OVERVIEW OF THE CHAPTER - جامعة البحرينstaff.uob.edu.bh/files/630127646_files/su… · Web view · 2012-09-30OVERVIEW OF THE CHAPTER. ... Although ‘exercising’

CHAPTER FIVEDECISION MAKING, LEARNING, CREATIVITY, AND ENTREPRENEURSHIP

OVERVIEW OF THE CHAPTER

This chapter examines how managers make decisions and explores the complexities inherent in doing so. The six steps of the decision-making process are outlined and the advantages and disadvantages of group decision making are discussed. Also, how managers can promote organizational learning and creativity to improve the quality of decision making throughout an organization is explored. Finally, the role of both the entrepreneur and the intrapreneur are examined.

LEARNING OBJECTIVES

1. Differentiate between programmed and nonprogrammed decisions, and explain why nonprogrammed decision-making is a complex, uncertain process. (LO1)

2. Describe the six steps that managers should take to make the best decisions. (LO2)

3. Identify the advantages and disadvantages of group decision-making, and describe techniques that can improve it. (LO3)

4. Explain the role that organizational learning and creativity play in helping managers to improve their decisions. (LO4)

5. Describe how managers can encourage and promote entrepreneurship to create a learning organization and differentiate between entrepreneurs and intrapreneurs. (LO5)

MANAGEMENT SNAPSHOT: DECISION MAKING AND LEARNING ARE THE KEY TO ENTREPRENEURIAL PROCESS

Marc Shuman is the founder and president of GarageTek, a company that designs and installs custom garage systems to organize and maximize storage capacity in home garages. Decision making has been an ongoing challenge for him. Favorable environmental conditions led him to believe that consumer demand existed for his product. He later decided to franchise his idea and within three years, GarageTek had 57 franchises in 33 states. However, Shuman faced another tough decision when he realized that some of the franchises were failing. Although his franchise agreement gave him the right to close them, he decided to give the troubled franchisees six months to get back on their feet. Shuman learned from this experience and now has tougher criteria in place for accepting new franchisees. He also decided to track franchise performance more closely so that potential problems can be quickly identified and solved.

Jones and George, Essentials of Contemporary Management, Third Edition 5-1


LECTURE OUTLINE

I. THE NATURE OF MANAGERIAL DECISION MAKING (LO1)

Decision making is the process by which managers respond to the opportunities and threats that confront them by analyzing the options and making determinations, or decisions about specific organizational goals and courses of action.

A good decision results in the selection of appropriate goals and courses of action that increase organizational performance. Bad decisions result in lower performance.

Decision making in response to opportunities occurs when managers search for ways to improve organizational performance. Decision-making in response to threats occurs when events are adversely affecting organizational performance and managers are searching for ways to increase performance.

Decision making is central to being a manager, and whenever managers engage in planning, organizing, leading, and controlling, they are constantly making decisions.

Managers are always searching for ways to improve their decision making in order to improve organizational performance.

Programmed and Nonprogrammed Decision Making

All decisions made by managers are programmed or nonprogrammed.

Programmed decision-making is a routine, virtually automatic process. These decisions have been made so many times in the past that managers have been able to develop rules or guidelines to be applied when certain situations inevitably occur.

Most decision-making that relates to day-to-day running of an organization is programmed decision making. Programmed decision-making is possible when managers have the information they need to create rules that will guide decision-making.

Nonprogrammed decision-making is required for nonroutine decisions. Nonprogrammed decisions are decisions that are made in response to unusual or novel opportunities or threats. These occur when there are no ready-made decision rules that managers can apply to a situation.



To make decisions in the absence of decision rules, managers may rely upon their intuition or they may make reasoned judgments. When using intuition, managers rely upon feelings, beliefs, and hunches that come readily to mind, require little effort and information gathering, and result in on-the-spot decisions. Reasoned judgments are decisions that take time and effort and result from careful information gathering, generation of alternatives, and evaluation of alternatives.

Although ‘exercising’ one’s judgment is a more rational process than ‘going’ with one’s intuition, both processes are often flawed and can result in poor decision making. Thus, the likelihood of error is much greater in nonprogrammed decision making than in programmed decision making.

Sometimes managers have to make rapid decisions and don’t have the time for a more careful consideration of the issues involved, while at other times, they do have the time available to make reasoned judgments.

The Manager as a Person: Curbing Overconfidence

Decades of research indicates that managers tend to be overconfident in the decisions that they make, and with overconfidence comes the failure to evaluate and rethink the wisdom of those decisions and learn from one’s mistakes. A distinction is made by researchers between the decision making skills of true experts who have extensive experience and managers who have some expertise. It is the managers who have some experience in their content area but are not true experts that tend to be overly confident in their intuition and their reasoned judgments, often do not learn from their mistakes, and are overconfident in their abilities and their influence over unpredictable events While the intuition of experts can also be faulty, it is less likely to be.

To avoid the perils of overconfidence, managers can critically evaluate their decisions and outcomes. They should also admit when they have made a mistake, learn from their mistakes, and be leery of too much agreement at the top, according to Professor Jeffery Pfeffer at Stanford University.

The Classical Model The classical model is prescriptive, which means that is specifies how decisions

should be made. Managers using this model make a series of simplifying assumptions about the nature of the decision-making process.

The model’s premise is that managers have access to all of the information they need to make the optimum decision. It also assumes that managers can easily list and rank each alternative from most to least preferred in order to reach an optimum decision.



The Administrative ModelThe administrative model explains why decision-making is always inherently risky and uncertain. It is based upon three important concepts: bounded rationality, incomplete information, and satisficing.

Bounded rationality describes the situation in which the number of alternatives a manager must identify is so great and the amount of information so vast that it is difficult to evaluate it all.

Incomplete is information because in most cases the full range of decision-making alternatives is unknown and the consequences associated with known alternatives are uncertain. In other words, information is incomplete because of risk and uncertainty, ambiguity, and time constraints.

1. Risk is present when managers know the possible outcomes of a particular course of action and can assign probabilities to them. Uncertainty exists when the probabilities of alternative outcomes cannot be determined, and future outcomes are unknown.

2. Much of the information that managers have at their disposal is ambiguous, and therefore can be interpreted in multiple and often confusing ways.

3. Because of time constraints and information costs, managers are unable search for all possible alternatives and evaluate all the potential consequences.

. Because of the limitations mentioned above, managers do not attempt to discover every alternative in an attempt to reach the optimum decision. Instead, they search for and choose an acceptable or satisfactory solution from a limited sample of potential alternatives. This strategy is called satisficing.

II. STEPS IN THE DECISION-MAKING PROCESS (LO2)

Using the work of March and Simon as a basis, researchers have developed a step-by-step model of the decision-making process. There are six steps that managers should consciously follow to make a good decision.

Recognize the Need for a DecisionSome stimuli usually spark the realization within the organization that a decision needs to be made. The stimuli may originate from the actions of managers inside of the organization or from changes in the external environment. Be it proactive or reactive, it is imperative that managers immediately recognize this need and respond in a timely and appropriate manner



Generate AlternativesA manager must generate a set of feasible alternative courses of action to take in response to the opportunity or threat. Failure to properly generate and consider a variety of alternatives can lead to bad decisions. Sometimes managers find it difficult to generate creative, alternative solutions to specific problems. Generating creative alternatives may require that we abandon our existing mid-sets and develop new ones.

Evaluate AlternativesOnce managers have generated a set of alternatives, they must evaluate the advantages and disadvantages of each one. Successful managers use four criteria to evaluate the pros and cons of alternative courses of action. Often a manager must consider these four criteria simultaneously. Some of the worst managerial decisions can be traced to poor assessment of the alternatives.

1. Legality: Managers must ensure that a possible course of action is legal.2. Ethicalness: Managers must ensure that a possible course of action is ethical and that

it will not unnecessarily harm any stakeholder group. 3. Economic feasibility: Managers must decide whether the alternatives can be

accomplished, given the organization’s performance goals, and do not cause harm to other goals of the organization.

4. Practicality: Managers must decide whether they have the capabilities and resources required to implement the alternative.

Ethics in Action: NASA’s Focus on Changing Culture

Seventeen years after the Challenger disaster, history repeated itself on February 1, 2003, when Columbia broke up over Texas on the final day of its mission, killing all seven astronauts on board. Both accidents are partially the result of a flawed organizational culture at NASA where concerns with budgets and schedules were emphasized at the expense of safety.

In both cases, top decision makers seemed to ignore or downplay input from those with technical expertise, and speaking up was discouraged. For instance, the day before the Columbia launch, when presented with data indicating that a crucial ring failed to meet strength requirements, a manager waived the requirements instead of postponing the launch to address this problem.Bill Parsons, who now heads the troubled shuttle program is committed to changing the culture so that safety is a top priority, technical expertise is respected, and shuttles are not launched until all known problems are addressed.



Choose Among AlternativesThe next step is to rank the various alternatives using the criteria listed above in order to make a decision. Managers must be sure that all information that is available is used. Sometimes managers have a tendency to ignore critical information, even when it is available.

Implement the Chosen AlternativeOnce a course of action has been determined, it must be implemented. Many managers make a decision and then fail to act on it. Thousands of subsequent decisions are necessary to implement a course of action. To ensure that implementation occurs, top managers must assign to middle managers the responsibility for making follow-up decisions, give them the sufficient resources required to achieve the goal, and hold them accountable for their performance.

Learning from FeedbackEffective managers always conduct a retrospective analysis in order to learn from past successes or failures. To ensure that they learn from experience, managers should establish a formal procedure that includes the following steps:

1. Compare what actually happened to what was expected to happen as a result of the decision.

2. Explore why any expectations for the decision were not met. 3. Develop guidelines that will help in future decision making.

III. GROUP DECISION MAKING (LO3) Many important decisions are made by groups or teams of managers instead of

individuals. When managers work as a team, their choices of alternatives are less likely to suffer from biases.

They are able to draw on the group’s combined skills and accumulated knowledge.

Group decision-making allows managers to process more information and correct each other’s errors.

Managers included in the making of a decision will most likely cooperate with its implementation. When a group makes a decision, each group member is usually committed to it, thereby increasing the likelihood of its successful implementation.

The disadvantages of group decision making include the long length of time it often takes and the possibility of being undermined by biases. A major source of group bias is groupthink.



The Perils of Groupthink Groupthink is a pattern of faulty and biased decision making that occurs in groups

whose members strive for agreement within the group at the expense of accurately assessing information.

When managers are subject to groupthink, they collective embark on a course of action without developing appropriate criteria to evaluation alternatives. Typically, the group rallies around one central manager and becomes blindly committed to that manager’s preferred course of action without evaluating its merits.

Pressures for harmony and agreement have the unintended impact of discouraging individuals from raising dissenting opinions.

Devil's Advocacy

Devil’s advocacy is a technique used to counteract groupthink. It involves a critical analysis of the group’s preferred alternative in order to ascertain its strengths and weaknesses before implementation. One member of the decision making group plays the role of devil’s advocate by critiquing and challenging the way in which the group evaluated alternatives and selected one alternative over the other.

Diversity among Decision MakersPromoting diversity within decision-making groups also improves group decision making by broadening the range of experiences and opinions that the group members can draw from as they generate, assess, and choose among alternatives. Groups containing members from diverse backgrounds are less prone to groupthink because of the differences that exist.

IV. ORGANIZATIONAL LEARNING AND CREATIVITY (LO4)

The quality of organizational decision making ultimately depends on innovative responses to opportunities and threats. Organizational learning is the process through which managers seek to improve employees’ desire and ability to understand and manage the organization. A learning organization is one in which managers do everything possible to maximize the potential for organizational learning to take place. At the heart of every learning organization is creativity, the ability of a decision maker to discover original and novel ideas that lead to feasible alternative courses of action.



Creating a Learning OrganizationPeter Senge developed five principles for creating a learning organization. They are:

1. Top managers must allow every person in the organization to develop a sense of personal mastery.

2. Organizations need to encourage employees to develop and use complex mental models.

3. Managers must do everything they can to promote group creativity and team learning.4. Managers must emphasis the importance of building a shared vision.5. Managers must encourage systems thinking.

Building a learning organization is neither a quick or easy process. It requires managers to change their management assumptions radically.

Promoting Individual Creativity Research indicates that when certain conditions are met, managers are more likely to

be creative. They include providing employees the opportunity and freedom to generate new ideas and allowing them an opportunity to experiment, to take risks, and to make mistakes and learn from them. Also employees must not fear that they will be penalized or looked down upon for ideas that at first seem outlandish.

Other ways of promoting individual creativity are providing constructive feedback so that employees will know how they are doing and visibly rewarding employees who come up with creative ideas.

Promoting Group Creativity

Brainstorming, nominal group technique and the Delphi technique are used to encourage creativity at the group level.

Brainstorming is a group problem solving technique in which managers meet face-to-face to generate and debate a wide variety of alternatives from which to make a decision. This technique is very useful in some situations but at other times can result in a loss of productivity due to production blocking. A brainstorming session is conducted as follows:



1. One manager describes the problem in broad outline.2. Group members share their ideas and generate courses of action.3. Group members are not allowed to criticize each alternative until all have been heard.4. Group members are encouraged to be as creative as possible. Anything goes, and the

greater the number of ideas put forth, the better.5. When all alternatives have been generated, the group members debate the pros and

cons of each and develop a list of the best alternatives. The Nominal Group TechniqueThe nominal group technique is more structured way of generating alternatives. It avoids production blocking and is especially useful when an issue is controversial. A nominal group technique session is conducted as follows:

1. One manager outlines the problem to be addressed and group members write down ideas and solutions.

2. Managers read their suggestions to the group with no criticism allowed.3. The alternatives are discussed, and group members can critique or ask for clarification.4. Each member ranks all the alternatives, and the highest-ranking one is selected.

Delphi TechniqueIf managers are in different locations, videoconferencing is one way to bring them together to brainstorm. Another way is to use the Delphi Technique, a written approach to creative problem solving. It works as follows:

1. The group leader writers a statement of the problem and a series of questions to which participating managers are to respond.

2. The questionnaire is sent to the managers and departmental experts who are most knowledgeable about the problem; they are asked to generate solutions and mail the questionnaire back to the group leader.

3. A team of top managers record and summarize the responses. The results are then sent back to the participants with additional questions to be answered before a decision can be made.

4. The process is repeated until a consensus is reached and the most suitable course of action is apparent.

Promoting Creativity at the Global Level

Organizations are under increasing pressure to reduce costs and develop global products. To do so, they typically centralize their R&D expertise to bring R&D managers together from different countries. Because this can pose some unique problems, managers must take special steps to encourage creativity among people from different countries who work together.



V. ENTREPRENEURSHIP AND CREATIVITY (LO5)

Entrepreneurs are individuals who notice opportunities and decide how to mobilize the resources necessary to produce new and improved goods and services. Thus, entrepreneurs are a very important source of creativity.

Entrepreneurs make all of the planning, organizing, leading, and controlling decisions necessary to start new ventures. Despite the fact that an estimated 80 percent of small businesses fail in the first three to five years, 38% of men and 50% of women in today’s workforce want to start their own companies.

An intrapreneur is an employee of an existing organization who notices opportunities

for either quantum or incremental product improvements and is responsible for managing the product development process.

Many intrapreneurs become dissatisfied when their superiors decide not to support or to fund their new product ideas and development efforts and, as a result, sometimes decide to leave their employer to start their own organization.

Characteristics of Entrepreneurs Entrepreneurs are likely to be high on the personality trait of openness to experience.

They also are likely to have an internal locus of control and believe that they are responsible for what happens to them.

Entrepreneurs are likely to have a high level of self-esteem, a high need for achievement, and a strong desire to perform challenging tasks and meet high personal standards of excellence.

Entrepreneurship and Management One way people become involved in entrepreneurial ventures is to start a business

from scratch. When people who do start solo ventures succeed, they frequently need to hire other people to help them run the business.

Some entrepreneurs often have difficulty managing the organization as it grows, since entrepreneurship and management is not the same thing. Frequently, a founding entrepreneur lacks the skills, patience, and experience to engage in the work of management.



Some entrepreneurs find it hard to delegate authority, so they become overloaded, and the quality of their decision-making declines. Others lack the detailed knowledge necessary to establish state-of-the-art information systems and technology or create management procedures that are critical to increasing organizational efficiency.

Thus, to succeed, it necessary to do more than create a new product. An entrepreneur must hire managers who can create an operating system that will let the new venture survive and prosper.

Intapreneurship and Organizational Learning

The intensity of competition today has made it increasingly important to promote intrapreneurship to raise the level of innovation and organizational learning. The higher the level of intrapreneurship, the higher will be level of learning and innovation. Below are ways to increase intrapreneurship within an organization.

Product Champions: A product champion is a manager who takes ownership of a project and provides the leadership and vision that is needed to take a product from the idea stage to market introduction. Product champions become responsible for developing a business plan for the product. If the plan is accepted, the production champion assumes responsibility for product development.

Skunkworks: A skunkworks is a group of intrapreneurs who are deliberately separated from the normal operation of an organization. By being isolated, these employees become intensely involved in the project. Development time is shortened and the quality of the product enhanced.

The term skunkworks was coined at the Lockheed Corporation, which formed a team of design engineers to develop special aircraft, such as the U2 spy plane. The secrecy of this unit and the speculation about its goals led others to give it this name.

Rewards for Innovation To encourage managers to bear risk and uncertainty, it is necessary to link

performance to rewards. Increasingly, companies are rewarding intrapreneurs on the basis of the outcome of the product development process by granting them large bonuses and stock options if the product sells. In addition to money, they often receive promotion to the ranks of top management.



Organizations must reward intrapreneurs equitably if they wish to prevent them from leaving to become outside entrepreneurs who might compete against them. Nevertheless, they frequently do.

VI. SUMMARY AND REVIEW

LECTURE ENHANCERS

Lecturer Enhancer 5.1WORLD-CLASS BAD DECISIONS

In the Decision Making Hall of Fame, one room should be reserved for truly bad decisions. One of the classics was Hewlett-Packard’s decision not to develop a product created by an employee. Steve Wozniak went off with his device to co-found Apple Computer.

Some rejected ideas have involved whole industries. When Alexander Graham Bell invented the telephone in 1876, he had a hard time attracting backers. President Rutherford B. Hayes used a prototype telephone and remarked, “That’s an amazing invention, but who would ever want to use one of them?” Bell approached Western Union Telegraph Company and offered to sell them the patents. Their decision: they had no use for an electrical toy.

A young inventor, Chester Carlson, took his idea to twenty corporations, all of whom turned him down. He finally got a small New York company named Haloid Co. to purchase the rights to his electrostatic paper-copying process. Haloid became Xerox Corporation, and Carlson’s process made both Xerox and Carlson very rich.

In 1962 four musicians played for executives of Decca Recording Company. One executive later explained that they just didn’t like the group’s sound, noting that guitar groups were on their way out. Four other record companies turned them down. The Decision Making Hall of Fame will have a special place for Decca, who turned down the Beatles.

Lecture Enhancer 5.2



TEACHING CREATIVITY TO BUSINESS STUDENTS

Jeff Skoll, a vice president of eBay whose net worth is $2.16 billion, says one of the most valuable courses he took at Stanford’s Graduate School of Business was Dr. Michael L. Ray’s “Personal Creativity in Business”. Dr. Ray has been teaching this course for 21 years, and although it is unlike anything else the business school offers, it fills up quickly each quarter. It would be unimaginable in most other business schools, yet it has inspired numerous Stanford graduates to become Internet entrepreneurs.

“The course enabled me to step back and look at what I wanted to accomplish in my life”. says Skoll, who received his MBA in 1995 and became eBay’s first president the following year. He is now vice president for strategic planning at the online auction site.

Dr. Ray began teaching the course after a trip to India, where he discovered that everyone, even the shopkeepers, seemed motivated by a higher purpose and often starting their workday with prayer. The goal of the course, he says, is to motivate business students to look inside themselves, trust their intuition, and silence the annoying voice that discourages them from taking chances. “This kind of creativity is in all of us but we don’t always see it”, says the professor. “It’s often covered by the fear of judgment and the chattering mind”.

Some of the techniques he uses to unleash the creative powers of students seem out of place in a business school. The course is built around nine assignments, in which students choose a specific strategy for coping with contemporary challenges, such as “destroy judgment, create curiosity”, “live with it”, “do what is easy, effortless, and enjoyable”, or “ask dumb questions”. Each strategy relates to five challenges: purpose and career, time and stress, relationships, balance, and finding true prosperity. Students choose a form of creative expression, such as dance or poetry reading, and to loosen their inhibitions, they may meditate in the dark or create “mood doodles’ with crayons in their journals. To deal with stress, they might record their anxieties in journals or limit their fretting to a designated ‘worry time’.



Another one of Dr. Ray’s successful alums is Jim Collins, an educator, business consultant, and author of two best-selling management books, Good to Great and Built to Last: Successful Habits of Visionary Companies. “I almost dropped the course after the first few weeks. It was just too weird”, says Collins. “The last thing I expected when I entered business school was to be sitting on the floor in the dark, listening to a tape of an Indian spiritual leader and chanting ‘Om’”. In retrospect, however, Collins realizes that the course had a profound impact upon his life. He says it was this creativity class that propelled him into a career as both an entrepreneurship professor and author.

What stimulated Dr. Ray, who holds a doctorate in social psychology, to teach a course in creativity to soon-to-be corporate executives and entrepreneurs? Ray says, “People were coming here and getting technologically trained but nowhere did they stop and ask, “Who am I, at essence, and why as I here? What is the purpose of all of this? People need to take the risk of being vulnerable, and when they do, they are not only accepted, but applauded”.

Taken from “Michael Ray: Teaching Entrepreneurs How to Cut Loose”, by Katherine Mangan, published in The Chronicle of Higher Education, October 20, 2000.

Lecture Enhancer 5.3BUREAUCRACY STRANGLES INTRAPRENEURSHIP

In the 1980s “intrapreneurship” became a buzzword among managers who wanted to introduce small-business fervor into lumbering corporations. The idea was that the parent company would provide seed money to employees, who would gain the satisfaction of running their own shop while producing products that benefited their corporate sponsor.

The ventures did produce some successes. IBM developed its IBM Personal Computer through such a venture. At Xerox Corporation about half dozen successful companies have been created. Most, though, have fallen flat. Companies like Control Data Corporation and Northwestern Bell Telephone Co. have ended their programs. So did IBM, which says the program was unnecessary after the company decentralized. Of the fourteen ventures Eastman Kodak created, six have been shut down, three have been sold, four have been merged into the company, and only one still operates independently. One of Kodak’s projects was canceled because the company didn’t like the unit’s logo, a Cheshire cat, considering it too frivolous for a serious organization.

The problem, management experts say, is that a go-go small business culture can’t easily be grafted onto a deliberate corporate giant. The practices that make corporations successful—training procedures, personnel policies, hierarchical management structures—are incompatible with risk-taking entrepreneurs. In addition, employees-turned-entrepreneurs are



often ill prepared for their new roles. Researchers, for example, who have spent their careers in the lab are unfamiliar with the rigors of the marketplace.



MANAGEMENT IN ACTIONNotes for Topics for Discussion and Action

Discussion1. What are the main differences between programmed decision making and nonprogrammed decision making? (LO1)

Programmed decision making is a routine, almost automatic process. These decisions have been made so many times that managers do not need to readdress all the alternatives every time one of these decisions arises, but can use decision-making rules or guidelines that have been developed for these situations. Managers typically have all the information they need to create the rules necessary to make a decision. There is little ambiguity involved in these types of decisions.

Nonprogrammed decision making is required when a situation arises that is not easily resolved by a pre-existing rule or guideline. These decisions are non-routine, and require managers to respond to uncertainty, since managers in these situations lack the information that they need to develop rules that allow them to accurately predict the future.

2. In what ways do the classical and administrative models of decision making help managers appreciate the complexities involved in real- world decision making? (LO1)

The classical model’s main premise is that once managers recognize the need to make a decision, they should be able to generate a complete list of all alternatives and consequences from which the best choice can then be made. This premise assumes that managers will have access to all the information that they need in order to make the optimum decision. This model helps managers appreciate the complexities of decision making by requiring them to consider all the information and then attempting to make decisions that will have the most desirable consequences for their organization.

The administrative model proposes that although managers do not have access to all the information, they still must make a decision. This model more fully exposes the complexities involved of decision making by forcing us to consider the limitations we may face. Proponents of this model assert that even if managers had access to all information needed, they would lack the mental or psychological ability to absorb and correctly evaluate it. In most situations, managers do not have access to complete information. Nor do they have knowledge of all of the consequences of each alternative. This model is more realistic for managers because it concedes that risk and uncertainty, ambiguity, and time constraints often compound in ways that make nonprogrammed decision making difficult, even for the most experienced managers.



3. Why do capable managers sometimes make bad decisions? What can individual managers do to improve their decision making skills? (LO2)

Capable managers sometimes make bad decisions because the decision making process can often be risky and uncertain. Failure to think creatively in order to generate a wide variety of alternatives and failure to evaluate all relevant information available can lead to a bad decision. Also, failure to consider the economic feasibility, legality, or ethicalness of decision prior to its implementation can result in disastrous consequences.

Managers should identify their own personal style of decision making in order to recognize inconsistencies that may prevent them from making good decisions. By reviewing two recent decisions—one that turned out well and one that turned out poorly—and seeing how they were made, a manager can gain insight into his or her decision making process. Another technique that is useful is to list the criteria used to assess and evaluate alternatives. This can help managers critically evaluate the effectiveness and the appropriateness of each criterion. Working with others may be helpful as well, as it is often difficult to recognize our own biases and weaknesses.

4. In what kinds of groups is groupthink most likely to be a problem? When is it least likely to be a problem? What steps can group members take to ward off groupthink? (LO3)

Groupthink is a pattern of faulty and biased decision making that occurs in groups whose members strive for agreement within the group at the expense of accurately assessing information relevant to a decision. When this occurs, alternatives are not critically examined, potentially leading to a poor decision. Emotion, rather than objective assessment, guides the selection of the optimal course of action. This is most likely to be a problem in groups where pressure toward agreement is seen as more important than finding a workable solution or reaching an optimum decision. If the culture of the organization is not tolerant of criticism or innovative thinking, groupthink is more likely to occur during the group decision making process. If one person in a group is allowed to be highly vocal and controlling during the decision making process, others may feel too intimidated to present their suggestions or opinions.

Groupthink is least likely to be a problem when all the members of the group feel comfortable making suggestions and offering radical alternatives. If the culture supports risk-taking and innovative thinking, group members will not feel pressure to conform to the feeling of the majority. Also, if the contribution of the group is emphasized, rather than individual achievement, managers will see the opportunity to build upon the suggestions of others.



Devil’s advocacy is a technique that can be used to reduce the probability of the occurrence of groupthink. This technique involves the critical analysis of the preferred alternative and the process that was used to select that alternative. Typically, one member of the group is selected to play the role of the devil’s advocate by critiquing and challenging the way in which the group evaluated each alternative and selected one over the others. The purpose is to identify any reason that may make the selected alternative unacceptable after all.

5. What is organizational learning and how can managers promote it? (LO4)

Organizational learning is the process through which managers seek to improve organization members’ desire and ability to understand and manage the organization and its environment, so that they can make decisions that continuously raise organizational effectiveness. A learning organization is one that promotes creativity, or the ability of a decision maker to discover original and novel ideas that lead to feasible alternative courses of action. Creativity is at the heart of organizational learning, and managers can promote both by adopting Peter Senge’s five principles for creating a learning organization. If every employee is allowed to develop a sense of personal mastery, employees will be able to experiment and create and explore what they want. Employees must also be encouraged to develop complex mental models that challenge them to find new and better ways of doing things. Promoting group creativity is also essential, since groups, rather than individuals make most important decisions. Building a shared vision among employees requires managers to build a common mental model that all organizational members use to frame threats and opportunities. Finally, systems thinking is required for organizational learning. Learning at each level affects learning on other levels, and this must be understood for organizational learning to increase efficiency and effectiveness in the organization.

6. What is the difference between entrepreneurship and intrapreneurship? (LO5)

Employees of existing organizations who notice opportunities for either quantum or incremental product improvements and are responsible for managing the product development process within their employer’s organization are called intrapreneurs. Entrepreneurs are persons who undertake the risk of starting and managing their own business.

Action



7. Ask a manager to recall the best and the worst decision he or she has ever made. Try to determine why these decisions were so good or so bad. (LO1, 2)

Leslie Fox is the manager at a commercial bank. She described her worst managerial decision as the one to establish a teller of the month program at her branch. This well-intentioned effort to motivate her employees led to competition and resentment when only one employee was recognized each month. There was no recognition given if someone improved his or her performance, only recognition for the best performer in the branch. Also, no teller could be named “teller of the month” more than once, and tellers began to see the program as a turn-taking operation that did not necessarily reward the consistently superior employees.

Leslie’s best management decision was to establish a “Teller’s Wall of Fame”. Any teller who met the standards that were set for service and quality of work was eligible for the Wall. This allowed more than one person to be recognized, as soon as they were eligible, rather than only once a month. Members of the Wall of Fame were recognized in the company newsletter, and were given special incentives, such as time off with pay, or monetary compensation. This program made it possible to reward improvement and cooperation among tellers.

Leslie believes that the two decisions had different outcomes because the decision to implement the first program was more of a programmed decision than a nonprogrammed decision. She had gotten the idea from seeing its application in other organizations, and she did not consider the alternatives to this kind of program, or the possible consequences of it. She believes that she should have asked managers at other branches for suggestions for a recognition program before she decided on one. She also should have evaluated the program’s success in other organizations before implementing it in her own. Also, if she would have received immediate feedback, or feedback on the idea before implementation, her tellers might have suggested better ways of recognizing employees.

8. Think about an organization in your local community, university, or an organization’s that you are familiar with that is doing poorly. Now come up with questions managers in this organization should ask stakeholders to help them devise creative ideas for turning around this organization’s fortunes. (LO4)



A local university is phasing out its hotel and hospitality management (HHM) program because of low enrollment. University officials would like to continue the program but can no longer justify the operational inefficiencies that result from doing so. Stakeholders include students, faculty, university administrators, the Board of Regents that governs the university, and the local community. To save this program, which is one of several offered by the university’s College of Commerce, faculty and university administrators must identify the reasons behind low enrollment.

Potential students could be asked: If you were to major in HHM, tell me how you envision your career ten years from now? Next, tell me how you envision your future if enrolled in one of the more traditional areas of business, such as marketing or finance.

Comparison of responses to these two questions should reveal any positive and negative perceptions that students have about career opportunities in HHM. This is important information, since many business students select their major based upon perceived career opportunities in that field. It could be that students are unaware of the great career opportunities in HHM, or worse yet, have incorrect perceptions of those career opportunities.

Residents of the local community could be asked: What can the HHM department do to make a contribution to this community? By making a positive contribution to the community, the department’s visibility is heightened, which will in turn, attract interest and increase the number of applications received. Community contributions might include offering a seminar series for local restaurant owners, offering cooking classes for kids, etc.

Faculty members could be asked: Which part of your HHM classes do students find most boring? This question should stimulate faculty to think about new approaches that allow classroom material to be presented in more creative and dynamic ways, thereby peaking the interest of students considering the HHM as a major.

AACSB standards: 1, 3, 9, 10

Notes for Building Management Skills (LO1, 2)

Pick a decision that you have made recently that has had important consequences for you. This decision may be concern which college to attend, which major to select, which part time job to take, or even whether or not to take a part time job. Using the material in this chapter, analyze the way in which you made the decision:



1. Identify the criteria you used, either consciously or unconsciously, to guide your decision making.

John needed to decide if he should take a part-time job as a research assistant in the management department his second year in college. John decided that he would take the position because he thought it would be good experience and would allow him to earn some extra spending money. He was excited about the prospect of working with faculty that he liked and respected. When John was offered the position at the end of his freshman year, he allowed himself the summer to think it over and decide. John decided that it would not be unethical for him, a management and accounting major, to take the job since the job did not require him to photocopy tests or handle any sensitive student information. John also decided that the position was economically feasible since he would be making his own money and would not need to rely on his parents for support. John also decided that it would be practical, since the job was only ten hours a week; it would not interfere with his studies and his goal of attaining a 3.5 grade point average.

2. List the alternatives that you considered. Were these all the possible alternatives? Did you unconsciously (or consciously) ignore some important alternatives?

John listed alternatives before he made his decision. He thought that he could: take the job in the management department. take a different part-time job somewhere else, either within the university or the

community. not accept the position nor seek other employment, in order to concentrate on his

classes.

John did not consider any other alternatives. It seemed to him that these were all the alternatives that were possible. One alternative that John did not consider was the option of taking out a student loan to cover expenses. John did not think he would be eligible for such a loan, and it did not occur to him to go to the financial aid office and see if it was possible for him to get a loan.

3. How much information did you have about each alternative? Did you base the decision on complete or incomplete information?

John had some information about the job in the management department, such as the hours he would be required to work, his duties, and his pay rate. He did not know if he would like the job, or if he would prefer to do something else with his time.



John did not know if he would be able to get another job at the university, or if there were any jobs in the community that would be practical for him to take.

John also did not know the amount of work he would need to do for his classes. He did not know for sure how much studying and time he would need to devote to his classes in order to achieve his goals.

John also did not have enough information about his financial status and was not aware of the resources available through loans and scholarships.

John was making his decision on the basis of incomplete information.

4. Try to remember how you reached a decision. Did you sit down and consciously think through the implications of each alternative, or did you make a decision on the basis of intuition? Did you use any rules of thumb to help you make the decision?

John sat down and consciously thought through the implications of each alternative. He realized that working would interfere with doing other things, like socializing with friends or playing on a sports team. He also realized that it would be a good experience and would look impressive on his resume. John thought it might also allow him to make contacts that might help him to find a job when he graduated. Also, the skills of time management and organization that John would develop would be beneficial to everything else in his life. John’s intuition also told him that he would be able to juggle the demands of his studies and with those of his job because he had held a part-time job in high school and had managed to do well in school.

5. In retrospect, do you think that your choice of alternative was shaped by any of the cognitive biases discussed in this chapter?

Although John did not know how much time he needed to devote to his classes and studying, his intuition told him that he could handle both work and school without a problem. This may indicate that John had an illusion of control, since incomplete information prevented him from knowing this for sure and he had not previous experience to base this assumption upon.

6. Having answered those four questions, do you think in retrospect that you made a reasonable decision? What, if anything, might you do to improve your ability to make good decisions in the future?



John made many contacts and gained valuable experience during his employment in the management department. Through his job there, he was able to obtain an internship position for the summers that further advanced his education and opportunities. John found that the real world was not as easily arranged as his textbooks had led him to believe. He learned how to get along with people and apply his academic knowledge to real situations.

John made a reasonable decision based on the outcomes but also on the process he used. He consciously weighed the alternatives and obtained information before deciding.

John might have improved his decision making process by obtaining feedback from other students who were working during the school year to see how they handled all their responsibilities. He might have also talked to faculty or managers in the community about the value of taking the position. Additionally, John could have spoken with his parents and the financial aid office to determine if he was eligible for assistance.


Managing Ethically (LO3)1. Either alone or in a group, think about the ethical implications of extreme decisions in groups.

Extreme decisions negatively impact others by unnecessarily placing them at excessive levels of risk. Placing others in a precarious situation for no compelling reason is unethical. 2. When group decision making takes place, should members of a group each feel fully accountable for outcomes of the decision? Why or why not?

If groupthink has occurred, some members may lack commitment to the group’s decision. These members probably supported the group’s decision in order to conform, not because they agreed to it. They may think that their lack of commitment to and lack of endorsement of the extreme decision relinquishes them from fully accountability for it. However, this is not the case. Silence during group discussions is usually viewed as tacit agreement. Your physical presence, along with your lack of verbal objection to the extreme decision implies that you concur.

AACSB standards: 1, 2, 6, 9, 10



NOTES FOR SMALL GROUP BREAKOUT EXERCISE (LO3)Brainstorming

Form groups of three or four people and appoint one member as the spokesperson who will communicate your findings to the whole class when called upon by the instructor. Then discuss the following scenario:

You and your partners are trying to decide which kind of restaurant to open in a centrally located shopping center that has just been built in your city. The problem confronting you is that the city already has many restaurants that provide different kinds of food in all price ranges. You have the resources to open any type of restaurant. Your problem is to decide which type is most likely to succeed.

Use the brainstorming technique to decide which type of restaurant to open by following these steps:

1. As a group, spend 5 or 10 minutes generating ideas about the alternative kinds of restaurants that you think will be most likely to succeed. Each group member should be as innovative and creative as possible, and no suggestions should be criticized.

The following is a list of some alternative kinds of restaurants that students may suggest: a sports bar and grill a restaurant specializing in a certain type of ethnic food: Chinese, Indian, Italian,

Korean, Middle Eastern, or other ethnic theme a celebrity restaurant with memorabilia and entertainment a Western saloon restaurant a cartoon character theme restaurant a 50's diner theme restaurant

2. Appoint one group member to write down the alternatives as they are identified.

3. Spend the next 10 to 15 minutes debating the pros and cons of the alternatives. As a group, try to reach a consensus on which alternative is most likely to succeed.



While engaging in this exercise, students should consider the location of the restaurant, the neighborhood that surrounds it, the availability of people to staff the operation, and other practical issues, such as competition from other restaurants in the area. An attempt should be made to collect all available information on these issues, though incomplete information is likely going to be a factor. Devil’s advocacy should be used to objectively evaluate all the alternatives and avoid problems of groupthink. Debate should be conducted in a way that facilitates constructive criticism and innovation. Group members should feel comfortable voicing their concerns and suggestions to the group.

4. After making your decision, discuss the pros and cons of the brainstorming method and decide whether any production blocking problems occurred in your group.

Pros of brainstorming include: creative and innovative suggestions from more than one person who is contemplating the same problem; improved evaluation of suggestions from other group members; opportunities to “piggyback”, or build on, others suggestions.

Cons of brainstorming include: sometimes one individual alone can generate more alternatives; production blocking can occur in the group, a condition that results when group members cannot absorb all the information about alternatives being generated. When this occurs, group members are so busy trying to listen to all the alternatives, they frequently forget their own.When called upon by the instructor, the spokesperson should be prepared to share your group’s decision with the class, as well as the reasons you made your decision.


Notes for Be the Manager (LO4, 5)

The CEO and the COO do not seem to be risk takers and appear afraid to venture beyond the status quo. You will have to convince them that your new ideas do not involve excessive levels of risk because they have been thoroughly researched. To do so, consider requesting a formal meeting with the CEO and COO at which the sole topic of discussion is your three proposals. At the meeting, the practicality and economic feasibility of each idea must be emphasized. Also, consider engaging in "devil’s advocacy" with the CEO and COO, which would give them the opportunity to thoroughly critique each proposal and address areas of uncertainty.




BUSINESS WEEK CASES FOR DISCUSSION

Case Synopsis: Outsourcing Heads to the Outskirts

GramIT is a recently formed Indian nonprofit whose goal is to transfer some its nation’s high-tech outsourcing business to rural villages. Currently, companies providing such services are all located in urban areas such as Bangalore. GramIT’s facilities are a 10 hour train ride away from the closest city and are staffed by workers who formerly farmed rice plots for a living. Although rural employees earn substantially less than their urban counterparts, their economies are being transformed. Along with providing work for the unemployed, this effort could also slow migration to crowded Indian cities. GramIT is funded by the Byrraju Foundation, whose founder is also the chairman Satyam Corporation, Ltd., a tech service provide and one of GramIt’s customers.

Questions:1. Was GramIT’s decision to operate outsourcing activities in Indian villages a

programmed or nonprogrammed decision?

This was a nonroutine decision made by an entrepreneur responding to a novel opportunity, hence a nonprogrammed decision.

2. To what extent were risk and uncertainty involved in this decision?

While detailed, careful business planning for a new venture can reduce the amount of uncertainty faced, a sizable amount of risk will remain. Since GramIT was the first organization of its type, the probability of alternative outcomes could not be precisely determined.

3. What criteria did decision makers at GramIT likely utilize in making this decision?

Economic feasibility and practicality were the most important criteria to be considered when deciding whether to go forward with this venture.

4. Was Satyam’s decision to sign on with Gram IT a programmed or nonprogrammed decision? To what extent were risk and uncertainty involved in this decision? What criteria did decision makers at Satyam likely utilize in making this decision?



Although guidelines for selecting a new supplier may have been in place at Satyam, the decision to sign on with GramIT was a nonprogrammed one. Because GramIT was a new venture based on a novel, untested business model, Satyam took a risk when they decided to depend on them to supply vital services. Economic feasibility and practicality were the most important criteria to be considered when evaluating of this alternative.

Case Synopsis: Hugging the Tree-Huggers

The relationship dynamics between major corporations and environmentalist groups appear to be shifting from antagonistic and fractious to cooperative and accommodating. Companies are increasingly seeking advice and suggestions from ‘green’ activists, and those activists are displaying a willingness to work peaceably with companies once considered the enemy. For example, KKB halted it plans to takeover Texas Pacific Group, which was planning to build 11 new power plants, until it got the support of two environmentalist groups. Similarly, Wal-Mart turned to Conservation International to help shape ambitious goals to cut energy use and switch to renewable power. Companies realize that alliances with environmentalists can help both the bottom line and the public image. By developing and pushing for real solutions instead of just pointing out problems, ‘green’ organizations believe they are moving closer to the realization of their cause.

Questions:1. Are the decisions companies like TXU Corporation make to cooperate with

environmentalists programmed or nonprogrammed decisions?

The decision by some corporations to work amenably with environmentalist groups and seriously consider their suggestions was clearly a nonprogrammed one, since it represented a reversal of their previous attitude.

2. To what extent are risk and uncertainty involved in these decisions?

When both groups agreed to hold discussions, there was not guarantee that the outcome would be positive or beneficial, hence uncertainty. Both groups were risking the possibility of wasting time, a very valuable resource.

3. What criteria did corporate decision makers likely utilize in making these decisions?



The corporate executives who made the decision to meet with environmentalist groups probably used the criteria of practicality, economic feasibility, and ethicality. They understood that a perceived unwillingness to exhibit concern for the environment damaged their reputation with stakeholders. At the same, they probably questioned the practicality of engaging in negotiations with organizations whose values so radically differed from their own. Also, when negotiations began, it was probably unclear if adhering to stricter environmental standards would harm or benefit the bottom line.

4. When environmentalists decide to work collaboratively with businesses, what criteria do they likely utilize in making these decisions?

Most likely, the environmentalists were also concerned about the practicality of engaging in negotiations with organizations whose values so radically differed from their own. Also, nonprofits must be very careful how they utilize donated funds. The economic feasibility of devoting a substantial amount of their limited resources to such a radically different strategy was probably a concern.


Chapter 5 Video Case Teaching Note

In Depth: The Columbia Space Shuttle Disaster Forces a Hard Look at NASA

Teaching Objective: Help students to see the far reaching consequences of flawed decision making within an organization. Also, underscore the benefits of a learning organization.

Video Summary: Part one of this news clip raises issues that have prompted some people to question whether there’s still a good reason to send Americans into space. Research gathered as part of the space program has not been very useful and constant budgetary pressures continue to create strains. Part two presents former astronaut Sally Ride discussing NASA’s management weaknesses and questions whether NASA learned from mistakes that led to the Challenger disaster in 1986. Ride states that an attitude change, as well as strong managerial leadership, is needed to correct management weaknesses.

Questions:1. What has been NASA’s main problem? What types of errors have managers made? Was

overconfidence involved? Do you think groupthink accounted for some of NASA’s problems?



NASA’s management processes, as well as its credibility, have been called into question. Its mission and overall effectiveness are uncertain, and despite two disasters, the agency was slow to change its culture to make safety the priority. Clearly, NASA suffered from a lack of organizational learning, since the lessons from its previous mistakes seemed to have been lost. In general, it appears that NASA’s managers do not make good decisions.

Illusion of control, escalating commitment, and/or groupthink easily could have played a role in management’s faulty decision-making. Decades of research has revealed that managers who have some experience in a content area but are not true experts tend to be overly confident in their intuition and judgments. Since NASA’s managers do not possess the technical expertise of its engineers, overconfidence, rooted in memories of NASA’s glorious accomplishments during past decades, is certainly a possibility.

Groupthink is a pattern of faulty and biased decision making that occurs in groups whose members strive for agreement among themselves at the expense of accurately assessing information relevant to a decision. According to Sally Ride, NASA officials have not encouraged dissenting views, although they haven’t suppressed them. Groupthink could easily exist in such a culture. The use of devil’s advocacy and or dialectical inquiry could prevent such decision-making flaws.

2. What must NASA accomplish to ensure the vitality of the space program?

To ensure the vitality of the space program, Bill Parsons, head of the troubled shuttle program, is committed to changing the organization’s culture. Among other things, he is trying to improve communication, encourage all employees to speak up without fear of retribution, make sure that all employees’ inputs are heard, ensure that technical expertise is taken in account when making decisions, and above all, emphasize safety.

3. How could the steps in the decision-making process assist NASA in overcoming some of its problems?

More time should be devoted to generating alternatives and evaluating alternatives, to help ensure that the chosen alternative is indeed the best choice.


Documents

OVERVIEW OF THE CHAPTER - جامعة البحرينstaff.uob.edu.bh/files/630127646_files/su… · Web view · 2012-09-30OVERVIEW OF THE CHAPTER. ... Although ‘exercising’