B300a

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B300a

• TUTORIAL WEEK EIGHT

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B300 Overview
Business behaviour in a changing world
Decision making
Strategy
Organisation
Policy
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THIS TUTORIAL.

• CHAPTER 11 - The Cognitive Perspective on
  Strategic Decision-Making by C. Schwenk
• CHAPTER 12 - The Impact of Organisational Culture
  on Approaches to Organisational Problem-Solving
  by P. Bate

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CHAPTER 11 - The Cognitive Perspective on
Strategic Decision-Making by C. Schwenk.

• In this chapter four topics are summarised
• heuristics and biases,
• strategic assumptions,
• analogy,
• metaphor.
• These topics give us a potentially useful way in
  understanding decision-making and to solve
  strategic problems.

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Heuristics

• Heuristics are typically based on what worked
  before will work again. We have a vast array of
  heuristics to make our lives easier.
•  
• Representativeness and anchoring are sometimes
  known as heuristics, "rules of thumb" that humans
  use to perform abstract reasoning in cognitively
  economical ways. They are innate and
  human-universal because they emerge from the same
  species-wide design.

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Bias and heuristics

• Bias is a tendency to support or oppose a
  particular person or thing in an unfair way by
  allowing personal opinions to influence your
  judgment.
•  
• Researchers have identified a number of
  heuristics or rule of thumb which
  decision-maker use to simplify complex problems
  and a number of decisional biases which may have
  an impact on strategic decisions.
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• Heuristics may provide short cuts in processing
  information. Heuristics are helpful, but they can
  also be too easy and can consequently make us
  complacent.

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Heuristics and decision making

• Kahneman (1974) said heuristics are useful, but
  sometimes they lead to severe and systematic
  error.
• Strategic decisions are often influenced by
  judgments about the probability of certain types
  of changes in the environment.. Decision makers
  judge a future event to be likely if it is easy
  to recall past occurrences of the event.

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Table of Selected Heuristics and Biases
 
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• In summary the illusion of control, and other
  biases identified in this research may affect
  strategic decisions by restricting the range of
  strategic alternatives considered and the
  information used to evaluate these alternatives.
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• It is likely that multiple biases affect
  strategic decision making and reinforce each
  other.

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Cognitive maps

• Cognitive maps consist of concepts about aspects
  of the decision environment and beliefs about
  cause-and-effect relationships between them. Such
  maps serve as interpretive lenses which help
  decision-makers select certain aspects of an
  issue as important for diagnosis. Direct
  information search in organisations and cognitive
  maps may exist at the organisational level. They
  are discovered by organisation members and used
  as a basis for action.
• Cognitive maps may help researchers to describe
  more effectively the ways executives understand
  relations among industry factors, and to
  determine which factors are taken most seriously
  by executives in the formulation of their
  strategies.
• Cognitive maps may also help clarify the
  processes by which industry factors affect
  strategies.

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Schemata

• Schemata is sometimes used in connection with
  cognitive maps. The distinction between them is
  not very clear!
• Schemata is a drawing that represents an idea or
  theory and makes it easier to understand.Schemata
  are evoked by cues in a problem-solving setting
  and they provide frames for problems which makes
  it unnecessary for decision-makers to diagnose
  completely each element of a new strategic
  problem.

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• Human cognitive limitations introduce bias into
  the development of strategic assumptions and may
  lead to simplification in strategic schemata.
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• These biases and simplifications affect strategic
  decisions when decision-makers existing schemata
  are used in diagnosing and framing new strategic
  problems. Analysis of executives strategic
  schemata helps explain strategic choices in
  response to environmental and industry forces.

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Analogy

• The process of drawing analogies seems to be
  very common when organisational actors are tying
  to understand an ambiguous or novel situation.
  Analogies are more likely to shape strategic
  problem formulations when they are shared by
  organisational members.
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• In strategic decisions which involve a great
  deal of uncertainty and complexity, the use of
  simple analogies may mislead the decision makers
  to use analogies to define complex problems, and
  they may not recognise that there are critical
  differences between the analogies and the
  decision situations they face.

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Strategic Problem Comprehension
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The model is based in the assumption that there
are two ways in which understanding of strategic
problems can be achieved

• 1 In order to comprehend some type of strategic
  problems, data may be carefully analysed and a
  new schema may be developed
• 2 Understanding may be achieved by applying a
  previously developed schema to the current
  strategic problem. This involves less diagnosis
  and information search.
• Mintzberg states that some case solutions are
  designed to deal with strategic problems. On
  other cases, preexisting solutions which were
  developed for other problems are applied to the
  problem. Mintzberg suggested that two
  fundamentally different thought processes
  underlay the activities of design and search.
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• In this model, heuristics and biases affect the
  development of strategic assumptions and
  cognitive maps, which then affect the development
  of strategic schemata.

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Speculations on the effects of cognitive
heuristics and biases on strategic assumptions
and cognitive maps provide the basis for
hypotheses to guide future research, as follows

• 1.  Decision makers subject to the illusion of
  control will overestimate the causal role of
  their own actions in constructing their cognitive
  maps.
• 2. Cognitive heuristics and biases will reduce
  the number of variables included in decision
  makers cognitive maps.
• 3.     Heuristics and biases will lead to a
  smaller of conflicting strategic assumptions on
  cognitive map when dealing with complex problems.
• 4.     Decision makers who report greater number
  of recent successful business decisions will
  assign a larger causal role to their own action
  in their cognitive maps.
• 5. Differences in strategists personal
  experience and industry experience will affect
  their choice of analogies in constructing
  cognitive maps.

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Conclusions

• Decision makers who report greater number of
  recent successful business decision will be more
  likely to define new strategic problems using
  analogies to situations in which they previously
  had a high level of personal control.
• Differences in the strategists personal
  experiences and industry experience will
  determine which cues are used in selecting
  analogies to define new strategic problems.
• A better understanding of strategists cognitive
  structures and process will provide a basis for
  better recommendations for improving strategic
  decision making.

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CHAPTER 12 - The Impact of Organisational
Culture on Approaches to Organisational Problem
Solving by P. Bate

• In this chapter Bate examines how cultures
  impact upon decision making.
• People in organisations evolve in their daily
  interactions with one another a system of shared
  perspectives of collectively held and
  sanctioned definitions of the situation which
  make up the culture of the organisations.

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Culture creates our cognitive makeup. It

• Provides us with a language
• Provides us with important background knowledge
• Provides us with ways of thinking about the
  world
• Provides us with tools
• Provides social and cognitive structures
• Provides us with ways of solving problems.

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What is culture?

• The term culture can defined as the meaning or
  aspects of the conceptual structures which people
  hold in common and which define the social or
  organisational reality.

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Research

• Studies measured the culture in 3 organisations.
  The task was to build up a picture from the data
  of how individuals defend aspects of their work
  situation, to ascertain from this which meaning
  or definitions were widely shared in the
  organisation. The main aim was to identify those
  aspects of each culture that had a strong impact
  on organisational problem-solving.
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• They were identified as follows
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• unemotionality
• depersonalization
• subordination
• conservation
• isolationism
• antipathy
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• Your tutor will explain these terms to you and
  will give examples relevant to your regional
  area.

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Findings

• The findings from the three research studies
  support the view that organisational culture can
  shape patterns of organisational behaviour, and
  that culture orientations can constrain
  problem-solving behaviour.
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• The table on the next slide suggests six basic
  organisational issues, in the form of questions,
  to which six cultural orientations are the
  imperfect??? solution.
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WEEK 8 ACTIVITIES

• Please select from the following activities which
  could be undertaken by students at this stage
• Activity Twelve (page 53 of the Decision Making
  Study Guide)
• Activity Thirteen (page 55 of the Decision Making
  Guide)

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READING TO BE COMPLETED BY NEXT WEEK

• Please re-read pages 52 - 56 of the Decision
  Making Study Guide to refresh your study of
  Chapters eleven and twelve.
• Please read pages 209 - 232 (Chapters 13 and 14)
  of Decision Making for Business Text Book.
• If you have time, read pages 57 - 62 of the
  Decision Making Study Guide to prepare you for
  next week.