© 2011 Cengage Learning. All rights reserved. Chapter 10 Decision Making by Individuals & Groups Learning Outcomes

© 2011 Cengage Learning. All rights reserved. Types of Decisions Programmed Decision a simple, routine matter for which a manager has an established decision rule Nonprogrammed Decision a new, complex decision that requires a creative solution

Recognize the problem and the need for a decision Gather and evaluate data and diagnose the situation Identify the objective of the decision List and evaluate alternatives Decision Making Process © 2011 Cengage Learning. All rights reserved.

Select the best course of action Gather feedback Implement the decision Follow up Decision Making Process © 2011 Cengage Learning. All rights reserved.

9-5 Problem or Symptom? Mary’s performance is declining Mary is unmotivated Mary does not have the training required to do the job Mary is being sexually harassed by John

© 2011 Cengage Learning. All rights reserved. Models of Decision Making Effective Decision a timely decision that meets a desired objective and is acceptable to those individuals affected by it

1. The outcome will be completely rational 2. The decision maker uses a consistent system of preferences to choose the best alternative 3. The decision maker is aware of all alternatives 4. The decision maker can calculate the probability of success for each alternative Rational Model © 2011 Cengage Learning. All rights reserved. Strives to optimize, but optimization is rarely realistic

© 2011 Cengage Learning. All rights reserved. Bounded Rationality a theory that suggests that there are constraints that force a decision maker to be less than completely rational

1.Managers select the first alternative that is satisfactory 2.Managers recognize that their conception of the world is simple 3.Managers are comfortable making decisions without determining all the alternatives 4.Managers make decisions by rules of thumb or heuristics Bounded Rationality Model © 2011 Cengage Learning. All rights reserved.

Assumes that managers satisfice – select the first alternative that is “good enough” Assumes that managers develop heuristics, short cuts, to make decisions in order to make decisions to save mental activity. Bounded Rationality Model © 2011 Cengage Learning. All rights reserved.

Escalation of Commitment the tendency to continue to commit resources to a failing course of action

© 2011 Cengage Learning. All rights reserved. Escalation of Commitment Why it occurs –people dislike inconsistency –overly optimistic –illusion of control –sunk costs How to deal with it –split responsibility for decisions –closely monitor decision makers –provide individuals with a graceful exit –have groups make the initial decision

© 2011 Cengage Learning. All rights reserved. Risk Aversion the tendency to choose options that entail fewer risks and less uncertainty

© 2011 Cengage Learning. All rights reserved. Risk and the Manager Many decisions involve some element of risk. Individuals differ in terms of risk aversion. Risk aversion is determined by individual tendencies and organizational factors. To encourage risk taking, must view failure as “enlightened trial and error.”

© 2011 Cengage Learning. All rights reserved. Influences on Decision Making Intuition – fast, positive force in decision making utilized at a level below consciousness, involves learned patterns of information Creativity – a process influenced by individual and organizational factors that results in the production of novel and useful ideas, products, or both

© 2011 Cengage Learning. All rights reserved. Influences on Creativity Individual: –Cognitive Processes Divergent Thinking Associational Abilities Unconscious Processes –Personality Factors breadth of interests high energy self-confidence Organizational: –Flexible organization structure –Participative decision making –Quality, supportive relationships with supervisors Creative performance is highest when there is a match or fit between the individual and organizational influences.

Group Decision Making 1. more knowledge through pooling of group resources 2. increased acceptance and commitment due to voice in decisions 3. greater understanding due to involvement in decision stages Advantages 1. pressure in groups to conform 2. domination by one forceful member or dominant clique 3. amount of time required, because group is slower than individual to make a decision Disadvantages © 2011 Cengage Learning. All rights reserved.

Limits of Group Decision Making Groupthink – a deterioration of mental efficiency, reality testing, and moral judgment resulting from in-group pressures Group Polarization – the tendency for group discussion to produce shifts toward more extreme attitudes among members

© 2011 Cengage Learning. All rights reserved.9-19 Antecedents of Groupthink High cohesiveness Directive leadership High stress Insulation of the group Lack of methodological procedures for developing and evaluating alternatives Consequential decisions Time constraints

© 2011 Cengage Learning. All rights reserved. Symptoms of Groupthink Illusions of invulnerability: members feel above criticism Illusions of unanimity: members believe there is unanimous agreement. Silence is misconstrued as consent Rationalization: viable alternatives not considered, unwillingness to reconsider assumptions Self-censorship: members do not express doubts or concerns for fear of effect of dissent on cohesion Illusions of group morality: members believe they are above reproach

© 2011 Cengage Learning. All rights reserved. Symptoms of Groupthink (cont.) Stereotyping the enemy: Competitors are stereotyped as evil or stupid. This leads the group to underestimate its opposition. Peer pressure: Any members who express doubts or concerns are pressured by other group members to question their loyalty. Mindguards: some members of the group take it upon themselves to protect the group from negative feedback. Group members are thus shielded from information that might lead them to question their actions

© 2011 Cengage Learning. All rights reserved. Preventing Groupthink Ask each group member to act as critical evaluator Have the leader avoid stating his opinion prior to the group decision Create several groups to work simultaneously Appoint a devil’s advocate Evaluate the competition carefully After consensus, encourage rethinking the position From Janis, Irving L., Groupthink: Psychological Studies of Policy Decisions and Fiascoes, Second Edition. Copyright © 1982 by Houghton Mifflin Company.

Refer to the article about pre-war intelligence and look at conclusions #3 and #5. What is the significance that formalized IC mechanisms established to challenge assumptions and group think were not utilized? © 2011 Cengage Learning. All rights reserved.

9-24 Techniques for Group Decision Making Brainstorming –A technique for generating as many ideas as possible on a given subject, while suspending evaluation until all the ideas have been suggested. Nominal Group Technique (NGT) –A structured approach to group decision making that focuses on generating alternatives and choosing one.

© 2011 Cengage Learning. All rights reserved.9-25 Techniques for Group Decision Making (contd.) Delphi Technique –Gathering the judgments of experts for use in decision making. Devil’s Advocacy –A technique for preventing groupthink in which a group or an individual is given the role of critic during decision making. Dialectical Inquiry –A debate between two opposing sets of recommendations.

© 2011 Cengage Learning. All rights reserved. Special Decision-Making Groups Quality circles – small groups that meet voluntarily to address work-related problems. Quality teams – a team that is part of an organization, empowered to act on its decisions regarding quality Self-managed teams – more broadly focused than above two types

© 2011 Cengage Learning. All rights reserved. Participative Decision Making Occurs when individuals who are affected by decisions influence decision-making Supportive organizational culture Team-oriented work design People must be psychologically equipped Motivation to act autonomously Employees must be able to see benefit Organizational Foundation Individual Foundation