Chapter 15 Decision Making and Organizational Learning

1. Chapter 15Decision Making and Organizational Learning

2. 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

3. 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

4. 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

5. 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

6. Nonprogrammed Novel opportunities or problems Requires extra information Uncertainty Programmed Recurring opportunities or problems Based on performance program Basic Types of Organizational Decisions

7. Figure 15.1 Nonprogrammed and Programmed Decision Making Novel problem arises Nonprogrammed decision making Problem or opportunity recurs Programmed decision making Performance Program used

8. The Decision-Making Process Classical Decision Making Model Administrative Decision Making Model

9. Classical Decision-Making Model • Prescriptive • Assumptions • People have access to all necessary information • People choose the best possible solution

10. 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

11. Problems with the Classical Model • All necessary information for optimal decision • Unable to use some information • Cognitive abilities • Information overload

12. Administrative Decision-Making Model • Descriptive • Assumptions • Approximations of situation used • Not all information considered • Satisficing

13. 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

14. Sources of Error in Decision Making Escalation of Commitment Shortcuts

15. Figure 15.2 Heuristics and Resulting Biases Availability Heuristic Representativeness Heuristic Anchoring & Adjustment Heuristic

16. 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

17. 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

18. 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

19. 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

20. Figure 15.3 Escalation of Commitment

21. 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

22. 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 Group Decision Making

23. Figure 15.4 Advantages and Disadvantages of Group Decision Making

24. 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

25. 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 Figure 15.5 Symptoms of Groupthink

26. 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

27. Other Consequences of Group Decision Making Diffusion of Responsibility Group Polarization Potential for Conflict

28. Group Decision Making Techniques • Brainstorming • Nominal Group Technique • Delphi Technique

29. Brainstorming Problems Suppression Of Ideas Production Blocking

30. 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 Group Decision Making Techniques for TQM

31. Organizational Learning • Process managers seek out to improve decision making ability of employees and enhance organizational efficiency and effectiveness • Exploration • Exploitation

32. Figure15.6 Principles of Organizational Learning Personal Mastery Principles Systems Thinking Complex Mental Models Shared Vision Team Learning