Decision Making in Organizations

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Decision Makingin Organizations
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Learning Objectives

1. Identify the steps in the analytical model of
   decision making and distinguish between the
   various types of decisions people make.
2. Describe different individual decision styles and
   the various organizational and cultural factors
   that influence the decision-making process.
3. Distinguish among three approaches to how
   decisions are made the rational-economic model,
   the administrative model, and image theory.
4. Identify the various factors that lead people to
   make imperfect decisions.
5. Compare the conditions under which groups make
   more superior decisions than individuals and when
   individuals make more superior decisions than
   groups.
6. Describe various traditional techniques and
   high-tech techniques that can be used to enhance
   the quality of individual decisions and group
   decisions.

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Decision Making

• The process of making choices from among several
  alternatives.
• Analytical Model of the Decision-Making Process
  An eight-step approach to organizational decision
  making that focuses on both the formulation of
  problems and the implementation of solutions.
• Formulation The process of understanding a
  problem and making a decision about it.
• Implementation The process of carrying out a
  decision.

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The Decision-Making Process
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The Decision-Making Process

• Herbert Simons ?? ??? ?? ?????

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Organizational Decisions

• Programmed vs. Nonprogrammed
• Certain vs. Uncertain
• Top-down vs. Empowered

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Programmed vs. Nonprogrammed

• Programmed Highly routine decisions made by
  lower-level personnel following preestablished
  organizational routines and procedures.
• Nonprogrammed Decisions made about a highly
  novel problem for which there is no prespecified
  course of action.
• Strategic Nonprogrammed decisions typically
  made by high-level executives regarding the
  direction their organization should take to
  achieve its mission.

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Programmed vs. Nonprogrammed
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Certain vs. Uncertain

• Usually expressed as statements of risk.
• What makes an outcome risky is the probability of
  obtaining the desired outcome.
• Objective probabilities are based on concrete,
  verifiable data.
• Subjective probabilities are based on personal
  beliefs or hunches.
• To make the best possible decisions in
  organizations, people seek to manage the risks
  they take.
• Efforts to reduce uncertainty include
• Establishing linkages with other organizations
• Increasing access to information
• Relying on past experience and expertise

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Top-Down vs. Empowered

• Top-Down Decision Making The practice of
  vesting decision-making power in the hands of
  superiors as opposed to lower-level employees.
• Empowered Decision Making The practice of
  vesting power for making decisions in the hands
  of employees themselves.

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Factors Affecting Decisions

• Individual differences
• Group influences
• Organizational barriers
• Cultural differences
• Time pressure

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Individual Differences

• Decision Style Differences between people with
  respect to their orientations toward decisions.
• Decision Style Model The conceptualization
  according to which people use one of four
  predominant decision styles
• Directive
• Analytical
• Conceptual
• Behavioral

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Decision-Style Model
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Group Decision Making

• Potential Benefits
• Pooling of resources
• Specialization of labor
• Greater acceptance
• Potential Problems
• Wasted time
• Disruptive conflict
• Intimidation by group leaders
• Groupthink The tendency for members of highly
  cohesive groups to so strongly conform to group
  pressures regarding a certain decision that they
  fail to think critically, rejecting the
  potentially correcting influences of outsiders.

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Groupthink
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Cultural Differences

• Whether situations are perceived as problems
  requiring a decision be made.
• What type of decision-making unit (individual or
  group) is employed.
• Who is expected to make the decision (i.e., at
  what level is the decision made).
• How much time should be taken to make the
  decision.

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Time Pressure

• Inexperienced individuals generally take longer
  to make decisions than experts do.
• Expert decision makers rely on their gut
  instinct by drawing on a wealth of accumulated
  experiences.
• To increase decision-making effectiveness under
  time constraints
• Recognize your prime objectives
• Rely on outside experts
• Anticipate crises
• Learn from mistakes

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Decision-Making Approaches

• The Rational-Economic Model
• The Administrative Model
• Image Theory

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The Rational-Economic Model

• Rational Decisions Decisions that maximize the
  chance of attaining an individuals, groups, or
  organizations goals.
• Rational-Economic Model The model of decision
  making according to which decision makers
  consider all possible alternatives to problems
  before selecting the optimal solution.

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The Administrative Model

• A model of decision making that recognizes the
  bounded rationality that limits the making of
  optimally rational-economic decisions
• Bounded Rationality The major assumption of the
  administrative model that organizational, social,
  and human limitations lead to the making of
  satisficing rather than optimal decisions.
• Satisficing Decisions Decisions made by
  selecting the first minimally acceptable
  alternative as it becomes available.
• Bounded Discretion The tendency to restrict
  decision alternatives to those that fall within
  prevailing ethical standards.

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Image Theory

• Recognizes that decisions are made in an
  automatic, intuitive fashion based on actions
  that best fit their individual principles,
  current goals, and plans for the future.

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Imperfections in Individual Decisions

• Framing Effects
• Reliance on Heuristics
• Bias toward Implicit Favorites
• Hindsight Bias
• Person Sensitivity Bias
• Escalation of Commitment Bias

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Framing Effects

• The tendency for people to make different
  decisions based on how the problem is presented
  to them.
• Risky Choice Framing Effect The tendency for
  people to avoid risks when situations are
  presented in a way that emphasizes positive gains
  and to take risks when situations are presented
  in a way that emphasizes potential losses that
  may be suffered.
• Attribute Framing Effect The tendency for
  people to evaluate a characteristic more
  positively when it is presented in positive terms
  than when it is presented in negative terms.
• Goal Framing Effect The tendency for people to
  be more strongly persuaded by information that is
  framed in negative terms than information that is
  framed in positive terms.

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Framing Effects
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Heuristics

• Simple decision rules used to make quick
  decisions about complex problems.
• Availability Heuristic The tendency for people
  to base their judgments on information that is
  readily available to them although it may be
  potentially inaccurate, thereby adversely
  affecting decision quality.
• Representativeness Heuristic The tendency to
  perceive others in stereotypical ways if they
  appear to be typical representatives of the
  category to which they belong.

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Hindsight Bias

• The tendency for people to perceive outcomes as
  more inevitable after they have occurred (i.e.,
  in hindsight) than they did before they occurred
  (i.e., in foresight).

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Person Sensitivity Bias

• The tendency for people to give others too
  little credit when things are going poorly and
  too much credit when things are going well.

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Escalation of Commitment

• The tendency for individuals to continue to
  support previously unsuccessful courses of action.

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When are Groups Superior to Individuals?

• Complex Decision Tasks
• For groups to be superior to individuals, they
  must be composed of a heterogeneous collection of
  experts with complementary skills who can freely
  and openly contribute to their groups product.
• Simple Decision Tasks
• On simple tasks, two heads may be better than one
  if at least one of those heads has in it enough
  of what it takes to succeed.

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Group vs. Individual Decision Making
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When are Individuals Superior to Groups?

• On poorly structured, creative tasks, individuals
  perform better than groups.
• Brainstorming A technique designed to foster
  group productivity by encouraging interacting
  group members to express their ideas in a
  noncritical fashion.
• Four main rules
• Avoid criticizing each others ideas
• Share even far-out suggestions
• Offer as many comments as possible
• Build on others ideas to create your own

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Brainstorming
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Improving Decision Making

• Individual Techniques
• Training individuals to improve group performance
• Making ethical decisions
• Group Techniques
• The Delphi technique
• Nominal group technique
• Stepladder technique

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Training Errors to Avoid

• Hypervigilance
• Unconflicted Adherence
• Unconflicted Change
• Defensive Avoidance

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Hypervigilance

• Problem
• The state in which an individual frantically
  searches for quick solutions to problems and goes
  from one idea to another out of a sense of
  desperation that one idea isnt working and that
  another needs to be considered before time runs
  out.

• Solution
• Keep in mind that its best to stick with one
  suggestion and work it out thoroughly.
• Reassure decision makers that their level of
  skill and education is adequate to solve the
  problem.

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Unconflicted Adherence

• Problem
• The tendency for decision makers to stick to the
  first idea that comes to their minds without more
  deeply evaluating the consequences.

• Solution
• Think about the difficulties associated with your
  ideas.
• Force yourself to consider different ideas.
• Consider the special and unique characteristics
  of the problem you are facing, and avoid carrying
  over assumptions from previous problems.

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Unconflicted Change

• Problem
• The tendency for people to quickly change their
  minds and to adopt the first new idea to come
  along.

• Solution
• Ask yourself about
• The risks and problems of adopting the solution.
• The good points of the first idea.
• The relative strengths and weaknesses of both
  ideas.

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Defensive Avoidance

• Problem
• The tendency for decision makers to fail to
  solve problems because they go out of their way
  to avoid working on the problem at hand.

• Solution
• Avoid procrastination.
• Avoid disowning responsibility.
• Dont ignore potentially corrective information.

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Delphi Technique

• A method of improving group decisions using the
  opinions of experts, which are solicited by mail
  and then compiled. The expert consensus is used
  to make a decision.

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Nominal Group Technique

• A technique for improving group decisions in
  which small groups of individuals systematically
  present and discuss their ideas before privately
  voting on their preferred solution. The most
  preferred solution is accepted as the groups
  decision.

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Stepladder Technique

• A technique for improving the quality of group
  decisions that minimizes the tendency for group
  members to be unwilling to present their ideas by
  adding new members to a group one at a time and
  requiring each to present his or her ideas
  independently to a group that already has
  discussed the problem at hand.

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Computer-Based Approaches

• Electronic Meetings The practice of bringing
  individuals from different locations together for
  a meeting via telephone or satellite
  transmissions, either on television monitors or
  via shared space on a computer screen.
• Computer-Assisted Communication The sharing of
  information, such as text messages and data
  relevant to the decision, over computer networks.
• Group Decision Support Systems (GDSS)
  Interactive computer-based systems that combine
  communication, computer, and decision
  technologies to improve the effectiveness of
  group problem-solving meetings.