Don Hellriegel Susan E. Jackson John W. Slocum, Jr. MANAGING: A COM E!

ENC" #ASED A $OACH %%&h E'i&ion

Cha(&er )*+un'amen&als o, Decision Making
re(are' -. Argie #u&ler !e/as A0M 1ni2ersi&.

 4earning Goals
%. E/(lain cer&ain&., risk, an' uncer&ain&. an' ho3 &he. a,,ec& 'ecision making 5. Descri-e &he charac&eris&ics o, rou&ine, a'a(&i2e, an' inno2a&i2e 'ecisions 6. Discuss &he ra&ional an' -oun'e' ra&ionali&. mo'els o, managerial 'ecision making 7. E/(lain &he ,ea&ures o, (oli&ical managerial 'ecision making
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%. 5. 6. 7.

'e,ining (ro-lems, ga&hering in,orma&ion, genera&ing al&erna&i2es, an' choosing a course o, ac&ion

Weve got lots of challenges ahead of us. I spend about 75% of my time solving problems of one sort or another. The other 25% is really wonderful though. Watching people grow develop achieve and do good things and seeing the company succeed is very rewarding and lots of fun. Da2i' Hoo2er Chairman, CEO an' resi'en& #all Cor(ora&ion
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Cer&ain&.

1ncer&ain&.

O-:ec&i2e (ro-a-ili&ies

$isk

Su-:ec&i2e (ro-a-ili&ies

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 !he con'i&ion un'er 3hich in'i2i'uals are:

%. ,ull. in,orme' a-ou& a (ro-lem, 5. al&erna&i2e solu&ions are kno3n, an' 6. &he resul&s o, each solu&ion are kno3n

#o&h &he (ro-lem an' al&erna&i2e solu&ions are &o&all. kno3n an' 3ell 'e,ine' E/ce(&ion ,or mos& managers
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Wha& is $isk<
!he con'i&ion un'er 3hich in'i2i'uals can:
%. 5. 6. 7. 'e,ine a (ro-lem, s(eci,. &he (ro-a-ili&. o, cer&ain e2en&s, i'en&i,. al&erna&i2e solu&ions, an' s&a&e &he (ro-a-ili&. o, each solu&ion lea'ing &o a resul&

ro-a-ili&.: &he (ercen&age o, &imes &ha& a

s(eci,ic resul& 3oul' occur i, an in'i2i'ual 3ere &o make &he same 'ecision a large num-er o, &imes

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 Wha& is $isk< 8con&>'9 O-:ec&i2e (ro-a-ili&.: &he likelihoo' &ha& a

s(eci,ic resul& 3ill occur, -ase' on har' ,ac&s an' num-ers

Su-:ec&i2e (ro-a-ili&.: &he likelihoo' &ha& a

s(eci,ic resul& 3ill occur, -ase' on (ersonal :u'gmen&

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 Wha& is 1ncer&ain&.<
Con'i&ion un'er 3hich in'i2i'uals 'o no& ha2e &he necessar. in,orma&ion &o assign (ro-a-ili&ies &o &he ou&comes o, al&erna&i2e solu&ions Ma. no& e2en -e a-le &o 'e,ine &he (ro-lem, much less i'en&i,. al&erna&i2e solu&ions an' (ossi-le ou&comes

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E/am(les o, ossi-le Crises as Sources o, 1ncer&ain&. an' High $isk

Economic Crises
$ecessions S&ock marke& crashes Hos&ile &akeo2ers

h.sical Crises
In'us&rial acci'en&s Su((l. -reak'o3ns ro'uc& ,ailures

Na&ural Disas&ers
+ires +loo's Ear&h@uakes

O&her crises

In,orma&ion Crises

!he,& o, (ro(rie&ar. in,orma&ion !am(ering 3i&h com(an. recor's C.-era&&acks

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1nusual an' Inno2a&i2e am-iguous Decisions A'a(&i2e Decisions $ou&ine Decisions

n Co u s n n r 'e 3

1ncer&ain&.
a s n m e r e ' a

ro-lem !.(es

ch i h

'e

io s i c

$isk

&io i '

Cer&ain&. Bno3n an' 3ell 'e,ine' Solu&ion !.(es 8Al&erna&i2e Solu&ions9 1n&rie' an' am-iguous

Cha(&er ): o3er oin& ).A 8A'a(&e' ,rom +igure ).59

 $ela&i2el. common an' 3ell 'e,ine' 1nusual an' am-iguous +ire,igh&ing

%. Solu&ions are incom(le&e 5. ro-lems recur an' casca'e 6. 1rgenc. su(erse'es im(or&ance 7. Some (ro-lems -ecome crises
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 S&an'ar' choices ma'e in res(onse &o rela&i2el. 3ellD'e,ine' an' common (ro-lems an' al&erna&i2e solu&ions !.(icall. ma'e un'er cer&ain&. an' o-:ec&i2e (ro-a-ili&. S&an'ar's o,&en use' &o se& &he ,rame3ork ,or making rou&ine 'ecisions
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$eser2a&ions

Ho&el Arri2al

hone ser2ice 3ill -e highl. !he 'oorman 8or ,irs&Dcon&ac& e,,icien&, inclu'ing: ans3ere' em(lo.ee9 3ill ac&i2el. gree& -e,ore &he ,our&h ringE no hol' gues&s, smile, make e.e con&ac&, longer &han %; secon'sE or, in an' s(eak clearl. in a ,rien'l. case o, longer hol's, callD manner E/am(les o, -acks o,,ere', &hen (ro2i'e' 'ecision rules in less &han &hree minu&es a& +our Seasons ho&els Messages an' aging Ho&el De(ar&ure an' resor&s hone ser2ice 3ill -e highl. No gues& 3ill 3ai& longer e,,icien&, inclu'ing: ans3ere' -e,ore &he ,our&h ringE no longer &han %; secon's &han ,i2e minu&es ,or -aggage assis&ance, once &he -ellman is calle' 8eigh& minu&es in resor&s9

Cha(&er ): o3er oin& ).%5 8E/cer(&s ,rom !a-le ).59

 A'a(&i2e Decisions
Choices ma'e in res(onse &o a com-ina&ion o, mo'era&el. unusual (ro-lems an' al&erna&i2e solu&ions Con2ergence*a -usiness shi,& in 3hich &3o connec&ions 3i&h &he cus&omer &ha& 3ere (re2iousl. 2ie3e' as com(e&ing or se(ara&e 8e.g., -rickDan'Dmor&ar -ooks&ores an' In&erne& -ooks&ores9 come &o -e seen as com(lemen&ar. Con&inuous im(ro2emen&*a managemen& (hiloso(h. &ha& a((roaches &he challenge o, (ro'uc& an' (rocess enhancemen&s as an ongoing e,,or& &o increase &he le2els o, @uali&. an' e/cellence
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Sna(sho&
!"isa continuously strives against outages and defects on two broad fronts. Its physical processing operations are protected by multiple layers of redundancy and bac#ups. The companys IT staff continuously conducts e$tensive and refined software testing. We ma#e 2 5%% system changes to "isa&et per month and modify 2 million lines of code annually.' $ichar' Bnigh& Senior F ,or Glo-al O(era&ions Ino2an& 44C, a Fisa Su-si'iar.
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 Choices -ase' on &he 'isco2er., i'en&i,ica&ion, an' 'iagnosis o, unusual an' am-iguous (ro-lems an'Gor &he 'e2elo(men& o, uni@ue or crea&i2e al&erna&i2e solu&ions !hree ,orms o, inno2a&ion ,or economic (rogress:
Institutional innovation: inclu'es &he legal an' ins&i&u&ional ,rame3ork ,or -usiness, such as 'eregula&ion Technological innovation: crea&es &he (ossi-ili&. o, ne3 (ro'uc&s, ser2ices, an' (ro'uc&ion me&ho's (anagement innovation: ma:or changes in &he 3a. organiHa&ions are s&ruc&ure' an' ho3 managers (er,orm &heir ,unc&ions
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Sna(sho&
!)ou have to innovate and optimi*e at the same time. +fter all youre under pressure to optimi*e 2, hours a day but no one is pushing you to innovate. In order for us to be able to compete over a long period of time we give everyone in our organi*ation all of the information needed so they can ma#e decisions that will drive innovation throughout our company.' Jack S&ack CEO S(ring,iel' $eManu,ac&uring Cor(ora&ion
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rescri-es a se& o, (hases &ha& in'i2i'uals or &eams shoul' ,ollo3 &o increase &he likelihoo' &ha& &heir 'ecisions 3ill -e logical an' o(&imal

$a&ional 'ecision: resul&s in &he ma/imum achie2emen& o, a goal in a si&ua&ion 1suall. ,ocuses on means*ho3 -es& &o achie2e one or more goals

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En2ironmen&al in,luences
% De,ine an' 'iagnose &he (ro-lem 5 Se& goals 6 Search ,or al&erna&i2e solu&ions 7 Com(are an' e2alua&e al&erna&i2e solu&ions ? +ollo3Du( an' con&rol &he resul&s = Im(lemen& &he solu&ion selec&e' ; Choose among al&erna&i2e solu&ions

En2ironmen&al in,luences
Cha(&er ): o3er oin& ).%) 8A'a(&e' ,rom +igure ).69

$a&ional Mo'el: De,ine an' Diagnose &he ro-lem

No&icing skill: i'en&i,.ing an' moni&oring numerous e/&ernal an' in&ernal en2ironmen&al ,ac&ors an' 'eci'ing 3hich ones are con&ri-u&ing &o &he (ro-lem8s9 In&er(re&ing skill: assessing &he ,ac&ors no&ice' an' 'e&ermining 3hich are causes, no& merel. s.m(&oms, o, &he real (ro-lem8s9 Incor(ora&ing skill: rela&ing &hose in&er(re&a&ions &o &he curren& or 'esire' goals Nee' &o ask (ro-ing @ues&ions
Cha(&er ): o3er oin& ).%A

 Goals: resul&s &o -e a&&aine' an' in'ica&e &he 'irec&ion &o3ar' 3hich 'ecisions an' ac&ions shoul' -e aime' General goals: (ro2i'e -roa' 'irec&ion ,or 'ecision making in @uali&a&i2e &erms O(era&ional goals: s&a&e 3ha& is &o -e achie2e' in @uan&i&a&i2e &erms, ,or 3hom, an' 3i&hin 3ha& &ime (erio' Hierarch. o, goals: re(resen&s &he ,ormal linking o, goals -e&3een organiHa&ional le2els
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$a&ional Mo'el: Search ,or Al&erna&i2e Solu&ions

-I thin# many people in a rush to ma#e a decision do not have enough of the alternatives out in the open. .o they have two of the alternatives and say !/#ay Im going this way' but they didnt thin# through it enough when there were possibly three or four alternatives. /ne of the hidden ones might have been the best and so the issue is ma#ing sure that either all or enough of the alternatives are out in the open to allow you to ma#e the best decision. Gar. !ooker +ormer CEO 0 Chairman o, #oar' o, Direc&ors Mo&orola
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 Con&en's &ha& &he ca(aci&. o, &he human min' ,or ,ormula&ing an' sol2ing com(le/ (ro-lems is small com(are' 3i&h 3ha& is nee'e' ,or o-:ec&i2el. ra&ional -eha2ior

Decision #iases Ina'e@ua&e ro-lem Descri(&ion 4imi&e' Search ,or Al&erna&i2es 4imi&e' In,orma&ion Sa&is,icing

Cha(&er ): o3er oin& ).55 8A'a(&e' ,rom +igure ).;9

#oun'e' $a&ionali&. Mo'el: Decision #iases

Selec&i2e (erce(&ion -ias Concre&e in,orma&ion -ias

Gam-ler>s ,allac. -ias

A2aila-ili&. -ias

4a3 o, small num-ers -ias

Cha(&er ): o3er oin& ).56

-When someone comes to you you often have a bias about what they are tal#ing about. If you have been in business for 2% to 0% years chances are youve been there and done that. Their idea is generally not so new or innovative as they thin#. )ou have a strong pre1udice about outcomes. That is a dangerous thing. /ne of the things you have to do very cognitively to be a good leader is not let your biases or your filters totally cloud the message someones trying to deliver. Je,,re. McBee2er Chairman an' CEO MicroAge

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 Ina'e@ua&e (ro-lem 'e,ini&ion

Ne3 (ro-lems o,&en are 2ie3e' as -eing like ol' (ro-lems !oo much ,ocus on s.m(&oms as (ro-lems 4aHiness

4imi&e' search ,or al&erna&i2es

O(&ions consi'ere' un&il one &ha& seems a'e@ua&e

4imi&e' in,orma&ion
Ignorance: &he lack o, rele2an& in,orma&ion or &he incorrec& in&er(re&a&ion o, &he in,orma&ion &ha& is a2aila-le
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.atisficing is intended to be used in contrast to the classical economists idea that in ma#ing decisions in business or anywhere in real life you somehow pic# or somebody gives you a set of alternatives from which you select the best one2 ma$imi*e. The satisficing idea is that first of all you dont have the alternatives youve got to go out and scratch for them2and that you have mighty sha#y ways of evaluating them when you do find them. .o you loo# for alternatives until you get one from which in terms of your e$perience and in terms of what you have reason to e$pect you will get a reasonable result. Herbert Simon Recipient of Nobel Prize in Economics
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#oun'e' $a&ionali&. Mo'el

4e2el o, Sa&is,icing Can -e $aise' #.:
%. ersonal 'e&ermina&ion 5. Se&&ing higher in'i2i'ual or organiHa&ion s&an'ar's 8goals9 6. 1se o, managemen& science an' com(u&erD -ase' 'ecisionDmaking an' (ro-lemD sol2ing &echni@ues 7. +ollo3ing &he se2en s&e(s in &he ra&ional mo'el
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Mul&i(le s&akehol'ers 3i&h (o3er such as:

Cus&omers In2es&ors Em(lo.ees

Divergence in problem definition Divergence in goals Divergence in solutions

1nions

Political decision making

Com(e&i&ors

Su((liers

$egula&or. Agencies

4egisla&i2e #o'ies

Cha(&er ): o3er oin& ).5) 8A'a(&e' ,rom +igure ).=9

 Sna(sho&
3ecogni*e up front the amount of time and attention to organi*ational politics the informal systems and processes that influence so much about how things actually get done in an organi*ation-4olitics by the way is not a bad thing. +ny enterprise has its own political system if we can call it that. 5ut I thin# what ma#es the difference is the curiosity and the in6uiry by you to learn how the political system wor#s.

EliHa Hermann Fice (resi'en& ,or Human $esources S&ra&eg. # 4C

Cha(&er ): o3er oin& ).5A