1. Chapter Seven Decision Making, Learning, Creativity and Entrepreneurship McGraw-Hill/IrwinCopyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. 7-2 The Nature of Managerial Decision Making  Decision Making ≈ The process by which managers respond to opportunities and threats that confront them by analyzing options and making determinations about specific organizational goals and courses of action.

3. 7-3 Decision Making  Programmed Decision ≈ Routine, virtually automatic process ≈ Decisions have been made so many times in the past that managers have developed rules or guidelines to be applied when certain situations inevitably occur

4. 7-4 Decision Making  Non-Programmed Decisions ≈ Non-routine decision made in response to unusual or novel opportunities and threats. ≈ The are no rules to follow since the decision is new.

5. 7-5 Decision Making  Intuition ≈ 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

6. 7-6 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.

7. 7-7 The Classical Model of Decision Making Figure 7.1

8. 7-8 The Administrative Model  Administrative Model ≈ An approach to decision making that explains why decision making is inherently uncertain and risky and why managers can rarely make decisions in the manner prescribed by the classical model

9. 7-9 The Administrative Model  Bounded rationality ≈ There is a large number of alternatives and available information can be so extensive that managers cannot consider it all. ≈ Decisions are limited by people’s cognitive limitations.

10. 7-10 The Administrative Model  Incomplete information ≈ Risk  Present when managers know the possible outcomes of a particular course of action and can assign probabilities to them. ≈ Uncertainty  Probabilities cannot be given for outcomes and the future is unknown. ≈ Ambiguous Information  Information whose meaning is not clear allowing it to be interpreted in multiple or conflicting ways. ≈ Time constraints and information costs  Managers have neither the time nor money to search for all possible alternatives and evaluate potential consequences

11. 7-11 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

12. 7-12 Six Steps in Decision Making Figure 7.4

13. 7-13 Figure 7.5 General Criteria for Evaluating Possible Courses of Action

14. 7-14 Cognitive Biases and Decision Making  Heuristics ≈ Rules of thumb that simplify the process of making decisions. ≈ Decision makers use heuristics to deal with bounded rationality.  Systematic errors ≈ errors that people make over and over and that result in poor decision making

15. 7-15 Sources of Cognitive Biases  Prior Hypothesis Bias ≈ Allowing strong prior beliefs about a relationship between variables to influence decisions based on these beliefs even when evidence shows they are wrong.  Representativeness ≈ The decision maker incorrectly generalizes a decision from a small sample or a single episode.

16. 7-16 Sources of Cognitive Biases  Illusion of Control ≈ The tendency to overestimate one’s own ability to control activities and events.  Escalating Commitment ≈ Committing considerable resources to a project and then committing more even if evidence shows the project is failing.

17. 7-17 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

18. 7-18 Group Decision Making  Potential Disadvantages ≈ Can take much longer than individuals to make decisions ≈ Can be difficult to get two or more managers to agree because of different interests and preferences ≈ Can be undermined by biases

19. 7-19 Group Decision Making  Groupthink ≈ 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

20. 7-20 Devil’s Advocacy and Dialectical Inquiry Figure 7.7

21. 7-21 Organizational Learning and Creativity  Organizational learning ≈ 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.  Learning organization ≈ Managers try to maximize the people’s ability to behave creatively to maximize organizational learning.

22. 7-22 Organizational Learning and Creativity  Creativity ≈ The ability of the decision maker to discover novel ideas leading to a feasible course of action.  A creative management staff and employees are the key to the learning organization.

23. 7-23 Senge’s Principles for Creating a Learning Organization Figure 7.8

24. 7-24 Building Group Creativity  Brainstorming ≈ Managers meet face-to-face to generate and debate many alternatives.  Nominal Group Technique ≈ Provides a more structured way to generate alternatives in writing and gives each manager more time and opportunity to come up with potential solutions ≈ Useful when an issue is controversial and when different managers might be expected to champion different courses of action

25. 7-25 Building Group Creativity  Delphi Technique ≈ Written approach to creative problem solving. ≈ Group leader writes a statement of the problem to which managers respond ≈ Questionnaire is sent to managers to generate solutions ≈ Team of managers summarizes the responses and results are sent back to the participants ≈ Process is repeated until a consensus is reached

26. 7-26 Entrepreneurship  Entrepreneurs ≈ Individuals who identify opportunities and take responsibility for mobilizing the resources necessary to produce new and improved goods and services.  MNGT 352, 353, 354, 455  Case Study: The White House restaurant, New HarmonyThe White House restaurant  Social entrepreneurs ≈ those who pursue initiatives and opportunities to address social problems and needs in order to improve society

27. 7-27 Entrepreneurship  Intrapreneurs ≈ Individuals (managers, scientists, or researchers) who work inside an existing organization and identify an opportunity for product improvements and are responsible for managing the product development process.  Case Study: Berry Plastics, business plan competitionBerry Plasticsbusiness plan competition  Case Study: Evansville ARC, Ideation competitionIdeation competition

28. 7-28 Characteristics of Entrepreneurs  Open to experience: they are original thinkers and take risks.  Internal locus of control: they take responsibility for their own actions.  High self-esteem: they feel competent and capable.  High need for achievement: they set high goals and enjoy working toward them.

29. 7-29 Entrepreneurship and Management  Frequently, founding entrepreneur lacks the skills, patience, and experience to engage in the difficult and challenging work of management

30. 7-30 Intrapreneurship and Organizational Learning  Product champions: taking ownership of a product from concept to market.  Skunkworks: keeping a group of intrapreneurs separate from the rest of the firm.  Rewards for innovation: linking innovation by workers to valued rewards.