CHAPTER 8 DECISION MAKING Organizational Decision Types Decision

CHAPTER 8 DECISION MAKING

Organizational Decision Types • Decision making is the most central activity of management, the essence of a manager’s job • Two classifications: – Personal versus organizational – Programmed versus nonprogrammed

Personal v. Organizational Decision Making • Personal decision making: making decisions that involve only ourselves • Organizational decision making: involves decisions that pertain to the problems and practices of a given organization • The difference between personal and organizational decision making lies in the object of the process

Programmed v. Nonprogrammed Decision Making • Proposed by Herbert Simon • Programmed decisions: well-structured • Nonprogrammed decisions: poorly structured

Personal/Organizational Categorization • Personal programmed decisions: involve simple, repetitive personal matters • Personal nonprogrammed decisions: arise during rare but significant events in an individual’s life

Personal/Organizational Categorization (cont. ) • Organizational programmed decisions: typically handled according to established guidelines, rules, or procedures, and are most often made by lower level employees

Personal/Organizational Categorization (cont. ) • Organizational nonprogrammed decisions: rare and unique situations that have potentially significant impact on the organization, and are usually handled by high-level personnel

Classical Decision Theory • Referred to as the Rational-Economic Model • Described as a series of steps that a decision maker should follow in order to enhance the probability of attaining a desired goal

Classical Decision Theory (cont. ) • Does a good job of describing how a decision should be made, but it is largely inaccurate as a description of how managers actually do make decisions

Steps in Classical Decision Theory • Opportunity or problem of situation exists • It is recognized to exist; very important • Opportunity/problem is defined • Alternatives are generated • Information is gathered • Alternatives are evaluated

Steps in Classical Decision Theory (cont. ) • One alternative is selected • Alternative is implemented and evaluated in terms of effectiveness

Problems with the Model • It assumes that all alternatives will be considered • It assumes that the consequences of each alternative will be explored • It assumes that information is available at no cost

Problems with the Model (cont. ) • It assumes that decision makers are totally rational • In reality, the above assumptions rarely exist

A Behavioral Theory of Decision Making • Acknowledges the real-world limitations on manager’s decision making • Managers in this model operate with bounded rationality in making decisions • Recognizes that: – All possible alternatives and their associated consequences cannot be generated

A Behavioral Theory of Decision Making (cont. ) – Both the available information and the definition of the situation are likely to be incomplete and inadequate to some degree – The final decision may be based on criteria other than simple optimization or outcome maximization • When managers seek solutions that are “good enough” they satisfice, rather than maximize

A Behavioral Theory of Decision Making (cont. ) • Bounded discretion: suggests that optimal solutions are sometimes not feasible courses of action because they are ethically improper • People often use rules of thumb, or heuristics, when making decisions which are simplified decisions to achieve satisficing solutions

Influence of Judgmental Strategies • Used when decision makers go beyond the information they are given when making inferences • Often lead to erroneous inferences • Two types of judgmental strategies – Availability heuristics – Representativeness heuristics

Types of Judgmental Strategies • Availability heuristics: reflect the influence of the relative availability of objects or events, i. e. , their accessibility via memory, perception, or imagination • Representativeness heuristic: the application of one’s sense of resemblance between objects or events

Obstacles to Effective Decision. Making • Four most common obstacles: – Judgmental biases – Escalation of commitment – Groupthink – Willingness of groups to take risks

Judgmental Biases • • Implicit favorite bias Loss-aversion bias Selective perception bias Personal experience bias

Escalation of Commitment • Occurs when a decision maker is unwilling to change a course of action despite unequivocal evidence showing that the decision was incorrect • Possible reasons for escalation of commitment: – Stick-to-it-iveness – Desire to be consistent

Escalation of Commitment (cont. ) • Escalation of commitment is most likely to occur in certain predictable settings, e. g. , when a person is making a decision for which she feels strong personal responsibility

Escalation of Commitment (cont. ) • To counter escalation of commitment, Barry Straw recommends seeking counsel from trusted advisors who don’t feel the personal responsibility, or alternatively, rotate responsibility across managers

Groupthink • Identified by Irving Janis in which groups are lead to commit serious errors in decision making

Groupthink (cont. ) • Characteristics of a group suffering from groupthink: – Group likely to be very cohesive – Group is more concerned with achieving consensus that it is with exploring alternative courses of action, and analyzing the situation

Main Symptoms of Groupthink • • Illusion of invulnerability Rationalization Assumption of morality Negative stereotyping

Main Symptoms of Groupthink (Cont. ) • • Pressure to Conform Self-censorship Illusion of unanimity Mindguards

Preventing Groupthink • Encourage group members to voice their opinions, doubts, objectives • Assign several group members to teams that will investigate the advisability of alternative courses of action; followed by a debate • Appoint a group member to serve as a devil’s advocate at each group meeting

Preventing Groupthink (cont. ) • Hold last-change meetings at which members are encouraged to raise any nagging doubts or hesitations that they have • As a manager, set an example by being open to criticism yourself

Risk Taking • James Stoner investigated the differences between group and individual decision making • Findings: – Individuals tend to take a less risky route, while groups favor riskier actions

Risk Taking (cont. ) – When individuals are placed in a group, they endorsed a riskier position than they did as individual decision makers, called the risky shift – Risky shift: When a group endorses a riskier position than would its individual members – Groups may diffuse responsibility, feel less personal responsibility for the consequences of their actions

Risk Taking (cont. ) – Group decision making may be more conservative than individual decision making, called the cautious shift – Tendency of groups to move toward extremes has been termed group polarization

Techniques for Improving Decision Making • Research comparing group decisions with individual decisions has shown that groups will out perform individuals working in isolation • The group’s decisions are usually of higher quality than the average of the individual decisions

Techniques for Improving Decision Making (cont. ) – The best solitary worker may often out perform the group • Reasons for groups out performing individuals include: – Groups pool information and abilities; access is greater than individual – Being in a group tends to motivate and inspire group members

Techniques for Improving Decision Making (cont. ) – Social rewards (e. g. praise, admiration) for making significant contributions • Groups may, at their discretion, exercise division of labor by breaking down task for subgroups to work on together

Problems Encountered with Group Decision Making • Groupthink • Groups may polarize toward extreme points of view if risk is involved • Groups may exert pressure on a manager that would allow escalation of commitment to occur

Problems Encountered with Group Decision Making (cont. ) • Tends to be much more costly • Group decisions tend to be influenced by the relative status of individual group members

Nominal Group Technique • Used to mitigate the potential problems associated with group decision making • Involves grouping seven to ten people • Members silently and independently record their ideas about how to tackle a problem

Nominal Group Technique (cont. ) • Each member presents one of his or her ideas to the group, and it is summarized and recorded on a chalkboard or wall chart without review of its merits • A discussion of all ideas is held and ideas are clarified and evaluated

Nominal Group Technique (cont. ) • Individuals silently and independently vote on each idea, which may involve ranking or rating in some way

Nominal Group Technique (cont. ) • Nominal group technique avoids some of the problems of traditional decision making; decisions can be reached in a reasonable amount of time without being greatly influenced by the leader’s preferred position

Delphi Technique • Similar to NGT, however, decision makers never meet • Group is selected based on expertise in given problem area • Experts are mailed questionnaires that survey their opinions

Delphi Technique (cont. ) • Experts’ responses are analyzed and distilled • Summarized results are mailed to experts and responses are requested for another, new survey; experts with dissenting opinions may be asked to rationalize their opinions, and the rationale may be sent to other experts for comment

Delphi Technique (cont. ) • Process is to be repeated several times; consensus is usually reached due to the multiple iterations

Pros/Cons of Delphi Technique Pros • Avoids biases and obstacles associated with interacting groups • Generates fairly useful information and high-quality solutions Cons • Time consuming. May take as little as several weeks or as much as several months • Highly structured format doesn’t offer much flexibility if conditions change

Social Loafing • Refers to when an individual in a group slacks off because of being in the group • More problematic in larger groups because less notability and responsibility

Stepladder Technique • Stepladder technique may combat social loafing • Groups using the stepladder technique have been found to make higher-quality decisions than conventional groups

Creativity and Decision Making • Many problems require creative solutions, particularly those that are nonprogrammed and involve broad ranging ramifications

Characteristics of Creative Individuals • Most people reach creative peak between ages of 30 and 40 • Peak creative age varies by discipline • People can still make creative contributions at later ages, however the frequency of creative productivity decreases

Characteristics of Creative Individuals (cont. ) • Creative people typically have a wide range of interests • Randsepp’s conclusions about the characteristics of creative people: – Willing to give up immediate gain to reach long-range goals – Have lots of energy – Are irritated with the status quo

Characteristics of Creative Individuals (cont. ) – Have a lot of perseverance – Pursue hobbies and specialized interests – Believe that fantasy and daydreaming are not a waste of time • Creative people are more likely to change jobs frequently

Measurement of Creativity • Ways to measure creativity include: – Direct observation – Creativity tests

Steps in the Creative Process • • • Opportunity or problem recognition Immersion Incubation Insight Verification

Methods of Enhancing Creativity • • Nominal Group Technique Delphi Technique Brainstorming Grid analysis

Du. Brin’s Suggestions for Enhancing Creativity • Don’t be afraid to try and then fail • Let your playful side come out; number of new ideas is what counts • Identify your creative time period; use humor • Borrow ideas; give rise to new ideas • Maintain an idea notebook; record flashes of insight for future reference

Ethics in Decision Making • Ethical conduct may offer a strategic advantage relative to competitors • Some organizations provide ethics training for their managers • Ethics training consists of: – Statements from top company officers emphasizing ethics in decision making

Ethics in Decision Making (cont. ) – Discussion of corporate code of conduct – Procedures for reporting unethical conduct • Ethics training can be conducted through case discussion and exercises