Decision Making, Learning, Creativity, and Entrepreneurship PDF

CHAPTER 7 Decision Making, Learning, Creativity, and Entrepreneurship ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw...

CHAPTER 7 Decision Making, Learning, Creativity, and Entrepreneurship ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  Learning Objectives (1 of 2) 1. Understand the nature of managerial decision making, differentiate between programmed and non- programmed decisions, and explain why non-programmed decision making is a complex, uncertain process. 2. Identify the advantages and disadvantages of group decision making, and describe techniques that can improve it. ©McGraw-Hill Education. The Nature of Managerial Decision Making (1 of 2) Decision making – The process by which managers respond to opportunities and threats that confront them by analyzing options and making determinations about specific ©McGraw-Hill Education. © Robert Nicholas footstock RF  Decision Making (2 of 3) Non-programmed decisions – Nonroutine decision making that occurs in response to unusual, unpredictable opportunities and threats Rules do not exist because the situation is unexpected or uncertain and managers lack the information they would need to develop rules to cover it. ©McGraw-Hill Education.  Decision Making (1 of 3) Programmed decision – Routine, virtually automatic decision making that follows established rules or guidelines Decisions have been made so many times in the past that managers have developed rules or guidelines to be applied when certain situations inevitably occur. ©McGraw-Hill Education.  Decision Making (3 of 3) Intuition – Feelings, beliefs, and hunches that come readily to mind, require little effort and information gathering and result in on- the-spot decisions Rational – Decision that requires time and effort and results from careful information gathering, generation of alternatives, and evaluation of alternatives ©McGraw-Hill Education.  Decisions Commonly Made within Organizations ©2013 Flat World Knowledge, Inc. ©McGraw-Hill Education.  Rational Decision-Making Model ©2013 Flat World Knowledge, Inc. ©McGraw-Hill Education.  The Classical Model (1 of 2) Classical model of decision making – A prescriptive approach to decision making based on the assumption that the decision maker can identify and evaluate all possible alternatives and their consequences and rationally choose the most appropriate course of action Optimum decision The most appropriate decision in light of what ©McGraw-Hill Education. managers believe to be the most desirable  Figure 7.1 The Classical Model of Decision Making Jump to Appendix 1 for ©McGraw-Hill Education. description  The Administrative Model (1 of 4) Administrative model – An approach to decision making that explains why decision making is inherently uncertain and risky and why managers usually make satisfactory rather than optimum decisions ©McGraw-Hill Education.  The Administrative Model (2 of 4) Bounded rationality – Cognitive limitations that constrain one’s ability to interpret, process, and act on information Incomplete information – Because of risk and uncertainty, ambiguity, and time constraints ©McGraw-Hill Education.  Figure 7.2 Why Information is Incomplete ©McGraw-Hill Education.  Satisficing Satisficing Searching for and choosing an acceptable or satisfactory response to problems and opportunities, rather than trying to make the best decision. ©McGraw-Hill Education.  Figure 7.4 Six Steps in Decision Making ©McGraw-Hill Education.  Figure 7.5 General Criteria for Evaluating Possible Courses of Action ©McGraw-Hill Education.  Feedback Procedure 1. Compare what actually happened to what was expected to happen as a result of the decision. 2. Explore why any expectations for the decision were not met. 3. Derive guidelines that will help in future decision making. ©McGraw-Hill Education.  Cognitive Biases and Decision- Making (1 of 3) Heuristics Because all decision makers are subject to bounded rationality, they tend to use heuristics, which are rules of thumb the simplify the process of making decisions. Systematic errors Errors that people make over and over and that result in poor decision making. ©McGraw-Hill Education.  Cognitive Biases and Decision- Making (2 of 3) Prior hypothesis bias A cognitive bias resulting from the tendency to base decisions on strong prior beliefs even if evidence shows that those beliefs are wrong. Representativeness bias A cognitive bias resulting from the tendency to generalize inappropriately from a small sample or from a single vivid event or episode. ©McGraw-Hill Education.  Cognitive Biases and Decision- Making (3 of 3) Illusion of control A source of cognitive bias resulting from the tendency to overestimate one’s own ability to control activities and events. Escalating commitment A source of cognitive bias resulting from the tendency to commit additional resources to a project even if evidence shows that the project is failing. ©McGraw-Hill Education.  Group Decision Making (1 of 3) Superior to individual decision making Choices less likely to fall victim to bias Able to draw on combined skills of group members Improve ability to generate feasible alternatives ©McGraw-Hill Education.  Group Decision Making (2 of 3) Potential disadvantages: 1. Can take much longer for groups than individuals to make decisions 2. Can be difficult to get two or more managers to agree because of different interests and preferences 3. Can be undermined by biases ©McGraw-Hill Education.  Devil’s Advocacy and Dialectical Inquiry Jump to Appendix 3 for ©McGraw-Hill Education. description  Organizational Learning and Creativity Creativity – A decision maker’s ability to discover original and novel ideas that lead to feasible alternative courses of action ©McGraw-Hill Education. © Morgan Lane Photography/Alamy RF  Building Group Creativity (1 of 2) Brainstorming – Managers meet face-to-face to generate and debate many alternatives. Nominal group technique – A decision-making technique in which group members write down ideas and solutions, read their suggestions to the whole group, and discuss and then rank the alternatives Useful when an issue is controversial and when different managers might be expected to champion different courses of action ©McGraw-Hill Education.  Building Group Creativity (2 of 2) Delphi technique – A decision-making technique in which group members do not meet face-to- face but respond in writing to questions posed by the group leader ©McGraw-Hill Education.  Choosing A Decision Making Model ©2013 Flat World Knowledge, Inc. ©McGraw-Hill Education.  Discussion What do you see as the main difference between a successful and an unsuccessful decision? How much does luck versus skill have to do with it? How much time needs to pass to answer the first question? Research has shown that over half of the decisions made within organizations fail. Does this surprise you? Why or why not? Have you used the rational decision-making model to make a decision? What was the context? How well did the model work? Do you think intuition is respected as a decision-making style? Do you think it should be? Why or why not? ©2013 Flat World Knowledge, Inc. ©McGraw-Hill Education.  Discussion Imagine that your good friend is starting a new job next week as a manager. What recommendations would you give your friend to be successful with decision making at work? ©2013 Flat World Knowledge, Inc. ©McGraw-Hill Education.  Video: Decisions, Decisions Have you ever made a very important decision and what process they used to make it? http://www.viddler.com/embed/a441cb63 Would you agree with the video that it is easier to choose among just a few options rather than exploring many? Do you think that the theory on using your “gut instincts” is valid? Why or why not? In business, are there ever times when managers must make very quick decisions that may not allow for much option analysis? If so, would you suggest they take the time to do analysis or use ©McGraw-Hill Education.