Essentials of
Contemporary
Management
Chapter
5
Decision Making, Learning,
Creativity, and Innovation
PowerPoint Presentation by Charlie Cook
© Copyright The McGraw-Hill Companies, Inc., 2004. 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.
Identify the advantages and disadvantages of group
decision making, and describe techniques that can
improve it.
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5–2
Learning Objectives (cont’d)
Explain the role that organizational learning and
creativity play in helping managers to improve their
decisions.
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The Nature of Managerial Decision Making
• Decision Making
The process by which managers respond to
opportunities and threats by analyzing options, and
making decisions about goals and courses of action.
• Decisions in response to opportunities—occurs when
managers respond to ways to improve organizational
performance.
• Decisions in response to threats—occurs when
managers are impacted by adverse events to the
organization.
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Programmed Decisions
• Programmed Decision
Routine, 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 past decisions.
• Example: Disciplinary action to be taken concerning a
tardy employee.
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5–5
Nonprogrammed Decisions
• Non-Programmed Decisions
Nonroutine decision making that occurs in response
to unusual, unpredictable opportunities and threats.
The are no rules to follow since the decision is new.
• Decisions are made based on information, a
manager’s intuition, and judgment.
• Example: Deciding to invest in additional production
equipment to meet emergent demand.
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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 5.1
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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 usually make satisfactory rather
than optimum decisions.
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The Administrative Model (cont’d)
• Administrative Model of Decision Making
(cont’d)
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 abilities.
Incomplete information
• Most managers do not see all alternatives and decide
based on incomplete information.
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Why Information Is Incomplete
Figure 5.2
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Causes of Incomplete Information
• Risk
The degree of probability that the possible
outcomes of a particular course of action will occur.
• Managers know enough about a given outcome to be
able to assign probabilities for the likelihood of its
failure or success.
• 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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5–12
Causes of Incomplete Information (cont’d)
• Ambiguous
Information
Young Woman
or Old Woman
Information whose
meaning is not clear
allowing it to be
interpreted in multiple
or conflicting ways.
Figure 5.3
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5–13
Causes of Incomplete Information (cont’d)
• Satisficing
Searching for and choosing an acceptable, or
satisfactory response to problems and opportunities,
rather than trying 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.
• This is the typical response of managers when
dealing with incomplete information.
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Six Steps in Decision Making
Figure 5.4
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Decision Making Steps
Step 1. Recognize the 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 3-4. Assess/Choose Alternatives
What are the advantages and disadvantages of
each alternative?
Managers should specify criteria, then evaluate.
When ranking, all information needs to be
considered.
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General
Criteria for
Evaluating
Possible
Courses of
Action
Figure 5.5
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Evaluating Alternatives
Criteria
Legality
Is the alternative legal both in this country and
abroad for exports?
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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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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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.
• Groupthink
Biased decision making resulting from group
members striving for agreement.
• 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.
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Improved Group Decision Making
• Devil’s Advocacy
A group member who defends unpopular or
opposing alternatives for the sake of argument
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.
• Diversity Among Decision Makers
Broadens range of life experiences and opinions
from which to draw and consider alternatives.
Group differences help in avoiding groupthink.
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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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Senge’s Principles for Creating
a Learning Organization
Figure 5.6
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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.
• Innovation
The implementation of creative ideas in an
organization.
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5–25
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
 Is more important than individual learning since
most decisions are made in groups.
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5–26
Creating a Learning Organization (cont’d)
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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Promoting Individual Creativity
• Organizations can build an environment
supportive of creativity.
Managers must provide employees with the
opportunities and abilities to take risks.
• If people take risks, they will occasionally fail.
To build creativity, periodic failures must be
rewarded.
• This idea is hard to accept for some managers.
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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.
Production blocking
• Members cannot absorb all information being
presented during the session and can forget even
their own alternatives.
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Building Group Creativity
• 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.
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Promoting Creativity at the Global Level
• Responding to global market pressures to
reduce costs and develop global products by
centralizing research and development (R&D)
efforts in teams in one location.
Likely problems to be overcome:
• Language barriers
• Cultural differences in approaches to solving
problems and decision making processes
Training program to raise awareness to overcoming
barriers and differences will be necessary to gain
the cooperation of the diverse individuals.
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Homework 4 Evaluating an alternative
• When airline flights are overbooked in the United
State, an auction is sometimes held to see which
passengers are willing to transfer to a later flight
in return for compensation. The compensation is
determined by the lowest price needed to induce
the required number of people to give up their
seats. This seems to work fairly well.
• Would such an auctioning approach work for
deciding whether a flight should permit smoking
or gain a prioritized landing? Why or why not?
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