Decision Making, Learning, Creativity, and Entrepreneurship
Chapter 5: Decision Making, Learning, Creativity, and Entrepreneurship
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.
Types of Decision Making
Programmed Decision Making
Defined as routine and virtually automatic decision making that follows established rules or guidelines.
Characteristics:
Managers have made the same decision many times before.
There are established rules or guidelines based on experiences with past decisions.
Nonprogrammed Decisions
Defined as nonroutine decision making that occurs in response to unusual, unpredictable opportunities and threats.
Intuition
Defined as feelings, beliefs, and hunches that come readily to mind; these require little effort and information gathering.
Often results in on-the-spot decisions.
Reasoned Judgment
Defined as decisions that take time and effort to make; they result from careful information gathering, generation of alternatives, and evaluation of alternatives.
Decision-Making Models
The Classical Model
Classical Decision-Making Model: A prescriptive model assuming the decision maker can identify and evaluate all possible alternatives and their consequences, thereby rationally choosing the most appropriate course of action.
Optimum Decision: The most appropriate decision made in light of what managers believe to be the most desirable consequences for the organization.
Steps in the Classical Model:
List all possible alternative courses of action and their consequences.
Assume all information about alternatives is available to managers.
Rank each alternative from least preferred to most preferred based on personal preferences.
Assume managers possess the mental capacity to process the gathered information.
Select the alternative that leads to desired future consequences, presuming managers know the best future course of action for the organization.
The Administrative Model
Administrative Model: An approach to decision making that acknowledges the uncertainty and risk inherent in decision making and explains why managers often opt for satisfactory rather than optimum decisions.
Bounded Rationality
Defined as cognitive limitations that restrict one's ability to interpret, process, and act on information; managers do not possess all necessary information to make an optimal decision.
Incomplete Information
Defined as the situation where the full range of decision-making alternatives is unknowable and the consequences of those alternatives are uncertain.
Causes of Incomplete Information
Risk: The degree of probability that certain outcomes will occur for a particular course of action.
Uncertainty: The scenario where the probabilities of alternative outcomes cannot be determined, leading to unknown future outcomes.
Ambiguous Information: Information that can be interpreted in multiple, often conflicting ways.
Time Constraints and Information Costs: Managers may lack the time or resources to seek out all possible alternatives and evaluate potential consequences effectively.
Satisficing
Defined as a strategy of searching for and choosing an acceptable response to problems and opportunities, rather than trying to make the best decision. Managers prioritize acceptable or satisfactory responses over optimal decisions.
Steps in the Decision-Making Process
Recognize the need for a decision.
Generate alternatives.
Assess alternatives.
Choose among alternatives.
Implement the chosen alternative.
Learn from feedback.
General Criteria for Evaluating Possible Courses of Action
Questions to consider:
Is the possible course of action:
Economical?
Practical?
Group Decision Making
Advantages over individual decision-making:
Less likely to fall victim to bias.
Able to utilize the combined skills of group members.
Improves the capacity to generate feasible alternatives.
Allows managers to process more information.
Facilitates cooperation amongst affected managers.
Groupthink
Defined as a pattern of faulty and biased decision making that arises in groups whose members prioritize agreement at the expense of accurately assessing information relevant to a decision.
Devil’s Advocacy
Defined as a critical analysis of a preferred alternative enacted by a group member who defends unpopular or dissenting alternatives for the sake of argument.
Diversity among Decision Makers
Diverse groups are less prone to groupthink due to existing differences among members, reducing uniformity pressures.
Organizational Learning and Creativity
Organizational Learning
Defined as the process through which managers strive to enhance employees' capacity to understand and manage their organization and tasks.
Learning Organization
Defined as an organization where managers maximize individual and group abilities to think creatively and increase the potential for organizational learning.
Characteristics:
Holds a shared vision.
Discards old ways of thinking.
Views the organization as a relationship system.
Communicates openly.
Collaborates to achieve shared vision.
Learning Types
Single-Loop Learning: Corrects errors by using past routines.
Double-Loop Learning: Corrects errors by modifying routines and underlying policies.
Additional Characteristics of a Learning Organization
Structures emphasize teamwork and information sharing.
Information systems enable rapid knowledge acquisition and sharing for competitive advantage.
Human resources reinforce new skills and knowledge.
Organizational culture promotes innovation.
Leaders model openness and willingness to experiment while articulating a strong vision.
Senge's Principles for Creating a Learning Organization
Develop personal mastery.
Build complex, challenging mental models.
Promote team learning.
Build shared vision.
Encourage systems thinking.
Creativity
Defined as a decision maker’s ability to discover original and novel ideas leading to feasible alternative courses of action.
Promoting Individual Creativity
Conditions enhancing individual creativity include:
Opportunity and freedom to generate new ideas.
Chance to experiment and learn from mistakes.
No punishment for radical ideas.
Constructive feedback.
Promoting Group Creativity
Brainstorming
Group members meet in person to generate and debate various alternatives.
Members must list alternatives without evaluation during the brainstorming phase.
Encourages innovative and radical thinking.
Pros and cons of each alternative are discussed afterward before narrowing down.
Production Blocking
Defined as a loss of productivity in brainstorming sessions due to their unstructured nature.
Nominal Group Technique
A decision-making technique wherein members write down ideas, share them with the group, and rank the alternatives after discussion.
Delphi Technique
A decision-making technique where group members respond in writing to questions posed by the group leader without face-to-face interaction.
Entrepreneurship and Creativity
Entrepreneur
Defined as an individual who recognizes opportunities and organizes the resources necessary to produce new and improved goods and services.
Social Entrepreneur
Defined as an individual who pursues initiatives to address social problems through creative solutions, aiming to improve societal well-being.
Intrapreneur
Defined as a manager, scientist, or researcher who works within an organization, identifying opportunities for developing new or improved products and processes.
Entrepreneurship
Defined as the mobilization of resources to seize opportunities that provide customers with new and improved goods and services.
Intrapreneurship and Organizational Learning
Product Champion
Defined as a manager who takes ownership of a project, providing leadership and vision from idea to customer delivery.
Skunkworks
Defined as a group intentionally separated from normal operations to focus solely on developing new products.
Are You Solving The Right Problems? (Thomas Wedell-Wedellsborg)
The Issue
Misallocating resources toward the wrong problem.
Why It Happens
Misidentifying the root cause of problems, such as the "slow elevator problem."
Principles for Effective Reframing
Establish legitimacy.
Incorporate outsiders in discussions.
Seek boundary spanners.
Include participants who will speak their mind.
Anticipate inputs rather than solutions.
Document people's definitions in writing.
Question what might be missing.
Consider multiple categories.
Analyze positive exceptions.
Challenge the objective.