1. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Decision Making, Learning, Creativity, and Entrepreneurship Chapter Five

2. 5-2 Learning Objectives LO5-1 Understand the nature of managerial decision making, differentiate between programmed and nonprogrammed decisions, and explain why nonprogrammed decision making is a complex, uncertain process. LO5-2 Describe the six steps that managers should take to make the best decisions, and explain how cognitive biases can lead managers to make poor decisions. LO5-3 Identify the advantages and disadvantages of group decision making, and describe techniques that can improve it

3. 5-3 Learning Objectives LO5-4 Explain the role that organizational learning and creativity play in helping managers to improve their decisions. LO5-5 Describe how managers can encourage and promote entrepreneurship to create a learning organization, and differentiate between entrepreneurs and intrapreneurs

4. 5-4 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 action

5. 5-5 Decision Making  Programmed Decision  Routine, virtually automatic decision making that follows established rules or guidelines. Managers have made the same decision many times before There are rules or guidelines to follow based on experience with past decisions Little ambiguity involved

6. 5-6 Decision Making  Non-Programmed Decisions  Nonroutine decision making that occurs in response to unusual, unpredictable opportunities and threats.

7. 5-7 Question? What are feelings, beliefs, and hunches that come readily to mind and require little effort? A. Reasoned Judgment B. Intuition C. Wild Guess D. Scientific Deduction

8. 5-8 Decision Making  Intuition  feelings, beliefs, and hunches that come readily to mind, require little effort and information gathering and result in on-the-spot decisions  Reasoned judgment  decisions that take time and effort to make and result from careful information gathering, generation of alternatives, and evaluation of alternatives

9. 5-9 The Classical Model  Classical Model of Decision Making  A prescriptive model of decision making that assumes the decision maker can identify and evaluate all possible alternatives and their consequences and rationally choose the most appropriate course of action

10. 5-10 The Classical Model of Decision Making Figure 5.1

11. 5-11 The Administrative Model  Administrative Model of Decision Making  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  Bounded rationality, incomplete information

12. 5-12 Why Information Is Incomplete Figure 5.2

13. 5-13 Causes of Incomplete Information  Risk  The degree of probability that the possible outcomes of a particular course of action will occur  Uncertainty  the probabilities of alternative outcomes cannot be determined and future outcomes are unknown

14. 5-14 Causes of Incomplete Information  Ambiguous Information  Information that can be interpreted in multiple and often conflicting ways. Figure 5.3 Young Woman or Old Woman

15. 5-15 Causes of Incomplete Information  Time constraints and information costs  managers have neither the time nor money to search for all possible alternatives and evaluate potential consequences

16. 5-16 Causes of Incomplete Information  Satisficing  Searching for and choosing an acceptable, or satisfactory response to problems and opportunities, rather than trying to make the best decision  Managers search for and choose acceptable, or satisfactory, ways to respond to problems and opportunities rather than trying to make the optimal decision

17. 5-17 Six Steps in Decision Making Figure 5.4

18. 5-18 Discussion Question Which is the most important step in the decision making process? A. Recognize the need for a decision B. Generate Alternatives C. Assess Alternatives D. Choose among Alternatives E. Implement the Chosen Alternative F. Learn from Feedback

19. 5-19 Decision Making Steps Step 1. Recognize Need for a Decision  Sparked by an event such as environment changes.  Managers must first realize that a decision must be made.

20. 5-20 Decision Making Steps Step 2. Generate Alternatives  Managers must develop feasible alternative courses of action  If good alternatives are missed, the resulting decision is poor  It is hard to develop creative alternatives, so managers need to look for new ideas

21. 5-21 Decision Making Steps Step 3. Assess Alternatives  What are the advantages and disadvantages of each alternative?  Managers should specify criteria, then evaluate.

22. 5-22 Figure 5.5 General Criteria for Evaluating Possible Courses of Action

23. 5-23 Decision Making Steps Step 4. Choose Among Alternatives  Rank the various alternatives and make a decision  Tendency is for managers to ignore critical information, even when available

24. 5-24 Decision Making Steps Step 5. Implement Chosen Alternative  Managers must now carry out the alternative  Often a decision is made and not implemented

25. 5-25 Decision Making Steps Step 6. Learn From Feedback  Compare what happened to what was expected to happen  Explore why any expectations for the decision were not met  Derive guidelines that will help in future decision making

26. 5-26 Group Decision Making  Superior to individual making  Choices less likely to fall victim to bias  Able to draw on combined skills of group members  Improve ability to generate feasible alternatives  Allows managers to process more information  Managers affected by decisions agree to cooperate

27. 5-27 Group Decision Making  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 a decision

28. 5-28 Group Decision Making  Devil’s Advocacy  Critical analysis of a preferred alternative, made in response to challenges raised by a group member who, playing the role of devil’s advocate, defends unpopular or opposing alternatives for the sake of argument.

29. 5-29 Organizational Learning and Creativity  Organizational Learning  The process through which managers seek to improve employees’ desire and ability to understand and manage the organization and its task environment.

30. 5-30 Senge’s Principles for Creating a Learning Organization Figure 5.6

31. 5-31 Question? What is a decision maker’s ability to discover original and novel ideas that lead to feasible alternative courses of action? A. Risk B. Decision-making C. Creativity D. Inventiveness

32. 5-32 Organizational Learning and Creativity  Creativity  A decision maker’s ability to discover original and novel ideas that lead to feasible alternative courses of action

33. 5-33 Promoting Group Creativity  Brainstorming  Managers meet face-to-face to generate and debate many alternatives.  Group members are not allowed to evaluate alternatives until all alternatives are listed.  When all are listed, then the pros and cons of each are discussed and a short list created.

34. 5-34 Building Group Creativity  Production blocking  Loss of productivity in brainstorming sessions due to the unstructured nature of brainstorming  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

35. 5-35 Building Group Creativity  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

36. 5-36 Entrepreneurship and Creativity  Entrepreneurs  an individual who notices opportunities and decides how to mobilize the resources necessary to produce new and improved goods and services  Social entrepreneurs  An individual who pursues initiatives and opportunities and mobilizes resources to address social problems and needs in order to improve society and wellbeing through creative solutions.

37. 5-37 Entrepreneurship and Creativity  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

38. 5-38 Entrepreneurship and Creativity  Entrepreneurship  Mobilization of resources to take advantage of an opportunity to provide customers with new and improved goods and services

39. 5-39 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 who is deliberately separated from normal operations to encourage them to devote all their attention to developing new products

40. 5-40 Video: Decisions, Decisions  How important are emotions in making decisions?  You are a shareholder. At the most recent shareholder’s meeting the CEO explained his decision-making process as one where he closely follows Jonah Lehrer’s suggestion to “just go for it”. Do you have more confidence or less confidence in your company leadership.