Decision Making,
Learning,
Creativity, and
Entrepreneurship
chapter seven
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
1. Understand the nature of managerial decision
making, differentiate between programmed
and non-programmed decisions, and explain
why non-programmed decision making is a
complex, uncertain process.
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.
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Learning Objectives
3. Identify the advantages and disadvantages of group
decision making, and describe techniques that can
improve it.
4. Explain the role that organizational learning and
creativity play in helping managers to improve their
decisions.
5. Describe how managers can encourage and
promote entrepreneurship to create a learning
organization and differentiate between
entrepreneurs and intrapreneurs
7-3
The Nature of Managerial
Decision Making
• Decision Making
– The process by which managers respond to
opportunities and threats that confront them by
analyzing options and making determinations
about specific
organizational
goals and courses
of action.
7-4
The Nature of Managerial
Decision Making
• Decisions in response
to opportunities
• Decisions in response
to threats
– occurs when managers
respond to ways to
improve organizational
performance to benefit
customers, employees,
and other stakeholder
groups
– events inside or outside
the organization are
adversely affecting
organizational
performance
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Decision Making
• Programmed Decision
– Routine, virtually automatic process
• Decisions have been made so many times in the
past that managers have developed rules or
guidelines to be applied when certain situations
inevitably occur
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Decision Making
• Non-Programmed Decisions
– Nonroutine decision making that occurs in
response to unusual, unpredictable opportunities
and threats
• Rules do not exist because the situation is
unexpected or uncertain and managers lack the
information they would need to develop rules to
cover it.
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Decision Making
• Intuition
• Reasoned judgment
– feelings, beliefs, and
hunches that come
readily to mind, require
little effort and
information gathering
and result in on-the-spot
decisions
– decisions that take time
and effort to make and
result from careful
information gathering,
generation of
alternatives, and
evaluation of
alternatives
7-8
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.
7-9
The Classical Model
• 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 7.1
7-11
The Administrative Model
• Administrative Model
– 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
• Bounded rationality
• Incomplete information
– Cognitive limitations that
constrain one’s ability to
interpret, process, and
act on information.
– Because of risk and
uncertainty, ambiguity,
and time constraints
7-13
Why Information Is Incomplete
Figure 7.2
7-14
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
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Causes of Incomplete Information
• Ambiguous Information
Young Woman or Old
Woman
– Information that can be
interpreted in multiple
and often conflicting
ways.
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Figure 7.3
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
• Satisficing
– Searching for and choosing an acceptable, or
satisfactory response to problems and
opportunities, rather than trying to make the best
decision
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Six Steps in Decision Making
Figure 7.4
7-18
General Criteria for Evaluating Possible
Courses of Action
Figure 7.5
7-19
Feedback Procedure
1. Compare what actually happened to what
was expected to happen as a result of the
decision
2. Explore why any expectations for the
decision were not met
3. Derive guidelines that will help in future
decision making
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