Understanding And Managing Organizational Behavior Chapter 15 Decision

Chapter Objectives § Differentiate between nonprogrammed and programmed decisions and explain why nonprogrammed decision making is a complex, uncertain process § Explain the difference between the two main models of decision making and describe which is the most realistic § Discuss the main sources of error in decision making 15 -2 © 2005 Prentice Hall

Chapter Objectives § Describe the advantages and disadvantages of group decision making and explain the techniques that can be used to improve it § Understand how organization learning can improve decision making and explain the steps involved in creating a learning organization 15 -3 © 2005 Prentice Hall

Opening Case: A Big Turnaround in Nike’s Decision Making § In what ways has decision-making at Nike changed? § Decisions originating from design team § Market changes – Alternative sports shoes – Shoes for urban wear – New competition § Shift to team-based decision-making 15 -4 © 2005 Prentice Hall

What is Decision Making? § The process by which members of an organization choose

Basic Types of Organizational Decisions § Nonprogrammed – Novel opportunities or problems – Requires extra information – Uncertainty 15 -6 § Programmed – Recurring opportunities or problems – Based on performance program © 2005 Prentice Hall

The Decision-Making Process § Classical § Administrative 15 -7 © 2005 Prentice Hall

Classical Decision-Making Model § Prescriptive § Assumptions – People have access to all necessary

Steps in the Classical Model § List all alternatives § List consequences of each alternative § Rank sets from most preferred to least preferred based on personal preference § Select alternative that results in most preferred set of consequences 15 -9 © 2005 Prentice Hall

Problems with the Classical Model § All necessary information for optimal decision § Unable

Administrative Decision-Making Model § Descriptive § Assumptions – Approximations of situation used – Not

Bounded Rationality § Ability to reason that is limited by the limitations of the human mind itself – Lack of cognitive abilities – Subjective definitions of situation – Satisfice rather than optimize 15 -12 © 2005 Prentice Hall

Sources of Error in Decision Making § Shortcuts § Escalation of commitment 15 -13

Figure 15. 2 Heuristics and Resulting Biases § Availability § Representativeness § Anchoring and

Availability Heuristic § Reflects tendency to determine the frequency of an event and its causes by how easy these events and causes are to remember § Biases – Overestimation of frequency of • vivid events • recent events 15 -15 © 2005 Prentice Hall

Representativeness Heuristic § Reflects the tendency to predict the likelihood of an event occurring from the extent to which the event is typical of similar kinds of past events § Biases – Failure to consider base rate – Overestimating likelihood of rare event 15 -16 © 2005 Prentice Hall

Anchoring and Adjustment Heuristic § Reflects tendency to make decisions based on adjustments from some initial amount § Biases – Inappropriate decisions when initial amounts are too high or too low 15 -17 © 2005 Prentice Hall

Escalation of Commitment § Tendency of decision makers to invest additional time, money, or effort into poor decisions – Reconfirm correctness of original decision – Desire to recoup losses • Sunk costs – Risky behaviors increased by negative situation 15 -18 © 2005 Prentice Hall

Enterprise Resource Planning System (ERP) § Company-wide Intranet based on multimodule software – Reduces errors in decision making – Reduces biases – Generates more useful information – Links and coordinates functional activities 15 -19 © 2005 Prentice Hall

Group Decision Making Advantages § Availability/ diversity of members’ skills, knowledge, expertise § Enhanced memory § Greater ability to correct errors § Greater decision acceptance 15 -20 Disadvantages § Time to make a decision § Group conflict § Potential for groupthink © 2005 Prentice Hall

Use Individual Decision Making When… § An individual has all capabilities necessary to make a good decision § An individual can gather and assess all necessary information § Acceptance of decision is unnecessary or likely to occur anyway 15 -21 © 2005 Prentice Hall

Figure 15. 5 Symptoms of Groupthink § Illusion of invulnerability § Belief in inherent mortality of group § Collective rationalizations § Stereotypes of other groups 15 -22 § Self-censorship § Illusions of unanimity § Direct pressure on dissenters § Emergence of selfappointed mind guards © 2005 Prentice Hall

Steps for Minimizing Groupthink § Group leader encourages thoughtfulness/ criticism § Group leader refrains from expressing own opinion and views until group has considered all alternatives § Group leader encourages group members to gather information from outside people § Group leader assigns devil’s advocate § Group leader holds second meeting for important decisions 15 -23 © 2005 Prentice Hall

Other Consequences of Group Decision Making § Diffusion of Responsibility § Group Polarization §

Group Decision Making Techniques § Brainstorming § Nominal Group Technique § Delphi Technique 15

Brainstorming Problems § Suppression of Ideas § Production Blocking 15 -26 © 2005 Prentice

Group Decision Making Techniques for TQM § Benchmarking – Selecting a highperforming group or organization – Using this group as a model – Improving to reach standard of model 15 -27 § Empowerment – Giving employees authority to make decisions – Giving employees responsibility for those decisions © 2005 Prentice Hall

Organizational Learning § Process managers seek out to improve decision making ability of employees and enhance organizational efficiency and effectiveness – Exploration – Exploitation 15 -28 © 2005 Prentice Hall