BA 580 -- Complex Problems
Gaining a Better Understanding of
Problem Solving In Managerial
Environments
CLASS 1
Are Problem Solvers Better Managers?
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Harry Mintzburg (leading org educator &
author) questions importance
» CEOs spend little time “solving problems”
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But,
» Good & bad managers in behavioral studies
» All intelligent behavior problem solving
» Nature of problems varies across settings ...
Managers, Decisions & Problems
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Choices between 2 or more alternatives
Judgements about consumer preferences and likely
outcomes
What decisions need to be made?
Who should be involved in the decision process and in
what role?
What processes are to be used for identifying alternatives?
How will the decision be implemented?
How to deal with political & emotional elements?
Problem Taxonomies

Computational Complexity of a problem is f(bn)
b = # of decision branches; n = decision
“operators” (levers)
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Well-Structured (“Programmed”)
» Explicit goal; few & known branches/operators;
Closed-ended;
» Algebra; Calculus; Puzzles; Instructional Problems
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Ill-Structured (Non-programmed)
» branches & operators large or unclear; open-ended
» Design; Unique situations;
Well-Structured Problem Examples
 Simple: LA is 2000 miles from Nashville. If one
plane departs Nashville on a direct flight travelling at a
ground speed of 600 mph and another departs 30 minutes
earlier with a 1.5 hour layover in Dallas with an average
ground spend of 550 miles an hour, how much difference
in time will there be in their arrivals?
 More
Complicated: Determine the optimal
(quickest) path for a plane on a flight from Nasvhille to LA
given the following limitations: It cannot fly above 40,000
feet; its maximum rate of ascent or descent is 2500 ft./min
Well-Structured Business Examples
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Simple:
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Complicated:
What are the monthly payments required to amortize a
$100,000 over 180 months assuming equal payments with an interest
rate of 5%?
Find the relationship between the price of a call
option on the stock and the price of the stock assuming zero
transactions costs, continuous-trading, and the stock price follows a
geometric Brownian motion process
» Black & Scholes solved this problem finding a long equation but
one that demonstrated that the call price varied directly with the
stock price, the variance of the stock price, and the time to
expiration (Scholes won the Nobel for this; Black was dead)
Ill-Structured Problem Examples
Accurate Measurement of Longitude
 WWII Invasion of Europe
 Race to the Moon; Apollo 13
 Design of World Trade Center
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» Clear goals but many options, uncertainties,
limitations ...
Ill-Structured Business Examples
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A software company developing new operating
system to make file & program access easier &
more intuitive
» Why ill-structured?
– Clear-Blue sky; not sure of all of the options; limited
mental abilities and time
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A CEO oversees a CFO who is hard-working,
creative, and talented but also may be overly
aggressive in financial deals -- how to handle?
» Why ill-structured?
DEGREE OF STRUCTURE
A Map of Org Problem Solving
Very IllStructured
Highly
Structured
SHORT
MEDIUM
TIME SPAN
LONG
Humans & Problem Solving
What a piece of work is man, how noble in reason,
how infinite in faculties...
William
Shakespeare
The capacity of the human mind for formulating and
solving complex problems is very small compared
with the size of problems whose solution is
required for objectively rational behavior in the
real world.
Herbert Simon
(Nobel Prize for work on
organizations)
Stretching Problem-Solving
Abilities
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At the US Naval Academy:
» USNA Computational Skills Colloquia
» Why such a study for future naval officers?
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At A Leader in MBA Curriculum
» Carnegie-Mellon MBA
How to Study? ProblemOriented Disciplines
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Analytical Models
» Math, Physics, Operations Research,
Economics, Finance, Game Theory
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Heuristic-Experimental Methods
» Biomedicine, Cognitive Psych, Exp Econ
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Mixed
» CS, Engineering, Stats, Marketing,
Management, Math, Physics, Econ,
Modes of Study
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Descriptive
- Explain or model how we actually make decisions
- e.g. how handle complex problems, ...
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Prescriptive/Normative models
- guidelines and procedures for making actual decisions
(normative implying some ethical component)
- e.g. decision trees, brainstorming
Why Economist Teaching?
Nobody Else Is!!
 Nature of Economics -
» analytical approaches to decision making
» widespread consideration of uncertainty
» interface with other analytical disciplines such
as math, stats & with heuristic disciplines such
as experimental psychology & stats
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My Professional Interests & Experiences
Lessons to Take Home
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Intelligent Behavior = Problem Solving
» Separates humans from animals & great, good, bad managers
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Many MBA Programs tend to fixate on Well-Structured Problems or Job
Specific Knowledge
» Good training for low-level management & some upper-level decisions, but as
managerial responsibilities increase, performance will hinge more and more on your
ill-structured problem-solving abilities
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Other MBA Programs/Courses tend to fixate on reflections on managerial
experiences
» Good way to elicit discussion; concrete illustrations with realism and entertainment
value; solving difficult problems more than copying past experiences of others
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Ability to Solve Ill-Structured Problems Demands Cross-Discipline Grasp
of Tools/Methods
Mini-assignment
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Fill in a map of organizational problem
solving as described above solving with at
least 3 specific problems faced by a
business -- note the position of these
problems on the map; for two of these
located different locations on the map, write
write down specific reasons that the
problem falls where it does