MO: Topic 3
Chapter Overview
Learning Objectives
Objective 1: Describe the eight steps in the decision-making process and develop skills in creativity.
Objective 2: Explain the three ways managers make decisions.
Objective 3: Classify decisions and decision-making conditions.
Objective 4: Describe techniques for stimulating innovation.
Importance of Decision-Making
Effective decision-making is crucial for success in management and careers.
Definition of Decision: A decision is defined as a choice among two or more alternatives.
The Decision-Making Process
Overview
The decision-making process is relevant for both personal and corporate decisions.
Exhibit 2-1: Illustrates the eight steps involved in the decision-making process.
Steps in the Decision-Making Process
Step 1: Identify a Problem
Definition of Problem: An obstacle that hinders the achievement of a desired goal or purpose.
A decision begins with identifying a problem, which is the discrepancy between the current condition and the desired condition.
Example: Amanda, a sales manager, identifies that her sales representatives need new laptops.
Step 2: Identify the Decision Criteria
Definition of Decision Criteria: Factors that are significant in resolving the identified problem.
Example: Relevant criteria for Amanda's laptop buying decision include memory and storage capabilities, display quality, battery life, warranty, and carrying weight.
Step 3: Allocate Weights to the Criteria
Decision criteria often differ in importance, thus requiring weighting. This prioritizes criteria appropriately.
Example: In Amanda's laptop selection, the criteria weights are shown in Exhibit 2-2.
Step 4: Develop Alternatives
Action: List feasible alternatives that could address the problem.
Example: Amanda identifies eight laptops as potential options, detailed in Exhibit 2-3.
Step 5: Analyze Alternatives
Action: Assess identified alternatives using the criteria determined in Step 2.
Step 6: Select an Alternative
Action: Choose the alternative that offers the highest total score from the analysis in Step 5.
Step 7: Implement the Alternative
Action: Execute the chosen alternative. Communicate the decision to those affected, securing their commitment.
Step 8: Evaluate Decision Effectiveness
Action: Assess the outcome of the decision to determine if the initial problem was resolved.
If not, analyze what went wrong.
Rational Decision-Making
Definition of Rational Decision-Making: Choices that are logical and consistent, aimed at maximizing value.
Assumptions of Rationality Include:
The decision-maker is logical and objective.
The problem is clear and unambiguous.
There is a well-defined goal with awareness of all alternatives and their consequences.
The chosen alternative will maximize success concerning the objective.
Decisions are made in the organization's best interest.
Bounded Rationality
Definition: Decision-making that is rational but bounded by an individual's capability to process information.
Satisficing: Accepting solutions that meet acceptable standards rather than the optimal solution.
Intuition in Decision-Making
Definition of Intuitive Decision-Making: Making decisions based on experience, feelings, and accumulated judgments.
Aspects of Intuition
Exhibit 2.6: Elaborates on five different aspects of intuition identified by research on managers' intuitive decision-making.
Types of Decisions
Structured Problems and Programmed Decisions
Definitions
Structured Problems: Problems that are straightforward, familiar, and clearly defined.
Programmed Decisions: Repetitive decisions that can be addressed through routine methods.
Types of Programmed Decisions
Procedure: A series of sequential steps to address a well-structured problem.
Rule: An explicit statement defining what is permissible or impermissible.
Policy: A guideline for making decisions.
Unstructured Problems and Nonprogrammed Decisions
Definitions
Unstructured Problems: Unique problems that are new or unusual, with ambiguous or incomplete information.
Nonprogrammed Decisions: Unique, infrequent decisions requiring custom solutions.
Differences Between Programmed and Nonprogrammed Decisions
Characteristic Comparison (Exhibit 2-7):
Type of Problem: Structured (Programmed) vs. Unstructured (Nonprogrammed)
Managerial Level: Lower levels (Programmed) vs. Upper levels (Nonprogrammed)
Frequency: Repetitive (Programmed) vs. New and Unusual (Nonprogrammed)
Information: Readily available (Programmed) vs. Ambiguous or Incomplete (Nonprogrammed)
Goals: Clear and Specific (Programmed) vs. Vague (Nonprogrammed)
Time Frame: Short (Programmed) vs. Longer (Nonprogrammed)
Solution Mechanism: Procedures, Rules, Policies (Programmed) vs. Judgment and Creativity (Nonprogrammed)
Decision-Making Conditions
Types of Conditions
Certainty: A setting where a manager can make accurate decisions because all outcomes are known.
Risk: A condition where a decision-maker can estimate the probability of certain outcomes.
Uncertainty: A scenario where the decision-maker lacks certainty or reasonable probability estimates.
Stimulating Innovation
Creativity Definition: The ability to combine ideas uniquely or to create unconventional associations between concepts.
Innovation Definition: The process of transforming creative ideas into practical products, services, or work methods.
Creative Group Decision Making
Business decisions often involve group dynamics, emphasizing the importance of effective group decision-making practices.
Advantages of Group Decision Making
Provides more comprehensive information.
Generates a greater array of alternatives.
Enhances acceptance of solutions.
Increases legitimacy and perception of fairness in decision-making.
Disadvantages of Group Decision Making
Time-consuming process.
Risk of minority domination influencing decisions.
Potential for groupthink, where dissenting opinions are suppressed to maintain consensus.
Ambiguities in responsibility, leading to unclear accountability.
Mitigating Groupthink
Groupthink can lead to poorer quality decision outcomes as evidenced by research studies.
To reduce groupthink:
Foster cohesive groups.
Encourage open discussions to create a safe environment for sharing differing views.
Appoint an impartial leader who actively seeks contributions from all members.
Optimal Group Size
Groups comprised of five to seven members are considered most effective for decision-making.
Strategies to Improve Group Decision Making
Techniques
Brainstorming:
An idea-generating process avoiding criticism while encouraging alternative ideas.
The leader presents the problem, and members suggest alternatives rapidly without judgment.
Nominal Group Technique:
A decision-making method where members operate independently while physically present.
Members write down their potential solutions confidentially, fostering independent thought.
Electronic Meetings:
A variant of the nominal group technique, connecting participants via computer for remote discussions.
Participants share ideas anonymously, contributing to an honest and rapid exchange of information, although lacking the richness of face-to-face communication.
Review Section
Learning Objective 1 Recap
The eight steps in the decision-making process are:
Identify the problem
Identify decision criteria
Weight the criteria
Develop alternatives
Analyze alternatives
Select an alternative
Implement the alternative
Evaluate decision effectiveness
Learning Objective 2 Recap
Three Ways Managers Make Decisions
Rationality: Decisions made with clear goals and defined parameters.
Key assumptions include clarity of the goal, knowledge of alternatives, and maximizing outcomes.
Bounded Rationality: Decisions made within the limits of available information processing capability.
Satisficing: Accepting “good enough” solutions.
Intuitive Decision Making: Based on experience and accumulated judgments.
Involves five identified aspects of intuition.
Learning Objective 3 Recap
Decision Classification
Programmed vs. Nonprogrammed Decisions:
Programmed: Used for routine, familiar problems.
Nonprogrammed: Address unique problems requiring tailored solutions.
Decision-Making Conditions Classification:
Certainty: All outcomes known.
Risk: Outcomes can be estimated.
Uncertainty: Unknown outcomes and no probability assessments available.
Learning Objective 4 Recap
Techniques to stimulate innovation include enhancing creativity and bringing those ideas to fruition.
Terms to Know
Decision
Problem
Decision criteria
Rational decision making
Bounded rationality
Satisfice
Intuitive decision making
Structured problems
Programmed decision
Procedure
Rule
Policy
Unstructured problems
Nonprogrammed decisions
Certainty
Risk
Uncertainty
Brainstorming
Nominal Group
Electronic Meetings