1. Decision making and creativity Chapter 7

2. 7-2 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Learning Objectives 7.1Describe the rational choice paradigm 7.2Explain why people differ from the rational choice paradigm when identifying problems/opportunities, evaluating/choosing alternatives and evaluating decision outcomes 7.3Discuss the roles of emotions and intuition in decision making 7.4 Describe employee characteristics, workplace conditions and specific activities that support creativity 7.5Describe the benefits of employee involvement and identify four contingencies that affect the optimal level of employee involvement

3. 7-3 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Decision Making at HP At HP technicians moved from being problem solvers to having the autonomy to embrace entrepreneurialism in customer service. Through training, the company developed the technicians’ enthusiasm, ability and skills, resulting in happy costumers and employees

4. 7-4 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Decision Making Defined Decision making is a conscious process of making choices among one or more alternatives, with the intention of moving toward some desired state of affairs

5. 7-5 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Rational Choice Paradigm Rational choice paradigm: effective decision makers identify, select and apply the best possible alternative Two key elements of rational choice 1.Subjective expected utility: determines choice with highest value (maximisation) 2.Decision-making process: systematic application of stages of decision making

6. 7-6 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Subjective Expected Utility Estimating the best possible alternative (maximisation) Expected—probability of an outcome occurring E.g. chance that outcome 3 will occur is 90% if choice ‘A’ is chosen, 30% if choice ‘B’ is chosen Utility—value or happiness produced by each option from value of expected outcomes Choice ‘B’ has higher utility (value) than choice ‘A’ Choice ‘B’ expected utility is (0.8×7)+(0.2×–2)+(0.3×1)=6.4 Choice B Outcome 1 (+7) Outcome 2 (-2) Outcome 3 (+1) 0.8 0.2 0.3 Choice A Outcome 1 (+7) Outcome 2 (-2) Outcome 3 (+1) 0.2 0.5 0.9 Utility (expected happiness) Probability of outcome occurring

7. 7-7 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Rational Choice Decision Process

8. 7-8 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Rational Choice Decision Process Identify problem or opportunity –Symptom vs problem Choose decision process – E.g. (non) programmed Develop/identify alternatives –Search, then develop Choose best alternative – Subjective expected utility Implement choice Evaluate choice

9. 7-9 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Problems with the Rational Choice Paradigm The model assumes that people are efficient and logical information-processing machines In reality, people have difficulty recognising problems and failures and cannot simultaneously process huge volumes of information The model focuses on logical thinking and completely ignores emotions

10. 7-10 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Identifying Problems and Opportunities Stakeholder framing Mental models Decisive leadership Solution-focused problems Perceptual defence

11. 7-11 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Identifying Problems and Opportunities Effectively 1.Be aware of perceptual and diagnostic limitations 2.Fight against pressure to look decisive 3.Maintain ‘divine discontent’ (aversion to complacency) 4.Discuss the situation with colleagues—see different perspectives

12. 7-12 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Making Choices: Rational vs OB Views Goals are ambiguous, conflicting and lack agreement Goals are clear, compatible and agreed upon People are able to calculate all alternatives and their outcomes People evaluate all alternatives simultaneously People have limited information processing abilities People evaluate alternatives sequentially Rational choice paradigm assumptions Observations from organisational behaviour

13. 7-13 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Making Choices: Rational vs OB Views continued People evaluate alternatives against an implicit favourite People use absolute standards to evaluate alternatives People make choices using factual information People choose the alternative with the highest payoff (SEU) People make choices using perceptually distorted information People choose the alternative that is good enough (satisficing) Rational choice paradigm assumptions Observations from organisational behaviour

14. 7-14 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Biased Decision Heuristics People have built-in decision heuristics that bias evaluation of alternatives 1.Anchoring and adjustment—initial information (e.g. opening bid) influences evaluation of subsequent information 2.Availability heuristic—we estimate probabilities by how easily we can recall the event, even though other factors influence ease of recall 3.Representativeness heuristic—we estimate probabilities by how much they are similar to something else (e.g. stereotypes) even when better information about probabilities is available

15. 7-15 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Paralysed by Choice Decision makers are less likely to make any decision at all as the number of options increases Occurs even when there are clear benefits to selecting any alternative (such as joining a company retirement plan) Evidence of human information processing limitations Courtesy of Microsoft

16. 7-16 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Emotions and Making Choices 1.Emotions form preferences before we consciously evaluate those choices 2.Moods and emotions influence how well we follow the decision process 3.We ‘listen in’ on our emotions and use that information to make choices

17. 7-17 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Intuitive Decision Making Ability to know when a problem or opportunity exists and select the best course of action without conscious reasoning Intuition as emotional experience –Gut feelings are emotional signals –Not all emotional signals are intuition Intuition as rapid non-conscious analysis –Uses action scripts

18. 7-18 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Making Choices More Effectively Systematically evaluate alternatives against relevant factors Be aware of effects of emotions on decision preferences and evaluation process Scenario planning

19. 7-19 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Implementing Decisions Execution—translating decisions into action—is one of the most important and challenging tasks of leaders

20. 7-20 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Evaluating Decision Outcomes Post-decisional justification is the tendency to inflate the quality of the selected option, and forget or downplay rejected alternatives Caused by need to maintain a positive self-concept Initially produces excessively optimistic evaluation of decision

21. 7-21 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Escalation of Commitment The tendency to repeat an apparently bad decision or allocate more resources to a failing course of action Four main causes of escalation: –Self-justification –Prospect theory effect –Perceptual blinders –Closing costs

22. 7-22 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Evaluating Decisions More Effectively Separate decision choosers from evaluators Establish a preset level to abandon the project Find sources of systematic and clear feedback Involve several people in the evaluation process

23. 7-23 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Creativity at Google Google encourages its engineers to use 20% of their time to develop projects of their choosing The company initially allocates limited resources to initiatives, then assigns more people and budget to projects that show progress and viability, like Google Maps

24. 7-24 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Creativity Defined Developing an original idea that makes a socially recognised contribution Applies to all aspects of the decision process—problems, alternatives, solutions

25. 7-25 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Creativity

26. 7-26 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Characteristics of Creative People

27. 7-27 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Organisational Conditions Supporting Creativity Learning orientation in the organisation Forgiveness for mistakes Creating intrinsically motivating jobs Open communication and sufficient resources A reasonable level of job security Support from leaders and co-workers

28. 7-28 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Creative Work Environments Learning orientation –Encourage experimentation –Tolerate mistakes Intrinsically motivating work –Task significance, autonomy, feedback Open communication and sufficient resources Unclear/complex effects of team competition and time pressure on creativity

29. 7-29 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Creative Activities Review abandoned projects Explore issue with other people Review abandoned projects Explore issue with other people Redefine the problem Storytelling Artistic activities Morphological analysis Storytelling Artistic activities Morphological analysis Associative play Diverse teams Information sessions Internal tradeshows Diverse teams Information sessions Internal tradeshows Cross- pollination

30. 7-30 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Double Circle Problem

31. 7-31 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Nine Dot Problem

32. 7-32 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Nine Dot Problem Revisited

33. 7-33 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Word Search FCIRVEEALTETITVEERS

34. 7-34 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Burning Ropes One Hour to Burn Completely After first rope burned i.e. 30 min.

35. 7-35 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Employee Involvement Defined The degree to which employees influence how their work is organised and carried out Different levels and forms of involvement: –Decide alone –Receive information from individuals –Consult with individuals –Consult with the team –Facilitate the team’s decision

36. 7-36 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Employee Involvement Model

37. 7-37 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Contingencies of Involvement Knowledge source Decision commitment Employees have relevant knowledge beyond leader Employees would lack commitment unless involved Risk of conflict 1.Norms support firm’s goals 2.Employee agreement likely Decision structure Problem is new and complex (i.e. Non-programmed decision) Higher employee involvement is better when:

38. 7-38 Copyright © 2013 McGraw-Hill Australia Pty Ltd McShane, Olekalns, Travaglione, Organisational Behaviour, 4e Summary The rational choice paradigm relies on subjective expected utility to identify the best choice, but it has limitations Emotions and intuition also have an important role, not just our rational decision-making Creativity is the development of original ideas that make a socially recognised contribution. The four creativity stages are preparation, incubation, insight and verification In the right conditions, employee involvement can contribute greatly to the decision-making process, as well as to the employees and the organisation

39. Decision making and creativity Chapter 7