Ch. 12 Organizational Decision Making PDF

§12 Decision making, learning, knowledge management and informa on technology 12.1 Organiza onal decision making Organiza onal decision making is the process of responding to a problem by searching for and selecng a soluon of course of acon that will create the most value for organizaonal stakeh...

§12 Decision making, learning, knowledge management and informa on technology 12.1 Organiza onal decision making Organiza onal decision making is the process of responding to a problem by searching for and selecng a soluon of course of acon that will create the most value for organizaonal stakeholders. To make the best choices, managers must take two kinds of decisions: programmed and nonprogrammed. Programmed decision making involves selecng the most e*ecve (easy, repeve, and roune) operang procedures to handle an organizaon’s ongoing value-creaon acvies. 57 Programmed decision making allows an organizaon to increase its e;ciency and reduce the costs of making goods and services; it provides stability and increases predictability. Nonprogrammed decision making involves managers making the most e*ecve (creave, novel, and unstructured) decisions that allow an organizaon to nd soluons to changing and uncertain condions. 12.2 Models of organiza onal decision making The ra onal model of decision making is a straighOorward three-stage process. At stage 1, managers idenfy problems that need to be solved. At stage 2, managers seek to design and develop a series of alternave courses of acon to solve the problems they have idened. At stage 3, managers compare the likely consequences of each alternave and decide which course of acon o*ers the best soluon to the problem they idened. Researchers have cricized as unrealisc or simplisc three assumpons underlying the raonal model: (1) the assumpon that decision makers have all the informaon they need; (2) the assumpon that decision makers have the ability to make the best decisions; and (3) the assumpon that decision makers agree about what needs to be done. 1. Informaon and uncertainty: the environment is uncertain, so every alternave course of acon and its consequences cannot be known. 2. Managerial abilies: managers have only a limited ability to process the informaon required to make decisions, and most do not have the me. 3. Preferences and values: managers in di*erent funcons are likely to have di*erent subunit orientaons that lead them to make decisions that favour their own interests over those of other funcons, other stakeholders, or the organizaon as a whole. The Carnegie model suggests that managers engage in sa s=cing, limited informaon searches to idenfy problems and alternave soluons. Bounded ra onality refers to a limited capacity to process informaon. Furthermore, the Carnegie model recognizes that the preferences and values of managers di*er and that disagreement and con:ict is inevitable. Any soluon must be approved by the ‘dominant coalion’: the collecon of managers or stakeholders who have the power to decide which soluon is chosen and can commit resources to implement it. According to the incrementalist model of organizaonal decision making, when selecng a set of new alternave courses of acon, managers tend to choose those that are only slightly, or incrementally, di*erent from those used in the past, thus lessening their chances of making a 58 mistake. In contrast to the raonal model, the incrementalist model argues that managers are limited by lack of informaon and lack of foresight, and move cauously one step at a me to limit their chances of being wrong. The unstructured model of decision making, developed by Henry Mintzberg, describes how decision making takes place when uncertainty is high. Incremental decisions are made within an overall decision-making framework consisng of three stages: idencaon, development, and selecon. In the iden$caon stage, managers develop rounes to recognize. In the development stage, they search for and select alternaves to solve the problems. Finally, in the selecon stage, managers use an incremental selecon process (judgment, intuion and bargaining) to reach a nal decision. The garbage-can model turns the decision-making process around and argues that managers are as likely to start decision making from the soluon side as from the problem side. In other words, they propose soluons to problems that do not exist; they create a problem to solve with soluons that are already available. While an organizaon’s managers must tackle new problems of their own making, at the same me they must also generate alternaves and nd soluons to problems that have arisen because of shi2s in the environment. The nature of organiza onal learning Organiza onal learning is the process through which managers seek to improve organizaon members’ desire and ability to understand and manage the organizaon and its environment so they can make decisions that connuously raise organizaonal e*ecveness. James March has proposed that two principal types of organizaonal learning strategies can be pursued: exploraon and exploitaon. Explora on involves organizaonal members searching for and experimenng with new kinds of forms of organizaonal acvies and procedures to increase e*ecveness. This might involve nding new ways to manage the environment or invenng new kinds of organizaonal structures for managing organizaonal resources. Exploita on involves organizaonal members learning ways to rene and improve exisng organizaonal acvies and procedures to increase e*ecveness. Exploraon is a more radical learning strategy than exploitaon, although both must be used together to increase organizaonal e*ecveness. A learning organiza on is an organizaon that purposefully designs and constructs its structure, culture, and strategy so as to enhance and maximize the potenal for organizaonal learning to take place. Managers create a learning organizaon by increasing the ability of employees, at every level in the organizaon, to queson and analyse the way an organizaon currently performs its acvies and to experiment with new ways to change them to increase e*ecveness. Levels of organiza onal learning To create organizaonal learning, managers need to encourage learning at four levels: individual, group, organizaonal and interorganizaonal. - - Individual. For organizaonal learning to occur, each of its members need to develop a sense of personal mastery, meaning that organizaons should empower and encourage all employees to challenge themselves to nd new or be9er ways to perform a task. The message behind this is that individual members will develop a similar commitment and a9achment to their job so they will develop a taste for experimenng and risk taking. Group. At the group-level, managers need to encourage learning by promong the use of various kinds of groups. Groups provide a se3ng for synergy (1+1=3) to develop which can enhance performance. Team learning is even more important than individual learning in 59 - - promong organizaonal learning because most important decisions are made in subunits such as groups, funcons, and divisions. Organiza on. At the organizaonal level, managers can promote learning through the way they create its structure and culture. Mechanisc and organic structures encourage di*erent approaches to learning. The design of a mechanisc structure facilitates exploitave learning; the design of an organic structure facilitates explorave learning. Another of Senge’s principles for designing a learning organizaon emphasizes the importance of building shared vision, which means creang an mental model that all organizaonal members can use to frame problems or opportunies and that binds them to an organizaon. Another important aspect of organizaonal culture is its ability to promote or inhibit organizaonal learning and change. John Ko9er and James Heske9 disnguished between adapve cultures and inert cultures in terms of their ability to facilitate organizaonal learning. Adap ve cultures are those that value innovaon and encourage and reward experimenng and risk taking by middle and lower-level managers. Inert cultures are those that are cauous and conservave, do not value middle and lower-level managers taking such acon, and may acvely discourage such behaviour. Organizaons with adapve cultures are more likely to survive in a changing environment because the organizaonal learning is higher. Interorganiza onal. Organizaonal structure and culture also determines how learning occurs at the interorganizaonal level. Interorganizaonal learning is important because organizaons can improve their e*ecveness by imitang each other’s disncve competences. 12.3 Knowledge management and informa on technology One type of IT-enabled organizaonal relaonship that has important implicaons for both organizaonal learning and decision making is knowledge management: the sharing and integrang of experse within and between funcons and divisions through real-me, interconnected IT. One important benet from using a knowledge management system is the development of synergies between people and groups. Organizaons should choose between a codicaon or personalizaon approach to creang an ITbased knowledge management system. With a codi=ca on approach, knowledge is carefully collected, analysed, and stored in databases where it can be retrieved easily by users who input organizaon-specic commands and keywords. A codicaon approach results in collecon of standardized organizaon best pracces, rules, and SOPS that can be drawn on by anyone who needs them. However, this approach is only suitable when the product of service is itself quite standardized. 60 A personaliza on approach to knowledge management is pursued when an organizaon needs to provide customized products or soluons to clients, when technology is changing rapidly, and when employees rely much more on know-how, insight, and judgment to make decisions. O2en, the soluons result from mutual adjustment between people and groups with intensive technology. 12.4 Factors aec ng organiza onal learning Several factors may reduce the level of learning over me. A model developed by Nystrom and Starbuck illustrates how problems may arise that prevent an organizaon from learning and adapng to its environment. If programmed decision making drives out nonprogrammed decision making, the level of organizaonal learning falls. Blindness and rigidity in organizaonal decision making may then set in and lead to a full-blown crisis. A cogni ve structure is the system of interrelated beliefs, preferences, expectaons, and values that a person uses to dene problems and events. Cognive structures shape the way top managers make decisions, and determine the degree to which forces in the environment are perceived as opportunies or threats. There are some factors that distort managers’ percepons and :aw organizaonal learning and decision making. Organiza onal learning and cogni ve structures When managers confront a problem, their cognive structure shape their interpretaon of the informaon at hand. That view might be distorted or wrong because of the operaon of cognive biases. Cogni ve biases are factors that systemacally bias cognive structures and a*ect organizaonal learning and decision making. There are several types of cognive biases: - - - Cogni ve dissonance is the state of discomfort or anxiety that a person feels when there is an inconsistency between his or her beliefs and acons. Decisions makers try to maintain consistency between their images of themselves, their a3tudes, and their decisions. This is why managers tend to misinterpret the real threats facing an organizaon and a9empt to muddle through even when it is clear to many observers that the organizaon is in crisis. Illusion of control is a cognive bias that leads managers to overesmate the extent to which they can control a situaon because they have the skills and abilies needed to manage uncertainty and complexity. Frequencies and representaveness o2en lead managers to misinterpret informaon. Frequency is a cognive bias that deceives people into assuming that extreme instances of a phenomenon are more prevalent than they really are. Representa veness is a 61 - - cognive bias that leads managers to form judgments based on small and unrepresentave samples. Projecon and ego-defensiveness: projec on is a cognive bias that allows managers to jusfy and reinforce their own preferences and values by a9ribung them to others. Egodefensiveness is a cognive bias that leads managers to interpret events in such a way that their acons appear in the most favourable light. Escala on of commitment is a cognive bias that leads managers to remain commitment to a losing course of acon and to refuse to admit they have made a mistake, perhaps because of ego-defensiveness or because they are gripped by the illusion of control. 12.5 Improving decision making and learning Organizaons can use several means to overcome the e*ect of cognive biases and promote learning and change: implement strategies for organizaonal learning, increase the breadth and diversity of the top-management team, use devil’s advocacy and dialeccal inquiry, use game theory, and develop a collateral organizaonal structure. Strategies for organiza onal learning Three ways in which organizaons can unlearn old ideas (and learn new ones) are by listening to dissenters, by converng events into learning opportunies, and by experimenng. Listening to dissenters: to improve quality of decision making, managers can choose to surround themselves with people who hold di*erent and o2en opposite points of view. Converng events into learning opportunies: an organizaon needs to redesign its structure and culture to movate managers to nd be9er ways to respond to a situaon. Experimenng can be used to improve both incremental and garbage-can decision-making processes. Managers who are willing to experiment avoid overcommitment to previously worked-out soluons, reduce the likelihood of misinterpreng a situaon, and can learn from their mistakes and failures. Using game theory In understanding the dynamics of decision making between competors in the environment, a useful tool that can help managers improve decision making and enhance learning is game theory, in which interacons between organizaons are viewed as a compeve game. There are two types of games: sequenal move games, in which players move in turn, and one player select a strategy to pursue a2er considering its rival’s choice of strategies (like chess), and the simultaneous move game, in which the players act at the same me, in ignorance of their rival’s current acons. Nature of the top-management team There are two conguraon in construcng a top-management team: in the wheel conguraon, organizaonal learning is decreased because managers from di*erent funcons report separately to the CEO. This conguraon works best when problems are simple and require minimal coordinaon among top team members. In the circle conguraon, top managers from di*erent funcons interact with one another and with the CEO. This promotes team and organizaonal learning. 62 Devil’s advocacy and dialec cal inquiry A devil’s advocate is the person willing to stand up and queson the beliefs of more powerful people, resist in:uence a9empts, and work to convince others that new ideas or plans may be :awed, wrong or harmful. Devil’s advocacy and dialec cal inquiry are ways of overcoming cognive biases and promong organizaonal learning. So, the di*erence is that with devil’s advocacy only one soluon will be challenged by one person, and with dialeccal inquiry, there are several soluons, and teams will evaluate to recommend the best one. Collateral organiza onal structure An organizaon can a9empt to improve learning and decision making by establishing a collateral organiza onal structure: an informaon organizaon of managers set up parallel to the formal organizaonal structure to ‘shadow’ the decision making and acon of managers in the formal organizaon. Managers in the formal structure know that their decisions are being evaluated by others and become used to examining the assumpons that they use to test alternaves and arrive at a soluon. 63