CHAPTER 8
DECISION
MAKING
Organizational Decision Types
• Decision making is the most central
activity of management, the essence of a
manager’s job
• Two classifications:
– Personal versus organizational
– Programmed versus nonprogrammed
Personal v. Organizational
Decision Making
• Personal decision making: making
decisions that involve only ourselves
• Organizational decision making: involves
decisions that pertain to the problems
and practices of a given organization
• The difference between personal and
organizational decision making lies in the
object of the process
Programmed v. Nonprogrammed
Decision Making
• Proposed by Herbert Simon
• Programmed decisions: well-structured
• Nonprogrammed decisions: poorly
structured
Personal/Organizational
Categorization
• Personal programmed decisions: involve
simple, repetitive personal matters
• Personal nonprogrammed decisions:
arise during rare but significant events in
an individual’s life
Personal/Organizational
Categorization (cont.)
• Organizational programmed decisions:
typically handled according to
established guidelines, rules, or
procedures, and are most often made by
lower level employees
Personal/Organizational
Categorization (cont.)
• Organizational nonprogrammed
decisions: rare and unique situations that
have potentially significant impact on the
organization, and are usually handled by
high-level personnel
Classical Decision Theory
• Referred to as the Rational-Economic
Model
• Described as a series of steps that a
decision maker should follow in order to
enhance the probability of attaining a
desired goal
Classical Decision Theory
(cont.)
• Does a good job of describing how a
decision should be made, but it is largely
inaccurate as a description of how
managers actually do make decisions
Steps in Classical Decision
Theory
• Opportunity or problem of situation
exists
• It is recognized to exist; very important
• Opportunity/problem is defined
• Alternatives are generated
• Information is gathered
• Alternatives are evaluated
Steps in Classical Decision
Theory (cont.)
• One alternative is selected
• Alternative is implemented and evaluated
in terms of effectiveness
Problems with the Model
• It assumes that all alternatives will be
considered
• It assumes that the consequences of each
alternative will be explored
• It assumes that information is available
at no cost
Problems with the Model
(cont.)
• It assumes that decision makers are
totally rational
• In reality, the above assumptions rarely
exist
A Behavioral Theory of
Decision Making
• Acknowledges the real-world limitations
on manager’s decision making
• Managers in this model operate with
bounded rationality in making decisions
• Recognizes that:
– All possible alternatives and their associated
consequences cannot be generated
A Behavioral Theory of
Decision Making (cont.)
– Both the available information and the
definition of the situation are likely to be
incomplete and inadequate to some degree
– The final decision may be based on criteria
other than simple optimization or outcome
maximization
• When managers seek solutions that are
“good enough” they satisfice, rather than
maximize
A Behavioral Theory of
Decision Making (cont.)
• Bounded discretion: suggests that
optimal solutions are sometimes not
feasible courses of action because they
are ethically improper
• People often use rules of thumb, or
heuristics, when making decisions which
are simplified decisions to achieve
satisficing solutions
Influence of Judgmental
Strategies
• Used when decision makers go beyond
the information they are given when
making inferences
• Often lead to erroneous inferences
• Two types of judgmental strategies
– Availability heuristics
– Representativeness heuristics
Types of Judgmental
Strategies
• Availability heuristics: reflect the
influence of the relative availability of
objects or events, i.e., their accessibility
via memory, perception, or imagination
• Representativeness heuristic: the
application of one’s sense of resemblance
between objects or events
Obstacles to Effective DecisionMaking
• Four most common obstacles:
–
–
–
–
Judgmental biases
Escalation of commitment
Groupthink
Willingness of groups to take risks
Judgmental Biases
•
•
•
•
Implicit favorite bias
Loss-aversion bias
Selective perception bias
Personal experience bias
Escalation of Commitment
• Occurs when a decision maker is
unwilling to change a course of action
despite unequivocal evidence showing
that the decision was incorrect
• Possible reasons for escalation of
commitment:
– Stick-to-it-iveness
– Desire to be consistent
Escalation of Commitment
(cont.)
• Escalation of commitment is most likely
to occur in certain predictable settings,
e.g., when a person is making a decision
for which she feels strong personal
responsibility
Escalation of Commitment
(cont.)
• To counter escalation of commitment,
Barry Straw recommends seeking
counsel from trusted advisors who don’t
feel the personal responsibility, or
alternatively, rotate responsibility across
managers
Groupthink
• Identified by Irving Janis in which
groups are lead to commit serious errors
in decision making
Groupthink (cont.)
• Characteristics of a group suffering from
groupthink:
– Group likely to be very cohesive
– Group is more concerned with achieving
consensus that it is with exploring
alternative courses of action, and analyzing
the situation
Main Symptoms of
Groupthink
•
•
•
•
Illusion of invulnerability
Rationalization
Assumption of morality
Negative stereotyping
Main Symptoms of Groupthink
(Cont.)
•
•
•
•
Pressure to Conform
Self-censorship
Illusion of unanimity
Mindguards
Preventing Groupthink
• Encourage group members to voice their
opinions, doubts, objectives
• Assign several group members to teams
that will investigate the advisability of
alternative courses of action; followed by
a debate
• Appoint a group member to serve as a
devil’s advocate at each group meeting
Preventing Groupthink
(cont.)
• Hold last-change meetings at which
members are encouraged to raise any
nagging doubts or hesitations that they
have
• As a manager, set an example by being
open to criticism yourself
Risk Taking
• James Stoner investigated the differences
between group and individual decision
making
• Findings:
– Individuals tend to take a less risky route,
while groups favor riskier actions
Risk Taking (cont.)
– When individuals are placed in a group, they
endorsed a riskier position than they did as
individual decision makers, called the risky
shift
– Risky shift: When a group endorses a riskier
position than would its individual members
– Groups may diffuse responsibility, feel less
personal responsibility for the consequences
of their actions
Risk Taking (cont.)
– Group decision making may be more
conservative than individual decision
making, called the cautious shift
– Tendency of groups to move toward
extremes has been termed group
polarization
Techniques for Improving
Decision Making
• Research comparing group decisions with
individual decisions has shown that
groups will out perform individuals
working in isolation
• The group’s decisions are usually of
higher quality than the average of the
individual decisions
Techniques for Improving
Decision Making (cont.)
– The best solitary worker may often out
perform the group
• Reasons for groups out performing
individuals include:
– Groups pool information and abilities;
access is greater than individual
– Being in a group tends to motivate and
inspire group members
Techniques for Improving
Decision Making (cont.)
– Social rewards (e.g. praise, admiration) for
making significant contributions
• Groups may, at their discretion, exercise
division of labor by breaking down task
for subgroups to work on together
Problems Encountered with
Group Decision Making
• Groupthink
• Groups may polarize toward extreme
points of view if risk is involved
• Groups may exert pressure on a manager
that would allow escalation of
commitment to occur
Problems Encountered with
Group Decision Making (cont.)
• Tends to be much more costly
• Group decisions tend to be influenced by
the relative status of individual group
members
Nominal Group Technique
• Used to mitigate the potential problems
associated with group decision making
• Involves grouping seven to ten people
• Members silently and independently
record their ideas about how to tackle a
problem
Nominal Group Technique
(cont.)
• Each member presents one of his or her
ideas to the group, and it is summarized
and recorded on a chalkboard or wall
chart without review of its merits
• A discussion of all ideas is held and ideas
are clarified and evaluated
Nominal Group Technique
(cont.)
• Individuals silently and independently
vote on each idea, which may involve
ranking or rating in some way
Nominal Group Technique
(cont.)
• Nominal group technique avoids some of
the problems of traditional decision
making; decisions can be reached in a
reasonable amount of time without being
greatly influenced by the leader’s
preferred position
Delphi Technique
• Similar to NGT, however, decision
makers never meet
• Group is selected based on expertise in
given problem area
• Experts are mailed questionnaires that
survey their opinions
Delphi Technique (cont.)
• Experts’ responses are analyzed and
distilled
• Summarized results are mailed to experts
and responses are requested for another,
new survey; experts with dissenting
opinions may be asked to rationalize their
opinions, and the rationale may be sent to
other experts for comment
Delphi Technique (cont.)
• Process is to be repeated several times;
consensus is usually reached due to the
multiple iterations
Pros/Cons of Delphi
Technique
Pros
• Avoids biases and
obstacles associated
with interacting
groups
• Generates fairly
useful information
and high-quality
solutions
Cons
• Time consuming.
May take as little as
several weeks or as
much as several
months
• Highly structured
format doesn’t offer
much flexibility if
conditions change
Social Loafing
• Refers to when an individual in a group
slacks off because of being in the group
• More problematic in larger groups
because less notability and responsibility
Stepladder Technique
• Stepladder technique may combat social
loafing
• Groups using the stepladder technique
have been found to make higher-quality
decisions than conventional groups
Creativity and Decision
Making
• Many problems require creative
solutions, particularly those that are
nonprogrammed and involve broad
ranging ramifications
Characteristics of Creative
Individuals
• Most people reach creative peak between
ages of 30 and 40
• Peak creative age varies by discipline
• People can still make creative
contributions at later ages, however the
frequency of creative productivity
decreases
Characteristics of Creative
Individuals (cont.)
• Creative people typically have a wide
range of interests
• Randsepp’s conclusions about the
characteristics of creative people:
– Willing to give up immediate gain to reach
long-range goals
– Have lots of energy
– Are irritated with the status quo
Characteristics of Creative
Individuals (cont.)
– Have a lot of perseverance
– Pursue hobbies and specialized interests
– Believe that fantasy and daydreaming are
not a waste of time
• Creative people are more likely to change
jobs frequently
Measurement of Creativity
• Ways to measure creativity include:
– Direct observation
– Creativity tests
Steps in the Creative
Process
•
•
•
•
•
Opportunity or problem recognition
Immersion
Incubation
Insight
Verification
Methods of Enhancing
Creativity
•
•
•
•
Nominal Group Technique
Delphi Technique
Brainstorming
Grid analysis
DuBrin’s Suggestions for
Enhancing Creativity
• Don’t be afraid to try and then fail
• Let your playful side come out; number
of new ideas is what counts
• Identify your creative time period; use
humor
• Borrow ideas; give rise to new ideas
• Maintain an idea notebook; record
flashes of insight for future reference
Ethics in Decision Making
• Ethical conduct may offer a strategic
advantage relative to competitors
• Some organizations provide ethics
training for their managers
• Ethics training consists of:
– Statements from top company officers
emphasizing ethics in decision making
Ethics in Decision Making
(cont.)
– Discussion of corporate code of conduct
– Procedures for reporting unethical conduct
• Ethics training can be conducted through
case discussion and exercises