Decision Making,
Learning,
Creativity, and
Entrepreneurship
Chapter Five
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Learning Objectives
LO5-1 Understand the nature of managerial decision
making, differentiate between programmed and
nonprogrammed decisions, and explain why
nonprogrammed decision making is a complex,
uncertain process.
LO5-2 Describe the six steps that managers should
take to make the best decisions, and explain
how cognitive biases can lead managers to
make poor decisions.
LO5-3 Identify the advantages and disadvantages of
group decision making, and describe techniques
that can improve it
Learning Objectives
LO5-4 Explain the role that organizational learning and
creativity play in helping managers to improve
their decisions.
LO5-5 Describe how managers can encourage and
promote entrepreneurship to create a learning
organization, and differentiate between
entrepreneurs and intrapreneurs
The Nature of Managerial Decision
Making
• Decision Making
– The process by which managers respond to
opportunities and threats by analyzing
options, and making determinations about
specific organizational goals and courses of
action
Decision Making
• Programmed Decision
–Routine, virtually automatic
decision making that follows
established rules or guidelines.
Decision Making
• Non-Programmed Decisions
–Nonroutine decision making that
occurs in response to unusual,
unpredictable opportunities and
threats.
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
 Reasoned
judgment
 decisions that take
time and effort to
make and result from
careful information
gathering, generation
of alternatives, and
evaluation of
alternatives
5-7
Knowledge Check
What are feelings, beliefs, and hunches that
come readily to mind and require little effort?
Reasoned Judgment
*Intuition
Wild Guess
Scientific Deduction
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
The Classical Model of Decision
Making
Figure 5.1
5-10
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
– Bounded rationality, incomplete information
Why Information Is Incomplete
Figure 5.2
5-12
Causes of Incomplete Information
• Risk
– The degree of probability that the possible
outcomes of a particular course of action will
occur
• Uncertainty
– the probabilities of alternative outcomes
cannot be determined and future outcomes
are unknown
Causes of Incomplete Information
 Ambiguous
Figure 5.3
Information
 Information that can
be interpreted in
multiple and often
conflicting ways.
Young Woman or
Old Woman
5-14
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
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
– Managers search for and choose acceptable,
or satisfactory, ways to respond to problems
and opportunities rather than trying to make
the optimal decision
Six Steps in Decision Making
Figure 5.4
5-17
Knowledge Check
When an organization's accounting department
decides to send out a bill to a new customer,
this represents a(n) ________________
decision.
*programmed
nonprogrammed
intuitive
groupthink
bounded rationality
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.
Decision Making Steps
Step 2. Generate Alternatives
• Managers must develop
feasible alternative courses of
action
Decision Making Steps
Step 3. Assess Alternatives
• What are the advantages and
disadvantages of each
alternative?
• Managers should specify criteria,
then evaluate.
General Criteria for Evaluating
Possible Courses of Action
Figure 5.5
Make sure that
the alternative
does not threaten
other
organizational
goals.
5-22
Decision Making Steps
Step 4. Choose Among
Alternatives
• Rank the various alternatives and
make a decision
Decision Making Steps
Step 5. Implement Chosen
Alternative
• Managers must now carry out the
alternative
• Often a decision is made and not
implemented
Decision Making Steps
Step 6. Learn From Feedback
• Compare what happened to what was
expected to happen
• Explore why any expectations for the
decision were not met
• Derive guidelines that will help in future
decision making
Group Decision Making
Superior to individual
 Improve ability to
making
Choices less likely to
fall victim to bias
Able to draw on
combined skills of
group members
generate feasible
alternatives
 Allows managers to
process more
information
 Managers affected
by decisions agree to
cooperate
5-26
Group Decision Making
• Groupthink
– A 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
Group Decision Making
• Devil’s Advocacy
– Critical analysis of a preferred alternative,
made in response to challenges raised by a
group member who, playing the role of devil’s
advocate, defends unpopular or opposing
alternatives for the sake of argument.
Organizational Learning
and Creativity
• Organizational Learning
– The process through which managers seek to
improve employees’ desire and ability to
understand and manage the organization and
its task environment.
Senge’s Principles for Creating a
Learning Organization
Figure 5.6
5-30
Knowledge Check
A manager considers a limited sample of the
potential alternative solutions for a problem and
selects one that is acceptable instead of
attempting to select the optimum solution. This
type of decision is called:
programmed
intuition
certainty
*satisficing
heuristics
Organizational Learning and
Creativity
Creativity
 A decision maker’s
ability to discover
original and novel
ideas that lead to
feasible alternative
courses of action
5-32
Promoting 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.
Building Group Creativity
• Production blocking
– Loss of productivity in brainstorming sessions
due to the unstructured nature of
brainstorming
• Nominal Group Technique
– A decision-making technique in which group
members write down ideas and solutions,
read their suggestions to the whole group,
and discuss and then rank the alternatives
Building Group Creativity
• Delphi Technique
– A decision-making technique in which group
members do not meet face-to-face but
respond in writing to questions posed by the
group leader
Entrepreneurship and Creativity
• Entrepreneurs
– an individual who notices opportunities and
decides how to mobilize the resources necessary
to produce new and improved goods and services
• Social entrepreneurs
– An individual who pursues initiatives and
opportunities and mobilizes resources to address
social problems and needs in order to improve
society and wellbeing through creative solutions.
Entrepreneurship and Creativity
• Intrapreneur
– a manager, scientist, or researcher who works
inside an organization and notices
opportunities to develop new or improved
products and better ways to make them
Entrepreneurship and Creativity
Entrepreneurship
 Mobilization of
resources to take
advantage of an
opportunity to
provide customers
with new and
improved goods
and services
5-38
Intrapreneurship and Organizational
Learning
Product
champion
 a manager who
takes “ownership”
of a project and
provides the
leadership and
vision that take a
product from the
idea stage to the
final customer
Skunkworks
 a group who is
deliberately
separated from
normal operations
to encourage them
to devote all their
attention to
developing new
products
5-39
Web Page
• GarageTek is mentioned in your textbook
as an example of good decision making
and entrepreneurship. Click on the link
below to peruse the company web site.
http://www.garagetek.com/garageorganization.aspx
The Business of Cleaning the Garage:
GarageTek on CNBC's Sqawkbox.