1. Decision Making, Learning, Creativity, and Entrepreneurship
Chapter Five
McGraw-Hill/Irwin
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

2. The Nature of Managerial Decision Making
The process by which managers respond to opportunities and threats by analyzing options, and making determinations about specific organizational goals and courses of action
Decisions in response to opportunities—occurs when managers respond to ways to improve organizational performance.
Decisions in response to threats—occurs when managers are impacted by adverse events to the organization.

3. Decision Making Programmed Decision
Routine, virtually automatic decision making that follows established rules or guidelines.
Managers have made the same decision many times before
There are rules or guidelines to follow based on experience with past decisions
Little ambiguity involved

4. Decision Making Non-Programmed Decisions
Nonroutine decision making that occurs in response to unusual, unpredictable opportunities and threats.

5. Decision Making Intuition Reasoned judgment
feelings, beliefs, and hunches that come readily to mind, require little effort and information gathering and result in on-the-spot decisions
Reasoned judgment
decisions that take time and effort to make and result from careful information gathering, generation of alternatives, and evaluation of alternatives
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6. The Classical Model Classical Model of Decision Making
A prescriptive model of decision making that assumes the decision maker can identify and evaluate all possible alternatives and their consequences and rationally choose the most appropriate course of action
Optimum decision
The most appropriate decision in light of what managers believe to be the most desirable future consequences for their organization

7. The Classical Model of Decision Making
Figure 5.1
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8. The Administrative Model
Administrative Model of Decision Making
An approach to decision making that explains why decision making is inherently uncertain and risky and why managers usually make satisfactory rather than optimum decisions
Bounded rationality, incomplete information
Bounded rationality
Cognitive limitations that constrain one’s ability to interpret, process, and act on information

9. Why Information Is Incomplete
Figure 5.2
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10. Causes of Incomplete Information
Risk
The degree of probability that the possible outcomes of a particular course of action will occur
Uncertainty
the probabilities of alternative outcomes cannot be determined and future outcomes are unknown
Managers know enough about a given outcome to be able to assign probabilities for the likelihood of its failure or success
Many decision outcomes are not known such as the success of a new product introduction.

11. Causes of Incomplete Information
Ambiguous Information
Information that can be interpreted in multiple and often conflicting ways.
Young Woman or Old Woman
Figure 5.3
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12. Causes of Incomplete Information
Time constraints and information costs
managers have neither the time nor money to search for all possible alternatives and evaluate potential consequences

13. Causes of Incomplete Information
Satisficing
Searching for and choosing an acceptable, or satisfactory response to problems and opportunities, rather than trying to make the best decision
Managers explore a limited number of options and choose an acceptable decision rather than the optimum decision
Managers assume that the limited options they examine represent all options.
This is the typical response of managers when dealing with incomplete information.

14. Six Steps in Decision Making
Figure 5.4
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15. Decision Making Steps Step 1. Recognize Need for a Decision
Sparked by an event such as environment changes.
Managers must first realize that a decision must be made.

16. Decision Making Steps Step 2. Generate Alternatives
Managers must develop feasible alternative courses of action
If good alternatives are missed, the resulting decision is poor
It is hard to develop creative alternatives, so managers need to look for new ideas

17. Decision Making Steps Step 3. Evaluate Alternatives
What are the advantages and disadvantages of each alternative?
Managers should specify criteria, then evaluate.

18. General Criteria for Evaluating Possible Courses of Action
Figure 5.5
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19. Decision Making Steps Step 4. Choose Among Alternatives
Rank the various alternatives and make a decision
Tendency is for managers to ignore critical information, even when available

20. Decision Making Steps Step 5. Implement Chosen Alternative
Managers must now carry out the alternative
Often a decision is made and not implemented

21. Decision Making Steps Step 6. Learn From Feedback
Compare what happened to what was expected to happen
Explore why any expectations for the decision were not met
Derive guidelines that will help in future decision making

22. Group Decision Making Superior to individual making
Choices less likely to fall victim to bias
Able to draw on combined skills of group members
Improve ability to generate feasible alternatives
Allows managers to process more information
Managers affected by decisions agree to cooperate
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23. Group Decision Making Groupthink
A pattern of faulty and biased decision making that occurs in groups whose members strive for agreement among themselves at the expense of accurately assessing information relevant to a decision

24. Group Decision Making Devil’s Advocacy
Critical analysis of a preferred alternative to ascertain its strengths and weaknesses before it is implemented

25. Organizational Learning and Creativity
The process through which managers seek to improve a employee’s desire and ability to understand and manage the organization and its task environment so as to raise effectiveness

26. Organizational Learning and Creativity
A decision maker’s ability to discover original and novel ideas that lead to feasible alternative courses of action
Innovation
The implementation of creative ideas in an organization.
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27. Building Group Creativity
Brainstorming
Managers meet face-to-face to generate and debate many alternatives.
Group members are not allowed to evaluate alternatives until all alternatives are listed.
When all are listed, then the pros and cons of each are discussed and a short list created.

28. Building Group Creativity
Production blocking
Loss of productivity in brainstorming sessions due to the unstructured nature of brainstorming
Nominal Group Technique
A decision-making technique in which group members write down ideas and solutions, read their suggestions to the whole group, and discuss and then rank the alternatives

29. Building Group Creativity
Delphi Technique
A decision-making technique in which group members do not meet face-to-face but respond in writing to questions posed by the group leader

30. Entrepreneurship and Creativity
an individual who notices opportunities and decides how to mobilize the resources necessary to produce new and improved goods and services
Social entrepreneurs
individuals who pursue initiatives and opportunities to address social problems and needs in order to improve society and well-being

31. Entrepreneurship and Creativity
Intrapreneur
a manager, scientist, or researcher who works inside an organization and notices opportunities to develop new or improved products and better ways to make them

32. Entrepreneurship and Creativity
Mobilization of resources to take advantage of an opportunity to provide customers with new and improved goods and services
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33. Intrapreneurship and Creativity
Product champion
a manager who takes “ownership” of a project and provides the leadership and vision that take a product from the idea stage to the final customer
Skunkworks
a group who is deliberately separated from normal operations to encourage them to devote all their attention to developing new products
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