Decision Making, Learning, Creativity, and Entrepreneurship

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Decision Making, Learning,Creativity, and
Entrepreneurship

• chapter seven

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Learning Objectives

• Understand the nature of managerial decision
  making, differentiate between programmed and
  non-programmed decisions, and explain why
  non-programmed decision making is a complex,
  uncertain process.
• Describe the six steps that managers should take
  to make the best decisions and explain how
  cognitive biases can lead managers to make poor
  decisions.

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Learning Objectives

• Identify the advantages and disadvantages of
  group decision making, and describe techniques
  that can improve it.
• Explain the role that organizational learning and
  creativity play in helping managers to improve
  their decisions.
• Describe how managers can encourage and promote
  entrepreneurship to create a learning
  organization and differentiate between
  entrepreneurs and intrapreneurs

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The Nature of Managerial Decision Making

• Decision Making
• The process by which managers respond to
  opportunities and threats that confront them by
  analyzing options and making determinations about
  specific organizational goals and courses of
  action.

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The Nature of Managerial Decision Making

• Decisions in response to opportunities
• occurs when managers respond to ways to improve
  organizational performance to benefit customers,
  employees, and other stakeholder groups

• Decisions in response to threats
• events inside or outside the organization are
  adversely affecting organizational performance

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Decision Making

• Programmed Decision
• Routine, virtually automatic process
• Decisions have been made so many times in the
  past that managers have developed rules or
  guidelines to be applied when certain situations
  inevitably occur

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Decision Making

• Non-Programmed Decisions
• Nonroutine decision making that occurs in
  response to unusual, unpredictable opportunities
  and threats
• Rules do not exist because the situation is
  unexpected or uncertain and managers lack the
  information they would need to develop rules to
  cover it.

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Decision Making

• Intuition
• feelings, beliefs, and hunches that come readily
  to mind, require little effort and information
  gathering and result in on-the-spot decisions

• Reasoned judgment
• decisions that take time and effort to make and
  result from careful information gathering,
  generation of alternatives, and evaluation of
  alternatives

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The Classical Model

• Classical Model of Decision Making
• A prescriptive model of decision making that
  assumes the decision maker can identify and
  evaluate all possible alternatives and their
  consequences and rationally choose the most
  appropriate course of action.

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The Classical Model

• Optimum decision
• The most appropriate decision in light of what
  managers believe to be the most desirable future
  consequences for their organization.

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The Classical Model of Decision Making
Figure 7.1
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The Administrative Model

• Administrative Model
• An approach to decision making that explains why
  decision making is inherently uncertain and risky
  and why managers usually make satisfactory rather
  than optimum decisions.

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The Administrative Model

• Bounded rationality
• Cognitive limitations that constrain ones
  ability to interpret, process, and act on
  information.

• Incomplete information
• Because of risk and uncertainty, ambiguity, and
  time constraints

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Why Information Is Incomplete
Figure 7.2
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Causes of Incomplete Information

• Risk
• The degree of probability that the possible
  outcomes of a particular course of action will
  occur.
• Uncertainty
• the probabilities of alternative outcomes cannot
  be determined and future outcomes are unknown

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Causes of Incomplete Information

• Ambiguous Information
• Information that can be interpreted in multiple
  and often conflicting ways.

Young Woman or Old Woman
Figure 7.3
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Causes of Incomplete Information

• Time constraints and information costs
• managers have neither the time nor money to
  search for all possible alternatives and evaluate
  potential consequences
• Satisficing
• Searching for and choosing an acceptable, or
  satisfactory response to problems and
  opportunities, rather than trying to make the
  best decision

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Six Steps in Decision Making
Figure 7.4
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General Criteria for Evaluating Possible Courses
of Action
Figure 7.5
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Feedback Procedure

• Compare what actually happened to what was
  expected to happen as a result of the decision
• Explore why any expectations for the decision
  were not met
• Derive guidelines that will help in future
  decision making

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Cognitive Biases and Decision Making

• Heuristics
• Rules of thumb that simplify the process of
  making decisions.
• Systematic errors
• errors that people make over and over and that
  result in poor decision making

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Sources of Cognitive Biases

• Prior Hypothesis Bias
• A cognitive bias resulting from the tendency to
  base decisions on strong prior beliefs even if
  evidence shows that those beliefs are wrong.
• Representativeness
• A cognitive bias resulting from the tendency to
  generalize inappropriately from a small sample or
  from a single vivid event or episode.

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Sources of Cognitive Biases

• Illusion of Control
• The tendency to overestimate ones own ability to
  control activities and events.
• Escalating Commitment
• A source of cognitive bias resulting from the
  tendency to commit additional resources to a
  project even if evidence shows that the project
  is failing.

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Group Decision Making

• Superior to individual making
• Choices less likely to fall victim to bias
• Able to draw on combined skills of group members
• Improve ability to generate feasible alternatives

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Group Decision Making

• Potential Disadvantages
• Can take much longer than individuals to make
  decisions
• Can be difficult to get two or more managers to
  agree because of different interests and
  preferences
• Can be undermined by biases

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Group Decision Making

• Groupthink
• 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

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Devils Advocacy and Dialectical Inquiry
Figure 7.7
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Organizational Learning and Creativity

• Organizational learning
• Managers seek to improve a employees desire and
  ability to understand and manage the organization
  and its task environment so as to raise
  effectiveness.
• Learning organization
• An organization in which managers try to maximize
  the ability of individuals and groups to think
  and behave creatively and thus maximize the
  potential for organizational learning to take
  place.

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Organizational Learning and Creativity

• Creativity
• The ability of the decision maker to discover
  novel ideas leading to a feasible course of
  action.

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Senges Principles for Creating a Learning
Organization
Figure 7.8
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Building Group Creativity

• Brainstorming
• Managers meet face-to-face to generate and debate
  many alternatives.
• Production Blocking
• Occurs because group members cannot
  simultaneously make sense of all the alternatives
  being generated, think up additional
  alternatives, and remember what they were thinking

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Building Group Creativity

• Nominal Group Technique
• A decision making technique in which group
  members write down ideas and solutions, read
  their suggestions to the whole group, and discuss
  and then rank the alternatives.
• Useful when an issue is controversial and when
  different managers might be expected to champion
  different courses of action

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Building Group Creativity

• Delphi Technique
• A decision-making technique in which group
  members do not meet face-to-face but respond in
  writing to questions posed by the group leader.

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Entrepreneurship

• Entrepreneurs
• Individuals who notice opportunities and take the
  responsibility for mobilizing the resources
  necessary to produce new and improved goods and
  services.
• Social entrepreneurs
• those who pursue initiatives and opportunities to
  address social problems and needs in order to
  improve society

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Entrepreneurship

• Intrapreneurs
• A manager, scientist, or researcher who works
  inside an organization and notices opportunities
  to develop new or improved products and better
  ways to make them.

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Characteristics of Entrepreneurs

• Open to experience they are original thinkers
  and take risks.
• Internal locus of control they take
  responsibility for their own actions.
• High self-esteem they feel competent and
  capable.
• High need for achievement they set high goals
  and enjoy working toward them.

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Entrepreneurship and Management

• Frequently, founding entrepreneur lacks the
  skills, patience, and experience to engage in the
  difficult and challenging work of management

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Intrapreneurship and Organizational Learning

• Product champions
• taking ownership of a product from concept to
  market.
• Skunkworks
• keeping a group of intrapreneurs separate from
  the rest of the firm.
• Rewards for innovation
• linking innovation by workers to valued rewards.

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Example Xerox PARC

• The Palo Alto Research Center is a Xerox Research
  Development division
• Many innovations such as the laser printer,
  personal workstation, WYSIWYG printing, and GUI
  came out of PARC

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Video Case Laser Monks

• Which aspect of LaserMonks formulaquality
  products, competitive prices, or social
  entrepreneurshipwould increase the chance that
  you would buy from this company?
• Which entrepreneurial characteristics does
  Brother Bernard McCoy exhibit?