Unit 5: Chapter 6-Decision Making and Creativity

→The Nature of Managerial Decision Making

• Decision Making: The process by which managers respond to opportunities and threats by analyzing
options and making determinations about specific organizational goals and courses of actions.
• Decision making in response to opportunities occurs when managers search for ways to improve
organizational performance to benefit customers, employees, and other stakeholder groups.
• Decision making in response to threats occurs when events inside or outside the organization
adversely affect organizational performance, and managers search for ways to increase
performance.

1.Programmed and Non-programmed Decision Making

i. Programmed Decision Making:

▪ Programmed decisions are decisions that have been made so many times in the past that managers
have developed rules or guidelines to be applied when certain situations inevitably occur.
▪ Is a routine, virtually automatic process.
▪ This decision making is called programmed because office managers, for example, don’t need to
repeatedly make new judgements of what should be done. They can rely on long-established
decision rules:
1. When the storage shelves are three-quarters empty, order more copy paper.
2. When ordering paper, order enough to fill the shelves.

ii. Non-programmed Decision Making:

▪ Nonprogrammed decisions are made in response to unusual opportunities and threats.

▪ Required for non-routine decisions (no policy in place).

iii. How do managers make decisions in the absence of decision rules?

1. They may rely on their intuition:

Feelings, beliefs, and hunches that come readily to mind, require less/ little effort and information
gathering and may result in on-the-spot decisions.

2. Or they may make use of reasoned judgments:

Decisions that require time and effort and result from careful information gathering and the
generation and evaluation of alternatives.
2.Decision Making Theories:
i. The Classical Model:

✓ A prescriptive approach to decision-making that specifies how decisions should be made.

✓ Based on the assumption that the decision maker can identify and evaluate the alternatives
and consequences rationally.
✓ Result: Optimum decision, which is the most appropriate decision possible in light of what
they believe to be the most desirable consequences for the organization.

ii. The Administrative Model:

✓ An approach that explains why decision making is inherently uncertain and risky and why
managers usually makes satisfactory rather than optimum decisions.
✓ Based on three important concepts:
1. Bounded rationality - Cognitive limitations that constraints one’s ability to interpret,
process and act on information.
2. Incomplete information-Information is incomplete because the full range of decision-
making alternatives is unknowable and the consequences are uncertain.
2.1) Uncertainty and Risk:
~Risk is present when managers know the possible outcomes of a particular course of action
and can assign probabilities for them.

~When uncertainty exist the possibilities of alternative outcomes cannot be determined and
future outcomes are unknown.

2.2) Ambiguous information:

~Information that can be interpreted in multiple and often conflicting ways.
2.3) Time constraints and information costs:
~Managers have neither the time nor the money to search for all possible alternative
solutions and evaluate all the potential consequences of alternatives.
3.Satisficing - Searching for and choosing an acceptable or satisfactory response to problems and
opportunities, rather than trying to make the best decision.
→Steps in the decision-making process

General Criteria for evaluating Possible Courses of Action:

1. Legality - Managers must ensure that a possible course of action will not violate any domestic or
international laws or government regulations.
2. Ethicalness - Managers must ensure that a possible course of action is ethical and will not
unnecessarily harm any stakeholder group.
3. Economic feasibility - Managers must decide whether the alternatives can be accomplished given
the organization’s goals.
4. Practicality - Managers must decide whether they have the capabilities and resources required to
implement the alternative, and they must be sure the alternative will not threaten the attainment
of other organizational goals.
→Cognitive Biases in Decision Making

• Decision makers are subject to bounded rationality, they tend to use heuristics.
• Heuristics - Are rules of thumb that simplify the process of making decisions.
• Rules of thumb are often useful because they help decision makers make sense of complex,
uncertain, and ambiguous information.
• Can lead to systematic errors in the way decision makers process information.
• Systematic errors - Errors that people make over and over and that result in poor decision making.
• Four sources of bias that can adversely affect the way managers make decisions:

1. Prior Hypothesis Bias:

▪ Decisions based on those beliefs even when presented with evidence that their beliefs are
wrong.

2. Representativeness Bias:
▪ Tendency to inappropriately generalize from a small sample or even from a single vivid case
or episode.
3. Illusion of Control Bias:
▪ Tendency of decision makers to overestimate their ability to control activities and events.
4. Escalating commitment Bias:
▪ Tendency commit more resources to the project even if the project is failing.
→Group Decision Making

1.Advantages of Group Decision Making:

1.1) Choices of alternatives are less likely to fall victim to the biases and errors discussed previously.
1.2) Draw on the combined skills, competencies and knowledge of group members.
1.3) Process more information and correct one another’s errors.
1.4) And in the implementation phase, all managers affected by the decisions agree to cooperate.
1.5) When a group of managers makes a decision the probability that the decision will be implemented
successfully increases.

2.Disadvantages of Group Decision Making:

2.1) Groupthink - A 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 the
decision.
2.2) Devil’s Advocacy - Critical analysis of a preferred alternative, made in response to challenges raised by
a group member who is playing the role of devil’s advocate.
2.3) Dialectical Inquiry - Critical analysis of two preferred alternatives in order to find an even better
alternative for the organization to adopt-time consuming.
→Organizational Learning and Creativity

✓ Organizational Learning: The process through which managers seek to improve employees’ desires
and ability to understand and managed the organization and its task environment.
✓ Learning organization: An organization in which managers try to maximize the ability of individuals
and groups to think and behave creatively and thus maximize the potential for learning to take
place.
✓ Creativity: A decision maker’s ability to discover original and novel ideas that lead to feasible
alternatives courses of action.

1. For organizational learning to occur top managers must allow every person in the organization to
develop a sense of personal mastery.
Managers must empower employees and allow them to experiment, create and explore what they
want.
2. As part of attaining personal mastery, organizations need to encourage employees to develop and
use complex mental models- sophisticated ways of thinking that challenge them to find new or
better ways of performing a task- to deepen their understanding of what is involved in a particular
activity.
3. Managers must do everything they can to promote group creativity.
Team learning is more important than individual learning in increasing organizational learning.
4. Managers must emphasize the importance of building a shared vision- a common mental model
that all organizational members use to frame problems or opportunities.
5. Managers must encourage system thinking.
Promoting group Creativity
1. Brainstorming:
• Group solving technique in which managers meet face-to-face to generate and debate a wide
variety of alternatives of which to make a decision.
• 5-15 managers meet.

2. Nominal Group technique:

• A decision-making technique in which group members write down ideas and solutions, read their
solutions to the whole group and discuss and then rank the alternatives.

3. Delphi Technique:
• A decision-making technique in which group members do not meet face-to-face but respond in
writing questions posted by the group leader.

→Entrepreneurship and Creativity

▪ Entrepreneur: An individual who notices opportunities and decides how to mobilize the
resources necessary to produce new and improves goods and services.
▪ Social entrepreneur: An individual who pursues initiatives and opportunities and mobilizes
resources to address social problems and needs in order to improve society and well-being
through creative solutions.
▪ Intrapreneur: A manager, scientist, or researcher who works inside an organization and
notices opportunities to develop new or improved products and better ways to make them.

Intrapreneurship and Organizational Learning

➢ Product Champion: A manager who takes “ownership” of a project and provides the
leadership and vision that take a product from the idea stage to the final customer.
➢ Skunkworks: A group of intrapreneurs who are deliberately separated from the normal
operation of an organization to encourage them devote all their attention to developing
new products.
➢ Rewards for innovation: To encourage managers to bear the uncertainty and risk associated
with the hard work of entrepreneurship; it’s necessary to link performance to rewards.