Document 6582446

chapter seven
Decision Making,
Learning, Creativity,
and Entrepreneurship
McGraw-Hill/Irwin
Contemporary Management, 5/e
Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
After studying the chapter, you should be able
to:
• Differentiate between programmed and
nonprogrammed decisions, and explain why
nonprogrammed decision making is a
complex, uncertain process.
• Describe the six steps that managers
should take to make the best decisions.
• Explain how cognitive biases can lead
managers to make poor decisions.
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Learning Objectives
• Identify the advantages and disadvantages
of group decision making, and describe
techniques that can improve it.
• Explain the role that organizational learning
and creativity play in helping managers to
improve their decisions.
• Describe how managers can encourage and
promote entrepreneurship to create a
learning organization and differentiate
between entrepreneurs and intrapreneurs
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The Nature of Managerial
Decision Making
• Decision Making
– The process by which managers respond to
opportunities and threats that confront them
by analyzing options and making
determinations about
specific organizational
goals and courses of
action.
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The Nature of Managerial
Decision Making
• Decisions in response to opportunities
• occurs when managers respond to ways
to improve organizational performance to
benefit customers, employees, and other
stakeholder groups
• Decisions in response to threats
• events inside or outside the organization
are adversely affecting organizational
performance
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Decision Making
Programmed Decision
– Routine, virtually automatic decision making
that follows established rules or guidelines.
• Managers have made the same decision
many times before
• Little ambiguity involved
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Decision Making
Non-Programmed Decisions
– Nonroutine decision made in response to
unusual or novel opportunities and threats.
– The are no rules to follow since the decision
is new.
• Decisions are made based on information,
and a manager’s intuition, and judgment.
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Decision Making
• Intuition
– feelings, beliefs, and hunches that come
readily to mind, require little effort and
information gathering and result in on-the-spot
decisions
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Decision Making
• Reasoned judgment
– decisions that take time and effort to make
and result from careful information
gathering, generation of alternatives, and
evaluation of
alternatives
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Question?
Which decision model assumes the
decision maker can identify and
evaluate all possible alternatives?
A. Neo-classical
B. Classical
C. Administrative
D. practical
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The Classical Model
Classical Model of Decision Making
– A prescriptive model of decision making that
assumes the decision maker can identify and
evaluate all possible alternatives and their
consequences and rationally choose the most
appropriate course of action.
– 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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The Classical Model of Decision Making
Figure 7.1
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The Administrative Model
Administrative Model of Decision Making
– An approach to decision making that
explains why decision making is inherently
uncertain and risky and why managers can
rarely make decisions in the manner
prescribed by the classical model
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The Administrative Model
Administrative Model of Decision Making
– Bounded rationality
• There is a large number of alternatives and
available information can be so extensive
that managers cannot consider it all.
• Decisions are limited by people’s cognitive
limitations.
– Incomplete information
• Because of risk and uncertainty, ambiguity,
and time constraints
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Why Information Is Incomplete
Figure 7.2
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Causes of Incomplete Information
• Risk
– Present when managers know the possible
outcomes of a particular course of action
and can assign probabilities to them.
• Uncertainty
– Probabilities cannot be given for outcomes
and the future is unknown.
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Causes of Incomplete Information
Young Woman
or Old Woman
Ambiguous
Information
– Information whose
meaning is not
clear allowing it to
be interpreted in
multiple or
conflicting ways.
Figure 7.3
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Causes of Incomplete Information
• Time constraints and information
costs
– managers have neither the time nor money
to search for all possible alternatives and
evaluate potential consequences
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Causes of Incomplete Information
• Satisficing
– Searching for and choosing an acceptable,
or satisfactory response to problems and
opportunities, rather than trying to make the
best decision.
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Causes of Incomplete Information
• Managers explore a limited number of
options and choose an acceptable
decision rather than the optimum
decision.
• This is the typical response of managers
when dealing with incomplete
information.
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Six Steps in Decision Making
Figure 7.4
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Decision Making Steps
Step 1. Recognize Need for a Decision
– Sparked by an event such as environment changes.
• Managers must first realize that a decision must
be made.
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.
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Decision Making Steps
Step 3. Evaluate Alternatives
– What are the advantages and
disadvantages of each alternative?
– Managers should specify criteria, then
evaluate.
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Decision Making Steps
Step 3. Evaluate alternatives
Criteria
Legality
Is the alternative legal and will not violate any
domestic and international laws or
government regulations?
Ethicalness
Is the alternative ethical and will not bring
harm stakeholders unnecessarily?
Economic Feasibility Can organization’s performance goals sustain
this alternative?
Practicality
Does the management have the capabilities
and resources required to implement the
alternative?
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General
Criteria for
Evaluating
Possible
Courses of
Action
Figure 7.5
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Decision Making Steps
Step 4. Choose Among Alternatives
– Rank the various alternatives and make a
decision
– Managers must be sure all the information
available is brought to bear on the problem
or issue at hand
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Decision Making Steps
Step 5. Implement Chosen Alternative
– Managers must now carry out the alternative.
– Often a decision is made and not implemented.
Step 6. Learn From Feedback
– Managers should consider what went right and
wrong with the decision and learn for the future.
– Without feedback, managers do not learn from
experience and will repeat the same mistake over.
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Discussion Question?
Which step in the decision making process
is the most important?
A. Generating alternatives
B. Choosing an alternative
C. Evaluating alternatives
D. Learning from feedback
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Feedback Procedure
1. Compare what actually happened to
what was expected to happen as a
result of the decision
2. Explore why any expectations for the
decision were not met
3. Derive guidelines that will help in future
decision making
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Cognitive Biases and Decision
Making
Heuristics
– Rules of thumb that simplify the process of
making decisions.
– Decision makers use heuristics to deal with
bounded rationality.
• If the heuristic is wrong, however, then poor
decisions result from its use.
• Systematic errors – errors that people make
over and over and that result in poor
decision making
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Sources of Cognitive Bias at the
Individual and Group Levels
Figure 7.6
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Types of Cognitive Biases
• Prior Hypothesis Bias
– Allowing strong prior beliefs about a
relationship between variables to influence
decisions based on these beliefs even when
evidence shows they are wrong.
• Representativeness
– The decision maker incorrectly generalizes
a decision from a small sample or a single
incident.
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Types of Cognitive Biases
• Illusion of Control
– The tendency to overestimates one’s own
ability to control activities and events.
• Escalating Commitment
– Committing considerable resources to
project and then committing more even if
evidence shows the project is failing.
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Group Decision Making
• 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
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Group Decision Making
• Allows managers to process more
information
• Managers affected by decisions agree to
cooperate
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Group Decision Making
• Potential Disadvantages
– Can take much longer than individuals to
make decisions
– Can be difficult to get two or more
managers to agree because of different
interests and preferences
– Can be undermined by biases
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Group Decision Making
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 relevant to a decision
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Improved Group Decision Making
• Devil’s Advocacy
– Critical analysis of a preferred alternative to
ascertain its strengths and weaknesses
before it is implemented
– One member of the group who acts as the
devil’s advocate by critiquing the way the
group identified alternatives and pointing out
problems with the alternative selection.
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Improved Group Decision Making
• Dialectical Inquiry
– Two different groups are assigned to the problem
and each group is responsible for evaluating
alternatives and selecting one of them
– Top managers then hear each group present their
alternatives and each group can critique the other.
• Promote Diversity
– Increasing the diversity in a group may result in
consideration of a wider set of alternatives.
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Devil’s Advocacy and Dialectical Inquiry
Figure 7.7
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Organizational Learning and
Creativity
• Organizational Learning
– Managers seek to improve a employee’s
desire and ability to understand and
manage the organization and its task
environment so as to raise effectiveness.
• The Learning Organization
– Managers try to maximize the people’s
ability to behave creatively to maximize
organizational learning.
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Question?
What is the ability of the decision maker to
discover novel ideas leading to a
feasible course of action?
A. Originality
B. Imagination
C. Creativity
D. Ingenuity
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Organizational Learning and
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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Senge’s Principles for Creating a
Learning?
Figure 7.8
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Creating a Learning Organization
1. Personal Mastery
–
Managers empower employees and allow them to
create and explore.
2. Mental Models
–
Challenge employees to find new, better methods
to perform a task.
3. Team Learning
–
Learning that takes place in a group or team.
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Creating a Learning Organization
4. Build a Shared Vision
– People share a common mental model of
the firm to evaluate opportunities.
5. Systems Thinking
– Knowing and understanding how actions
in one area of the firm will impact other
areas of the firm.
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Building Group Creativity
Brainstorming
– Managers meet face-to-face to generate and debate
many alternatives.
• Group members are not allowed to evaluate
alternatives until all alternatives are listed.
• When all are listed, then the pros and cons of
each are discussed and a short list created.
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Building Group Creativity
• Production Blocking
– Occurs because group members cannot
simultaneously make sense of all the
alternatives being generated, think up
additional alternatives, and remember what
they were thinking
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Building Group Creativity
Nominal Group Technique
– Provides a more structured way to generate
alternatives in writing and gives each manager
more time and opportunity to come up with
potential solutions
– Useful when an issue is controversial and when
different managers might be expected to champion
different courses of action
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Building Group Creativity
Delphi Technique
– Written approach to creative problem solving.
– Group leader writes a statement of the problem to
which managers respond
– Questionnaire is sent to managers to generate
solutions
– Team of managers summarizes the responses and
results are sent back to the participants
– Process is repeated until a consensus is reached
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Entrepreneurship
Entrepreneurs
– Individuals who notice opportunities and
take the responsibility for mobilizing the
resources necessary to produce new and
improved goods and services.
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Entrepreneurship
Intrapreneurs
– Individuals (managers, scientists, or
researchers) who work inside an existing
organization and notice an opportunity for
product improvements and are responsible
for managing the product development
process.
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Entrepreneurship and New Ventures
Characteristics of entrepreneurs—most
share these common traits:
– 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.
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Entrepreneurship and Management
• People can become involved in
entrepreneurial ventures by starting a
business from scratch
• Frequently need to hire other people to
help them run the business
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Entrepreneurship and Management
• Frequently, founding entrepreneur lacks
the skills, patience, and experience to
engage in the
difficult and
challenging work
of management
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Intrapreneurship and
Organizational Learning
Learning organizations encourage their
employees to act as intrapreneurs:
– 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.
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Movie Example: You’ve Got Mail
How will Kathleen use
the decision making
process with the
arrival of the Fox
Book Superstore?
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