Scandura ppt 06

CHAPTER 6:INDIVIDUAL DECISION MAKING

Scandura, Essentials of Organizational Behavior. © 2016, SAGE Publications. 2

AGENDA• Importance of decision• Rational decision making• Prospect theory• Decision traps• Creativity


THE TOP 5 BUSINESS DECISIONS1. Henry Ford’s decision to double the

salaries of Ford’s workforce2. The Apple board’s decision to bring back

Steve Jobs after he had been fired 10 years earlier

3. Sam Walton’s decision to hold Saturday morning all-employee meetings

4. Samsung’s decision to create a sabbatical program that allows their top performers to travel all over the world

5. Jack Welch’s decision to create Crotonville, a training and development center that produced hundreds of great leaders who practice the “GE Way”


DECISION PROCESSES AND ORGANIZATIONAL PERFORMANCE• Procedural rationality • Related to the success of strategic

decisions • Managers who collect information

and use analytical techniques to make decisions are more effective

• Good information and analysis are more important than politics to effective decision making


MINTZBERG’S RESEARCH• Managers play four decisional roles: • Entrepreneur• Disturbance handler• Resource allocator• Negotiator


WHY SOME PEOPLE CAN’T MAKE DECISIONS• Sources of indecisiveness• Personality traits • Complex nature of situations

faced in rapidly changing environments:• Lack of information• Unclear or conflicting goals• Uncertainty of outcomes


RATIONALDECISIONMAKING MODEL


LIMITATIONS OF THE RATIONAL MODELDecision makers• Don’t have complete information• Can’t develop and accurately weight an exhaustive list of alternatives• Consider only a few alternatives • Sub-optimize


BOUNDED RATIONALITY• Decision makers have limits on

ability to assimilate large amounts of information• Results from:• Organizational factors • Individual limits on the ability to

process information • Perceptions


SATISFICING• People “satisfice” -- make a decision that is satisfactory but perhaps not optimal.• Decision making is susceptible to perceptual errors:• Primacy, recency, availability, contrast, and halo errors


RISK AVERSION AND RISK TAKING

Source: Jarrehult, B. (2013). The importance of stupid, irrational decisions. Innovation Management. Retrieved on September 23, 2013, from www.innovationmanagement.se/2013/09/06/the-importance-of-stupid-irrational-decisions.


CONSIDER THE FOLLOWING• You have $1,000 and you must

pick one of the following choices: • Choice A: You have a 50%

chance of gaining $1,000, and a 50% chance of gaining $0. • Choice B: You have a 100%

chance of gaining $500.


CONSIDER THE FOLLOWING PART 2• You have $2,000 and you must

pick one of the following choices: • Choice A: You have a 50% chance of

losing $1,000, and 50% of losing $0. • Choice B: You have a 100% chance

of losing $500.


RESULTS

• How many picked A for Part 1?• How many picked B for Part 2?


PROSPECT THEORY• Focuses on risk perceptions• People are willing to settle for a

reasonable gain. • People are willing to engage in risk-

seeking behaviors where they can limit their losses.

• Losses weigh more heavily in decision making than equivalent gains (emotions influence decision making).


THE IMPORTANCE OF HOW DECISIONS ARE FRAMEDLeaders must pay attention to how decisions are framed when they are presented.


INTUITION • Automatic and effortless decision making that is often involuntary • Four characteristics:

1. Nonconscious processes 2. Involve holistic associations 3. Produced rapidly 4. Resulting in affectively-charged

judgments


BENEFITS OF INTUITION• Expedites decision making• Improves the decision in some way • Facilitates personal development • Promotes decisions compatible with company culture


“WICKED” ORGANIZATIONAL PROBLEMS• Some problems have learning

environments that are “kind” in that they can be structured so analysis or heuristics can be applied.• Other problems are “wicked” because

they are complex and dynamic, and there may be limits to whether analysis or heuristics can be applied.


HEURISTICS(also called decision rules):1. Examining fewer cues2. Reducing the difficulty associated

with retrieving and storing values3. Simplify the weighting principles4. Integrating less information5. Examining fewer alternatives


TYPES OF HEURISTICS• Recognition heuristic • Fluency• Equality • Imitate the majority • Imitating the successful

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TABLE 6.2: TEN HEURISTICS FOR LEADERS

Scandura, Essentials of Organizational Behavior. © 2016, SAGE Publications.

Source: Adapted from Kruglanski, A. W., & Gigerenzer, G. (2011). Intuitive and deliberate judgments are based on common principles. Psychological Review, 118(1), 97–109.


HINDSIGHT BIAS• Hindsight bias ("I-knew-it-all-

along" effect) • Tendency for individuals with

outcome knowledge (hindsight) to claim they would have estimated a probability of occurrence for a reported outcome that is higher than they would have estimated in foresight (without the outcome information)


THE PROCESS OF HINDSIGHT1. Recall the old event and

respond consistently2. Focus on the outcome and

adjust belief3. Belief is reconstructed 4. People motivated to present

themselves favorably to others


OVERCONFIDENCE• Inflated confidence in how accurate a person’s knowledge or estimates are • Leaders with more power tend to have more overconfidence bias


ESCALATION OF COMMITMENT• Individuals continue a failing course

of action after receiving feedback that shows it isn’t working. • Sunk costs fallacy: continued

commitment because a person has already invested in a course of action and does not recognize what they invested initially is sunk (gone)


WHAT LEADS TO ESCALATION

Source: Adapted from: Staw, B.M. (1981). The escalation of commitment to a course of action. Academy of Management Review, 6, 577–587.


ETHICAL DECISION MAKING• Utilitarianism• Individual rights• Justice • Bounded ethicality


CREATIVE PROBLEM SOLVINGCreativity: the tendency to generate or recognize ideas, alternatives, or possibilities that may be useful in solving problems, communicating with others, and entertaining ourselves and others


GOING WITH THE FLOW• Creative experiences are linked to emotional states called flow in which a person experiences a challenging opportunity aligned with her skills.• When both challenges and skills are high, people learn more during optimal flow experience.


THREE-COMPONENT MODEL OF CREATIVITY• Expertise refers to knowledge

(technical, processes and academic). • Creative thinking skills are how

adaptable and imaginative individuals in the organization are.

• Motivation refers to the intrinsic form of motivation—the urgent need to solve the problem faced and not the monetary rewards expected.


THREE-COMPONENT MODEL


CREATIVE LEADERSHIP MODEL

Source: Basadur, M.S. (1995). The Power of Innovation: How to make innovation a way of life and put creative solutions to work. Pitman Professional Publishing, available at: www.basadur.com


CREATIVE LEADERSHIP• Problem finding• Problem solving • Solution implementation


LEADERSHIP IMPLICATIONS: HOW LEADERS SUPPORT CREATIVITY• Enhance creative problem solving• Innovative styles and intrinsic motivation combine with LMX to produce more creativity• Leader expectations and support increase creative self-efficacy


OPEN-ACCESSSTUDENT RESOURCES• Checklist action plan

• Learning objective summaries

• Mobile-friendly quizzes

• Mobile-friendly eFlashcards

• Video and multimedia resources

• SAGE journal articles

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Scandura ppt 06