presentation chapter 7.ppt - notes for students · 1 chapter 7 decision making, learning,...
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CHAPTERCHAPTER 77CHAPTER CHAPTER 77
Decision Making, Learning, Creativity and Entrepreneurship
LEARNING OBJECTIVES
To differentiate between programmedprogrammed andand nonprogrammednonprogrammed decisionsdecisions,and explain why nonprogrammed decision making is a complex,uncertain process.
To describe the sixsix stepssteps that managers should take to make the bestdecisions.
To explain how cognitivecognitive biasesbiases can affect decision making. To identify the advantages and disadvantages of groupgroup decisiondecision makingmaking,
d d ib t h i th t i it
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and describe techniques that can improve it. To explain the role that organizationalorganizational learninglearning andand creativitycreativity play in
helping managers to improve their decisions.
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1. The Nature of Managerial Decision Making
• Decision Making• One of the main tasks facing a manager is to manage the organizational
environment. To deal with these opportunities and threats managersk d h h l l f fmust make decisions, that is, they must select one solution from a set of
alternatives.• Decision Making refers to the process by which managers respond to
opportunities and threats by analyzing options, and making decisionsabout goals and courses of action. Every time managers need to take action, to plan, to organize, to direct or control
they make decisions. Decisions in response to opportunities—occur when managers search for ways to
improve organizational performance.
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ie. Take advantage of a growth opportunity by introducing a new product CoCa-Cola > Diet Coke
Decisions in response to threats—occur when organizational performance isnegatively affected by adverse events inside or outside the organization.ie. How to react to competitors moves such as discounts or introduction of newproducts or services.
Decisions can have good results (higher performance) or bad results (lowerperformance).
2. Programmed v. Nonprogrammed Decision Making
• Programmed DecisionRoutine, virtually automatic decision making that follows establishedRoutine, virtually automatic decision making that follows established
rules or guidelines. Managers have made the same decision many times before.
There are rules or guidelines to follow based on experience with pastdecisions. Managers can rely on long-established decision rules and they donot need to continually make judgments about what should be done. Mostdecision making for day-to-day operations is programmed decision making.
ie: Disciplinary action to be taken concerning a tardy employee;when an office
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ie: Disciplinary action to be taken concerning a tardy employee;when an officemanager orders office supplies whenever the inventory of supplies drops belowa certain level.
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2. Programmed v. Nonprogrammed Decision Making
• Non-Programmed Decisions Nonroutine decision making that occurs in response to unusual, unpredictable
opportunities and threats.opportunities and threats. The are no rules to follow since the decision is new and rules cannot be developed to
predict uncertain events. ie: Deciding to invest in additional production equipment to meet forecasted
demand;decisions to invest in a new kind of technology. Decisions are made based on informationinformation, and a manager’s intuitionintuition, and
judgmentjudgment. Intuition refers to the ability of a person to make sound decisions based on past
experiences and available information.– feelings, beliefs, and hunches that come readily to mind, require little effort and
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g , , y , qinformation gathering and result in on-the-spot decisions
Judgment refers to the ability of a person to develop a sound opinion because ofthe way that person evaluates the importance of the available information .– decisions that take time and effort to make and result from careful information
gathering, generation of alternatives, and evaluation of alternatives Both intuition & judgment can result in poor decision making. Therefore, the
possibility of error is greater in nonprogrammed decision making.
3. Decision Making Models
A. The Classical Model A prescriptive model of decision making that assumes the decision
maker can identify and evaluate all possible alternatives and theirconsequences and rationally choose the most appropriate courseof action. (see Figure 7.1)
It assumes that managers have all the information they need tomake the optimum decision.
Optimum decision
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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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Managers using the classical model make a series ofsimplifying assumptions about the nature of the decisionmaking process which are shown on Fig. 7.1 .
Fig. 7.1 The Classical Model of Decision Making
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3. Decision Making Models
B. The Administrative Model An approach to decision making that explains why decision making is inherently
uncertain and risky and why managers usually make satisfactorysatisfactory rather thanoptimum decisions. This model is based on three important concepts:
i. Bounded rationality
There is a large number of alternatives and available information can be soextensive that managers cannot consider it all.
Decisions are limited by people’s cognitive abilities. (limitations of humanintelligence)
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g )
ii. Incomplete information
most managers do not see all alternatives and decide based on incompleteinformation. Information is incomplete because of risk and uncertainty,ambiguity, and time constraints.
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Fig. 7.2 Why Information is Incomplete
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3. Decision Making Models
Causes of incomplete informationa. Risk
Th d f b bilit th t th ibl t f ti l f The degree of probability that the possible outcomes of a particular course ofaction will occur. Managers know enough about a given outcome to be able to assign
probabilities for the likelihood of its failure or success.b. Uncertainty
Probabilities cannot be given for outcomes and the future is unknown. Many decision outcomes are not known such as the success of a new product
introduction.
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c. Ambiguous Information Information whose meaning is not clear allowing it to be interpreted in multiple or
conflicting ways. (Fig. 7-3)d. Time Constraints
Managers don’t have the time or the money to search for all possible alternativesolutions and evaluate them as well.
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Fig. 7.3 Ambiguous Information
Young WomanYoung Woman or Old Woman?
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3. Decision Making Models
e. Satisficing A strategy of searching for and choosing an acceptable, or
satisfactory response to problems and opportunities, rather thantrying to make the best decision. Managers explore a limited number of options and choose an acceptable
decision rather than the optimum decision. Managers assume that the limited options they examine represent all
options.
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This is the typical response of managers when dealing with incompleteinformation.
However, decision makers must know that human judgment is often flawedand also delays in making timely decisions often result in missingopportunities or late responses to problems.
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Six steps in the decision making process
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4. The Decision Making Process
Step 1. Recognize Need for a Decision Sparked by an event such as environment changes.
M t fi t li th t d i i t b d d d i Managers must first realize that a decision must be made and respond ina timely and appropriate way.
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. Step 3. Evaluate Alternatives
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p What are the advantages and disadvantages of each alternative? Managers should specify criteria, then evaluate. The most commonly used
criteria are legality,legality, ethicalness,ethicalness, economiceconomic feasibility,feasibility, andand practicalitypracticality.(Fig.7-5)
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4. The Decision Making Process
(Step 3: Evaluate Alternatives)
CriteriaCriteria
Legality Is the alternative legal both in this country and abroad for exports?
Ethicalness
Is the alternative ethical and will not bring harm to stakeholders unnecessarily?
Economic Feasibility Can organization’s performance goals sustain
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Economic Feasibility Can organization s performance goals sustain this alternative?
Practicality
Does the management have the capabilities and resources required to implement the alternative?
Fig. 7.5
General Criteria G Cfor Evaluating
Possible Courses of Action
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Step 4. Choose Among Alternatives Rank the various alternatives. Make a decision about which alternative to choose
4. The Decision Making Process
Make a decision about which alternative to choose. When ranking, all information needs to be considered.
Step 5. Implement Chosen Alternative Managers must now carry out the alternative. Subsequent decisions are necessary to implement the chosen one. Often a decision is made and not implemented. Therefore, follow-up is needed.
Step 6. Learn From Feedback (Monitor) Managers should consider what went right and wrong with the decision and learn for the
future. Wi h f db k d l f i d ill h
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Without feedback, managers do not learn from experience and will repeat the samemistake again and again.
Feedback procedure1. Compare what actually happened to what was expected to happen as a result of the
decision2. Explore why any expectations for the decision were not met3. Derive guidelines that will help in future decision making
5. Cognitive Biases in Decision Making
• HeuristicsRules of thumb to deal with complex situationsRules of thumb to deal with complex situations.Decision makers use heuristics to deal with bounded
rationality. If the heuristic is wrong, however, then poor decisions result from
its use. Systematic errors can result from use of an incorrect heuristic and
ill d i th l d t k th
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will appear over and over since the rule used to make thedecision is flawed. Four sources of bias that can negatively affect management
decision making are shown in Fig. 7-6.
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Fig. 7.6 Sources of Cognitive Bias at the Individual and
Group Levels
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5. Cognitive Biases in Decision Making
• Types of Cognitive Biasesa. Prior Hypothesis Bias
All i t i b li f b t l ti hi b t i bl t i fl Allowing strong prior beliefs about a relationship between variables to influencedecisions based on these beliefs even when evidence shows they are wrong. ie.Internal development of products is better than acquisition of new products.
b. Representativeness The decision maker incorrectly generalizes a decision from a small sample or a
single incident.c. Illusion of Control
The tendency to overestimates one’s own ability to control activities and events
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The tendency to overestimates one s own ability to control activities and events.d. Escalating Commitment
Committing considerable resources to project and then committing more even ifevidence shows the project is failing because of feelings of personalresponsibility.
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6. Group Decision Making
• Most decisions are made in group settings. Groups tend to reduce cognitive biases and can call on their greater combined skills and
abilities. 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 Allows managers to process more information Managers affected by decisions agree to cooperate However, there are disadvantages such as taking more time, agreement of all managers can
be difficult and can be undermined by biases.• Groupthink
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• 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 relevantto a decision. Usually occurs when group members rally around a central manager’s idea , and
become blindly commit to the idea without considering alternatives. The group’s influence tends to convince each member that the idea must go forward. So, what to do to deal with groupthink and cognitive biases?
6. Group Decision Making(Improved group decision
making)• Devil’s Advocacy (Fig.7-7)
A group member who defends unpopular or opposing alternatives for the sake oftargument
One member of the group who acts as the devil’s advocate by critiquing the way thegroup identified alternatives and pointing out problems with the alternative selection.
• Dialectical Inquiry (Fig.7-7) Two different groups are assigned to the problem and each group evaluates the
other group’s choice of alternatives. Top managers then hear each group present their alternatives and each group can
critique the other.
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critique the other.• Promote Diversity
Increasing the diversity in a group may result in consideration of a wider set ofalternatives. Bringing together managers of both sexes, various ethnic, national,and functional backgrounds.
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Fig. 7.7 Devil’s Advocacy & Dialectical Inquiry
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7. Organizational Learning and Creativity
• Organizational Learning Managers seek to improve an employee’s desire and ability to Managers seek to improve an employee’s desire and ability to
understand and manage the organization and its task environmentso as to raise effectiveness.
• The Learning Organization Managers try to maximize the people’s ability to behave creatively
to maximize organizational learning.
Creativity
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• 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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Fig. 7.8 Senge’s Principles for Creating a Learning
Organization
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7. Organizational Learning and Creativity
Creating a Learning Organization• The Five principles for creating a learning organization are:• Personal Mastery
Managers empower employees and allow them to create and explore.
• Mental Models Challenge employees to find new, better methods to perform a task.
• Team Learning Is more important than individual learning since most decisions are made in
groups.
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g p
• Build a Shared Vision People share a common mental model of the firm to evaluate opportunities.
• Systems Thinking Knowing and understanding how actions in one area of the firm will impact other
areas of the firm.
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7. Organizational Learning and Creativity
A. Promoting Individual Creativityg y• Organizations can build an environment
supportive of creativity. Managers must provide employees with the ability to take
risks. If people take risks, they will occasionally fail.
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To build creativity, periodic failures must be rewarded. This idea is hard to accept for some managers.
7. Organizational Learning and Creativity
B. Building Group CreativityThree group decision making techniques are:
i. Brainstorming Managers meet face-to-face to generate and debate many alternatives.
Group members are not allowed to evaluate alternatives until all alternatives arelisted.
When all are listed, then the pros and cons of each are discussed and a short listcreated.
Useful in problem-solving situations.
The problem with brainstorming is Production blocking
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The problem with brainstorming is Production blocking Occurs because group members cannot simultaneously make sense of all the
alternatives being generated, think up additional alternatives, and remember whatthey were thinking
Members cannot absorb all information being presented during the session and canforget even their own alternatives.
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7. Organizational Learning and Creativity
B. Building Group Creativityii Nominal Group Techniqueii. Nominal Group Technique Provides a more structured way to generate alternatives in writing.
Avoids the production blocking problem. Similar to brainstorming except that each member is given time to first write
down all alternatives he or she would suggest. Alternatives are then read aloud without discussion until all have been listed. Then discussion occurs and alternatives are ranked.
U f l h i i i l d h diff i h b
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Useful when an issue is controversial and when different managers might beexpected to champion different courses of action
7. Organizational Learning and Creativity
B. Building Group Creativityiii. Delphi Technique Provides a written format without having all managers meet face-to-face. Delphi allows distant managers to participate through videoconferencing. Problem is distributed in written form to managers who then generate
written alternatives. Responses are received and summarized by top managers. These results are sent back to participants for feedback, and ranking. The process continues until consensus is reached.
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This technique is especially useful when managers are separated bybarriers of time and distance, that is, when they act in a globalenvironment.
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8. Entrepreneurship & Creativity
Entrepreneurs Individuals who notice opportunities and take the responsibility for mobilizing the
t d d i d d d iresources necessary to produce new and improved goods and services. Social Entrepreneurs
Individuals who pursue initiatives and opportunities to address social problemsand needs in order to improve society and well-being, such as reducing poverty,increasing literacy, protecting the natural environment, or reducing substanceabuse.
• Characteristics of entrepreneurs — most share these common traits: Open to experience: they are original thinkers and take risks.
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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.
9. Intrapreneurship and Organizational learning
Intrapreneurs Individuals (managers, scientists, or researchers) who work inside an
existing organization and notice an opportunity for product improvementsand are responsible for managing the product development process.p g g p p p
Learning organizations encourage their employees to act asintrapreneurs: 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.
Review Questions
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1. Define decision making, and differentiate between programmed and non-programmed decisions.
2. List and define the steps in the decision making process.3. Define and discuss the causes of incomplete information, using
examples where appropriate to support your answer.