FOUNDATIONS OF DECISION MAKING LEARNING OUTCOMES

After reading this chapter, students should be able to: 4. Describe the steps in the decision-making process. 5. Identify the assumptions of the rational decision-making model. 6. Explain the limits to rationality. 7. Define certainty, risk, and uncertainty as they relate to decision making. 8. Describe the actions of the bounded-rational decision maker. 9. Identify the two types of decision problems and the two types of decisions that are used to solve them. 10. Define heuristics and explain how they affect the decision-making process. 11. Identify four decision-making styles. 12. Describe the advantages and disadvantages of group decisions. 13. Explain three techniques for improving group decision making. Opening Vignette SUMMARY During the physical fitness boom of the 1970s, the fastest growing segment of the physical fitness market was joggers. For most of those 40 million people, there's one preferred choice in athletic shoesNike. Nike was founded by Philip Knight, a track star from the University of Oregon. Importing shoes to the United States, Nike's big breakthrough came in 1975 with the development of the "waffle" sole--soles with tiny rubber studs that made the shoe spongier than any other shoe on the market. From that point on, Nike's sales skyrocketed. Nike's success can be traced to several core values Knight holds: innovation, diversity, but most notably, behind Knight's actions was his desire for the company to be on the "hearts, minds, and feet" of every individual. To achieve that goal, Nike relied heavily on a phenomenal marketing campaign. In spite of occasional setbacks, like the economic turmoil in Asia and criticism of its Asian labor practices, the decisions that Phil Knight has made appeared to have worked. Teaching tips 14. Encourage students to research Nike and the athletic shoe industry on the Internet and through examining either Value Line or the S & P 500 valuations in your school's library. 15. Ask students what companies they think of when they think of athletic shoes, and why. 16. Discuss what ads they can remember seeing on TV or in magazines. 17. What do they think will be the next sport that Nike should pursue with its shoe line? I. THE DECISION-MAKING PROCESS A. Introduction 1. Decision making is typically described as "choosing among alternatives." 2. This is simplistic because decision making is a process. a) See Exhibit 4-2 illustrating the decision-making process. B. What Defines a Decision Problem? 1. The decision-making process begins with the existence of a problem (step 1), a discrepancy between an existing and a desired state of affairs. a) Nokia example. b) Car-buying example. 2. Problem identification is subjective.

3. The manager who mistakenly solves the wrong problem is likely to perform just as poorly as the manager who fails to identify the right problem and does nothing. a) How do managers become aware that they have a discrepancy? b) Managers compare their current state of affairs and some standard. C. What Is Relevant in the Decision-Making Process? 1. Once a problem is identified, the decision criteria must be identified (step 2). 2. Car-buying example continued. 3. Every decision maker has criteria--explicitly or not--that guide his/her decision. a) What is not identified is as important as what is. 4. If a decision maker does not identify a particular matter, it is treated as irrelevant. Teaching Notes _______________________________________________________________________ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ D. How Does the Decision Maker Weight the Criteria? 1. It is necessary to weight the items listed in step 2 in order to give them their relative priority. a) Allocating weights to the decision criteria (step 3). 2. A simple approach, give the most important criterion a weight of ten and then assign weights to the rest against that standard. a) Exhibit 4-3 lists the criteria and weights for car-replacement decision. 3. The next step, list the alternatives that could succeed in resolving the problem (step 4). a) No attempt is made to appraise these alternatives, only to list them. 4. Once identified, the decision maker must critically analyze each alternative (step 5). a) Each alternative is evaluated by appraising it against the criteria. (1) Exhibit 4-4 shows the assessed values for each car. b) Most decisions contain judgments reflecting the criteria chosen in step 2. (1) Exhibit 4-4 represents only an assessment of the twelve alternatives against the decision criteria. c) If you multiply each alternative assessment against its weight, you get Exhibit 45. d) Notice that the weighting of the criteria has changed the ranking of alternatives in our example. E. What Determines the "Best" Choice? 1. The sixth step, choosing the best alternative from among those enumerated and assessed. a) Car example, Exhibit 4-5.

F. What Is Decision Implementation? 1. The decision may still fail if it is not implemented properly (step 7). 2. Decision implementation includes conveying the decision to those affected and getting their commitment to it. 3. The people who must carry out a decision are most likely to enthusiastically endorse the outcome if they participate in the decision-making process. G. What is the Last Step in the Decision Process? 1. The last step (step 8) appraises--the result of the decision to see whether it has corrected the problem. 2. Did the alternative chosen in step 6 and implemented in step 7 accomplish the desired result? Teaching Notes _______________________________________________________________________ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ II. MAKING DECISIONS: THE RATIONAL MODEL A. Introduction 1. Managerial decision making is assumed to be rational. 2. A decision maker who was perfectly rational would be fully objective and logical. a) Carefully defining the problem and having a clear and specific goal. b) The decision-making process consistently leads to selecting the alternative that maximizes that goal. c) Exhibit 4-6 summarizes the assumptions of rationality. 3. The assumptions of rationality often do not hold true, because there rarely exists the level of certainty that the rational model demands. 4. Most managers try to assign probabilities to outcomes that may result. a) This process is dealing with risk. 5. Decisions made with limited information are made under a condition of uncertainty. III. THE REAL WORLD OF MANAGERIAL DECISION MAKING: MODIFICATION OF THE RATIONAL MODEL A. Introduction 1. Most of us make decisions on the basis of incomplete information. 2. When we are faced with complex problems, most of us respond by reducing the problem to something we can readily understand. 3. Satisficing, seeking solutions that are satisfactory and sufficient--or just good enough. B. Do Managers Engage in Satisficing Behavior? 1. When managers face a simple problem having few alternatives, when time pressures

are minimal, and when the cost of seeking and evaluating alternatives is low--the rational model provides a good description of the decision-making process. 2. Studies often challenge one or more of the assumptions of rationality. a) They suggest that decision making often veers from the logical, consistent, and systematic process. b) Despite the limits to rationality, managers are expected to appear to follow the process. 3. "Good" decision makers are supposed to do certain things: identify problems, consider alternatives, gather information, behave thoughtfully, and act decisively but prudently. 4. Managers signal that they are competent and that their decisions are the result of intelligent and rational deliberation. a) This is frequently referred to as bounded rationality. Teaching Notes _______________________________________________________________________ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ C. What Is Bounded Rationality? 1. Management theory is built on the premise that individuals act rationally. 2. The essence of managerial jobs revolves around the rational decision-making process. a) However, few people actually behave rationally. 3. Herbert Simon found that within certain constraints, managers do act rationally. 4. Because it is impossible for human beings to process and understand all the information necessary, they construct simplified models that extract the essential features from problems. a) Bounded rationality, decision makers behave rationally within the limits of the simplified or bounded model. b) The result is a satisficing decision; the solutions are "good enough." D. How Do Managers' aAtions within These Boundaries Differ from Actions within the Rational Model? 1. Once a problem is identified, the search for criteria and alternatives begins. a) This list of criteria is generally limited and made up of the more conspicuous choices. 2. Simon found that decision makers focus on easy-to-find choices--those that are highly visible. 3. This means developing alternatives that vary only slightly from past decisions about similar problems. 4. Once this limited set of alternatives is identified, decision makers begin reviewing them. a) The review will not be exhaustive.

5. They review alternatives only until an alternative that is sufficient is found. a) The first alternative to meet the "good enough" criterion ends the search. 6. What are the implications of bounded rationality on the manager's job? In situations in which the assumptions of perfect rationality do not apply (including many of the most important and far-reaching decisions that a manager makes), the details of the decision-making process are strongly influenced by the decision maker's self-interest, the organization's culture, internal politics, and power considerations. Teaching Notes _______________________________________________________________________ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ E. Are There Common Errors Committed in the Decision-Making Process? 1. Making decisions is making choices. 2. Behaviors that speed up the process, judgmental shortcuts are called heuristics. 3. Two forms--availability and representative. a) Both types create biases. b) Another bias, the tendency to escalate commitment to a failing course of action. 4. Availability heuristic. a) The tendency for people to base their judgments on information that is readily available. (1) Events that invoke strong emotions, that are vivid, or that have recently occurred create a strong impression. (2) We are likely to overestimate the frequency of the occurrence of unlikely events. b) Example, fear of flying. 5. Representative heuristic a) Literally millions of recreational league players dream of turning professional. b) In reality most have a better chance of becoming medical doctors than ever playing in the NBA. c) Representative heuristic causes individuals to match the likelihood of an occurrence with something that they are familiar with. 6. Organizational instances of representative heuristic. a) Predicting the future success of a new product by relating it to a previous product's success. b) No longer hiring college graduates from a particular college program because the last three hired from that program were poor performers. 7. Escalation of commitment a) An increased commitment to a previous decision despite negative information. b) The tendency to "stay the course," despite negative data. c) Some of the best-recorded events involving escalation of commitment were decisions made by presidents of the United States.

(1) Lyndon Johnson's administration increased effort bombing North Vietnam, despite continual information that bombing was not achieving their objective. (2) Richard Nixon refused to destroy his secret White House tapes. (3) George Bush believed that, given his popularity after Operation Desert Storm and the fall of the Soviet Union, he had only to pay attention to foreign affairs to win the 1992 presidential election. d) The commitment to the original solution may be a defense of their initial decision. Teaching Notes _______________________________________________________________________ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ IV. DECISION MAKING: A CONTINGENCY APPROACH A. How Do Problems Differ? 1. Some problems are straightforward. The goal of the decision maker is clear, the problem familiar, and information about the problem easily defined and complete. 2. Many situations however, are ill-structured problems. They are new or unusual. Information about such problems is ambiguous or incomplete. B. What Is the Difference between Programmed and Nonprogrammed Decisions? 1. Programmed, or routine, decision making is the most efficient way to handle wellstructured problems. 2. When problems are ill-structured, managers must rely on nonprogrammed decision making. a) A Sears Automotive mechanic example. 3. Decisions are programmed to the extent that they are repetitive and routine and to the extent that a definite approach has been worked out for handling them. a) Programmed decision making is relatively simple and tends to rely heavily on previous solutions. b) The "develop-the-alternatives" stage is given little attention. C. What Are Procedures, Rules, and Policies, and When Are They Best Used? 1. A procedure is a series of interrelated sequential steps that a manager can use for responding to a well-structured problem. a) The only real difficulty is in identifying the problem. b) Once the problem is clear, so is the procedure. c) Example of purchasing manager and request for copies of Microsoft Outlook. 2. A rule is an explicit statement that tells a manager what he or she ought or ought not to do. a) Rules are frequently used with a well-structured problem because they are simple to follow and ensure consistency.

3. A policy provides guidelines to channel a manager's thinking in a specific direction. a) In contrast to a rule, a policy establishes parameters for the decision maker rather than specifically stating what should or should not be done. Teaching Notes _______________________________________________________________________ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ Dilemma in Management Bausch & Lomb Leaves Town SUMMARY Bausch & Lomb targeted a sunglass-lens plant for closure. Company representatives have indicated that they decided to close the plant because it was too expensive. Is Bausch & Lomb justified in its actions? Company officials certainly have a right to manage the operations in the most profitable way they can. Corporate profits fell in a two-year period, the CEO was ousted, and moving to areas where employee pay was lower was viewed as an effective way to reduce costs. The "bottom line" warranted their actions. In today's global economy, hometown loyalties rarely override economic considerations. Employees in the Maryland plant did make more money than their counterparts in Texas and Hong Kong, but they had given the company something that other plants have not--highrecognition quality products. Employees were awarded a prestigious international designation of quality, as well as having been a recipient of a productivity award from the U.S. government. Questions 18. What role, if any, should social responsibility have played in Bausch & Lomb's decision to close its western Maryland plant? 19. Do you believe that companies like Bausch & Lomb should have a legal right to move to another area simply to cut costs, knowing their actions will create an economic hardship for the community? 20. What if they had been given tax incentives to locate in their original location? Teaching notes 21. Students' answers are not as important as their reasoning process and their realization of the difficulty of the practical realities of this decision. 22. Begin this exercise by asking students to create bottom-line oriented arguments they would present to a shareholders meeting for leaving the company in Maryland. 23. Have them create this argument by addressing the following items. 24. Who are the stakeholders? Who has a vested interest in the decision and will be affected by it? Rank their importance and explain the ranking. 25. What processes or systems at B & L are contributing to the problem? i.e., a compensation system that continually increases fixed costs.

26. What is the real problem? The case assumes it is salary costs; is it? 27. What choices does B & L have? What other alternatives would help them address the problem? 28. Have students present their arguments in class, allowing other teams to critique them. 29. As a class use the presentation to develop one coherent case for retaining the plant in Maryland. D. What Do Nonprogrammed Decisions Look Like? 1. Examples of nonprogrammed decisions. 2. Such decisions are unique and nonrecurring, involving an ill-structured problem with no cut-and-dried solution. 3. The creation of a new organizational strategy is an example of a nonprogrammed decision. a) Example, Eli Lilly & Company's decision to seek strategic alliances. E. How Can You Integrate Problems, Types of Decisions, and Level in the Organization? 1. Exhibit 4-7 describes the relationship between types of problems, types of decisions, and level in the organization. 2. Well-structured problems are responded to with programmed decision making. a) Lower-level managers essentially confront familiar and repetitive problems. 3. Ill-structured problems require nonprogrammed decision making. a) The problems confronting managers up the organizational hierarchy are more likely to become ill-structured. 4. Few managerial decisions are either fully programmed or fully nonprogrammed. 5. Organizational efficiency is facilitated by the use of programmed decision making. a) Whenever possible, management decisions are likely to be programmed. b) There are strong economic incentives for top management to create policies, standard operating procedures, and rules to guide other managers. c) Programmed decisions minimize the need for managers to exercise discretion. d) This benefit is important because discretion costs money. Teaching Notes _______________________________________________________________________ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ V. DECISION-MAKING STYLES A. Introduction 1. Every decision maker brings a unique set of personal characteristics to his or her problem-solving efforts. 2. Research has sought to identify different decision-making styles.

B. The Model 1. The basic premise is that individuals differ along two dimensions. 2. The first is the way they think. a) Some decision makers are logical and rational, processing information sequentially. b) Some individuals who think creatively and use their intuition, seeing matters from a "big picture" perspective. 3. The second dimension focuses on individuals' tolerance for ambiguity. a) Some have a high need for consistency and order and seek to minimize ambiguity. b) Others tolerate high levels of uncertainty, processing many thoughts at the same time. 4. When we diagram these two dimensions, four decision-making styles are formed. a) These styles are directive, analytic, conceptual, and behavioral. b) See Exhibit 4-8. 5. The directive style. a) Represents a decision-making style characterized by low tolerance for ambiguity and a rational way of thinking. b) These individuals are logical and efficient and typically make fast decisions that focus on the short run. 6. The analytic style. a) Characterized by high tolerance for ambiguity combined with a rational way of thinking. b) These individuals prefer complete information before making a decision typically carefully considering many alternatives. 7. The conceptual style a) Tends to be very broad in outlook and typically will look at many alternatives. b) Tend to focus on the long run and look for creative solutions. 8. The behavioral style a) Reflects an individual who thinks intuitively but has a low tolerance for uncertainty. b) These decision makers work well with others, are open to suggestions, and are concerned about the individuals who work for them. 9. Most managers possess characteristics of more than one style. a) See the Self-Assessment exercise, pages xxxx. Teaching Notes _______________________________________________________________________ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ VI. MAKING DECISIONS IN GROUPS A. Do Managers Make a Lot of Decisions in Groups?

1. Many decisions in organizations, especially important decisions that have farreaching effects on organizational activities and personnel, are typically made in groups. 2. In many cases, these groups represent people who will be most affected by the decisions. 3. Managers spend up to 40 percent or more of their time in meetings. B. What Are the Advantages to Group Decision Making? 1. Individual and group decisions have their own set of strengths. 2. Group decisions provide more complete information than do individual ones. 3. A group will bring a diversity of experience and perspectives to the decision process. 4. Groups also generate more alternatives. a) Quantity and diversity of information are greatest when group members represent different specialties. 5. Group decision making increases acceptance of a solution. 6. This process increases legitimacy. Teaching Notes _______________________________________________________________________ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ C. What Are the Disadvantages to Group Decision Making? 1. First, they are time-consuming. 2. There may also be a situation in which there is minority domination. a) Members of a group are never perfectly equal. b) A minority that dominates a group frequently has an undue influence on the final decision. 3. Another problem focuses on the pressures to conform. a) There are social pressures to conform in groups. b) Irving Janis groupthink--a form of conformity in which group members withhold deviant, minority, or unpopular views in order to give the appearance of agreement. 4. Finally, there is ambiguous responsibility. In a group decision, the responsibility of any single member is watered down. 5. Groupthink applies to a situation in which a group's ability to appraise alternatives objectively and arrive at a quality decision is jeopardized. a) Because of pressures for conformity, groups often deter individuals from critically appraising unusual, minority, or unpopular views. b) Consequently, there is a deterioration of an individual's mental efficiency, reality testing, and moral judgment. 6. How does groupthink occur? a) Group members rationalize any resistance to the assumptions they have made.

b) Members apply direct pressures on those who momentarily express doubts about any of the group's shared views or who question the arguments favored by the majority. c) Those members who have doubts or hold differing points of view seek to avoid deviating from what appears to be group consensus. d) There is an illusion of unanimity. Silence is assumed as being in full accord. 7. Does groupthink really hinder decision making? a) Yes. 8. But, groupthink can be minimized if: a) the group is cohesive. b) it fosters open discussion. c) and is lead by an impartial leader who seeks input from all members. D. When Are Groups Most Effective? 1. On the average, groups make better decisions than individuals. 2. If decision effectiveness is defined in terms of speed, individuals are superior. 3. If creativity is important, groups tend to be more effective than individuals. 4. If effectiveness means the degree of acceptance of the final solution, then groups are better. 5. The effectiveness is also influenced by the size of the group. a) The larger the group, the greater the opportunity for heterogeneous representation. b) But, a larger group requires more coordination and more time to allow for contributions. c) A minimum of five to a maximum of about fifteen is best. d) Because five and seven are odd numbers, strict deadlocks are avoided. 6. Effectiveness should not be considered without also assessing efficiency. a) Groups almost always less efficient than the individual decision maker. Teaching Notes _______________________________________________________________________ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ E. How Can You Improve Group Decision Making? 1. Three ways of making group decision making more creative brainstorming, the

nominal group technique, and electronic meetings. 2. What is brainstorming? a) A relatively simple technique for overcoming pressures for conformity. b) It utilizes an idea-generating process that specifically encourages any and all alteratives. (1) A half-dozen to a dozen people sit around a table. (2) The leader states the problem clearly ensuring understanding by all participants. (3) Members then "freewheel" as many alternatives as they can in a given time. (4) No criticism is allowed; all the alternatives are recorded. c) Brainstorming is merely a process for generating ideas. 3. How does the nominal group technique work? a) The technique restricts discussion during the decision-making process. b) Group members must be present, but they are required to operate independently. c) They secretly write a list of general problem areas or potential solutions. d) The chief advantage is that it permits a formal meeting but does not restrict independent thinking. 4. How can electronic meetings enhance group decision making? a) This approach blends the nominal group technique with computer technology. b) Once the technology for the meeting is in place, the concept is simple. c) Up to fifty people sit around a horseshoe-shaped table that is empty except for a series of computer terminals. d) Issues are presented to participants, who type their responses onto their computer screens. e) Individual comments, as well as aggregate votes, are displayed on a projection screen in the room. f) The major advantages of electronic meetings are anonymity, honesty, and speed. (1) Participants can anonymously type any message they want, and it will flash on the screen for all to see at the push of a key. (2) It is fast--chitchat is eliminated, discussions do not digress, and many participants can "talk" at once without interrupting the others. 5. Experts claim that electronic meetings are as much as 55 percent as fast as traditional face-to-face meetings. a) Phelps Dodge Mining example. 6. Drawbacks. a) Those who can type quickly can outshine those who may be verbally eloquent but are lousy typists. b) Those with the best ideas don't get credit for them. c) The process lacks the informational richness of face-to-face oral communication. 7. But this technology is just starting to catch on. 8. A variation of the electronic meeting is the video conference. a) By linking together media from different locations, people can have face-to-face meetings-even when they are thousands of mile apart. b) This has enhanced feedback among the members, saved countless hours of business travel, and ultimately saved companies hundreds of thousands of dollars. Teaching Notes _______________________________________________________________________ ______________________________________________________________________________ _______

______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ VII. NATIONAL CULTURE AND DECISION-MAKING PRACTICES A. Introduction 1. Research shows that, to some extent, decision-making practices differ by country. 2. Two decision variables. a) Who makes the decision? b) The degree of risk. 3. India, power distance and uncertainty avoidance are high. a) There, only very senior-level managers make decisions, and they make safe ones. 4. Sweden, power distance and uncertainty avoidance are low. a) Swedish senior managers in Sweden also push decisions down in the ranks. 5. Egypt, where time pressures are low, managers make decisions at a slower and more deliberate pace than managers in the United States. 6. Italy, history and traditions are valued, managers tend to rely on tried and proven alternatives. 7. Decision making in Japan is much more group-oriented than in the United States. a) The Japanese value conformity and cooperation. b) Japanese CEOs collect a large amount of information, to build consensus, called ringisei. c) Managerial decisions take a long-term perspective. 8. France, autocratic decision making is widely practiced, and managers avoid risks. 9. Managerial styles in Germany reflect the German culture's concern for structure and order, rules and regulations, and managers accept that decisions must go through channels. Teaching Notes _______________________________________________________________________ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ VIII. DECISION MAKING FROM A CROSS-DISCIPLINARY PERSPECTIVE A. How Humanities and Social Science Disciplines Influence a Manager's Thinking 1. In economics, the foundations for rational decision making is microeconomic principles. a) Business decision makers who lack an understanding of opportunity costs, the marginal principle, price elasticity of demand, etc., are at a severe disadvantage.

2. Psychology is helpful in understanding the actual decision making. a) Bounded rationality, heuristics, escalation of commitment, etc. are rooted in psychology. b) And much of what we know about how to use groups effectively in decision making comes from the applied research of industrial psychologists. 3. Topics such as quotas, tariffs, subsidies, and protectionism are addressed in political science. a) How these elements affect an organization can provide significant insight into how a decision, especially a nonprogrammed decision is shaped. 4. Capitalism and socialism provide two very different philosophies of how economic resources should be used. a) Philosophy helps develop critical thinking skills and introduces the role of ethics in decision making. Teaching Notes _______________________________________________________________________ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______ ______________________________________________________________________________ _______

SUMMARY REVIEW AND APPLICATION QUESTIONS Reading for Comprehension

30. Explain how decision making is related to the planning process. Answer Planning encompasses defining the organization's objectives or goals, establishing an overall strategy, and developing a comprehensive hierarchy of plans to integrate and coordinate. It is concerned, with ends (what is to be done) and with means (how it is to be done). The decision-making process begins with the existence of a problem, a discrepancy between an existing and a desired state of affairs. It is critical to supporting and adjusting plans in order to achieve the goals and objectives established in the plan. 31. How is implementation important to the decision-making process? Answer The decision may still fail if it is not implemented properly. Decision implementation includes conveying the decision to those affected and getting their commitment to it. The people who must carry out a decision are most likely to enthusiastically endorse the outcome if they participate in the decision-making process. 32. What is a satisficing decision? How does it differ from a maximizing decision? Answer It is the construction of simplified models that extract the essential features from problems. Decision makers behave rationally within the limits of the simplified or bounded model. The result is a satisficing decision, the solutions are "good enough." Simon found that decision makers focus on easy-to-find choices--those that are highly

visible. This means developing alternatives that vary only slightly from past decisions about similar problems. Once this limited set of alternatives is identified, decision makers begin reviewing them. The review will not be exhaustive. They review alternatives only until an alternative that is sufficient is found. 33. How do certainty, risk, and uncertainty affect individuals when they make a decision? How does escalation of commitment affect decision-making? Answer The assumptions of rationality often do not hold true, because there rarely exists the level of certainty that the rational model demands. Most managers try to assign probabilities to outcomes that may result. This process is dealing with risk. Decisions made with limited information because of a lack of full knowledge of the problem and the degree of probability cant be determined are made under a condition of uncertainty. 34. What is groupthink? What are its implications for decision-making? Answer Irving Janis termed groupthink, a form of conformity in which group members withhold deviant, minority, or unpopular views in order to give the appearance of agreement. As a result, groupthink undermines critical thinking in the group and eventually harms the quality of the final decision. Groupthink applies to a situation in which a group's ability to appraise alternatives objectively and arrive at a quality decision is jeopardized. Because of pressures for conformity, groups often deter individuals from critically appraising unusual, minority, or unpopular views. Consequently, there is a deterioration of an individual's mental efficiency, reality testing, and moral judgment.

Linking Concepts to Practice

35. Describe a decision you have made that closely aligns with the assumptions of perfect rationality. Compare this with the process you used to select your college. Is there a departure from the rational model in your college decision? Explain. Answer Students answers will vary. Students should take all eight steps into consideration and may have some difficulty in applying all the steps. This may show that their college choice was a a satisficing decision. 36. Is the order in which alternatives are considered more critical under assumptions of perfect rationality or bounded rationality? Why? Answer Yes, as decision makers focus on easy-to-find choices--those that are highly visible. This means developing alternatives that vary only slightly from past decisions about similar problems. Once this limited set of alternatives is identified, decision makers begin reviewing them. They review alternatives only until an alternative that is sufficient is found. An escalation of commitment is the increased commitment to a previous decision despite negative information. The further increase of commitment to the original solution may be an effort to demonstrate that their initial decision was not wrong. 37. Explain how a manager might deal with making decisions under conditions of uncertainty. Answer He/she would assign degrees of probability to the various alternatives considered and choose the decision with the highest probability of a beneficial outcome. 38. "With more and more managers using computers, they'll be able to make more rational

decisions." Do you agree or disagree with the statement? Why? Answer Students should realize that technology helps decision making; it doesnt make decisions. The human factorhidden agendas, power relationships, office politics, etc., will still be present. Students should tie their answer into the characteristics of the technology however. The electronic meeting blends the nominal group technique with computer technology. Up to fifty people sit around a horseshoe-shaped table that is empty except for a series of computer terminals. Issues are presented to participants, who type their responses onto their computer screens. Individual comments, as well as aggregate votes, are displayed on a projection screen in the room. The major advantages of electronic meetings are anonymity, honesty, and speed. Participants can anonymously type any message they want, and it will flash on the screen for all to see at the push of a key. It is fast--chitchat is eliminated, discussions do not digress, and many participants can "talk" at once without interrupting the others. But there are drawbacks. Those who can type quickly can outshine those who may be verbally eloquent but are lousy typists. Those with the best ideas don't get credit for them. The process lacks the informational richness of face-to-face oral communication. 39. Why do you think organizations have increased the use of groups for making decisions during the past twenty years? When would you recommend using groups to make decisions? Answer Students should see a significant increase in the use of groups. It is certainly in all the literature, but their individual experience may vary. Many decisions in organizations, especially important decisions that have far-reaching effects on organizational activities and personnel, are typically made in groups. In many cases, these groups represent people who will be most affected by the decisions. Managers spend up to 40 percent or more of their time in meetings. Groups are most effective if creativity is important, if effectiveness means the degree of acceptance of the final solution, then groups are better, and if the group is relatively small in size.

MANAGEMENT WORKSHOP TEAM SKILL-BUILDING EXERCISE: Individual versus Group Decisions

Purpose: To contrast individual and group decision making. Time: 30 minutes. Instructions: 40. Have students read the story, and then respond to the 11 statements circling; True, False, Unknown. 41. Advise students that if any element of a statement is false, the whole statement should be considered false. 42. They should use unknown whenever there is insufficient information to decide if the statement is true or false. 43. They have a maximum of ten minutes. They should simply respond and not spend a great deal of time looking for clues or tricks. 44. The elements are true 45. Someone demanded money; a cash register was opened; its contents were scooped up; a man dashed out of the store. The Story A salesclerk had just turned off the lights in the store when a man appeared and

demanded money. The owner opened a cash register. The contents of the cash register were scooped up, and the man sped away. A member of the police force was notified promptly. Statements about the Story 46. A man appeared after the owner had turned off his store lights. True False Unknown 47. The robber was a man. True False Unknown 48. The man did not demand money. True False Unknown 49. The man who opened the cash register was the owner. True False Unknown 50. The store owner scooped up the contents of the cash register and ran away. True False Unknown 51. Someone opened a cash register. True False Unknown 52. After the man who demanded the money scooped up the contents of the cash register, he ran away. True False Unknown 53. The cash register contained money, but the story does not state how much. True False Unknown 54. The robber demanded money of the owner. True False Unknown 55. The story concerns a series of events in which only three persons are referred to: the owner of the store, a man who demanded money, and a member of the police force True False Unknown Instructions (continued) 56. Form groups of four or five members each. 57. Give them ten minutes to discuss their answers and agree on the correct answers to each of the eleven statements. 58. Discuss each statement with the class. First polling the groups for their answers. Then give the correct answer. 59. Be prepared to point out their misperceptions, you will need to study each statement before conducting the exercise.

DEVELOPING YOUR SKILL AT CONDUCTING A MEETING:

Summary The following are suggestions for running effective meetings, a critical skill for you as a manager. Steps in Practicing the Skill 60. Prepare and distribute an agenda well in advance of the meeting. 61. Consult with participants before the meeting to ensure proper participation. 62. Establish specific time parameters for the meeting; specify when it will start and end. 63. Maintain focused discussion during the meeting. 64. Encourage and support participation by all members. 65. Encourage the clash of ideas.

66. Discourage the clash of personalities. 67. Bring closure by summarizing accomplishments and allocating follow-up assignments. Practicing the Skill 68. Scenario You manage a group of six skilled technicians in the radiology department of a large hospital. You need to meet with them all to discuss the hospital's unpopular new vacation policy and to devise your department's vacation schedule for the coming year. In keeping with the new policy, only one person will be allowed to take vacation at any given time. Anna, the newest member of the department, is out sick but has agreed to participate in the meeting by telephone. Ravi and Helen, senior members of the department, both want to take the same week off. 69. Draft your agenda for the meeting and allocate specific time intervals for each topic or discussion. Teaching Tips 70. Begin the exercise by helping students focus on what needs to be discussed and how to keep the meeting from turning into a complaint session. 71. As a class have students read the scenario and then brainstorm what the key issues are (what the items on the agenda might be). Do not worry at this point about prioritizing them. 72. Next either provide them with 3-5 tips on managing the meetings emotional level or brainstorm ideas as a class. 73. Direct students to now write their agenda and under each point list what will be the emotional issue and an idea for managing the discussion.

A CASE APPLICATION: Developing Your Diagnostic and Analytical Skills Beatrice International Holdings SUMMARY
Research over the past few decades has shown us the need for understanding the socio-cultural differences among people of different countries. Loida grew up in the Philippines, born into a politically well-connected family that still operates the country's largest and most successful furniture company. Her early years were filled with all the privileges and amenities. Loida has always been an independent woman, making choices that she wanted and not those her family wanted her to make. She wanted to help other Filipinos get into the United States so that they could get out from under the political repression in the Philippines. She married Reginald F. Lewis, the major owner and chairman of Beatrice International Holdings, Inc. the New York-based global supermarket and specialty foods company. Reginald Lewis--who by then had earned the title of the world's richest African-American man and had become a national role model--passed away. In his will, he left the job of running Beatrice to his wife. On his death, Loida inherited a $1.7 billion company--a company that was stagnating. Lewis did not have the business acumen or the experience of her late husband. She nevertheless took over the company and began molding it in her image. She recognized that the company was losing money. She made several major decisions, paring down the company to enhance its core business operations. She sold off the company limousine and the jet, cut headquarter staff in half, and sold off many of the less-profitable companies, focusing on reducing Beatrice's debt, in order to take the company public.

One would think that following a strong leader like Reginald would have posed problems for Loida. It didn't. Although her style is very different from her husband's, she has achieved remarkable success. She involves her inner group in decisions and uses compassion to develop a "focused, disciplined, sensitive, and collegial atmosphere." And the numbers support that her approach is working. Her actions-while reducing company annual revenues to about $350 million--have led to nearly a 35 percent increase in net earnings. Questions: 74. What types of problems do you see Loida Lewis having to deal with in this case? Explain. Answer Dealing with heavy resistance, a bias against a woman boss, an inexperienced boss, etc. 75. What decisions did Loida Lewis make that helped turn around the ailing company? Would you classify them as programmed or non-programmed? Why? Answer Ridding the company of unprofitable businesses, focusing on core processes and products, and eliminating corporate perks and toys accumulated by her husband. These are all non-programmed to the company, but would be "standard" decisions to save a company hemorrhaging money.

76. How would you describe Lewis' decision-making style? Cite specific examples.
Answer Participative. She involves her inner group in decisions and uses compassion to develop a "focused, disciplined, sensitive, and collegial atmosphere."

DEVELOPING YOUR INVESTIGATIVE SKILLS: Using the Internet

Visit www.prenhall.com/robbins for updated Internet exercises.

ENHANCING YOUR WRITING SKILLS: Communicating Effectively

(For ideas regarding the use of these exercises in your course, please refer to the Teaching Tips in the Preface of this Manual.) 77. "People often make decisions that are good enough which may not be the best solution." Build a case that presents both sides of this argument. In your discussion, emphasize when "good enough" may be appropriate and when the "best solution" may be critical. 78. Provide specific examples in your paper. 79. Describe a situation in which a decision you made was influenced by availability or representative heuristics. In retrospect, provide an evaluation of how effective that decision was. Given your evaluation, are you more or less inclined to use judgmental shortcuts in your decision-making process? Explain. 80. Do you believe that a company has the "ethical" right to move its plant and operations from one location to another even though the former location was profitable and its employees produced quality products? Defend your position. In your discussion, address the social responsibility implications from such an organizational decision.