Management A Practical Introduction Third Edition Angelo Kinicki

Management A Practical Introduction Third Edition Angelo Kinicki & Brian K. Williams Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin

Chapter 7: Individual & Group Decision Making How Managers Make Things Happen v. The Nature of Decision Making v. Rational & Nonrational Decision Making v. Evidence-Based Decision Making & Analytics v. Making Ethical Decisions v. How to Work With Others v. How to Overcome Barriers to Decision Making Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 2

7. 1 The Nature Of Decision Making HOW DO MANAGERS MAKE DECISIONS? v. A choice made from available alternatives is a decision v. The process of identifying and choosing alternative courses of action is decision making v. Decisions that are repetitive and routine and made automatically are programmed v. Decisions that occur under nonroutine, unfamiliar circumstances and are not automatic are nonprogrammed Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 3

7. 1 The Nature Of Decision Making v. The willingness to gamble or to undertake risk for the possibility of gaining an increased payoff is referred to as risk propensity v. The combination of how an individual perceives and responds to information is the individual’s decision-making style v. Decision-making styles differ according to value orientation (the extent to which a person focuses on either task and technical issues or people and social concerns when making a decision) and tolerance for ambiguity (the extent to which a person has a need for structure or control) Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 4

7. 1 The Nature Of Decision Making When the dimensions of value orientation and tolerance for ambiguity are combined, four decision-making styles emerge: Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 5

Knowing Your Decision Making Style…Directive v Low tolerance for ambiguity and oriented toward task and technical concerns v Efficient, logical, practical, and systematic in approach to solving problems v Tend to be autocratic, exercise power and control, and focus on the short-term Mc. Graw-Hill/Irwin Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin © 2006 The Mc. Graw-Hill Companies, Inc. All rights reserved. 6

Knowing Your Decision Making Style…Analytical v Higher tolerance for ambiguity and is characterized by the tendency to overanalyze a situation v Careful decision makers who take longer to make decisions; also respond well to new situations Mc. Graw-Hill/Irwin Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin © 2006 The Mc. Graw-Hill Companies, Inc. All rights reserved. 7

Knowing Your Decision Making Style…Conceptual v High tolerance for ambiguity and tends to focus on the people or social aspects of a work situation v Adopts a long-term perspective and relies on intuitions and discussions with others to acquire information v Can result in an indecisive approach to decision making Mc. Graw-Hill/Irwin Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin © 2006 The Mc. Graw-Hill Companies, Inc. All rights reserved. 8

Knowing Your Decision Making Style…Behavioral v The most people oriented v Works well with others, enjoys social interactions in which opinions are openly exchanged; has tendency to avoid conflict, but can be indecisive and have a hard time saying no v Can lead to a wishy-washy approach to decision making Mc. Graw-Hill/Irwin Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin © 2006 The Mc. Graw-Hill Companies, Inc. All rights reserved. 9

7. 1 The Nature Of Decision Making Figure 7. 1: Decision-Making Styles Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 10

Rational Decisions v Rational Model of Decision Making – also called the classical model explains how managers should make decisions; it assumes managers will make logical decisions that will be optimum in furthering the organization’s best interests. Mc. Graw-Hill/Irwin v The Rational Model is based on unrealistic assumptions: v Complete information, no uncertainty, v Logical, unemotional analysis, v Best decision for the organization. Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin © 2006 The Mc. Graw-Hill Companies, Inc. All rights reserved. 13

7. 2 Two Kinds Of Decision Making: Rational & Nonrational Figure 7. 2: The Four Steps in Rational Decision Making Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 14

The Four Steps in Rational Decision Making Stage 1 Stage 2 Stage 3 Stage 4 Identify the problem or opportunity Think up alternative solutions Evaluate alternatives & select a solution Implement & evaluate the solution chosen Mc. Graw-Hill/Irwin Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin © 2006 The Mc. Graw-Hill Companies, Inc. All rights reserved. 15

7. 2 Two Kinds Of Decision Making: Rational & Nonrational There are four stages in the rational decision making process Stage 1: Identify the problem or opportunity v. Difficulties that inhibit the achievement of goals are called problems v. Situations that present possibilities for exceeding existing goals are called opportunities v. Whether they face a problem or an opportunity, managers need to make decisions that will improve the firm v. To do this, they need to make a diagnosis (analysis of the underlying causes of the problem or opportunity) Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 16

Stage 1 Identify the problem or opportunity Problems: difficulties that inhibit the achievement of goals Diagnosis: analyzing underlying causes Opportunities: situations that present possibilities for exceeding existing goals Mc. Graw-Hill/Irwin Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin © 2006 The Mc. Graw-Hill Companies, Inc. All rights reserved. 17

7. 2 Two Kinds Of Decision Making: Rational & Nonrational Stage 2: Think up alternative solutions v. Once managers have identified problems or opportunities and diagnosed causes, they need to come up with alternative solutions v. Solutions for programmed decisions are simple and obvious, but nonprogrammed decisions will be more challenging Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 18

Stage 2 Think up alternative solutions v For a programmed decision — the alternative will be easy and obvious Mc. Graw-Hill/Irwin v For a nonprogrammed decision — the more creative and innovative the alternative, the better Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin © 2006 The Mc. Graw-Hill Companies, Inc. All rights reserved. 19

7. 2 Two Kinds Of Decision Making: Rational & Nonrational Stage 3: Evaluate alternatives & select a solution v Each alternative must be evaluated to determine whether it is ethical, feasible, and effective Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 20

Stage 3 Evaluate alternatives & select a solution v Is solution ethical? v Mc. Graw-Hill/Irwin v Is solution feasible? Is solution ultimately effective? Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin © 2006 The Mc. Graw-Hill Companies, Inc. All rights reserved. 21

7. 2 Two Kinds Of Decision Making: Rational & Nonrational Stage 4: Implement & evaluate the solution chosen v. It is usually more straightforward to implement programmed decisions than nonprogrammed decisions v. To successfully implement a decision, managers must plan carefully and be sensitive to those affected by the decision v. If a decision fails to go as planned, managers should give it more time, change it slightly, or try another alternative v. In some cases, it might be necessary to start the process over Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 22

Stage 4 Implement & evaluate the solution chosen v Mc. Graw-Hill/Irwin Successful Implementation – you need to: v Plan Carefully v Be Sensitive to those affected v Evaluation – you need to follow up and evaluate the results of the decision and take action Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin © 2006 The Mc. Graw-Hill Companies, Inc. All rights reserved. 23

Stage 4, cont. Stage 4 Implement & evaluate the solution chosen v Evaluation – Taking Action 1) Give it more time 2) Change it slightly 3) Try another alternative 4) Start over Mc. Graw-Hill/Irwin Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin © 2006 The Mc. Graw-Hill Companies, Inc. All rights reserved. 24

7. 2 Two Kinds Of Decision Making: Rational & Nonrational WHAT’S WRONG WITH THE RATIONAL MODEL? v. The rational model describes what a manager ought to do (it is prescriptive), it does not describe how a manager should actually make a decision v. The model also assumes that the manager has complete information Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 25

Some Hindrances to Perfectly Rational Decision Making v Complexity v Time and money constraints v Different cognitive capacity, values, skills, habits and unconscious reflexes v Imperfect information v Information overload v Different priorities v Conflicting goals Mc. Graw-Hill/Irwin Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin © 2006 The Mc. Graw-Hill Companies, Inc. All rights reserved. 26

7. 2 Two Kinds Of Decision Making: Rational & Nonrational WHY DO MANAGERS MAKE NONRATIONAL DECISIONS? v. Nonrational models of decision making assume that decision making is usually uncertain and risky v. Nonrational models are descriptive - they describe how managers actually make decisions v. There are two nonrational models: satisficing and incremental Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 27

7. 2 Two Kinds Of Decision Making: Rational & Nonrational 1. The satisficing model suggests that because of bounded rationality (when the ability of decision makers to be rational is limited by numerous constraints), managers do not seek all alternative solutions, but instead seek alternatives only until they find one that is satisfactory, not optimal 2. The incremental model of decision making argues that managers take small, short-term steps to solve problems Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 28

7. 2 Two Kinds Of Decision Making: Rational & Nonrational CAN MANAGERS MAKE BETTER DECISIONS THROUGH KNOWLEDGE MANAGEMENT? v. Today, managers are shifting toward knowledge management or the development of an organizational culture (tools, processes, systems, and structures) that encourages continuous learning and sharing of knowledge and information among employees, for the purpose of making better decisions Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 29

7. 2 Two Kinds Of Decision Making: Rational & Nonrational There are two types of knowledge: 1. explicit knowledge is information that can easily be put into words, graphics, and numbers and shared with others like the tax code 2. tacit knowledge is individual-based, intuitive, and acquired through considerable experience, and is hard to explain and to share like how to write a speech v. Managers can share information using high-tech solutions like e-mail and Web sites, and low-tech solutions like human interaction in meetings and informal networking Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 30

7. 3 Evidence–Based Decision Making & Activities WHY IS EVIDENCE BASED DECISION MAKING USEFUL? v. Evidence based decision making requires managers to put aside beliefs and conventional wisdom and act on the facts v. The philosophy is based on three truths: there are few really new ideas, true is better than new, doing well usually dominates v. Managers who use evidence-based decision making often have a competitive advantage over those who do not Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 31

7. 3 Evidence–Based Decision Making & Activities Companies using evidence-based decision-making should: vtreat the organization as an unfinished prototype vprovide the facts vsee themselves and their company as outsiders do vuse evidence-based management regardless of management level vwork to sell their solution vuse evidence-based management even when it is not the popular method vlearn from failure Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 32

7. 3 Evidence–Based Decision Making & Activities v. Analytics or business analytics refers to sophisticated forms of business data analysis and is one of the purest forms of evidence-based management Competitors that use analytics share three key attributes: 1. they go beyond basic statistics and use other techniques like predictive modeling (a data mining technique used to predict future behavior and anticipate the consequences) 2. they do not rely on a single method, but instead use multiple applications 3. they have support from top level executives Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 33

7. 4 Making Ethical Decisions HOW CAN MANAGERS BE SURE THEIR DECISIONS ARE ETHICAL? v. Today, ensuring that employees understand what constitutes desirable business behavior has become important v. Many companies have ethics officers (someone trained about matters of ethics in the workplace, particularly about resolving ethical dilemmas) Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 34

7. 4 Making Ethical Decisions v. Companies use decision trees (graphs of decisions and their possible consequences that are used to crate a plan to reach a goal) to help them reach ethical decisions When using a decision tree, managers should ask: vis the proposed action legal? vif yes, does the proposed action maximize shareholder value? vif yes, is the proposed action ethical? vif no, would it be ethical not to take the proposed action? Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 35

7. 4 Making Ethical Decisions Figure 7. 4: The Ethical Decision Tree: What’s The Right Thing To Do? Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 36

7. 5 Group Decision Making: How To Work With Others WHY WORK IN GROUPS? There are five advantages to using groups: vgroups provide a greater pool of knowledge vgroups offer different perspectives vgroups encourage intellectual stimulation vgroups allow for a better understanding of decision rationale vgroups encourage a deeper commitment to the decision Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 37

7. 5 Group Decision Making: How To Work With Others WHAT ARE THE DISADVANTAGES OF GROUPS? There are several disadvantages of groups: vgroups can result in a few people dominating or intimidating vgroups encourage groupthink which occurs when group members strive to agree for the sake of unanimity and avoid accurately assessing the decision situation vgroups encourage satisficing vgroups promote goal displacement which occurs when the primary goal is subsumed by a secondary goal Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 38

7. 5 Group Decision Making: How To Work With Others WHAT SHOULD MANAGERS KNOW ABOUT GROUPS & DECISION MAKING? Managers should be aware of four characteristics of groups: 1. groups are less efficient 2. group size affects the quality of decisions 3. groups may be too confident about their decisions 4. group decision making tends to be better when members know more about relevant issues, and when leaders can weight members’ opinions Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 39

Chapter 7: Individual & Group Decision Making CLASSROOM PERFORMANCE SYSTEM Which of the following is not true of group decision making? A) it is more efficient B) group size affects decision quality C) groups are more confident of the decision D) knowledge is important Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 40

7. 5 Group Decision Making: How To Work With Others SHOULD EMPLOYEES BE INVOLVED IN DECISION MAKING? v. One technique to improve productivity is participative management (the process of involving employees in setting goals, making decisions, solving problems, and making changes to the organization) v. Studies have found that participative management is effective in some cases such as when management is supportive and employees trust managers Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 41

7. 5 Group Decision Making: How To Work With Others v. When groups make decisions, they have to reach a consensus (when members are able to express their opinions and reach agreement to support the final decision) v. Three techniques that can help groups solve problems are brainstorming (helps groups generate ideas and alternatives for solving problems, nominal groups (generate ideas and evaluate solutions by writing down as many ideas as possible, listing them on a blackboard, and then taking a secret vote), and delphi groups (use physically dispersed experts who fill out questionnaires to anonymously generate ideas) v. These can be assisted with computer-aided decision making Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 42

Chapter 7: Individual & Group Decision Making CLASSROOM PERFORMANCE SYSTEM Which of the problem solving techniques is useful when managers want to generate as many new ideas or alternatives as possible? A) nominal group technique B) delphi technique C) brainstorming D) computer-aided decision making Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 43

7. 6 How To Overcome Barriers To Decision Making HOW DO MANAGERS RESPOND TO DECISION SITUATIONS? There are four ineffective reactions: 1. relaxed avoidance - a manager decides to take no action in the belief that there will not be great negative consequences 2. relaxed change - a manager realizes that complete inaction will have negative consequences but opts for the first available alternative that has low risk Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 44

7. 6 How To Overcome Barriers To Decision Making 3. defensive avoidance - the manager can’t find a good solution so procrastinates, passes the buck, or denies the risk of any negative consequences 4. panic - a manager is so frantic to get rid of the problem that he can’t deal with the situation realistically v. When a manager agrees that he must decide what to do about a problem or opportunity, and takes effective decision-making steps, we say he is deciding to decide Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 45

Chapter 7: Individual & Group Decision Making CLASSROOM PERFORMANCE SYSTEM A manager that simply takes the easy way out is using the ______ strategy. A) panic B) defensive avoidance C) relaxed change D) relaxed avoidance Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 46

7. 6 How To Overcome Barriers To Decision Making There are several common decision making biases (called heuristics) that simplify the process of making decisions: 1. When managers use only information that is readily available from memory to make judgments, an availability bias exists 2. When people seek information to support their point of view and discount data that do not, a confirmation bias exists 3. A representativeness bias refers to the tendency to generalize from a small sample or a single event Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 47

7. 6 How To Overcome Barriers To Decision Making 4. When managers add up all the money already spent on a project and conclude it is too costly to simply abandon it, sunk cost bias exists 5. The tendency to make decisions based on an initial figure is adjustment bias 6. Escalation of commitment bias occurs when decision makers increase their commitment to a project despite negative information about it Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 48

Chapter 7: Individual & Group Decision Making CLASSROOM PERFORMANCE SYSTEM Which type of bias occurs when a manager generalizes from a small sample? A) confirmation bias B) representativeness bias C) availability bias D) sunk cost bias Kinicki/Williams, Management: A Practical Introduction 3 e © 2008, Mc. Graw-Hill/Irwin 49