C HAPTER -05 P ROBLEM S OLVING AND D ECISION M AKING Dr. Gehan Shanmuganathan, (DBA) 1

H AMMOND ’ S C ANDIES 2

Schuman bought the 90 year old company in 2007 Offered $ 50 bonus for the assembly-line workers to come up with successful ideas to cut manufacturing costs One worker suggested a tweak in machine gear that reduced workers needed on an assembly line from five to four Another devised a new way to protect candy canes while en route to stores that resulted in a 4% reduction in breakage 3

C HAPTER OBJECTIVES 4

6.1 L EARNING O BJECTIVES 1 Differentiate between programmed and non-programmed decisions. 2 Explain the steps involved in making a non-programmed decision. 3 Understand the major factors influencing decision making in organizations. 4 Understand the nature of creativity and how it contributes to managerial work. 5 Describe organizational programs for improving creativity and innovation. 6 Implement several suggestions for becoming a more creative problem solver. 7 Appreciate the value and potential limitations of group decision making.

W HAT IS A PROBLEM ? 6

A discrepancy between ideal and actual conditions What is a decision? A choice among alternatives 7

N ON - PROGRAMMED VERSUS P ROGRAMMED DECISIONS 8

N ON - PROGRAMMED DECISIONS A decision that is difficult because of its complexity and the fact that the person faces it infrequently All strategic decisions are non-programmed decisions A well-planned and highly structured organization reduces the number of non-programmed decisions E.g- outsourcing, merging, acquisitions 9

P ROGRAMMED DECISIONS A decision that is repetitive, or routine, and made according to a specific procedure First level managers or supervisors make more routine decisions. E.g- signing payment vouchers Middle managers generally make both routine and non-routine decisions A well-managed organization encourages all managers to delegate as many non-programmed decisions as possible 10

P ROGRAMMED AND N ONPROGRAMMED D ECISIONS : A C OMPARISON Programmed Decisions Nonprogrammed Decisions Repetitive, routine, frequent; decisions made according to specific procedures Novel, complex, difficult, infrequent; decisions require original thinking Depend on policies and rules Require creativity, intuition, tolerance for ambiguity, innovation Types of problems Proce- dures Business firm: Periodic reorders of inventory Health care: Procedure for admitting patients University: Necessary GPA for good academic standing Business firm: Diversification into new products and markets Health care: Purchase of experimental equipment University: Construction of new classrooms Examples

S TEPS IN PROBLEM SOLVING AND DECISION MAKING 12

S TEPS IN P ROBLEM S OLVING AND D ECISION M AKING “What really, really is our problem?” Identify and diagnose the problem “Let’s dream up some great ideas.” Develop creative alternatives “Some of these ideas are good; others are wacko.” Evaluate the alternative solutions “How really good was that idea?” Evaluate and control “Now let’s take action.” Implement the decision “This alternative is a winner!” Choose one alternative solution

1. I DENTIFY AND DIAGNOSE THE PROBLEM The first step in problem solving and decision making is to identify a gap between desired and actual conditions Why our sales dropped over time? Why former customers stopped buying from us? Why can not we have a global presence? 14

2. D EVELOP ALTERNATIVE SOLUTIONS To explore all kinds of possibilities 15

3. E VALUATE ALTERNATIVE SOLUTIONS Examination of pros and cons of all the possibilities and considers the feasibility of each Evaluation parameters Cost Time Return Risk Resources availability Capabilities 16

4. C HOOSE ONE ALTERNATIVE SOLUTION The process of weighing the alternatives must stop at some point Analysis paralysis 17

5. I MPLEMENT THE DECISION Converting a decision into action 18

6. E VALUATE AND CONTROL The final step in the decision making process is to investigate how effectively the chosen alternative solved the problem Single loop and double loop learning 19

B OUNDED RATIONALITY AND INFLUENCES ON DECISION MAKING 20

B OUNDED RATIONALITY The observation that people’s limited mental abilities, combined with external influences over which they have little or no control, prevent them from making entirely rational decisions Superstitions Hong Kong people avoid Westerners avoid 13 Satisficing decisions- a decision meets the minimum standards of satisfaction Heuristics- rule of thumb using decision making Smiling within first three minutes at an interview Intuition – experience based reasoning 21

F ACTORS I NFLUENCING D ECISION M AKING Intuition Personality and cognitive intelligence Emotional intelligence Quality of information Political considerations Degree of uncertainty Values Crisis and conflict Procrastination “I like risks and I’m really bright.” “I can read people great and control my emotions.” “I’m great at hunches.” “The IS group is feeding me great stuff.” “Let’s wait before deciding.” “I’ve got integrity.” “Looks like a sure thing.” “Our backs are to the wall, and we disagree.” “What does my boss want me to decide?” Decision Maker

P ERSONALITY AND COGNITIVE INTELLIGENCE Risk taking, cautiousness, and conservatism influences decisiveness Cautiousness will lead to low risk taking decisions Good decision makers, by definition, are decisive Perfectionism- people who seek perfect solution to a problem are usually indecisive Optimism and pessimism- optimistic people are more decisive Cognitive intelligence- imagination, adaptability, and practical intelligence In general, intelligent and well educated people are more likely to identify problems and make sound decisions 23

E MOTIONAL INTELLIGENCE The ability to connect with people and understand their emotions Key factors of emotional intelligence Self- awareness – to understand your own emotions Self- management – control one’s emotions Social- awareness – having empathy for others Relationship management – interpersonal skills of clear and convincing communication 24

Q UALITY AND ACCESSIBILITY OF INFORMATION Accessing high quality and valid information for decision making Sources Organizational reports, Interviews, Observations, News and Case studies Avoid Anchoring and perceptual errors (selective, figure-ground, stereotyping, and closure) 25

P OLITICAL CONSIDERATIONS Status quo Take revenge Political affiliations to stay in favor with, Senior managers Middle managers Operational level staff 26

D EGREE OF CERTAINTY The more certain a decision maker is of the outcome of a decision, the more calmly and confidently the person will make the decision 27

C RISIS AND CONFLICT In a crisis many decision makers panic and they become less rational and more emotional than they would be in a calm environment In such situation, some managers concentrate poorly, use poor judgment, and think impulsively Some managers consider crisis as an exciting challenge that energizes them towards their best level of problem solving and decision making 28

V ALUES OF THE DECISION MAKER What do the manager value? Employees Profits Prestige Any other 29

P ROCRASTINATION Delaying taking an action without a valid reason Procrastination results in indecisiveness 30

D ECISION MAKING STYLE Managers use Intuition Procrastination Satisficing Decisive Flexible (many options and less information) Hierarchic Integrative (many options more information) 31

G ROUP PROBLEM SOLVING AND DECISION MAKING 32

G ROUP PROBLEM SOLVING AND DECISION MAKING The process of several people contributing to a final decision 33

A DVANTAGES AND DISADVANTAGES OF GROUP DECISION MAKING 34

A DVANTAGES AND DISADVANTAGES 35 High quality due to combined wisdom of the group Errors are likely to avoid due to individual evaluation Gains acceptance and commitment Time consuming Depends on intelligent individuals Groupthink lose ability to evaluate bad ideas AdvantagesDisadvantages

G ENERAL METHOD OF GROUP PROBLEM SOLVING 36

G ENERAL METHOD OF GROUP PROBLEM SOLVING 1. Identify the problem 2. Clarify the problem a) Everyone share the same definition of the problem 3. Analyze the cause a) Search for “what we want” 4. Search for alternative solutions 5. Select alternatives 6. Plan for implementation a) Decide what actions are necessary 7. Clarify the contract a) What group members have agreed to do 8. Develop an action plan 9. Provide evaluation and accountability a) Hold people accountable for results 37

S UGGESTIONS FOR I MPROVING G ROUP P ROBLEM -S OLVING 1. Have a specific agenda and adhere to it 2. Rely on qualified group members 3. Have the leader share decision-making authority 4. Provide summaries for each major point 5. Build consensus so the decision is more likely to be implemented

A SPECIFIC METHOD OF GROUP PROBLEM SOLVING 39

T HE NOMINAL GROUP TECHNIQUE (NGT) A group-decision making technique that follows a highly structured format 40

T HE N OMINAL G ROUP T ECHNIQUE 2. Leader presents a problem 6. Alternatives are rated and best- rated one is chosen 5. Group clarifies and evaluates all suggestions 3. Members write down ideas individually 1. Small group is assembled 4. Each participant presents one idea to group

C REATIVITY AND INNOVATION IN MANAGERIAL WORK 42

C REATIVITY The process of developing novel ideas that can be put into action Creativity is closely linked to innovation by the application of the ideas 43

T HE CREATIVE PERSONALITY Creative people think outside the box or get beyond the usual constraints when solving problems Creative people want to learn new things, stretch themselves, and strive to do better in their jobs They break the rule challenging the status quo Unconventional 44

K EY PARTS OF CREATIVITY Lateral thinking A thinking process that spreads out to find many alternative solutions to a problem Vertical thinking In contrast An analytical, logical process that results in few answers 45

C ONDITIONS NECESSARY FOR CREATIVITY 46

C ONDITIONS NECESSARY FOR CREATIVITY Expertise Creative-thinking skill Internal motivation Environment need Encouragement from others 47

T HE CREATIVE AND INNOVATIVE ORGANIZATION 48

Encouraging risk taking Allowing freedom Providing organizational support Allocating ample resources Establishing a Creative Atmosphere Involves... Providing challenges Providing encouragement Creativity! 6.5

O RGANIZATIONAL PROGRAMS FOR IMPROVING CREATIVITY AND INNOVATION 50

O RGANIZATIONAL PROGRAMS FOR IMPROVING CREATIVITY AND INNOVATION Creativity training Brainstorming Systematically gathering ideas Appropriate physical surroundings 51

S ELF - HELP TECHNIQUES FOR IMPROVING CREATIVITY 52

S UGGESTIONS TO B UILD C REATIVITY 1. Keep an idea notebook 2. Stay current in your field 3. Listen to other people 4. Learn to think in the five senses 5. Improve your sense of humor 6. Adopt a risk-taking attitude 7. Develop a creative mental set 8. Identify your most creative times 9. Be curious about your environment 10. Step back when faced with a creativity block 6.6

W RITE FIVE KEY THINGS ( AREAS ) THAT YOU CAN CRITICALLY REMEMBER IN TODAY ’ S DISCUSSION 54

W HAT WE DISCUSSED TODAY ? 55

6.1 O UR DISCUSSION TODAY 1 Differentiate between programmed and non-programmed decisions. 2 Explain the steps involved in making a non-programmed decision. 3 Understand the major factors influencing decision making in organizations. 4 Understand the nature of creativity and how it contributes to managerial work. 5 Describe organizational programs for improving creativity and innovation. 6 Implement several suggestions for becoming a more creative problem solver. 7 Appreciate the value and potential limitations of group decision making.

M ID - TERM TEST 57

M IDTERM P RESENTATIONS - D UE M ARCH 14 TH 2012 – MINUTES Find mission statements of three large corporations in different industries from the web Compare the mission statements in terms of the purposes of being in the business and its concern for employees, customers, and shareholders Which company you would like to work for and why? 58