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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
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