don hellriegel susan e. jackson john w. slocum, jr. managing: a competency based approach 11 th...

Don Hellriegel Susan E. Jackson

John W. Slocum, Jr.

MANAGING: A COMPETENCY BASED APPROACH

11th EditionChapter 8—Fundamentals of Decision

Making

Prepared by

Argie ButlerTexas A&M University

Chapter 8: PowerPoint 8.1

Learning Goals

1. Explain certainty, risk, and uncertainty and how they affect decision making

2. Describe the characteristics of routine, adaptive, and innovative decisions

3. Discuss the rational and bounded rationality models of managerial decision making

4. Explain the features of political managerial decision making


1. defining problems,2. gathering information,3. generating alternatives, and4. choosing a course of action

We’ve got lots of challenges ahead of us. I spend about 75% of my time solving problems of one sort or another. The other 25% is really wonderful, though. Watching people grow, develop, achieve, and do good things and seeing the company succeed is very rewarding and lots of fun.

David Hoover Chairman, CEO and President

Ball Corporation

Chapter 8: PowerPoint 8.3 (Adapted from Figure 8.1)

Objectiveprobabilities

SubjectiveprobabilitiesRisk

Certainty Uncertainty


The condition under which individuals are:

1. fully informed about a problem,

2. alternative solutions are known, and

3. the results of each solution are known

Both the problem and alternative solutions are totally known and well defined

Exception for most managers


What is Risk?

The condition under which individuals can:

Probability: the percentage of times that a specific result would occur if an individual were to make the same decision a large number of times

1. define a problem,2. specify the probability of certain events,3. identify alternative solutions, and4. state the probability of each solution leading

to a result


What is Risk? (cont’d)

Objective probability: the likelihood that a specific result will occur, based on hard facts and numbers

Subjective probability: the likelihood that a specific result will occur, based on personal judgment


What is Uncertainty?

Condition under which individuals do not have the necessary information to assign probabilities to the outcomes of alternative solutions

May not even be able to define the problem, much less identify alternative solutions and possible outcomes

Chapter 8: PowerPoint 8.8 (Adapted from Table 8.1)

Examples of Possible Crises asSources of Uncertainty and High Risk

Othercrises

Economic CrisesRecessions

Stock market crashesHostile takeovers

Physical CrisesIndustrial accidentsSupply breakdowns

Product failures

Information CrisesTheft of proprietary informationTampering with company records

Cyberattacks

Natural DisastersFires

FloodsEarthquakes


Unusual andambiguous

Known andwell defined

Pro

ble

m T

ypes

Untried andambiguous

InnovativeDecisions

InnovativeDecisions

AdaptiveDecisions

AdaptiveDecisions

RoutineDecisions

RoutineDecisions

Conditions u

nder which

decisio

ns are

madeUncertaintyUncertainty

CertaintyCertainty

RiskRisk

Solution Types(Alternative Solutions)


Relatively common and well defined

Unusual and ambiguous

Firefighting

1. Solutions are incomplete

2. Problems recur and cascade

3. Urgency supersedes importance

4. Some problems become crises


Typically made under certainty and objective probability

Standard choices made in response to relatively well-defined and common problems and alternative solutions

Standards often used to set the framework for making routine decisions

Chapter 8: PowerPoint 8.12 (Excerpts from Table 8.2)

ReservationsPhone service will be highly efficient, including: answered before the fourth ring; no hold longer than 15 seconds; or, in case of longer holds, call-backs offered, then provided in less than three minutes

Hotel ArrivalThe doorman (or first-contact

employee) will actively greet guests, smile, make eye contact,

and speak clearly in a friendly manner

Messages and PagingPhone service will be highly efficient, including: answered before the fourth ring; no longer than 15 seconds

Hotel DepartureNo guest will wait longer

than five minutes for baggage assistance, once the bellman

is called (eight minutes in resorts)

Examples of decision rules

at Four Seasons hotels

and resorts


Adaptive Decisions

Choices made in response to a combination of moderately unusual problems and alternative solutions

Convergence—a business shift in which two connections with the customer that were previously viewed as competing or separate(e.g., brick-and-mortar bookstores and Internet bookstores) come to be seen as complementary

Continuous improvement—a managementphilosophy that approaches the challenge ofproduct and process enhancements as an ongoingeffort to increase the levels of quality and excellence


Snapshot

Richard KnightSenior VP for Global OperationsInovant LLC, a Visa Subsidiary

“Visa continuously strives against outages and defects on two broad fronts. Its physical processing operations are protected by multiple layers of redundancy and backups. The company’s IT staff continuously conducts extensive and refined software testing. We make 2,500 system changes to VisaNet per month and modify 2 million lines of code annually.”


Choices based on the discovery, identification, and diagnosis of unusual and ambiguous problems and/or the development of unique or creative alternative solutions

Three forms of innovation for economic progress:

1. Institutional innovation: includes the legal and institutional framework for business, such as deregulation

2. Technological innovation: creates the possibility of new products, services, and production methods

3. Management innovation: major changes in the way organizations are structured and how managers perform their functions


Jack StackCEOSpringfield ReManufacturing Corporation

“You have to innovate and optimize at the same time. After all, you’re under pressure to optimize 24 hours a day, but no one is pushing you to innovate. In order

for us to be able to compete over a long period of time, we give everyone in our organization all of the information needed so they can make decisions

that will drive innovation throughoutour company.”

Snapshot


Prescribes a set of phases that individuals or teams should follow to increase the likelihood that their decisions will be logical and optimal

Rational decision: results in the maximum achievement of a goal in a situation

Usually focuses on means—how best to achieve one or more goals


Environmental influences

1Define and

diagnose theproblem

1Define and

diagnose theproblem

2Set

goals

2Set

goals

3Search foralternativesolutions

3Search foralternativesolutions

7Follow-up

and controlthe results

7Follow-up

and controlthe results

6Implementthe solution

selected

6Implementthe solution

selected

5Choose among

alternativesolutions

5Choose among

alternativesolutions

4Compare and

evaluatealternative solutions

4Compare and

evaluatealternative solutions

Environmental influences


Rational Model: Define andDiagnose the Problem

Noticing skill: identifying and monitoring numerous external and internal environmental factors and deciding which ones are contributing to the problem(s)

Interpreting skill: assessing the factors noticed and determining which are causes, not merely symptoms, of the real problem(s)

Incorporating skill: relating those interpretations to the current or desired goals

Need to ask probing questions


Goals: results to be attained and indicate the direction toward which decisions and actions should be aimed

General goals: provide broad direction for decision making in qualitative terms

Operational goals: state what is to be achievedin quantitative terms, for whom, and within what time period

Hierarchy of goals: represents the formallinking of goals between organizationallevels


Rational Model: Search forAlternative Solutions

Gary TookerFormer CEO & Chairman of Board of DirectorsMotorola

…I think many people in a rush to make a decision do not have enough of the alternatives out in the open. So, they have two of the alternatives and say, “Okay, I’m going this way” but they didn’t think through it enough when

there were possibly three or four alternatives. One of the hidden ones might have been the best, and so the issue is making sure that either all or enough of the alternatives

are out in the open to allow you to make the best decision.


Contends that the capacity of the human mind for formulating and solving complex problems is small compared with what is needed for objectively rational behavior

Decision Biases

Inadequate Problem Description

Limited Search for Alternatives

Limited Information

Satisficing


Selective perception bias

Concrete information bias

Gambler’sfallacy bias

Law of small numbers bias

Bounded Rationality Model: Decision Biases

Availabilitybias


Jeffrey McKeeverChairman and CEO

MicroAge

…When someone comes to you, you often have a bias about what they are talking about. If you have been in business for 20 to 30 years, chances are you’ve been there and done that. Their idea is generally not so new or innovative as they think. You have a strong prejudice about outcomes. That is a dangerous thing. One of the things you have to do very cognitively to be

a good leader is not let your biases or your filters totally cloud the message someone’s

trying to deliver.


Inadequate problem definition

New problems often are viewed as being like old problems

Too much focus on symptoms as problems Laziness

Limited search for alternatives

Options considered until one that seems adequate

Limited information

Ignorance: the lack of relevant information or the incorrect interpretation of the information that is available


Herbert SimonRecipient of Nobel Prize in Economics

Satisficing is intended to be used in contrast to the classical economist’s idea that in making decisions in business or

anywhere in real life, you somehow pick, or somebody gives you, a set of alternatives from which you select the best one—

maximize. The satisficing idea is that first of all, you don’t have the alternatives, you’ve got to go out and scratch for them—and that you have mighty shaky ways of evaluating them when you do find them. So you look for alternatives

until you get one from which, in terms of your experience and in terms of what you have reason to expect, you will get a

reasonable result.


Bounded Rationality Model

Level of Satisficing Can be Raised By:

1. Personal determination

2. Setting higher individual or organization standards (goals)

3. Use of management science and computer-based decision-making and problem-solving techniques

4. Following the seven steps in the rational model


Divergence in problem definition

Divergence in goals

Divergence in solutions

Political decisionmaking

Multiple stakeholders with power such as:

InvestorsCustomers Employees

Unions

Suppliers

Competitors

Legislative BodiesRegulatory Agencies


Recognize up front the amount of time and attention to organizational politics, the informal systems and

processes that influence so much about how things actually get done in an organization…Politics, by the way, is not a bad thing. Any enterprise has its own

political system, if we can call it that. But, I think what makes the difference is the curiosity and the inquiry by

you to learn how the political system works.

Eliza HermannVice president for Human Resources StrategyBP PLC

Snapshot

don hellriegel susan e. jackson john w. slocum, jr. managing: a competency based approach 11 th...

Documents

decision makingdescribe

numberssubjective probability

contdobjective probability

specific result

probability of certain

importancesome problems

possible outcomeschapter

necessary information