Supervision in Organizations Chapter 7 Solving Problems & Making Decisions

Learning Outcomes After reading this chapter, I will be able to: Describe the steps in the decision-making process. Explain the four types of decision styles. Identify and explain the common decision-making errors. Compare and contrast group decision making and individual decision making. List and describe three techniques for improving group decision making. Explain three different ethical viewpoints.

Decision-making Decision-making process Problem Decision criteria A set of seven steps that includes identifying a problem, selecting a solution, and evaluating the effectiveness of the solution Problem A discrepancy between an existing and a desired state of affairs Decision criteria Factors that are relevant in a decision Decision making is a process rather than a simple act of choosing among alternatives. The decision-making process consists of eight steps which starts with identifying the problem, moves through selecting an alternative that can alleviate the problem, and concludes with evaluating the decision’s effectiveness

Examples of Planning-Function Decisions What are the organization’s long-term objectives? What strategies will best achieve those objectives? What should the organization’s short-term objectives be? What is the most efficient means of completing tasks? What might the competition be considering? What budgets are needed to complete department tasks? How difficult should individual goals be? Exhibit 4.1

The Decision-Making Process The decision-making process begins when a problem is identified (step 1). Problem identification can be challenging. Most problems do not come with neon identification signs. Furthermore, the manager who identifies and solves the wrong problem is no better than the manager who identifies a problem and does nothing. Making a comparison between their current state of affairs and some standard, such as past performance or previously set goals, helps managers identify problems in the workplace.

Step 1: Identifying the Problem “A discrepancy between an existing and a desired state of affairs” (p. 186) Ask the question, Why? Determine the reason Separating the symptoms from problems Example: A physician must identify reasons for a fever. Once the cause is identified, the problem has been determined

Step 2: Collect Relevant Information Gather facts & information relevant to the problem: Ask questions: When did the problem start appearing? Why is appearing now? What are the affects of the problem? What are the costs associated with the problem?

Step 3: Develop Alternatives Generate a full range of alternatives for solving the problem Creativity is critical The more alternatives generated, the greater likelihood the best choice is among the possibilities

Step 4: Evaluate Each Alternative Evaluation of all the strengths and weaknesses of each alternative Guard against biases Estimate the cost of each alternative Estimate the implementation time of each alternative Identify the strengths and weaknesses of each alternative Approximate the expected outcome of each alternative Favorable & Unfavorable

Step 5: Select the Best Alternative Selection of the best alternative will depend on: Comprehensiveness and accuracy of information gathered Creativeness of alternatives Quality of analysis

Step 6: Implement the Decision Establish a plan: When will the decision be implemented? Who will be involved? What will be involved? What changes will take place? How will they occur? Convey the decision to those affected Assign responsibilities Allocate necessary resources Identify and clarify deadlines Get commitment from those involved in the implementation

Step 7: Follow Up & Evaluate Continually monitor outcomes Did your choice accomplish the desired result? Did it correct the identified problem

Decision Tools Supervisors face three possible conditions when making decisions: Certainty The implication that the outcome of every possible alternative is known. Risk The probability that a particular outcome will result from a given decision. Must rely on personal experiences, secondary information, and historical data. Uncertainty A condition under which there is not full knowledge of the problem and reasonable probabilities for alternative outcomes cannot be determined.

Decision Tools What is the Expected Value Analysis? “A procedure that permits decision makers to place monetary value on various consequences likely to result from the selection of a particular course of action” (p. 190)

Decision Tools cont… How are Decision Trees Helpful? Decision Tree “A diagram that analyzes hiring, marketing, investment, equipment purchases Encompass expected value analysis by assigning probabilities to each possible outcome and calculating payoffs for each decision path

Decision Tools cont… Marginal Analysis: “A decision method that helps decision makers optimize returns or minimize costs by dealing with the additional cost in a particular decision, than the average cost” (p. 192) Example: Taking on a new customer What additional revenue would be generated by the new customer What additional costs would be generated by the new customer If the increased revenue exceeds the increased costs, total profits would be increased by accepting the new customer

Decision Making: Styles Directive style Characterizes the low tolerance for ambiguity and a rational way of thinking of individuals who are logical and efficient and typically make fast decisions that focus on the short term. Analytic style Characterizes the high tolerance for ambiguity combined with a rational way of thinking of individuals who prefer to have complete information before making a decision. Careful decision makers with the ability to adapt or cope with new situations Example: Supervisors, business students, & top executives Personality and individual differences affect our decisions. Two of these variables are particularly relevant to organizational decisions: the individual’s decision-making style and level of moral development. The decision-styles model above identifies four approaches to decision making. The model illustrates that people differ along two dimensions: in their thinking styles (some are logical and rational, others intuitive and creative); in their tolerance for ambiguity. People using the directive style dislike ambiguity and prefer rationality. Those using the analytic style confront ambiguity by demanding more alternatives.

Decision Making: Styles (cont’d) Conceptual style Individuals who tend to be very broad in outlook, to look at many alternatives, and to focus on the long run and often look for creative solutions. Behavioral style Individuals who think intuitively but have a low tolerance for uncertainty; they work well with others, are open to suggestions, and are concerned about the individuals who work for them. Individuals using the conceptual style consider the “big picture” and seek multiple alternative. Those using a behavioral style work well with others and are receptive to suggestions.

Decision-Making Styles

Common Decision-making Errors Heuristics: Using judgmental shortcuts Availability heuristic The tendency to base judgments on information that is readily available. Representative heuristic The tendency to base judgments of probability on things (objects or events) that are familiar Example: Not hiring certain types of people based upon previous performance of similar person Escalation of commitment (Blackjack Strategy) An increased commitment to a previous decision despite negative information about the decision’s present outcomes. To cope with information overload, we rely on two heuristics, or judgmental shortcuts, when we make decisions: availability and representativeness. Both types create biases in a decision maker’s judgment. Another bias is the tendency to escalate commitment to a failing course of action. Availability Heuristic. Using the availability heuristic, people tend to base their judgments on information that is readily available. Representative Heuristic. People often assess the likelihood of an occurrence by drawing analogies and seeing identical situations where they do not exist. Escalation of Commitment. In spite of negative feedback, some managers escalate commitment to a failing enterprise, “throw good money after bad,” if they believe that they are responsible for the failure. They do so to avoid admitting they made a poor decision and to appear behaviorally consistent. In contrast, effective managers differentiate between situations where persistence will or will not pay off.

How Do Problems Differ? Well-structured problems Straightforward, familiar, easily defined problems (use programmed decision to solve) Ill-structured problems New problems in which information is ambiguous or incomplete (hire consultants to solve problem) Programmed decision A repetitive decision that can be handled by a routine approach Nonprogrammed decisions Decisions that must be custom-made to solve unique and nonrecurring problems New laws New organizational/departmental strategy Well-structured problems are straightforward, familiar, and easily defined. In contrast, ill-structured (poorly structured) problems are so new that pertinent information is either ambiguous or incomplete. Repetitive, programmed decisions that can be handled routinely are the most efficient way to handle well-structured problems. Programmed decisions rely heavily on previous solutions. In many cases, such decisions are made according to some systematic procedure, rule, or policy. When problems are ill-structured, however, managers must develop unique solutions by using nonprogrammed decision making techniques. Such decisions are unique and nonrecurring. When a manager confronts an ill-structured problem, there is no cut-and-dried solution. A custom-made, nonprogrammed response is needed.

Group Decision Making Advantages Disadvantages Make more accurate decisions Provides more complete information Offers a greater diversity of experiences and perspectives Generates more alternatives Increases acceptance of a solution Increases the legitimacy of a decision. Disadvantages Is more time-consuming and less efficient Minority domination can influence decision process Increased pressures to conform to the group’s mindset (groupthink) Ambiguous responsibility for the outcomes of decisions There are several advantages to group decision making. Group decisions provide more complete information than do individual ones. A group will bring a diversity of experience and perspectives to the decision process that an individual, acting alone, cannot. Groups also generate more alternatives, because of a greater quantity and diversity of information. Group decision making increases acceptance of a solution. If those who will be affected by a solution and who must implement it can participate in making it, they will be more likely to accept the solution. Since group decision-making is consistent with democratic ideals, decisions made by groups are perceived as being more legitimate than decisions made by a single person. There are several disadvantages to group decision making. Group decisions are time consuming, and groups almost always take more time to make a decision than an individual would take. There may also be minority group domination, because group members will differ in many ways: for example, status in the organization, experience, verbal skills, or assertiveness. A minority group that dominates the group decision-making process will have an undue influence on the final decision. Another problem focuses on the pressures to conform in groups. This pressure can result in groupthink—group members withhold deviant, minority, or unpopular views in order to give the appearance of agreement . Finally, there is ambiguous responsibility. Since group members share responsibility, who is actually responsible for the final outcome?

When Are Groups Most Effective? Creativity Groups tend to be more creative than individuals. Acceptance of the final solution Groups help increase the acceptance of decisions. Effectiveness of group decision making Groups of five to seven members are optimal for decision process speed and quality.

Improving Group Decision Making Brainstorming An idea-generating process that encourages alternatives while withholding criticism. Nominal group technique A decision-making technique in which group members are physically present but operate independently. Electronic meeting A type of nominal group technique in which participants are linked by computer. Group decision making can be improved by using the following techniques: brainstorming, nominal groups, and electronic meetings. To overcome conformity pressures that can stifle creative problem solving, managers can use brainstorming: an idea-generating process that specifically encourages all alternatives by withholding any criticism of those alternatives. The nominal group technique requires that group members must be present during the meeting, but they must operate independently. This technique obtains input from all group members but it does not restrict independent thinking. An electronic meeting is a type of nominal group technique in which participants are linked by computer. Electronic meetings have several advantages: anonymity, honesty, and speed. But, several drawbacks also exist: those who type well outshine those who are eloquent but lack keyboarding skills; those with the best ideas do not get credit for them; and the process lacks the informational richness of face-to-face communication. But, this technology is in its infancy. For example, real-time video conferencing is reinventing electronic meetings.

Ethics and Business Ethics Code of ethics A set of rules or principles that defines right and wrong conduct Code of ethics A formal document that states an organization’s primary values and the ethical rules it expects managers and operatives to follow

Three Views of Ethics Utilitarian view of ethics Rights view of ethics Making decisions solely on the basis of their outcomes or consequences. “Providing the greatest good for the greatest number” Rights view of ethics Respecting and protecting individual liberties and privileges “Decision consistent with Bill of Rights” Theory of justice view of ethics Fairly and impartially imposing and enforcing rules. “Union – pay is equal, seniority decides layoff, etc… Behaviors that were once considered reprehensible (lying, misrepresenting, covering up mistakes) have become, for many, either acceptable or necessary practices. Concern over this decline in ethical standards is being addressed at two levels: 1. Ethics education is being widely expanded in college curriculums 2. Organizations are creating codes of ethics and introducing ethics training programs. Ethics commonly refers to the rules or principles that define right and wrong conduct. However, one’s definition of ethical conduct will be influenced by how he or she views the concept of ethics. An individual who has a utilitarian view of ethics will make decisions solely on the basis of their outcomes or consequences. The person who espouses a rights view of ethics will respect and protect individual liberties and privileges. One who upholds the theory of justice view of ethics will impose rules fairly and impartially. A number of factors will determine whether a manager acts ethically or not: for example, the individual’s values, morality, personality, and experiences; the organization’s culture; and the issue that is being questioned. In most situations which involve questions of ethics, ambiguity can be a problem for managers. A code of ethics can reduce ambiguity. Such a code is a formal document that states an organization’s primary values and the ethical rules it expects managers and operatives to follow.