Decision Making and Creativity McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

7-2 Decision Making, Creativity, and Involvement at Chrysler Corp. Fiat and Chrysler CEO Sergio Marchionne encourages better decision making, involvement, and creativity to revitalize Chrysler Corp.

7-3 Decision Making Defined The conscious process of making choices among one or more alternatives with the intention of moving toward some desired state of affairs.

7-4 Rational Choice Paradigm  Rational choice paradigm -- effective decision makers identify, select, and apply the best possible alternative  Two main elements of rational choice 1. Subjective expected utility – determines choice with highest value (maximization) 2. Decision making process – systematic stages of decision making

7-5 Rational Choice Decision-making Process 2. Choose the best decision process Subjective expected utility

7-6 Problem Identification Challenges  Problems/opportunities are constructed from ambiguous information, not “given” to us  Influenced by cognitive and emotional biases  Five problem identification challenges Stakeholder framing Mental models Decisive leadership Solution-focused problems Perceptual defense

7-7 Identifying Problems Effectively 1. Be aware of perceptual and diagnostic limitations 2. Fight against pressure to look decisive 3. Maintain “divine discontent” (aversion to complacency) 4. Discuss the situation with colleagues -- see different perspectives

7-8 more Making Choices: Rational vs OB Observations Goals are ambiguous, conflicting, and lack agreement Goals are clear, compatible, and agreed upon People are able to calculate all alternatives and their outcomes People evaluate all alternatives simultaneously People have limited information processing abilities People evaluate alternatives sequentially Rational Choice Paradigm Assumptions Observations from Organizational Behavior

7-9 Making Choices: Rational vs OB Observations (con’t) People evaluate alternatives against an implicit favorite People use absolute standards to evaluate alternatives People make choices using factual information People choose the alternative with the highest payoff (SEU) People make choices using perceptually distorted information People choose the alternative that is good enough (satisfice) Rational Choice Paradigm Assumptions Observations from Organizational Behavior

7-10 Biased Decision Heuristics People have built-in decision heuristics that bias evaluation of alternatives 1. Anchoring and adjustment – initial information (e.g., opening bid) influences evaluation of subsequent information 2. Availability heuristic – we estimate probabilities by how easy we can recall the event, even though other factors influence ease of recall 3. Representativeness heuristic -- we estimate probabilities by how much they are similar to something else (e.g. stereotypes) even when better info about probabilities is available

7-11 Paralyzed by Choice  Decision makers are less likely to make any decision at all as the number of options increases  Occurs even when there are clear benefits of selecting any alternative (such as joining a company pension plan).  Evidence of human information processing limitations Courtesy of Microsoft

7-12 Emotions and Making Choices 1. Emotions form preferences before we consciously evaluate those choices 2. Moods and emotions influence how well we follow the decision process 3. We ‘listen in’ on our emotions and use that information to make choices

7-13 Intuitive Decision Making  Ability to know when a problem or opportunity exists and select the best course of action without conscious reasoning  Intuition as emotional experience Gut feelings are emotional signals Not all emotional signals are intuition  Intuition as rapid nonconscious analysis Uses action scripts

7-14 Making Choices more Effectively  Systematically evaluate alternatives against relevant factors  Be aware of effects of emotions on decision preferences and evaluation process  Scenario planning

7-15 Problems with Decision Evaluation  Confirmation bias Inflate quality of the selected option; forget or downplay rejected alternatives Caused by need to maintain a positive self- concept  Escalation of commitment Repeating or further investing in an apparently bad decision Caused by self-justification, prospect theory effect, perceptual blinders, closing costs

7-16 Evaluating Decisions More Effectively  Separate decision choosers from evaluators  Establish a preset level to abandon the project  Find sources of systematic and clear feedback  Involve several people in the evaluation process

7-17 Tangible Creativity Alex Beim, founder and chief creative technologist of Tangible Interaction Design in Vancouver, relies on creative thinking to invent enticing interactive displays, such as the zygotes at the Vancouver Olympics.

7-18 Creativity Defined  Developing an original idea that makes a socially recognized contribution  Applies to all aspects of the decision process – problems, alternatives, solutions

7-19 Preparation Incubation Illumination Verification Creative Process Model

7-20 Cognitive and practical intelligence Persistence Subject knowledge/expe rience Independent imagination Characteristics of Creative People Independent imagination includes: Higher openness to experience personality Lower need for affiliation motivation Higher self- direction/stimulation values Characteristics of Creative People

7-21 Creative Work Environments  Learning orientation Encourage experimentation Tolerate mistakes  Intrinsically motivating work Task significance, autonomy, feedback  Open communication and sufficient resources  Unclear/complex effects of team competition and time pressure on creativity

7-22 Creative Activities Review abandoned projectsReview abandoned projects Explore issue with other peopleExplore issue with other people Redefine the Problem Storytelling Storytelling Artistic activitiesArtistic activities Morphological analysisMorphological analysis Associative Play Diverse teams Diverse teams Information sessionsInformation sessions Internal tradeshowsInternal tradeshows Cross- Pollination

7-23 Employee Involvement at Yabulu Employee involvement was a key factor in skyrocketing productivity at the Yabulu nickel and cobalt refinery in northern Queensland, Australia. “We have given power to the people, and it is working,” says refinery general manager Trefor Flood (in photo).

7-24 Employee Involvement Defined The degree to which employees influence how their work is organized and carried out Various levels and forms of involvement

7-25 Employee Involvement Model Potential Involvement Outcomes Contingencies of Involvement Employee Involvement Better problem identification Synergy produces more/better solutions Better at selecting the best choice Higher decision commitment

7-26 Contingencies of Involvement Knowledge Source Decision Commitment Employees have relevant knowledge beyond leader Employees would lack commitment unless involved Risk of Conflict 1.Norms support firm’s goals 2.Employee agreement likely Decision Structure Problem is new & complex (i.e nonprogrammed decision) Higher employee involvement is better when:

Decision Making and Creativity The following exhibit on subjective expected utility (SEU) is not presented in the book

7-28 Subjective Expected Utility Estimating the best possible alternative (maximization) Expected -- probability of an outcome occurring  e.g., Chance that outcome 3 will occur is 90% if choice ‘A’ is chosen, 30% if choice ‘B’ is chosen Utility -- Value or happiness produced by each option from value of expected outcomes  Choice ‘B’ has higher utility (value) than choice ‘A’  Choice ‘B’ expected utility is (.8x7)+(.2x-2)+(.3x1)=6.4 Choice B Outcome 1 (+7) Outcome 2 (-2) Outcome 3 (+1) Choice A Outcome 1 (+7) Outcome 2 (-2) Outcome 3 (+1) Utility (expected happiness) Probability of outcome occurring

Solutions to Creativity Brainbusters

7-30 Double Circle Problem

7-31 Nine Dot Problem

7-32 Nine Dot Problem Revisited

7-33 Word Search FCIRVEEALTETITVEERS

7-34 Burning Ropes One Hour to Burn Completely After first rope burned i.e. 30 min.