Making Decisions Chapter Ten Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Organizational Behavior: Key Concepts, Skills & Best Practices, 3/e

10-3 After reading the material in this chapter, you should be able to: Compare and contrast the rational model of decision making and Simon’s normative model. Discuss knowledge management techniques used by companies to increase knowledge sharing. Explain the model of decision-making styles and the stages of the creative process. Summarize the pros and cons of involving groups in the decision-making process. Explain how participative management affects performance. Contrast brainstorming, the nominal group technique, the Delphi technique, and computer-aided decision making.

10-4 Models of Decision Making Decision making – identifying and choosing solutions that lead to a desired result

10-5 Models of Decision Making The Rational Model - logical four-step approach to decision making. Identifying the problem Generating alternative solutions Selecting a solution Implementing and evaluating the solution

10-6 Rational Model Identifying the Problem -Problem – exists when the actual situation and the desired situation differ Generating Solutions -For routine decisions alternatives are readily available through decision rules

10-7 Rational Model Selecting a Solution -Want to maximize the expected utility of an outcome -People vary in their preferences for safety or risk -Ethics should be considered

10-8 Rational Model Selecting a Solution -Evaluating alternatives assume they can be judged according to some criteria -Assumes valid criteria exists -Each alternative can be compared to these criteria -Decision maker actually uses the criteria

10-9 Rational Model Implementing and Evaluating the Solution -After solution is implemented, the evaluation phase is used to evaluate its effectiveness -Optimizing – choosing the best possible solution

10-10 Simon’s Normative Model Decision making is characterized by: 1.Limited information processing 2.Use of judgmental heuristics 3.Satisficing

10-11 Simon’s Normative Model Limited Information Processing Tendency to acquire manageable rather than optimal amounts of information Difficult for managers to identify all possible alternative solutions

10-12 Question? What is a rule of thumb that people use to reduce information processing demands? A.Decision maker B.Judgmental heuristics C.Judgmental verdict D.Decision conclusion

10-13 Simon’s Normative Model Judgmental heuristics - rules of thumb or shortcuts that people use to reduce information processing demands.

10-14 Simon’s Normative Model Availability heuristic - tendency to base decisions on information readily available in memory. Representativeness heuristic - tendency to assess the likelihood of an event occurring based on impressions about similar occurrences.

10-15 Simon’s Normative Model Satisficing - choosing a solution that meets a minimum standard of acceptance

10-16 Dynamics of Decision Making Knowledge management - implementing systems and practices that increase the sharing of knowledge and information throughout an organization Read an article on Knowledge Management

10-17 Knowledge Management Tacit knowledge - information gained through experience that is difficult to express and formalize. Explicit knowledge - information that can be easily put into words and shared with others.

10-18 Decision Making Styles Decision making styles – combination of how individuals perceive and respond to information

10-19 Decision Making Styles Value orientation – reflects the extent to which an individual focuses on either task and technical concerns or people and social concerns when making decisions Tolerance for ambiguity – extent to which a person has a high need for structure or control in his life

10-20 Decision Making Styles Figure 10-1

10-21 Escalation of Commitment Escalation of commitment - sticking to an ineffective course of action too long

10-22 Escalation of Commitment Psychological and Social Determinants 1.Tend to bias facts so that they support previous decisions 2.Take more risks when a decision is stated in negative terms 3.Get too ego-involved with the project

10-23 Escalation of Commitment Organizational Determinants Breakdowns in communication Workplace politics Organizational inertia

10-24 Recommendations To Reduce Escalation of Commitment Set minimum targets for performance, and have decision makers compare their performance with these targets. Have different individuals make the initial and subsequent decisions about a project. Encourage decision makers to become less ego-involved with a project.

10-25 Recommendations To Reduce Escalation of Commitment Provide more frequent feedback about project completion and costs. Reduce the risk or penalties of failure. Make decision makers aware of the costs of persistence.

10-26 Question? What is the process of using imagination to develop a new process? A.Originality B.Innovation C.Creativity D.Resourcefulness

10-27 Creativity Creativity – process of using intelligence, imagination, and skill to develop a new or novel product, object, process, or thought

10-28 Creativity Innovation Killers 1.Short-term focus 2.Lack of time, resources, or staff 3.Leadership expects payoff sooner than is realistic 4.Management incentives are not structured to reward innovation 5.Lack of systematic innovation process 6.Belief that innovation is inherently risky

10-29 Group Involvement Minority dissent – extent to which group members feel comfortable disagreeing with other group members, and a group’s level of participation in decision making

10-30 Advantages and Disadvantages of Group-Aided Decision Making

10-31 Participative Management Participative Management - involving employees in various forms of decision making Setting goals Making decisions Solving problems Making changes in the organization

10-32 Group Problem Solving Techniques Consensus – presenting opinions and gaining agreement to support a decision Brainstorming – process to generate a quantity of ideas

10-33 Rules for Brainstorming 1.Defer judgment 2.Build on the ideas of others 3.Encourage wild ideas 4.Go for quantity over quality 5.Be visual 6.Stay focused on the topic 7.One conversation at a time

10-34 Group Problem Solving Techniques Nominal Group Technique - process to generate ideas and evaluate solutions. Delphi technique - process to generate ideas from physically dispersed experts

10-35 Group Problem Solving Techniques Computer-aided decision making - reduces consensus roadblocks while collecting more information in a shorter period of time

10-36 Computer-aided Decision Making Chauffeur-driven systems ask participants to answer predetermined questions on electronic keypads Group-driven meetings are conducted in special facilities equipped with individual workstations that are networked to each other

10-37 Video: Creative Corp Watch BWTV discuss corporations’ move from a manufacturing economy to a creative economy. (5:44)