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

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

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

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

Decision Making Decision Making Programmed Decision –Routine, virtually automatic decision making that follows established rules or guidelines.

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

5-7 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

Knowledge Check What are feelings, beliefs, and hunches that come readily to mind and require little effort? Reasoned Judgment *Intuition Wild Guess Scientific Deduction

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

5-10 The Classical Model of Decision Making Figure 5.1

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

5-12 Why Information Is Incomplete Figure 5.2

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

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

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

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

5-17 Six Steps in Decision Making Figure 5.4

Knowledge Check When an organization's accounting department decides to send out a bill to a new customer, this represents a(n) ________________ decision. *programmed nonprogrammed intuitive groupthink bounded rationality

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.

Decision Making Steps Step 2. Generate Alternatives Managers must develop feasible alternative courses of action

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

5-22 Figure 5.5 General Criteria for Evaluating Possible Courses of Action Make sure that the alternative does not threaten other organizational goals.

Decision Making Steps Step 4. Choose Among Alternatives Rank the various alternatives and make a decision

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

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

5-26 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

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

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.

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.

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

Knowledge Check A manager considers a limited sample of the potential alternative solutions for a problem and selects one that is acceptable instead of attempting to select the optimum solution. This type of decision is called: programmed intuition certainty *satisficing heuristics

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

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.

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

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

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.

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

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

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

Web Page GarageTek is mentioned in your textbook as an example of good decision making and entrepreneurship. Click on the link below to peruse the company web site. organization.aspx The Business of Cleaning the Garage: GarageTek on CNBC's Sqawkbox.