Organizational Theory, Design, and Change: Decision Making, Learning, Knowledge Management, and Information Technology

Organizational Theory,
Design, and Change

Sixth Edition
Gareth R. Jones
Chapter 12
Decision Making,
Learning, Knowledge
Management, and
Information Technology
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall
12- 1
Learning Objectives
1. Differentiate between several models
of decision making that describe how
managers make decisions
2. Describe the nature of organizational
learning and the different levels at
which learning occurs
3. Explain how organizations can use
knowledge management and
information technology to promote
organizational learning to improve
the quality of their decision making
12- 2
Learning Objectives (cont.)

4. Identify the factors, such as the
operation of cognitive biases, that
reduce the level of organizational
learning and result in poor decision
making
5. Discuss some techniques that
managers can use to overcome these
cognitive biases and thus open the
organization up to new learning
12- 3
Organizational Decision Making

Organizational decision making:
the process of responding to a
problem by searching for and
selecting a solution or course of
action that will create value for
organizational stakeholders
Programmed decisions: decisions
that are repetitive and routine
Nonprogrammed decisions:
decisions that are novel and
unstructured
12- 4
Models of Organizational
Decision Making
The rational model: decision making
is a straightforward, three-stage
process
Stage 1: Identify problems that need to

be solved
Stage 2: Design and develop a list of
alternative solutions and courses of action
to solve the problems
Stage 3: Compare likely consequences of
each alternative and decide which course
of action offers the best solution
12- 5
Figure 12.1: The Rational

Model of Decision Making
12- 6
Decision Making (cont.)
The rational model (cont.)
Underlying assumptions
Decision makers have all the information

they need
Decision makers can make the best
decision
Decision makers agree about what needs
to be done
12- 7
The rational model (cont.)
Criticisms of the assumptions
Information and uncertainty: the

assumption that managers are aware of all
alternative courses of action and their
consequences is unrealistic
Managerial abilities: managers have only a
limited ability to process the information
required to make decisions
Preferences and values: assumes managers
agree about what are the most important
goals for the organization
12- 8
The Carnegie Model

Introduces a new set of more realistic
assumptions about the decision-making
process
Satisficing: limited information searches

to identify problems and alternative
solutions
Bounded rationality: a limited capacity
to process information
Organizational coalitions: solution
chosen is a result of compromise,
bargaining, and accommodation between
coalitions
12- 9
Table 12.1: Differences Between

the Rational and Carnegie Models
12- 10
The incrementalist model:
managers select alternative courses of
action that are only slightly, or
incrementally, different from those
used in the past
Perceived to lessen the chances of

making a mistake
Called the science of muddling
(jumbling) through
They correct or avoid mistakes through a
succession of incremental changes
12- 11
The unstructured model: describes
how decision making takes place in
environments of high uncertainty
Unstructured model recognizes

uncertainty in the environment
Managers rethink their alternatives when
they hit a roadblock
Decision making is not a linear,
sequential process
Tries to explain how organizations make
nonprogrammed decisions
12- 12
The garbage can model: a view of decision making
that takes the unstructured process to the extreme
Decision makers are as likely to start decision making

from the solution side as the problem side
Create decision-making opportunities that they can
solve with ready-made solutions based on their
competencies and skills
Different coalitions (combination) may champion
different alternatives
Decision making becomes a garbage can in which
problems, solutions, and people all mix and contend for
organizational action
Selection of an alternative depends on which persons
or groups definition of the current situation holds sway
12- 13
The Nature of Organizational

Learning
Organizational learning: the
process through which managers seek
to improve organization members
desire and ability to understand and
manage the organization and its
environment
Creates an organizational capacity to

respond effectively to the changing
business environment
12- 14

Learning (cont.)
Types of organizational learning
Exploration: organizational
members search for and experiment
with new kinds or forms of
organizational activities and
procedures
Exploitation: organizational
members learn ways to refine and
improve existing organizational
activities and procedures
12- 15

Learning (cont.)
Learning organization: an
organization that purposefully designs
and constructs its structure, culture,
and strategy so as to enhance and
maximize the potential for
organizational learning to take place
Employees at all levels must be able to analyze

the way an organization performs and
experiments with change to increase
effectiveness
12- 16
Levels of Organizational
Learning
Individual-level learning: managers

need to facilitate the learning of new skills,
norms, and values so that individuals can
increase their own personal skills and
abilities
Employees develop a sense of personal

mastery to create and explore what they want
Employees must develop a commitment and
attachment to their job so they will enjoy
experimenting and risk taking
Organizations should encourage employees to
assume more responsibility for their decisions
12- 17
Learning (cont.)
Group-level learning: managers need

to encourage learning by promoting the
use of various kinds of groups so that
individuals can share or pool their skills
and abilities
Allows for the creation of combined effect

Group routines can enhance group
effectiveness
Group learning is even more important than
individual learning in promoting organizational
learning
12- 18
Learning (cont.)
Organizational-level learning:
managers can promote organizational
learning through the way they create an
organizations structure and culture
Cultural values and norms are an
important influence on learning
Adaptive cultures: value innovation and

encourage and reward experimentation and
risk taking by middle and lower-level
managers
Inert cultures: are cautious and
conservative, and do not encourage risk
taking by middle and lower-level managers
12- 19
Learning (cont.)
Organizations can improve their
effectiveness by copying and
imitating each others distinctive
competences
Encourages explorative and exploitative

learning by cooperating with suppliers and
distributors to discover new ways to handle
inputs and outputs
Systems thinking: argues that in order to
create a learning organization, managers
must recognize the effects of one level of
learning on another
12- 20
Figure 12.2: Levels of

Organizational Learning
12- 21
Knowledge Management and

Information Technology
Knowledge management: a type of
IT-enabled organizational relationship
that has important implications for
both organizational learning and
decision making
Involves sharing and integrating of

expertise within and between functions
and divisions through real-time,
interconnected IT
12- 22
Knowledge Management (cont.)

Codification approach: knowledge is
carefully collected, analyzed, and stored
in databases where it can be retrieved
easily by users who input organizationspecific commands and keywords
Suitable for standardized product or service
Personalization approach: IT
designed to identify who in the
organization might possess the
information required for a custom job
More reliance on know-how, insight, and

judgment to make decisions
12- 23
Factors Affecting
Organizational Learning
Several factors may reduce
organizational learning over time
Managers may develop rules and

standard operating procedures to
facilitate programmed decision making
Past success with SOPs inhibits learning
Programmed decision making drives out
nonprogrammed decision making
12- 24
Factors Affecting
Organizational Learning (cont.)
Cognitive structure: system of
interrelated beliefs, preferences,
expectations, and values that
predetermine responses to and
interpretations of situations
These shape the way managers make

decisions and perceive environmental
opportunities and threats
12- 25
Factors Affecting
Types of cognitive biases
Cognitive biases: systematically bias

cognitive structures to cause
misperception and misinterpretation of
information, thereby affecting
organizational learning and decision
making
Cognitive dissonance: state of
discomfort or anxiety experienced when
there is an inconsistency between ones
beliefs and actions
Managers seek or interpret information that

confirms and reinforces their beliefs and
ignore information that does not
12- 26
Factors Affecting
Types of cognitive biases (cont.)
Illusion of control: causes managers to

overestimate the extent to which the
outcomes of an action are under their
personal control
Frequency: deceives people into
assuming that extreme instances of a
phenomenon are more prevalent than they
really are
Representativeness: leads managers to
form judgments based on small and
unrepresentative samples
12- 27
Factors Affecting
Types of cognitive biases (cont.)
Projection: allows managers to justify and

reinforce their own preferences and values
by attributing them to others
Ego-defensiveness: leads managers to
interpret events in such a way that their
actions appear in the most favorable light
Escalation of commitment: leads
managers to remain committed to a losing
course of action and refuse to admit that
they have made a mistake
12- 28
Figure 12.3: Distortion of Organizational

Decision Making by Cognitive Biases
12- 29
Improving Decision Making

and Learning
Strategies for organizational learning
Cause managers to continuously unlearn

old ideas and confront errors in their
beliefs and perceptions
Listening to dissenters (rebel)

Converting events into learning
opportunities
Experimenting
12- 30

and Learning (cont.)
Game theory: tool to help managers

improve decision making and enhance
learning
Interactions between organizations are viewed

as a competitive game
Two basic types of game
Sequential move game: players move in turn,

and one player can select a strategy to pursue
after considering its rivals choice of strategies
Simultaneous move game: the players act at
the same time, in ignorance of their rivals
current actions
Useful for organizations competing against

a limited number of rivals that are highly
interdependent
12- 31
Figure 12.4: A Decision Tree

for UPSs Pricing Strategy
12- 32

Nature of the top-management team

The way the top management is
constructed and the type of people who
are on it affect organizational learning
Wheel configuration decreases org
learning because managers report
separately to the CEO
Wheel works best when problems are simple

and require minimal coordination
Circle configuration works best for team

and organizational learning
12- 33

Learning occurs best when there is
heterogeneity of the topmanagement team
Groupthink: the conformity that

emerges when like-minded people
reinforce one anothers tendencies to
interpret events and information in
similar ways
12- 34
Figure 12.5: Types of TopManagement Teams
12- 35

Devils advocate: a person who is
responsible for critiquing ongoing
organizational learning
A method for overcoming cognitive biases

and promoting organizational learning by
institutionalizing dissent
Dialectical inquiry: teams of decision

makers generate and evaluate
alternative scenarios and provide
recommendations
12- 36

Collateral organizational
structure: an informal organization of
managers that is set up parallel to the
formal organization structure to
shadow the decision making and
actions of managers in the formal
organization
Allows an organization to maintain its

capacity for change at the same time that
it maintains its stability
12- 37
Figure 12.6: How Devils Advocacy and

Dialectical Inquiry Alter the Rational Approach
to Decision Making
12- 38

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Organizational Theory,

Design, and Change

Learning Objectives (cont.)

Organizational Decision Making

Stage 1: Identify problems that need to

Figure 12.1: The Rational

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

Decision makers have all the information

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

Criticisms of the assumptions

Information and uncertainty: the

The Carnegie Model

Satisficing: limited information searches

Table 12.1: Differences Between

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

Perceived to lessen the chances of

Unstructured model recognizes

Decision makers are as likely to start decision making

The Nature of Organizational

Creates an organizational capacity to

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

The Nature of Organizational

The Nature of Organizational

Employees at all levels must be able to analyze

Individual-level learning: managers

Employees develop a sense of personal

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

Group-level learning: managers need

Allows for the creation of combined effect

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

Adaptive cultures: value innovation and

Encourages explorative and exploitative

Figure 12.2: Levels of

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

Knowledge Management and

Involves sharing and integrating of

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

Knowledge Management (cont.)

Suitable for standardized product or service

More reliance on know-how, insight, and

Managers may develop rules and

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

These shape the way managers make

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

Cognitive biases: systematically bias

Managers seek or interpret information that

Illusion of control: causes managers to

Projection: allows managers to justify and

Figure 12.3: Distortion of Organizational

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

Improving Decision Making

Cause managers to continuously unlearn

Listening to dissenters (rebel)

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

Improving Decision Making

Game theory: tool to help managers

Interactions between organizations are viewed

Two basic types of game

Sequential move game: players move in turn,

Useful for organizations competing against

Figure 12.4: A Decision Tree

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

Improving Decision Making