Chapter © 2008The McGraw-Hill Companies, Inc. All rights reserved. Individual and Group Decision Making 12 McGraw-Hill/IrwinCopyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Ch. 12 Learning Objectives 1.Compare and contrast the rational model of decision making, Simon’s normative model, and the garbage can model. 2.Discuss eight decision making biases. 3.Discuss knowledge management and techniques used by companies to increase knowledge sharing. 4.Explain the model of decision-making styles. 5.Explain the model of intuition and the ethical decision tree.

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Ch. 12 Learning Objectives 6.Summarize the pros and cons of involving groups in the decision-making process. 7.Contrast brainstorming, the nominal group technique, the Delphi technique, and computer-aided decision making. 8.Describe the stages of the creative process. 9.Explain the model of organizational creativity and innovation.

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Problem Solving Problem – gap between an actual and desired situation A rental car company notices a dip in revenue from 12 months ago. The branch is located in a very congested area and hybrid vehicles can travel in express lanes. Customers complain that they would like environmentally-friendly cars to choose from to rent. What is the problem?

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Problem Solving Problem Solving Methods Historical Cues Scenario Technique Perceptions of others

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Decision Making Decision making – Identifying and choosing solutions that lead to a desired end result First, determine responses or actions necessary to alleviate a problem Second, choose the best alternative

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Models of Decision Making Rational Model logical four-step approach to decision making 1.Identifying the problem 2.Generating alternative solutions 3.Selecting solution 4.Implementing and evaluating the solution

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Rational Decision Making Do decision makers actually make decisions this way? What goal does the rational model assume the decision maker has? What assumptions does the rational decision making model make?

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Non-Rational Models Based on premise that decision making is not rational Assume that: Decision making is uncertain Not all information is available or known Making optimal decisions is difficult Simon’s Normative Model Garbage Can Model

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Simon’s Normative Model of Decision Making Based on premise that decision making is not rational Decision makers are guided by bounded rationality constraints that restrict decision making Decision making is characterized by Limited information processing Satisficing Choosing a standard that meets a minimum standard of acceptance

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Garbage Can Model Based on premise that decision making is sloppy and haphazard Decisions are made as a result of the interaction between: Problems, solutions, participants, and choice opportunities What are the implications of the Garbage Can model?

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Decision Making Biases Availability heuristic – use information readily available in memory Representativeness heuristic – using similar situations to predict the occurrence of an event Confirmation bias – decide before investigating then seek confirming evidence Anchoring bias – decisions are influenced by initial information, data, stereotypes

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Decision Making Biases Overconfidence bias – tendency to be overconfident about estimates or forecasts Hindsight bias – knowledge of an outcome influences our belief about the probability that we could have predicted the outcome earlier Framing bias – tendency to consider risks about gains differently than risks about losses Escalation of commitment bias – tendency to stick to an ineffective course of action when it is unlikely that the bad situation can be reversed

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Test Your Knowledge  Which of the following will reduce escalation of commitment? (A=Reduce, B=Won’t reduce) 1.Set minimum targets for performance, and have decision makers compare their performance with these targets 2.Have the same person have decision making authority over all aspects of an on-going project 3.Tie the person’s reputation to the success of the project 4.Provide more frequent feedback about project completion and costs 5.Make decision makers aware of costs of persistence

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Dynamics of Decision Making Knowledge Management Implementing systems and practices that increase the sharing of knowledge and information throughout an organization. What specific actions can organizations take to facilitate knowledge management?

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Forms of Knowledge A.Troy is very effective at conducting client meetings. He knows what to say when and manages the discussion to maximize the impact of the meeting for all parties. B.Sandra has established a process for efficiently and accurately conducting financial analyses. She has established a spreadsheet accompanied with a set of instructions. Which of the following types of information would be easier to share or capture? Why?

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Decision Making Styles Individual’s decision making styles vary on two dimensions….. Value Orientation Task vs. People/Social Tolerance for Ambiguity High vs. Low Your book has a questionnaire to determine your style

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Decision Making Styles AnalyticalConceptual DirectiveBehavioral Tasks and Technical Concerns People and Social Concerns Value Orientation Low High Tolerance for Ambiguity

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Decision Making Styles What is the best decision making style? What is the value of understanding decision making styles?

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Intuition in Decision Making

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Guidelines for Developing Intuitive Awareness

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Decision Tree for Ethical Decisions

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Group vs. Individual Decision Making What are the advantages of group decision making? What are the disadvantages?

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Group-Aided Decision Making

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Test Your Knowledge Which of the following research findings are true? (A-True, B-False) 1.Groups are more efficient than individuals. 2.Groups are more confident in their choices than individuals. 3.The larger the group, the poorer the decision quality.

© 2008 The McGraw-Hill Companies, Inc. All rights reserved When to Use Groups for Decision Making 1)If additional information would increase the quality of the decision 2)If acceptance is important 3)If people can be developed through their participation

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Brainstorming Brainstorming process to generate a quantity of ideas Quantity is more important than quality Criticism is withheld Build on others ideas Create status-free environment

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Nominal Group Technique 1.Group meets to discuss a problem 2.Individual generate ideas independently 3.Everyone shares an idea from his/her list and they are recorded but not discussed 4.Group discusses all ideas 5.Group members vote for their top choices

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Delphi Technique 1.Manager identifies an issue to investigate 2.Questionnaire is sent to others and returned to manager 3.Manager summarizes responds and sends feedback to participants 4.Participants send their feedback and comments 5.Cycle repeats until issue is resolve or all relevant information is gathered.

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Creativity & Innovation CREATIVITY is thinking up new things. INNOVATION is doing new things. ~ Theodore Levitt Process of developing something new or unique Three types… Creation Synthesis Modification

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Model of Creativity

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Test Your Knowledge Which of the following will foster creativity? (A-Yes, B-No) 1.Punishing mistakes or ideas that fail 2.Allowing time for fun and playing around 3.Holding people accountable for creative ideas 4.Emphasize the importance of taking action or generating output 5.Encouraging discussion of “half-baked” ideas 6.Rewarding creativity 7.Establishing a rigid, hierarchical corporate culture

Chapter © 2008The McGraw-Hill Companies, Inc. All rights reserved. Supplemental Slides

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Video Cases Columbia Space Shuttle Disaster Leadership: Decision Making During Hurricane Katrina

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Management in the Movies The Family Man In this scene, Jack and Kate are at the airport, waiting for Jack to go on a yearlong internship to London. Questions How do Jack and Kate use the decision-making process to come to a conclusion? What criteria are used to make a decision? What role did emotion play in Kate’s choice? In Jack’s?

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Think Outside the Box: Thinkubator To stimulate creativity change the surroundings Thinkubator’s 4 P’s Personal space Public spaces Partnership space PC space

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Example: Boeing Decentralized structure - enables easy access to relevant individuals to make decisions Core organization – responsible for keeping decentralized employees on the cutting edge (e.g., finance, HR, project mgmt) Job rotations: People are moved into a different job every 12 months

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Top 10 Most Innovative Companies Apple 2.Google 3.3M 4.Toyota 5.Microsoft 6.General Electric 7.Procter & Gamble 8.Nokia 9.Starbucks 10.IBM Source: McGregor, J. The World’s Most Innovative Companies, BusinessWeek, April 24, 2006

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Innovation provides competitive advantage Google’s champion of innovation Marissa Mayer’s 9 notions of innovation 1.Ideas come from everywhere 2.Share everything you can 3.You’re brilliant, we’re hiring 4.A license to pursue dreams 5.Innovation, not instant perfection 6.Don’t politic, use data 7.Creativity loves restraint 8.Worry about usage and users, not money 9.Don’t kill projects, morph them Champions of Innovation

© 2008 The McGraw-Hill Companies, Inc. All rights reserved 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.

© 2008 The McGraw-Hill Companies, Inc. All rights reserved 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

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Making Tough Calls Greatness doesn’t come from one or two single great decisions “It’s really a stream of decisions over time, brilliantly executed, that accounts for great outcomes.” A leader’s psychology is an important determinant of their outcomes Leaders who ultimately feel that outcomes in life are determined internally rather than externally affects their decision making Example: The airline industry has faced oil shortages, increased gas prices, deregulation, 9/11. Yet, Southwest Airlines beat Intel, Wal-Mart and GE in return to investors from

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Developing Effective Champions Action 1: Recruit and select potential champions even if they are difficult to manage Action 2: Coach for skill development Action 3: Mentor for career development Action 4: Let champions volunteer for assignments that they crave

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Developing Effective Champions Action 5: Recognize innovative achievements Action 6: View failure as a learning opportunity and help champions learn from failure Action 7: Raise the profile of champions

© 2008 The McGraw-Hill Companies, Inc. All rights reserved 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

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Decision Making Pitfalls Pitfall: Anxiety overload Device: Look at the clock Pitfall: Warring Camps Device: Let the battle rage Pitfall: A wily adversary Device: Clone your opponent

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Garbage Can Model of Organizational Decision-Making Problems Solutions Participants Choice opportunities Problems Solutions Participants Choice opportunities Problems Solutions Participants Choice opportunities A B

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Managers Report Having to Make More Decisions Than Ever Decreased 43% Stayed the Same 42% Increased 15% “Over the past three years, the average amount of time I am/we are given to make each decision has…” Decreased 6% Stayed the Same 17% Increased 77% “Over the past three years, the number of decisions I/we make during a typical workday has…”

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Decide Leader makes decision; announce or “sell” decision to group; use expertise to gather relevant information Consult Individually Leader presents problem to group members individually; get suggestions and make decision Consult Group Leader presents problem to group in a meeting; get suggestions and make decision Decision-Making Processes A E C

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Decision-Making Processes Cont. Facilitate Present problem to group in a meeting; leader acts as facilitator not placing more weight on his or her opinions based on their position; define problem and boundaries in which decision must be made Delegate Permit the group to make decision within limits; group identifies and diagnoses the problem, develops alternative procedures for solving it, and decides one or more alternative solutions; leader plays no direct role unless asked—behind the scenes he or she provides needed resources and encouragement D B

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Situational Factors in the Decision- Making Process Decision Significance significance of decision to the success of the project or organization Importance of Commitment Importance of team members’ commitment to the decision Leader Expertise Leader’s knowledge or expertise in relation to the problem Likelihood of Commitment Likelihood team would commit itself to a decision that leader might make on his or her own DS IC LE LC

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Situational Factors in the Decision- Making Process Goal Alignment Degree to which team supports the organization’s and leaders goals at stake with this problem Group Expertise team members’ knowledge or expertise in relation to this problem Team Competence Ability of team members to work together to solve problem GA GE TC

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Leadership and the Decision-Making Process DS IC LE LC GA GE TC A E C D B D C A D E A B D A State the problem IC High LE TC LC GA GE TC GA GE TC GA GE TC Low

© 2008 The McGraw-Hill Companies, Inc. All rights reserved A Model of Participative Management Participation in Goal Setting Participation in Decision Making Autonomy Increased control over work behavior Acceptance & Commitment Security Contingent Factors Design of work Trust Readiness to Participate Participation in Problem Solving Participation in Change Completion of Meaningful Tasks Challenge Satisfaction Performance & Innovation

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Weird Rules of Creativity Old ideas that work Weird ideas that work Decide to do something that will… succeed, then convince yourself and everyone else that success is certain fail, then convince yourself and everyone else that success is certain

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Weird Rules of Creativity Old ideas that work Weird ideas that work Reward… success; punish failure and inaction failure & success; punish inaction

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Weird Rules of Creativity Old ideas that work Weird ideas that work Seek out… and be attentive to people who will evaluate and endorse the work Ways to avoid, distract & bore customers, critics, & anyone who just wants to talk about money

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Weird Rules of Creativity Cont. Find some happy people… and make sure they don’t fight and get them to fight Think of some… sound and practical things to do, & plan to do them ridiculous or impractical things to do, & plan to do them

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Weird Rules of Creativity Cont. Take your past successes… and replicate them and forget them Ignore people… who have never solved the exact problem you face who have solved the exact problem you face

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Weird Rules of Creativity Cont. Use job interviews… to screen candidates &, especially to recruit new employees to get new ideas, not to screen candidates Encourage people… to pay attention to and obey their bosses and superiors to ignore and defy their bosses and peers

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Weird Rules of Creativity Cont. Hire… “fast learners” (of the organizational code) “slow learners” (of the organizational code) Hire… people who make you feel comfortable, whom you like people who make you uncomfortable, even those you dislike

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Weird Rules of Creativity Cont. Hire… people you (probably) do need people you (probably) don’t need

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Using Knowledge to Gain Competitive Advantage Companies can act internally to spread tacit knowledge Create superior knowledge management capabilities and in turn, foster innovation

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Categories of tacit Knowledge Hard to pin down skills- “know-how” Mental models Ways of approaching problems Organizational routines

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Spreading tacit Knowledge Work with experts and coaches Network and workgroups “Learning histories” Develop routines for dealing with situations Make it more explicit

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Developing Knowledge Management Capabilities 1)Develop a knowledge sharing culture 2)Overcome defensiveness 3)Develop a system of rewards for use of new knowledge 4)Develop a knowledge management department 5)Develop ways of promoting implementation of best ideas shared in company

© 2008 The McGraw-Hill Companies, Inc. All rights reserved Conclusion Questions for discussion