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Managerial Decision Making  157

CHAPTER 9

MANAGERIAL DECISION MAKING

CHAPTER OUTLINE

How Do You Make Decisions?


I. Types of Decisions and Problems
A. Programmed and Nonprogrammed Decisions
B. Facing Certainty and Uncertainty
II. Decision-Making Models
A. The Ideal, Rational Model
B. How Managers Actually Make Decisions
C. The Political Model
New Manager Self-Test: Making Important Decisions
III. Decision-Making Steps
A. Recognition of Decision Requirement
B. Diagnosis and Analysis of Causes
C. Development of Alternatives
D. Selection of the Desired Alternative
E. Implementation of the Chosen Alternative
F. Evaluation and Feedback
IV. Personal Decision Framework
V. Why Do Managers Make Bad Decisions?
VI. Innovative Decision Making
A. Start with Brainstorming
B. Use Hard Evidence
C. Engage in Rigorous Debate
D. Avoid Groupthink
E. Know When to Bail
F. Do a Postmortem

ANNOTATED LEARNING OBJECTIVES


After studying this chapter, students should be able to:

1. Explain why decision making is an important component of good management.

Every organization grows, prospers, or fails as a result of decisions made by its managers.
Managers are often referred to as decision makers. Good decision making is a vital part of good
management. Decisions determine how the organization solves its problems, allocates resources,
and accomplishes its objectives. Decision making is not easy. It must be done amid
ever-changing factors, unclear information, and conflicting points of view. Plans and strategies

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158  Chapter 9

are arrived at through decision making. The better the decision making, the better the strategic
planning.

2. Compare and contrast programmed and nonprogrammed decisions, and describe the
decision characteristics of certainty and uncertainty.

Programmed decisions involve situations that have occurred often enough to enable decision
rules to be developed and applied in the future. Once managers formulate decision rules,
subordinates and others can make the decision, freeing managers for other tasks.

Nonprogrammed decisions are made in response to situations that are unique, are poorly defined
and largely unstructured, and have important consequences for the organization. Many
nonprogrammed decisions involve strategic planning because uncertainty is great and decisions
are complex.

Every decision situation can be organized on a scale according to the availability of information
and the possibility of failure. Certainty means that all the information the decision maker needs
is fully available. However, few decisions are certain in the real world. Most contain some
uncertainty. Uncertainty means that managers know which goals they wish to achieve, but
information about alternatives and future events is incomplete.

3. Describe the ideal, rational model of decision making to the political model of decision
making.

The classical model of decision making is considered to be normative, which means it defines
how a decision maker should make decisions. It is based on rational economic assumptions and
manager beliefs about what ideal decision making should be. It does not describe how managers
actually make decisions so much as it provides guidelines on how to reach an ideal outcome for
the organization. The classical model is most valuable when applied to programmed decisions
and to decisions characterized by certainty or risk because information is available and
probabilities can be calculated. The classical model is often associated with high performance
for organizations in stable environments.

The political model of decision making is useful for making nonprogrammed decisions when
conditions are uncertain, information is limited, and managers may disagree about what goals to
pursue or what course of action to take. The political model closely resembles the real
environment in which most managers and decision makers operate. Managers often engage in
coalition building for making complex organizational decisions. Coalition building is the
process of forming alliances among managers. The inability of managers to build coalitions
often makes it difficult or impossible for managers to get their decisions implemented. This
model is associated with high performance in unstable environments in which decisions must be
made rapidly and under more difficult conditions.

4. Explain the process by which managers actually make decisions in the real world.

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Managerial Decision Making  159

The administrative model describes how managers actually make decisions such as those
characterized by nonprogrammed decisions, uncertainty, and ambiguity. The administrative
model is considered to be descriptive. It assumes that managers do not have the time or
resources to make the optimal decision and therefore will be satisfied with the first decision that
meets the minimal criteria. Intuition based on past practice and experience is often used in this
model to make decisions. The application of the administrative model has been associated with
high performance in unstable environments in which decisions must be made rapidly and under
more difficult conditions.

5. Summarize the six steps used in managerial decision making.

Whether a decision is programmed or nonprogrammed, and regardless the manager follows the
classical, political, or administrative model of decision making, six steps typically are associated
with effective decision-making processes. These six steps are:
 recognition of decision requirement;
 diagnosis and analysis of causes;
 development of alternatives;
 selection of desired alternative;
 implementation of chosen alternative; and
 evaluation and feedback.

6. Describe four personal decision styles used by managers., and explain the biases that
frequently cause managers to make bad decisions.

The directive style is used by people who prefer simple, clear-cut solutions to problems.
Managers with an analytical style like to consider complex solutions based on as much data as
they can gather. People who tend toward a conceptual style also like to consider a broad amount
of information. The behavioral style is characterized by having a deep concern for others as
individuals.

7. Identify the biases that frequently cause managers to make bad decisions.

Most bad decisions are errors in judgment that originate in the human mind’s limited capacity
and in the natural biases managers display during decision making. Awareness of the following
six biases can help managers make more enlightened choices:

Being influenced by initial impressions. The mind often gives disproportionate weight to the first
information it receives when considering decisions. These initial impressions act as an anchor to
subsequent thoughts and judgments. Past events and trends also act as anchors. Giving too much
weight to the past can lead to poor forecasts and misguided decisions.

Justifying past decisions. People don’t like to make mistakes, so they continue to support a
flawed decision in an effort to justify or correct the past.

Seeing what you want to see. People frequently look for information that supports their existing
instinct or point of view and avoid information that contradicts it, affecting where they look for
information as well as how they interpret the information they find.

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160  Chapter 9

Perpetuating the status quo. Managers may base decisions on what has worked in the past and
fail to explore new options, dig for additional information, or investigate new technologies.

Being influenced by emotions. Managers make better decision when—to the extent possible—
they take emotions out of the decision-making process.

Overconfidence. Most people overestimate their ability to predict uncertain outcomes. Before
making a decision, managers have unrealistic expectations of their ability to understand the risk
and make the right choice.

8. Explain innovative techniques for decision making, including brainstorming, evidence-


based management, and after-action reviews.

One of the best known techniques for rapidly generating creative alternatives is brainstorming.
Brainstorming uses a face-to-face interactive group to spontaneously suggest a broad range of
alternatives for decision making. The keys to effective brainstorming are that people can build
on one another’s ideas, all ideas are acceptable no matter how crazy they seem, and criticism and
evaluation are not allowed. The goal is to generate as many ideas as possible.

Evidence-based decision making is founded on a commitment to examining potential biases,


seeking and examining evidence with rigor, and making informed and intelligent decisions based
on the best available facts and evidence.

An important key to better decision making under conditions of uncertainty is to encourage a


rigorous debate of the issue at hand. Good managers recognize that constructive conflict based
on different points of view can focus a problem, clarify ideas, and stimulate creative thinking. It
can also create a broader understanding of issues and alternatives, and improve broader decision
quality. Two common ways to accomplish this are having a devil’s advocate to challenge the
group’s assumptions and assertions, and engaging in point-counterpoint by giving two subgroups
competing responsibilities.

Avoiding groupthink helps groups make better decisions. Groupthink refers to the tendency of
people in groups to suppress contrary opinions. When people slip into groupthink, the desire for
harmony outweighs concerns over decision quality. Group members emphasize maintaining
unity rather than realistically challenging problems and alternatives. Some disagreement and
conflict is much healthier than blind agreement.

Managers need to know when to bail; i.e., they must be able to discern when to pull the plug on
something that isn’t working. Escalating commitment means that organizations often continue to
invest time and money in a solution despite strong evidence that it is not appropriate to do so.
Managers might block or distort negative information because they don’t want to be responsible
for a bad decision, or might not accept that their decision is wrong.

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Managerial Decision Making  161

To improve decision making people review the results of their decisions, they learn valuable
lessons for how to do things better in the future. A technique adopted from the U.S. Army, the
after-action review is a disciplined procedure whereby managers review the results of decisions
to evaluate what worked, what didn’t, and how to do things better.

LECTURE OUTLINE

HOW DO YOU MAKE DECISIONS?

Most of us make decisions automatically and without realizing that people have diverse decision-
making behaviors, which they bring to management positions. New managers typically use a
different decision behavior than seasoned executives. They often start out with a more directive,
decisive, command-oriented behavior and gradually move toward more openness, diversity of
viewpoints, and interactions with others as they move up the hierarchy. This exercise helps
students determine whether they typically make decisions more like new managers or more like
senior managers.

I. TYPES OF DECISIONS AND PROBLEMS

A decision is a choice made from available alternatives. Decision making is the process of
identifying problems and opportunities and then resolving them. Decision making involves
effort both before and after the actual choice.

A. Programmed and Nonprogrammed Decisions

1. Programmed decisions involve situations that have occurred often enough to enable
decision rules to be developed and applied in the future. Once managers formulate
decision rules, subordinates and others can make decisions freeing managers for other
tasks.

2. Nonprogrammed decisions are made in response to situations that are unique,


poorly defined, largely unstructured, and likely to have important consequences for
the organization. Nonprogrammed decisions often involve strategic planning because
uncertainty is great and decisions are complex.

B. Facing Uncertainty and Ambiguity Exhibit 9.1

1. One difference between programmed and nonprogrammed decisions relates to the


degree of certainty or uncertainty that managers deal with in making the decision. In
a perfect world, managers have all the information necessary for making decisions.
In reality, some things are unknowable and some decisions will fail.

2. Every decision situation can be organized on a scale according to the availability of


information and the possibility of failure. The four positions on the scale are
certainty, risk, uncertainty, and ambiguity.
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162  Chapter 9

a. Certainty means that all the information the decision maker needs is fully
available. Few decisions are certain in the real world. Most contain risk or
uncertainty.

b. Risk means a decision has clear-cut objectives and good information available.
The future outcomes associated with each alternative are subject to failure;
however, enough information is available to allow the probability of a successful
outcome for each alternative to be estimated.

c. Uncertainty means managers know which goals they wish to achieve, but
information about alternatives and future outcomes is incomplete. Factors that
may affect a decision, such as price, production costs, volume, or future interest
rates, are difficult to analyze and predict. Managers may have to come up with
creative approaches to alternatives and use personal judgment to determine which
alternative is best. Many decisions made under uncertainty do not produce the
desired results, but managers face uncertainty every day.

d. Ambiguity means that the goals to be achieved or the problem to be solved is


unclear, alternatives are difficult to define, and information about outcomes is
unavailable. High ambiguous circumstances can create a wicked decision
problem, with conflicts over goals and decision alternatives, rapidly changing
circumstances, fuzzy information, and unclear linkages among decision elements.
Managers have a difficult time coming to grips with the issues and must conjure
up reasonable scenarios in the absence of clear information. Ambiguity is by far
the most difficult decision situation.

Discussion Question #3: Explain the difference between risk and ambiguity. How might
decision making differ for a risky versus an ambiguous situation?

NOTES________________________________________________________________________
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II. DECISION-MAKING MODELS Exhibit 9.2

Decisions are usually made using the classical, the administrative, or the political decision
making model. The choice of model used depends on the manager’s personal preference,
whether the decision is programmed or nonprogrammed, and the degree of uncertainty
associated with the decision.

A. The Ideal, Rational Model

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Managerial Decision Making  163

1. The classical model of decision making is based on assumptions that managers


should make logical decisions that will be in the organization’s best economic
interests. The four assumptions include:

a. The decision maker operates to accomplish goals that are known and agreed upon.

b. The decision maker strives for conditions of certainty, gathering complete


information.

c. Criteria for evaluating alternatives are known.

d. The decision maker is rational and uses logic to assign values, order preferences,
evaluate alternatives, and make the decision to maximize goals.

2. The classical model is normative, defining how a decision maker should make
decisions, and providing guidelines for reaching an ideal outcome for the
organization. The value of the classical model has been to help decision makers be
more rational.

3. The classical model represents an “ideal” model of decision making that is often
unattainable by real people in real organizations. It works best when applied to
programmed decisions and to decisions characterized by uncertainty or risk because
relevant information is available and probabilities can be calculated.

Discussion Question #8: List some possible advantages and disadvantages to using computer
technology for managerial decision making.

NOTES________________________________________________________________________
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B. How Managers Actually Make Decisions

1. Bounded Rationality and Satisficing

a. The administrative model is considered to be descriptive, meaning that it


describes how managers actually make decisions rather than how they should
make them. Herbert A. Simon proposed two concepts instrumental in shaping the
administrative model: bounded rationality and satisficing.

b. Bounded rationality means people have limits, or boundaries, on the amount of


information they can process in making a decision. Because managers do not
have the time or cognitive ability to process complete information about complex
decisions, they must satisfice.

c. Satisficing means that decision makers choose the first solution alternative that
satisfies minimal decision criteria. Rather than pursue all alternatives, managers

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164  Chapter 9

will opt for the first solution that appears to solve the problem. The decision
maker cannot justify the time and expense of obtaining complete information.

d. According to the administrative model:

 Decision goals often are vague, conflicting, and lack consensus among
managers.

 Rational procedures are not always used, and when they are, they are confined
to a simplistic view of the problem that does not capture the complexity of
real events.

 Managers’ searches for alternatives are limited because of human,


information, and resource constraints.

 Most managers settle for a satisficing rather than a maximizing solution.

2. Intuition

a. Intuition is another aspect of administrative decision making. Intuition


represents a quick apprehension of a decision situation based on past experience
but without conscious thought. Intuitive decision making is not arbitrary or
irrational because it is based on years of practice and hands-on experience.

b. Intuition begins with recognition; when people build a depth of experience and
knowledge in a particular area, the right decision often comes quickly and
effortlessly. Research on the validity of intuition in decision making is
inconclusive, suggesting that managers should take a cautious approach to it,
applying intuition only under the right circumstances and in the right way.

c. Quasirationality, a new trend in decision making, means combining intuitive


and analytical thought

Discussion Question #9: Can intuition and evidence-based decision making coexist as valid
approaches within an organization? How might managers combine their intuition with a
rational, data-driven, evidence-based approach?

NOTES________________________________________________________________________
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C. The Political Model

1. This model is for nonprogrammed decisions when conditions are uncertain,


information is limited, and there is disagreement about the goals to pursue or the
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Managerial Decision Making  165

action to take. Managers often engage in coalition building for making complex
organizational decisions. A coalition is an informal alliance among managers who
support a specific goal. Coalition building is the process of forming alliances among
managers. The inability of managers to build coalitions often makes it difficult or
impossible for them to get their decisions implemented. The political model closely
resembles the real environment in which most managers and decision makers operate.
The political model begins with four basic assumptions.

a. Organizations are made up of groups with diverse interests, goals, and values.

b. Information is ambiguous and incomplete.

c. Managers do not have time, resources, or mental capacity to identify all


dimensions of the problem and process all relevant information.

d. Managers engage in the push and pull of debate to decide goals and discuss
alternatives.

2. Recent research has found rational, classical procedures to be associated with high
performance for organizations in stable environments. Administrative and political
decision-making procedures and intuition have been associated with high
performance in unstable environments when decisions must be made rapidly.

Discussion Question #5: What opportunities and potential problems are posed by the formation
of more than one coalition within an organization, each one advocating a different direction or
alternative? What steps can you take as a manager to make sure that dueling coalitions result in
constructive discussion rather than dissension?

NOTES_______________________________________________________________________
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NEW MANAGER SELF-TEST: MAKING IMPORTANT DECISIONS

This exercise helps student learn how they make important personal decisions. They think about
a time when they made an important career decision or made a large purchase or investment.
They decide to what extent does each of the terms describes how they reached the final decision.

Discussion Question #4: Analyze three decisions you made over the past six months. Which of
these were programmed and which were nonprogrammed? Which model—the classical,
administrative, or political—best describes the approach you took to making each decision?

NOTES________________________________________________________________________
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III. DECISION-MAKING STEPS Exhibit 9.3

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166  Chapter 9

Whether a decision is programmed or nonprogrammed, and regardless of whether the


manager follows the classical, political or administrative model of decision making, six steps
typically are associated with effective decision-making processes. These six steps are:

A. Recognition of Decision Requirement

1. Managers confront a decision requirement in the form of either a problem or an


opportunity. A problem occurs when organizational accomplishment is less than
established goals. Some aspect of performance is unsatisfactory. An opportunity
exists when managers see potential accomplishments that exceed current goals.

2. Awareness of a problem or opportunity is the first step in the decision-making


sequence and requires surveillance of the internal and external environment for issues
that merit executive attention. Recognizing decision requirements is difficult because
it often means integrating information in novel ways.

B. Diagnosis and Analysis of Causes

1. Diagnosis is the step in which managers analyze the underlying causal factors
associated with the decision situation. Managers make a big mistake if they jump
right into generating alternatives without first exploring the cause of the problem
more deeply.

2. Studies recommend that managers ask a series of questions to specify underlying


causes, including:

a. What is the state of disequilibrium affecting us?

b. When did it occur?

c. Where did it occur?

d. How did it occur?

e. To whom did it occur?

f. What is the urgency of the situation?

g. What is the interconnectedness of events?

h. What result came from which activity?

3. The 5 Whys is a question-asking method used to explore the root cause underlying a
particular problem.

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Managerial Decision Making  167

C. Development of Alternatives

1. Once the problem or opportunity has been recognized and analyzed, decision makers
begin to consider taking action. The next step is to develop possible alternative
solutions that will respond to the needs of the situation and correct the underlying
causes.

2. For a programmed decision, feasible alternatives are often available within the
organization’s rules and procedures. Nonprogrammed decisions require developing
new courses of action that will meet the needs of the company.

D. Selection of the Desired Alternative

1. The best alternative is one in which the solution best fits the firm’s overall goals and
values and achieves the desired results using the fewest resources. The manager tries
to select the choice with the least amount of risk and uncertainty. Making choices
also depends on managers’ personality factors and willingness to accept risk and
uncertainty.

2. Risk propensity is the willingness to undertake risk with the opportunity of gaining
an increased payoff.

E. Implementation of Chosen Alternative Exhibit 9.4

1. The implementation stage involves the use of managerial, administrative, and


persuasive abilities to ensure that the chosen alternative is carried out. The success of
the chosen alternative depends on whether or not it is translated into action.
Sometimes an alternative never becomes reality because managers lack resources or
energy needed to make things happen.

2. Communication, motivation, and leadership skills must be used to see that the
decision is carried out.

F. Evaluation and Feedback

1. In the evaluation step, decision makers gather information or feedback to determine


how well the decision was implemented and whether it achieved its goals. Feedback
is important because decision making is a continuous, never-ending process.
Feedback provides decision makers with information that can start a new decision
cycle.

2. By learning from decision mistakes, managers can turn problems into opportunities.

Discussion Question #1: Aaron Alexis, the former Navy reservist who went on a shooting
rampage in September 2013 and killed 12 people at the Washington Navy Yard in Washington
D.C., had a history of mental instability, but he was carrying a valid security clearance. How
would you suggest managers make decisions for issuing or revoking security clearances to
prevent this kind of catastrophe?
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168  Chapter 9

NOTES________________________________________________________________________
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IV. PERSONAL DECISION FRAMEWORK Exhibit 9.5

Not all managers make decisions in the same way. These differences can be explained by the
concept of personal decision styles. Personal decision style refers to differences between
people with respect to how they perceive problems and make decisions. Research has
identified four major decision styles.

 The directive style is used by people who prefer simple, clear-cut solutions to problems.
 With an analytical style, managers like to consider complex solutions based on as much
data as they can gather.
 People who tend toward a conceptual style also like to consider a broad amount of
information.
 The behavioral style is characterized by having a deep concern for others as individuals.

Most managers have a dominant decision style. The most effective managers are able to shift
among styles as needed to meet the situation.

Discussion Question #10: What do you think is your dominant decision style? Is your style
compatible with group techniques such as brainstorming and engaging in rigorous debate?
Discuss.

NOTES________________________________________________________________________
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______________________________________________________________________________

V. WHY DO MANAGERS MAKE BAD DECISIONS?

Even the best manager will make mistakes, but managers can increase their percentage of
good decisions by understanding some of the factors that cause people to make bad ones.
Most bad decisions are errors in judgment that originate in the human mind’s limited capacity
and in the natural biases managers display during decision making. Awareness of the
following six biases can help managers make more enlightened choices:

 Being influenced by initial impressions. The mind often gives


disproportionate weight to the first information it receives when considering decisions.
These initial impressions act as an anchor to subsequent thoughts and judgments. Past
events and trends also act as anchors. Giving too much weight to the past can lead to poor
forecasts and misguided decisions.
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Managerial Decision Making  169

 Justifying past decisions. People don’t like to make mistakes, so they continue to support
a flawed decision in an effort to justify or correct the past.

 Seeing what you want to see. People frequently look for information that
supports their existing instinct or point of view and avoid information that contradicts it,
affecting where they look for information as well as how they interpret the information
they find.

 Perpetuating the status quo. Managers may base decisions on what has
worked in the past and fail to explore new options, dig for additional information, or
investigate new technologies.

 Being influenced by emotions. Managers make better decision when—to the extent
possible—they take emotions out of the decision-making process.

 Overconfidence. Most people overestimate their ability to predict


uncertain outcomes. Before making a decision, managers have unrealistic expectations of
their ability to understand the risk and make the right choice.

Discussion Question #6: Can you think of a bad decision from your own school or work
experience or from the recent business or political news that was made in an effort to correct or
justify a past decision? As a new manager, how might you resist the urge to choose a decision
alternative based on the idea that it might correct or validate a previous decision?

NOTES_______________________________________________________________________
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VI. INNOVATIVE DECISION MAKING

A. Start with Brainstorming

1. One of the best known techniques for rapidly generating creative alternatives is
brainstorming. Brainstorming uses a face-to-face group to spontaneously suggest a
broad range of alternatives for decision making. The keys to effective brainstorming
are that people can build on one another’s ideas, all ideas are acceptable no matter
how crazy they seem, and criticism and evaluation are not allowed. The goal is to
generate as many ideas as possible.

2. Electronic brainstorming, called brainwriting, brings people together in an


interactive group over a computer network. Recent studies show that electronic
brainstorming generates about 40 percent more ideas than individual brainstorming
alone and 25 to 200 percent more than groups.

B. Use Hard Evidence

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170  Chapter 9

1. Using evidence can help take emotion out of decision-making process, preventing
managers relying on faulty assumptions or point of view.

2. Evidence-based decision making means a commitment to make more informed and


intelligent decisions based on the best available facts and evidence. Managers should
be alert to potential biases, past assumptions, or intuitions and seek and exam the
evidence with rigor, thus making careful and thoughtful decision.

C. Engage in Rigorous Debate

An important key to better decision making under conditions of uncertainty is to


encourage a rigorous debate of the issue at hand. Good managers recognize that
constructive conflict based on different points of view can focus a problem, clarify ideas,
and stimulate creative thinking. It can also create a broader understanding of issues and
alternatives, and improve broader decision quality. There are several ways to stimulate
rigorous debate.

a. One way is by ensuring diversity in terms of age and gender, functional area of
expertise, hierarchical level, and experience with the business.

b. Some groups assign a devil’s advocate, who has the role of challenging the
assumptions and assertions made by the group.

c. Another approach is to have group members develop as many alternatives as they


can as quickly as they can.

d. Another approach is technique called point-counterpoint, a technique in which


two subgroups assigned competing points of view. The two groups then develop
and exchange proposals and discuss the various options until they arrive at a
common set of understandings and recommendations.

D. Avoid Groupthink

1. A voiding groupthink helps groups make better decisions. Groupthink refers to the
tendency of people in groups to suppress contrary opinions. When people slip into
groupthink, the desire for harmony outweighs concerns over decision quality.

2. Group members emphasize maintaining unity rather than realistically challenging


problems and alternatives. Some disagreement and conflict is much healthier than
blind agreement.

E. Know When to Bail

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classroom use.
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Managerial Decision Making  171

1. In a fast-paced environment, good manager encourages risk taking and learning from
mistakes, it also teaches a person to know when to pull the plug on something that
isn’t working.

2. Escalating commitment means that organizations often continue to invest time and
money in a solution despite strong evidence that it is not appropriate to do so.
Managers might block or distort negative information because they don’t want to be
responsible for a bad decision, or might not accept that their decision is wrong.

F. Do a Postmortem

1. To improve decision making, managers need to reflect and learn from every decision
they make. A technique many companies have adopted from the U.S. Army to
encourage examination of the evidence and continuous learning is the after-action
review, a disciplined procedure whereby managers invest time to review the results of
decision on a regular basis and learn from them.

2. After implementing the decision, managers meet to evaluate what worked, what
didn’t, and how to do things better. Many problems are solved by trial and error.

3. A similar technique was applied by managers at Lenovo called fu pan, which means
“replaying the chess board,’ reviewing every move to improve the next one.

Discussion Question #2: Managers at Gap Inc., a once- popular retail chain, are reported to
have made a series of decisions that hurt the company: they expanded so rapidly that the chain
lost touch with customers; they tried to copy the successful approach of rivals rather than
charting their own course; they cut quality to reduce costs; they shifted from one fashion
approach to another as each failed to appeal to customers, and so on. What techniques would
you recommend Gap managers use to improve the quality of their decisions?

NOTES_______________________________________________________________________
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Answers To End Of Chapter Discussion Questions

1. Aaron Alexis, the former Navy reservist who went on a shooting rampage in
September 2013 and killed 12 people at the Washington Navy Yard in Washington D.C., had
a history of mental instability, but he was carrying a valid security clearance. How would
you suggest managers make decisions for issuing or revoking security clearances to prevent
this kind of catastrophe?

Students should apply the decision-making steps to solve this problem. The first step is
recognition of decision requirement. The manager must determine if there truly is a problem
with the security clearance measures. Discussions with others and, if warranted, reviewing
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172  Chapter 9

the security clearance policies to help make this determination. If a problem does indeed
exist, the next step is the diagnosis and analysis of the causes of the poor security clearance
policies.. Testing may reveal this. If needed, further discussions with experts in the field
should be carried out. Once the cause has been determined, the development of alternatives
to eliminate the cause should be developed. The selection of desired alternatives is the next
step during which the risk must be considered and the pros and cons of each alternative must
be weighed. After an alternative has been chosen, the chosen alternative should be
implemented. After an appropriate time evaluation of the alternative should be made and
feedback provided.

2. Managers at Gap Inc., a once- popular retail chain, are reported to have made a
series of decisions that hurt the company: they expanded so rapidly that the chain lost touch
with customers; they tried to copy the successful approach of rivals rather than charting
their own course; they cut quality to reduce costs; they shifted from one fashion approach to
another as each failed to appeal to customers, and so on. What techniques would you
recommend Gap managers use to improve the quality of their decisions?

Decision making is especially important to effectiveness because it underlies all manager


activity. Managers are faced with limited resources, competing demands, and a continuous
stream of problems and opportunities. As a result, managers make decisions every day—and
hence are often referred to as decision makers. They make decisions about virtually every
aspect of an organization including its strategy, structure, control systems, innovations, and
human resources. They must make decisions to perform the basic functions of planning,
organizing, motivating, and controlling. Managerial decision making ultimately determines
how well the organization solves its problems, allocates resources, and accomplishes its
objectives.

Some of the techniques that the managers of Gap can use to improve the quality of their
decisions may include:
a. Start with brainstorming
b. Use hard evidence
c. Engage in rigorous debate
d. Avoid groupthink
e. Know when to bail
f. Do a postmortem

3. Explain the difference between risk and ambiguity. How might decision making
differ for a risky versus an ambiguous situation?

Risk means that the decision maker has most of the necessary information. The objectives of
the decision are clear-cut, and alternatives can be identified. However, the future outcome of
each alternative is not known for certain, although the probability of outcomes can be
calculated, which is the source of risk. Ambiguity means the almost complete absence of
information pertaining to a decision. Managers do not agree on the objectives to be achieved
by the decision, alternatives are difficult to find, and outcomes cannot be predicted.
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Managerial Decision Making  173

Decision-making approaches differ considerably for each situation. For decisions under risk,
a rational, calculative approach is preferred. The managers’ responsibility is to obtain the
available information and run necessary computations in order to predict outcomes and select
the best alternative. Decisions under ambiguity are more difficult. In these cases managers
do not have sufficient information to perform computations. They must rely on personal
judgment and experience to define alternatives and to anticipate possible outcomes of each
alternative. Under ambiguity, managers have to take a chance and push ahead with
decisions, even though they have poor information and will be wrong a substantial
percentage of the time.

4. Analyze three decisions you made over the past six months. Which of these were
programmed and which were nonprogrammed? Which model—the classical, administrative,
or political—best describes the approach you took to making each decision?

A programmed decision would refer to a situation that has occurred often enough so that a
student can use past experience and similar decision rules over and over again. Programmed
decisions are considered routine. A nonprogrammed decision would refer to a novel, unique,
and largely unstructured decision situation that requires a student to search for possible
alternatives and information and to make a decision that has not been made previously.

An example of a programmed decision might be where to go to lunch or where to park the


car. A nonprogrammed decision could be the choice of a major field of study, a decision that
the student may have made after taking aptitude tests and investigating a number of career
choices. Although the student may already be studying for the chosen career field, whether
the decision was correct still may not be perfectly clear.

The specific decisions students choose, and the decision-making processes they used, will
determine their answers to the last part of this question, but they should be able to explain
why they believe a particular model best describes their approach.

5. What opportunities and potential problems are posed by the formation of more than one
coalition within an organization, each one advocating a different direction or alternatives?
What steps can you take as a manager to make sure that dueling coalitions result in
constructive discussion rather than dissension?

When more than one coalition forms within an organization, with each advocating a different
direction or alternative, there are significant opportunities for constructive dialogue and
enhanced decision making, but only if the coalitions are able to come together and work
toward a direction or alternative that both coalitions can support. If that does not happen, the
potential exists for serious fractures to develop among managers. The situation could
devolve into widespread backbiting and undermining of coworkers, which would lead to
substantial performance and morale problems in the organization.

If dueling coalitions develop over a single issue, relevant managers should immediately
begin working to bring the two (or more) coalitions together to work out a plan both can
accept. This may initially mean working with the coalitions individually to find common
ground that can later be emphasized in trying to work out an agreement. Once some
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174  Chapter 9

common ground is identified, the individual coalitions can be brought together to work out a
direction or alternative that both (all) coalitions can accept.

6. Can you think of a bad decision from your own school or work experience or from
the recent business or political news that was made in an effort to correct or justify a past
decision? As a new manager, how might you resist the urge to choose a decision alternative
based on the idea that it might correct or validate a previous decision?

Students’ descriptions of past bad decisions will obviously vary. As new managers, it will be
important for them to avoid making decisions based on the idea that they might correct or
validate previous decisions. This might be accomplished by first acknowledging that the
original decision was a mistake, which is difficult for people to do. However, once this
acknowledgment is made, managers can then move on to make decisions based on the facts
at hand rather than in an attempt to correct or validate previous decisions. Another way to
avoid making this mistake might be to have someone in the decision-making process tasked
with challenging the assumptions related to the current decision; i.e., to specifically raise the
question of whether the current decision is being made to justify some previous decision that
was in error.

7. Experts advise that most catastrophes in organizations result from a series of small problems
or mistakes. As a new entry-level manager, how might you apply this understanding to help
your organization avoid making major mistakes?

Finding ways to compensate for inexperience in decision making is critical to identifying the
alternative most likely to succeed. A new, entry-level manager who fails to do so will soon
be marginalized or even fired as a result of making too many poor decisions. Such a person
simply does not have the requisite knowledge or wisdom to sort out the complex issues
involved in many managerial decisions.

New, entry-level managers can seek advice from a variety of coworkers as part of their
decision-making process. They can also try to research the many facets of the decision at
hand, including collecting information on how such decisions have been handled in the past.
One of the best ways to meet the challenge of inexperience is to find someone in the
organization who has substantial experience in the company and the industry who is willing
to serve as a mentor. A mentor can serve as a sounding board for the new manager, offering
suggestions for improvement of an idea or explaining why the idea should be dismissed
altogether. Mentors have substantial wisdom that they can share with new managers to help
them “learn the ropes”, including learning the ropes of decision making.

8. List some possible advantages and disadvantages to using computer technology


for managerial decision making.

Advantages of using computers in making managerial decisions would be increased


accuracy, timeliness, and reliability of information to improve managerial decision making.

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Managerial Decision Making  175

A disadvantage of using computers in managerial decision making is that inputting the wrong
data produces incorrect information that will be used in substantial managerial decisions.

9. Can intuition and evidence-based decision making coexist as valid approaches within an
organization? How might managers combine their intuition with a rational, data-driven,
evidence-based approach?

Intuition or a “gut” feeling, especially where it is forthcoming from experience, can be useful
in management decision making. When time is of the essence, intuition can be a valid
predictor of decision making. Individuals can use intuition to become more creative and risk
taking in making decisions. Intuition can be combined with a rational decision-making
approach to improve decision making. A rational approach is developing a decision-making
style that is based on more complete data. This approach, when utilized, develops criteria,
alternative options, evaluation of alternatives, and attempts to improve decision making
based on more complete data. This, in turn, minimizes risks and improves decision making
when combining intuition with a rational approach.

10. What do you think is your dominant decision style? Is your style compatible with group
techniques such as brainstorming and engaging in rigorous debate? Discuss.

Students’ responses will, of course, be very different. They should, however, demonstrate an
understanding of the various decision styles.

The directive style is used by people who prefer simple, clear-cut solutions to problems.
Managers who use this style often make decisions quickly because they do not like to deal
with a lot of information and may consider only one or two alternatives. People who prefer
the directive style generally are efficient and rational and prefer to rely on existing rules or
procedures for making decisions. These students may be more comfortable with jobs in
which the work is fairly regimented and where most decisions will be programmed decisions.

People with an analytical style like to consider complex solutions based on as much data as
they can gather. These individuals carefully consider alternatives and often base their
decisions on objective, rational data from management control systems and other sources.
They search for the best possible decision based on the information available. These students
may be more comfortable in highly technical jobs where large volumes of data can be
gathered and applied to the decision-making process.

People who tend toward a conceptual style also like to consider a broad amount of
information. However, they are more socially oriented than those with an analytical style and
like to talk to others about the problem and possible alternatives for solving it. Managers
using a conceptual style consider many broad alternatives, rely on information from both
people and systems, and like to solve problems creatively. These students may be more
comfortable in jobs that involve many nonprogrammed decisions that require strong
conceptual skills.

The behavioral style is often the style adopted by managers having a deep concern for others
as individuals. Managers using this style like to talk to people one-on-one, understand their
feelings about the problem, and consider the effect of a given decision upon them. People
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176  Chapter 9

with a behavioral style usually are concerned with the personal development of others and
may make decisions that help others achieve their goals. These students may be more
comfortable in flatter, more participative organizations where employees are heavily
involved in decision making and are empowered to generate innovative solutions.

Apply Your Skills: Experiential Exercise

What’s Your Personal Decision Style?

Student responses will vary regarding their own decision-making style. For additional
information, one is encouraged to review decision-making styles in the chapter. Personal
decision style refers to differences among people with respect to how they perceive problems and
make decisions. A suggestion would be to discuss the four decision-making styles: directive,
analytical, conceptual, and behavioral.

The directive style is used by people who prefer simple, clear-cut solutions to problems.
Managers who use this style often make decisions quickly because they do not like to deal with a
lot of information and may consider only one or two alternatives. People who prefer the
directive style generally are efficient and rational and prefer to rely on existing rules or
procedures for making decisions.

People with an analytical style like to consider complex solutions based on as much data as they
can gather. These individuals carefully consider alternatives and often base their decisions on
objective, rational data from management control systems and other sources. They search for the
best possible decision based on the information available.

People who tend toward a conceptual style also like to consider a broad amount of information.
However, they are more socially oriented than those with an analytical style and like to talk to
others about the problem and possible alternatives for solving it. Managers using a conceptual
style consider many broad alternatives, rely on information from both people and systems, and
like to solve problems creatively.

The behavioral style is often the style adopted by managers having a deep concern for others as
individuals. Managers using this style like to talk to people one-on-one, understand their
feelings about the problem, and consider the effect of a given decision on them. People with a
behavioral style usually are concerned with the personal development of others and may make
decisions that help others achieve their goals.
Apply Your Skills: Small Group Breakout

A New Approach to Making Decisions

Managers are typically effective at focusing on problems and diagnosing what is wrong and how
to fix it when they have to make a decision. A new approach to decision making known as
outcome-directed thinking focuses on future outcomes and possibilities rather than on the causes
of the problem.
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Managerial Decision Making  177

This exercise asks students to think of problems they have in their lives at the present time and
write a brief summary of the problems, then answer four questions provided in the text. Finally,
students should share their answers to the questions in small groups.

Apply Your Skills: Ethical Dilemma

The No-Show Consultant

1. Give Carpenter a month’s notice and terminate. He’s known as a good consultant, so he
probably won’t have any trouble finding a new job, and you’ll avoid any further problems
associated with his emotional difficulties and his possible alcohol problem.

Option 1 is not the course of action to take. Alcoholism is not an uncommon disease, and it
can be treated; however, the urgency of this matter is the important factor. It is important to
recognize that Andrew can have a future with this organization if he seeks help. Acceptable
behavior is an important requirement of this job.

2. Let it slide. Missing the New York appointment is Carpenter’s first big mistake. He says he
is getting things under control, and you believe that he should be given a chance to get
himself back on track.

Option 2 is not desirable. Care must be taken and concerns expressed to Andrew. He is
beginning to develop a pattern of behavior. If the alcohol abuse continues, require him to
attend a treatment program or find another job. There should be an employee assistance
program to permit Andrew to get help and external counseling.

3. Let Carpenter know that you care about what he’s going through, but insist that he take a
short paid leave and get counseling to deal with his emotional difficulties and evaluate the
seriousness of his problems with alcohol. If the alcohol abuse continues, require him to
attend a treatment program or find another job.

This is probably the best course of action. Andrew needs support and help, but cannot
continue his present pattern of behavior.

Apply Your Skills: Case for Critical Analysis

The Office

1. What mistakes do you think John Mitchell made with the way he solved the problem of
limited office space? Explain.

It seems obvious that John Mitchell settled for a satisficing rather than a maximizing solution
for the problem. His approach to decision making is based on the administrative model,
which is considered to be descriptive, meaning that it describes how managers actually make

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178  Chapter 9

decisions rather than how they should make them. The concept of bounded rationality and
satisficing shapes this model.

Bounded rationality means people have limits, or boundaries, on the amount of information
they can process in making a decision. Because managers do not have the time or cognitive
ability to process complete information about complex decisions, they must satisfice.
Satisficing means that decision makers choose the first solution alternative that satisfies
minimal decision criteria. Rather than pursue all alternatives, managers will opt for the first
solution that appears to solve the problem. The decision maker cannot justify the time and
expense of obtaining complete information.

Mitchell knew his decision would affect Acklen and her staff; in spite of which he ignored all
the factors and the complete information regarding the issue. He did not consider it important
to consult the matter with Acklen to pursue other possible alternatives.

2. What approach would you have used if you were Mitchell? Why?

The classical model of decision making would have been a better approach for Mitchell. This
model is considered to be normative, which means it defines how a decision maker should
make decisions. It is based on rational economic assumptions and manager beliefs about
what ideal decision making should be. It does not describe how managers actually make
decisions so much as it provides guidelines on how to reach an ideal outcome for the
organization.

The classical model is most valuable when applied to programmed decisions and to decisions
characterized by certainty or risk because information is available and probabilities can be
calculated. The classical model is often associated with high performance for organizations in
stable environments. The four assumptions of this model include:
a. The decision maker operates to accomplish goals that are known and agreed upon.
b. The decision maker strives for conditions of certainty, gathering complete information.
c. Criteria for evaluating alternatives are known.
d. The decision maker is rational and uses logic to assign values, order preferences,
evaluate alternatives, and make the decision to maximize goals.

3. What are Krista Acklen’s options for responding to Mitchell’s decision? What should she do
now? Why?

Following are the possible ways in which Krista Acklen can respond to Mitchell’s decision:
a. Start with brainstorming
b. Use hard evidence
c. Engage in rigorous debate
d. Avoid groupthink
e. Know when to bail
f. Do a postmortem

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Managerial Decision Making  179

One of the best known techniques for rapidly generating creative alternatives is
brainstorming, which possibly could also be the best option for Acklen to pursue now in
order to come up with a solution. Brainstorming uses a face-to-face interactive group to
spontaneously suggest a broad range of alternatives for decision making. The keys to
effective brainstorming are that people can build on one another’s ideas, all ideas are
acceptable no matter how crazy they seem, and criticism and evaluation are not allowed. The
goal is to generate as many ideas as possible.

On the Job Video Case Answers

Mi Ola Swimwear: Managerial Decision Making

1. What role does an advisory board play in this business owner’s approach to decision making?
If you were a business owner, would you want to develop an advisory board?

Mi Ola, which means “My Way” is a business that requires decision making in an atmosphere of
uncertainty. Fogerty knows which goals she wishes to achieve, but information about
alternatives and future events is incomplete. Factors such as price, production costs, volume, or
future interest rates, are difficult to analyze and predict. She has to make assumptions from
which to forge a decision, even though it will be wrong if the assumptions are incorrect. Since
many problems have no clear-cut solution, Fogerty relies on creativity, judgment, intuition, and
experience. Faced with uncertainty, she turns to her advisory board to provide moral support
when problems arise. She has a person in London who helps her build her brand and others in
whom she can confide when she has to make tough financial decisions. These advisors provide
expertise that help ease the stress of making tough decisions.

2. After listening to this entrepreneur’s perspective on decision making, how would you
categorize her decision-making style? Include at least two examples that support your choice.

Fogerty uses a new trend in decision making, quasirationality which combines intuitive and
analytical thought. For example, she makes financial decisions aggressively by analyzing all the
information available. As per the administrative mode, she operates in an atmosphere of
bounded rationality, a limited amount of information on which to base decisions. She satisfices
by choosing the alternative that satisfies minimal decision criteria. However, Fogerty also relies
heavily on intuition. When she designs swimsuits, she selects the colors, fabrics, and sizes
based on her personal ideas and past experience.

Quasirationality is seen in Fogerty’s decision to manufacture her products in the United States.
She is participating in a trend to bring manufacturing home, the “Made in America” movement.
Although she says that at some point she may look into offshoring, she made the decision to
design, manufacture, and sell her swimwear in the United States. This decision is a combination
of rationality and intuition.

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180  Chapter 9

3. Customer feedback is an important part of this entrepreneur’s decision-making process.


Referring to the innovative decision-making techniques described at the end of the chapter,
how would you categorize “getting feedback”? Why is feedback valuable in decision making?

Feedback is important because decision making is an ongoing process. Feedback provides


Fogerty with information that can precipitate a new decision cycle. Many problems are solved
by trying several alternatives, each providing modest improvement. Feedback is the part of
monitoring that assesses whether a new decision needs to be made.

Fogerty gets customer feedback by talking to the surfers in Costa Rica. She asks them to show
her what they like and dislike about the swimsuits. The mission of Mi Ola is to have swimsuits
that are “sexy and stay on.” If she receives feedback about the fit of the swimsuit, she can
maintain or adjust the design. She also receives feedback from the surfers about competing
products. This helps Fogerty make decisions that will hopefully lead to an increase in market
share. Social media is an integral part of the feedback process. Fogerty relies heavily on
Facebook to provide her with customer feedback about Mi Ola. By finding out what surfers
want, she can spot a trend and get her products to market quickly. This gives her a competitive
advantage. Fogerty realizes that she can’t wait too long to try new styles and fabrics because
all aspects of the fashion industry change quickly.

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