1. Decision Making in Organizations Chapter 10

2. © Copyright 2003, Prentice Hall 2 Learning Objectives 1. Identify the steps in the analytical model of decision making and distinguish between the various types of decisions people make. 2. Describe different individual decision styles and the various organizational and cultural factors that influence the decision- making process. 3. Distinguish among three approaches to how decisions are made: the rational-economic model, the administrative model, and image theory. 4. Identify the various factors that lead people to make imperfect decisions. 5. Compare the conditions under which groups make more superior decisions than individuals and when individuals make more superior decisions than groups. 6. Describe various traditional techniques and high-tech techniques that can be used to enhance the quality of individual decisions and group decisions.

3. © Copyright 2003, Prentice Hall 3 Decision Making The process of making choices from among several alternatives. Analytical Model of the Decision-Making Process Analytical Model of the Decision-Making Process: An eight-step approach to organizational decision making that focuses on both the formulation of problems and the implementation of solutions. –Formulation –Formulation : The process of understanding a problem and making a decision about it. –Implementation –Implementation : The process of carrying out a decision.

4. © Copyright 2003, Prentice Hall 4 The Decision-Making Process

5. © Copyright 2003, Prentice Hall 5 Organizational Decisions Programmed vs. Nonprogrammed Certain vs. Uncertain Top-down vs. Empowered

6. © Copyright 2003, Prentice Hall 6 Programmed vs. Nonprogrammed  Programmed  Programmed: Highly routine decisions made by lower-level personnel following preestablished organizational routines and procedures.  Nonprogrammed  Nonprogrammed: Decisions made about a highly novel problem for which there is no prespecified course of action. –Strategic –Strategic: Nonprogrammed decisions typically made by high-level executives regarding the direction their organization should take to achieve its mission.

7. © Copyright 2003, Prentice Hall 7 Programmed vs. Nonprogrammed

8. © Copyright 2003, Prentice Hall 8 Certain vs. Uncertain Usually expressed as statements of risk. What makes an outcome risky is the probability of obtaining the desired outcome. –Objective probabilities are based on concrete, verifiable data. –Subjective probabilities are based on personal beliefs or hunches. To make the best possible decisions in organizations, people seek to “manage” the risks they take. Efforts to reduce uncertainty include –Establishing linkages with other organizations –Increasing access to information –Relying on past experience and expertise

9. © Copyright 2003, Prentice Hall 9 Top-Down vs. Empowered  Top-Down Decision Making  Top-Down Decision Making: The practice of vesting decision-making power in the hands of superiors as opposed to lower-level employees.  Empowered Decision Making  Empowered Decision Making: The practice of vesting power for making decisions in the hands of employees themselves.

10. © Copyright 2003, Prentice Hall 10 Factors Affecting Decisions Individual differences Group influences Organizational barriers Cultural differences Time pressure

11. © Copyright 2003, Prentice Hall 11 Individual Differences Decision Style Decision Style: Differences between people with respect to their orientations toward decisions. Decision Style Model Decision Style Model: The conceptualization according to which people use one of four predominant decision styles: –Directive –Analytical –Conceptual –Behavioral

12. © Copyright 2003, Prentice Hall 12 Decision-Style Model

13. © Copyright 2003, Prentice Hall 13 Group Decision Making Potential Benefits Potential Benefits: –Pooling of resources –Specialization of labor –Greater acceptance Potential Problems Potential Problems: –Wasted time –Disruptive conflict –Intimidation by group leaders Groupthink Groupthink: The tendency for members of highly cohesive groups to so strongly conform to group pressures regarding a certain decision that they fail to think critically, rejecting the potentially correcting influences of outsiders.

14. © Copyright 2003, Prentice Hall 14 Groupthink

15. © Copyright 2003, Prentice Hall 15 Cultural Differences  Whether situations are perceived as problems requiring a decision be made.  What type of decision-making unit (individual or group) is employed.  Who is expected to make the decision (i.e., at what level is the decision made).  How much time should be taken to make the decision.

16. © Copyright 2003, Prentice Hall 16 Time Pressure Inexperienced individuals generally take longer to make decisions than experts do. –Expert decision makers rely on their “gut instinct” by drawing on a wealth of accumulated experiences. To increase decision-making effectiveness under time constraints: –Recognize your prime objectives –Rely on outside experts –Anticipate crises –Learn from mistakes

17. © Copyright 2003, Prentice Hall 17 Decision-Making Approaches  The Rational- Economic Model  The Administrative Model  Image Theory

18. © Copyright 2003, Prentice Hall 18 The Rational-Economic Model Rational Decisions Rational Decisions: Decisions that maximize the chance of attaining an individual’s, group’s, or organization’s goals. Rational-Economic Model Rational-Economic Model: The model of decision making according to which decision makers consider all possible alternatives to problems before selecting the optimal solution.

19. © Copyright 2003, Prentice Hall 19 The Administrative Model A model of decision making that recognizes the bounded rationality that limits the making of optimally rational-economic decisions. Satisficing Decisions Satisficing Decisions: Decisions made by selecting the first minimally acceptable alternative as it becomes available. Bounded Rationality Bounded Rationality: The major assumption of the administrative model that organizational, social, and human limitations lead to the making of satisficing rather than optimal decisions. Bounded Discretion Bounded Discretion: The tendency to restrict decision alternatives to those that fall within prevailing ethical standards.

20. © Copyright 2003, Prentice Hall 20 Image Theory A theory of decision making that recognizes that decisions are made in an automatic, intuitive fashion based on actions that best fit their individual principles, current goals, and plans for the future.

21. © Copyright 2003, Prentice Hall 21 Imperfections in Individual Decisions  Framing Effects  Reliance on Heuristics  Bias toward Implicit Favorites  Hindsight Bias  Person Sensitivity Bias  Escalation of Commitment Bias

22. © Copyright 2003, Prentice Hall 22 Framing Effects The tendency for people to make different decisions based on how the problem is presented to them. Risky Choice Framing Effect Risky Choice Framing Effect: The tendency for people to avoid risks when situations are presented in a way that emphasizes positive gains and to take risks when situations are presented in a way that emphasizes potential losses that may be suffered. Attribute Framing Effect Attribute Framing Effect: The tendency for people to evaluate a characteristic more positively when it is presented in positive terms than when it is presented in negative terms. Goal Framing Effect Goal Framing Effect: The tendency for people to be more strongly persuaded by information that is framed in negative terms than information that is framed in positive terms.

23. © Copyright 2003, Prentice Hall 23 Framing Effects

24. © Copyright 2003, Prentice Hall 24 Heuristics Simple decision rules used to make quick decisions about complex problems. Availability Heuristic Availability Heuristic: The tendency for people to base their judgments on information that is readily available to them although it may be potentially inaccurate, thereby adversely affecting decision quality. Representativeness Heuristic Representativeness Heuristic: The tendency to perceive others in stereotypical ways if they appear to be typical representatives of the category to which they belong.

25. © Copyright 2003, Prentice Hall 25 Hindsight Bias The tendency for people to perceive outcomes as more inevitable after they have occurred (i.e., in hindsight) than they did before they occurred (i.e., in foresight).

26. © Copyright 2003, Prentice Hall 26 Person Sensitivity Bias The tendency for people to give others too little credit when things are going poorly and too much credit when things are going well.

27. © Copyright 2003, Prentice Hall 27 Escalation of Commitment The tendency for individuals to continue to support previously unsuccessful courses of action.

28. © Copyright 2003, Prentice Hall 28 When are Groups Superior to Individuals? Complex Decision Tasks –For groups to be superior to individuals, they must be composed of a heterogeneous collection of experts with complementary skills who can freely and openly contribute to their group’s product. Simple Decision Tasks –On simple tasks, two heads may be better than one if at least one of those heads has in it enough of what it takes to succeed.

29. © Copyright 2003, Prentice Hall 29 Group vs. Individual Decision Making

30. © Copyright 2003, Prentice Hall 30 When are Individuals Superior to Groups? On poorly structured, creative tasks, individuals perform better than groups. Brainstorming Brainstorming: A technique designed to foster group productivity by encouraging interacting group members to express their ideas in a noncritical fashion. Four main rules: Avoid criticizing each others’ ideas Share even far-out suggestions Offer as many comments as possible Build on others’ ideas to create your own

31. © Copyright 2003, Prentice Hall 31 Brainstorming

32. © Copyright 2003, Prentice Hall 32 Improving Decision Making  Individual Techniques –Training individuals to improve group performance –Making ethical decisions  Group Techniques –The Delphi technique –Nominal group technique –Stepladder technique

33. © Copyright 2003, Prentice Hall 33 Training: Errors to Avoid  Hypervigilance  Unconflicted Adherence  Unconflicted Change  Defensive Avoidance

34. © Copyright 2003, Prentice Hall 34 Hypervigilance Problem: The state in which an individual frantically searches for quick solutions to problems and goes from one idea to another out of a sense of desperation that one idea isn’t working and that another needs to be considered before time runs out. Problem: The state in which an individual frantically searches for quick solutions to problems and goes from one idea to another out of a sense of desperation that one idea isn’t working and that another needs to be considered before time runs out. Solution: Keep in mind that it’s best to stick with one suggestion and work it out thoroughly. Reassure decision makers that their level of skill and education is adequate to solve the problem. Solution: Keep in mind that it’s best to stick with one suggestion and work it out thoroughly. Reassure decision makers that their level of skill and education is adequate to solve the problem.

35. © Copyright 2003, Prentice Hall 35 Unconflicted Adherence Problem: The tendency for decision makers to stick to the first idea that comes to their minds without more deeply evaluating the consequences. Problem: The tendency for decision makers to stick to the first idea that comes to their minds without more deeply evaluating the consequences. Solution: Think about the difficulties associated with your ideas. Force yourself to consider different ideas. Consider the special and unique characteristics of the problem you are facing, and avoid carrying over assumptions from previous problems. Solution: Think about the difficulties associated with your ideas. Force yourself to consider different ideas. Consider the special and unique characteristics of the problem you are facing, and avoid carrying over assumptions from previous problems.

36. © Copyright 2003, Prentice Hall 36 Unconflicted Change Problem: The tendency for people to quickly change their minds and to adopt the first new idea to come along. Problem: The tendency for people to quickly change their minds and to adopt the first new idea to come along. Solution: Ask yourself about: The risks and problems of adopting the solution. The good points of the first idea. The relative strengths and weaknesses of both ideas. Solution: Ask yourself about: The risks and problems of adopting the solution. The good points of the first idea. The relative strengths and weaknesses of both ideas.

37. © Copyright 2003, Prentice Hall 37 Defensive Avoidance Problem: The tendency for decision makers to fail to solve problems because they go out of their way to avoid working on the problem at hand. Problem: The tendency for decision makers to fail to solve problems because they go out of their way to avoid working on the problem at hand. Solution: Avoid procrastination. Avoid disowning responsibility. Don’t ignore potentially corrective information. Solution: Avoid procrastination. Avoid disowning responsibility. Don’t ignore potentially corrective information.

38. © Copyright 2003, Prentice Hall 38 Ethics Questions 1. Does the contemplated decision violate the obvious “shall nots”? 2. Will anyone get hurt? 3. How would you feel if your decision was reported on the front page of your newspaper? 4. What if you did it 100 times? 5. How would you feel if someone did it to you? 6. What’s your gut feeling?

39. © Copyright 2003, Prentice Hall 39 Delphi Technique A method of improving group decisions using the opinions of experts, which are solicited by mail and then compiled. The expert consensus is used to make a decision.

40. © Copyright 2003, Prentice Hall 40 Nominal Group Technique A technique for improving group decisions in which small groups of individuals systematically present and discuss their ideas before privately voting on their preferred solution. The most preferred solution is accepted as the group’s decision.

41. © Copyright 2003, Prentice Hall 41 Stepladder Technique A technique for improving the quality of group decisions that minimizes the tendency for group members to be unwilling to present their ideas by adding new members to a group one at a time and requiring each to present his or her ideas independently to a group that already has discussed the problem at hand.

42. © Copyright 2003, Prentice Hall 42 Computer-Based Approaches  Electronic Meetings  Electronic Meetings: The practice of bringing individuals from different locations together for a meeting via telephone or satellite transmissions, either on television monitors or via shared space on a computer screen.  Computer-Assisted Communication  Computer-Assisted Communication: The sharing of information, such as text messages and data relevant to the decision, over computer networks.  Group Decision Support Systems (GDSS):  Group Decision Support Systems (GDSS): Interactive computer-based systems that combine communication, computer, and decision technologies to improve the effectiveness of group problem-solving meetings.