ChapterChapter NineNine D ECISION MAKING IN ORGANIZATIONS

1.Identify the steps in the analytical model of decision making. 2.Distinguish programmed from nonprogrammed decisions, certain from uncertain decisions, and top- down from empowered decisions. 3.Distinguish the various individual decision styles. 4.Describe the trade-offs involved in group vs. individual decision making. 5.Identify the various organizational and cultural factors that influence the decision-making process. 6.Distinguish between three approaches to decision making: the rational-economic model, the administrative model, and image theory. 7.Identify the various types of framing effects and heuristics that potentially limit the effectiveness of decisions. 8.Describe how the bias toward implicit favorites and the escalation of commitment lead to imperfect decisions. 9.Compare the conditions in which groups make superior decisions with those in which individuals make superior decisions. 10. Describe the various techniques for enhancing the quality of individual as well as group decisions. After reading this chapter you should be able to:

The Nature of Decision Making (Pp ) Decision Making - the process of choosing among several alternatives Analytical Model of the Decision-Making Process - general model that describes the formulation and implementation of decisions Formulation - process of understanding a problem and making a decision about it Implementation - process of carrying out that decision 1. Identify the Problem 2. Define Objectives 3. Make a Predecision 4.Generate Alternatives 5. Evaluate Alternatives 6. Make a Choice 7. Implement Choice 8. Follow Up

Eight Steps in the Analytical Model - a general model, and many decisions do not conform to it Problem identification - difficult because people do not always perceive a social situation accurately The Nature of Decision Making (cont.) Define the objectives to be met in solving the problem - conceive problems so that it is possible to identify solutions Make a predecision - decide how to make the final decision Decision support systems (DSS) - computer programs that present information about organizational behavior to decision makers in a manner that helps them to structure their responses to decisions Alternative generation - identify possible solutions Evaluate alternative solutions - examine feasibility and effectiveness of each alternative solution Choose an alternative - optimality of choice varies Implement the chosen alternative - perform the chosen alternative Follow up - monitor the effectiveness of the decision

The Nature of Decision Making (cont.) Broad Spectrum of Organizational Decisions - three dimensions of decisions Routineness of the decision Programmed - highly routine decisions made according to pre-established organizational routines and procedures Nonprogrammed decisions - decisions about highly novel problems for which no ready-made actions exist Strategic decisions - typically made by high-level managers regarding the direction the organization should take to achieve its mission Type of TaskSimple, routineComplex, creative Reliance onConsiderable guidanceNo Guidance organizational policiesfrom past decisionsfrom past decisions Typical decision makerLower-level workersUpper-level workers (usually alone)(usually in groups Type of Decision VariableProgrammed Nonprogrammed Table 9.1

Broad Spectrum of Organizational Decisions (cont.) The Nature of Decision Making (cont.) Riskiness of the decision - risk defined by the probability of obtaining the desired outcome Objective probability - uses concrete and verifiable data Subjective probability - uses personal beliefs or hunches - uncertainty may be reduced by: - establishing linkages with other organizations - acquiring knowledge about the past and present Figure 9.2 Riskiness of decision Higher risk Lower risk Knowledge of decision outcomes Complete uncertainty (outcome unknown) Complete uncertainty (outcome known) Probability of decision outcomes Information Objective Subjective High Low

Broad Spectrum of Organizational Decisions (cont.) The Nature of Decision Making (cont.) Level of the organization at which decision is made Top-down - decision making power vested in superiors as opposed to their lower-level employees - most organizations operate in this fashion Empowered decision making - decision making power vested in the employees - rationale - workers who know the job best make the the decisions - workers more likely to be committed to actions based on their own decisions - work teams also may be empowered

Factors Affecting Decision Making (Pp ) Decision Style - meaningful differences between people in their orientation toward decisions - four predominant styles - most managers may have one predominant style, but often use different styles Prefer complex problems Carefully analyze alternatives Enjoy solving problems Willing to use innovative methods Analytical Conceptual Socially oriented Humanistic and artistic approach Solve problems creatively Enjoy new ideas Behavioral Concern for their organization Interest in helping others Open to suggestions Rely on meetings Directive Prefer simple, clear solutions Make decisions rapidly Do not consider many alternatives Rely on existing rules Figure 9.4

Factors Affecting Decision Making (cont.) Group Influences Potential benefits of decision-making groups Pooling of resources - provides more information Specialization of labor - people perform tasks they do best Greater acceptance of decisions Potential problems of decision-making groups Waste of time Group conflict - may result from disagreements over issues Intimidation by group leaders - hinders honest discussion Groupthink - tendency for members of highly cohesive groups to conform so strongly to group pressures regarding a certain decision that they fail to think critically and reject the potentially correcting influences of outsiders - strategies for avoiding groupthink Promote open inquiry Use subgroups Admit shortcomings Hold second-chance meetings

Factors Affecting Decision Making (cont.) Organizational Influences on Decisions - also interfere with rational decision making Time constraints - often do not permit exhaustive decision making Political “face-saving” pressure - people make decisions that help them to look good to others, even though the resulting decision might not be in the best interest of their organization Cultural Differences in Decision Making - widespread differences exist in the way people from various cultures make decisions - people from different cultures may not perceive the same situations as presenting problems - decision-making unit differs - individualist cultures foster individual decision making - collectivist cultures foster group decision making - cultures differ in their expectations about who is expected to make decisions - cultures differ in their expectations about the amount of time that ought to be devoted to making a decision

How Are Individual Decisions Made? (Pp ) Rational-Economic Model - decision maker presumed to consider all possible alternatives before selecting the optimal solution - assumes that decision maker has complete information and can process it accurately and without bias - does not appreciate human fallibility - is a normative or prescriptive approach Rational decisions - maximize the chance of attaining an individual’s group’s, or organization’s goals Administrative Model - recognizes that decision makers may have a limited view of the problems confronting them which hinders making rational decisions - is a descriptive or proscriptive approach Satisficing decisions - decisions made by selecting the first minimally acceptable alternative that becomes available Bounded rationality - organizational, social, and human limitations assumed to promote satisficing rather than optimal decisions Bounded discretion - limits decision alternatives to those falling within the bounds of current moral and ethical standards

How Are Individual Decisions Made? (cont.) Image Theory - recognizes that decisions are made in an automatic, intuitive fashion - people adopt courses of action that best fit their individual principles, current goals, and future plans - deals primarily with decisions about adopting a certain course of action or changing a current course of action - decision making is both rapid and simple - not necessary to ponder decisions - rather use intuitive process - decision making is a two-step process Compatibility test - comparison of the degree to which a particular course of action is consistent with various images (e.g., individual principles or current plans) Profitability test - people consider the extent to which various alternatives fit with their values, goals, and plans - these tests made within a decision frame - e.g., past experience may provide context for the decision

Decision to adopt a course of action (e.g., Which job should I accept?) Decide to REJECT No Decide to ACCEPT Step 2: Profitability test (Which job is best?) Consider which of several alternatives best coincides with your personal principles, goals, and plans. Select that one. Yes Step 1: compatibility test (Does the job fit?) Ask yourself if the information you have about the job options is consistent with images of yourself with respect to principles (does it match my values?), goals (will it take me where I wan to go?), and plans (beliefs about what will happen if you follow through). Decision Frame: Information About Past Successes and Failures Figure 9.6 Image Theory: A Summary and Example

Imperfections in Individual Decisions (Pp ) Framing Effects - tendency for people to make different decisions based on how the problem is presented - illustrates that people are not completely rational decision makers, - are influenced by cognitive distortions based on simple differences in how situations are presented Attribute framing - tendency for people to evaluate a characteristic more positively when it is presented in positive terms than in negative terms - involves evaluations Goal framing - tendency for people to be persuaded more strongly by information framed in negative terms than by information framed in positive terms - involves taking behavioral action Risky choice frames - tendency for people to avoid risks when situations are presented in a way that emphasizes positive gains and to take risks when presented in a way that emphasizes potential losses - involves making decisions about courses of action

Figure 9.7 Three Types of Framing Effects Type of Framing Negative Frame Positive Frame Risky Choice Framing Avoid losses (lives lost) Experience gains (lives saved) less likely Likelihood of taking risks more likely negativepositive Evaluation Attribute Framing Negative qualities (25% fat) Positive qualities (75% lean) more likelyless likely Likelihood of performing exam Goal Framing Suffer loss (no breast exam - decreased chance of finding early tumor) Experience gain (breast exam - increased chance of finding early tumor)

Imperfections in Individual Decisions (cont.) Reliance on Heuristics - simple decision rules used to make quick decisions about complex problems - rules of thumb may be useful for simplifying complex decisions - also represent potential impediments to decision making - may discourage the collection and processing of enough information to make a superior decision Availability heuristic - the tendency for people to base judgments on readily available, though potentially inaccurate information - may adversely affect the quality of the decision Representative heuristic - tendency to perceive others in stereotypical ways if they appear to be typical representatives of the category to which they belong

Imperfections in Individual Decisions (cont.) Bias Toward Implicit Favorites - inclination to choose one’s preferred decision alternative, which is selected even before all the options have been considered - people often make decisions early in the process - options other than the preferred alternative are not given serious consideration - rather, used to convince oneself that the implicit favorite is the best choice Confirmation candidate - decision alternative considered only to convince oneself of the wisdom of selecting the implicit favorite Escalation of Commitment - tendency for individuals to continue supporting previously unsuccessful courses of action because: - previous ineffective decisions have resulted in sunk costs - refusal to back previous decisions viewed as an admission of failure Self-justification - people may refrain from escalating commitment under several conditions

Conditions under which escalation of commitment is unlikely Limited resources Overwhelming evidence of negative outcomes Diffused responsibility for previous decisions Present Do X Again? Yes Escalate commitment; throw good money after bad in order to justify previously made decisions No Give up; cut losses and run Figure 9.8 Escalation of Commitment Time Decision Outcome Do X Do X Do X Negative Negative Negative Negative Negative Negative Past

Group Decisions (Pp ) When Are Groups Superior to Individuals? - depends on the type of task Complex decision tasks - groups are superior when they are a hetero- geneous collection of experts with complementary skills who can contribute to their group’s product freely and openly Simple decision tasks - to attain a group benefit from a pooling of resources, there must be some resources to pool Simple Problems Does anyone in the group have the correct answer? Will the group members accept the correct answer? Group members are heterogeneous Members have complementary skills Ideas may be freely communicated Good ideas are accepted. Groups are superior to even the best individuals Group performs worse than the best individual No Group performs as well as the best individual Yes Complex Problems Figure 9.9

Group Decisions (cont.) When Are Individuals Superior to Groups? - individuals perform better on poorly structured, creative tasks Brainstorming - technique to foster group productivity by encouraging interacting members to express their ideas noncritically - four main rules - avoid criticizing others’ ideas - share even far-out suggestions - offer as many comments as possible - build on others’ ideas to create your own - individuals using brainstorming rules for idea generation perform better than brainstorming groups

Techniques For Improving the Effectiveness of Decisions (Pp ) Individual Techniques - make individuals better decision makers Training individuals - people make better decisions just by considering the following errors: Unconflicted adherence - tendency to stick with the first idea that comes to mind without more deeply evaluating the consequences Unconflicted change - tendency for people to change their minds quickly and to adopt the first new idea that comes along Defensive avoidance - tendency for decision makers to fail to solve problems because they avoid working on them Hypervigilance - an individual frantically searches for quick solutions and goes from idea to idea from desperation that one is not working and another must be considered before time runs out

Techniques For Improving the Effectiveness of Decisions (cont.) Individual Techniques (cont.) Making ethical decisions - answer the following questions about contemplated decisions to avoid rationalizing unethical acts Does it violate the obvious “shall nots”? Will anyone get hurt? How would you feel if the newspaper reported your decision on the front page? What if you did it 100 times? How would you feel if someone did it to you? What is your gut feeling?

5. Responses are shared with all others. 1. Enlist the cooperation of experts. 2. Propose the problem to experts. 3. Experts record solutions, recommendations. 6. Experts comment on others’ ideas and propose a solution. 4. Experts’ responses are compiled and reproduced. 7. Solutions are compiled. Solution If a consensus is reached... Techniques For Improving the Effectiveness of Decisions (cont.) Group Techniques - structure the group to take advantage of its strengths Problem Figure The Delphi Group If no consensus is reached...

1. A small group gathers around a table and receives instructions; problem is identified. 4. Each idea is discussed, clarified, and evaluated by group members. 2. Participants privately write down ideas about problem solving. 3. Each participant’s ideas are presented, one at a time, and are written on a chart until all ideas are expressed. 5. Participants privately rank the ideas in order of their preference. 6. The highest-ranking idea is taken as the group’s decision Figure 9.12 TheNominal Group

Step 1 Individual decision by Person A Individual decision by Person B Step 2 Tentative group decision made by Person A and Person B Individual decision by Person C Step 3 Tentative group decision made by Person A, Person B, and Person C Individual decision by Person D Step 4 Final group decision made by Person A, Person B, Person C, and Person D Figure 9.14 The Stepladder Technique