12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 1
Organizational Theory, Design, and Change
Sixth EditionGareth R. Jones
Chapter 12
Decision Making, Learning,
Knowledge Management, and
Information Technology
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 2
Learning Objectives1. Differentiate between several models
of decision making that describe how managers make decisions
2. Describe the nature of organizational learning and the different levels at which learning occurs
3. Explain how organizations can use knowledge management and information technology to promote organizational learning to improve the quality of their decision making
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 3
Learning Objectives (cont.)
4. Identify the factors, such as the operation of cognitive biases, that reduce the level of organizational learning and result in poor decision making
5. Discuss some techniques that managers can use to overcome these cognitive biases and thus open the organization up to new learning
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4
Organizational Decision Making Organizational decision making:
the process of responding to a problem by searching for and selecting a solution or course of action that will create value for organizational stakeholders
Programmed decisions: decisions that are repetitive and routine
Nonprogrammed decisions: decisions that are novel and unstructured
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 5
Models of Organizational Decision MakingThe rational model: decision
making is a straightforward, three-stage process Stage 1: Identify problems that need
to be solved Stage 2: Design and develop a list of
alternative solutions and courses of action to solve the problems
Stage 3: Compare likely consequences of each alternative and decide which course of action offers the best solution
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 6
Figure 12.1: The Rational Model of Decision Making
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 7
Models of Organizational Decision Making (cont.) The rational model (cont.)
Underlying assumptions Decision makers have all the
information they need Decision makers can make the best
decision Decision makers agree about what
needs to be done
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8
Models of Organizational Decision Making (cont.)
The rational model (cont.) Criticisms of the assumptions
Information and uncertainty: the assumption that managers are aware of all alternative courses of action and their consequences is unrealistic
Managerial abilities: managers have only a limited ability to process the information required to make decisions
Preferences and values: assumes managers agree about what are the most important goals for the organization
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 9
The Carnegie ModelIntroduces a new set of more
realistic assumptions about the decision-making process Satisficing: limited information
searches to identify problems and alternative solutions
Bounded rationality: a limited capacity to process information
Organizational coalitions: solution chosen is a result of compromise, bargaining, and accommodation between coalitions
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 10
Table 12.1: Differences Between the Rational and Carnegie Models
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 11
Models of Organizational Decision Making (cont.) The incrementalist model:
managers select alternative courses of action that are only slightly, or incrementally, different from those used in the past
Perceived to lessen the chances of making a mistake
Called the science of “muddling through”
They correct or avoid mistakes through a succession of incremental changes
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 12
Models of Organizational Decision Making (cont.) The unstructured model:
describes how decision making takes place in environments of high uncertainty
Unstructured model recognizes uncertainty in the environment
Managers rethink their alternatives when they hit a roadblock
Decision making is not a linear, sequential process
Tries to explain how organizations make nonprogrammed decisions
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 13
Models of Organizational Decision Making (cont.)
The garbage can model: a view of decision making that takes the unstructured process to the extreme
Decision makers are as likely to start decision making from the solution side as the problem side
Create decision-making opportunities that they can solve with ready-made solutions based on their competencies and skills
Different coalitions may champion different alternatives
Decision making becomes a “garbage can” in which problems, solutions, and people all mix and contend for organizational action
Selection of an alternative depends on which person’s or group’s definition of the current situation holds sway
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 14
The Nature of Organizational Learning
Organizational learning: the process through which managers seek to improve organization members’ desire and ability to understand and manage the organization and its environment
Creates an organizational capacity to respond effectively to the changing business environment
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 15
The Nature of Organizational Learning (cont.) Types of organizational
learning Exploration: organizational
members search for and experiment with new kinds or forms of organizational activities and procedures
Exploitation: organizational members learn ways to refine and improve existing organizational activities and procedures
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
The Nature of Organizational Learning (cont.)Learning organization: an
organization that purposefully designs and constructs its structure, culture, and strategy so as to enhance and maximize the potential for organizational learning to take place Employees at all levels must be able to analyze
the way an organization performs and experiments with change to increase effectiveness
16
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 17
Levels of Organizational Learning
Individual-level learning: managers need to facilitate the learning of new skills, norms, and values so that individuals can increase their own personal skills and abilities
Employees develop a sense of personal mastery to create and explore what they want
Employees must develop a commitment and attachment to their job so they will enjoy experimenting and risk taking
Organizations should encourage employees to assume more responsibility for their decisions
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Levels of Organizational Learning (cont.)
Group-level learning: managers need to encourage learning by promoting the use of various kinds of groups so that individuals can share or pool their skills and abilities
Allows for the creation of synergy Group routines can enhance group
effectiveness Group learning is even more important
than individual learning in promoting organizational learning
18
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 19
Levels of Organizational Learning (cont.)
Organizational-level learning: managers can promote organizational learning through the way they create an organization’s structure and culture
Cultural values and norms are an important influence on learning
Adaptive cultures: value innovation and encourage and reward experimentation and risk taking by middle and lower-level managers
Inert cultures: are cautious and conservative, and do not encourage risk taking by middle and lower-level managers
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 20
Levels of Organizational Learning (cont.) Organizations can improve their
effectiveness by copying and imitating each others’ distinctive competences
Encourages explorative and exploitative learning by cooperating with suppliers and distributors to discover new ways to handle inputs and outputs
Systems thinking: argues that in order to create a learning organization, managers must recognize the effects of one level of learning on another
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 21
Figure 12.2: Levels of Organizational Learning
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 22
Knowledge Management and Information Technology Knowledge management: a
type of IT-enabled organizational relationship that has important implications for both organizational learning and decision making
Involves sharing and integrating of expertise within and between functions and divisions through real-time, interconnected IT
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 23
Knowledge Management (cont.) Codification approach: knowledge
is carefully collected, analyzed, and stored in databases where it can be retrieved easily by users who input organization-specific commands and keywords
Suitable for standardized product or service
Personalization approach: IT designed to identify who in the organization might possess the information required for a custom job
More reliance on know-how, insight, and judgment to make decisions
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 24
Factors Affecting Organizational Learning Several factors may reduce
organizational learning over time Managers may develop rules and
standard operating procedures to facilitate programmed decision making
Past success with SOPs inhibits learning
Programmed decision making drives out nonprogrammed decision making
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Factors Affecting Organizational Learning (cont.)Cognitive structure: system of
interrelated beliefs, preferences, expectations, and values that predetermine responses to and interpretations of situations These shape the way managers
make decisions and perceive environmental opportunities and threats
25
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 26
Factors Affecting Organizational Learning (cont.) Types of cognitive biases
Cognitive biases: systematically bias cognitive structures to cause misperception and misinterpretation of information, thereby affecting organizational learning and decision making
Cognitive dissonance: state of discomfort or anxiety experienced when there is an inconsistency between one’s beliefs and actions
Managers seek or interpret information that confirms and reinforces their beliefs and ignore information that does not
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 27
Factors Affecting Organizational Learning (cont.)Types of cognitive biases (cont.)
Illusion of control: causes managers to overestimate the extent to which the outcomes of an action are under their personal control
Frequency: deceives people into assuming that extreme instances of a phenomenon are more prevalent than they really are
Representativeness: leads managers to form judgments based on small and unrepresentative samples
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 28
Factors Affecting Organizational Learning (cont.)Types of cognitive biases (cont.)
Projection: allows managers to justify and reinforce their own preferences and values by attributing them to others
Ego-defensiveness: leads managers to interpret events in such a way that their actions appear in the most favorable light
Escalation of commitment: leads managers to remain committed to a losing course of action and refuse to admit that they have made a mistake
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 29
Figure 12.3: Distortion of Organizational Decision Making by Cognitive Biases
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 30
Improving Decision Making and Learning Strategies for organizational
learning Cause managers to continuously
unlearn old ideas and confront errors in their beliefs and perceptions
Listening to dissenters Converting events into learning
opportunities Experimenting
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 31
Improving Decision Making and Learning (cont.) Game theory: tool to help managers
improve decision making and enhance learning
Interactions between organizations are viewed as a competitive game
Two basic types of game Sequential move game: players move in
turn, and one player can select a strategy to pursue after considering its rival’s choice of strategies
Simultaneous move game: the players act at the same time, in ignorance of their rival’s current actions
Useful for organizations competing against a limited number of rivals that are highly interdependent
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 32
Figure 12.4: A Decision Tree for UPS’s Pricing Strategy
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 33
Improving Decision Making and Learning (cont.)
Nature of the top-management team
The way the top management is constructed and the type of people who are on it affect organizational learning
Wheel configuration decreases org learning because managers report separately to the CEO
Wheel works best when problems are simple and require minimal coordination
Circle configuration works best for team and organizational learning
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Improving Decision Making and Learning (cont.) Learning occurs best when there
is heterogeneity of the top- management team
Groupthink: the conformity that emerges when like-minded people reinforce one another’s tendencies to interpret events and information in similar ways
34
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 35
Figure 12.5: Types of Top-Management Teams
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 36
Improving Decision Making and Learning (cont.)Devil’s advocate: a person who is
responsible for critiquing ongoing organizational learning A method for overcoming cognitive
biases and promoting organizational learning by institutionalizing dissent
Dialectical inquiry: teams of decision makers generate and evaluate alternative scenarios and provide recommendations
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 37
Improving Decision Making and Learning (cont.)Collateral organizational
structure: an informal organization of managers that is set up parallel to the formal organization structure to “shadow” the decision making and actions of managers in the formal organization Allows an organization to maintain its
capacity for change at the same time that it maintains its stability
12- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 38
Figure 12.6: How Devil’s Advocacy and Dialectical Inquiry Alter the Rational Approach to Decision Making