Week 6 Decision Making and Sensemaking PDF

# Organizational theory ## Decision Making, Sensemaking ### ADMN 2510H ## What is Decision Making? "the process of identifying and solving problems" (Daft text) - Problem identification - monitor organization, and the (external) environment for changes - Problem solution - engage in discussion (or...

# Organizational theory ## Decision Making, Sensemaking ### ADMN 2510H ## What is Decision Making? "the process of identifying and solving problems" (Daft text) - Problem identification - monitor organization, and the (external) environment for changes - Problem solution - engage in discussion (or not), consider alternative actions, choose an action Decisions are made by an individual (manager) or by several - internally (employees) and/or externally (stakeholders) Managers often tend to make decisions based on Rationality, or Bounded Rationality ## Decision Making - Today's Business Environment - Greater Complexity - Rapid Change - Uncertainty - New Decision-Making Requirements - Must be made faster - No one individual has all information needed - Require more cooperation - Rely less on hard data - There is less certainty about outcomes - Evolve through trial and error ## Rational Decision Making Dominant culture of decision making: Scientific (logical and step-by-step) approach - cause-and-effect Managers are told to weigh carefully the pros and cons before making decisions, then follow processes, procedures, rules, logic to come up with a solution - logic and analysis (maximizing, achieving the optimal solution) Decision making has become easier with technology - access to a web of information, organizational intelligence networks - connecting with departments, branches, supply chain, customers, stakeholders - Gain input and feedback before making decisions, monitor feedback and consequences of past decisions - change/ adapt decision if needed ## Rational Decision Making EXHIBIT 12.2 Steps in the Rational Approach to Decision Making | | | | | |-----------|------------------|----------------------|--------------------------| | **PROBLEM IDENTIFICATION** | **1. Define the Decision Problem** | **2. Specify Decision Objectives** | **3. Diagnose the Problem** | | **4. Develop Alternative Solutions** | **5. Evaluate Alternatives** | **6. Choose the Best Alternative** | **7. Implement the Chosen Alternative** | | **SOLUTION** | **8. Monitor the Decision Environment** | **PROBLEM** | | Rational Decision Making is fine if issues are well understood BUT, issues are very complex, decisions often need to be made quickly (time pressures), all information may not be available, internal and external environmental factors have to be taken into consideration, cannot always evaluate every goal, problem, and alternative ## Bounded Rationality (Herbert Simon) Many problems are complex, organizations have limited information processing capabilities (time, internal (organizational) and external (environment) pressures, resource constraints, personal constraints) - so managers cannot always follow a perfectly rational approach - Managers should "talk to each other and exchange points of view to gather information and reduce ambiguity" (Daft) - Make decisions based on incomplete information, determine alternatives and the consequences of chosen actions - Constraints and trade-offs - time and effort in making a decision is too costly, need to cooperate with others to make decisions, uphold ethical values and culture, cope with stress and pressure, satisfy emotional needs (prevent harms) - Making decisions based on intuition - "gut" feeling and hunches - "Satisficing" rather than "maximizing" - arriving at a "good enough" solution, based on limited information, and past experiences - judgement call ## Cognitive Biases Cognitive Biases are severe errors in judgement that all humans are prone to and that typically lead to bad choices Biases: 1. Being influenced by initial impressions - anchoring effect 2. Seeing what you want to see - ignore contradictory information 3. Being influenced by emotions - take emotions out of decision making? Ethic of Care? 4. Being overconfident - Arrogance? Ego? 5. Escalating commitment - continue to invest in lost causes in order to recoup losses 6. Fearing failure or loss - put more emphasis on losses rather than potential gains 7. Being influenced by the group - GROUPTHINK! ## Sensemaking How managers understand, process, and organize information, events, experiences, problems, to make better sense of their environment/situation in order to make decisions - Environment always changes (such as stakeholder expectations/needs, technology) A sensemaking event is triggered by a situation creating uncertainty or ambiguity, which causes decision makers to find meaning in the unknown (mapping out the unknown situation), learn new things, collect different interpretations, and create an action to respond to the situation (refine, adapt change decisions) Small separate failures, and interruptions of routines can lead to bigger crises, disasters - people then tend to revert to familiar and habitual responses (collapse of sensemaking) - These responses are based on influences from past understandings, similar experiences, solutions that may no longer work - need to collect and process new information - engage stakeholders ## Weick's 7 Properties of Sensemaking Use these principles to understand how we interpret situations, then make a decision: 1. Identity-understand ourselves, one's role in the organization, in the environment 2. Retrospective - how the individual interprets what has occurred, often based on previous similar experiences 3. Ongoing events - individuals have to act and respond to constant changes in the environment as they occur 4. Socialization - meanings created from upbringing (values), education, social norms, organization culture, engaging with others 5. Important cues- individual acquires knowledge (cognition and perception) and tries to explain them (speak and write) to determine their relevance, then add them to our retrospective experience 6. Plausibility - adding credibility (collect evidence, engage in conversations, and testing hypotheses) to cues, ongoing events and getting ready to take action 7. Sufficiency - cannot understand anything fully, so make a decision that will be good enough" - "satisfice' ## Weick's 7 Properties of Sensemaking ### Case Study: Sensemaking at the 89th Oscars (2017) - The Organization: Hollywood Film Industry - The Crisis: Warren Beatty and Faye Dunaway were given the wrong envelope, and read the wrong Oscar winner. - Best Actress Envelope (Emma Stone in La La Land) instead of Best Picture (Moonlight) - Warren looked puzzled while opening and looking at the envelope - gave Faye the envelope to read - The mistake was clarified live on stage (Accountants in charge of holding the awards for security gave the wrong envelope to Warren) - So, let us look at the Principles of Sensemaking from the Perspective of the Presenters (Warren Beatty primarily) ## Oscars Flub An image of a hand holding a red envelope labelled "Actress in a Leading Role". ## Lessons learned on decision making, sensemaking - If something concerns you, speak up! Others may share your concerns, while others may not even be aware - Don't act with overconfidence, ego, arrogance - accept humility, ask others - Fully inform yourself - data sources (history, internet), organization policies, stakeholders - Use theories, metaphors, frames to consider various stakeholder perspectives - If possible, perform small experiments toward determining if a resolution can be made (trial runs, beta testing, focus groups) - Engage others in discussions, decision making, resolving problems - Always be aware that the environment always changes - could be subtle, but significant - Admit mistakes and adopt a new course of action if the decision is not working out (avoid escalating commitment) - You can plan all you want for crisis and disasters, there are still unknowns - Past crises, disasters can teach us valuable lessons ## Bhopal Disaster - December 1984 - Bhopal, India - Union Carbide pesticide plant - World's worst industrial disaster - Chemical accident - Cause? Decaying facilities and lack of maintenance, faulty equipment, safety and training lacking - Union Carbide claimed employee sabotage - Over 500,000 exposed - Over 2000 immediate deaths, 8000 within 2 weeks, plus long-term (150K?) - Warren Anderson, CEO charged with manslaughter - Long-term - dumping area for hazardous chemicals - soil and groundwater polluted The image also shows a map with the following: - Approximate spread of gas - Delhi - Bhopal - Union Carbide Plant - Hospital - Upper Lake - Railway Station - Hospital - Lower Lake - Bhopal - Madhya Pradesh - India