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Copyright 2007 Prentice Hall

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1 Copyright 2007 Prentice Hall
Organizational Theory, Design, and Change Fifth Edition Gareth R. Jones Chapter 12 Decision Making, Learning, Knowledge Management, and Information Technology Copyright 2007 Prentice Hall

2 Copyright 2007 Prentice Hall
Learning Objectives Differentiate between several models or decision making that describe how managers make decisions Describe the nature of organizational learning and the different levels at which learning occurs Explain how organizations can use knowledge management and information technology to promote organizational learning to improve the quality of their decision making Copyright 2007 Prentice Hall

3 Learning Objectives (cont.)
Identify the factors, such as the operation of cognitive biases, that reduce the level of organizational learning and result in poor decision making Discuss some techniques that managers can use to overcome these cognitive biases and thus open the organization up to new learning Copyright 2007 Prentice Hall

4 Organizational Decision Making
Organizational decision making: the process of responding to a problem by searching for and selecting a solution or course of action that will create value for organizational stakeholders Programmed decisions: decisions that are repetitive and routine Nonprogrammed decisions: decisions that are novel and unstructured Copyright 2007 Prentice Hall

5 Models of Organizational Decision Making
The rational model: decision making is a straightforward, three-stage process Stage 1: Identify problems that need to be solved Stage 2: Design and develop a list of alternative solutions and courses of action to the problems Stage 3: Compare likely consequences of each alternative and decide which course of action offers the best solution Copyright 2007 Prentice Hall

6 Figure 12-1: The Rational Model of Decision Making
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7 Models of Organizational Decision Making (cont.)
The rational model (cont.) Underlying assumptions Decision makers have all the information they need Decision makers are smart Decision makers agree about what needs to be done Copyright 2007 Prentice Hall

8 Models of Organizational Decision Making (cont.)
The rational model (cont.) Criticisms of the assumptions Information and uncertainty: the assumption that managers are aware of all alternative courses of action and their consequences is unrealistic Managerial abilities: managers have only a limited ability to process the information required to make decisions Preferences and values: assumption about agreement among managers regarding organizational goals and rules for selecting alternatives is untrue Copyright 2007 Prentice Hall

9 Copyright 2007 Prentice Hall
The Carnegie Model Introduces a new set of more realistic assumptions about the decision-making process Satisficing: limited information searches to identify problems and alternative solutions Bounded rationality: a limited capacity to process information Organizational coalitions: solution chosen is a result of compromise, bargaining, and accommodation between coalitions Copyright 2007 Prentice Hall

10 Table 12-1: Differences Between the Rational and Carnegie Models
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11 Models of Organizational Decision Making (cont.)
The incrementalist model: managers select alternative courses of action that are only slightly, or incrementally, different from those used in the past Perceived to lessen the chances of making a mistake Called the science of “muddling through” Tries to explain how organizations improved their programmed decisions over time Copyright 2007 Prentice Hall

12 Models of Organizational Decision Making (cont.)
The unstructured model: describes how decision making takes place in environments of high uncertainty Unstructured model recognizes uncertainty in the environment Managers rethink their alternatives when they hit a roadblock Decision making is not a linear, sequential process Tries to explain how organizations make nonprogrammed decisions Copyright 2007 Prentice Hall

13 Models of Organizational Decision Making (cont.)
The garbage can model: a view of decision making that takes the unstructured process to the extreme Decision makers may propose solutions to problems that do not exist Create decision making opportunities that they can solve with ready-made solutions Different coalitions may champion different alternatives Decision making becomes a “garbage can” in which problems, solutions and people all mix and contend for organizational action Selection of an alternative depends on which person’s or group’s definition of the current situation holds sway Copyright 2007 Prentice Hall

14 The Nature of Organizational Learning
Organizational learning: the process through which managers seek to improve organization members’ desire and ability to understand and manage the organization and its environment Creates an organizational capacity to respond effectively to the changing business environment Copyright 2007 Prentice Hall

15 The Nature of Organizational Learning (cont.)
Types of organizational learning Exploration: organizational members search for and experiment with new kinds or forms of organizational activities and procedures Exploitation: organizational members learn ways to refine and improve existing organizational activities and procedures Learning organization: an organization that purposefully designs and constructs its structure, culture, and strategy so as to enhance and maximize the potential for organizational learning to take place Copyright 2007 Prentice Hall

16 The Nature of Organizational Learning (cont.)
Levels of organizational learning Individual-level learning: managers need to facilitate the learning of new skills, norms, and values so that individuals can increase their own personal skills and abilities Employees develop a sense of personal mastery Group-level learning: managers need to encourage learning by promoting the use of various kinds of groups so that individuals can share or pool their skills and abilities Allows for the creation of synergism Copyright 2007 Prentice Hall

17 The Nature of Organizational Learning (cont.)
Levels of organizational learning (cont.) Organizational-level learning: managers can promote organizational learning through the way they create an organization’s structure and culture Adaptive cultures: value innovation and encourage and reward experimentation and risk-taking by middle and lower level managers Inert cultures: are cautious and conservative, and do not encourage risk-taking by middle and lower level managers Copyright 2007 Prentice Hall

18 The Nature of Organizational Learning (cont.)
Levels of organizational learning (cont.) Organizations can improve their effectiveness by copying and imitating each others’ distinctive competences Encourages explorative and exploitative learning by cooperating with suppliers and distributors to discover new ways to handle inputs and outputs Systems thinking: argues that in order to create a learning organization, managers must recognize the effects of one level of learning on another Copyright 2007 Prentice Hall

19 Figure 12-2: Levels of Organizational Learning
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20 Knowledge Management and Informational Technology
Knowledge management: a type of IT-enabled organizational relationship that has important implications for both organizational learning and decision making Involves sharing and integrating of expertise within and between functions and divisions through real-time, interconnected IT Copyright 2007 Prentice Hall

21 Knowledge Management (cont.)
Codification approach: knowledge is carefully collected, analyzed, and stored in databases where it can be retrieved easily by users who input organization-specific commands and keywords Suitable for standardized product or service Personalization approach: IT designed to identify who in the organization might possess the information required for a custom job More reliance on know-how, insight and judgment to make decisions Copyright 2007 Prentice Hall

22 Factors Affecting Organizational Learning
Managers may develop rules and standard operating procedures to facilitate programmed decision making Past success with SOPs inhibits learning Cognitive structure: system of interrelated beliefs, preferences, expectations, and values that predetermine responses to and interpretations of situations Copyright 2007 Prentice Hall

23 Factors Affecting Organizational Learning (cont.)
Types of cognitive biases Cognitive biases: systematically bias cognitive structures to cause misperception and misinterpretation of information, thereby affecting organizational learning and decision making Cognitive dissonance: state of discomfort or anxiety experienced when there is an inconsistency between one’s beliefs and actions Decision makers try to make decisions that are consistent with their attitudes and self images Copyright 2007 Prentice Hall

24 Factors Affecting Organizational Learning (cont.)
Types of cognitive biases (cont.) Illusion of control: causes managers to overestimate the extent to which the outcomes of an action are under their personal control Frequency: deceives people into assuming that extreme instances of a phenomenon are more prevalent than they really are Representativeness: leads managers to form judgments based on small and unrepresentative samples Copyright 2007 Prentice Hall

25 Factors Affecting Organizational Learning (cont.)
Types of cognitive biases (cont.) Projection: allows managers to justify and reinforce their own preferences and values by attributing them to others Ego-defensiveness: leads managers to interpret events in such a way that their actions appear in the most favorable light Escalation of commitment: leads managers to remain committed to a losing course of action and refuse to admit that they have made a mistake Copyright 2007 Prentice Hall

26 Figure 12-3: Cognitive Biases
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27 Improving Decision Making and Learning
Strategies for organizational learning Cause managers to continuously unlearn old ideas and confront errors in their beliefs and perceptions Listening to dissenters Converting events into learning opportunities Experimenting Copyright 2007 Prentice Hall

28 Improving Decision Making and Learning (cont.)
Game theory: tool to help managers improve decision making and enhance learning Interactions between organizations are viewed as a competitive game Two basic types of game Sequential move game: players move in turn, and one player can select a strategy to pursue after considering its rival’s choice of strategies Simultaneous move game: the players act at the same time, in ignorance of their rival’s current actions Useful for organizations competing against a limited number of rivals that are highly interdependent Copyright 2007 Prentice Hall

29 Figure 12-4: Decision Tree for UPS’s Pricing Strategy
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30 Improving Decision Making and Learning (cont.)
Nature of the top-management team The way the top-management is constructed and the type of people who are on it affect organizational learning Learning occurs when there is heterogeneity Groupthink: the conformity that emerges when like-minded people reinforce one another’s tendencies to interpret events and information in similar ways Copyright 2007 Prentice Hall

31 Figure 12-5: Types of Top-Management Teams
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32 Improving Decision Making and Learning (cont.)
Persuasive communication: information that is framed or “packaged” in a way that influences other people to accept or believe in it Useful when one party lacks any authority to influence the other party Message persuasiveness determined by: Credibility of the sender Active listening Message content Method of communication Characteristics of the receiver Copyright 2007 Prentice Hall

33 Improving Decision Making and Learning (cont.)
Devil’s advocate: a person who is responsible for critiquing ongoing organizational learning A method for overcoming cognitive biases and promoting organizational learning by institutionalizing dissent Dialectical inquiry: Teams of decision makers generate and evaluate alternative scenarios and provide recommendations Copyright 2007 Prentice Hall

34 Improving Decision Making and Learning (cont.)
Collateral organizational structure: an informal organization of managers that is set up parallel to the formal organization structure to “shadow” the decision making and actions of managers in the formal organization Allows an organization to maintain its capacity for change at the same time that if maintains its stability Copyright 2007 Prentice Hall

35 Figure 12-6: Dialectical/Devil’s Advocacy vs. Rational Model
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