Chapter
Chapter ## 12
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Chapter Outline
• How Should Decisions Be Made?
– The Rational Decision-Making Process
• How Do Individuals Actually Make Decisions?
– Bounded Rationality in Considering Alternatives
– Intuition
– Judgment Shortcuts
• Improving Decision Making Through Knowledge
Management
• Group Decision Making
– Group vs. the Individual
– Groupthink and Groupshift
– Group Decision-Making Techniques
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Chapter Outline
• Creativity in Organizational Decision Making
– Creative Potential
– Three-Component Model of Creativity
– Organizational Factors That Affect Creativity
• What About Ethics in Decision Making?
– Four Ethical Decision Criteria
– Factors that Influence Ethical Decision-Making
Behaviour
– Making Ethical Decisions
• Corporate Social Responsibility
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Learning Outcomes
1. Is there a right way to make decisions?
2. How do people actually make decisions?
3. How can knowledge management
improve decision making?
4. What factors affect group decision
making?
5. How can we get more creative decisions?
6. What is ethics, and how can it be used for
better decision making?
7. What is corporate social responsibility?
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How Should Decisions Be Made?
• Rational Decision-Making
– Makes consistent, value-maximizing choices
within specified constraints
– Six step decision-making process
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Exhibit 12-1 Steps in the Rational
Decision-Making Model
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Assumptions of the Rational Decision-Making
Model
• Problem clarity
– The problem is clear and unambiguous.
• Known options
– The decision maker can identify all relevant
criteria and viable alternatives.
• Clear preferences
– Rationality assumes that the criteria and
alternatives can be ranked and weighted.
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Assumptions of the Rational Decision-Making
Model
• Constant preferences
– Specific decision criteria are constant and the
weights assigned to them are stable over time.
• No time or cost constraints
– Full information is available because there are
no time or cost constraints.
• Maximum payoff
– The choice alternative will yield the highest
perceived value.
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How Do Individuals Actually Make Decisions?
• Bounded Rationality
– Limitations on one’s ability to interpret, process, and act
on information.
• Satisficing
– Identifying a solution that is “good enough.”
– The first acceptable option rather than the optimal one
• Intuition
– A non-conscious process created from distilled experience
that results in quick decisions
• Relies on holistic associations
• Affectively charged – engaging the emotions
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Judgment Shortcuts: Common Biases in Decision
Making
• Overconfidence Bias
– Believing too much in our own ability to make good
decisions – especially when outside of own expertise
• Anchoring Bias
– Using early, first received information as the basis for
making subsequent judgments
• Confirmation Bias
– Selecting and using only facts that support our decision
• Availability Bias
– Emphasizing information that is most readily at hand
• Recent
• Vivid
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Judgment Shortcuts: Common Biases in Decision
Making
• Escalation of Commitment
– Increasing commitment to a decision in spite of evidence
that it is wrong – especially if responsible for the decision!
• Randomness Error
– Creating meaning out of random events - superstitions
• Risk Aversion
– tendency to prefer a sure thing over a risky outcome
• Hindsight Bias
– After an outcome is already known, believing it could have
been accurately predicted beforehand
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Knowledge Management
• The process of organizing and distributing an
organization’s collective wisdom so the right information
gets to the right people at the right time.
• Why it’s important:
– Organizations can use it to “outsmart” their
competition.
– Baby boomers are taking their knowledge with
them when leaving the workforce.
– A well-designed KM system reduces redundancy
and makes the organization more efficient.
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Knowledge Management
• Recording knowledge and expertise:
– Develop computer databases of pertinent
information that employees can readily access.
– Create a culture that promotes, values, and
rewards sharing knowledge.
– Develop mechanisms that allow employees who
have built up valuable expertise and insights to
share them with others.
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Group Decision Making
Strengths of Group Decision
Making
• More complete information and
knowledge.
• Increased diversity of views.
• Generates higher-quality
decisions.
• Leads to increased acceptance of
a solution.
Weaknesses of Group
Decision Making
• More time consuming.
• Conformity pressures in groups.
• Discussion can be dominated by
one or a few members.
• Decisions suffer from ambiguous
responsibility.
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Exhibit 12-2 Group vs. Individual Decision Making
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Effectiveness and Efficiency
• Measures of Effectiveness
– Accuracy
– Speed
– Creativity
– Acceptance
• Efficiency
– groups almost always stack up as a poor second to
the individual decision maker
– With few exceptions, group decision making
consumes more work hours than if an individual
were to tackle the same problem alone.
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Groupthink and Groupshift
• Groupthink
– Phenomenon in which the norm for consensus
overrides the realistic appraisal of alternative
courses of action.
• Groupshift
– Phenomenon in which the initial positions of
individual members of a group are exaggerated
toward a more extreme position.
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Symptoms of Groupthink
• Illusion of
invulnerability
• Peer pressure
• Minimized doubts
• Assumption of
morality
• Illusion of unanimity
• Rationalized
resistance
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Minimizing Groupthink
• Monitor group size
• Encourage group leaders to play an impartial role.
• Appoint one group member to play the role of devil’s
advocate.
• Stimulate active discussion of diverse alternatives to
encourage dissenting views and more objective
evaluations
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What Causes Groupshift?
• Discussion creates familiarization among
group members.
• Group discussion motivates individuals to take
risks.
• Group diffuses responsibility.
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Group Decision-Making Techniques
• Interacting Groups
• Brainstorming
• Nominal Group Technique
• Electronic Meetings
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Exhibit 12-3 Nominal Group Technique
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Exhibit 12-4 Evaluating Group Effectiveness
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Creativity in Organizational Decision Making
• The process of creating products, ideas, or
procedures that are novel or original, and are
potentially relevant or useful to an
organization.
• Creativity is important because
– It allows the decision maker to more fully
understand and appraise the problem
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Creative Potential
• Who has the greatest creative potential?
– Those people who
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Are intelligent
Score high in Openness to Experience (Chapter 2
Are independent
Have high self-confidence
Are risk-takers
Have a positive core self-evaluation
Are tolerant of ambiguity
Have a low need for structure
Are able and willing to persevere
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Three-Component Model of Creativity
• Expertise
– potential for creativity is enhanced when individuals have
abilities, knowledge, proficiencies, and similar expertise in
their field of endeavour.
• Creative-thinking skills
– encompasses personality characteristics associated with
creativity, the ability to use analogies, and the talent to see
the familiar in a different light.
– Moods impact creativity
• Intrinsic task motivation
– desire to work on something because it’s interesting,
involving, exciting, satisfying, or personally challenging.
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Moods and Creativity
• Positive moods increase creativity
– Moods such as happiness that encourage interaction with the
world are more conducive to creativity than passive moods
such as calm.
• Avoidance-oriented negative moods affect creativity
– Fear and anxiety decrease creativity
– Feeling threatened reduces your desire to try new activities
– Risk aversion increases when you are scared
• Active-negative moods affect creativity
– anger appears to enhance creativity, especially if you are
taking your task seriously.
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Exhibit 12-5 The Three Components of
Creativity
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Creativity Blocks
• Expected evaluation
• Surveillance
• External motivators
• Competition
• Constrained choice
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Four Criterion for Making Ethical Choices
• Utilitarian criterion
– A decision focused on outcomes or consequences that
emphasize the greatest good for the greatest number of
people.
• Rights criterion
– Decisions consistent with fundamental liberties and
privileges as set forth in documents like the Canadian
Charter of Rights and Freedoms.
– Protects whistle-blowers
• Justice criterion
– Decisions that impose and enforce rules fairly and
impartially so there is an equitable distribution of benefits
and costs.
• Care criterion
– Decisions “…that expresses care in protecting the special
relationships that individuals have with each other.”
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Exhibit 12-6 Factors Affecting Ethical
Decision-Making Behaviour
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Exhibit 12-7 Stages of Moral Development
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Exhibit 12-8 Is a Decision Ethical?
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Corporate Social Responsibility
• An organization’s responsibility to consider the
impact of its decisions on society.
– 45 percent of Canadians believe individual
shareholders, not the company, should make
personal decisions about giving to charity.
– 35 percent of Canadians, however, felt
corporations should donate to charities.
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Global Implications
• Cultural background can have a significant
influence on decision making. Cultures differ:
– in their time orientation
– the importance of rationality
– their belief in the ability of people to solve
problems
– their preference for collective decision making.
• No global ethical standards
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Summary and Implications
1. Is there a right way to make decisions?
–
The rational decision making model describes six steps: define
the problem, identify the criteria, allocate weights to the
criteria, develop alternatives, evaluate alternatives, select the
best alternative.
2. How do people actually make decisions?
–
Decision makers may rely on bounded rationality, satisficing, and
intuition. There are also shortcuts that are used.
3. How can knowledge management improve decision
making?
–
By electronically storing information that employees have,
organizations make it possible to share collective wisdom.
4. What factors affect group decision making?
–
Group decisions are time-consuming, lead to conformity
pressures, can be dominated by one or few members, and suffer
from ambiguous responsibility.
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Summary and Implications
6.
How can we get more creative decisions?
– Employees are more creative when they are
motivated by intrinsic interest, challenge, task
satisfaction, and self-set goals.
7.
What is ethics and how can it be used for better
decision making?
– Ethics is the study of moral value or principles
that guide our behaviour and inform us
whether actions are right or wrong.
8.
What is corporate responsibility?
– Is defined as an organization’s responsibility
to consider the impact of its decision on
society.
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OB at Work: For Review
1. What is the rational decision-making model?
Under what conditions is it applicable?
2. Describe organizational factors that might
constrain decision makers.
3. What role does intuition play in effective
decision making?
4. Describe three judgment shortcuts.
5. What is groupthink? What is its effect on
decision-making quality?
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OB at Work: For Review
6. What is groupshift? What is its effect on
decision-making quality?
7. Identify five organizational factors that block
creativity at work.
8. Describe the four criteria that individuals can
use in making ethical decisions.
9. Are unethical decisions more a function of
the individual decision maker or the decision
maker’s work environment? Explain.
10.What is corporate social responsibility?
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OB at Work: For Critical Thinking
1. “For the most part, individual decision making in
organizations is an irrational process.” Do you agree or
disagree? Discuss.
2. What factors do you think differentiate good decision
makers from poor ones? Relate your answer to the six-step
rational decision-making model.
3. Have you ever increased your commitment to a failed course
of action? If so, analyze the follow-up decision to increase
your commitment and explain why you behaved as you did.
4. If group decisions are of consistently better quality than
individual decisions, how did the phrase “a camel is a horse
designed by a committee” become so popular and ingrained
in our culture?
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Breakout Group Exercises
• Form small groups to discuss the following:
1. Apply the rational decision-making model to deciding
where your group might eat dinner this evening. How
closely were you able to follow the rational model in
making this decision?
2. The company that makes your favourite snack product
has been accused of being weak in its social responsibility
efforts. What impact will this have on your purchase of
any more products from that company?
3. You’ve seen a classmate cheat on an exam or an
assignment. Do you do something about this or ignore it?
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Ethical Dilemmas: What Would You Do?
• You are negotiating a contract with a
potentially very large customer whose
representative has hinted that you could
almost certainly be assured of getting his
business if you gave him and his wife an allexpenses-paid cruise to the Caribbean. You
know the representative’s employer would
not approve of such a “payoff,” but you have
the discretion to authorize such an
expenditure. What would you do?
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Ethical Dilemmas: What Would You Do?
• You have an autographed CD by Drake and put
it up for sale on eBay. So far, the highest bid is
$74.50. A friend has offered you $100 for the
CD, commenting that he could get $150 for it
on eBay in a year. You know this is highly
unlikely. Should you sell your friend the CD for
what he offered ($100)? Do you have an
obligation to tell your friend you have listed
your CD on eBay?
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Ethical Dilemmas: What Would You Do?
• Your company policy on reimbursement for meals
while travelling on company business is that you will
be repaid for your out-of-pocket costs, which are not
to exceed $50 a day. You don’t need receipts for
these expenses—the company will take your word.
When travelling, you tend to eat at fast-food places
and rarely spend in excess of $15 a day. Most of your
colleagues submit reimbursement requests in the
range of $40 to $45 a day regardless of what their
actual expenses are. How much would you request
for your meal reimbursements?
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Ethical Dilemmas: What Would You Do?
• You are the manager at a gaming company, and you
are responsible for hiring a group to outsource the
production of a highly anticipated new game.
Because your company is a giant in the industry,
numerous companies are trying to get the bid. One
of them offers you some kickbacks if you give that
firm the bid, but ultimately, it is up to your bosses to
decide on the company. You don’t mention the
incentive, but you push upper management to give
the bid to the company that offered you the
kickback. Is withholding the truth as bad as lying?
Why or why not?
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Ethical Dilemmas: What Would You Do?
• You have discovered that one of your closest friends
at work has stolen a large sum of money from the
company. Would you do nothing? Go directly to an
executive to report the incident before talking about
it with the offender? Confront the individual before
taking action? Make contact with the individual with
the goal of persuading that person to return the
money?
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