Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin

Management A Practical Introduction

Third Edition

Angelo Kinicki & Brian K. Williams

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin2

Chapter 7: Individual & Group

Decision Making

How Managers Make Things Happen

The Nature of Decision MakingRational & Nonrational Decision MakingEvidence-Based Decision Making & AnalyticsMaking Ethical DecisionsHow to Work With OthersHow to Overcome Barriers to Decision Making

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin3

7.1 The Nature Of Decision Making

HOW DO MANAGERS MAKE DECISIONS?

A choice made from available alternatives is a decision The process of identifying and choosing alternative courses of action is decision makingDecisions that are repetitive and routine and made automatically are programmedDecisions that occur under nonroutine, unfamiliar circumstances and are not automatic are nonprogrammed

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin4

7.1 The Nature Of Decision Making

The willingness to gamble or to undertake risk for the possibility of gaining an increased payoff is referred to as risk propensityThe combination of how an individual perceives and responds to information is the individual’s decision-making styleDecision-making styles differ according to value orientation (the extent to which a person focuses on either task and technical issues or people and social concerns when making a decision) and tolerance for ambiguity (the extent to which a person has a need for structure or control)

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin5

7.1 The Nature Of Decision Making

When the dimensions of value orientation and tolerance for ambiguity are combined, four decision-making styles emerge:

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin6

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Knowing Your Decision Making Style…Directive

Low tolerance for ambiguity and oriented toward task and technical concerns

Efficient, logical, practical, and systematic in approach to solving problems

Tend to be autocratic, exercise power and control, and focus on the short-term

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Knowing Your Decision Making Style…Analytical

Higher tolerance for ambiguity and is characterized by the tendency to overanalyze a situation

Careful decision makers who take longer to make decisions; also respond well to new situations

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McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Knowing Your Decision Making Style…Conceptual

High tolerance for ambiguity and tends to focus on the people or social aspects of a work situation

Adopts a long-term perspective and relies on intuitions and discussions with others to acquire information

Can result in an indecisive approach to decision making

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Knowing Your Decision Making Style…Behavioral

The most people oriented Works well with others, enjoys social interactions in

which opinions are openly exchanged; has tendency to avoid conflict, but can be indecisive and have a hard time saying no

Can lead to a wishy-washy approach to decision making

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin10

7.1 The Nature Of Decision Making

Figure 7.1: Decision-Making Styles

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Rational Decisions

Rational Model of Decision Making – also called the classical model explains how managers should make decisions; it assumes managers will make logical decisions that will be optimum in furthering the organization’s best interests.

The Rational Model is based on unrealistic assumptions:

Complete information, no uncertainty,

Logical, unemotional analysis,

Best decision for the organization.

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin14

7.2 Two Kinds Of Decision Making: Rational & Nonrational

Figure 7.2: The Four Steps in Rational Decision Making

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The Four Steps in Rational Decision Making

Stage 2

Think up alternative solutions

Stage 3

Evaluate alternatives & select a solution

Stage 4

Implement & evaluate the solution chosen

Stage 1

Identify the problem or opportunity

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin16

7.2 Two Kinds Of Decision Making: Rational & Nonrational

There are four stages in the rational decision making process

Stage 1: Identify the problem or opportunityDifficulties that inhibit the achievement of goals are called problems Situations that present possibilities for exceeding existing goals are called opportunitiesWhether they face a problem or an opportunity, managers need to make decisions that will improve the firmTo do this, they need to make a diagnosis (analysis of the underlying causes of the problem or opportunity)

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Stage 1

Problems: difficulties that inhibit the achievement of goals

Diagnosis: analyzing underlying causes

Stage 1

Identify the problem or opportunity

Opportunities: situations that present possibilities for exceeding existing goals

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin18

7.2 Two Kinds Of Decision Making: Rational & Nonrational

Stage 2: Think up alternative solutionsOnce managers have identified problems or opportunities and diagnosed causes, they need to come up with alternative solutionsSolutions for programmed decisions are simple and obvious, but nonprogrammed decisions will be more challenging

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Stage 2

For a programmed decision — the alternative will be easy and obvious

Stage 2

Think up alternative solutions

For a nonprogrammed decision — the more creative and innovative the alternative, the better

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin20

7.2 Two Kinds Of Decision Making: Rational & Nonrational

Stage 3: Evaluate alternatives & select a solution Each alternative must be evaluated to determine whether it is ethical, feasible, and effective

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Stage 3

Is solution ethical?

Stage 3

Evaluate alternatives & select a solution

Is solution feasible?

Is solution ultimately effective?

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin22

7.2 Two Kinds Of Decision Making: Rational & Nonrational

Stage 4: Implement & evaluate the solution chosenIt is usually more straightforward to implement programmed decisions than nonprogrammed decisions To successfully implement a decision, managers must plan carefully and be sensitive to those affected by the decisionIf a decision fails to go as planned, managers should give it more time, change it slightly, or try another alternativeIn some cases, it might be necessary to start the process over

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Stage 4

Evaluation – you need to follow up and evaluate the results of the decision and take action

Stage 4

Implement & evaluate the solution chosen

Successful Implementation – you need to: Plan Carefully Be Sensitive to

those affected

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McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Stage 4, cont.

Evaluation – Taking Action

1) Give it more time

2) Change it slightly

3) Try another alternative

4) Start over

Stage 4

Implement & evaluate the solution chosen

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin25

7.2 Two Kinds Of Decision Making: Rational & Nonrational

WHAT’S WRONG WITH THE RATIONAL MODEL?

The rational model describes what a manager ought to do (it is prescriptive), it does not describe how a manager should actually make a decision The model also assumes that the manager has complete information

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Some Hindrances to Perfectly Rational Decision Making

Complexity

Time and money constraints

Different cognitive capacity, values, skills, habits and unconscious reflexes

Imperfect information

Information overload

Different priorities

Conflicting goals

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin27

7.2 Two Kinds Of Decision Making: Rational & Nonrational

WHY DO MANAGERS MAKE NONRATIONAL DECISIONS?

Nonrational models of decision making assume that decision making is usually uncertain and risky Nonrational models are descriptive - they describe how managers actually make decisionsThere are two nonrational models: satisficing and incremental

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin28

7.2 Two Kinds Of Decision Making: Rational & Nonrational

1. The satisficing model suggests that because of bounded rationality (when the ability of decision makers to be rational is limited by numerous constraints), managers do not seek all alternative solutions, but instead seek alternatives only until they find one that is satisfactory, not optimal

2. The incremental model of decision making argues that managers take small, short-term steps to solve problems

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin29

7.2 Two Kinds Of Decision Making: Rational & Nonrational

CAN MANAGERS MAKE BETTER DECISIONS THROUGH KNOWLEDGE MANAGEMENT?

Today, managers are shifting toward knowledge management or the development of an organizational culture (tools, processes, systems, and structures) that encourages continuous learning and sharing of knowledge and information among employees, for the purpose of making better decisions

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin30

7.2 Two Kinds Of Decision Making: Rational & Nonrational

There are two types of knowledge:

1. explicit knowledge is information that can easily be put into words, graphics, and numbers and shared with others like the tax code

2. tacit knowledge is individual-based, intuitive, and acquired through considerable experience, and is hard to explain and to share like how to write a speechManagers can share information using high-tech solutions like e-mail and Web sites, and low-tech solutions like human interaction in meetings and informal networking

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin31

7.3 Evidence–Based Decision Making & Activities

WHY IS EVIDENCE BASED DECISION MAKING USEFUL?

Evidence based decision making requires managers to put aside beliefs and conventional wisdom and act on the factsThe philosophy is based on three truths: there are few really new ideas, true is better than new, doing well usually dominatesManagers who use evidence-based decision making often have a competitive advantage over those who do not

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin32

7.3 Evidence–Based Decision Making & Activities

Companies using evidence-based decision-making should:treat the organization as an unfinished prototypeprovide the factssee themselves and their company as outsiders douse evidence-based management regardless of management levelwork to sell their solutionuse evidence-based management even when it is not the popular method learn from failure

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin33

7.3 Evidence–Based Decision Making & Activities

Analytics or business analytics refers to sophisticated forms of business data analysis and is one of the purest forms of evidence-based management

Competitors that use analytics share three key attributes:

1. they go beyond basic statistics and use other techniques like predictive modeling (a data mining technique used to predict future behavior and anticipate the consequences)

2. they do not rely on a single method, but instead use multiple applications

3. they have support from top level executives

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin34

7.4 Making Ethical Decisions

HOW CAN MANAGERS BE SURE THEIR DECISIONS ARE ETHICAL?

Today, ensuring that employees understand what constitutes desirable business behavior has become importantMany companies have ethics officers (someone trained about matters of ethics in the workplace, particularly about resolving ethical dilemmas)

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin35

7.4 Making Ethical Decisions

Companies use decision trees (graphs of decisions and their possible consequences that are used to crate a plan to reach a goal) to help them reach ethical decisions

When using a decision tree, managers should ask:is the proposed action legal?if yes, does the proposed action maximize shareholder value?if yes, is the proposed action ethical?if no, would it be ethical not to take the proposed action?

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin36

7.4 Making Ethical Decisions

Figure 7.4: The Ethical Decision Tree:

What’s The Right Thing To Do?

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin37

7.5 Group Decision Making: How To Work With Others

WHY WORK IN GROUPS?

There are five advantages to using groups:groups provide a greater pool of knowledgegroups offer different perspectivesgroups encourage intellectual stimulationgroups allow for a better understanding of decision rationalegroups encourage a deeper commitment to the decision

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin38

7.5 Group Decision Making: How To Work With Others

WHAT ARE THE DISADVANTAGES OF GROUPS?

There are several disadvantages of groups:groups can result in a few people dominating or intimidatinggroups encourage groupthink which occurs when group members strive to agree for the sake of unanimity and avoid accurately assessing the decision situation groups encourage satisficinggroups promote goal displacement which occurs when the primary goal is subsumed by a secondary goal

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin39

7.5 Group Decision Making: How To Work With Others

WHAT SHOULD MANAGERS KNOW ABOUT GROUPS & DECISION MAKING?

Managers should be aware of four characteristics of groups:1. groups are less efficient2. group size affects the quality of decisions3. groups may be too confident about their decisions4. group decision making tends to be better when members know more about relevant issues, and when leaders can weight members’ opinions

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin40

Chapter 7: Individual & Group

Decision Making

CLASSROOM PERFORMANCE SYSTEM

Which of the following is not true of group decision making?

A) it is more efficient

B) group size affects decision quality

C) groups are more confident of the decision

D) knowledge is important

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin41

7.5 Group Decision Making: How To Work With Others

SHOULD EMPLOYEES BE INVOLVED IN DECISION MAKING?

One technique to improve productivity is participative management (the process of involving employees in setting goals, making decisions, solving problems, and making changes to the organization)Studies have found that participative management is effective in some cases such as when management is supportive and employees trust managers

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin42

7.5 Group Decision Making: How To Work With Others

When groups make decisions, they have to reach a consensus (when members are able to express their opinions and reach agreement to support the final decision)Three techniques that can help groups solve problems are brainstorming (helps groups generate ideas and alternatives for solving problems, nominal groups (generate ideas and evaluate solutions by writing down as many ideas as possible, listing them on a blackboard, and then taking a secret vote), and delphi groups (use physically dispersed experts who fill out questionnaires to anonymously generate ideas)These can be assisted with computer-aided decision making

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin43

Chapter 7: Individual & Group

Decision Making

CLASSROOM PERFORMANCE SYSTEM

Which of the problem solving techniques is useful when managers want to generate as many new ideas or alternatives as possible?

A) nominal group techniqueB) delphi techniqueC) brainstormingD) computer-aided decision making

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin44

7.6 How To Overcome Barriers To Decision Making

HOW DO MANAGERS RESPOND TO DECISION SITUATIONS?

There are four ineffective reactions:1. relaxed avoidance - a manager decides to take no action in the belief that there will not be great negative consequences2. relaxed change - a manager realizes that complete inaction will have negative consequences but opts for the first available alternative that has low risk

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin45

7.6 How To Overcome Barriers To Decision Making

3. defensive avoidance - the manager can’t find a good solution so procrastinates, passes the buck, or denies the risk of any negative consequences4. panic - a manager is so frantic to get rid of the problem that he can’t deal with the situation realistically

When a manager agrees that he must decide what to do about a problem or opportunity, and takes effective decision-making steps, we say he is deciding to decide

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin46

Chapter 7: Individual & Group

Decision Making

CLASSROOM PERFORMANCE SYSTEM

A manager that simply takes the easy way out is using the ______ strategy.

A) panicB) defensive avoidanceC) relaxed changeD) relaxed avoidance

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin47

7.6 How To Overcome Barriers To Decision Making

There are several common decision making biases (called heuristics) that simplify the process of making decisions:1. When managers use only information that is readily available from memory to make judgments, an availability bias exists2. When people seek information to support their point of view and discount data that do not, a confirmation bias exists3. A representativeness bias refers to the tendency to generalize from a small sample or a single event

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin48

7.6 How To Overcome Barriers To Decision Making

4. When managers add up all the money already spent on a project and conclude it is too costly to simply abandon it, sunk cost bias exists

5. The tendency to make decisions based on an initial figure is adjustment bias

6. Escalation of commitment bias occurs when decision makers increase their commitment to a project despite negative information about it

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin49

Chapter 7: Individual & Group

Decision Making

CLASSROOM PERFORMANCE SYSTEM

Which type of bias occurs when a manager generalizes from a small sample?

A) confirmation biasB) representativeness biasC) availability biasD) sunk cost bias