Chapter5Chapter5 PowerPoint Presentation by Charlie Cook © Copyright The McGraw-Hill Companies, Inc., 2004. All rights reserved. Decision Making, Learning,

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PowerPoint Presentation by Charlie Cook© Copyright The McGraw-Hill Companies, Inc., 2004. All rights reserved.

Decision Making, Learning, Decision Making, Learning, Creativity, and InnovationCreativity, and Innovation

Decision Making, Learning, Decision Making, Learning, Creativity, and InnovationCreativity, and Innovation

Essentials ofContemporary Management

© Copyright 2004 McGraw-Hill. All rights reserved. 5–2

Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

• After studying the chapter, you should be able to:After studying the chapter, you should be able to:

Differentiate between Differentiate between programmed and programmed and nonprogrammed decisionsnonprogrammed decisions, and explain why , and explain why nonprogrammed decision making is a complex, nonprogrammed decision making is a complex, uncertain process.uncertain process.

Describe the Describe the six stepssix steps that managers should that managers should take to make the best decisions.take to make the best decisions.

Identify the advantages and disadvantages of Identify the advantages and disadvantages of group decision makinggroup decision making, and describe , and describe techniques that can improve it.techniques that can improve it.


Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)

Explain the role that Explain the role that organizational learning organizational learning and creativity playand creativity play in helping managers to in helping managers to improve their decisions.improve their decisions.


The Nature of Managerial Decision The Nature of Managerial Decision MakingMaking

The Nature of Managerial Decision The Nature of Managerial Decision MakingMaking

• Decision MakingDecision MakingThe process by which managers respond to The process by which managers respond to

opportunitiesopportunities and and threatsthreats by analyzing by analyzing options, and making decisions about goals options, and making decisions about goals and courses of action.and courses of action.

• Decisions in response to opportunities—occurs when Decisions in response to opportunities—occurs when managers respond to ways to improve organizational managers respond to ways to improve organizational performance.performance.

• Decisions in response to threats—occurs when Decisions in response to threats—occurs when managers are impacted by adverse events to the managers are impacted by adverse events to the organization.organization.


Programmed DecisionsProgrammed DecisionsProgrammed DecisionsProgrammed Decisions

• Programmed DecisionProgrammed DecisionRoutine, virtually Routine, virtually automaticautomatic decision making decision making

that follows established rules or guidelines.that follows established rules or guidelines.• Managers have made the same decision many times Managers have made the same decision many times

before.before.

• There are rules or guidelines to follow based on There are rules or guidelines to follow based on experience with past decisions.experience with past decisions.

• Example: Disciplinary action to be taken concerning a Example: Disciplinary action to be taken concerning a tardy employee.tardy employee.


Nonprogrammed DecisionsNonprogrammed DecisionsNonprogrammed DecisionsNonprogrammed Decisions

• Non-Programmed DecisionsNon-Programmed DecisionsNonroutine decision making that occurs in Nonroutine decision making that occurs in

response to unusual, response to unusual, unpredictableunpredictable opportunities and threats.opportunities and threats.

The are no rules to follow since the decision The are no rules to follow since the decision is new.is new.

• Decisions are made based on information, a Decisions are made based on information, a manager’s intuition, and judgment. manager’s intuition, and judgment.

• Example: Deciding to invest in additional production Example: Deciding to invest in additional production equipment to meet emergent demand.equipment to meet emergent demand.


The Classical ModelThe Classical ModelThe Classical ModelThe Classical Model

• Classical Model of Decision MakingClassical Model of Decision MakingA A prescriptiveprescriptive model of decision making that model of decision making that

assumes the decision maker can identify and assumes the decision maker can identify and evaluate evaluate all possible alternativesall possible alternatives and their and their consequences and consequences and rationallyrationally choose the most choose the most appropriate course of action.appropriate course of action.

Optimum decisionOptimum decision• The most appropriate decision in light of what The most appropriate decision in light of what

managers believe to be the most desirable future managers believe to be the most desirable future consequences for their organization.consequences for their organization.


The Classical Model of Decision The Classical Model of Decision MakingMaking

The Classical Model of Decision The Classical Model of Decision MakingMaking

Figure 5.1


The Administrative ModelThe Administrative ModelThe Administrative ModelThe Administrative Model

• Administrative Model of Decision MakingAdministrative Model of Decision MakingAn approach to decision making that explains An approach to decision making that explains

why decision making is inherently uncertain why decision making is inherently uncertain and risky and why managers usually make and risky and why managers usually make satisfactorysatisfactory rather than optimum decisions. rather than optimum decisions.


The Administrative Model (cont’d)The Administrative Model (cont’d)The Administrative Model (cont’d)The Administrative Model (cont’d)

• Administrative Model of Decision Making Administrative Model of Decision Making (cont’d)(cont’d)BoundedBounded rationality rationality

• There is a large number of alternatives and available There is a large number of alternatives and available information can be so extensive that managers information can be so extensive that managers cannot consider it all.cannot consider it all.

• Decisions are limited by people’s cognitive abilities.Decisions are limited by people’s cognitive abilities.

Incomplete informationIncomplete information• Most managers do not see all alternatives and decide Most managers do not see all alternatives and decide

based on incomplete information.based on incomplete information.


Why Information Is IncompleteWhy Information Is IncompleteWhy Information Is IncompleteWhy Information Is Incomplete

Figure 5.2


Causes of Incomplete InformationCauses of Incomplete InformationCauses of Incomplete InformationCauses of Incomplete Information

• RiskRiskThe degree of probability that the possible The degree of probability that the possible

outcomes of a particular course of action will outcomes of a particular course of action will occur.occur.

• Managers know enough about a given outcome to be Managers know enough about a given outcome to be able to assign probabilities for the likelihood of its able to assign probabilities for the likelihood of its failure or success.failure or success.

• UncertaintyUncertaintyProbabilities cannot be given for outcomes Probabilities cannot be given for outcomes

and the future is unknown.and the future is unknown.• Many decision outcomes are not known such as the Many decision outcomes are not known such as the

success of a new product introduction.success of a new product introduction.


Causes of Incomplete Information Causes of Incomplete Information (cont’d)(cont’d)


• Ambiguous Ambiguous InformationInformationInformation whose Information whose

meaning is not clear meaning is not clear allowing it to be allowing it to be interpreted in interpreted in multiple or multiple or conflicting ways.conflicting ways.

Figure 5.3

Young Woman or Old Woman




• SatisficingSatisficingSearching for and choosing an acceptable, or Searching for and choosing an acceptable, or

satisfactory response to problems and satisfactory response to problems and opportunities, rather than trying to make the opportunities, rather than trying to make the best decision.best decision.

• Managers explore a limited number of options and Managers explore a limited number of options and choose an acceptable decision rather than the choose an acceptable decision rather than the optimum decision.optimum decision.

• Managers assume that the limited options they Managers assume that the limited options they examine represent all options.examine represent all options.

• This is the typical response of managers when This is the typical response of managers when dealing with incomplete information.dealing with incomplete information.


Six Steps in Decision MakingSix Steps in Decision MakingSix Steps in Decision MakingSix Steps in Decision Making

Figure 5.4


Decision Making StepsDecision Making StepsDecision Making StepsDecision Making Steps

Step 1. Recognize the Need for a DecisionStep 1. Recognize the Need for a DecisionSparked by an event such as environment Sparked by an event such as environment

changes.changes.• Managers must first realize that a decision must be Managers must first realize that a decision must be

made.made.

Step 2. Generate AlternativesStep 2. Generate AlternativesManagers must develop feasible alternative Managers must develop feasible alternative

courses of action.courses of action.• If good alternatives are missed, the resulting decision If good alternatives are missed, the resulting decision

is poor.is poor.

• It is hard to develop creative alternatives, so It is hard to develop creative alternatives, so managers need to look for new ideas.managers need to look for new ideas.

Environmental scanning

Brainstorming activity



Step 3-4. Assess/Choose AlternativesStep 3-4. Assess/Choose AlternativesWhat are the advantages and disadvantages What are the advantages and disadvantages

of each alternative?of each alternative?Managers should specify Managers should specify criteriacriteria, then , then

evaluateevaluate..When When rankingranking, all information needs to be , all information needs to be

considered.considered.


General General Criteria for Criteria for Evaluating Evaluating

Possible Possible Courses of Courses of

ActionAction

General General Criteria for Criteria for Evaluating Evaluating

Possible Possible Courses of Courses of

ActionAction

Figure 5.5


Evaluating AlternativesEvaluating AlternativesEvaluating AlternativesEvaluating Alternatives

Criteria

Legality Is the alternative legal both in this country and abroad for exports?

Ethicalness

Is the alternative ethical and will not bring harm stakeholders unnecessarily?

Economic Feasibility Can organization’s performance goals sustain this alternative?

Practicality

Does the management have the capabilities and resources required to implement the alternative?



Step 5. Implement Chosen AlternativeStep 5. Implement Chosen AlternativeManagers must now carry out the alternative.Managers must now carry out the alternative.Often a decision is made and Often a decision is made and not not

implementedimplemented..

Step 6. Learn From FeedbackStep 6. Learn From FeedbackManagers should consider what went right and Managers should consider what went right and

wrong with the decision and learn for the wrong with the decision and learn for the future.future.

Without feedback, managers do not learn from Without feedback, managers do not learn from experience and will repeat the same mistake experience and will repeat the same mistake over.over.

The power of execution

Monitoring and Adjustment


Group Decision MakingGroup Decision MakingGroup Decision MakingGroup Decision Making

• Most decisions are made in group settings.Most decisions are made in group settings.Groups tend to reduce Groups tend to reduce cognitive biasescognitive biases and and

can call on their greater combined skills and can call on their greater combined skills and abilities.abilities.

• GroupthinkGroupthinkBiased decision making resulting from group Biased decision making resulting from group

members striving for members striving for agreementagreement..• Usually occurs when group members Usually occurs when group members rally aroundrally around a a

central manager’s idea , and become blindly commit central manager’s idea , and become blindly commit to the idea without considering alternatives.to the idea without considering alternatives.

• The group’s influence tends to convince each The group’s influence tends to convince each member that the idea must go forward.member that the idea must go forward.


Improved Group Decision MakingImproved Group Decision MakingImproved Group Decision MakingImproved Group Decision Making

• Devil’s AdvocacyDevil’s AdvocacyA group member who defends unpopular or A group member who defends unpopular or

opposing alternatives for the sake of argumentopposing alternatives for the sake of argumentOne member of the group who acts as the One member of the group who acts as the

devil’s advocate by critiquing the way the devil’s advocate by critiquing the way the group identified alternatives and pointing out group identified alternatives and pointing out problems with the alternative selection.problems with the alternative selection.

• DiversityDiversity Among Decision Makers Among Decision MakersBroadens range of life experiences and Broadens range of life experiences and

opinions from which to draw and consider opinions from which to draw and consider alternatives.alternatives.

Group differences help in avoiding groupthink.Group differences help in avoiding groupthink.


Organizational Learning and CreativityOrganizational Learning and CreativityOrganizational Learning and CreativityOrganizational Learning and Creativity

• Organizational LearningOrganizational LearningManagers seek to improve a employee’s Managers seek to improve a employee’s

desire and ability to understand and manage desire and ability to understand and manage the organization and its task environment so the organization and its task environment so as to raise as to raise effectivenesseffectiveness..

• The Learning OrganizationThe Learning OrganizationManagers try to maximize the people’s Managers try to maximize the people’s

ability to behave ability to behave creativelycreatively to maximize to maximize organizational learning.organizational learning.

Sense and response


Senge’s Principles for Creating Senge’s Principles for Creating a Learning Organizationa Learning Organization

Senge’s Principles for Creating Senge’s Principles for Creating a Learning Organizationa Learning Organization

Figure 5.6


Organizational Learning and CreativityOrganizational Learning and CreativityOrganizational Learning and CreativityOrganizational Learning and Creativity

• CreativityCreativityThe ability of the decision maker to discover The ability of the decision maker to discover

novel ideas leading to a feasible course of novel ideas leading to a feasible course of action.action.

• A creative management staff and employees are the A creative management staff and employees are the key to the learning organization.key to the learning organization.

• InnovationInnovationThe implementation of creative ideas in an The implementation of creative ideas in an

organization.organization.


Creating a Learning OrganizationCreating a Learning OrganizationCreating a Learning OrganizationCreating a Learning Organization

1.1. Personal MasteryPersonal Mastery Managers empower employees and allow Managers empower employees and allow

them to create and explore.them to create and explore.

2.2. Mental ModelsMental Models Challenge employees to find new, better Challenge employees to find new, better

methods to perform a task.methods to perform a task.

3.3. Team LearningTeam Learning Is more important than individual learning Is more important than individual learning

since most decisions are made in groups.since most decisions are made in groups.

Empowerment and experiments

Freedom and Attitude

of Risk-taking

Dialogue and experience sharing


Creating a Learning Organization Creating a Learning Organization (cont’d)(cont’d)

Creating a Learning Organization Creating a Learning Organization (cont’d)(cont’d)

4.4. Build a Shared VisionBuild a Shared Vision People share a common mental model of People share a common mental model of

the firm to evaluate opportunities.the firm to evaluate opportunities.

5.5. Systems ThinkingSystems Thinking Knowing and understanding how actions in Knowing and understanding how actions in

one area of the firm will impact other areas one area of the firm will impact other areas of the firm.of the firm.

Delineation of Causality

and feedback loops

Corporate Mission


Promoting Individual CreativityPromoting Individual CreativityPromoting Individual CreativityPromoting Individual Creativity

• Organizations can build an environment Organizations can build an environment supportive of creativity.supportive of creativity.Managers must provide employees with the Managers must provide employees with the

opportunities and abilities to take risks.opportunities and abilities to take risks.• If people take risks, they will occasionally fail. If people take risks, they will occasionally fail.

To build creativity, periodic failures must be To build creativity, periodic failures must be rewarded.rewarded.

• This idea is hard to accept for some managers.This idea is hard to accept for some managers.


Building Group CreativityBuilding Group CreativityBuilding Group CreativityBuilding Group Creativity

• BrainstormingBrainstormingManagers meet face-to-face to generate and Managers meet face-to-face to generate and

debatedebate many alternatives. many alternatives. • Group members are not allowed to evaluate Group members are not allowed to evaluate

alternatives until all alternatives are listed.alternatives until all alternatives are listed.

• When all are listed, then the pros and cons of each When all are listed, then the pros and cons of each are discussed and a short list created.are discussed and a short list created.

Production blockingProduction blocking• Members cannot absorb all information being Members cannot absorb all information being

presented during the session and can forget even presented during the session and can forget even their own alternatives.their own alternatives.


Building Group CreativityBuilding Group CreativityBuilding Group CreativityBuilding Group Creativity

• Nominal Group TechniqueNominal Group TechniqueProvides a more Provides a more structuredstructured way to generate way to generate

alternatives in writing. alternatives in writing. • Avoids the production blocking problem.Avoids the production blocking problem.

• Similar to brainstorming except that each member is Similar to brainstorming except that each member is given time to first write down all alternatives he or she given time to first write down all alternatives he or she would suggest.would suggest.

• Alternatives are then read aloud without discussion Alternatives are then read aloud without discussion until all have been listed.until all have been listed.

• Then discussion occurs and alternatives are ranked.Then discussion occurs and alternatives are ranked.


Promoting Creativity at the Global Promoting Creativity at the Global LevelLevel

Promoting Creativity at the Global Promoting Creativity at the Global LevelLevel

• Responding to global market pressures to Responding to global market pressures to reduce costs and develop global products by reduce costs and develop global products by centralizing research and development (R&D) centralizing research and development (R&D) efforts in teams in one location.efforts in teams in one location.Likely problems to be overcome:Likely problems to be overcome:

• Language barriersLanguage barriers

• Cultural differences in approaches to solving Cultural differences in approaches to solving problems and decision making processesproblems and decision making processes

Training program to raise Training program to raise awarenessawareness to to overcoming barriers and differences will be overcoming barriers and differences will be necessary to gain the necessary to gain the cooperation of the cooperation of the diverse individualsdiverse individuals..


Homework 4 Evaluating an alternativeHomework 4 Evaluating an alternativeHomework 4 Evaluating an alternativeHomework 4 Evaluating an alternative

• When airline flights are overbooked in the United When airline flights are overbooked in the United State, an auction is sometimes held to see which State, an auction is sometimes held to see which passengers are willing to transfer to a later flight passengers are willing to transfer to a later flight in return for compensation. The compensation is in return for compensation. The compensation is determined by the lowest price needed to induce determined by the lowest price needed to induce the required number of people to give up their the required number of people to give up their seats. This seems to work fairly well.seats. This seems to work fairly well.

• Would such an auctioning approach work for Would such an auctioning approach work for deciding whether a flight should permit smoking deciding whether a flight should permit smoking or gain a prioritized landing? or gain a prioritized landing? WWhy or why not?hy or why not?

Documents

Chapter5Chapter5 PowerPoint Presentation by Charlie Cook © Copyright The McGraw-Hill Companies, Inc., 2004. All rights reserved. Decision Making, Learning,