CHAPTER 3: INFORMATION AND
DECISION-MAKING
Business Leadership: Management Fundamentals
John R. Schermerhorn, Jr., Barry Wright, and Lorie Guest
© John Wiley & Sons Canada, Ltd.
WHAT IS USEFUL INFORMATION?
• Data
– Raw facts and observations
• Information
– Data made useful for decision-making
• Information drives management functions
• Characteristics of useful information:
– Timely
– High quality
– Complete
– Relevant
– Understandable
2
PROBLEM-SOLVING APPROACHES
OR STYLES
• Problem avoiders: Inactive in information gathering and solving
problems
• Problem solvers: Reactive in gathering information and solving
problems
• Problem seekers: Proactive in anticipating problems and
opportunities and taking appropriate action to gain an
advantage
3
TYPES OF THINKING
Systematic Thinkers
• Rational
• step-by-step
• analytical
• breaks problems into smaller
components
Intuitive Thinkers
• Rely on hunches and
feelings
• Flexible and spontaneous
• See “big picture”
Multidimensional Thinkers
• Multidimensional thinking applies both intuitive and systematic
thinking
• Effective multidimensional thinking requires skill at strategic
opportunism
4
CEO JOHN CHAMBERS
(HARVARD BUSINESS)
Teamwork and Collaboration,
Harvard Business Publishing Series
(external link)
5
COGNITIVE STYLES
• Sensation Thinkers emphasize the impersonal rather than the
personal and take a realistic approach to problem solving.
• Intuitive Thinkers are comfortable with abstraction and tend to
be idealistic. Have a spontaneous fashion.
• Intuitive Feelers prefer broad and global issues and are
comfortable with intangibles.
• Sensation Feelers emphasize analysis and human relations and
tend to be realistic and prefer facts.
6
FIGURE 3.6 DIFFERENT COGNITIVE
STYLES IN DECISION-MAKING
PROGRAMMED DECISIONS
• Apply solutions that are readily available from past experiences
to solve structured problems
• Structured problems are ones that are familiar, straightforward,
and clear with respect to information needs
• Best applied to routine problems that can be anticipated
NONPROGRAMMED DECISIONS
• Develop novel solutions to meet the demands of unique
situation that present unstructured problems
• Unstructured problems are ones that are full of ambiguities and
information deficiencies
• Commonly faced by higher-level management
9
CRISIS DECISION-MAKING
• A crisis involves an unexpected problem that can lead to disaster
if not resolved quickly and appropriately
• Rules for crisis management:
– Figure out what is going on
– Remember that speed matters
– Remember that slow counts, too
– Respect the danger of the unfamiliar
– Value the skeptic
– Be ready to “fight fire with fire”
DECISION ENVIRONMENTS
• Certain environments:
– Offer complete information about possible action
alternatives and their outcomes
• Risk environments:
– Lack complete information about action alternatives and
their consequences, but offer some estimates of
probabilities of outcomes for possible action alternatives
• Uncertain environments:
– Information is so poor that probabilities cannot be assigned
to likely outcomes of known action alternatives
FIGURE 3.7 THREE ENVIRONMENTS FOR
MANAGERIAL DECISION-MAKING AND
PROBLEM SOLVING
FIVE-STEP DECISION-MAKING PROCESS
•
•
•
•
•
Identify and define the problem
Generate and evaluate possible solutions
Make decision and conduct ethics double check
Implement the decision
Evaluate results
FIGURE 3.8 STEPS IN MANAGERIAL
DECISION- MAKING AND PROBLEM
SOLVING
DECISION-MAKING PROCESS
Step 1: Identify and define the problem
• Focuses on information gathering, information processing, and
deliberation
• Decision objectives should be established
• Common mistakes in defining problems:
– Defining the problem too broadly or too narrowly
– Focusing on symptoms instead of causes
– Choosing the wrong problem
DECISION-MAKING PROCESS
Step 2: Generate and evaluate possible solutions
• Potential solutions are formulated and more information is
gathered, data are analyzed , the advantages and disadvantages
of alternative solutions are identified
• Approaches for evaluating alternatives:
– Stakeholder analysis
– Cost-benefit analysis
DECISION-MAKING PROCESS
Step 2: Generate and evaluate possible solutions (cont.)
• Criteria for evaluating alternatives:
– Benefits
– Costs
– Timeliness
– Acceptability
– Ethical soundness
• Common mistakes:
– Selecting a particular solution too quickly
– Choosing a convenient alternative that may have damaging
side effects or may not be as good as other alternatives
DECISION-MAKING PROCESS
Step 3: Decide on a preferred course of action
• Classical decision model
– Managers act rationally in a certain world
– Managers face clearly defined problems and have complete
knowledge of all possible alternatives and their
consequences
– Results in an optimizing decision
DECISION-MAKING PROCESS
Step 3: Decide on a preferred course of action (cont.)
• Behavioural decision model
– Managers act in terms of what they perceive about a given
situation
– Recognizes limits to human information-processing
capabilities
• Cognitive limitations
• Bounded rationality
• Results in a satisficing decision
FIGURE 3.9 DIFFERENCES IN THE CLASSICAL
AND BEHAVIOURAL MODELS OF MANAGERIAL
DECISION MAKING
DECISION-MAKING PROCESS
Step 4: Implement the decision solution
• Involves taking action to make sure the solution decided upon
becomes a reality
• Managers need to have willingness and ability to implement
action plans
• Lack-of-participation error should be avoided
DECISION-MAKING PROCESS
Step 5: Evaluate results
• Involves comparing actual and desired results
• Positive and negative consequences of chosen course
of action should be examined
• If actual results fall short of desired results, the
manager returns to earlier steps in the decision-making
process
CREATIVITY IN DECISION-MAKING
• Creativity:
– The generation of a novel idea or unique approach
that solves a problem to take advantage of an
opportunity
– More likely:
• Task expertise – something one is good at or
knows about
• Task motivated – people work exceptionally hard
to resolve a problem or exploit and opportunity
– Organizations should create an environment that
supports and encourages creativity
VIDEO: CNBC VIDEO ON LONNIE
JOHNSON AND THE SUPER SOAKER
Super Soaker inventor, Lonnie
Johnson
(external link)
“Television won’t be able to hold onto
any market it captures after the first six
months. People will soon get tired of
the staring into a box every night.”
- DARRYL F. ZANUCK,
HEAD OF 2OTH CENTURY FOX, 1946
“That’s an amazing invention, but who
would ever want to use one of them.”
- US PRESIDENT RUTHERFORD B. HAYES, AFTER
PARTICIPATING IN A TRIAL TELEPHONE CONVERSATION
BETWEEN WASHINGTON AND PHILADELPHIA, 1876
“I think there is a world market for about
five computers.”
THOMAS J. WATSON SR., CHAIRMAN
OF IBM, 1943
RIGHT BRAIN VS. LEFT BRAIN
Right Brain
Left Brain
•
•
•
•
•
•
•
•
Imagination
Intuition
Spontaneity
Emotion
Logic
Order
Method
Analysis
CHARACTERISTICS OF CREATIVE
PEOPLE
• Work with high energy
• Identify problems, plan, make
decisions
• Hold ground in face of
criticism
• Accept responsibility for what
happens
• Be resourceful, even in
difficult situations
• Use both systematic and
intuitive in problem-solving
• Think “outside the box”
• Synthesize and find correct
answers
• Look at divers ways to solve
problems
• Transfer learning from one
setting to others
• Be objective, willing to “step
back” and question
assumptions
ALBERT EINSTEIN’S
NEEDLE IN THE HAYSTACK
Question: “What is the difference between you and the average
person?”
Response: “If you asked the average person to find a needle in the
haystack, the person would stop when he or she found a needle. I,
on the other hand, would tear through the entire haystack
looking for all the possible needles."
ACTIVITY
What is one-half of thirteen?
ACTIVITY (CONT.)
•
•
•
•
•
•
6.5
Six and one-half
Thir & teen = 4 (4 letters on each side)
13 = 1,3
XI II = 11, 2
XIII = 8, 8 (Halving horizontally gives us 8 on the top
and 8 on the bottom)
CREATIVITY EXERCISE
ACTIVITY 1
The diagram represents twelve matchsticks positioned to represent a square
made up of four equal squares. Can you, by moving only three of these sides,
make three equal-sized squares?
SOLUTION
1
2
3
ACTIVITY 2
• Add one line to the following to make it into a 6.
IX
SOLUTION
SIX
GROUP DECISIONS
Advantages:
• Greater amounts of
information, knowledge and
expertise are available
• Expand number of
alternatives
• Avoids tunnel vision
• Increase understanding and
acceptance of outcomes
• Increase commitments of
members to work hard
Disadvantages:
• Social pressures to conform
• Minority domination may
occur
• Decision making takes longer
thus more costly
WHEN GROUP DECISION-MAKING
WORKS BEST
•
•
•
•
Individual lacks expertise or information
Problem is unclear and hard to define
Acceptance by others needed for effective implementation
Time is sufficient for group involvement
ETHICAL DECISION MAKING
• Any decision should meet “ethics double check” mentioned in
step 3 of the decision-making process
– How would I feel if my family found out about this decision?
– How would I feel if this decision were published in the local
newspaper or on the Internet?
– Think of a person you know or know of (in real life or fiction)
who has the strongest character and best ethical judgement.
Then ask yourself – what would that person do in your
situation?
• Any discomfort in answering these questions indicates the
decision has ethical shortcomings.
ETHICAL DECISION MAKING (CONT.)
• Considering the ethics of a proposed decision may result in
better decisions and prevention of costly litigation
• Ethical decisions satisfy the following criteria:
– Utility
– Rights
– Justice
– Caring