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DECISION MAKING IN ORGANIZATIONS

1. Identify the steps in the analytical model of decision making.

2. Distinguish programmed from nonprogrammed decisions, certain from uncertain decisions, and top-down from empowered decisions.

3. Distinguish the various individual decision styles.

4. Describe the trade-offs involved in group vs. individual decision making.

5. Identify the various organizational and cultural factors that influence the decision-making process.

6. Distinguish between three approaches to decision making: the rational-economic model, the administrative model, and image theory.

7. Identify the various types of framing effects and heuristics that potentially limit the effectiveness of decisions.

8. Describe how the bias toward implicit favorites and the escalation of commitment lead to imperfect decisions.

9. Compare the conditions in which groups make superior decisions with those in which individuals make superior decisions.

10. Describe the various techniques for enhancing the quality of individual as well as group decisions.

After reading this chapter you should be able to:

The Nature of Decision Making (Pp. 331-337)

Decision Making - the process of choosing among several alternatives

Analytical Model of the Decision-Making Process - general model thatdescribes the formulation and implementation of decisions Formulation - process of understanding a problem and making a

decision about itImplementation - process of carrying out that decision

1. Identify the Problem

2. DefineObjectives

3. Make aPredecision

4.GenerateAlternatives

5. EvaluateAlternatives

6. Make aChoice

7. ImplementChoice

8. Follow Up

Eight Steps in the Analytical Model - a general model, and many decisionsdo not conform to itProblem identification - difficult because people do not always

perceive a social situation accurately

The Nature of Decision Making (cont.)

Define the objectives to be met in solving the problem - conceiveproblems so that it is possible to identify solutions

Make a predecision - decide how to make the final decisionDecision support systems (DSS) - computer programs that

present information about organizational behaviorto decision makers in a manner that helps them tostructure their responses to decisions

Alternative generation - identify possible solutionsEvaluate alternative solutions - examine feasibility and

effectiveness of each alternative solutionChoose an alternative - optimality of choice variesImplement the chosen alternative - perform the chosen alternativeFollow up - monitor the effectiveness of the decision

The Nature of Decision Making (cont.)

Broad Spectrum of Organizational Decisions - three dimensions of decisionsRoutineness of the decision

Programmed - highly routine decisions made according to pre-established organizational routines and procedures

Nonprogrammed decisions - decisions about highly novel problems for which no ready-made actions existStrategic decisions - typically made by high-level

managers regarding the direction theorganization should take to achieve its mission

Type of Task Simple, routine Complex, creative

Reliance on Considerable guidance No Guidanceorganizational policies from past decisions from past decisions

Typical decision maker Lower-level workers Upper-level workers(usually alone) (usually in groups

Type of DecisionVariable Programmed Nonprogrammed

Table 9.1

Broad Spectrum of Organizational Decisions (cont.)

The Nature of Decision Making (cont.)

Riskiness of the decision - risk defined by the probability of obtaining the desired outcome

Objective probability - uses concrete and verifiable dataSubjective probability - uses personal beliefs or hunches

- uncertainty may be reduced by:- establishing linkages with other organizations- acquiring knowledge about the past and present

Figure 9.2

Riskiness of decision

Higher risk Lower risk

Knowledge of decision outcomes

Complete uncertainty(outcome unknown)

Complete uncertainty(outcome known)

Probability ofdecision outcomes

Information

Objective Subjective

High Low

Broad Spectrum of Organizational Decisions (cont.)

The Nature of Decision Making (cont.)

Level of the organization at which decision is madeTop-down - decision making power vested in superiors as

opposed to their lower-level employees- most organizations operate in this fashion

Empowered decision making - decision making power vestedin the employees- rationale - workers who know the job best make the

the decisions - workers more likely to be committed to

actions based on their own decisions- work teams also may be empowered

Factors Affecting Decision Making (Pp. 337-343)

Decision Style - meaningful differences between people in their orientationtoward decisions- four predominant styles- most managers may have one predominant style, but often use

different styles

• Prefer complex problems• Carefully analyze alternatives• Enjoy solving problems• Willing to use innovative methods

Analytical Conceptual

• Socially oriented• Humanistic and artistic approach• Solve problems creatively• Enjoy new ideas

Behavioral• Concern for their organization• Interest in helping others• Open to suggestions• Rely on meetings

Directive• Prefer simple, clear solutions• Make decisions rapidly• Do not consider many alternatives• Rely on existing rules

Figure 9.4

Factors Affecting Decision Making (cont.)

Group InfluencesPotential benefits of decision-making groups

Pooling of resources - provides more informationSpecialization of labor - people perform tasks they do bestGreater acceptance of decisions

Potential problems of decision-making groupsWaste of timeGroup conflict - may result from disagreements over issuesIntimidation by group leaders - hinders honest discussion

Groupthink - tendency for members of highly cohesive groups to conform so strongly to group pressures regarding a certaindecision that they fail to think critically and reject the potentially correcting influences of outsiders- strategies for avoiding groupthink

Promote open inquiryUse subgroupsAdmit shortcomingsHold second-chance meetings

Factors Affecting Decision Making (cont.)

Organizational Influences on Decisions - also interfere with rational decisionmakingTime constraints - often do not permit exhaustive decision makingPolitical “face-saving” pressure - people make decisions that help

them to look good to others, even though the resulting decisionmight not be in the best interest of their organization

Cultural Differences in Decision Making - widespread differences exist in the way people from various cultures make decisions- people from different cultures may not perceive the same situations

as presenting problems- decision-making unit differs

- individualist cultures foster individual decision making- collectivist cultures foster group decision making

- cultures differ in their expectations about who is expected to makedecisions

- cultures differ in their expectations about the amount of time thatought to be devoted to making a decision

How Are Individual Decisions Made? (Pp. 343-346)

Rational-Economic Model - decision maker presumed to consider allpossible alternatives before selecting the optimal solution- assumes that decision maker has complete information and can

process it accurately and without bias- does not appreciate human fallibility- is a normative or prescriptive approach

Rational decisions - maximize the chance of attaining an individual’sgroup’s, or organization’s goals

Administrative Model - recognizes that decision makers may have a limited view of the problems confronting them which hinders makingrational decisions- is a descriptive or proscriptive approachSatisficing decisions - decisions made by selecting the first minimally

acceptable alternative that becomes availableBounded rationality - organizational, social, and human limitations

assumed to promote satisficing rather than optimal decisionsBounded discretion - limits decision alternatives to those falling

within the bounds of current moral and ethical standards

How Are Individual Decisions Made? (cont.)

Image Theory - recognizes that decisions are made in an automatic, intuitivefashion- people adopt courses of action that best fit their individual

principles, current goals, and future plans- deals primarily with decisions about adopting a certain course of

action or changing a current course of action

- decision making is both rapid and simple- not necessary to ponder decisions- rather use intuitive process

- decision making is a two-step processCompatibility test - comparison of the degree to which a

particular course of action is consistent with variousimages (e.g., individual principles or current plans)

Profitability test - people consider the extent to which variousalternatives fit with their values, goals, and plans

- these tests made within a decision frame- e.g., past experience may provide context for the

decision

Decision to adopt a course ofaction (e.g., Which job should

I accept?)

Decide toREJECT

No

Decide to ACCEPT

Step 2: Profitability test(Which job is best?) Consider

which of several alternativesbest coincides with your

personal principles, goals, andplans. Select that one.

Yes

Step 1: compatibility test (Does the job fit?)Ask yourself if the information you have about the

job options is consistent with images of yourselfwith respect to principles (does it match my values?),goals (will it take me where I wan to go?), and plans

(beliefs about what will happen if you follow through).

Dec

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Figure 9.6Image Theory: A Summary and Example

Imperfections in Individual Decisions (Pp. 346-352)Framing Effects - tendency for people to make different decisions based on

how the problem is presented- illustrates that people are not completely rational decision makers,

- are influenced by cognitive distortions based on simple differences in how situations are presented

Attribute framing - tendency for people to evaluate a characteristic more positively when it is presented in positive terms thanin negative terms- involves evaluations

Goal framing - tendency for people to be persuaded more strongly by information framed in negative terms than by informationframed in positive terms- involves taking behavioral action

Risky choice frames - tendency for people to avoid risks when situations are presented in a way that emphasizes positive gains and to take risks when presented in a way thatemphasizes potential losses- involves making decisions about courses of action

Figure 9.7Three Types of Framing Effects

Type of Framing Negative Frame Positive Frame

Risky ChoiceFraming

Avoid losses (lives lost)

Experience gains(lives saved)

less likely

Likelihood oftaking risks

more likely

negative positiveEvaluation

AttributeFraming

Negative qualities(25% fat)

Positive qualities(75% lean)

more likely less likely

Likelihood ofperforming exam

GoalFraming

Suffer loss(no breast exam -

decreased chance offinding early tumor)

Experience gain(breast exam -

increased chance offinding early tumor)

Imperfections in Individual Decisions (cont.)

Reliance on Heuristics - simple decision rules used to make quick decisionsabout complex problems- rules of thumb may be useful for simplifying complex decisions- also represent potential impediments to decision making

- may discourage the collection and processing of enoughinformation to make a superior decision

Availability heuristic - the tendency for people to base judgments on readily available, though potentially inaccurate information- may adversely affect the quality of the decision

Representative heuristic - tendency to perceive others in stereotypical ways if they appear to be typical representativesof the category to which they belong

Imperfections in Individual Decisions (cont.)

Bias Toward Implicit Favorites - inclination to choose one’s preferred decision alternative, which is selected even before all the options have been considered- people often make decisions early in the process- options other than the preferred alternative are not given serious

consideration- rather, used to convince oneself that the implicit favorite is

the best choiceConfirmation candidate - decision alternative considered

only to convince oneself of the wisdom of selectingthe implicit favorite

Escalation of Commitment - tendency for individuals to continue supportingpreviously unsuccessful courses of action because:- previous ineffective decisions have resulted in sunk costs- refusal to back previous decisions viewed as an admission of failure

Self-justification- people may refrain from escalating commitment under several

conditions

Conditions underwhich escalationof commitmentis unlikely

• Limited resources• Overwhelming evidence of negative outcomes• Diffused responsibility for previous decisions

Present

Do X Again?

Yes

Escalate commitment;throw good money afterbad in order to justifypreviously made decisions

No

Give up; cutlosses and run

Figure 9.8Escalation of Commitment

Time

Decision

Outcome

Do X Do X Do X Do X Do X Do X

Negative Negative Negative Negative Negative Negative

Past

Group Decisions (Pp. 352-354)

When Are Groups Superior to Individuals? - depends on the type of taskComplex decision tasks - groups are superior when they are a hetero-

geneous collection of experts with complementary skills whocan contribute to their group’s product freely and openly

Simple decision tasks - to attain a group benefit from a pooling ofresources, there must be some resources to pool

SimpleProblems

Does anyone in the grouphave the correct answer?

Will the group membersaccept the correct answer?

• Group members are heterogeneous • Members have complementary skills• Ideas may be freely communicated• Good ideas are accepted.

Groups are superiorto even the best

individuals

Group performs worsethan the best individual

No

Group performs

as well as thebest individual

Yes

ComplexProblems

Figure 9.9

Group Decisions (cont.)

When Are Individuals Superior to Groups? - individuals perform better on poorly structured, creative tasksBrainstorming - technique to foster group productivity by

encouraging interacting members to express their ideas noncritically- four main rules

- avoid criticizing others’ ideas- share even far-out suggestions- offer as many comments as possible- build on others’ ideas to create your own

- individuals using brainstorming rules for idea generation perform better than brainstorming groups

Techniques For Improving the Effectiveness of Decisions(Pp. 354-362)

Individual Techniques - make individuals better decision makersTraining individuals - people make better decisions just by

considering the following errors:

Unconflicted adherence - tendency to stick with the firstidea that comes to mind without more deeplyevaluating the consequences

Unconflicted change - tendency for people to change theirminds quickly and to adopt the first new idea that comes along

Defensive avoidance - tendency for decision makers to failto solve problems because they avoid working onthem

Hypervigilance - an individual frantically searches for quicksolutions and goes from idea to idea from desperationthat one is not working and another must be consideredbefore time runs out

Techniques For Improving the Effectiveness of Decisions (cont.)

Individual Techniques (cont.)Making ethical decisions - answer the following questions about

contemplated decisions to avoid rationalizing unethical actsDoes it violate the obvious “shall nots”?Will anyone get hurt?How would you feel if the newspaper reported your

decision on the front page?What if you did it 100 times?How would you feel if someone did it to you?What is your gut feeling?

5. Responsesare shared with

all others.

1. Enlist thecooperationof experts.

2. Proposethe problemto experts.

3. Experts recordsolutions,

recommendations.

6. Experts commenton others’ ideas andpropose a solution.

4. Experts’ responsesare compiled

and reproduced.

7. Solutions are compiled. Solution

If a consensusIf a consensusis reached. . .is reached. . .

Techniques For Improving the Effectiveness of Decisions (cont.)

Group Techniques - structure the group to take advantage of its strengths

Problem

Figure 9.11 - The Delphi Group

If no consensusIf no consensusis reached . . .is reached . . .

1. A small group gathers around a table andreceives instructions; problem is identified.

4. Each idea is discussed, clarified, andevaluated by group members.

2. Participants privately write downideas about problem solving.

3. Each participant’s ideas are presented, oneat a time, and are written on a chart until all

ideas are expressed.

5. Participants privately rank the ideasin order of their preference.

6. The highest-ranking idea is taken asthe group’s decision

Figure 9.12TheNominal Group

Step 1 Individual decision byPerson A

Individual decision byPerson B

Step 2 Tentative group decision made byPerson A and Person B

Individual decision byPerson C

Step 3 Tentative group decision made byPerson A, Person B, and Person C

Individual decision byPerson D

Step 4 Final group decision made byPerson A, Person B, Person C, and Person D

Figure 9.14The Stepladder Technique