CHAPTER 4 - FOUNDATIONS OF DECISION MAKING
LEARNING OUTCOMES (PPT 4-2, 4-3)
After reading this chapter, students should be able to:
1. Describe the steps in the decision-making process.
2. Identify the assumptions of the rational decision-making model.
3. Explain the limits to rationality.
4. Define certainty, risk, and uncertainty as they relate to decision making.
5. Describe the actions of the bounded-rational decision maker.
6. Identify the two types of decision problems and the two types of decisions that are used to solve them.
7. Define heuristics and explain how they affect the decision-making process.
8. Identify four decision-making styles.
9. Describe the advantages and disadvantages of group decisions.
10. Explain three techniques for improving group decision making.
Opening Vignette
SUMMARY
Canadian entrepreneur Brian Scudamore has made a thriving business out of hauling people’s
trash. His business, Got Junk? resulted from seeing a dilapidated truck hauling some trash in a
McDonald’s drive-thru. Scudamore figured that many people had stuff they needed to get rid of, and that
they made their decisions on who to call to haul away rubbish based on what the haulers looked like.
What Scudamore has done has been nothing short of phenomenal. His goals were to do a good job at a
reasonable price, to look professional, and to be the go-to company to have trash hauled away. That, to
Scudamore, meant having newer trucks that were washed every day, and dressing employees in a uniform
of slacks, royal blue golf shirts, a baseball cap, belt, and boots. The business was an immediate success
and as it continued to grow, Scudamore began envisioning a “Got Junk?” empire.
15 years later, Scudamore’s company gets more than 1500 calls a day and uses software call JunkNet
to route the calls to one of the 74 territories where GotJunk? exists. Within 24 hours, a GotJunk?
technician arrives in his or her clean truck, professionally dressed, and hauls the junk away. Averaging
$238 per customer, Scudamore’s company is generating the $12.5 million in revenues the company had in
2003. It is now one of the fastest growing franchises in North America, with at least one GotJunk?
operation in 28 of the top metropolitan areas. Those early decisions Brian Scudamore made were
correct.
Teaching tips
1. What factors were key in Brain Scudamore’s decision to start his business? What about how to
design it?
2. How are GotJunk’s? decisions for routing made currently?
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3. What can we learn from Scudamore’s decision making approach?
I. THE DECISION-MAKING PROCESS
A. Introduction
1. See Exhibit 4-1 for examples of planning function decisions. (PPT 4-5)
2. Decision making is typically described as “choosing among alternatives.”
3. This is simplistic because decision making is a process.
a)
See Exhibit 4-2 illustrating the decision-making process. (PPT 4-6)
II. WHAT DEFINES A DECISION PROBLEM? (PPT 4-4)
A. Introduction
1. The decision-making process begins with the identification of a problem (Step 1), a
discrepancy between an existing and a desired state of affairs.
a) Car buying example.
2. Problem identification is subjective.
3. The manager who mistakenly solves the wrong problem perfectly is likely to perform just as
poorly as the manager who fails to identify the right problem and does nothing.
a) How do managers become aware that they have a discrepancy?
b) Managers compare their current state of affairs and some standard.
1)
Past performance.
2)
Previously set goals.
3)
Performance of some other unit within the organization or in other organizations.
4)
A vehicle that runs.
B. What Is Relevant in the Decision-Making Process? (PPT 4-4)
1. Once a problem is identified, the decision criteria must be identified (Step 2).
2. Car-buying example continued.
3. Every decision maker has criteria—explicitly stated or not—that guide his/her decision.
a) What is not identified is as important as what is.
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4. If a decision maker does not identify a particular factor, it is treated as irrelevant.
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C. How Does the Decision Maker Weight the Criteria?
1. It is necessary to allocate weights to the items listed in Step 2 in order to give them their
relative priority in the decision (Step 3).
2. A simple approach, give the most important criterion a weight of ten and then assign weights
to the rest against that standard.
a) Exhibit 4-3 lists the criteria and weights for vehicle replacement decision. (PPT 4-7)
3. Then the decision maker lists the alternatives that could succeed in resolving the problem
(Step 4).
a) No attempt is made to appraise these alternatives, only to list them.
4. Once identified, the decision maker must critically analyze each alternative (Step 5).
a) Each alternative is evaluated by appraising it against the criteria and weights established
in Steps 2 and 3.
1) Exhibit 4-4 shows the assessed values for each vehicle; it does not reflect the
weighting done in Step 3. (PPT 4-8)
b) If you multiply each alternative assessment against its weight, you get Exhibit 4-5. (PPT
4-9)
c) Notice that the weighting of the criteria has changed the ranking of alternatives in our
example.
D. What Determines the Best Choice?
1. The critical act of choosing the best alternative from among those enumerated and assessed
(Step 6).
a) Car example, Exhibit 4-5. (PPT 4-9)
E. What Is Decision Implementation? (PPT 4-10)
1. The decision may still fail if it is not implemented properly (Step 7).
2. Decision implementation includes conveying the decision to those affected and getting their
commitment to it.
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3. The people who must carry out a decision are most likely to enthusiastically endorse the
outcome if they participate in the decision-making process.
F. What is the Last Step in the Decision Process?
1. The last step (Step 8) appraises the result of the decision to see whether it has corrected the
problem.
2. Did the alternative chosen in Step 6 and implemented in Step 7 accomplish the desired result?
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III. MAKING DECISIONS: THE RATIONAL MODEL
A. Introduction
1. Managerial decision making is assumed to be rational. (PPT 4-11)
a) That managers make consistent, value-maximizing choices within specified constraints.
2. A decision maker who was perfectly rational would be fully objective and logical.
a) He or she would carefully define the problem and have a clear and specific goal.
b) The steps in the decision-making process would consistently lead to selecting the
alternative that maximizes that goal.
c) Exhibit 4-6 summarizes the assumptions of rationality. (PPT 4-12)
3. The assumptions of rationality often do not hold true, because the level of certainty that the
rational model demands rarely exists.
4. Most managers try to assign probabilities to outcomes that may result.
a) This process is called dealing with risk.
5. Decisions made with limited information are made under a condition of uncertainty.
B. Why is Creativity Important in Decision Making?
1. The rational decision maker needs creativity—the ability to produce novel and useful ideas.
a) Different from what’s been done before and appropriate to the problem or opportunity
presented.
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2. Creativity allows the decision maker to appraise and understand the problem more fully,
including “seeing” problems other can’t see.
3. Creativity’s most obvious value is in helping the decision maker identify all viable
alternatives.
C. What is Creative Potential?
1. Most people have creative potential.
a) They have to get out of the psychological ruts.
b) They have to learn how to think about a problem in divergent ways.
2. People differ in their inherent creativity.
a) Exceptional creativity is scarce.
b) A study of lifetime creativity of 461 men and women.
1)
Fewer than 1 percent were exceptionally creative.
2)
10 percent were highly creative.
3)
About 60 percent were somewhat creative.
3. Individual creativity requires expertise, creative-thinking skills, and intrinsic task motivation
(See Exhibit 4-7). (PPT 4-13)
a) Expertise is the foundation of all creative work.
b) Creative-thinking skills encompasses personality characteristics associated with
creativity, the ability to use analogies, as well as the talent to see the familiar in a
different light.
1)
Individual traits associated with the development of creative ideas include
intelligence, independence, self-confidence, risk-taking, an internal locus of control,
tolerance for ambiguity, and perseverance in the face of frustration.
c) Intrinsic task motivation is the desire to work on something because it’s interesting,
involving, exciting, satisfying, or personally challenging.
1)
Determines the extent to which individuals fully engage their expertise and creative
skills.
2)
Creative people often love their work, to the point of seeming obsessed.
4. Five organizational factors can impede creativity.
a) Expected evaluation—focusing on how your work is going to be evaluated.
Surveillance—being watched while you’re working.
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b) External motivators—emphasizing external, tangible rewards.
c) Competition—facing win-lose situations with your peers.
d) Constrained choices—being given limits on how you can do your work.
IV. THE REAL WORLD: MODIFICATIONS OF THE RATIONAL MODEL
A. Introduction (PPT 4-14)
1. Most of us make decisions on the basis of incomplete information.
2. When we are faced with complex problems, most of us respond by reducing the problem to
something we can readily understand.
3. We satisfice: seek solutions that are satisfactory and sufficient—or just good enough.
4. When managers face a simple problem having few alternatives, when time pressures are
minimal, and when the cost of seeking and evaluating alternatives is low—the rational model
provides a good description of the decision-making process.
5. Studies often challenge one or more of the assumptions of rationality.
a) They suggest that decision making often veers from the logical, consistent, and
systematic process.
b) Despite the limits to perfect rationality, managers are expected to appear to follow the
rational process.
6. “Good” decision makers are supposed to do certain things: identify problems, consider
alternatives, gather information, behave thoughtfully, and act decisively but prudently.
7. Managers signal that they are competent and that their decisions are the result of intelligent
and rational deliberation.
a) The process they follow is frequently referred to as bounded rationality.
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B. What Is Bounded Rationality? (PPT 4-14)
1. Management theory is built on the premise that individuals act rationally.
2. The essence of managerial jobs revolves around the rational decision-making process.
However, few people actually behave rationally.
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3. Herbert Simon found that within certain constraints, managers do act rationally.
4. Because it is impossible for human beings to process and understand all the information
necessary, they construct simplified models that extract the essential features from problems.
a) Bounded rationality, decision makers behave rationally within the limits of the simplified
or bounded model.
b) The result is a satisficing decision; the solutions are “good enough.”
5. How do managers’ actions within these boundaries differ from actions within the rational
model?
a) Once a problem is identified, the search for criteria and alternatives begins.
1) This list of criteria is generally limited and made up of the more conspicuous
choices.
b) Simon found that decision makers focus on easy-to-find choices—those that are highly
visible.
c) This means developing alternatives that vary only slightly from past decisions about
similar problems.
d) Once this limited set of alternatives is identified, decision makers begin reviewing them.
1) The review will not be exhaustive.
e) They review alternatives only until an alternative that is sufficient is found.
1) The first alternative to meet the “good enough” criterion ends the search.
(a) Accept offer as cash flow manager with mid-sized firm 60 miles from home at
starting salary of $44,500.
(b) Further searching would have revealed an opening for a cash flow manager with
a Fortune 1000 firm 25 miles from home at a starting salary of $48,000.
(c) You stopped searching when the first job was found because it was “good
enough.”
f) What are the implications of bounded rationality on the manager’s job? In situations in
which the assumptions of perfect rationality do not apply (including many of the most
important and far-reaching decisions that a manager makes), the details of the decisionmaking process are strongly influenced by the decision maker’s self-interest, the
organization’s culture, internal politics, and power considerations.
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C. Are Common Errors Committed in the Decision-Making Process? (PPT 4-15)
1. Making decisions is making choices.
2. Behaviors that speed up the process, judgmental shortcuts, are called heuristics.
3. Two forms--availability and representative.
a) Both types create biases in a decision maker.
b) Another bias is the tendency to escalate commitment to a failing course of action.
4. Availability heuristic.
a) The tendency for people to base their judgments on information that is readily available.
1) Events that invoke strong emotions, that are vivid to the imagination, or that have
recently occurred create a strong impression.
2) We are likely to overestimate the frequency of the occurrence of unlikely events.
b) Example, fear of flying.
5. Representative heuristic
a) Literally millions of recreational league players dream of turning professional.
b) In reality, most have a better chance of becoming medical doctors than ever playing in
the NFL.
c) Representative heuristic causes individuals to match the likelihood of an occurrence with
something that they are familiar with.
6. Organizational instances of representative heuristic.
a) Predicting the future success of a new product by relating it to a previous product’s
success.
b) No longer hiring college graduates from a particular college program because the last
three hired from that program were poor performers.
7. Escalation of Commitment
a) Example, blackjack.
b) An increased commitment to a previous decision despite negative information.
c) The tendency to “stay the course,” despite negative data.
d) Some of the most notorious events involving escalation of commitment were decisions
made by presidents of the United States.
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1) Lyndon Johnson’s administration increased bombing in North Vietnam, despite
continual information that bombing was not achieving their objective.
2) Richard Nixon refused to destroy his secret White House tapes.
8. George H. W. Bush believed that, given his popularity after Operation Desert Storm and the
fall of the Soviet Union, he had only to pay attention to foreign affairs to win the 1992
presidential election.
9. At Allfirst Financial (a U.S. subsidiary of Allied Irish Banks), a Baltimore trader continued to
trade the yen in hopes of recouping his initial losses—his actions led to a $691 million loss to
the bank.
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V. VDECISION MAKING: A CONTINGENCY APPROACH
A. Introduction
1. Types of problems faced by managers often determine how a problem is treated.
B. How Do Problems Differ? (PPT 4-16)
1. Some problems are straightforward. The goal of the decision maker is clear, the problem
familiar, and information about the problem easily defined and complete.
a) Examples of well-structured problems include a supplier’s tardiness with an important
delivery, a customer’s wanting to return an Internet purchase, etc.
2. Many situations, however, are ill-structured problems. They are new or unusual. Information
about such problems is ambiguous or incomplete.
a) Examples of ill-structured problems include the decision to enter a new market segment,
to hire an architect to design a new office park, etc.
C. How Does a Manager Make Programmed Decisions? (PPT 4-17)
1. Programmed, or routine, decision making is the most efficient way to handle well-structured
problems.
2. When problems are ill structured, managers must rely on nonprogrammed decision making.
a) Stanley Steamer carpet cleaner example.
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3. Decisions are programmed to the extent that they are repetitive and routine and to the extent
that a specific approach has been worked out for handling them.
a) Programmed decision making is relatively simple and tends to rely heavily on previous
solutions.
b) The develop-the-alternatives stage is given little attention because programmed decision
making becomes decision making by precedent.
4. A procedure is a series of interrelated sequential steps that a manager can use when
responding to a well-structured problem.
a) The only real difficulty is in identifying the problem.
b) Once the problem is clear, so is the procedure.
c) Example of auto mechanic shop and following company policy in case of damage to a
customer’s car.
5. A rule is an explicit statement that tells a manager what he or she ought or ought not to do.
a) Rules are frequently used with a well-structured problem because they are simple to
follow and ensure consistency.
6. A policy provides guidelines to channel a manager’s thinking in a specific direction.
a) In contrast to a rule, a policy establishes parameters for the decision maker rather than
specifically stating what should or should not be done.
b) Example, “we promote from within, whenever possible.”
c) Analogy, think of the Ten Commandments as rules and the U.S. constitution as policy.
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Ethical Dilemma in Management
Stem-Cell Research
SUMMARY
Advanced Cell Technology is embarking on a major activity—“to produce the world’s first-ever
cloned human embryo…a microscopic version of an already living person.” Michael West, Chief
Executive of Advanced Cell Technology and Robert Lanza, VP of Medical and Scientific Development
has begun implementation of this goal by seeing women to serve as egg donors. As the stem cells are
captured, the embryo is destroyed. Stem cells are believed to be able to develop into human tissue that
could help cure a variety of diseases, or even repair a severed spinal cord.
Advanced Cell Technology’s goal, of course, is facing a major debate. If such research is proven
effective, many diseases as we know them today—like Parkinson’s Disease and Muscular Dystrophy—
could be eliminated. Similar research is being conducted in other parts of the globe—such as Europe
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where it has received support. To assist in these endeavors in an attempt to ensure the highest ethics enter
into all decisions made, Michael West has formed an ethical board of advisors—consisting of scientists
and professors of religion.
Critics of such research see this differently. They view stem cell research as the next step toward
cloning humans—and at times, liken it to creating a “great society.” Religious groups, too, have voiced
this concern over Advanced Cell’s decisions, claiming that they are working in an area that they
shouldn’t. The federal government has also entered into the discussion, with President George W. Bush
setting specific regulations on what kind of stem cell research is funded by the government. Even some
Advanced Cell ethics board members have resigned, complaining that Advanced Cell is more interested
in “obtaining patents in the field and using the board as a rubber stamp.”
Questions
1. Do you believe that a company like Advanced Cell Technology can make ethical decisions in this
arena when so much is at stake?
2. Should public opinion keep a company from doing something simply because it is unpopular—even
though it is legal? What’s your opinion?
Teaching notes
1. Students may hold strong, and opposing, positions about the issue of stem-cell research. It is
important that focus be placed on their reasoning process and their realization of the difficulty of the
practical realities of their position.
2. Begin this exercise by asking students to create an argument for stem-cell research or against stemcell research to present to the Advanced Cell board of advisors.
3. Have students create this argument by addressing the following items.

Who are the stakeholders? Who has a vested interest in the decision and will be affected by it? Rank
their importance and explain the ranking.

What is the real problem?

What choices does Advanced Cell have? Are there other alternatives that would help them address the
problem?
4. Have students present their arguments in class, allowing other teams to critique their decision-making
process.
D. In What Ways Do Nonprogrammed Decisions Differ from Programmed Decisions?
1. Examples of nonprogrammed decisions: deciding whether to acquire another organization,
deciding which global markets offer the most potential, engineering work processes to
improve efficiency, etc.
2. Such decisions are unique and nonrecurring, involving an ill-structured problem with no cutand-dried solution.
The creation of a new organizational strategy is an example of a nonprogrammed decision.
a) Example, Amazon.com Jeff Bezos’ decision to seek strategic alliances.
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1) Bezos’ strategy to “get big fast” helped the company grow but at the cost of perennial
financial losses.
2) To make a profit, Bezos made decisions affecting how the company operated,
including allowing other sellers to sell their books at Amazon—result was $59
million in profit in 2001.
E. How Can You Integrate Problems, Types of Decisions, and Level in the Organization?
1. Exhibit 4-8 describes the relationship between types of problems, types of decisions, and
level in the organization. (PPT 4-18)
2. Well-structured problems are responded to with programmed decision making.
a) Lower-level managers essentially confront familiar and repetitive problems.
3. Ill-structured problems require nonprogrammed decision making.
a) The problems confronting managers up the organizational hierarchy are more likely to
become ill structured.
4. Few managerial decisions are either fully programmed or fully nonprogrammed.
5. Organizational efficiency is facilitated by the use of programmed decision making.
a) Whenever possible, management decisions are likely to be programmed.
b) There are strong economic incentives for top management to create policies, standard
operating procedures, and rules to guide other managers.
c) Programmed decisions minimize the need for managers to exercise discretion.
d) This benefit is important because discretion costs money.
F. In What Ways Does Technology Assist Decision Making? (PPT 4-19)
1. Expert systems use software programs to encode the relevant experience of an expert and
allow a system to act like that expert in analyzing and solving ill-structured problems.
a) Use specialized knowledge about a particular problem area rather than general
knowledge that would apply to all problems.
b) Use qualitative reasoning rather than numerical calculations.
c) Perform at a level of competence that is higher than that of non-expert humans.
d) Guide users through problems by asking them a set of sequential questions about the
situation and drawing conclusions based on the answers given.
2. Neural networks are the next step beyond expert systems.
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a) Use computer software to imitate the structure of brain cells and connections among
them.
b) People can’t easily assimilate more than two or three variables at once, but neural
networks can perceive correlations among hundreds of variables.
c) Example, most banks today use neural networks to flag potential credit card fraud and it’s
more likely that the majority of credit card transactions flagged will be actual cases of
fraud. Also, fraudulent activities on a credit card can be uncovered in a matter of hours
with neural networks.
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VI.
DECISION-MAKING STYLES
A. Introduction
1. Every decision maker brings a unique set of personal characteristics to his or her problemsolving efforts.
2. Researchers have sought to identify different decision-making styles.
B. Decision-Making Styles (PPT 4-20, 4-21)
1. The basic premise is that individuals differ along two dimensions.
2. The first is the way they think.
a) Some decision makers are logical and rational, processing information sequentially.
b) Some individuals who think creatively and use their intuition, see matters from a big
picture perspective.
3. The second dimension focuses on individuals’ tolerance for ambiguity.
a) Some have a high need for consistency and order and seek to minimize ambiguity.
b) Others tolerate high levels of uncertainty, processing many thoughts at the same time.
4. When we diagram these two dimensions, four decision-making styles are formed.
a) These styles are directive, analytic, conceptual, and behavioral.
b) See Exhibit 4-9. (PPT 4-22)
5. The directive style. (PPT 4-20)
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a) Represents a decision-making style characterized by low tolerance for ambiguity and a
rational way of thinking.
b) These individuals are logical and efficient and typically make fast decisions that focus on
the short term.
6. The analytic style. (PPT 4-20)
a) Characterized by high tolerance for ambiguity combined with a rational way of thinking.
b) These individuals prefer complete information before making a decision, typically
carefully considering many alternatives.
7. The conceptual style. (PPT 4-21)
a) Tends to be very broad in outlook and typically will look at many alternatives.
b) Tends to focus on the long run and look for creative solutions.
8. The behavioral style (PPT 4-21)
a) Reflects an individual who thinks intuitively but has a low tolerance for uncertainty.
b) These decision makers work well with others, are open to suggestions, and are concerned
about the individuals who work for them.
9. Most managers possess characteristics of more than one style.
10. See Self-Assessment #20, pp. 135.
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VII.
MAKING DECISIONS IN GROUPS
A. Do managers make a lot of decisions in groups?
1. Many decisions in organizations, especially important decisions that have far-reaching effects
on organizational activities and personnel, are typically made in groups.
2. In many cases, these groups represent people who will be most affected by the decisions.
3. Managers spend a significant portion of their time in meetings.
B. What Are the Advantages of Group Decision Making? (PPT 4-23)
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1. Individual and group decisions have their own set of strengths—neither is ideal for all
situations.
2. Group decisions provide more complete information than do individual ones.
3. A group will bring a diversity of experiences and perspectives to the decision process.
4. Groups also generate more alternatives.
a) Quantity and diversity of information are greatest when group members represent
different specialties.
5. Group decision making increases acceptance of a solution.
6. This process increases legitimacy.
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C. What Are the Disadvantages to Group Decision Making? (PPT 4-23)
1. First, they are time-consuming.
2. There may also be a situation in which there is minority domination.
a) Members of a group are never perfectly equal.
b) A minority that dominates a group frequently has an undue influence on the final
decision.
3. Another problem focuses on the social pressures to conform in groups.
a) Irving Janis’ groupthink—a form of conformity in which group members withhold
deviant, minority, or unpopular views in order to give the appearance of agreement.
4. Finally, there is ambiguous responsibility. In a group decision, the responsibility of any single
member is watered down.
5. Groupthink applies to a situation in which a group’s ability to appraise alternatives
objectively and arrive at a quality decision is jeopardized.
a) Because of pressures for conformity, groups often deter individuals from critically
appraising unusual, minority, or unpopular views.
b) Consequently, there is a deterioration of an individual’s mental efficiency, reality testing,
and moral judgment.
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6. How does groupthink occur?
a) Group members rationalize any resistance to the assumptions they have made.
b) Members apply direct pressures on those who momentarily express doubts about any of
the group’s shared views or who question the arguments favored by the majority.
c) Those members who have doubts or hold differing points of view seek to avoid deviating
from what appears to be group consensus.
d) There is an illusion of unanimity. Silence is assumed as being in full accord.
7. Does groupthink really hinder decision making?
a) Yes.
8. Groupthink can be minimized if:
a) the group is cohesive.
b) it fosters open discussion.
c) is led by an impartial leader who seeks input from all members.
D. When Are Groups Most Effective?
1. Group decisions tend to be more accurate.
2. On the average, groups make better decisions than individuals—although groupthink may
occur.
3. If decision effectiveness is defined in terms of speed, individuals are superior.
4. If creativity is important, groups tend to be more effective than individuals.
5. If effectiveness means the degree of acceptance the final solution achieves, then groups are
better.
6. The effectiveness is also influenced by the size of the group.
a) The larger the group, the greater the opportunity for heterogeneous representation.
b) A larger group requires more coordination and more time to allow for contributions.
c) A minimum of five to a maximum of about fifteen is best.
d) Because five and seven are odd numbers, strict deadlocks are avoided.
7. Effectiveness should not be considered without also assessing efficiency.
a) Groups almost always are less efficient than the individual decision maker.
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E. How Can You Improve Group Decision Making? (PPT 4-24)
1. Three ways of making group decision making more creative: brainstorming, the nominal
group technique, and electronic meetings.
2. What is brainstorming?
a) A relatively simple technique for overcoming pressures for conformity.
b) It utilizes an idea-generating process that specifically encourages any and all alternatives.
1) A half-dozen to a dozen people sit around a table.
2) The leader states the problem clearly, ensuring understanding by all participants.
3) Members then “free-wheel” as many alternatives as they can in a given time.
4) No criticism is allowed; all the alternatives are recorded.
c) Brainstorming is merely a process for generating ideas.
3. How does the nominal group technique work?
a) The technique restricts discussion during the decision-making process.
b) Group members must be present, but they are required to operate independently.
c) They secretly write a list of general problem areas or potential solutions.
d) The chief advantage is that it permits a formal meeting but does not restrict independent
thinking.
4. How can electronic meetings enhance group decision making?
a) This approach—called the electronic meeting—blends the nominal group technique with
computer technology.
b) Once the technology for the meeting is in place, the concept is simple.
c) Numerous people sit around a horseshoe-shaped table that is empty except for a series of
computer terminals.
d) Issues are presented to participants, who type their responses onto their computer screens.
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e) Individual comments, as well as aggregate votes, are displayed on a projection screen in
the room.
f) The major advantages of electronic meetings are anonymity, honesty, and speed.
1) Participants can anonymously type any message they want, and it will flash on the
screen for all to see at the push of a board key.
2) It is fast—chitchat is eliminated, discussions do not digress, and many participants
can “talk” at once without interrupting the others.
5. Experts claim that electronic meetings are significantly faster and much cheaper than
traditional face-to-face meetings.
a) Nestles example.
6. Drawbacks.
a) Those who can type quickly can outshine those who may be verbally eloquent but are
lousy typists.
b) Those with the best ideas don’t get credit for them.
c) The process lacks the informational richness of face-to-face oral communication.
7. The future of group decision making is very likely to include extensive usage of electronic
meetings.
8. A variation of the electronic meeting is the video conference.
a) By linking together media from different locations, people can have face-to-face
meetings even when they are thousands of miles apart.
b) This has enhanced feedback among the members, saved countless hours of business
travel, and ultimately saved companies hundreds of thousands of dollars.
Teaching Notes _______________________________________________________________________
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VIII.
NATIONAL CULTURE AND DECISION-MAKING PRACTICES
A. Introduction
1. Research shows that, to some extent, decision-making practices differ by country.
2. Two decision variables.
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a) The way decisions are made: Who makes the decision?
b) The degree of risk a decision maker is willing to take.
3. India, power distance and uncertainty avoidance are high.
a) Only very senior-level managers make decisions, and they are likely to make safe ones.
4. Sweden, power distance and uncertainty avoidance are low.
a) Swedish senior managers tend not to be afraid to make risky decisions and also push
decisions down in the ranks.
5. Egypt, where time pressures are low, managers make decisions at a slower and more
deliberate pace than managers in the United States.
6. Italy, history and traditions are valued, managers tend to rely on tried and proven alternatives.
7. Decision making in Japan is much more group oriented than in the United States.
a) The Japanese value conformity and cooperation.
b) Japanese CEOs collect a large amount of information, to build consensus, called
“ringisei.”
c) Managerial decisions take a long-term perspective.
8. France, autocratic decision making is widely practiced, and managers avoid risks.
9. Managerial styles in Germany reflect the German culture’s concern for structure and order,
extensive rules and regulations, and managers accept that decisions must go through
channels.
10. Managers who deal with employees from diverse cultures need to recognize what is common
and accepted behavior regarding decision making.
11. Managers who can accommodate diversity in decision-making philosophies and practices can
expect a high payoff.
Teaching Notes _______________________________________________________________________
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Review, Comprehension, Application
Chapter Summary
1.
Decision making is an eight-step process: (1) identify a problem, (2) identify decision criteria, (3)
allocate weights to the criteria, (4) develop alternatives, (5) analyze alternatives, (6) select an
alternative, (7) implement the alternative, and (8) evaluate decision effectiveness.
2. The rational decision model assumes that the decision maker can identify a clear problem, has no
goal conflict, knows all options, has a clear preference ordering, keeps all preferences constant, has
no time or cost constraints, and selects a final choice that maximizes his or her economic payoff.
3. Rationality assumptions do not apply in many situations because problems are not simple, goals are
not clear, alternatives are many, and there are time and cost constraints. In addition, decision makers
sometimes increase commitment to a previous choice to confirm its original correctness; prior
decision precedents constrain current choices, and most organizational cultures discourage taking
risks and searching for innovative alternatives.
4. Certainty implies that a manager can make an accurate decision because the outcome of every
alternative is known. Because this is often not the case, risk involves assigning probabilities to
outcomes that may result. When decision makers have neither full knowledge of the problem nor a
reasonable probability of what may happen, they must make their decisions under a condition of
uncertainty.
5. In the bounded-rational decision-making process, decision makers construct simplified models that
extract essential features from the problems they face without capturing all their complexity. They
then attempt to act rationally within this simplified model.
6. Managers face well-structured and ill-structured problems. Well-structured problems are
straightforward, familiar, easily defined, and solved using programmed decisions such as procedures,
rules, and policies. Ill-structured problems, on the other hand, are new or unusual, involve ambiguous
or incomplete information, and are solved using nonprogrammed decisions.
7. Heuristics are shortcuts decision makers can take to speed up the decision-making process. Heuristics
commonly exist in two forms—availability and representative. Both types create biases in a decision
maker’s judgment.
8. The four decision-making styles are the directive style (characterized by low tolerance for ambiguity
and a rational way of thinking), the analytic style (characterized by high tolerance for ambiguity
combined with a rational way of thinking), the conceptual style (characterized by a very broad
outlook and a tendency to look at many alternatives), and the behavioral style (characterized by
intuitive thinking and a low tolerance for uncertainty).
9. Groups offer certain advantages—more complete information, more alternatives, increased
acceptance of a solution, and greater legitimacy. On the other hand, groups are time consuming, can
be dominated by a minority, create pressures to conform, and cloud responsibility.
Three ways of improving group decision making are brainstorming (utilizing an idea-generating process
that specifically encourages any and all alternatives while withholding any criticism of those alternatives),
the nominal group technique (a technique that restricts discussion during the decision-making process),
and electronic meetings (the most recent approach to group decision making, which blends the nominal
group technique with sophisticated computer technology).
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Companion Website
We invite you to visit the Robbins/DeCenzo Companion Website at www.prenhall.com/robbins for the
chapter quiz and student PowerPoints.
OneKey Online Courses
We invite you to visit www.prenhall.com/onekey for the part-ending ethics scenarios, diversity exercises,
and learning modules.
 Enhancing your Skill in Ethical Decision Making
New to this edition is an online interactive feature designed to give students experience in making
management decisions about hypothetical yet realistic ethical issues. Introductory paragraphs at the ends
of Parts 1, 2, 3, 4, and 5 provide background about the company (Boeing) and set up the situation for each
set of exercises. After they have studied the chapters in each part, have students log onto
www.prenhall.com/onekey and work through the two multiple choice questions and two short-essay
questions. You may want to hold classroom debates, assign students to conduct role-plays, or have
students work in teams to explore the decision alternatives involved in some of these ethical challenges.

Diversity Perspectives: Communication and Interpersonal Skills, by Carol Harvey and June
Allard
1. How could the director change the perceptions of the majority about the vocal minority and vice
versa?
To avoid perceptions based on physical interaction, where overtalking, ignoring and physical appearance
have effect, meetings could be help electronically. Everyone then would get a change to have his/her say
without being shut out or intimidated. This can help with the problem of scheduling meetings at times
when some members cannot attend. (The downside of this is whether everyone has access to electronic
communication and is comfortable using it.)
In face-to-face meetings a strong chairperson can do much to give everyone equal “air time,” (even
going so far as to allot everyone so many minutes), but cannot totally overcome the perceptions of
superiority and inferiority imposed by physical appearance.
Brainstorming is a good technique for hearing from everyone.
2. What could the director do to structure committee interactions to reduce minority domination?
The director or whoever chairs the council must take a firm stand. Insisting on hearing from everyone,
perhaps timing each member’s minutes on the floor.
If subcommittees are formed, then everyone serves on only one committee and the vocal minority and
other members are mixed on all committees and the minority do not always serve as chairs of the
committees (divide and conquer technique). The chair must be alert to keep minorities from coalescing
and caucusing.
When it comes time to make decisions, intimidation can be avoided by voting by mail, closed ballot,
electronically, etc.
3. What could the director do to better define the committee tasks to reduce minority domination?
The key is to structure the problem into phases/tasks from the very outset and to conduct any face-to-face
meetings with a written agenda. Again, electronic meetings and votes taken by mail, closed ballot or
electronically help.
Reading for Comprehension
1. Explain how decision making is related to the planning process.
Answer – Planning encompasses defining the organization’s objectives or goals, establishing an
overall strategy, and developing a comprehensive hierarchy of plans to integrate and coordinate. It is
concerned with ends (what is to be done) and with means (how it is to be done). The decision-making
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process begins with the existence of a problem, a discrepancy between an existing and a desired state
of affairs. It is critical to supporting and adjusting plans in order to achieve the goals and objectives
established in the plan.
2. How is implementation important to the decision-making process?
Answer – The decision may still fail if it is not implemented properly. Decision implementation
includes conveying the decision to those affected and getting their commitment to it. The people who
must carry out a decision are most likely to enthusiastically endorse the outcome if they participate in
the decision-making process.
3. What is a satisficing decision? How does it differ from a maximizing decision?
Answer – It is the construction of simplified models that extract the essential features from problems.
Decision makers behave rationally within the limits of the simplified or bounded model. The result is
a satisficing decision, the solutions are “good enough.”
Simon found that decision makers focus on easy-to-find choices—those that are highly visible. This
means developing alternatives that vary only slightly from past decisions about similar problems.
Once this limited set of alternatives is identified, decision makers begin reviewing them. The review
will not be exhaustive. They review alternatives only until an alternative that is sufficient is found.
4. How do creativity, certainty, risk, and uncertainty affect individuals when they make a decision?
Answer – Creativity is the ability to produce novel and useful ideas. It allows the decision maker to
appraise and understand the problem more fully, including “seeing” problems others can’t see. It
helps the decision maker identify all viable alternatives.
The assumptions of rationality often do not hold true, because there rarely exists the level of certainty
that the rational model demands. Most managers try to assign probabilities to outcomes that may
result. This process is dealing with risk. Decisions made with limited information because of a lack of
full knowledge of the problem and the degree of probability can’t be determined are made under a
condition of uncertainty.
5. How does escalation of commitment affect decision making?
Answer – The escalation of commitment represents the tendency to stay the course, despite negative
data that suggest one should do otherwise.
6. What is groupthink? What are its implications for decision making?
Answer – Irving Janis termed groupthink, a form of conformity in which group members withhold
deviant, minority, or unpopular views in order to give the appearance of agreement. As a result,
groupthink undermines critical thinking in the group and eventually harms the quality of the final
decision.
Groupthink applies to a situation in which a group’s ability to appraise alternatives objectively and
arrive at a quality decision is jeopardized. Because of pressures for conformity, groups often deter
individuals from critically appraising unusual, minority, or unpopular views. Consequently, there is a
deterioration of an individual’s mental efficiency, reality testing, and moral judgment.
Linking Concepts to Practice
1. Describe a decision you have made that closely aligns with the assumptions of perfect rationality.
Compare this with the process you used to select your college. Is there a departure from the rational
model in your college decision? Explain.
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Chapter 4 Foundations of Decision Making
Answer – Students’ answers will vary. Students should take all eight steps into consideration and
may have some difficulty in applying all the steps. This may show that their college choice was a
satisficing decision.
2. Is the order in which alternatives are considered more critical under assumptions of perfect rationality
or bounded rationality? Why?
Answer – Yes, as decision makers focus on easy-to-find choices—those that are highly visible. This
means developing alternatives that vary only slightly from past decisions about similar problems.
Once this limited set of alternatives is identified, decision makers begin reviewing them. They review
alternatives only until an alternative that is sufficient is found. An escalation of commitment is the
increased commitment to a previous decision despite negative information. The further increase of
commitment to the original solution may be an effort to demonstrate that their initial decision was not
wrong.
3. Explain how a manager might deal with making decisions under conditions of uncertainty.
Answer – He/she would assign degrees of probability to the various alternatives considered and
choose the decision with the highest probability of a beneficial outcome.
4. “With more and more managers using computers, they’ll be able to make more rational decisions.”
Do you agree or disagree with the statement? Why?
Answer – Students should realize that technology helps decision making, it doesn’t make decisions.
The human factor—hidden agendas, power relationships, office politics, etc., will still be present.
Students should tie their answer into the characteristics of the technology, however.
The electronic meeting blends the nominal group technique with computer technology. Numerous
people sit around a horseshoe-shaped table that is empty except for a series of computer terminals.
Issues are presented to participants, who type their responses onto their computer screens. Individual
comments, as well as aggregate votes, are displayed on a projection screen in the room. The major
advantages of electronic meetings are anonymity, honesty, and speed. Participants can anonymously
type any message they want, and it will flash on the screen for all to see at the push of a board key. It
is fast—chitchat is eliminated, discussions do not digress, and many participants can “talk” at once
without interrupting the others. But there are drawbacks. Those who can type quickly can outshine
those who may be verbally eloquent but are lousy typists. Those with the best ideas don’t get credit
for them. The process lacks the informational richness of face-to-face oral communication.
5. Why do you think organizations have increased the use of groups for making decisions during the
past twenty years? When would you recommend using groups to make decisions?
Answer – Students should see a significant increase in the use of groups. It is certainly in all the
literature, but their individual experience may vary. Many decisions in organizations, especially
important decisions that have far-reaching effects on organizational activities and personnel, are
typically made in groups. In many cases, these groups represent people who will be most affected by
the decisions. Managers spend up to 40 percent or more of their time in meetings. Groups are most
effective if creativity is important, if effectiveness means the degree of acceptance of the final
solution, then groups are better, and if the group is relatively small in size.
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Management Workshop
Team Skill-Building Exercise
Individual versus Group Decisions
Objective: To contrast individual and group decision making.
Time: 15 minutes.
Instructions:
1. Have students read the story (allow them 5 minutes to read it) and then have them respond to each of
the 11 statements circling: True, False, Unknown.

Advise students that if any element of a statement is false, the whole statement should be
considered false.

They should use “unknown” whenever there is insufficient information to decide if the statement
is true or false.

They have a maximum of ten minutes. They should simply respond, not spend a great deal of
time looking for clues or tricks.
The Story
A salesclerk had just turned off the lights in the store when a man appeared and demanded
money. The owner opened a cash register. The contents of the cash register were scooped up, and the man
sped away. A member of the police force was notified promptly.
Statements about the Story
1. A man appeared after the owner had turned off his store lights.
True
False
Unknown
2. The robber was a man.
True
False
Unknown
3. The man did not demand money.
True
False
Unknown
4. The man who opened the cash register was the owner.
True
False
Unknown
5. The store owner scooped up the contents of the cash register
and ran away.
True
False
Unknown
6. Someone opened a cash register.
True
False
Unknown
7. After the man who demanded the money scooped up the contents
of the cash register, he ran away. True, false, or unknown?
True
False
Unknown
8. The cash register contained money, but the story does not
state how much.
True
False
Unknown
9. The robber demanded money of the owner.
True
False
Unknown
10. The story concerns a series of events in which only three persons
are referred to: the owner of the store, a man who demanded money,
and a member of the police force.
True
False
Unknown
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Chapter 4 Foundations of Decision Making
11. The following events in the story are true: someone demanded
money; a cash register was opened; its contents were scooped up;
a man dashed out of the store.
True
False
Unknown
Instructions (continued)
2. Form groups of four or five members each.
3. Give them ten minutes to discuss their answers and agree on the correct answers to each of the eleven
statements.
4. Discuss each statement with the class. First poll the groups for their answers. Then give the correct
answer.
5. To be prepared to point out their misperceptions, you will need to study each statement before
conducting the exercise.
Answers:
1. Unknown: Cannot say for certain that the owner and the salesclerk are the same person.
2. Unknown: Cannot say there was a robbery; only that cash register contents were scooped up
and a man sped away. May imply a robbery, but that is not a given.
3. False.
4. Unknown: Don’t know if the owner is a man or a woman.
5. Unknown: Don’t know who scooped up the contents of the cash register and don’t know if
the man who ran away was the owner.
6. True.
7. Unknown: Don’t know who scooped up the contents of the cash register
8. Unknown: The story says contents of cash register, but does not mention cash. You cannot
assume contents mean cash.
9. Unknown: There is no factual basis that a robbery occurred.
10. Unknown: There could be 4 people---salesclerk, man who demanded money, owner, and
member of the police force.
11. True.
Understanding Yourself
Before you can develop other people, you must understand your present strengths. To assist in this
learning process, we encourage you to complete the following self-assessment from the Prentice-Hall
Self-Assessment Library 2.0:


What’s my Decision Making Style? (#20) (Also available in this chapter, pp. 135)
Am I a Procrastinator? (# 21)
After you complete this assessment, we suggest you print out the results and store them as part of your
“portfolio of learning.”
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Part 2 - Planning
Developing Your Creativity Skill
Becoming Creative
About the Skill
Creativity is a frame of mind. You need to open your mind to new ideas. Every individual has
the ability to be creative, but many people simply don’t try to develop that ability. In contemporary
organizations, those people may have difficulty being successful. Dynamic environments and managerial
chaos require that managers look for new and innovative ways to attain their goals, as well as those of the
organization.
The following are suggestions for developing your creativity by opening your mind up to new ideas, a
critical skill for you as a manager:
1. Think of yourself as creative.
2. Pay attention to your intuition.
3. Move away from your comfort zone.
4. Engage in activities that put you outside your comfort zone.
5. Seek a change of scenery.
6. Find several right answers.
7. Play your own devil’s advocate.
8. Believe in finding a workable solution.
9. Brainstorm with others.
10. Turn creative ideas into action.
Practicing the Skill
How many words can you make using the letters in the word Brainstorm? There are at least 95.
Teaching Tips
1. Allow students a set time to work as individuals on this exercise. Perhaps 3-5 minutes. Emphasize
the importance of not talking—NO collaboration.
2. Call time and ask students to total their word list. Emphasize there is still NO collaborating or
sharing of word lists.
3. At this point, you can ask for a response to categories by a show of hands (number who created 5 or
more words, 15 or more, 25 or more, etc.) until people with the most words are recognized.
4. You might also want to write on the board the words created by the students, polling students around
the room until no additional words are left.
5. You can stop at this point and discuss why some people may have created more words than others.
Did the class as a whole (with each student’s individual words included on the board) create more
words than any one individual student? You might ask the students about working in groups for
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Chapter 4 Foundations of Decision Making
another project requiring creativity. If they were to work in groups on such an exercise or project,
you might ask their opinions about group formation. Based on the outcomes of the previous exercise,
would they want homogeneous vs. heterogeneous groups? What factors would be the basis of those
groupings? Should groups be created based on their productivity as individuals? Why or why not?
What would be the expected impact on group effectiveness?
Developing Your Diagnostic and Analytical Skills
Some Solutions Create More Problems
The Chinese names for the years 2003 and 2004 were the “Year of the Goat” and the “Year of
the Monkey” . While not necessarily intending to be predictions, quite possibly these two so-named years
may very well describe the trials and tribulations of U.S. CEOs. With indictments handed down in the
Enron scandal, the conviction of Martha Stewart in March 2004 of lying to Federal Investigators during a
stock-scandal investigation, the resignation in disgrace of American Airline’s CEO Donald McCarty, and
the retirement of MBNA’s Chairman Charles M. Cawley given serious confrontations with his Board of
Directors, being a CEO appears to be losing some of its luster. What underlies their decision process, and
why did they make the decisions they did? Take the case of American Airline’s Donald McCarty.
American Airlines had been losing money for some time. After staff reductions due to September
11, 2001, the “bleeding” wasn’t stopping. By early 2003, the company was losing more than $5 million a
day. In an effort to save the company and avoid bankruptcy, McCarty pleaded with the union leaders
representing the company’s 110,000 employees to consider accepting pay and benefits cuts totaling more
than $1.8 billion annually. While McCarty built the case as a last resort, what he failed to mention was
that while he was seeking such concessions from the employees, American Airlines was quietly filing an
SEC report. In that report, plans for the 45 top company executives’ bonuses were outlined---triple their
salary! In addition, a ‘bankruptcy-proof’ $41 million pension plan was outlined. Needless to say, the
plan was not well received by the 110,000 American employees. In the end, the Board of Directors
scraped the “special deal for executives and accepted McCarty’s resignation.
Questions:
1. How do you think poor decision-making has contributed to the failure of Martha Stewart? Donald
McCarty? Discuss.
Answer – Martha Stewart clearly engaged in poor decision making when she sold stock and lied to
investigators. Donald McCarty also engaged in poor decision making when he thought that the
employees would not find out about the executive bonuses. He also engaged in poor decision making
in deciding to award the executive bonuses when employees were taking a pay cut.
2. How could the 8-step decision-making process have helped Donald McCarty to make a better
decision? Explain.
Answer – Steps 2 and 3 would have helped McCarty to employ different criteria---ethical criteria.
And, step 5 would have allowed him to see the potential downfalls of his eventual plan.
3. What role, if any, did escalation of commitment play in McCarty’s decision? Defend your choice.
Answer – Escalation of commitment likely played a large role in McCarty’s decision, since in the
face of more and more negative information, he became more committed to the top management of the
company.
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Enhancing your Communication Skills
People often make decisions that are good enough, which may not be the best solution. Build a case that
presents both sides of this argument. In your discussion, emphasize when good enough may be
appropriate and when the “best solution” may be critical. Provide specific examples in your presentation.
1. Describe a situation in which a decision you made was influenced by availability or representative
heuristics. In retrospect, provide an evaluation of how effective that decision was.
2. Research the question of whether there is a difference in how men and women make decisions.
Present your results.
Team Exercises Based on Chapter Material
1. Break the class into groups of 5. Give the following scenario, and tell the groups they have to arrive at
a decision as a group about what to do.
“Someone in your class has cheated on an exam. Your teacher is aware that cheating has occurred, but is
not sure who did it. You have an idea who it is. Your teacher explains that if the cheater is not turned in,
all members of the class will suffer a 10% reduction in their exam score. If the cheater is turned in, then
nobody’s exam score will suffer and the person who turns the cheater in will receive a 5% increase in
their exam score as a reward. The problem is that the cheater is your best friend. What do you do?”
Give the groups 10 minutes to arrive at their decision. Have one representative from each group describe
the group’s decision, and then ask him/her why they chose that decision. Write each group’s decision and
a few notes about the group’s decision criteria on the board. Once all the groups have explained their
decision, ask the class what evidence of heuristics they saw.
This exercise will stimulate a great deal of discussion amongst students. The availability heuristic will
almost always be evident, as students will recall a class they’re in currently where a similar thing is
happening and what was done. They may also be particularly sensitive to either cheating or issues
regarding a best friend.
Or, the representative heuristic may also come up---one student may believe that because another teacher
was a pushover and did nothing even though he threatened to in a similar situation, this teacher will do the
same (do nothing even though threatening the 10% reduction).
2. Alternatively, use the same scenario above and give the groups a chance to try the nominal group
decision technique. Break the class into groups of 5 and tell the class to write down their thoughts
(anonymously) individually on a piece of paper regarding a solution to the problem. (5-7 minutes) Then,
have the groups get together; someone in the group should collect the responses and read them to the
group. (5-7 minutes) The group should deliberate and arrive at a decision. (5-7 minutes) Once the groups
are finished discussing, have them present their decision to the class in 1 minute or less.
When the presentations are done, have the groups meet again and discuss the process they went through
as a group. Ask them to generate 3 pros and 3 cons of the technique. (5-7 minutes). Then, have each
group present their conclusions to the class and as they speak, record their thoughts on the board (have
two columns---one for Pros and one for Cons. )
3. Have the students form groups of 4-6. Prior to class, prepare a basket or hat or some sort of container
filled with folded over pieces of paper. On each piece of paper (prior to folding), write down a word
found AT RANDOM in a dictionary (closing your eyes and pointing your finger to someplace on a
random page always works well). The hat (container) should be filled with at least 25 different words.
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Have each group select three words from the hat. Then, place a chair in the front of the room and ask
them to design a marketing slogan/campaign for the chair using the three words they’ve chosen. Give the
groups 25 minutes to design their campaign, and have them present their work to the class. Explain
afterwards that these kinds of activities are the types of things that are taught in creativity workshops.
This type of exercise is exactly what the text is referring to when it says, “Move away from your comfort
zone.”
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