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Chapter 1515Decision Making Decision Making

and and Organizational Organizational

LearningLearning

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Chapter Objectives

Differentiate between nonprogrammed and programmed decisions and explain why nonprogrammed decision making is a complex, uncertain process

Explain the difference between the two main models of decision making and describe which is the most realistic

Discuss the main sources of error in decision making

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Chapter Objectives

Describe the advantages and disadvantages of group decision making and explain the techniques that can be used to improve it

Understand how organization learning can improve decision making and explain the steps involved in creating a learning organization

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Opening Case: A Big Turnaround in Nike’s Decision Making

In what ways has decision-making at Nike changed?

Decisions originating from design team Market changes

– Alternative sports shoes– Shoes for urban wear– New competition

Shift to team-based decision-making

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What is Decision Making?

The process by which members of an organization choose a specific course of action to respond to the opportunities and problems that confront them

Opportunities Problems

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Basic Types of Organizational Decisions

Nonprogrammed– Novel opportunities

or problems– Requires extra

information– Uncertainty

Programmed– Recurring

opportunities or problems

– Based on performance program

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Figure 15.1 Nonprogrammed and Programmed Decision Making

Nonprogrammeddecisionmaking

Problem or opportunity

recurs

Novel problem arises

Programmeddecision making

PerformanceProgram

used

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The Decision-Making Process

ClassicalDecisionMakingModel

AdministrativeDecisionMakingModel

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Classical Decision-Making Model

Prescriptive Assumptions

– People have access to all necessary information

– People choose the best possible solution

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Steps in the Classical Model

List all alternatives List consequences of each alternative Rank sets from most preferred to least

preferred based on personal preference Select alternative that results in most

preferred set of consequences

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Problems with the Classical Model

All necessary information for optimal decision

Unable to use some information – Cognitive abilities– Information overload

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Administrative Decision-Making Model

Descriptive Assumptions

– Approximations of situation used– Not all information considered

Satisficing

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Bounded Rationality

Ability to reason that is limited by the limitations of the human mind itself– Lack of cognitive abilities– Subjective definitions of situation– Satisfice rather than optimize

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Sources of Error in Decision Making

ShortcutsEscalation

ofCommitment

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Figure 15.2 Heuristics and Resulting Biases

AvailabilityHeuristic

RepresentativenessHeuristic

Anchoring &Adjustment

Heuristic

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Availability Heuristic

Reflects tendency to determine the frequency of an event and its causes by how easy these events and causes are to remember

Biases– Overestimation of frequency of

• vivid events• recent events

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Representativeness Heuristic

Reflects the tendency to predict the likelihood of an event occurring from the extent to which the event is typical of similar kinds of past events

Biases– Failure to consider base rate – Overestimating likelihood of rare event

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Anchoring and Adjustment Heuristic

Reflects tendency to make decisions based on adjustments from some initial amount

Biases– Inappropriate decisions when initial

amounts are too high or too low

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Escalation of Commitment

Tendency of decision makers to invest additional time, money, or effort into poor decisions– Reconfirm correctness of original decision– Desire to recoup losses

• Sunk costs– Risky behaviors increased by negative situation

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Figure 15.3 Escalation of Commitment

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Enterprise Resource Planning System (ERP)

Company-wide Intranet based on multi-module software– Reduces errors in

decision making– Reduces biases– Generates more

useful information– Links and

coordinates functional activities

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Group Decision Making

Advantages Availability/ diversity of

members’ skills, knowledge, expertise

Enhanced memory Greater ability to

correct errors Greater decision

acceptance

Disadvantages Time to make a

decision Group conflict Potential for groupthink

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Figure 15.4 Advantages and Disadvantages of Group Decision Making

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Use Individual Decision Making When…

An individual has all capabilities necessary to make a good decision

An individual can gather and assess all necessary information

Acceptance of decision is unnecessary or likely to occur anyway

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Figure 15.5 Symptoms of Groupthink

Illusion of invulnerability

Belief in inherent mortality of group

Collective rationalizations

Stereotypes of other groups

Self-censorship Illusions of

unanimity Direct pressure on

dissenters Emergence of self-

appointed mind guards

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Steps for Minimizing Groupthink

Group leader encourages thoughtfulness/ criticism Group leader refrains from expressing own opinion

and views until group has considered all alternatives

Group leader encourages group members to gather information from outside people

Group leader assigns devil’s advocate Group leader holds second meeting for important

decisions

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Other Consequences of Group Decision Making

Diffusionof

Responsibility

Potential for

Conflict

GroupPolarization

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Group Decision Making Techniques

Brainstorming Nominal Group Technique Delphi Technique

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Brainstorming Problems

SuppressionOf

Ideas

ProductionBlocking

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Group Decision Making Techniques for TQM

Benchmarking– Selecting a high-

performing group or organization

– Using this group as a model

– Improving to reach standard of model

Empowerment– Giving employees

authority to make decisions

– Giving employees responsibility for those decisions

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Organizational Learning

Process managers seek out to improve decision making ability of employees and enhance organizational efficiency and effectiveness– Exploration– Exploitation

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Figure15.6 Principles of Organizational Learning

Principles

Personal Mastery

Systems Thinking

Team LearningShared Vision

ComplexMental Models