Organizational Behavior 8 e Schermerhorn Hunt and Osborn

Organizational Behavior, 8 e Schermerhorn, Hunt, and Osborn Prepared by Michael K. Mc. Cuddy Valparaiso University John Wiley & Sons, Inc.

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Chapter 17 Decision Making Ø Study questions. – How are decisions made in organizations? – What are the useful decision making models? – How do intuition, judgment, and creativity affect decision making? – How can the decision-making process be managed? – How do technology, culture, and ethics influence decision making? Organizational Behavior: Chapter 17 3

How are decisions made in organizations? Ø Decision making. – The process of choosing a course of action for dealing with a problem or opportunity. Organizational Behavior: Chapter 17 4

How are decisions made in organizations? Ø Steps in systematic decision making. – Recognize and define the problem or opportunity. – Identify and analyze alternative courses of action, and estimate their effects on the problem or opportunity. – Choose a preferred course of action. – Implement the preferred course of action. – Evaluate the results and follow up as necessary. Organizational Behavior: Chapter 17 5

How are decisions made in organizations? Ø The systematic decision-making process may not be followed where substantial change occurs and many new technologies prevail. Ø Novel decision techniques may yield superior performance in certain situations. Ø Ethical consequences of decision making must be considered. Organizational Behavior: Chapter 17 6

How are decisions made in organizations? Ø Decision environments include: – Certain environments. – Risk environments. – Uncertain environments. Organizational Behavior: Chapter 17 7

How are decisions made in organizations? Ø Certain environments. – Exist when information is sufficient to predict the results of each alternative in advance of implementation. – Certainty is the ideal problem solving and decision making environment. Organizational Behavior: Chapter 17 8

How are decisions made in organizations? Ø Risk environments. – Exist when decision makers lack complete certainty regarding the outcomes of various courses of action, but they can assign probabilities of occurrence. – Probabilities can be assigned through objective statistical procedures or personal intuition. Organizational Behavior: Chapter 17 9

How are decisions made in organizations? Ø Uncertain environments. – Exist when managers have so little information that they cannot even assign probabilities to various alternatives and possible outcomes. – Uncertainty forces decision makers to rely on individual and group creativity to succeed in problem solving. Organizational Behavior: Chapter 17 10

How are decisions made in organizations? Ø Uncertain environments — cont. – Also characterized by rapidly changing: • External conditions. • Information technology requirements. • Personnel influencing problem and choice definitions. – These rapid changes are also called organized anarchy. Organizational Behavior: Chapter 17 11

How are decisions made in organizations? Ø Types of decisions. – Programmed decisions. • Involve routine problems that arise regularly and can be addressed through standard responses. – Nonprogrammed decisions. • Involve nonroutine problems that require solutions specifically tailored to the situation at hand Organizational Behavior: Chapter 17 12

What are the useful decision making models? Ø Classical decision theory. – Views the decision maker as acting in a world of complete certainty. Ø Behavioral decision theory. – Accepts a world with bounded rationality and views the decision maker as acting only in terms of what he/she perceives about a given situation. Organizational Behavior: Chapter 17 13

What are the useful decision making models? Ø Classical decision theory. – The classical decision maker: • Faces a clearly defined problem. • Knows all possible action alternatives and their consequences. • Chooses the optimum alternative. – Is often used as a model of how managers should make decisions. Organizational Behavior: Chapter 17 14

What are the useful decision making models? Ø Behavioral decision theory. – Recognizes that human beings operate with: • Cognitive limitations. • Bounded rationality. – The behavioral decision maker: • Faces a problem that is not clearly defined. • Has limited knowledge of possible action alternatives and their consequences. • Chooses a satisfactory alternative. Organizational Behavior: Chapter 17 15

What are the useful decision making models? Ø Classical decision theory: – May not fit well in a chaotic world. – Can be used toward the bottom of many firms, even most high-tech firms. Ø Behavioral decision theory: – Fits with a chaotic world of uncertain conditions and limited information. – Encourages satisficing decision making. Organizational Behavior: Chapter 17 16

What are the useful decision making models? Ø The garbage can model. – A model of decision making that views problems, solutions, participants, and choice situations as mixed together in the “garbage can” of the organization. • In stable settings, behavioral decision theory may be more appropriate. • In dynamic settings, the garbage model may be more appropriate. Organizational Behavior: Chapter 17 17

What are the useful decision making models? Ø Implications of the garbage can model. – Choice making and implementation may be done by different individuals. • Because of interpretation, there is a risk that the actual implementation does not exactly match the choice. – Many problems go unsolved. Organizational Behavior: Chapter 17 18

What are the useful decision making models? Ø Decision making realities. – Managers face complex choice processes. – Decision making information may not be available. – Bounded rationality and cognitive limitations affect the way people define problems, identify alternatives, and choose preferred solutions. Organizational Behavior: Chapter 17 19

What are the useful decision making models? Ø Decision making realities — cont. – Most decision making in organizations goes beyond step-by-step rational choice. – Most decision making in organizations falls somewhere between the highly rational and the highly chaotic. – Decisions must be made under risk and uncertainty. Organizational Behavior: Chapter 17 20

What are the useful decision making models? Ø Decision making realities — cont. – Decisions must be made to solve nonroutine problems. – Decisions must be made under time pressures and information limitations. – Decisions should be ethical. Organizational Behavior: Chapter 17 21

How do intuition, judgment, and creativity affect decision making? Ø Intuition. – The ability to know or recognize quickly and readily the possibilities of a given situation. – A key element of decision making under risk and uncertainty. Organizational Behavior: Chapter 17 22

How do intuition, judgment, and creativity affect decision making? Ø Judgmental heuristics. – Simplifying strategies or “rules of thumb” used to make decisions. – Makes it easier to to deal with uncertainty and limited information. – Can lead to systematic errors that affect the quality and/or ethics of decisions. Organizational Behavior: Chapter 17 23

How do intuition, judgment, and creativity affect decision making? Ø Types of heuristics. – Availability heuristic — bases a decision on recent events relating to the situation at hand. – Representativeness heuristic — bases a decision on similarities between the situation at hand stereotypes of similar occurrences. – Anchoring and adjustment heuristic — bases a decision on incremental adjustments to an initial value determined by historical precedent or some reference point. Organizational Behavior: Chapter 17 24

How do intuition, judgment, and creativity affect decision making? Ø General judgmental biases in decision making. – Confirmation trap. • The tendency to seek confirmation for what is already thought to be true and to not search for disconfirming information. – Hindsight trap. • The tendency to overestimate the degree to which an event that has already taken place could have been predicted. Organizational Behavior: Chapter 17 25

How do intuition, judgment, and creativity affect decision making? Ø Creativity factors. – Creativity in decision making involves the development of unique and novel responses to problems and opportunities. – Creativity is especially important in a dynamic environment full of nonroutine problems. Organizational Behavior: Chapter 17 26

How do intuition, judgment, and creativity affect decision making? Ø Stages in the creative thinking process. – Preparation. – Concentration. – Incubation. – Illumination – Verification. Organizational Behavior: Chapter 17 27

How can the decision-making process be managed? Ø Choosing problems to address. – Ask and answer the following questions: • Is the problem easy to deal with? • Might the problem resolve itself? • Is this my decision to make? • Is this a solvable problem within the context of the organization? Organizational Behavior: Chapter 17 28

How can the decision-making process be managed? Ø Reasons for decision making failure. – Managers too often copy others’ choices and try to sell them to subordinates. – Managers tend to emphasize problems and solutions rather than successful implementation. – Managers use participation too infrequently. Organizational Behavior: Chapter 17 29

How can the decision-making process be managed? Ø Deciding who should participate. – Authority decisions. • Made by the manager or team leader without involving other people and by using information that he/she possesses. – Consultative decisions. • Made by one individual after seeking input from group members. – Group decisions. • Made by all members of the group. Organizational Behavior: Chapter 17 30

How can the decision-making process be managed? Ø Vroom, Yetton, and Jago decision making framework. – Decision-making method used should fit the problem. – In choosing among individual, consultative, or group methods, managers should analyze: • Quality requirements. • Availability and location of relevant information. • Commitments required to implement decision. • Available time. Organizational Behavior: Chapter 17 31

How can the decision-making process be managed? Ø Knowing when to quit — eliminating escalating commitments – Escalating commitment reflects the continuation and renewed efforts on a previously chosen course of action even when feedback suggests that it is failing. – Eliminating escalating commitment requires self-discipline to admit mistakes and change direction. Organizational Behavior: Chapter 17 32

How do technology, culture, and ethics influence decision making? Ø Increasingly complex problems and opportunities face decision makers in organizations due to various workplace trends. Ø These workplace trends are changing the who, when, where, and how of decision making. Organizational Behavior: Chapter 17 33

How do technology, culture, and ethics influence decision making? Ø Information technology and decision making. – Artificial intelligence. • The study of how computers can be programmed to think like human beings. • Will allow computers to displace many decision makers. – Expert systems that support decision making by following “either-or” rules to make deductions. Organizational Behavior: Chapter 17 34

How do technology, culture, and ethics influence decision making? Ø Information technology and decision making — cont. – Fuzzy logic and neural networks that reason inductively. – Computer support for decision making. • The Internet. • Company intranets. • Decision support software to facilitate virtual teamwork. Organizational Behavior: Chapter 17 35

How do technology, culture, and ethics influence decision making? Ø Information technology and decision making — cont. – Information technology does not deal with issues raised by the garbage can model. Organizational Behavior: Chapter 17 36

How do technology, culture, and ethics influence decision making? Ø Cultural factors and decision making. – Culture is “the way in which a group of people solves problems. ” – North American culture stresses decisiveness, speed, and the individual selection of alternatives. – Other cultures place less emphasis on individual choice than on developing implementations that work. – The most important impact of culture on decision making concerns which issues are elevated to the status of problems solvable with the firm. Organizational Behavior: Chapter 17 37

How do technology, culture, and ethics influence decision making? Ø Ethical issues and decision making. – Ethical dilemma. • A situation in which a person must decide whether or not to do something that, although personally or organizationally beneficial, may be considered unethical and perhaps illegal. – Ethical dilemmas are often associated with: • Risk and uncertainty. • Nonroutine problem situations. Organizational Behavior: Chapter 17 38

How do technology, culture, and ethics influence decision making? Ø Ethical decision-making checklist. – Is my action legal? – Is it right? – Is it beneficial? – How would I feel if my family found out about this? – How would I feel if my decision were printed in the local newspaper? Organizational Behavior: Chapter 17 39

How do technology, culture, and ethics influence decision making? Ø Suggestions for integrating ethical decision making into the firm. – Develop a code of ethics and follow it. – Establish procedures for reporting violations. – Involve employees in identifying ethical issues. – Monitor ethical performance. – Reward ethical behavior. – Publicize ethical efforts. Organizational Behavior: Chapter 17 40

How do technology, culture, and ethics influence decision making? Ø Implications of ethics for decision making. – Morality is involved in: • Choosing problems. • Deciding who should be involved in making decisions. • Estimating the impacts of decision alternatives. • Selecting an alternative for implementation. – Moral conduct does not arise from after-the- fact embarrassment. Organizational Behavior: Chapter 17 41