Decision Making, Learning,
Creativity, and
Entrepreneurship
Chapter 7
The Nature of Managerial
Decision Making
• ____________ is the process by which managers respond to
opportunities and threats that confront them by analyzing options
and making determinations about specific organizational goals and
courses of action.
• Decisions in response to ___________ : occurs when managers
respond to ways to improve organizational performance to benefit
customers, employees, and other stakeholder groups
• Decisions in response to ____________: events inside or outside the
organization are adversely affecting organizational performance
Decision Making
• _____________ Decision
• Routine, virtually automatic decision making that follows established
rules or guidelines.
• ____________ Decisions
• Nonroutine decision making that occurs in response to unusual,
unpredictable opportunities and threats
• Rules exist (or do not exist) because the situation is expected (or
unexpected) and managers have (or lack) the information they would
need to develop rules to cover it.
Two Models
• __________ Model of Decision Making
• A prescriptive model of decision making that assumes the decision maker can
identify and evaluate all possible alternatives and their consequences and
rationally choose the most appropriate course of action.
• __________ Model of Decision Making
• An approach to decision making that explains why decision making is
inherently uncertain and risky and why managers usually make satisfactory
rather than optimum decisions.
The Classical Model of
Decision Making
The Administrative Model
• Bounded rationality
• Cognitive limitations that constrain one’s ability to interpret, process,
and act on information.
• Incomplete information
• Because of risk and uncertainty, ambiguity, and time constraints
• Balancing Constraints: Time, Quality and Money
Why Information Is Incomplete
Causes of Incomplete Information
__________ is the degree of probability that the possible
outcomes of a particular course of action will occur.
__________ is the probabilities of alternative outcomes
cannot be determined and future outcomes are unknown
Time constraints and information costs: Managers have
neither the time nor money to search for all possible
alternatives and evaluate potential consequences
_____________: Searching for and choosing an acceptable, or
satisfactory response to problems and opportunities, rather
than trying to make the best decision
Six Steps in Decision Making
General Criteria for Evaluating Possible
Courses of Action
Biases and Decision Making
_______________ Rules of thumb that simplify the process of making
decisions.
Systematic errors: errors that people make over and over and that result
in poor decision making
Prior Hypothesis Bias: A cognitive bias resulting from the tendency to base
decisions on strong prior beliefs even if evidence shows that those beliefs
are wrong.
Representativeness: A cognitive bias resulting from the tendency to
generalize inappropriately from a small sample or from a single vivid event
or episode.
Illusion of Control: The tendency to overestimate one’s own ability to
control activities and events.
_______________: A source of cognitive bias resulting from the tendency
to commit additional resources to a project even if evidence shows that
the project is failing.
Escalation of Commitment
Sunk Costs Errors - forgetting that
current actions cannot influence
past events and relate only to
future consequences.
Shoreham Nuclear Power Plant:
1973-1984, projected costs $75
million; final costs $6 billion;
due to public pressure and
design problems closed before
becoming operational.
Group Decision Making
Potential Advantages
Potential Disadvantages
• Superior to individual
making
• Choices less likely to fall
victim to bias
• Able to draw on combined
skills of group members
• Improve ability to generate
feasible alternatives
•
•
•
Can take much longer
than individuals to make
decisions
Can be difficult to get
two or more managers to
agree because of
different interests and
preferences
Can be undermined by
biases
____________: A Pattern of faulty and biased decision making that occurs
in groups whose members strive for agreement among themselves at the
expense of accurately assessing information relevant to a decision
• Bay of Pigs
• Escalation of Vietnam War
• Watergate
• New Coke Marketing Campaign
• Space Shuttle Disaster
• Hubble Telescope
©2007 Prentice Hall
Devil’s Advocacy and
Dialectical Inquiry
Organizational Learning
and Creativity
• ________________ An organization in which managers try
to maximize the ability of individuals and groups to think
and behave creatively and thus maximize the potential for
organizational learning to take place.
Creativity
• A decision maker’s ability to
• discover original and novel ideas that lead to feasible
alternative courses of action.
Without creativity where would businesses be?
Senge’s Principles for Creating a Learning
Organization
Promoting Group Creativity
_____________ When employees meet face-to-face to
generate and debate many alternatives.
Production Blocking
Occurs because group members cannot simultaneously
make sense of all the alternatives being generated, think
up additional alternatives, and remember what they were
thinking
Honey Pot Solution:
http://www.inrule.com/resources/blog/honeypots-andhelicopters-creativity-in-business/
Building Group Creativity
_____________ a decision making technique in which group members
write down ideas and solutions, read their suggestions to the whole
group, and discuss and then rank the alternatives.
• Useful when an issue is controversial and when different managers
might be expected to champion different courses of action
_____________ a decision-making technique in which group members do
not meet face-to-face but respond in writing to questions posed by the
group leader.
____________ An individual who notices opportunities and
decides how to mobilize the resources necessary to produce
new and improved goods and services.
_____________ An individual who pursues initiatives and
opportunities and mobilizes resources to address social
problems and needs in order to improve society and wellbeing through creative solutions.
_____________A manager, scientist, or researcher who works
inside an organization and notices opportunities to develop
new or improved products and better ways to make them.
Characteristics of Entrepreneurs
• Open to experience: they are original thinkers and take risks.
• Internal locus of control: they take responsibility for their own
actions.
• High self-esteem: they feel competent and capable.
• High need for achievement: they set high goals and enjoy working
toward them.
• http://finance.yahoo.com/news/8-traits-shared-most-successful113000493.html