Management Chapter 7: Decision Making and Creativity

Chapter 7: Decision Making, Learning, Creativity, and Entrepreneurship

• This chapter focuses on decision-making, learning, creativity, and entrepreneurship in a managerial context.

• Learning objectives include understanding managerial decision-making, differentiating between programmed and nonprogrammed decisions, and understanding the complexities of non-programmed decisions.

• Managers should follow six steps for effective decision making: recognize the need for a decision, generate alternatives, assess alternatives, choose among alternatives, implement the chosen alternative, and learn from feedback.

• Cognitive biases can lead to poor decision-making, so managers should be aware of these biases.

• Programmed decisions involve routine, automatic choices based on established rules or guidelines. An example is a manufacturing supervisor hiring new workers when existing workers' overtime exceeds 10%.

• Nonprogrammed decisions address unusual, unpredictable opportunities and threats. There are no pre-established rules, as the situation is uncertain and requires managers to gather information.

• Intuition is based on feelings, beliefs, and quick hunches that lead to immediate decisions, requiring little effort.

• Reasoned judgment requires careful consideration, information gathering, generating alternatives, and evaluating them.

The Classical Model

• This model assumes decision-makers have the power to evaluate all possible options and their consequences and make a rational choice.
• The classical model seeks to reach the optimal decision.

The Administrative Model

• This approach acknowledges that decision-making is often uncertain, risky, and that managers frequently settle for satisfactory solutions over optimal ones.
• It's based on three key ideas: bounded rationality, incomplete information, and satisficing.
• Bounded rationality refers to cognitive limits that constrain a person's ability to process and act on information.
• Incomplete information arises from uncertainty, ambiguity, risk, and time constraints.
• Satisficing involves looking for satisfactory solutions rather than searching for the ideal one.

Causes of Incomplete Information

• Risk is the probability that specific outcomes will occur from a course of action. A 90% new drug failure rate in biotechnology is an example.
• Uncertainty occurs when probabilities cannot be determined or when future outcomes are unknown. Apple's Newton PDA is one example.
• Ambiguous information is information that can be interpreted in multiple ways, often conflicting.

Time Constraints and Information Costs

• Time and/or financial constraints may limit the gathering of complete information and evaluation of all alternatives.

Satisficing

• Choosing an adequate solution to a problem or opportunity without seeking the best possible solution.

Six Steps in Decision Making

• Recognize the need for a decision
• Generate alternatives
• Assess alternatives
• Choose among alternatives
• Implement the chosen alternative
• Learn from feedback

General Criteria for Evaluating Possible Courses of Action

• Legal considerations
• Ethical analysis
• Economic implications
• Practical feasibility

Feedback Procedure

• Comparing actual results against expected outcomes to learn from a decision.
• Examining why expectations were not met.
• Developing guidelines for future decision-making.

Cognitive Biases and Decision Making

• Heuristics are rules of thumb that simplify decision-making.
• Systematic errors, or biases are errors made repeatedly which cause poor decision making. This section describes several common examples of such errors including confirmation bias, representativeness bias, illusion of control, and escalating commitment.

Group Decision Making

• Group decision-making can be superior to individual decision-making, allowing for diverse perspectives and expertise.
• Groupthink describes when a group strives for consensus over logical decision making, which can be potentially flawed.
• Techniques like brainstorming, nominal group technique, and Delphi technique can enhance group creativity.

Learning Organization

• A learning organization is one that maximizes an individual's and group’s ability to think and behave creatively, thereby enhancing organizational learning.

Creativity

• A decision maker's ability to discover original and novel ideas potentially leading to new solutions. Techniques for generating creativity are presented in this chapter.

Senge's Principles for Creating a Learning Organization

• Developing personal mastery
• Building shared visions
• Encouraging systems thinking
• Building complex mental models
• Promoting team learning

Entrepreneurship

• Entrepreneurs are individuals who capitalize on opportunities and mobilize resources to create new products or services.
• Social entrepreneurs address social issues and needs.
• Intrapreneurs are individuals inside an organization who identify opportunities for new products or services. Often described as "internal entrepreneurs."
• Key entrepreneur characteristics include; open-mindedness, internal locus of control, high self-esteem, and high need for achievement.
• Entrepreneurship is distinct from management, which involves the challenging aspects of implementing new ventures or products.
• Examples of intrapreneurial strategies like product champion and skunkworks are described.
• The text describes the Xerox Palo Alto Research Center (PARC) as an example of an organization built on innovative, intrapreneurial efforts.