Management A Practical Introduction Third Edition

1. Management A Practical IntroductionThird Edition Angelo Kinicki & Brian K. Williams

2. Chapter 7: Individual & Group Decision Making How Managers Make Things Happen • The Nature of Decision Making • Rational & Nonrational Decision Making • Evidence-Based Decision Making & Analytics • Making Ethical Decisions • How to Work With Others • How to Overcome Barriers to Decision Making

3. 7.1 The Nature Of Decision Making HOW DO MANAGERS MAKE DECISIONS? • A choice made from available alternatives is a decision • The process of identifying and choosing alternative courses of action is decision making • Decisions that are repetitive and routine and made automatically are programmed • Decisions that occur under nonroutine, unfamiliar circumstances and are not automatic are nonprogrammed

4. 7.1 The Nature Of Decision Making • The willingness to gamble or to undertake risk for the possibility of gaining an increased payoff is referred to as risk propensity • The combination of how an individual perceives and responds to information is the individual’s decision-making style • Decision-making styles differ according to value orientation(the extent to which a person focuses on either task and technical issues or people and social concerns when making a decision) and tolerance for ambiguity (the extent to which a person has a need for structure or control)

5. 7.1 The Nature Of Decision Making When the dimensions of value orientation and tolerance for ambiguity are combined, four decision-making styles emerge: 1. Managers with a directive style are efficient, logical, practical, and systematic • They have a low tolerance for ambiguity and an orientation toward task and technical concerns 2.Analytical managers have a higher tolerance for ambiguity and tend to overanalyze situations • Analytical managers take a longer time to make decisions, but respond well to new or uncertain events

6. 7.1 The Nature Of Decision Making Figure 7.1: Decision-Making Styles

7. Chapter 7: Individual & Group Decision Making CLASSROOM PERFORMANCE SYSTEM Which of the following is not one of the four styles of decision making? A) directive B) behavioral C) analytical D) reactive

8. 7.1 The Nature Of Decision Making 3. Conceptualmanagers have a high tolerance for ambiguity and focus on the people or social aspects of a situation • They take a broad perspective to problem solving and rely on intuition and discussions with others to acquire information, but can be indecisive 4. Behavioral managers are the most people oriented and work well with others • They have a tendency to avoid conflict, but can be indecisive and have a hard time saying no

9. Chapter 7: Individual & Group Decision Making CLASSROOM PERFORMANCE SYSTEM Which type of manager is the most people oriented? A) directive B) conceptual C) analytical D) behavioral

10. 7.2 Two Kinds Of Decision Making: Rational & Nonrational HOW CAN MANAGERS MAKE LOGICAL & OPTIMAL DECISIONS? • The rational model of decision making(also known as the classical model) explains how managers should make decisions • It assumes that managers will make logical decisions that will be optimal for the organization

11. 7.2 Two Kinds Of Decision Making: Rational & Nonrational There are four stages in the rational decision making process Stage 1: Identify the problem or opportunity • Difficulties that inhibit the achievement of goals are called problems • Situations that present possibilities for exceeding existing goals are called opportunities • Whether they face a problem or an opportunity, managers need to make decisions that will improve the firm • To do this, they need to make a diagnosis (analysis of the underlying causes of the problem or opportunity)

12. 7.2 Two Kinds Of Decision Making: Rational & Nonrational Figure 7.2: The Four Steps in Rational Decision Making

13. 7.2 Two Kinds Of Decision Making: Rational & Nonrational Stage 2: Think up alternative solutions • Once managers have identified problems or opportunities and diagnosed causes, they need to come up with alternative solutions • Solutions for programmed decisions are simple and obvious, but nonprogrammed decisions will be more challenging Stage 3: Evaluate alternatives & select a solution • Each alternative must be evaluated to determine whether it is ethical, feasible, and effective

14. 7.2 Two Kinds Of Decision Making: Rational & Nonrational Stage 4: Implement & evaluate the solution chosen • It is usually more straightforward to implement programmed decisions than nonprogrammed decisions • To successfully implement a decision, managers must plan carefully and be sensitive to those affected by the decision • If a decision fails to go as planned, managers should give it more time, change it slightly, or try another alternative • In some cases, it might be necessary to start the process over

15. 7.2 Two Kinds Of Decision Making: Rational & Nonrational WHAT’S WRONG WITH THE RATIONAL MODEL? • The rational model describes what a manager ought to do (it is prescriptive), it does not describe how a manager should actually make a decision • The model also assumes that the manager has complete information

16. 7.2 Two Kinds Of Decision Making: Rational & Nonrational WHY DO MANAGERS MAKE NONRATIONAL DECISIONS? • Nonrational models of decision making assume that decision making is usually uncertain and risky • Nonrational models are descriptive- they describe how managers actuallymake decisions • There are two nonrational models: satisficing and incremental

17. 7.2 Two Kinds Of Decision Making: Rational & Nonrational 1. Thesatisficing modelsuggests that because of bounded rationality (when the ability of decision makers to be rational is limited by numerous constraints), managers do not seek all alternative solutions, but instead seek alternatives only until they find one that is satisfactory, not optimal 2. The incremental model of decision making argues that managers take small, short-term steps to solve problems

18. 7.2 Two Kinds Of Decision Making: Rational & Nonrational CAN MANAGERS MAKE BETTER DECISIONS THROUGH KNOWLEDGE MANAGEMENT? • Today, managers are shifting toward knowledge management or the development of an organizational culture (tools, processes, systems, and structures) that encourages continuous learning and sharing of knowledge and information among employees, for the purpose of making better decisions

19. 7.2 Two Kinds Of Decision Making: Rational & Nonrational There are two types of knowledge: 1. explicitknowledgeis information that can easily be put into words, graphics, and numbers and shared with others like the tax code 2. tacit knowledge is individual-based, intuitive, and acquired through considerable experience, and is hard to explain and to share like how to write a speech • Managers can share information using high-tech solutions like e-mail and Web sites, and low-tech solutions like human interaction in meetings and informal networking

20. 7.3 Evidence–Based Decision Making & Activities WHY IS EVIDENCE BASED DECISION MAKING USEFUL? • Evidence based decision making requires managers to put aside beliefs and conventional wisdom and act on the facts • The philosophy is based on three truths: there are few really new ideas, true is better than new, doing well usually dominates • Managers who use evidence-based decision making often have a competitive advantage over those who do not

21. 7.3 Evidence–Based Decision Making & Activities Companies using evidence-based decision-making should: • treat the organization as an unfinished prototype • provide the facts • see themselves and their company as outsiders do • use evidence-based management regardless of management level • work to sell their solution • use evidence-based management even when it is not the popular method • learn from failure

22. 7.3 Evidence–Based Decision Making & Activities • Analytics or business analytics refers to sophisticated forms of business data analysis and is one of the purest forms of evidence-based management Competitors that use analytics share three key attributes: 1. they go beyond basic statistics and use other techniques like predictive modeling (a data mining technique used to predict future behavior and anticipate the consequences) 2. they do not rely on a single method, but instead use multiple applications 3. they have support from top level executives

23. 7.4 Making Ethical Decisions HOW CAN MANAGERS BE SURE THEIR DECISIONS ARE ETHICAL? • Today, ensuring that employees understand what constitutes desirable business behavior has become important • Many companies have ethics officers (someone trained about matters of ethics in the workplace, particularly about resolving ethical dilemmas)

24. 7.4 Making Ethical Decisions • Companies use decision trees (graphs of decisions and their possible consequences that are used to crate a plan to reach a goal) to help them reach ethical decisions When using a decision tree, managers should ask: • is the proposed action legal? • if yes, does the proposed action maximize shareholder value? • if yes, is the proposed action ethical? • if no, would it be ethical not to take the proposed action?

25. 7.4 Making Ethical Decisions Figure 7.4: The Ethical Decision Tree: What’s The Right Thing To Do?

26. 7.5 Group Decision Making: How To Work With Others WHY WORK IN GROUPS? There are five advantages to using groups: • groups provide a greater pool of knowledge • groups offer different perspectives • groups encourage intellectual stimulation • groups allow for a better understanding of decision rationale • groups encourage a deeper commitment to the decision

27. 7.5 Group Decision Making: How To Work With Others WHAT ARE THE DISADVANTAGES OF GROUPS? There are several disadvantages of groups: • groups can result in a few people dominating or intimidating • groups encourage groupthink which occurs when group members strive to agree for the sake of unanimity and avoid accurately assessing the decision situation • groups encourage satisficing • groups promote goal displacement which occurs when the primary goal is subsumed by a secondary goal

28. 7.5 Group Decision Making: How To Work With Others WHAT SHOULD MANAGERS KNOW ABOUT GROUPS & DECISION MAKING? Managers should be aware of four characteristics of groups: 1. groups are less efficient 2. group size affects the quality of decisions 3. groups may be too confident about their decisions 4. group decision making tends to be better when members know more about relevant issues, and when leaders can weight members’ opinions

29. Chapter 7: Individual & Group Decision Making CLASSROOM PERFORMANCE SYSTEM Which of the following is not true of group decision making? A) it is more efficient B) group size affects decision quality C) groups are more confident of the decision D) knowledge is important

30. 7.5 Group Decision Making: How To Work With Others SHOULD EMPLOYEES BE INVOLVED IN DECISION MAKING? • One technique to improve productivity is participative management (the process of involving employees in setting goals, making decisions, solving problems, and making changes to the organization) • Studies have found that participative management is effective in some cases such as when management is supportive and employees trust managers

31. 7.5 Group Decision Making: How To Work With Others • When groups make decisions, they have to reach a consensus (when members are able to express their opinions and reach agreement to support the final decision) • Three techniques that can help groups solve problems are brainstorming(helps groups generate ideas and alternatives for solving problems, nominal groups(generate ideas and evaluate solutions by writing down as many ideas as possible, listing them on a blackboard, and then taking a secret vote), and delphi groups(use physically dispersed experts who fill out questionnaires to anonymously generate ideas) • These can be assisted with computer-aided decision making

32. Chapter 7: Individual & Group Decision Making CLASSROOM PERFORMANCE SYSTEM Which of the problem solving techniques is useful when managers want to generate as many new ideas or alternatives as possible? A) nominal group technique B) delphi technique C) brainstorming D) computer-aided decision making

33. 7.6 How To Overcome Barriers To Decision Making HOW DO MANAGERS RESPOND TO DECISION SITUATIONS? There are four ineffective reactions: 1. relaxed avoidance - a manager decides to take no action in the belief that there will not be great negative consequences 2. relaxed change - a manager realizes that complete inaction will have negative consequences but opts for the first available alternative that has low risk

34. 7.6 How To Overcome Barriers To Decision Making 3. defensive avoidance - the manager can’t find a good solution so procrastinates, passes the buck, or denies the risk of any negative consequences 4. panic - a manager is so frantic to get rid of the problem that he can’t deal with the situation realistically • When a manager agrees that he must decide what to do about a problem or opportunity, and takes effective decision-making steps, we say he is deciding to decide

35. Chapter 7: Individual & Group Decision Making CLASSROOM PERFORMANCE SYSTEM A manager that simply takes the easy way out is using the ______ strategy. A) panic B) defensive avoidance C) relaxed change D) relaxed avoidance

36. 7.6 How To Overcome Barriers To Decision Making There are several common decision making biases (called heuristics) that simplify the process of making decisions: 1. When managers use only information that is readily available from memory to make judgments, an availability biasexists 2. When people seek information to support their point of view and discount data that do not, a confirmation biasexists 3. A representativeness biasrefers to the tendency to generalize from a small sample or a single event

37. 7.6 How To Overcome Barriers To Decision Making 4. When managers add up all the money already spent on a project and conclude it is too costly to simply abandon it, sunk cost bias exists 5. The tendency to make decisions based on an initial figure is adjustment bias 6.Escalation of commitment biasoccurs when decision makers increase their commitment to a project despite negative information about it

38. Chapter 7: Individual & Group Decision Making CLASSROOM PERFORMANCE SYSTEM Which type of bias occurs when a manager generalizes from a small sample? A) confirmation bias B) representativeness bias C) availability bias D) sunk cost bias