1. Making Decisions in Organizations
Chapter Ten
Making Decisions in Organizations

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Decision-Making
Chester Barnard (1938): The Functions of the Executive defines DM as ‘… largely techniques for narrowing choice.’
Herbert Simon (1960): The New Science of Management Decisions indicates 3 phases of DM
Intelligence: identify the problem
Design: develop and analyze course of action
Choice: select a course of action
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3. The Decision-Making Process
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Cultural Differences
Recognizing problems
Preference for decision-making unit
Who makes the decisions?
Time taken to make decisions
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5. Organizational Decisions
Programmed vs. Nonprogrammed
Certain vs. Uncertain
Top-down vs. Empowered
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6. Programmed versus Nonprogrammed
Programmed decisions are routine decisions, made by lower-level personnel, that rely on predetermined courses of action
Nonprogrammed decisions are decisions for which there are no ready-made solutions. The decision maker confronts a unique situation in which the solutions are novel
Strategic decisions are nonprogrammed decisions that have important long-term implications for the organization and are made by coalitions of high-level executives
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7. Examples of Strategic Decisions
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8. Certain versus Uncertain
Usually expressed as statements of risk
What makes an outcome risky is the probability of obtaining the desired outcome
Objective probabilities are based on concrete, verifiable data
Subjective probabilities are based on personal beliefs or hunches
To make the best possible decisions in organizations, people seek to “manage” the risks they take
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9. Top-down versus Empowered
Top-down decision-making puts the power to make decisions in the hands of managers, leaving lower-level workers with little or no opportunity to make decisions
Empowered decision-making allows employees to make the decisions required to do their jobs without seeking supervisory approval
More likely to lead to effective decisions
Helps build commitment to decisions
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10. Decision-Making Approaches
The Rational-Economic Model
The Administrative Model
Image Theory
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11. The Rational-Economic Model
Rational Decisions: Decisions that maximize the attainment of individual, group, or organizational goals
Rational-Economic Model: The model of decision making according to which decision makers consider all possible alternatives to problems before selecting the optimal solution: MC=MR, EVA, MVA, ABC
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12. The Administrative Model (Simon’s Bounded Rationality Model)
A model of decision making that recognizes that decision makers may have a limited view of the problems confronting them
Satisficing Decisions: Decisions made by selecting the first acceptable alternative as it becomes available
Bounded Rationality: The idea that people lack the cognitive skills required to formulate and solve highly complex business problems in a completely objective, rational way (use rule of thumb)
Bounded Discretion: The tendency to limit decision alternatives to those that fall within the bounds of current moral and ethical standards
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13. Characteristics of Decisions
Decision makers have a limited view of the problems confronting them
Bounded rationality
Decision makers consider solutions as they become available
Satisficing
Decision makers face time constraints
Decision makers are sensitive to political “face saving” pressure
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The Social Model
A model of decision making that recognizes that decision makers are influenced by social processes
Asch: Provides evidence of human irrationality
Staw: Escalation of commitment
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15. Escalation of Commitment
The tendency for individuals to continue to support previously unsuccessful courses of action because they have sunk costs invested in them
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Image Theory
A theory of decision making that recognizes that decisions are made in an automatic, intuitive fashion based on actions that best fit their personal standards, goals, and plans for the future
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17. Biases in Decision Making
Framing effects refers to the tendency for people to make different decisions based on how a problem is presented to them
Positive framing tends to make decision makers risk averse
Negative framing tends to make decision makers risk seeking
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18. Biases in Decision Making
Heuristics are simple rules that are used to guide the decision maker through a complex array of decision alternatives
Availability heuristic: The tendency for people to base their judgments on information that is readily available to them, although it may be inaccurate (more words begin with R or more words with third letter R?)
Representativeness heuristic: The tendency to perceive others in stereotypical ways if they appear to be typical representatives of the category to which they belong (most likely: BBBBBBBB, BBBBGGGG, BGBBGGGB)
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19. Participative Decision-Making Plans
The Scanlon Plan: committees of labor and management trying to solve problems, rewards for ideas are divided equally
Suggestion boxes
Quality circles: small groups of volunteers to solve problems
Self-managed teams
Brainstorming: used for creative problem-solving
Encourage all to participate: diversity and conflict
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20. Group vs. Individual Decisions
Advantages of group decision making
Pooling of resources
Specialization of labor
Greater decision acceptance
Disadvantages of group decision making
Wasted time
Group conflict
Intimidation by group leaders
Conclusion: neither groups nor individuals are always superior
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21. Group vs. Individual Decisions
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22. Group vs. Individual DM Process
Social Decision Schemes (Davis, 1973)
Majority wins
Truth wins
2/3 majority wins (juries)
Minority influence (Moskovici)
Consistent
Support from one other person in group
Group Valence Model (Hoffman, 1979): Solution to problem with highest group valence is adopted
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Groupthink (Janis, 1971)
When members of a group develop a very strong group spirit – high levels of cohesiveness – they sometimes become so concerned about not disrupting the like-mindedness of the group that they may be reluctant to challenge the group’s decisions
When this happens, group members tend to isolate themselves from outside information, and the process of critical thinking deteriorates
‘Not Invented Here’ syndrome.
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24. Group Polarization (Risky Shift)
People believe they are more extreme than other group members: more fair, more liberal, etc.
When they discover they are not the extreme, they shift
Resulting from:
Persuasive arguments
Social comparison
Diffusion of responsibility
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Avoiding Groupthink
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26. Improving Group Decision Making
The Stepladder Technique
The Delphi Technique
The Nominal Group Technique
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Stepladder Technique
A technique for improving the quality of group decisions that minimizes the tendency for group members to be unwilling to present their ideas by adding new members to a group one at a time and requiring each to present his or her ideas independently to a group that already has discussed the problem at hand
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28. Effectiveness of Stepladder Technique
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Delphi Technique
A systematic way of collecting and organizing the opinions of several experts into a single decision
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30. Nominal Group Technique
A technique for improving group decisions in which small groups of individuals systematically present and discuss their ideas before privately voting on their preferred solution. The most preferred solution is accepted as the group’s decision
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31. Computer-Based Approaches
Electronic Meeting Systems: Involve holding teleconferences in which individuals in different locations participate in group conferences by means of telephone lines or direct satellite transmissions
Computer-Assisted Communication: The sharing of information, such as text messages and data relevant to the decision, over computer networks
Group Decision Support Systems (GDSS): Interactive computer-based systems that combine communication, computer, and decision technologies to improve the effectiveness of group problem-solving meetings
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