presentation chapter 7.ppt - notes for students · 1 chapter 7 decision making, learning,...

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CHAPTERCHAPTER 77CHAPTER CHAPTER 77

Decision Making, Learning, Creativity and Entrepreneurship

LEARNING OBJECTIVES

To differentiate between programmedprogrammed andand nonprogrammednonprogrammed decisionsdecisions,and explain why nonprogrammed decision making is a complex,uncertain process.

To describe the sixsix stepssteps that managers should take to make the bestdecisions.

To explain how cognitivecognitive biasesbiases can affect decision making. To identify the advantages and disadvantages of groupgroup decisiondecision makingmaking,

d d ib t h i th t i it

MGT-101 Yiannos Rossides2

and describe techniques that can improve it. To explain the role that organizationalorganizational learninglearning andand creativitycreativity play in

helping managers to improve their decisions.

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1. The Nature of Managerial Decision Making

• Decision Making• One of the main tasks facing a manager is to manage the organizational

environment. To deal with these opportunities and threats managersk d h h l l f fmust make decisions, that is, they must select one solution from a set of

alternatives.• Decision Making refers to the process by which managers respond to

opportunities and threats by analyzing options, and making decisionsabout goals and courses of action. Every time managers need to take action, to plan, to organize, to direct or control

they make decisions. Decisions in response to opportunities—occur when managers search for ways to

improve organizational performance.


ie. Take advantage of a growth opportunity by introducing a new product CoCa-Cola > Diet Coke

Decisions in response to threats—occur when organizational performance isnegatively affected by adverse events inside or outside the organization.ie. How to react to competitors moves such as discounts or introduction of newproducts or services.

Decisions can have good results (higher performance) or bad results (lowerperformance).

2. Programmed v. Nonprogrammed Decision Making

• Programmed DecisionRoutine, virtually automatic decision making that follows establishedRoutine, virtually automatic decision making that follows established

rules or guidelines. Managers have made the same decision many times before.

There are rules or guidelines to follow based on experience with pastdecisions. Managers can rely on long-established decision rules and they donot need to continually make judgments about what should be done. Mostdecision making for day-to-day operations is programmed decision making.

ie: Disciplinary action to be taken concerning a tardy employee;when an office


ie: Disciplinary action to be taken concerning a tardy employee;when an officemanager orders office supplies whenever the inventory of supplies drops belowa certain level.

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2. Programmed v. Nonprogrammed Decision Making

• Non-Programmed Decisions Nonroutine decision making that occurs in response to unusual, unpredictable

opportunities and threats.opportunities and threats. The are no rules to follow since the decision is new and rules cannot be developed to

predict uncertain events. ie: Deciding to invest in additional production equipment to meet forecasted

demand;decisions to invest in a new kind of technology. Decisions are made based on informationinformation, and a manager’s intuitionintuition, and

judgmentjudgment. Intuition refers to the ability of a person to make sound decisions based on past

experiences and available information.– feelings, beliefs, and hunches that come readily to mind, require little effort and


g , , y , qinformation gathering and result in on-the-spot decisions

Judgment refers to the ability of a person to develop a sound opinion because ofthe way that person evaluates the importance of the available information .– decisions that take time and effort to make and result from careful information

gathering, generation of alternatives, and evaluation of alternatives Both intuition & judgment can result in poor decision making. Therefore, the

possibility of error is greater in nonprogrammed decision making.

3. Decision Making Models

A. The Classical Model A prescriptive model of decision making that assumes the decision

maker can identify and evaluate all possible alternatives and theirconsequences and rationally choose the most appropriate courseof action. (see Figure 7.1)

It assumes that managers have all the information they need tomake the optimum decision.

Optimum decision


Optimum decision The most appropriate decision in light of what managers believe to be the

most desirable future consequences for their organization.

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Managers using the classical model make a series ofsimplifying assumptions about the nature of the decisionmaking process which are shown on Fig. 7.1 .

Fig. 7.1 The Classical Model of Decision Making



B. The Administrative Model An approach to decision making that explains why decision making is inherently

uncertain and risky and why managers usually make satisfactorysatisfactory rather thanoptimum decisions. This model is based on three important concepts:

i. Bounded rationality

There is a large number of alternatives and available information can be soextensive that managers cannot consider it all.

Decisions are limited by people’s cognitive abilities. (limitations of humanintelligence)


g )

ii. Incomplete information

most managers do not see all alternatives and decide based on incompleteinformation. Information is incomplete because of risk and uncertainty,ambiguity, and time constraints.

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Fig. 7.2 Why Information is Incomplete



Causes of incomplete informationa. Risk

Th d f b bilit th t th ibl t f ti l f The degree of probability that the possible outcomes of a particular course ofaction will occur. Managers know enough about a given outcome to be able to assign

probabilities for the likelihood of its failure or success.b. Uncertainty

Probabilities cannot be given for outcomes and the future is unknown. Many decision outcomes are not known such as the success of a new product

introduction.


c. Ambiguous Information Information whose meaning is not clear allowing it to be interpreted in multiple or

conflicting ways. (Fig. 7-3)d. Time Constraints

Managers don’t have the time or the money to search for all possible alternativesolutions and evaluate them as well.

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Fig. 7.3 Ambiguous Information

Young WomanYoung Woman or Old Woman?



e. Satisficing A strategy of searching for and choosing an acceptable, or

satisfactory response to problems and opportunities, rather thantrying to make the best decision. Managers explore a limited number of options and choose an acceptable

decision rather than the optimum decision. Managers assume that the limited options they examine represent all

options.


This is the typical response of managers when dealing with incompleteinformation.

However, decision makers must know that human judgment is often flawedand also delays in making timely decisions often result in missingopportunities or late responses to problems.

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Six steps in the decision making process


4. The Decision Making Process

Step 1. Recognize Need for a Decision Sparked by an event such as environment changes.

M t fi t li th t d i i t b d d d i Managers must first realize that a decision must be made and respond ina timely and appropriate way.

Step 2. Generate Alternatives Managers must develop feasible alternative courses of action. If good alternatives are missed, the resulting decision is poor. It is hard to develop creative alternatives, so managers need to look for

new ideas. Step 3. Evaluate Alternatives


p What are the advantages and disadvantages of each alternative? Managers should specify criteria, then evaluate. The most commonly used

criteria are legality,legality, ethicalness,ethicalness, economiceconomic feasibility,feasibility, andand practicalitypracticality.(Fig.7-5)

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(Step 3: Evaluate Alternatives)

CriteriaCriteria

Legality Is the alternative legal both in this country and abroad for exports?

Ethicalness

Is the alternative ethical and will not bring harm to stakeholders unnecessarily?

Economic Feasibility Can organization’s performance goals sustain


Economic Feasibility Can organization s performance goals sustain this alternative?

Practicality

Does the management have the capabilities and resources required to implement the alternative?

Fig. 7.5

General Criteria G Cfor Evaluating

Possible Courses of Action


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Step 4. Choose Among Alternatives Rank the various alternatives. Make a decision about which alternative to choose


Make a decision about which alternative to choose. When ranking, all information needs to be considered.

Step 5. Implement Chosen Alternative Managers must now carry out the alternative. Subsequent decisions are necessary to implement the chosen one. Often a decision is made and not implemented. Therefore, follow-up is needed.

Step 6. Learn From Feedback (Monitor) Managers should consider what went right and wrong with the decision and learn for the

future. Wi h f db k d l f i d ill h


Without feedback, managers do not learn from experience and will repeat the samemistake again and again.

Feedback procedure1. Compare what actually happened to what was expected to happen as a result of the

decision2. Explore why any expectations for the decision were not met3. Derive guidelines that will help in future decision making

5. Cognitive Biases in Decision Making

• HeuristicsRules of thumb to deal with complex situationsRules of thumb to deal with complex situations.Decision makers use heuristics to deal with bounded

rationality. If the heuristic is wrong, however, then poor decisions result from

its use. Systematic errors can result from use of an incorrect heuristic and

ill d i th l d t k th


will appear over and over since the rule used to make thedecision is flawed. Four sources of bias that can negatively affect management

decision making are shown in Fig. 7-6.

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Fig. 7.6 Sources of Cognitive Bias at the Individual and

Group Levels


5. Cognitive Biases in Decision Making

• Types of Cognitive Biasesa. Prior Hypothesis Bias

All i t i b li f b t l ti hi b t i bl t i fl Allowing strong prior beliefs about a relationship between variables to influencedecisions based on these beliefs even when evidence shows they are wrong. ie.Internal development of products is better than acquisition of new products.

b. Representativeness The decision maker incorrectly generalizes a decision from a small sample or a

single incident.c. Illusion of Control

The tendency to overestimates one’s own ability to control activities and events


The tendency to overestimates one s own ability to control activities and events.d. Escalating Commitment

Committing considerable resources to project and then committing more even ifevidence shows the project is failing because of feelings of personalresponsibility.

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6. Group Decision Making

• Most decisions are made in group settings. Groups tend to reduce cognitive biases and can call on their greater combined skills and

abilities. Superior to individual making Choices less likely to fall victim to bias Able to draw on combined skills of group members Improve ability to generate feasible alternatives Allows managers to process more information Managers affected by decisions agree to cooperate However, there are disadvantages such as taking more time, agreement of all managers can

be difficult and can be undermined by biases.• Groupthink


• Groupthink Pattern of faulty and biased decision making that occurs in groups whose members strive for

agreement among themselves at the expense of accurately assessing information relevantto a decision. Usually occurs when group members rally around a central manager’s idea , and

become blindly commit to the idea without considering alternatives. The group’s influence tends to convince each member that the idea must go forward. So, what to do to deal with groupthink and cognitive biases?

6. Group Decision Making(Improved group decision

making)• Devil’s Advocacy (Fig.7-7)

A group member who defends unpopular or opposing alternatives for the sake oftargument

One member of the group who acts as the devil’s advocate by critiquing the way thegroup identified alternatives and pointing out problems with the alternative selection.

• Dialectical Inquiry (Fig.7-7) Two different groups are assigned to the problem and each group evaluates the

other group’s choice of alternatives. Top managers then hear each group present their alternatives and each group can

critique the other.


critique the other.• Promote Diversity

Increasing the diversity in a group may result in consideration of a wider set ofalternatives. Bringing together managers of both sexes, various ethnic, national,and functional backgrounds.

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Fig. 7.7 Devil’s Advocacy & Dialectical Inquiry


7. Organizational Learning and Creativity

• Organizational Learning Managers seek to improve an employee’s desire and ability to Managers seek to improve an employee’s desire and ability to

understand and manage the organization and its task environmentso as to raise effectiveness.

• The Learning Organization Managers try to maximize the people’s ability to behave creatively

to maximize organizational learning.

Creativity


• Creativity The ability of the decision maker to discover novel ideas leading to

a feasible course of action. A creative management staff and employees are the key to the

learning organization.

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Fig. 7.8 Senge’s Principles for Creating a Learning

Organization



Creating a Learning Organization• The Five principles for creating a learning organization are:• Personal Mastery

Managers empower employees and allow them to create and explore.

• Mental Models Challenge employees to find new, better methods to perform a task.

• Team Learning Is more important than individual learning since most decisions are made in

groups.


g p

• Build a Shared Vision People share a common mental model of the firm to evaluate opportunities.

• Systems Thinking Knowing and understanding how actions in one area of the firm will impact other

areas of the firm.

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A. Promoting Individual Creativityg y• Organizations can build an environment

supportive of creativity. Managers must provide employees with the ability to take

risks. If people take risks, they will occasionally fail.


To build creativity, periodic failures must be rewarded. This idea is hard to accept for some managers.


B. Building Group CreativityThree group decision making techniques are:

i. Brainstorming Managers meet face-to-face to generate and debate many alternatives.

Group members are not allowed to evaluate alternatives until all alternatives arelisted.

When all are listed, then the pros and cons of each are discussed and a short listcreated.

Useful in problem-solving situations.

The problem with brainstorming is Production blocking


The problem with brainstorming is Production blocking Occurs because group members cannot simultaneously make sense of all the

alternatives being generated, think up additional alternatives, and remember whatthey were thinking

Members cannot absorb all information being presented during the session and canforget even their own alternatives.

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B. Building Group Creativityii Nominal Group Techniqueii. Nominal Group Technique Provides a more structured way to generate alternatives in writing.

Avoids the production blocking problem. Similar to brainstorming except that each member is given time to first write

down all alternatives he or she would suggest. Alternatives are then read aloud without discussion until all have been listed. Then discussion occurs and alternatives are ranked.

U f l h i i i l d h diff i h b


Useful when an issue is controversial and when different managers might beexpected to champion different courses of action


B. Building Group Creativityiii. Delphi Technique Provides a written format without having all managers meet face-to-face. Delphi allows distant managers to participate through videoconferencing. Problem is distributed in written form to managers who then generate

written alternatives. Responses are received and summarized by top managers. These results are sent back to participants for feedback, and ranking. The process continues until consensus is reached.


This technique is especially useful when managers are separated bybarriers of time and distance, that is, when they act in a globalenvironment.

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8. Entrepreneurship & Creativity

Entrepreneurs Individuals who notice opportunities and take the responsibility for mobilizing the

t d d i d d d iresources necessary to produce new and improved goods and services. Social Entrepreneurs

Individuals who pursue initiatives and opportunities to address social problemsand needs in order to improve society and well-being, such as reducing poverty,increasing literacy, protecting the natural environment, or reducing substanceabuse.

• Characteristics of entrepreneurs — most share these common traits: Open to experience: they are original thinkers and take risks.


Open to experience: they are original thinkers and take risks. Internal locus of control: they take responsibility for their own actions. High self-esteem: they feel competent and capable. High need for achievement: they set high goals and enjoy working toward them.

9. Intrapreneurship and Organizational learning

Intrapreneurs Individuals (managers, scientists, or researchers) who work inside an

existing organization and notice an opportunity for product improvementsand are responsible for managing the product development process.p g g p p p

Learning organizations encourage their employees to act asintrapreneurs: Product champions: taking ownership of a product from concept to market. Skunkworks: keeping a group of intrapreneurs separate from the rest of

the firm. Rewards for innovation: linking innovation by workers to valued rewards.

Review Questions


1. Define decision making, and differentiate between programmed and non-programmed decisions.

2. List and define the steps in the decision making process.3. Define and discuss the causes of incomplete information, using

examples where appropriate to support your answer.

presentation chapter 7.ppt - notes for students · 1 chapter 7 decision making, learning,...

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