Chapter 10 Decision Making by Individuals and Groups

1. Chapter 10Decision Making by Individualsand Groups Michael A. Hitt C. Chet Miller Adrienne Colella Slides by Ralph R. Braithwaite

2. Dawn Ostroff’s Decision Making at the CW Television Network Dawn Ostroff Exploring Behavior in Action • What are your thoughts about Ostroff’s decision-making process regarding programming at the “new” network? • Given the nature of the decisions needed, did she used the knowledge and wisdom of her advisors wisely? • What are your thoughts about the “creative and somewhat risky tactics” that were adopted? • Do you think the network will survive and be successful in the future?

3. Knowledge Objectives • Describe the fundamentals of decision making, including the basic steps and the need to balance ideal and satisfactory decisions. • Discuss four important decision-making styles, emphasizing the effectiveness of each one. • Explain the role of risk-taking propensity and reference points. • Define cognitive bias and explain the effects of common types of cognitive bias on decision making. • Discuss common pitfalls of group decision making. • Describe key group decision-making techniques. • Explain the factors managers should consider in determining the level of associate involvement in managerial decisions.

4. Fundamentals of Decision Making Decisions are choices of actions from among multiple feasible alternatives. Making decisions is one of the primary activities of senior managers. Decisions are also made by managers at all levels and by associates in high-involvement organizations.

5. Define the Problem Identify Criteria Gather and Evaluate Data List and Evaluate Alternatives Select Best Alternative Implement and Follow Up Decision-Making Process Feedback Adapted from Exhibit 10-1: The Decision-Making Process

6. Optimal decision Satisficing decision Optimal versus Satisfactory Decisions

7. Gathering (Perceiving) of Information Evaluating (Judging) of Alternatives Carl Jung Sensing style Intuition style Thinking style Feeling style Decision-Making Styles Individuals’ predispositions can affect decision process at two critical stages

8. Define the Problem Sensing Intuition Identify Criteria Perceptual Influences Gather and EvaluateInformation Using the five senses to identify factual details Using abstractions and describing the “big picture” List and Evaluate Alternatives Thinking Feeling Judgmental Influences Objective analysis, rational procedures Subjective values with emotional and personal factors Select Best Alternative Implement and Follow Up Decision-Making Styles Feedback Adapted from Exhibit 10-2: Influence of Decision Styles

9. Gathering Information Sensing A decision style focused on gathering concrete information directly through the senses, with an emphasis on practical and realistic ideas. Intuition A decision style focused on developing abstractions and figurative examples for use in decision making, with an emphasis on imagination and possibilities.

10. Intuition Style • Valuable when: • A high level of ambiguity exists • Few or no precedents exist • Facts are limited • Facts don’t clearly indicate which way to go • Time is limited and there is pressure to make the right decision • Several plausible alternative solutions exist with good arguments for each

11. Evaluating Alternatives Thinking A decision style focused on objective evaluation and systematic analysis. Feeling A decision style focused on subjective evaluation and the emotional reactions of others.

12. Nurturing Alternative Decision Styles ManagerialAdvice Edward de Bono What are your thoughts about the comment that many accountants believe that more data is better and they hide behind “a mass of data”? What are your thoughts that some marketers have “blind spots” when it comes to having to do data analysis? What are you thoughts about the Six Thinking Hats concept of Edward de Bono?

13. Reference Point Degree of Acceptable Risk • Risk exists when the outcome of a chosen course of action is not certain • Risk-taking propensity (Willingness to take chances)

14. Ease of recall bias Relying too much on information that is easy to recall from memory Confirmation bias Seeking information that confirms early beliefs and ideas Cognitive Biases Mental shortcuts involving simplified ways of thinking Sunk-cost bias Not treating past investments (time, effort, money) as sunk-costs when deciding to continue an investment Anchoring bias Emphasizing too much the first piece of information encountered Cognitive Biases

15. Mount Everest Expeditions George Mallory (R) and Andrew Irvine Sir Edmund Hillary (L) and Tenzing Norgay Rob Hall • What role do “sunk costs” play in many decisions? • Why would someone like Rob Hall ignore his pre-determined turnaround time? • Have you experienced the “perils of sunk cost” in your work or personal lives? Give examples. ExperiencingStrategic OB

16. Group Decision Making • Some members may arrive with their own expectations, problem definitions, and pre-determined solutions • Some members may have given more thought to the decision situation and what is to be accomplished • Focus of the team leader may be in developing a collaborative team rather than developing individual decision making skills

17. Common Information Bias Diversity-based Infighting Groupthink Risky Shift Group Decision Making Brainstorming Devil’s Advocacy Nominal Group Technique Dialectical Inquiry Delphi Technique Decision-Making Process Adapted from Exhibit 10-3: Group Decision-Making Phenomena – Pitfalls and Techniques

18. Groupthink Group Decision-Making Pitfalls Common Information Bias Diversity-BasedInfighting RiskyShift Brain- storming NominalGroupTechnique DelphiTechnique DialecticalInquiry Devil’sAdvocacy

19. Victor Vroom Philip Yetton Vroom-Yetton Method Requires managers to diagnose the problem situation and then determine the extent to which associates will be involved in the decision-making process. The involvement depends on the probable effect participation will have on: • the expected quality of the decision • the acceptance or commitment needed from associates to implement the solution • the amount of time available (and needed) to make the decision.

20. Who Should Decide? Level of Associate Involvement in Decision Low High AI Manager solves problem or makes decision alone AII Manager requests information but not alternatives CI Manager explains problem individually but makes decision alone CII Manager explains problem to group, gets suggestions, makes decision alone GII Manager explains problem to group, facilitates problem solving, implements decision supported by the group Adapted from Exhibit 10-4: Managerial Approaches to Associate Involvement in Decision Making

21. Vroom-Yetton Method Questions asked to determine level of associate involvement in decision making • Is there a quality requirement such that one solution is likely to be more rational than another solution, or will any number of solutions work reasonably well? • Do I have sufficient information to make a high-quality decision? • Is the problem structured (do I know the question to ask and where to look for relevant information)? • Is acceptance of the decision by associates critical to effective implementation? • If I were to make the decision by myself, is it reasonably certain that it would be accepted by my associates? • Do the associates share the organizational goals to be attained in solving this problem? • Is conflict among associates likely in preferred solutions? Adapted from Exhibit 10-5: Decision Tree Method

22. A B C D E F G 1-AI 2-AI Yes No Yes No 3-GII No 4-AI 7-CII No 6-GII Yes 5-AI Yes Yes Problem Yes No No No Yes No Yes Yes Yes 8-CI 9-AII Yes No No 10-AII No 11-CII Yes Yes 12_GII Yes No No No 13-CII 14-CII Decision points Recommended strategies Vroom-Yetton Method Adapted from Exhibit 10-5: Decision Tree Method

23. Vroom-Yetton Model and the Civil War • What are your thoughts regarding the application of the Vroom-Yetton Model to the Civil War battles discussed in the text? • How could you use this model to “fight” some of your “battles” in your life? ExperiencingStrategic OB

24. Value of Individual vs. Group Decision Making Important considerations for judging the overall value of group decision vs. individual decision making include: Time Cost Nature of theProblem Satisfaction andCommitment Personal Growth

25. Advantages Disadvantages Can accumulate more knowledge and facts and generate better alternatives. Take more time to reach decisions than do individuals. Often display superior judgment when evaluating alternatives. Social interactions may lead to premature compromise. Involvement in decisions leads to a higher level of acceptance and satisfaction. Often dominated by one or two “decision leaders.” Can result in growth for members of the group. Managers may rely too much on group decisions – lose their own skills. Group Decision Making Adapted from Exhibit 10-6: Advantages and Disadvantages of Group Decision Making

26. The Strategic Lens • You are a manager of a unit with 25 associates. You have just been informed that you must lay off 20% of the associates in your unit. What process will you follow to make the decision and implement it? • If you made a decision that your manager told you was important for the organization and later you learned that you made an error in that decision, what actions would you take? Assume that others will not notice the error for some time. • You make decisions on a daily basis. Do you find it difficult to make decisions, especially those of importance? What can you do to improve your decision-making abilities?

27. Questions