Essentials of

Contemporary
Management

Chapter
Chapter Decision
Decision Making,
Making, Learning,
Learning,
55 Creativity,
Creativity, and
and Innovation
Innovation
PowerPoint Presentation by Charlie Cook
© Copyright The McGraw-Hill Companies, Inc., 2004. All rights reserved.
 Learning
Learning Objectives
Objectives
• After studying the chapter, you should be able to:
Differentiate between programmed and
nonprogrammed decisions, and explain why
nonprogrammed decision making is a complex,
uncertain process.
Describe the six steps that managers should take to
make the best decisions.
Identify the advantages and disadvantages of group
decision making, and describe techniques that can
improve it.

© Copyright 2004 McGraw-Hill. All rights reserved. 5–2

 Learning
Learning Objectives
Objectives (cont’d)
(cont’d)
Explain the role that organizational learning and
creativity play in helping managers to improve their
decisions.

© Copyright 2004 McGraw-Hill. All rights reserved. 5–3

The
The Nature
Nature of
of Managerial
Managerial Decision
Decision Making
Making
• Decision Making
The process by which managers respond to
opportunities and threats by analyzing options, and
making decisions about goals and courses of action.
• Decisions in response to opportunities—occurs when
managers respond to ways to improve organizational
performance.
• Decisions in response to threats—occurs when
managers are impacted by adverse events to the
organization.

© Copyright 2004 McGraw-Hill. All rights reserved. 5–4

 Programmed
Programmed Decisions
Decisions
• Programmed Decision
Routine, virtually automatic decision making that
follows established rules or guidelines.
• Managers have made the same decision many times
before.
• There are rules or guidelines to follow based on
experience with past decisions.
• Example: Disciplinary action to be taken concerning a
tardy employee.

© Copyright 2004 McGraw-Hill. All rights reserved. 5–5

 Nonprogrammed
Nonprogrammed Decisions
Decisions
• Non-Programmed Decisions
Nonroutine decision making that occurs in response
to unusual, unpredictable opportunities and threats.
The are no rules to follow since the decision is new.
• Decisions are made based on information, a
manager’s intuition, and judgment.
• Example: Deciding to invest in additional production
equipment to meet emergent demand.

© Copyright 2004 McGraw-Hill. All rights reserved. 5–6

 The
The Classical
Classical Model
Model
• Classical 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.
Optimum decision
• The most appropriate decision in light of what
managers believe to be the most desirable future
consequences for their organization.

© Copyright 2004 McGraw-Hill. All rights reserved. 5–7

 The
The Classical
Classical Model
Model of
of Decision
Decision Making
Making

Figure 5.1
© Copyright 2004 McGraw-Hill. All rights reserved. 5–8
 The
The Administrative
Administrative Model
Model
• Administrative 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.

© Copyright 2004 McGraw-Hill. All rights reserved. 5–9

 The
The Administrative
Administrative Model
Model (cont’d)
(cont’d)
• Administrative Model of Decision Making
(cont’d)
Bounded rationality
• There is a large number of alternatives and available
information can be so extensive that managers
cannot consider it all.
• Decisions are limited by people’s cognitive abilities.
Incomplete information
• Most managers do not see all alternatives and decide
based on incomplete information.

© Copyright 2004 McGraw-Hill. All rights reserved. 5–10

 Why
Why Information
Information Is
Is Incomplete
Incomplete

Figure 5.2
© Copyright 2004 McGraw-Hill. All rights reserved. 5–11
 Causes
Causes of
of Incomplete
Incomplete Information
Information
• Risk
The degree of probability that the possible
outcomes of a particular course of action will occur.
• Managers know enough about a given outcome to be
able to assign probabilities for the likelihood of its
failure or success.
• Uncertainty
Probabilities cannot be given for outcomes and the
future is unknown.
• Many decision outcomes are not known such as the
success of a new product introduction.

© Copyright 2004 McGraw-Hill. All rights reserved. 5–12

Causes
Causes of
of Incomplete
Incomplete Information
Information (cont’d)
(cont’d)
• Ambiguous Young Woman
Information or Old Woman
Information whose
meaning is not clear
allowing it to be
interpreted in multiple
or conflicting ways.

Figure 5.3
© Copyright 2004 McGraw-Hill. All rights reserved. 5–13
Causes
Causes of
of Incomplete
Incomplete Information
Information (cont’d)
(cont’d)
• Satisficing
Searching for and choosing an acceptable, or
satisfactory response to problems and
opportunities, rather than trying to make the best
decision.
• Managers explore a limited number of options and
choose an acceptable decision rather than the
optimum decision.
• Managers assume that the limited options they
examine represent all options.
• This is the typical response of managers when
dealing with incomplete information.

© Copyright 2004 McGraw-Hill. All rights reserved. 5–14

 Six
Six Steps
Steps in
in Decision
Decision Making
Making

Figure 5.4
© Copyright 2004 McGraw-Hill. All rights reserved. 5–15
 Decision
Decision Making
Making Steps
Steps
Step 1. Recognize the Need for a Decision
Sparked by an event such as environment changes.
• Managers must first realize that a decision must be ing
can n
made. e nt a ls
m on
Envir
Step 2. Generate Alternatives
Managers must develop feasible alternative courses
of action.
• If good alternatives are missed, the resulting decision
is poor.
• It is hard to develop creative alternatives, so
managers need to look for new ideas. c t i vity
ga m in
or
Bra inst
© Copyright 2004 McGraw-Hill. All rights reserved. 5–16
 Decision
Decision Making
Making Steps
Steps
Step 3-4. Assess/Choose Alternatives
What are the advantages and disadvantages of
each alternative?
Managers should specify criteria, then evaluate.
When ranking, all information needs to be
considered.

© Copyright 2004 McGraw-Hill. All rights reserved. 5–17

 General
General
Criteria
Criteria for
for
Evaluating
Evaluating
Possible
Possible
Courses
Coursesof of
Action
Action

Figure 5.5
© Copyright 2004 McGraw-Hill. All rights reserved. 5–18
 Evaluating
Evaluating Alternatives
Alternatives

Criteria

Legality Is the alternative legal both in this country and

abroad for exports?

Ethicalness Is the alternative ethical and will not bring

harm stakeholders unnecessarily?

Economic Feasibility Can organization’s performance goals sustain

this alternative?
Practicality Does the management have the capabilities
and resources required to implement the
alternative?

© Copyright 2004 McGraw-Hill. All rights reserved. 5–19

 Decision
Decision Making
Making Steps
Steps
Step 5. Implement Chosen Alternative
Managers must now carry out the alternative.
Often a decision is made and not implemented. o n
xe c ut i
ow er ofe
Step 6. Learn From Feedback The p
Managers should consider what went right and
wrong with the decision and learn for the future.
Without feedback, managers do not learn from
experience and will repeat the same mistake over.
j us t me nt
g and Ad
ri n
Monito

© Copyright 2004 McGraw-Hill. All rights reserved. 5–20

 Group
Group Decision
Decision Making
Making
• Most decisions are made in group settings.
Groups tend to reduce cognitive biases and can call
on their greater combined skills and abilities.
• Groupthink
Biased decision making resulting from group
members striving for agreement.
• Usually occurs when group members rally around a
central manager’s idea , and become blindly commit
to the idea without considering alternatives.
• The group’s influence tends to convince each
member that the idea must go forward.

© Copyright 2004 McGraw-Hill. All rights reserved. 5–21

 Improved
Improved Group
Group Decision
Decision Making
Making
• Devil’s Advocacy
A group member who defends unpopular or
opposing alternatives for the sake of argument
One member of the group who acts as the devil’s
advocate by critiquing the way the group identified
alternatives and pointing out problems with the
alternative selection.
• Diversity Among Decision Makers
Broadens range of life experiences and opinions
from which to draw and consider alternatives.
Group differences help in avoiding groupthink.

© Copyright 2004 McGraw-Hill. All rights reserved. 5–22

 Organizational
Organizational Learning
Learning and
and Creativity
Creativity
• Organizational Learning
Managers seek to improve a employee’s desire and
ability to understand and manage the organization
and its task environment so as to raise
effectiveness.
• The Learning Organization
Managers try to maximize the people’s ability to
behave creatively to maximize organizational
learning. o n se
r e sp
e and
Se ns

© Copyright 2004 McGraw-Hill. All rights reserved. 5–23

 Senge’s
Senge’s Principles
Principles for
for Creating
Creating
aa Learning
Learning Organization
Organization

Figure 5.6
© Copyright 2004 McGraw-Hill. All rights reserved. 5–24
 Organizational
Organizational Learning
Learning and
and Creativity
Creativity
• Creativity
The ability of the decision maker to discover novel
ideas leading to a feasible course of action.
• A creative management staff and employees are the
key to the learning organization.
• Innovation
The implementation of creative ideas in an
organization.

© Copyright 2004 McGraw-Hill. All rights reserved. 5–25

 Creating
Creating aa Learning
Learning Organization
Organization
1. Personal Mastery
 Managers empower employees and allow them to
create and explore. pe r i m e nt s
ent an d ex
mpo we rm
2. Mental Models E
 Challenge employees to find new, better methods
to perform a task. d A t ti t ude
e e d o m an
F r i ng
3. Team Learning i s k -t a k
of R
 Is more important than individual learning since
most decisions are made in groups.
e s ha r i ng
e xp e r i enc
i a lo g u e and
D
© Copyright 2004 McGraw-Hill. All rights reserved. 5–26
Creating
Creating aa Learning
Learning Organization
Organization (cont’d)
(cont’d)
4. Build a Shared Vision
 People share a common mental model of the firm
to evaluate opportunities.
te M i ss ion
5. Systems Thinking Corpora
 Knowing and understanding how actions in one
area of the firm will impact other areas of the
firm. a lity
of C aus
ne at i on
Deli k l oo ps
b a c
and feed

© Copyright 2004 McGraw-Hill. All rights reserved. 5–27

 Promoting
Promoting Individual
Individual Creativity
Creativity
• Organizations can build an environment
supportive of creativity.
Managers must provide employees with the
opportunities and abilities to take risks.
• If people take risks, they will occasionally fail.
To build creativity, periodic failures must be
rewarded.
• This idea is hard to accept for some managers.

© Copyright 2004 McGraw-Hill. All rights reserved. 5–28

 Building
Building Group
Group Creativity
Creativity
• Brainstorming
Managers meet face-to-face to generate and
debate many alternatives.
• Group members are not allowed to evaluate
alternatives until all alternatives are listed.
• When all are listed, then the pros and cons of each
are discussed and a short list created.
Production blocking
• Members cannot absorb all information being
presented during the session and can forget even
their own alternatives.

© Copyright 2004 McGraw-Hill. All rights reserved. 5–29

 Building
Building Group
Group Creativity
Creativity
• Nominal Group Technique
Provides a more structured way to generate
alternatives in writing.
• Avoids the production blocking problem.
• Similar to brainstorming except that each member is
given time to first write down all alternatives he or she
would suggest.
• Alternatives are then read aloud without discussion
until all have been listed.
• Then discussion occurs and alternatives are ranked.

© Copyright 2004 McGraw-Hill. All rights reserved. 5–30

 Promoting
Promoting Creativity
Creativity at
at the
the Global
Global Level
Level
• Responding to global market pressures to
reduce costs and develop global products by
centralizing research and development (R&D)
efforts in teams in one location.
Likely problems to be overcome:
• Language barriers
• Cultural differences in approaches to solving
problems and decision making processes
Training program to raise awareness to overcoming
barriers and differences will be necessary to gain
the cooperation of the diverse individuals.

© Copyright 2004 McGraw-Hill. All rights reserved. 5–31

 Homework
Homework 44 Evaluating
Evaluating an
an alternative
alternative

• When airline flights are overbooked in the United

State, an auction is sometimes held to see which
passengers are willing to transfer to a later flight
in return for compensation. The compensation is
determined by the lowest price needed to induce
the required number of people to give up their
seats. This seems to work fairly well.
• Would such an auctioning approach work for
deciding whether a flight should permit smoking
or gain a prioritized landing? Why or why not?

© Copyright 2004 McGraw-Hill. All rights reserved. 5–32