McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 05 Decision Making, Learning, Creativity, and Entrepreneurship

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

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

5-4 The Nature of Managerial Decision Making Decision making: 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 Decision Making Programmed decision: Routine, virtually automatic decision making that follows established rules or guidelines Managers have made these decisions many times before Define rules or guidelines to follow based on experience with past decisions Little ambiguity involved

5-6 Decision Making Non-programmed decisions: Nonroutine decision making that occurs in response to unusual, unpredictable opportunities and threats In the absence of decision rules managers may rely on their intuition

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

5-8 Decision Making Intuition Feelings, beliefs, and hunches that come readily to mind Require little effort and information gathering Result in on-the-spot decisions Reasoned judgment Decisions that take time and effort Result from careful information gathering, generation of alternatives, and evaluation of alternatives

5-9 The Classical Model of Decision Making Prescriptive model that assumes the decision maker can identify and evaluate all possible alternatives and their consequences and rationally choose the most appropriate course of action Optimum decision: Most appropriate decision in light of what managers believe to be the most desirable consequences for the organization

5-10 The Classical Model of Decision Making

5-11 The 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

5-12 Figure Why Information Is Incomplete

5-13 Causes of Incomplete Information Risk: Degree of probability that the possible outcomes of a particular course of action will occur Uncertainty: When the probabilities of alternative outcomes cannot be determined and future outcomes are unknown Ambiguous information: Information that can be interpreted in multiple and conflicting ways

5-14 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 Satisficing: Searching for and choosing an acceptable, or satisfactory response to problems and opportunities, rather than trying to make the best decision

5-15 Figure Six Steps in Decision Making

5-16 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

5-17 Decision Making Steps Step 1 - Recognize need for a decision Sparked by stimuli such as changes in the organizational environment Managers who actively pursue opportunities to use these competencies create the need to make decisions

5-18 Decision Making Steps Step 2 - Generate alternatives Managers must develop feasible alternative courses of action Failure to properly generate and consider different alternatives sometimes leads to bad decisions It is hard to develop creative alternative solutions

5-19 Decision Making Steps Step 3 - Assess alternatives Key to a good assessment of the alternatives Define the opportunity or threat exactly Specify the criteria that should influence the selection of alternatives

5-20 Figure General Criteria for Evaluating Possible Courses of Action

5-21 Decision Making Steps Step 4 - Choose among alternatives Rank the various alternatives and make a decision There is a tendency for managers to ignore critical information, even when available

5-22 Decision Making Steps Step 5 - Implement chosen alternative Managers must now implement the selected course of action Implementing the chosen course of action would require making subsequent decisions Managers should take up the responsibility for making the follow-up decisions necessary to achieve the goal

5-23 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

5-24 Group Decision Making Superior to individual decision making Choices less likely to fall victim to bias Able to draw on combined skills, competencies, and accumulated knowledge of group members Improve ability to generate feasible alternatives and make good decisions Allows managers to process more information Probability of the decision being implemented successfully increases

5-25 Group Decision Making Groupthink Pattern of faulty and biased decision making that occurs in groups Members strive for agreement among themselves at the expense of accurately assessing information relevant to a decision Devil’s advocacy: Critical analysis of a preferred alternative to ascertain its strengths and weaknesses before it is implemented

5-26 Diversity Among Decision Makers Promoting diversity improves group decision making Bringing together managers of both genders from various ethnic, national, and functional backgrounds broadens the range of life experiences and opinions

5-27 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

5-28 Organizational Learning and Creativity Organizational learning: Process through which managers seek to improve a employee’s desire and ability to understand and manage the organization and its task environment Creativity: Decision maker’s ability to discover original and novel ideas that lead to feasible alternative courses of action Innovation: Implementation of creative ideas in an organization

5-29 Figure Senge’s Principles for Creating a Learning Organization

5-30 Promoting Individual Creativity Creativity results when employees have an opportunity to experiment, to take risks, and to make mistakes and learn from them Creativity can be fostered by giving constructive feedback and rewarding employees who come up with creative ideas

5-31 Promoting Group Creativity Brainstorming One manager describes in broad outline the problem the group is to address Group members share their ideas and generate alternatives Each alternative is described, and one member records the alternatives on a flip chart Group members are encouraged to be as innovative and radical as possible When all are listed, the pros and cons of each are discussed and a short list created

5-32 Promoting Group Creativity Production blocking: Loss of productivity in brainstorming sessions due to the unstructured nature of brainstorming Nominal group technique: 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

5-33 Promoting Group Creativity Delphi technique: Decision-making technique in which group members do not meet face-to-face but respond in writing to questions posed by the group leader

5-34 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: Individuals who pursue initiatives and opportunities to address social problems and needs in order to improve society and well-being

5-35 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

5-36 Characteristics of Entrepreneurs High on the personality trait of "openness to experience" Are daring and willing to take risks Have an internal locus of control Possess a high level of self-esteem Have a high need for achievement Have a strong desire to perform challenging tasks and meet high personal standards of excellence

5-37 Entrepreneurship and Management Entrepreneurship Noticing an opportunity to satisfy a customer need and then deciding how to find and use resources to make a product that satisfies that need Management Encompasses all the decisions involved in planning, organizing, leading, and controlling resources

5-38 Intrapreneurship and Organizational Learning Intensity of competition from agile and small companies has driven large, established organizations to promote intrapreneurship 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

5-39 Rewards for Innovation Organizations must reward intrapreneurs equitably if they wish to prevent them from leaving and becoming outside entrepreneurs