Creative Problem Solving and Decision Making Copyright © 2011 Cengage Learning. All rights reserved.

Learning Outcomes After studying this chapter, you should be able to: Explain the relationship among objectives, problem solving, and decision making. Explain the relationship among the management functions, problem solving, and decision making. List the six steps in the decision-making model. Describe the differences between programmed and nonprogrammed decisions and among the conditions of certainty, uncertainty, and risk. Describe when to use the rational decision-making model versus the bounded rationality model and group versus individual decision making. State the difference between an objective and “must” and “want” criteria. Copyright © 2011 Cengage Learning. All rights reserved.

Learning Outcomes (cont’d) After studying this chapter, you should be able to: State the difference between innovation and creativity. List and explain the three stages in the creative process. Describe the differences among quantitative techniques, the Kepner-Tregoe method, and cost-benefit analysis for analyzing and selecting an alternative. Define the key terms listed at the end of the chapter. Copyright © 2011 Cengage Learning. All rights reserved.

IDEAS ON MANAGEMENT at Nike What type of decision did Nike make to sign a large endorsement contract with young, then-unproven NBA basketball player LeBron James in 2003? What objectives does Nike meet through its star athlete endorsements? How does Nike demonstrate creativity and innovation? Does the amount of contracts given to young, unproven athletes pose a serious financial risk to Nike? Which techniques could Nike use to analyze the alternatives in contract decisions? Of what unethical and socially irresponsible labor practices have critics accused Nike? What sustainable business practices does Nike use? Which version of Vroom’s participative decision-making model should Nike have used to make the decision to sign young, unproven athletes to contracts? Copyright © 2011 Cengage Learning. All rights reserved.

The Relationship among Objectives, Problem Solving, and Decision Making Exists whenever objectives are not being met. What is happening vs. what is wanted to happen. Problem Solving The process of taking corrective action to meet objectives. Decision Making The process of selecting a course of action that will solve a problem. First decision: whether or not to take corrective action. Copyright © 2011 Cengage Learning. All rights reserved.

Problem Solving and Decision Making The Relationship among the Management Functions, Decision Making, and Problem Solving Managers need to make proficient decisions while performing the functions of management. Copyright © 2011 Cengage Learning. All rights reserved.

Decision-Making Styles Reflexive Style Makes quick decisions without taking the time to get all the information that may be needed and without considering all the alternatives. Reflective Style Takes plenty of time to make decisions, gathering considerable information and analyzing several alternatives. Consistent Style Tends to make decisions without either rushing or wasting time. Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 3–1 ● The Decision-Making Model Copyright © 2011 Cengage Learning. All rights reserved.

Copyright © 2011 Cengage Learning. All rights reserved.

Decision Making in the Global Village U.S.-based decision-making styles are different from the decision-making styles in other cultures due to differences in: Time orientation The use of participative decision making Orientation toward problem solving rather than acceptance of the status quo Copyright © 2011 Cengage Learning. All rights reserved.

Classify and Define the Problem Decision Structure Programmed Decisions Arise in recurring or routine situations, for which the decision maker should use decision rules or organizational policies and procedures to make the decision. Nonprogrammed Decisions Arise in significant and nonrecurring and nonroutine situations, for which the decision maker should use the decision-making model. Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 3–2 ● Decision Structure Continuum Copyright © 2011 Cengage Learning. All rights reserved.

Decision-Making Conditions Certainty Each alternative’s outcome is known in advance. Risk Probabilities can be assigned to each outcome. Uncertainty Lack of information or knowledge makes the outcome of each alternative unpredictable such that no probabilities can be determined. Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 3–3 ● Continuum of Decision-Making Conditions Copyright © 2011 Cengage Learning. All rights reserved.

Copyright © 2011 Cengage Learning. All rights reserved.

Decision-Making Models Rational Model (Classical Model) The decision maker attempts to use optimizing— selecting the best possible alternative. Bounded Rationality Model The decision maker uses satisficing—selecting the first alternative that meets the minimal criteria for solving the problem. Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 3–4 ● Potential Advantages and Disadvantages of Using Group Decision Making Copyright © 2011 Cengage Learning. All rights reserved.

Define the Problem Distinguish Symptoms from the Cause of the Problem List the observable and describable occurrences (symptoms) that indicate a problem exists. Determine the cause of the problem. Removing the cause should cause the symptoms to disappear or cease. Symptom: Customer dissatisfaction Cause: Poorly trained employees Solution: Implement customer relations training program for employees Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 3–5 ● Continua for Classifying a Problem Copyright © 2011 Cengage Learning. All rights reserved.

Set Objectives and Criteria Setting Objectives Involves establishing clear objectives that will make for better decisions. Objectives state what the decisions should accomplish in solving a problem or taking advantage of an opportunity. Setting Criteria Involves setting standards that an alternative must meet to be selected as the decision that will accomplish the objective. Copyright © 2011 Cengage Learning. All rights reserved.

Join the Discussion Ethics & Social Responsibility Avoiding Taxes Although it is legal, is it ethical for AT&T, Wal-Mart, and other corporations to take advantage of tax loopholes to save money? If you became CEO of one of these corporations, would you continue to take advantage of the tax loopholes? Why or why not? What is the government’s role and responsibility regarding tax loopholes? Copyright © 2011 Cengage Learning. All rights reserved.

Generate Creative Alternatives Innovation The implementation of a new idea. Product innovation (new things) Process innovation (new way of doing things) Creativity A way of thinking that generates new ideas. The Creative Process Preparation Incubation and illumination Evaluation Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 3–6 ● Stages in the Creative Process Copyright © 2011 Cengage Learning. All rights reserved.

Generating Creative Alternatives Brainstorming The process of suggesting many possible alternatives without evaluation. Synectics The process of generating novel alternatives through role playing and fantasizing. Nominal Grouping The process of generating and evaluating alternatives using a structured voting method that includes listing, recording, clarification, ranking, discussion, and voting to select an alternative. Copyright © 2011 Cengage Learning. All rights reserved.

Generating Creative Alternatives (cont’d) Consensus Mapping (Ringi) The process of developing group agreement on a solution to a problem. Delphi Technique The process of using a series of confidential questionnaires to refine a solution. Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 3–7 ● Group Decision-Making Techniques That Foster Creativity and Innovation Copyright © 2011 Cengage Learning. All rights reserved.

Responses That Kill Creativity “It can’t be done.” “We’ve never done it.” “Has anyone else tried it?” “It won’t work in our department (company/industry).” “It costs too much.” “It isn’t in the budget.” “Let’s form a committee.” Copyright © 2011 Cengage Learning. All rights reserved.

Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 3–8 ● Decision Tree Copyright © 2011 Cengage Learning. All rights reserved.

Analyze Alternatives and Select the Most Feasible Quantitative Techniques Break-even analysis Capital budgeting Payback Average rate of return Discounted cash flow Linear programming Queuing theory Probability theory Copyright © 2011 Cengage Learning. All rights reserved.

Copyright © 2011 Cengage Learning. All rights reserved.

The Kepner-Tregoe Method Assess each alternative with regard to the “must” criteria. Rate the importance of each “want” criterion on a scale of 1 to 10 (10 is the most important). Determine how well each alternative meets the “want” criterion. Compute the weighted score (WS) for each alternative on each criterion. Select the alternative with the highest total weighted score. Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 3–9 ● The Kepner-Tregoe Method for Analyzing Alternatives *Indicates importance [on a scale of 10 (high) to 1 (low)] assigned to each criterion as a weight. Copyright © 2011 Cengage Learning. All rights reserved.

Cost-Benefit (Pros and Cons) Analysis Cost-Benefit Analysis A technique for comparing the cost and benefit of each alternative course of action using subjective intuition and judgment along with math. Pros and Cons Analysis A technique for identifying the advantages, which can be considered the benefits, and the disadvantages, which can be considered the costs, of each alternative. Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 3–10 ● Continuum of Analysis Techniques Copyright © 2011 Cengage Learning. All rights reserved.

Join the Discussion Ethics & Social Responsibility Selling Stocks Is it ethical for the company to pay a higher commission on some stocks? Is it ethical for you to recommend a stock that you don’t believe is the best stock even though you will earn a higher commission if you do? What would you do if you didn’t sell the stock and your boss had a meeting with you to encourage you to sell the stock? Copyright © 2011 Cengage Learning. All rights reserved.

Plan, Implement the Decision, and Control Develop a plan of action and a schedule of implementation. Implement the Plan Communicate and delegate for direct action. Control Use checkpoints to determine whether the alternative is solving the problem. Avoid escalation of commitment to a bad alternative. Copyright © 2011 Cengage Learning. All rights reserved.

Vroom’s Participative Decision-Making Model Developed by Victor Vroom A tool that managers can use to answer questions while improving decision-making effectiveness. Does not take the place of the decision-making model; it tells you when to use a group and what level of participation you should use with the decision- making model. Copyright © 2011 Cengage Learning. All rights reserved.

Participation Decision Styles Decide Consult Group Facilitate Delegate Consult Individuals Copyright © 2011 Cengage Learning. All rights reserved.

Questions that Determine the Appropriate Participative Decision Style Decision Significance Leader Expertise Group Support for Objectives Group Expertise Team Competence Likelihood of Commitment Importance of Commitment Diagnostic Variables Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 3–11 ● Participative Decision-Making Model The model is a decision tree that works like a funnel. Define the problem statement; then move from left to right and answer each question by responding either high (H) or low (L), skipping decisions that are not appropriate to the situation and avoiding crossing any horizontal lines. The last column indicates the appropriate leadership decision-making style for that situation. Time-Driven Model Copyright © 2011 Cengage Learning. All rights reserved.

Development-Driven Model Exhibit 3–11 ● Participative Decision-Making Model (cont’d) Development-Driven Model Copyright © 2011 Cengage Learning. All rights reserved.

Time-Driven versus Development-Driven Model Making effective decisions through maximum development of group members Making effective decisions with minimum cost Focus Emphasizes group development Emphasizes timely decision making Value Has a long-term horizon, as group development takes time Has a short-term time horizon Orientation Copyright © 2011 Cengage Learning. All rights reserved.

Copyright © 2011 Cengage Learning. All rights reserved.

KEY TERMS brainstorming consensus mapping creative process creativity criteria decision making decision-making conditions decision-making model devil’s advocate approach innovation nominal grouping nonprogrammed decisions participative decision- making model problem problem solving programmed decisions synectics Copyright © 2011 Cengage Learning. All rights reserved.