Chapter 7: Individual & Group Decision Making - How Managers Make Things Happen

Four Styles of Decision-Making

1) Directive 2) Analytical 3) Conceptual 4) Behavioral

Advantages of Group Decision Making

1) Greater pool of knowledge 2) Different perspectives 3) Intellectual stimulation 4) Better understanding of decision rationale 5) Better understanding of decision rationale

4 Stages Rational Decision Making

1) Identify the Problems or Opportunity 2) Think up alternative solutions 3) Evaluate alternatives & select a solution 4) Implement & Evaluate the solution chosen

Three Effective Reactions

1) Importance—"How High Priority Is This Situation?" 2) Credibility—"How Believable Is the Information about the Situation?" 3) Urgency—"How Quickly Must I Act on the Information about the Situation?"

Four Ineffective Reactions

1) Relaxed Avoidance 2) Relaxed Change 3) Defensive Avoidance 4) Panic

Big Data

Includes not only data in corporate databases but also web-browsing data trails, social network communications, sensor data, and surveillance data

Assumptions of the Rational Model

• Complete information, no uncertainty - You should obtain complete, error-free information about all alternative courses of action and the consequences that would follow from each choice. • Logical, unemotional analysis - Having no prejudices or emotional blind spots, you are able to logically evaluate the alternatives, ranking them from best to worst according to your personal preferences. • Best decision for the organization - Confident of the best future course of action, you coolly choose the alternative that you believe will most benefit the organization.

The "Curse of Knowledge"

"People who design products are experts cursed by their knowledge, and they can't imagine what it's like to be as ignorant as the rest of us." In other words, as our knowledge and expertise grow, we may be less and less able to see things from an outsider's perspective—hence, we are often apt to make irrational decisions.

Nonrational Decision Making: Managers Find It Difficult to Make Optimal Decisions

"The non-rational models are descriptive rather than prescriptive: They describe how managers actually make decisions rather than how they should." Non-rational models of decision making explain how managers make decisions; they assume that decision making is nearly always uncertain and risky, making it difficult for managers to make optimal decisions Two Non-Rational Models: 1) Satisficing 2) Intuition

1st Ineffective Reaction: 1) Relaxed Avoidance

"There's No Point in Doing Anything; Nothing Bad's Going to Happen." In a Relaxed Avoidance - a manager decides to take no action in the belief that there will be no great negative consequences

3rd Ineffective Reaction: 3) Defensive Avoidance

"There's No Reason for Me to Explore Other Solution Alternatives." Defensive Avoidance - a manager can't find a good solution and follows by: a) procrastinating (b) passing the buck (c) denying the risk of any negative consequences

4th Ineffective Reaction: 4) Panic

"This Is So Stressful, I've Got to Do Something—Anything—to Get Rid of the Problem!" Panic - a manager is so frantic to get rid of the problem that he or she can't deal with the situation realistically.

2nd Ineffective Reaction: 2) Relaxed Change

"Why Not Just Take the Easiest Way Out?" Relaxed Change - a manager realizes that complete inaction will have negative consequences but opts for the first available alternative that involves low risk

7 Reasons that Make It Hard to Be Evidence Based

(1) There's too much evidence (2) There's not enough good evidence (3) The evidence doesn't quite apply (4) People are trying to mislead you (5) You are trying to mislead you (6) The side effects outweigh the cure - (Example: Despite the belief that social promotion in school is a bad idea—that is, that schools shouldn't advance children to the next grade when they haven't mastered the material—the side effect is skyrocketing costs because it crowds schools with older students, and angrier students, demanding more resources.) (7) Stories are more persuasive, anyway

4 steps in making a rational decision

(1) identify the problem or opportunity (2) think up alternative solutions (3) evaluate alternatives and select a solution (4) implement and evaluate the solution chosen

Disadvantages of Group Decision Making

1) A few people dominate or intimidate 2) Groupthink - when group members strive to agree for the sake of unanimity and thus avoid accurately assessing the decision situation 3) Satisficing 4) Goal displacement - when the primary goal is subsumed by a secondary goal

Three (3) Group Problem-Solving Techniques

1) Brainstorming: For Increasing Creativity 2) The Delphi Technique: For Consensus of Experts 3) Computer-Aided Decision Making

Stage 4 Rational Decision Making: 4) Implement & Evaluate the solution chosen Four (4) Things for Successful Evaluation

1) Give it more time - You need to make sure employees, customers, and so on have had enough time to get used to the new action. 2) Change it slightly - Maybe the action was correct, but it just needs "tweaking"—a small change of some sort. 3) Try another alternative - If Plan A doesn't seem to be working, maybe you want to scrap it for another alternative. 4) Start over - If no alternative seems workable, you need to go back to the drawing board—to Stage 1 of the decision-making process.

Which Style Do You Have? Use 3 Methods

1) Know Thyself Knowledge - of styles helps you to understand yourself. Awareness of your style assists you in identifying your strengths and weaknesses as a decision maker and facilitates the potential for self-improvement 2) Influence Others You - can increase your ability to influence others by being aware of styles. For example, if you are dealing with an analytical person, you should provide as much information as possible to support your ideas. 3) Deal with Conflict Knowledge - of styles gives you an awareness of how people can take the same information and yet arrive at different decisions by using a variety of decision-making strategies. Different decision-making styles represent one likely source of interpersonal conflict at work

Stage 4 Rational Decision Making: 4) Implement & Evaluate the solution chosen Two (2) Things for Successful Implementation

1) Plan carefully. Especially if reversing an action will be difficult, you need to make careful plans for implementation. Some decisions may require written plans. 2) Be sensitive to those affected. You need to consider how the people affected may feel about the change—inconvenienced, insecure, even fearful, all of which can trigger resistance. This is why it helps to give employees and customers latitude during a changeover in business practices or working arrangements

1st Non-Rational Model: 1) Satisficing - Bounded Rationality & the Satisficing Model: "Satisfactory Is Good Enough"

1) Satisficing - Bounded Rationality & the Satisficing Model: "Satisfactory Is Good Enough" - satisficing model—that is, managers seek alternatives until they find one that is satisfactory, not optimal - bounded rationality, the concept suggests that the ability of decision makers to be rational is limited by numerous constraints, such as complexity, time and money, and their cognitive capacity, values, skills, habits, and unconscious reflexes

2 Non-Rational Models

1) Satisficing - Bounded Rationality & the Satisficing Model: "Satisfactory Is Good Enough" 2) Intuition

1 - 5 of Nine Common Decision-Making Biases: Rules of Thumb, or "Heuristics"

1) The Availability Bias: Using Only the Information Available - Managers use information readily available from memory to make judgments 2) The Representativeness Bias: Faulty Generalizing from a Small Sample or a Single Event - The tendency to generalize from a small sample or a single event 3) The Confirmation Bias: Seeking Information to Support One's Point of View - When people seek information to support their point of view and discount data that do not 4) The Sunk-Cost Bias: Money Already Spent Seems to Justify Continuing - or sunk-cost fallacy, is when managers add up all the money already spent on a project and conclude it is too costly to simply abandon it 5) he Anchoring & Adjustment Bias: Being Influenced by an Initial Figure - The tendency to make decisions based on an initial figure

Four (4) Characteristics Managers Need to Know about Groups & Decision Making

1) They Are Less Efficient 2) Their Size Affects Decision Quality 3) They May Be Too Confident 4) Knowledge Counts

Seven (7) Implementation Principles for Evidence-Based Management

1) Treat your organization as an unfinished prototype 2) No brag, just facts 3) See yourself and your organization as outsiders do 4) Evidence-based management is not just for senior executives 5) Like everything else, you still need to sell it 6) If all else fails, slow the spread of bad practice 7) The best diagnostic question: What happens when people fail?

When a Group Can Help in Decision Making: Three Practical Guidelines

1) When it can increase quality 2) When it can increase acceptance 3) When it can increase development

7 Rules for Brainstorming

1. Defer judgment 2. Build on the ideas of others 3. Encourage wild ideas 4. Go for quantity over quality 5. Be visual 6. Stay focused on the topic 7. One conversation at a time

4 Questions a Manager Should ask When Confronted with any Proposed Action that Requires a Decision

1. Is the Proposed Action Legal 2. If "Yes," Does the Proposed Action Maximize Shareholder Value? 3. If "Yes," Is the Proposed Action Ethical? 4. If "No," Would It Be Ethical Not to Take the Proposed Action?

7 Guidelines for Developing Intuitive Awareness

1. Open up the closet. - To what extent do you experience intuition; trust your feelings; count on intuitive judgments; suppress hunches; covertly rely upon gut feel. 2. Don't mix up your I's. - Instinct, Insight, and Intuition are not synonymous; practice distinguishing between your instincts, your insights, and your intuitions. 3. Elicit good feedback. - Seek feedback on your intuitive judgments; build confidence in your gut feel; create a learning environment in which you can develop better intuitive awareness. 4. Get a feel for your batting average. - Benchmark your intuitions; get a sense of how reliable hunches are; ask yourself how your intuitive judgment might be improved. 5. Use imagery. - Use imagery rather than words; literally visualize potential future scenarios that take your gut feelings into account. 6. Play devil's advocate. - Test out intuitive judgments; raise objections to them; generate counterarguments; probe how robust gut feel is when challenged. 7. Capture and validate your intuitions. - Create the inner state to give your intuitive mind the freedom to roam; capture your creative intuitions; log them before they are censored by rational analysis.

Three (3) Key Attributes of Fact-Based Analysis among competitors

1. Use of Modeling: Going beyond Simple Descriptive Statistics - Predictive modeling: A Data-Mining technique used to predict future behavior and anticipate the consequences of change 2. Having Multiple Applications, Not Just One 3. Support from the Top

6 - 9 of Nine Common Decision-Making Biases: Rules of Thumb, or "Heuristics"

6) The Overconfidence Bias: Blind to One's Own Blindness - The bias in which people's subjective confidence in their decision making is greater than their objective accuracy 7) The Hindsight Bias: The I-Knew-It-All-Along Effect - The tendency of people to view events as being more predictable than they really are 8) The Framing Bias: Shaping How a Problem Is Presented - The tendency of decision makers to be influenced by the way a situation or problem is presented to them 9) The Escalation of Commitment Bias: Feeling Overly Invested in a Decision - Whereby decision makers increase their commitment to a project despite negative information about it

Predictive modeling

A Data-Mining technique used to predict future behavior and anticipate the consequences of change

Decision-Making Style

A decision-making style reflects the combination of how an individual perceives and responds to information A team of researchers developed a model of decision-making styles based on the idea that styles vary along two different dimensions: 1) Value orientation 2) Tolerance for ambiguity

1) Directive Style:

Action-Oriented Decision Makers Who Focus on Facts - Low tolerance for Ambiguity - Oriented toward task and technical concerns in making decision - They are efficient, logical, practical, and systematic in their approach to solving problems - Tend to be autocratic, exercise power and control, and focus on short run

2 Benefits & 1 Drawback of Intuition

Benefits: (1) It can speed up decision making, useful when deadlines are tight (2) It can be helpful to managers when resources are limited Drawback: (1) It can be difficult to convince others that your hunch makes sense

Stage 2 Rational Decision Making: 2) Think up alternative solutions

Both the Obvious & the Creative Employees burning with bright ideas are an employer's greatest competitive resource. "Creativity precedes innovation, which is its physical expression," says Fortune magazine writer Alan Farnham. "It's the source of all intellectual property."

1st Group Problem-Solving Technique: 1) Brainstorming: For Increasing Creativity

Brainstorming - a technique used to help groups generate multiple ideas and alternatives for solving problems Electronic Brainstorming (Brainwriting) - members of a group come together over a computer network to generate ideas and alternatives

2) The Analytical Style

Careful Decision Makers Who Like Lots of Information & Alternative Choices - High tolerance for Ambiguity - Tend to over-analyze situations - Consider more information and alternatives than directive styles - Take longer to respond, but can make better decisions

Three Effective Reactions: Deciding to Decide

Deciding-to-Decide - a manager agrees that he or she must decide what to do about a problem or opportunity and take effective decision-making steps

3) The Conceptual Style

Decision Makers Who Rely on Intuition & Have a Long-Term Perspective - High tolerance for Ambiguity - Tend to focus on people or social aspects of work situations - Take Broad Perspective to problem solving - Like to consider many options and future possibilities - Take long-term perspective, rely on intuition and discussions with others to acquire information - willing to take risks and are good at finding creative solutions to problems - Can be indecisive

3rd Group Problem-Solving Technique: 3) Computer-Aided Decision Making

Decision Support System - a computer-based information system that provides a flexible tool for analysis and helps managers focus on the future - produced collected info called "business intelligence"

Road Map to Ethical Decision Making: A Decision Tree

Decision Tree - Is a graph of decisions and their possible consequences; it is used to create a plan to reach a goal

Stage 1 Rational Decision Making: 1) Identify the Problems or Opportunity

Determining the Actual versus the Desirable Problems - difficulties that inhibit the achievement of goals Opportunities—situations that present possibilities for exceeding existing goals Improvements—how to change conditions from the present to the desirable Diagnosis—analyzing the underlying causes

Minority Dissent

Dissent that occurs when a minority in a group publicly opposes the beliefs, attitudes, ideas, procedures, or policies assumed by the majority of the group

Consensus: Do's & Don'ts

Do's: Use active listening skills. Involve as many members as possible. Seek out the reasons behind arguments. Dig for the facts Don'ts: Avoid log rolling and horse trading ("I'll support your pet project if you'll support mine"). Avoid making an agreement simply to keep relations amicable and not rock the boat. Finally, don't try to achieve consensus by putting questions to a vote

Stage 3 Rational Decision Making: 3) Evaluate alternatives & select a solution

Ethics, Feasibility, & Effectiveness (1) Is it ethical? (If it isn't, don't give it a second look.) (2) Is it feasible? (If time is short, costs are high, technology unavailable, or customers resistant, for example, it is not.) (3) Is it ultimately effective? (If the decision is merely "good enough" but not optimal in the long run, you might reconsider.)

Intuition Based on Expertise vs Feelings

Expertise: - Holistic Hunch: a person's explicit and tacit knowledge about a person, situation, object, or decision opportunity Feelings: - Automated Experience: the involuntary emotional response to those same matters

Rational Decision Making

Managers Should Make Logical & Optimal Decisions Also called the classical model - how managers should make decisions; it assumes managers will make logical decisions that will be the optimum in furthering the organization's best interests

Consensus

Occurs when members are able to express their opinions and reach agreement to support the final decision

Decision Making System 1—intuitive and largely unconscious

Operates automatically and quickly; it is our fast, automatic, intuitive, and largely unconscious mode, as when we detect hostility in a voice or detect that one object is more distant than another. "System 1 uses association and metaphor to produce a quick and dirty draft of reality,"

Ethics Officer

Someone trained about matters of ethics in the workplace, particularly about resolving ethical dilemmas

Heuristics

Strategies that simplify the process of making decisions

2 Systems of Decision Making

System 1—intuitive and largely unconscious: System 2—analytical and conscious

Decision Making System 2—analytical and conscious

System 2 is our slow, deliberate, analytical, and consciously effortful mode of reasoning, which swings into action when we have to fill out a tax form or park a car in a narrow space "which System 2 draws on to arrive at explicit beliefs and reasoned choices."

2nd Group Problem-Solving Technique: 2) The Delphi Technique: For Consensus of Experts

The Delphi Technique - a group process that uses physically dispersed experts who fill out questionnaires to anonymously generate ideas; the judgments are combined and in effect averaged to achieve a consensus of expert opinion

2nd Non-Rational Model: 2) Intuition - The Intuition Model: "It Just Feels Right"

The Intuition Model: "It Just Feels Right" - Intuition, is making a choice without the use of conscious thought or logical inference. "Going with your Gut"

4) The Behavioral Style

The Most People-Oriented Decision Makers - Most People-Oriented of the four styles - Work well with others - Enjoy social interactions - Supportive, receptive to suggestions, show warmth - Prefer Verbal > Written Info - Tend to avoid conflict and be concerned about others - Can lead to wishy-washy approach to decision making and hard time to say no

Big Data Analytics

The process of examining large amounts of data of a variety of types to uncover hidden patterns, unknown correlations, and other useful information

What's Wrong with the Rational Model?

The rational model is prescriptive, describing how managers ought to make decisions. It doesn't describe how managers actually make decisions

Analytics (Business Analytics)

The term used for sophisticated forms of business data analysis

Evidence-Based Management

The translation of principles based on best evidence into organizational practice, bringing rationality to the decision-making process—routinely trump the competition, Pfeffer and Sutton suggest

Decision-Making Style Dimension 2: Tolerance for Ambiguity

Tolerance for Ambiguity - This individual difference indicates the extent to which a person has a high need for structure or control in his or her life - Low Tolerance: High need for Structure, ambiguous and new situations uncomfortable - High Tolerance: Low need for structure, enjoy or are comfortable with ambiguity

Decision-Making Style Dimension 1: Value Orientation

Value Orientation - reflects the extent to which a person focuses on either task and technical concerns or people and social concerns when making decisions.

Decision

is a choice made from among available alternatives.

Decision making

is the process of identifying and choosing alternative courses of action.