Chapter Ten Making Decisions McGraw-Hill/Irwin Copyright © 2010 The McGraw-Hill Companies, Inc. All rights reserved.

After reading the material in this chapter, you should be able to: Compare and contrast the rational model of decision making, Simon’s normative model, and the garbage can model Identify common decision-making biases. Discuss knowledge management techniques used by companies to increase knowledge sharing. Describe the model of decision-making styles, the role of intuition in decision-making and the stages of the creative process. Summarize the pros and cons of involving groups in the decision-making process. Contrast brainstorming, the nominal group technique, the Delphi technique, and computer-aided decision making.

Models of Decision Making identifying and choosing solutions that lead to a desired result

Models of Decision Making The Rational Model proposes that managers use a logical four-step approach to decision making. Identifying the problem Generating alternative solutions Selecting a solution Implementing and evaluating the solution

Rational Model Identifying the Problem Generating Solutions Problem – exists when the actual situation and the desired situation differ Generating Solutions For routine decisions alternatives are readily available through decision rules

Methods for Identifying Problems Assume the recent past is the best estimate of the future Use projections or scenarios Rely on the perceptions of others

Rational Model Selecting a Solution Want to maximize the expected utility of an outcome People vary in their preferences for safety or risk Ethics should be considered

Rational Model Selecting a Solution Evaluating alternatives assume they can be judged according to some criteria Assumes valid criteria exists Each alternative can be compared to these criteria Decision maker actually uses the criteria

Rational Model Implementing and Evaluating the Solution After solution is implemented, the evaluation phase is used to evaluate its effectiveness Optimizing – choosing the best possible solution

Question? Gloria is never happy with "good enough" solutions. She is determined to find the best possible solution in solving her problems. What Gloria is doing is described as Optimizing Brainstorming Rationalizing Satisfying The correct answer is “A” – Optimizing. AACSB:  Group-individual dynamics Bloom's Taxonomy:  Application Difficulty:  Hard Page:  252

Nonrational Models of Decision Making decision models that explain how decisions are actually made Decision making is uncertain Decision makers do not possess complete information Difficult for managers to make optimal decisions

Simon’s Normative Model Bounded rationality constraints that restrict rational decision making Satisficing choosing a solution that meets a minimum standard of acceptance

Simon’s Normative Model Most frequent causes of poor decision making Poorly defined processes and practices Unclear company vision, mission, and goals Unwillingness of leaders to take responsibility Lack of reliable, timely information

Garbage Can Model Garbage Can Model decision making is sloppy and haphazard decisions result from complex interaction of four streams of events: problems, solutions, participants and choice opportunities

Implications of the Garbage Can Model Many decisions are made by oversight Political motives frequently influence decision makers Decision making process is difficult to load Important decisions are more likely to be solved

Decision-Making Biases Judgmental heuristics rules of thumb or shortcuts that people use to reduce information processing demands.

Decision-Making Biases Availability heuristic Representativeness heuristic Confirmation bias Anchoring bias Overconfidence bias Hindsight bias Framing bias Escalation bias Availability heuristic - tendency to base decisions on information readily available in memory. Representativeness heuristic - tendency to assess the likelihood of an event occurring based on impressions about similar occurrences.

Question? From January to October, Jamie's work performance was at best mediocre. In November and December, he significantly picked up his performance and did an excellent job. His supervisor evaluated him as outstanding performer. This can be explained partially due to the Escalation of commitment effect. Representativeness heuristic Nominal group effect. Availability heuristic. The correct answer is “D” – availability heuristic. AACSB:  Group-individual dynamics Bloom's Taxonomy:  Application Difficulty:  Hard Page:  252

Dynamics of Decision Making Knowledge management implementing systems and practices that increase the sharing of knowledge and information throughout an organization Read an article on Knowledge Management

Knowledge Management Tacit knowledge Explicit knowledge information gained through experience that is difficult to express and formalize. Explicit knowledge information that can be easily put into words and shared with others.

Question? Mike has been a top salesman for 20+ years. He has developed a reputation as one who can close a deal, but has been unable to teach new trainees how to be as successful. This is called ________ knowledge. Implicit Explicit Tacit Unstated The correct answer is “C” – tacit. See previous slide.

General Decision Making Styles Value orientation reflects the extent to which an individual focuses on either task and technical concerns or people and social concerns when making decisions Tolerance for ambiguity extent to which a person has a high need for structure or control in his life Decision making styles – combination of how individuals perceive and respond to information

Decision Making Styles Figure 10-1

Intuition in Decision Making a capacity for attaining direct knowledge without the apparent intrusion of rational thought or logical interference

A Model of Intuition Holistic hunch Automated experiences judgment that is based on a subconscious integration of information stored in memory Automated experiences choice based on a familiar situation and a partially subconscious application of previously learned information related to that situation

A Model of Intuition Figure 10-2

Creativity Creativity process of using intelligence, imagination, and skill to develop a new or novel product, object, process, or thought

Question? Dominick has a low tolerance for ambiguity and is generally oriented towards task and technical concerns when making decisions. Dominick can be described as having which decision-making style? Directive Analytical Conceptual Behavioral The correct answer is “A” AACSB:  Group-individual dynamics Bloom's Taxonomy:  Application Difficulty:  Medium Page:  254

Group Involvement Minority dissent extent to which group members feel comfortable disagreeing with other group members, and a group’s level of participation in decision making

Advantages and Disadvantages of Group-Aided Decision Making

Question? Jeanie has many good ideas for her work group, but is unwilling to bring them up for group consideration. She is more concerned about conforming to group norms and not “rocking the boat”. This is due to ___________. Different perspectives Social pressure Groupthink Increased acceptance The correct answer is “B” – social pressure. See previous slide

Group Problem Solving Techniques Consensus presenting opinions and gaining agreement to support a decision Brainstorming process to generate a quantity of ideas

Rules for Brainstorming Defer judgment Build on the ideas of others Encourage wild ideas Go for quantity over quality Be visual Stay focused on the topic One conversation at a time

Group Problem Solving Techniques Nominal Group Technique process to generate ideas and evaluate solutions. Delphi technique process to generate ideas from physically dispersed experts

Question? Dana has project employees working in New York, South Carolina, Texas, and California. She wants to get them together as a group to discuss ways to improve the work process. She will probably use ___________. Delphi technique Nominal group technique Garbage can technique Ostensible group technique The correct answer is “A” – Delphi technique.

Group Problem Solving Techniques Computer-aided decision making reduces consensus roadblocks while collecting more information in a shorter period of time

Computer-aided Decision Making Chauffeur-driven systems ask participants to answer predetermined questions on electronic keypads Group-driven meetings conducted in special facilities equipped with individual workstations that are networked to each other

Supplemental Slides Slides 40-45 contain extra non-text examples to integrate and enhance instructor lectures Slide 40-41: Making Tough Calls Slide 42: Garbage Can Model of Organizational Decision-Making Slide 43: Decision Making Pitfalls Slide 44-45: Video discussion slides

Making Tough Calls Jim Collins – studied the inner workings of organizations to understand how they became great People decisions are most important Making the right choices on who to can adapt to a changing environment has more long term impact than decisions about strategy. Taken from Fortune, June 27th, 2005 “Jim Collins on Tough Calls” Jim Collins is the author of Good to Great. He describes organizations who have moved into greatness and examines how they got there. This interview focused on his take on decision making and leadership. Jim Collin’s responses to answers about decision-making processes: People decisions are most important Making the right choices on who to can adapt to a changing environment has more long term impact than decisions about strategy.

Making Tough Calls Once good people are in place, how do you make good decisions? Strive for conflict, challenging assumptions and ways of thinking Consensus is not necessary Once an issue has been debated the leader needs to make the decision Having the right people in place means they’ll get behind a decision even if there is still some disagreement Taken from Fortune, June 27th, 2005 “Jim Collins on Tough Calls” Once good people are in place, how do you make good decisions? Strive for conflict, challenging assumptions and ways of thinking Consensus is not necessary Once an issue has been debated the leader needs to make the decision Having the right people in place means they’ll get behind a decision even if there is still some disagreement

Garbage Can Model of Organizational Decision-Making Problems Solutions Participants Choice opportunities Problems Solutions Participants Choice opportunities Notes: Topic Covered: Organizational Decision-Making Garbage Can Model Holds that decision making is sloppy and hazardous. According to the Garbage Can Model, decisions result from a complex interaction between four independent streams of event: problems, solutions, participants, and choice opportunities. A similar type of process occurs in your kitchen garbage can: we randomly discard our trash and it gets mashed together based on chance interactions. The garbage can model assumes that the decision maker does not follow an orderly set of events but instead attractive solutions get matched up with whatever handy problems exist at a given point I time or people get assigned to projects because their work load is low at that moment. Streams of Events Problems represent a gap between an actual situation and a desired condition. Problems are independent from alternatives and solutions. The problem may or may not lead to a solution Solutions are answers looking for questions. They represent ideas constantly flowing through the organization. Solutions are used to formulate problems rather than vice versa. Predicted to occur because managers often do not know what they want until they have some idea of what they can get Participants are the organizational members who come and go throughout the organization. They bring different values, attitudes, and experiences to a decision-making situation. Time pressures limit the extent to which participants are involved in decision making. Choice opportunities occasion where an organization is expected to make a decision. While some opportunities such as hiring and promoting employees occur regularly, others do not because they result from some type of crisis or unique situation. Interactions among the Streams of Events Because of the independent nature of streams of events, they interact in a random fashion. This implies that decision making is more a function of chance encounters than a rational process. Thus the organization is a “garbage can” in which problems, solutions, participants, and choice opportunities are all mixed together. Only when the four streams happen to connect (such as point A in the slide above) is a decision made. Because these connections randomly occur among countless combinations of streams of events, decision quality generally depends on timing. Good decisions are made when these streams of events interact at the proper time. Why some problems do not necessarily relate to solutions (point B) and why solutions do not always solve problems. Source: R Kreitner and A Kinicki Organizational Behavior 5th ed. (Burr Ridge, IL: Irwin/McGraw-Hill, 2001) pp. 345-346 Problems Solutions Participants Choice opportunities B

Decision Making Pitfalls Pitfall: Analysis paralysis Device: the 70% solution Pitfall: Sunk-cost syndrome Device: Burn the boat Pitfall: Yes-man echoes Device: Voice questions, not opinions Taken from Fortune, June 27, 2005 Great Escapes, by Michael Useem and Jerry Useem Pitfall: Analysis paralysis Device: the 70% solution You’ll never have perfect information needed to make a decision. If you have 70% o the information , have done 760% of the analysis and feel 70% confident, then move. A less than ideal action stands a chance of success whereas no action stands no chance. Pitfall: Sunk-cost syndrome Device: Burn the boat It is hard to rip apart something you’ve build or created but sometimes you need to do just that to stay on the competitive edge. “Ford used to tell his assembly staff that they should be ready to revise any system, scrap any method and abandon any theory if the success of the job demands it. He didn’t live up to his own advice when presented with a new design to succeed his Model T. Because he didn’t act swiftly, General Motors had stolen his lead.” Pitfall: Yes-man echoes Device: Voice questions, not opinions As a leader of a group or person with authority you can affect others decision and thought process by infusing your opinions. Leaders who want to ensure well-thought out decisions are made voice questions to their team rather than opinions.

Video: Leadership: Making Decisions During Hurricane Katrina What roadblocks to using a rational decision making model were placed before the Sister’s in this case? Could anything have been done to make their decisions easier? Identify how intuition and creativity helped the Sisters in the decisions they had to make. Without the ability to communicate or have the resources they normally had at their disposal, what did the Sister’s rely on in making the decisions they needed to make? Why was timely decision making so essential in this case? The list of roadblocks set before the Sisters of Holy Angels are virtually endless. The primary issues they had to face was a lack of time to investigate options. With an impending natural disasters, life and death decisions had to made and made effectively. Other issues they faced included a lack of information (both through present-time communication as well as the loss of records of all types). In this instance, given the nature of the situation there is likely not much that could have been to remove those roadblocks - no one knew the storm would hit the area the way it did. Intuition and creativity were two of the major resources the Sisters did have at their disposal. A great example of intuition is shown through the story told by Sylvia Thibodeaux - she just “knew” the Superdome facility was not going to be safe and decided to force the situation and move on… Creativity can be seen in all of the stories told in this case in that the Sisters were forced to come up with decision options to very unfamiliar situations. The Sister’s relied on the “resources within” to make it through this experience. These resources would primarily be intuition, creativity and tenacity. Timely decision making was essential in this case because there was an impending life-threatening natural disaster. Not making decisions quickly could result in life-threatening peril. The decisions being made in this case not only needed to be timely, but needed to be well informed (as best as possible) and accurate.

Video Case: Columbia Space Shuttle Disaster What has seemed to be the major problem facing NASA? Apply your knowledge of group dynamics to identify the problem. What must NASA accomplish to ensure the vitality of the space program? Has groupthink accounted for some of NASA’s problems? If so, what symptoms can you identify? What challenges has NASA faced in changing its culture? How can many different groups be brought together to work toward a common goal? One of the major problems facing NASA is a corporate culture that discourages voicing dissenting opinions or safety related information. A drastic change in corporate culture is necessary to ensure the vitality of the program. Groupthink has certainly accounted for some of these problems. Groupthink occurs when members of a cohesive group strive for unanimity and allow this goal to override their motivation to realistically appraise alternative courses of actions. Symptoms of groupthink evident at NASA include self-censorship (which stifles critical debate) and the illusion of unanimity whereby silence is interpreted to mean consent. Peer pressure (where loyalty of dissenters is questioned) may also be a factor. The inclusion of group problem-solving techniques such as the nominal group technique or the Delphi technique may help change the decision-making process.