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Management Chapter07


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Management Chapter07

  1. 2. Decision Making, Learning, Creativity, and Entrepreneurship McGraw-Hill/Irwin Contemporary Management, 5/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. chapter seven
  2. 3. Learning Objectives <ul><li>After studying the chapter, you should be able to: </li></ul><ul><ul><li>Differentiate between programmed and nonprogrammed decisions, and explain why nonprogrammed decision making is a complex, uncertain process. </li></ul></ul><ul><ul><li>Describe the six steps that managers should take to make the best decisions. </li></ul></ul><ul><ul><li>Explain how cognitive biases can lead managers to make poor decisions. </li></ul></ul>7-
  3. 4. Learning Objectives <ul><ul><li>Identify the advantages and disadvantages of group decision making, and describe techniques that can improve it. </li></ul></ul><ul><ul><li>Explain the role that organizational learning and creativity play in helping managers to improve their decisions. </li></ul></ul><ul><ul><li>Describe how managers can encourage and promote entrepreneurship to create a learning organization and differentiate between entrepreneurs and intrapreneurs </li></ul></ul>7-
  4. 5. The Nature of Managerial Decision Making <ul><li>Decision Making </li></ul><ul><ul><li>The process by which managers respond to opportunities and threats that confront them by analyzing options and making determinations about specific organizational goals and courses of action. </li></ul></ul>7-
  5. 6. The Nature of Managerial Decision Making <ul><ul><li>Decisions in response to opportunities </li></ul></ul><ul><ul><ul><li>occurs when managers respond to ways to improve organizational performance to benefit customers, employees, and other stakeholder groups </li></ul></ul></ul><ul><ul><li>Decisions in response to threats </li></ul></ul><ul><ul><ul><li>events inside or outside the organization are adversely affecting organizational performance </li></ul></ul></ul>7-
  6. 7. Decision Making <ul><li>Programmed Decision </li></ul><ul><ul><li>Routine, virtually automatic decision making that follows established rules or guidelines. </li></ul></ul><ul><ul><ul><li>Managers have made the same decision many times before </li></ul></ul></ul><ul><ul><ul><li>Little ambiguity involved </li></ul></ul></ul>7-
  7. 8. Decision Making <ul><li>Non-Programmed Decisions </li></ul><ul><ul><li>Nonroutine decision made in response to unusual or novel opportunities and threats. </li></ul></ul><ul><ul><li>The are no rules to follow since the decision is new. </li></ul></ul><ul><ul><ul><li>Decisions are made based on information, and a manager’s intuition, and judgment. </li></ul></ul></ul>7-
  8. 9. Decision Making <ul><li>Intuition </li></ul><ul><ul><li>feelings, beliefs, and hunches that come readily to mind, require little effort and information gathering and result in on-the-spot decisions </li></ul></ul>7-
  9. 10. Decision Making <ul><li>Reasoned judgment </li></ul><ul><ul><li>decisions that take time and effort to make and result from careful information gathering, generation of alternatives, and evaluation of alternatives </li></ul></ul>7-
  10. 11. Question? <ul><li>Which decision model assumes the decision maker can identify and evaluate all possible alternatives? </li></ul><ul><li>Neo-classical </li></ul><ul><li>Classical </li></ul><ul><li>Administrative </li></ul><ul><li>practical </li></ul>7-
  11. 12. The Classical Model <ul><li>Classical Model of Decision Making </li></ul><ul><ul><li>A prescriptive model of decision making that assumes the decision maker can identify and evaluate all possible alternatives and their consequences and rationally choose the most appropriate course of action. </li></ul></ul><ul><ul><li>Optimum decision </li></ul></ul><ul><ul><ul><li>The most appropriate decision in light of what managers believe to be the most desirable future consequences for their organization. </li></ul></ul></ul>7-
  12. 13. The Classical Model of Decision Making 7- Figure 7.1
  13. 14. The Administrative Model <ul><li>Administrative Model of Decision Making </li></ul><ul><ul><li>An approach to decision making that explains why decision making is inherently uncertain and risky and why managers can rarely make decisions in the manner prescribed by the classical model </li></ul></ul>7-
  14. 15. The Administrative Model <ul><li>Administrative Model of Decision Making </li></ul><ul><ul><li>Bounded rationality </li></ul></ul><ul><ul><ul><li>There is a large number of alternatives and available information can be so extensive that managers cannot consider it all. </li></ul></ul></ul><ul><ul><ul><li>Decisions are limited by people’s cognitive limitations. </li></ul></ul></ul><ul><ul><li>Incomplete information </li></ul></ul><ul><ul><ul><li>Because of risk and uncertainty, ambiguity, and time constraints </li></ul></ul></ul>7-
  15. 16. Why Information Is Incomplete 7- Figure 7.2
  16. 17. Causes of Incomplete Information <ul><li>Risk </li></ul><ul><ul><li>Present when managers know the possible outcomes of a particular course of action and can assign probabilities to them. </li></ul></ul><ul><li>Uncertainty </li></ul><ul><ul><li>Probabilities cannot be given for outcomes and the future is unknown. </li></ul></ul>7-
  17. 18. Causes of Incomplete Information <ul><li>Ambiguous Information </li></ul><ul><ul><li>Information whose meaning is not clear allowing it to be interpreted in multiple or conflicting ways. </li></ul></ul>7- Figure 7.3 Young Woman or Old Woman
  18. 19. Causes of Incomplete Information <ul><li>Time constraints and information costs </li></ul><ul><ul><li>managers have neither the time nor money to search for all possible alternatives and evaluate potential consequences </li></ul></ul>7-
  19. 20. Causes of Incomplete Information <ul><li>Satisficing </li></ul><ul><ul><li>Searching for and choosing an acceptable, or satisfactory response to problems and opportunities, rather than trying to make the best decision. </li></ul></ul>7-
  20. 21. Causes of Incomplete Information <ul><li>Managers explore a limited number of options and choose an acceptable decision rather than the optimum decision. </li></ul><ul><li>This is the typical response of managers when dealing with incomplete information. </li></ul>7-
  21. 22. Six Steps in Decision Making 7- Figure 7.4
  22. 23. Decision Making Steps <ul><li>Step 1. Recognize Need for a Decision </li></ul><ul><ul><li>Sparked by an event such as environment changes. </li></ul></ul><ul><ul><ul><li>Managers must first realize that a decision must be made. </li></ul></ul></ul><ul><li>Step 2. Generate Alternatives </li></ul><ul><ul><li>Managers must develop feasible alternative courses of action. </li></ul></ul><ul><ul><ul><li>If good alternatives are missed, the resulting decision is poor. </li></ul></ul></ul><ul><ul><ul><li>It is hard to develop creative alternatives, so managers need to look for new ideas. </li></ul></ul></ul>7-
  23. 24. Decision Making Steps <ul><li>Step 3. Evaluate Alternatives </li></ul><ul><ul><li>What are the advantages and disadvantages of each alternative? </li></ul></ul><ul><ul><li>Managers should specify criteria, then evaluate. </li></ul></ul>7-
  24. 25. Decision Making Steps 7- Step 3. Evaluate alternatives
  25. 26. 7- Figure 7.5 General Criteria for Evaluating Possible Courses of Action
  26. 27. Decision Making Steps <ul><li>Step 4. Choose Among Alternatives </li></ul><ul><ul><li>Rank the various alternatives and make a decision </li></ul></ul><ul><ul><li>Managers must be sure all the information available is brought to bear on the problem or issue at hand </li></ul></ul>7-
  27. 28. Decision Making Steps <ul><li>Step 5. Implement Chosen Alternative </li></ul><ul><ul><li>Managers must now carry out the alternative. </li></ul></ul><ul><ul><li>Often a decision is made and not implemented. </li></ul></ul><ul><li>Step 6. Learn From Feedback </li></ul><ul><ul><li>Managers should consider what went right and wrong with the decision and learn for the future. </li></ul></ul><ul><ul><li>Without feedback, managers do not learn from experience and will repeat the same mistake over. </li></ul></ul>7-
  28. 29. Discussion Question? <ul><li>Which step in the decision making process is the most important? </li></ul><ul><li>Generating alternatives </li></ul><ul><li>Choosing an alternative </li></ul><ul><li>Evaluating alternatives </li></ul><ul><li>Learning from feedback </li></ul>7-
  29. 30. Feedback Procedure <ul><li>Compare what actually happened to what was expected to happen as a result of the decision </li></ul><ul><li>Explore why any expectations for the decision were not met </li></ul><ul><li>Derive guidelines that will help in future decision making </li></ul>7-
  30. 31. Cognitive Biases and Decision Making <ul><li>Heuristics </li></ul><ul><ul><li>Rules of thumb that simplify the process of making decisions. </li></ul></ul><ul><ul><li>Decision makers use heuristics to deal with bounded rationality. </li></ul></ul><ul><ul><ul><li>If the heuristic is wrong, however, then poor decisions result from its use. </li></ul></ul></ul><ul><ul><ul><li>Systematic errors – errors that people make over and over and that result in poor decision making </li></ul></ul></ul>7-
  31. 32. Sources of Cognitive Bias at the Individual and Group Levels 7- Figure 7.6
  32. 33. Types of Cognitive Biases <ul><li>Prior Hypothesis Bias </li></ul><ul><ul><li>Allowing strong prior beliefs about a relationship between variables to influence decisions based on these beliefs even when evidence shows they are wrong. </li></ul></ul><ul><li>Representativeness </li></ul><ul><ul><li>The decision maker incorrectly generalizes a decision from a small sample or a single incident. </li></ul></ul>7-
  33. 34. Types of Cognitive Biases <ul><li>Illusion of Control </li></ul><ul><ul><li>The tendency to overestimates one’s own ability to control activities and events. </li></ul></ul><ul><li>Escalating Commitment </li></ul><ul><ul><li>Committing considerable resources to project and then committing more even if evidence shows the project is failing. </li></ul></ul>7-
  34. 35. Group Decision Making <ul><li>Superior to individual making </li></ul><ul><li>Choices less likely to fall victim to bias </li></ul><ul><li>Able to draw on combined skills of group members </li></ul><ul><li>Improve ability to generate feasible alternatives </li></ul>7-
  35. 36. Group Decision Making <ul><li>Allows managers to process more information </li></ul><ul><li>Managers affected by decisions agree to cooperate </li></ul>7-
  36. 37. Group Decision Making <ul><li>Potential Disadvantages </li></ul><ul><ul><li>Can take much longer than individuals to make decisions </li></ul></ul><ul><ul><li>Can be difficult to get two or more managers to agree because of different interests and preferences </li></ul></ul><ul><ul><li>Can be undermined by biases </li></ul></ul>7-
  37. 38. Group Decision Making <ul><li>Groupthink </li></ul><ul><ul><li>Pattern of faulty and biased decision making that occurs in groups whose members strive for agreement among themselves at the expense of accurately assessing information relevant to a decision </li></ul></ul>7-
  38. 39. Improved Group Decision Making <ul><li>Devil’s Advocacy </li></ul><ul><ul><li>Critical analysis of a preferred alternative to ascertain its strengths and weaknesses before it is implemented </li></ul></ul><ul><ul><li>One member of the group who acts as the devil’s advocate by critiquing the way the group identified alternatives and pointing out problems with the alternative selection. </li></ul></ul>7-
  39. 40. Improved Group Decision Making <ul><li>Dialectical Inquiry </li></ul><ul><ul><li>Two different groups are assigned to the problem and each group is responsible for evaluating alternatives and selecting one of them </li></ul></ul><ul><ul><li>Top managers then hear each group present their alternatives and each group can critique the other. </li></ul></ul><ul><li>Promote Diversity </li></ul><ul><ul><li>Increasing the diversity in a group may result in consideration of a wider set of alternatives. </li></ul></ul>7-
  40. 41. Devil’s Advocacy and Dialectical Inquiry 7- Figure 7.7
  41. 42. Organizational Learning and Creativity <ul><li>Organizational Learning </li></ul><ul><ul><li>Managers seek to improve a employee’s desire and ability to understand and manage the organization and its task environment so as to raise effectiveness. </li></ul></ul><ul><li>The Learning Organization </li></ul><ul><ul><li>Managers try to maximize the people’s ability to behave creatively to maximize organizational learning. </li></ul></ul>7-
  42. 43. Question? <ul><li>What is the ability of the decision maker to discover novel ideas leading to a feasible course of action? </li></ul><ul><li>Originality </li></ul><ul><li>Imagination </li></ul><ul><li>Creativity </li></ul><ul><li>Ingenuity </li></ul>7-
  43. 44. Organizational Learning and Creativity <ul><li>Creativity </li></ul><ul><ul><li>The ability of the decision maker to discover novel ideas leading to a feasible course of action. </li></ul></ul><ul><ul><ul><li>A creative management staff and employees are the key to the learning organization. </li></ul></ul></ul>7-
  44. 45. Senge’s Principles for Creating a Learning? 7- Figure 7.8
  45. 46. Creating a Learning Organization <ul><li>Personal Mastery </li></ul><ul><ul><li>Managers empower employees and allow them to create and explore. </li></ul></ul><ul><li>Mental Models </li></ul><ul><ul><li>Challenge employees to find new, better methods to perform a task. </li></ul></ul><ul><li>Team Learning </li></ul><ul><ul><li>Learning that takes place in a group or team. </li></ul></ul>7-
  46. 47. Creating a Learning Organization <ul><li>Build a Shared Vision </li></ul><ul><ul><li>People share a common mental model of the firm to evaluate opportunities. </li></ul></ul><ul><li>Systems Thinking </li></ul><ul><ul><li>Knowing and understanding how actions in one area of the firm will impact other areas of the firm. </li></ul></ul>7-
  47. 48. Building Group Creativity <ul><li>Brainstorming </li></ul><ul><ul><li>Managers meet face-to-face to generate and debate many alternatives. </li></ul></ul><ul><ul><ul><li>Group members are not allowed to evaluate alternatives until all alternatives are listed. </li></ul></ul></ul><ul><ul><ul><li>When all are listed, then the pros and cons of each are discussed and a short list created. </li></ul></ul></ul>7-
  48. 49. Building Group Creativity <ul><li>Production Blocking </li></ul><ul><ul><li>Occurs because group members cannot simultaneously make sense of all the alternatives being generated, think up additional alternatives, and remember what they were thinking </li></ul></ul>7-
  49. 50. Building Group Creativity <ul><li>Nominal Group Technique </li></ul><ul><ul><li>Provides a more structured way to generate alternatives in writing and gives each manager more time and opportunity to come up with potential solutions </li></ul></ul><ul><ul><li>Useful when an issue is controversial and when different managers might be expected to champion different courses of action </li></ul></ul>7-
  50. 51. Building Group Creativity <ul><li>Delphi Technique </li></ul><ul><ul><li>Written approach to creative problem solving. </li></ul></ul><ul><ul><li>Group leader writes a statement of the problem to which managers respond </li></ul></ul><ul><ul><li>Questionnaire is sent to managers to generate solutions </li></ul></ul><ul><ul><li>Team of managers summarizes the responses and results are sent back to the participants </li></ul></ul><ul><ul><li>Process is repeated until a consensus is reached </li></ul></ul>7-
  51. 52. Entrepreneurship <ul><li>Entrepreneurs </li></ul><ul><ul><li>Individuals who notice opportunities and take the responsibility for mobilizing the resources necessary to produce new and improved goods and services. </li></ul></ul>7-
  52. 53. Entrepreneurship <ul><li>Intrapreneurs </li></ul><ul><ul><li>Individuals (managers, scientists, or researchers) who work inside an existing organization and notice an opportunity for product improvements and are responsible for managing the product development process. </li></ul></ul>7-
  53. 54. Entrepreneurship and New Ventures <ul><li>Characteristics of entrepreneurs—most share these common traits: </li></ul><ul><ul><li>Open to experience : they are original thinkers and take risks. </li></ul></ul><ul><ul><li>Internal locus of control : they take responsibility for their own actions. </li></ul></ul><ul><ul><li>High self-esteem : they feel competent and capable. </li></ul></ul><ul><ul><li>High need for achievement : they set high goals and enjoy working toward them. </li></ul></ul>7-
  54. 55. Entrepreneurship and Management <ul><li>People can become involved in entrepreneurial ventures by starting a business from scratch </li></ul><ul><li>Frequently need to hire other people to help them run the business </li></ul>7-
  55. 56. Entrepreneurship and Management <ul><li>Frequently, founding entrepreneur lacks the skills, patience, and experience to engage in the difficult and challenging work of management </li></ul>7-
  56. 57. Intrapreneurship and Organizational Learning <ul><li>Learning organizations encourage their employees to act as intrapreneurs: </li></ul><ul><ul><li>Product champions : taking ownership of a product from concept to market. </li></ul></ul><ul><ul><li>Skunkworks : keeping a group of intrapreneurs separate from the rest of the firm. </li></ul></ul><ul><ul><li>Rewards for innovation : linking innovation by workers to valued rewards. </li></ul></ul>7-
  57. 58. Movie Example: You’ve Got Mail <ul><li>How will Kathleen use the decision making process with the arrival of the Fox Book Superstore? </li></ul>7-