragulina, Y. V., & Bogoviz, A. V. (2019). Industry 4.0: Industrial revolution of the 21st century. In J. Kacprzyk (Ed.), Studies in systems, decision and control. Berlin: Springer. Popkova, E. G., Tyurina, Y. G., Sozinova, A. A., Bychkova, L. V., Zemskova, O. M., Serebryakova, M. F., & Lazareva, N. V. (2017). Clustering as a growth point of modern Russian business. Contributions to Economics, 97–103, 55–63. Ramadani, V., Zendeli, D., Gerguri-Rashiti, S., & Dana, L.-P. (2018). Impact of geomarketing and location determinants on business development and decision making. Competitiveness Review, 28(1), 98–120. Royal Dutch Shell. (2018). About the company. Retrieved from https://www.shell.com/about-us.html. Accessed on October 25, 2018. Sukhodolov, A. P., Popkova, E. G., & Litvinova, T. N. (2018). Models of modern information economy: Conceptual contradictions and practical examples. Bingley: Emerald Publishing. Tseng, M.-L., Chiu, A. S. F., & Liang, D. (2018). Sustainable consumption and production in business decision-making models. Resources, Conservation and Recycling, 128, 118–121. Veselovsky, M. Y., Izmailova, M. A., Bogoviz, A. V., Lobova, S. V., & Alekseev, A. N. (2017). Business environment in Russia and its stimulating influence on innovation activity of domestic companies. Journal of Applied Economic Sciences, 12(7), 1967–1981. Volkswagen Group. (2018). Investor relations. Retrieved from http://www.volkswagenag.com/en/InvestorRelations.html. Accessed on October 25, 2018.

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PART VI: MESO-LEVEL RESULTS OF DECISION MAKING IN MODERN BUSINESS SYSTEMS

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Chapter 19

Conceptual Approaches to Determining, Diagnostics, and Forecasting the Region’s Consumer Market O.K. Lukhovskaya, O.Y. Guryeva, V.I. Perov, I.V. Malova and T.S. Kochetkova

19.1 Introduction The region’s consumer market is the most important socioeconomic sphere and the main component of the modern market economy, where part of gross regional product (GRP), materialized in the form of manufactured goods and services, is purchased by region’s population for personal consumption. At present, there are several methodological approaches to defining the category “consumer market.” The first one is the marketing approach, which has social orientation. Based on the essence of behavioristic theories, regional consumer market should be defined as a mechanism of regulation of the processes of interaction of consumers, sellers, and intermediaries, which form depending on peculiarities of consumer preferences and motivations. At the same time, F. Kotler defines consumer market from the point of view of marketing as consumer market, partially distinguishing the subjects of this market – consumers (“certain persons and households”) and does not consider the process of purchase of goods and services as a two-sided act in which subjects of from the side of sellers are not mandatory (Kotler, 2003, p. 46). This is a substantial difference of consumer market as an economic category which allows distinguishing it in the common notion of market. That’s why all common characteristics of the market are also peculiar for consumer market. The second approach – institutional – allows studying behavior of a lot of institutes (Guryeva, 2015, p. 232) that interact in the consumer market. They build their behavior models based on generally accepted (in a specific territory and in a specific time) rules, standards, and norms. In other words, it is a behavioristic approach. Standards and rules that are peculiar for the society make the interacting institutes to use a certain model of behavior.

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Consumer market is treated as a totality of institutes that stimulates its functioning. Here we speak of the institute of private property for production means and the institute of entrepreneurship, whose level of development allows assessing the level of their influence on the state of competitive environment of consumer market in modern Russia. According to the authors, this approach will allow determining the most problematic direction and developing offers for further development of the institutes of competitive environment of consumer market. The third approach is the reproduction approach. Regional consumer market is viewed as a form of organization of the turnover sphere and provision of interactions among regional production, distribution, exchange, and consumption (classic approach, developed by Karl Marx). The followers of the reproduction approach focus on the role of regional consumer market in development of social and economic environment, in view of the open character of its functioning (Osipov, 2005, p. 5). The fourth approach is the economic approach. Within this approach, consumer market is treated as “… system of monetary and organizational & economic relations that form in the process of buy-sell, for development of which on this territory there are the most favorable natural and socio-economic conditions of entrepreneurial activities for the purpose of satisfaction of final needs of the population” (Takhumova, 2006, p. 25). “Consumer market is the main component of market economy, where part of GRP, which is materialized in the form of goods and services that are produced by business are purchased by consumers for personal consumption” (Shabunina, Lomovtseva, & Trubits, 1996, p. 21). This definition expends the sphere of research of this definition and allows considering consumer market not only as buy–sell relations between manufacturer and consumer but as a large part of country’s (region’s) economy. According to its economic essence, regional consumer market could be treated as a totality of highly localized socioeconomic processes and relations in the sphere of exchange and consumption, formed under the influence of peculiarities of demand and offer of each territorial and administrative entity, in view of adequate methods of regulation of market situation and making of commercial decisions (Butov, Ignatov, & Ketova, 2000, p. 41). Thus, there are a lot of definitions of the studied category, and each of them has a right to exist – as it is given based on a certain circle of set tasks of the research. The authors think that in modern scientific studies the problem of socioeconomic balance of consumer market in region’s development is not sufficiently elaborated. Balance of consumer market is studied by the authors from the position of one of the factors of region’s economic development. In statistical materials, analysis of consumer market is presented by indicators of its economic activities (spheres): trade, public catering, and public services. Trade and public catering are an important part of internal market and have a large role in formation of aggregate economic potential of the region (Lukhovskaya, Perov, & Savkin, 2018, p. 65) and in provision of needs of city’s population for goods and services. However, treatment of consumer market as a

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sphere of economic activities in trade and public catering is too narrow. According to the authors, the components of consumer market should be trade, public catering, and service sphere. Region’s consumer market is one of the leading strategic units in the structure of regions’ economy, which includes the segments of wholesale and retail trade of goods, public catering, and service sphere, which ensure comfort of consumer and entrepreneurial environment in the regional market.

19.2 Methodology Emphasis in the strategic approach should be made on the applied significance of evaluation and analysis of the consumer market. Analysis of scientific literature allows distinguishing the following methodological developments for evaluating the development of consumer market. (1) The methodology of research of local consumer market by A. E. Demyanenko (2012, p. 205) is very interesting. The author uses the calculation and constructive method with multifactor correlation and regression analysis. Economic and mathematical modeling of regularities of development and interaction between results and production factors on the basis of correlation and regression analysis is performed. Regression model of dependence of gross regional product (Y, points) is substantiated with such factors as turnover of consumer market (X1), volumes of industry products (X2), volumes of agricultural products (X3), number of employees in economy (X4), and provision of investments with credits (X5) (Formula 19.1): Y ¼ 2 15:4 1 0:216X1 1 0:159X2 1 0:262X3 1 0:443X4 1 7:484E 2 02X5

(19.1)

Based on the received characteristics, elasticity of regional activities is assessed (in dynamics according to specific subject of federation or in static according to totality of regions), which allows determining the measure of usage of the existing objective possibilities of production. In view of the fact that consumer market includes service sphere, a just question arises: do we take into account the “measures” of production of service or only material production? (2) R. R. Galieva and V. M. Timiryanova developed a methodology of evaluating consumer market and forecasting retail turnover of a trade company (Galieva & Timiryanova). Using economic and statistical and mathematical methods, the authors present a methodology of forecasting of company’s activities in a sectorial market. As a matter of fact, it’s a forecast of company’s turnover in view of changes of aggregate sectorial volume of turnover for the groups of commodities. Consumer market is treated as aggregate sectorial volume of turnover, in the methodology of calculation of which its full definition as totality of the sphere of trade, public catering, and services is absent.

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(3) Complex methodology of diagnostics of the state of consumer market and evaluation of its real volume, offered by A. E. Chusova, is based on economic and statistical, graphic, and mathematical methods (Chusova, 2011, p. 54). The author offers a strategy for determining the state of the consumer market based on:

• • • • • • •

potential of consumer market; security of consumer market; competitiveness of domestic goods and manufacturers; food security; protection of participants of consumer market; attractiveness of consumer market; volume of shadow economy in the sphere of consumer market. The methodology includes a large volume of information. (4) The methodology of evaluation of regional consumer market of I. V. Malova is aimed at analysis of its main sphere – trade. Unlike the above methodologies, the author offers the marketing approach with social direction. Evaluation includes:

• • • •

analysis of regional structure of supply of goods of retail trade, including in the Russian background; analysis of dynamics of prices for retail goods and determination of the causes of their changes; analysis of income per capita of the region’s population and determination of its structure’s peculiarities; determination of ratio of population’s income and established prices for goods, consequences of their disproportion (Malova, 2014, p. 134).

Modern scholars presented a range of methodologies of development of a regional system of food provision in consumer market (Ananiev, Lukhovskaya, & Vasilchuk, 2017, p. 101). The authors prefer the methodology of D. V. Turtin, T. S. Kochetkova and S. A. Kochetkov for developing the methodology of diagnostic and forecasting of region’s consumer market. D. V. Turtin developed a methodology of analysis and forecasting of indicators of region’s consumer market (Gretchenko, Arefyeva, Lukhovskaya, Turtin, Kochetkova, and Shirokova, 2017, p. 45). This methodology allows conducting analysis of the current state of region’s consumer market and forecasting its development by forming a regression equation. This methodology envisages the following stages: (1) (2) (3) (4)

Selecting parameters (factors) for the research. Studying connections between parameters (factors). Finding linear trend for each factor with the help of the theory of time rows. Using the theory of multiple linear regression for determining dependence of the dominating factor Y on other factors. (5) Evaluating the forecast. Concluding the research.

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At the first stage, logical analysis of statistical and questionnaire data for the research object are conducted and parameters (factors) that will be studied in the future are determined (X1, X2… Xn). At the second stage, coefficients of paired correlation for all factors are calculated (Formulae 19.2 and 19.3) and correlation matrix is compiled (Table 19.1). ryx1 ¼

rx1 x2 ¼

yx1 2 YX1 ; sx1 sy

x1 x2 2 X 1 X 2 ; s x1 s x2

ryx2 ¼

rx1 x3 ¼

yx2 2 YX2 ; sx2 sy

x1 x3 2 X 1 X 3 ; sx1 sx3

ryx3 ¼

rx2 x3 ¼

yx3 2 YX3 s x2 s y

(19.2)

x2 x3 2 X 2 X 3 sx2 sx3

(19.3)

Correlation matrix allows determining interconnection between the factors. At the third stage, with the help of the theory of time rows, a linear trend is determined for each factor – with the usage of paired linear regression. Evaluation of parameters of paired regression and verification of its quality is a laborintensive process. That’s why with a large number of observations the above procedures should be conducted with the help of software (e.g., Excel). At the fourth stage, the theory of multiple linear regression is used for determining interconnections between the dominating factor Y and other factors: y ¼ a0 1 a1 x1 1 a2 x2 1 … 1 ap xp

(19.4)

At the last stage of the offered methodology, forecasting of the indicators of consumer market and evaluation of its correctness are conducted. Forecasting is conducted on the basis of the obtained regression equation. For evaluating the correctness of the forecast, the following calculations are performed: (1) Standard errors of coefficients A, B and rxy are calculated with the following formulae:

mA

vffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi u Docm ¼ u u n  2 ; t + xi 2 X i¼1

vffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi u n u u + x2i u i¼1 mB ¼ u uDocm n  2 ; t n + xi 2 X

rffiffiffiffiffiffiffiffiffiffiffiffi 1 2 r2 mr ¼ ; n22

(19.5)

i¼1

Table 19.1. Results of Studying the Connection between Model Variables (Correlation Matrix). y x1 x2 … xm

y 1 ryx1 ryx2 … ryxm

x1 ryx1 1 rx1 x2 … rx1 xm

x2 ryx2 rx1 x2 1 … rx2 xm

x3 ryx3 rx 1 x 3 rx 2 x 3 … rx 3 x m

… … … … … …

xm ryxm rx 1 x m rx 2 x m … 1

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Factual values of Student’s t-test are calculated by formulae: tA ¼

A ; ma

tB ¼

B ; mB

tr ¼

r ; mr

(19.6)

Table value of Student’s t-test is calculated with the significance level q 5 1% or q 5 5% and the number of levels of freedom n 2 2, and significance of the coefficient is verified. (2) Limits of trust intervals of coefficients are calculated by formulae: b 6 ttabл mA ; A ¼ A

b 6 ttabл mB ; B ¼ B

rxY ¼ brxY 6 ttabл mr

(19.7)

One of the advantages of application of this method is the possibility to determine interconnection between the indicators of resulting feature and factor features (regression equation). The obtained equation allows forecasting the resulting feature, which, in its turn, allows using preventive measures for regulation of factor features that influence its values. T. S. Kochetkova’s methodology is based on development of the technology that allows for effective diagnostics and forecasting of economic sustainability of region’s consumer market. Practical implementation of this methodology allows region’s government to develop a plan of measures for development of consumer market under various courses of events. The methodological basis of the research includes a complex of interconnected modules: Module 1. Compiling a map of economic opportunities of consumer market. Module 2. Determining the level of economic sustainability of consumer market. Module 3. Determining and optimizing indicators of consumer market in a relevant range, which allow achieving the point of optimal usage of its resources (Gretchenko, Arefyeva, Lukhovskaya, Turtin, Kochetkova, and Shirokova, 2017, p. 56). Implementation of the first module of this methodology envisages compiling a map of economic opportunities of consumer market – totality of points that reflect economic state of consumer market and allow presenting its position as to extreme values that could have been achieved at present in case of the pessimistic and the optimistic scenarios of development. The axes in this map are parameters and indicators of the consumer market that define its economic position. Mathematical provision of this stage of the algorithm includes the mechanism of neural networks and genetic algorithm, which allows evaluating the position of consumer market at present time as to two scenarios of development: pessimistic and optimistic. The second module of the technology envisages determining the level of economic sustainability of consumer market. The level of economic sustainability of consumer is the indicator that characterizes its economic state, expressed in quantitative or qualitative form and corresponding to one of term sets of values

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203

for the linguistic variable “Level of indicator of economic sustainability”. Term set is a totality of values of the linguistic variable “Level of indicator of economic sustainability”. Terms “term set” and “linguistic variable” belong to the fuzzy set theory, which is used during development of the methodology of determining economic sustainability. The result of this stage is obtaining the integral indicator of economic sustainability of region’s consumer market. Also, trapezoidal fuzzy numbers are studied. The bearer of the linguistic variable is the part of material axis [0,1]. Linguistic variable “Level of the indicator of economic sustainability” has the following term set of values: “Very low effectiveness,” “Low effectiveness,” “Medium effectiveness,” “High effectiveness,” and “Very high effectiveness.” For describing subsets of a term set, let us use the system of five corresponding membership functions of trapezoid type: 8
> > > < 10ðx 2 0:25Þ; 0:15 # x , 0:25 m2 ðxÞ ¼ 1; 0:25 # x , 0:35 : > > > 10ð0:45 2 xÞ; 0:35 # x , 0:45 > : 0; 0:45 # x , ¼ 1

(19.9)

8 0; 0 # x , 0:35 > > > > < 10ðx 2 0:35Þ; 0:35 # x , 0:45 1; 0:45 # x , 0:55 : m3 ðxÞ ¼ > > > 10ð0:65 2 xÞ; 0:55 # x , 0:65 > : 0; 0:65 # x , ¼ 1

(19.10)

8 0; 0 # x , 0:55 > > > > < 10ðx 2 0:55Þ; 0:55 # x , 0:65 1; 0:65 # x , 0:75 m4 ðxÞ ¼ : > > 10ð0:85 2 xÞ; 0:75 # x , 0:85 > > : 0; 0:85 # x , ¼ 1

(19.11)

m1 ðxÞ ¼

m5 ðxÞ ¼

8