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  • 1. Organizational Theory, Design, and Change Sixth Edition Gareth R. Jones Chapter 12 Decision Making, Learning, Knowledge Management, and Information Technology
  • 2. Learning Objectives
    • Differentiate between several models of decision making that describe how managers make decisions
    • Describe the nature of organizational learning and the different levels at which learning occurs
    • Explain how organizations can use knowledge management and information technology to promote organizational learning to improve the quality of their decision making
  • 3. Learning Objectives (cont.)
    • Identify the factors, such as the operation of cognitive biases, that reduce the level of organizational learning and result in poor decision making
    • Discuss some techniques that managers can use to overcome these cognitive biases and thus open the organization up to new learning
  • 4. Organizational Decision Making
    • Organizational decision making: the process of responding to a problem by searching for and selecting a solution or course of action that will create value for organizational stakeholders
    • Programmed decisions: decisions that are repetitive and routine
    • Nonprogrammed decisions: decisions that are novel and unstructured
  • 5. Models of Organizational Decision Making
    • The rational model: decision making is a straightforward, three-stage process
      • Stage 1: Identify problems that need to be solved
      • Stage 2: Design and develop a list of alternative solutions and courses of action to solve the problems
      • Stage 3: Compare likely consequences of each alternative and decide which course of action offers the best solution
  • 6. Figure 12.1: The Rational Model of Decision Making
  • 7. Models of Organizational Decision Making (cont.)
    • The rational model (cont.)
      • Underlying assumptions
        • Decision makers have all the information they need
        • Decision makers can make the best decision
        • Decision makers agree about what needs to be done
  • 8. Models of Organizational Decision Making (cont.)
    • The rational model (cont.)
      • Criticisms of the assumptions
        • Information and uncertainty: the assumption that managers are aware of all alternative courses of action and their consequences is unrealistic
        • Managerial abilities: managers have only a limited ability to process the information required to make decisions
        • Preferences and values: assumes managers agree about what are the most important goals for the organization
  • 9. The Carnegie Model
    • Introduces a new set of more realistic assumptions about the decision-making process
      • Satisficing: limited information searches to identify problems and alternative solutions
      • Bounded rationality: a limited capacity to process information
      • Organizational coalitions: solution chosen is a result of compromise, bargaining, and accommodation between coalitions
  • 10. Table 12.1: Differences Between the Rational and Carnegie Models
  • 11. Models of Organizational Decision Making (cont.)
    • The incrementalist model: managers select alternative courses of action that are only slightly, or incrementally, different from those used in the past
      • Perceived to lessen the chances of making a mistake
      • Called the science of “muddling through”
      • They correct or avoid mistakes through a succession of incremental changes
  • 12. Models of Organizational Decision Making (cont.)
    • The unstructured model: describes how decision making takes place in environments of high uncertainty
      • Unstructured model recognizes uncertainty in the environment
      • Managers rethink their alternatives when they hit a roadblock
      • Decision making is not a linear, sequential process
      • Tries to explain how organizations make nonprogrammed decisions
  • 13. Models of Organizational Decision Making (cont.)
    • The garbage can model: a view of decision making that takes the unstructured process to the extreme
      • Decision makers are as likely to start decision making from the solution side as the problem side
      • Create decision-making opportunities that they can solve with ready-made solutions based on their competencies and skills
      • Different coalitions may champion different alternatives
      • Decision making becomes a “garbage can” in which problems, solutions, and people all mix and contend for organizational action
      • Selection of an alternative depends on which person’s or group’s definition of the current situation holds sway
  • 14. The Nature of Organizational Learning
    • Organizational learning: the process through which managers seek to improve organization members’ desire and ability to understand and manage the organization and its environment
      • Creates an organizational capacity to respond effectively to the changing business environment
  • 15. The Nature of Organizational Learning (cont.)
    • Types of organizational learning
      • Exploration: organizational members search for and experiment with new kinds or forms of organizational activities and procedures
      • Exploitation: organizational members learn ways to refine and improve existing organizational activities and procedures
  • 16. The Nature of Organizational Learning (cont.)
    • Learning organization: an organization that purposefully designs and constructs its structure, culture, and strategy so as to enhance and maximize the potential for organizational learning to take place
      • Employees at all levels must be able to analyze the way an organization performs and experiments with change to increase effectiveness
  • 17. Levels of Organizational Learning
      • Individual-level learning: managers need to facilitate the learning of new skills, norms, and values so that individuals can increase their own personal skills and abilities
        • Employees develop a sense of personal mastery to create and explore what they want
        • Employees must develop a commitment and attachment to their job so they will enjoy experimenting and risk taking
        • Organizations should encourage employees to assume more responsibility for their decisions
  • 18. Levels of Organizational Learning (cont.)
      • Group-level learning: managers need to encourage learning by promoting the use of various kinds of groups so that individuals can share or pool their skills and abilities
        • Allows for the creation of synergy
        • Group routines can enhance group effectiveness
        • Group learning is even more important than individual learning in promoting organizational learning
  • 19. Levels of Organizational Learning (cont.)
      • Organizational-level learning: managers can promote organizational learning through the way they create an organization’s structure and culture
      • Cultural values and norms are an important influence on learning
        • Adaptive cultures: value innovation and encourage and reward experimentation and risk taking by middle and lower-level managers
        • Inert cultures: are cautious and conservative, and do not encourage risk taking by middle and lower-level managers
  • 20. Levels of Organizational Learning (cont.)
    • Organizations can improve their effectiveness by copying and imitating each others’ distinctive competences
        • Encourages explorative and exploitative learning by cooperating with suppliers and distributors to discover new ways to handle inputs and outputs
        • Systems thinking: argues that in order to create a learning organization, managers must recognize the effects of one level of learning on another
  • 21. Figure 12.2: Levels of Organizational Learning
  • 22. Knowledge Management and Information Technology
    • Knowledge management: a type of IT-enabled organizational relationship that has important implications for both organizational learning and decision making
      • Involves sharing and integrating of expertise within and between functions and divisions through real-time, interconnected IT
  • 23. Knowledge Management (cont.)
    • Codification approach: knowledge is carefully collected, analyzed, and stored in databases where it can be retrieved easily by users who input organization-specific commands and keywords
      • Suitable for standardized product or service
    • Personalization approach: IT designed to identify who in the organization might possess the information required for a custom job
      • More reliance on know-how, insight, and judgment to make decisions
  • 24. Factors Affecting Organizational Learning
    • Several factors may reduce organizational learning over time
      • Managers may develop rules and standard operating procedures to facilitate programmed decision making
      • Past success with SOPs inhibits learning
      • Programmed decision making drives out nonprogrammed decision making
  • 25. Factors Affecting Organizational Learning (cont.)
    • Cognitive structure: system of interrelated beliefs, preferences, expectations, and values that predetermine responses to and interpretations of situations
      • These shape the way managers make decisions and perceive environmental opportunities and threats
  • 26. Factors Affecting Organizational Learning (cont.)
    • Types of cognitive biases
      • Cognitive biases: systematically bias cognitive structures to cause misperception and misinterpretation of information, thereby affecting organizational learning and decision making
      • Cognitive dissonance: state of discomfort or anxiety experienced when there is an inconsistency between one’s beliefs and actions
        • Managers seek or interpret information that confirms and reinforces their beliefs and ignore information that does not
  • 27. Factors Affecting Organizational Learning (cont.)
    • Types of cognitive biases (cont.)
      • Illusion of control: causes managers to overestimate the extent to which the outcomes of an action are under their personal control
      • Frequency: deceives people into assuming that extreme instances of a phenomenon are more prevalent than they really are
      • Representativeness: leads managers to form judgments based on small and unrepresentative samples
  • 28. Factors Affecting Organizational Learning (cont.)
    • Types of cognitive biases (cont.)
      • Projection: allows managers to justify and reinforce their own preferences and values by attributing them to others
      • Ego-defensiveness: leads managers to interpret events in such a way that their actions appear in the most favorable light
      • Escalation of commitment: leads managers to remain committed to a losing course of action and refuse to admit that they have made a mistake
  • 29. Figure 12.3: Distortion of Organizational Decision Making by Cognitive Biases
  • 30. Improving Decision Making and Learning
    • Strategies for organizational learning
      • Cause managers to continuously unlearn old ideas and confront errors in their beliefs and perceptions
        • Listening to dissenters
        • Converting events into learning opportunities
        • Experimenting
  • 31. Improving Decision Making and Learning (cont.)
    • Game theory: tool to help managers improve decision making and enhance learning
      • Interactions between organizations are viewed as a competitive game
    • Two basic types of game
      • Sequential move game: players move in turn, and one player can select a strategy to pursue after considering its rival’s choice of strategies
      • Simultaneous move game: the players act at the same time, in ignorance of their rival’s current actions
    • Useful for organizations competing against a limited number of rivals that are highly interdependent
  • 32. Figure 12.4: A Decision Tree for UPS’s Pricing Strategy
  • 33. Improving Decision Making and Learning (cont.)
    • Nature of the top-management team
      • The way the top management is constructed and the type of people who are on it affect organizational learning
      • Wheel configuration decreases org learning because managers report separately to the CEO
        • Wheel works best when problems are simple and require minimal coordination
      • Circle configuration works best for team and organizational learning
  • 34. Improving Decision Making and Learning (cont.)
    • Learning occurs best when there is heterogeneity of the top- management team
      • Groupthink: the conformity that emerges when like-minded people reinforce one another’s tendencies to interpret events and information in similar ways
  • 35. Figure 12.5: Types of Top-Management Teams
  • 36. Improving Decision Making and Learning (cont.)
    • Devil’s advocate: a person who is responsible for critiquing ongoing organizational learning
      • A method for overcoming cognitive biases and promoting organizational learning by institutionalizing dissent
    • Dialectical inquiry: teams of decision makers generate and evaluate alternative scenarios and provide recommendations
  • 37. Improving Decision Making and Learning (cont.)
    • Collateral organizational structure: an informal organization of managers that is set up parallel to the formal organization structure to “shadow” the decision making and actions of managers in the formal organization
      • Allows an organization to maintain its capacity for change at the same time that it maintains its stability
  • 38. Figure 12.6: How Devil’s Advocacy and Dialectical Inquiry Alter the Rational Approach to Decision Making