Chapter 6: Managerial Decision

Making and creativity

Why is decision making of utmost
importance in changing times?
 Learning Outcome 1:
Understand the nature of managerial decision making, differentiate
between programmed and nonprogrammed decisions, and explain
why nonprogrammed decision making is a complex, uncertain
process.
Defining Managerial Decision Making
The process by which managers respond
to opportunities and threats by analysing
options and making determinations
about specific organisational goals and
courses of action.
 Two important things to notice
1. Decision making in response to opportunities
occurs when managers search for ways to
improve organisational performance to benefit
customers, employees, and other stakeholder
groups.

What did AmazonGo improve?

 Two important things to notice
2. Decision making in response to threats occurs
when events inside or outside the organisation
adversely affect organisational performance,
and managers search for ways to increase
performance.
Programmed Decision Making
• Programmed decisions are
decisions that have been made
so many times in the past that
managers have developed
rules or guidelines to be
applied when certain situations
inevitably occur.
• Is a routine, virtually automatic
process.
• Example – Policy
Nonprogrammed Decision Making
• Nonprogrammed decisions
are made in response to
unusual opportunities and
threats.
• Required for non-routine
decisions (no policy in place).
• Example – invest in new
technology
How do managers make decisions in
the absence of decision rules?
• They may rely on their
intuition.

Feelings,beliefs, and hunches

that come readily to mind,
require less/little effort and
information gathering and may
result in on-the-spot decisions.
How do managers make decisions in
the absence of decision rules?
• Or they may make use of
reasoned judgments

Require time and effort and result

from careful information gathering
and the generation and evaluation
of alternatives.

“Exercising” one’s judgment is a

more rational process than “going
with” one’s intuition.
 Decision Making Theories: The
Classical Model
• A prescriptive approach to decision-making
that specifies how decisions should be made.
• Based on the assumption that the decision
maker can identify and evaluate the
alternatives and consequences rationally.
 Decision Making Theories: The
Classical Model
• Result – Optimum decision
The most appropriate decision possible in light
of what they believe to be the most desirable
consequences for the organisation
Decision Making Theories: The
Classical Model (process)
 Decision Making Theories: The
Administrative Model
• An approach that explains why decision
making is inherently uncertain and risky and
why managers usually makes satisfactory
rather than optimum decisions.
• Based on three important concepts.
 Decision Making Theories: The
Administrative Model (concepts)
1. Bounded rationality - Cognitive limitations
that constraints one’s ability to interpret,
process and act on information.
 Decision Making Theories: The
Administrative Model (concepts)
2. Incomplete information - Information is
incomplete because the full range of decision-
making alternatives is unknowable and the
consequences are uncertain.
 Decision Making Theories: The
Administrative Model (concepts)
3. Satisficing - Searching for and choosing an
acceptable or satisfactory response to problems
and opportunities, rather than trying to make
the best decision.
 Learning Outcome 2:
Describe the six steps managers should take to make the
best decisions, and explain how cognitive biases can
lead managers to make poor decisions.
 The Decision Making Process
1. Recognise the need for a decision –

• Stimuli usually spark the realisation that a

decision must be made.
• Often become apparent because changes in
the organisational environment result in new
kinds of opportunities and threats.
 The Decision Making Process
2. Generate alternatives -

• Generate a set of feasible alternative courses

of action to take in response to the
opportunity or threat.
• Management experts cite failure to properly
generate and consider different alternatives as
one reason that managers sometimes make
bad decisions.
 The Decision Making Process
3. Assessalternatives -
• The key to a good assessment is to define the
opportunity or threat exactly and to set
criteria that should influence the selection.
• One reason for bad decisions is that managers
often fail to specify the criteria.
• In general, successful managers use four
criteria to evaluate the pros and cons of
alternative courses of action:
The Decision Making Process
(assessment criteria)

A: Legality - Managers must

ensure that a possible course
of action will not violate any
domestic or international laws
or government regulations.
The Decision Making Process
(assessment criteria)

B: Ethicalness - Managers
must ensure that a possible
course of action is ethical and
will not unnecessarily harm
any stakeholder group.
The Decision Making Process
(assessment criteria)

C: Economic feasibility -
Managers must decide
whether the alternatives can
be accomplished given the
organisation’s goals.
The Decision Making Process
(assessment criteria)

D: Practicality - Managers must

decide whether they have the
capabilities and resources
required to implement the
alternative, and they must be
sure the alternative will not
threaten the attainment of other
organisational goals.
 The Decision Making Process
4. Choosing among alternatives -
• Once the set of alternative solutions has been
carefully evaluated, the next task is to rank
the various alternatives and make a decision.
• When ranking alternatives, managers must be
sure all the information available is brought to
bear on the problem or issue at hand.
 The Decision Making Process
5. Implement the chosen alternatives -
• Once a decision has been made and an
alternative has been selected, it must be
implemented, and many subsequent and
related decisions must be made.
• Determine the best course of action to
implement the alternative.
 The Decision Making Process
6. Learn from feedback -
• Effective managers always conduct a
retrospective analysis to see what they can
learn from past successes or failures.
• Managers who do not evaluate the results of
their decisions do not learn from experience;
instead they stagnate and are likely to make
the same mistakes again and again.
 The Decision Making Process
6. Learn from feedback (evaluation process) -
1. Compare what actually happened to what
was expected to happen as a result of the
decision.
2. Explore why any expectations for the
decision were not met.
3. Derive guidelines that will help in future
decision making.
 Cognitive Biases in Decision Making
Not in textbook
• Decision biases are cognitions or mental
behaviours that prejudice decision quality in
a significant number of decisions for a
significant number of people.
• They are also termed cognitive or
judgement biases.
• Decision biases can be viewed as deviations
from rational decision making.
 Cognitive Biases in Decision Making
• Decision makers are subject to bounded
rationality, they tend to use heuristics.
• Heuristics - Are rules of thumb that simplify
the process of making decisions.
 Cognitive Biases in Decision Making
• Rules of thumb are often useful because they
help decision makers make sense of complex,
uncertain, and ambiguous information.
• Can lead to systematic errors in the way
decision makers process information
• Systematic errors - Errors that people make
over and over and that result in poor decision
making.
 Cognitive Biases in Decision Making
Four sourcesof bias that can adverselyaffect
the way managers make decisions:
 Cognitive Biases in Decision Making

Decisions based on those beliefs even when

presented with evidence that their beliefs are
wrong.
 Cognitive Biases in Decision Making

Tendency to inappropriately generalise from a small

sample or even from a single vivid case or episode.
 Cognitive Biases in Decision Making

Tendencyof decision makers to overestimate

their ability to control activities and events.
 Cognitive Biases in Decision Making

Tendency commit more resources to the project

even if the project is failing.
 Learning Outcome 3:
Identify the advantages and disadvantages of group
decision making, and describe techniques that can
improve it.
Advantages of Group Decision Making
1. Choices of alternatives are less likely to fall victim to
the biases and errors discussed previously.
2. Draw on the combinedskills, competenciesand
knowledge of group members.
3. Process more information and correct one another’s
errors.
4. And in the implementation phase, all managers
affected by the decisions agree to cooperate.
5. When a group of managers makes a decision the
probability that the decision will be implemented
successfully increases.
 Disadvantages of Group Decision
Making
1. Groupthink - A pattern of faulty and biased
decision making that occurs in groups whose
members strive for agreement among
themselves at the expense of accurately
assessing information relevant to the decision.
 Disadvantages of Group Decision
Making
2. Devil’s Advocacy - Critical analysis of a
preferred alternative, made in response to
challengesraised by a group member who is
playing the role of devil’s advocate.

A person who defends unpopular or opposing

alternatives for the sake of the argument.
 Disadvantages of Group Decision
Making
3. Dialectical Inquiry - Critical analysis of two
preferred alternatives in order to find an even
better alternative for the organisation to adopt -
time consuming.

Take a look at the difference between devil’s

advocacy and a dialectal inquiry:
 Learning Outcome 4:
Explain the role that organisational learning and
creativity play in helping managers to improve their
decisions.
 Defining Organisational Learning
The process through which managers seek to
improve employees’ desires and ability to
understand and managed the organisation and
its task environment.
 Defining the Learning Organisation
An organisation in which managers try to
maximise the ability of individuals and groups to
think and behave creatively and thus maximise
the potential for learning to take place.
 Defining Creativity
A decision maker’s ability to discover original and
novel ideas that lead to feasible alternatives
courses of action.

“Do not go where the path may lead; go instead

where there is no path and leave a trail.”
—Ralph Waldo Emerson
Creating a Learning Organisation
 Creating a Learning Organisation

• For organsational learning to occur, top managers must

allow every person in the organisation to develop a
sense of personal mastery.
• Managers must empower employees and allow them
to experiment, create, and explore what they want.
 Creating a Learning Organisation

• Encourage employees to develop and use complex

mental models - sophisticated ways of thinking that
challenge them to find new or better ways of
performing a task.
• Purpose: Deepen their understanding of what is
involved in a particular activity.
 Creating a Learning Organisation

• Managers must do everything they can to

promote group creativity.
• Team learning (learning that takes place in a
group or team) is more important than individual
learning in increasing organisational learning.
 Creating a Learning Organisation

• Managers must emphasise the importance of

building a shared vision.
• A common mental model that all organisational
members use to frame problems or
opportunities.
 Creating a Learning Organisation

• Managers must encourage systems thinking.

• To create a learning organisation, managers
must recognise the effects of one level of
learning on another.
 Learning Outcome 5:
Describe how managers can encourage and promote
entrepreneurship to create a learning organisation, and
differentiate between entrepreneurs and intrapreneurs.
 How can organisations’ encourage
intrapreneurship and organizational
learning?
Intrapreneur- A manager, scientist, or
researcher who works inside an organization
and notices opportunities to develop new or
improved products and better ways to make
them

Product champions- A manager who takes

ownership of the project, provides leadership
and vision to take the product from idea to the
final customer
 How can organisations’ encourage
intrapreneurship and organizational
learning?
Skunkworks- Can strengthen feeling of
ownership
Is a group of intrapreneurs who are
seperated from normal operation of the
organiastion in order to encourage them to
devote their attention to developing new
products

Rewards for innovation- Performance needs

to linked to rewards- bonuses, shares,
promotions etc