DECISION MAKING,

LEARNING, CREATIVITY
AND ENTREPRENEURSHIP
Eder Rodríguez Lozano
Mariana Pérez Montoya
 The nature of managerial Decision
Making
Every time managers plan, organize, direct, or control organizational
activities, they make a stream of decisions.
In opening a restaurant, for example, managers have to decide where to
locate it, what kinds of food to provide, which people to employ, and so on.
Decision making is a basic part of every task managers perform.
 Decision making
Is the process by which managers respond to opportunities and threats by
analyzing the options and making determinations, or decisions, about
specific organizational goals and courses of action. Good decision result in
the selection of appropriate goals and courses of action that increase
organizational performance; bad decisions lower performance.
Decision making in response to opportunities occurs when managers search
for ways to improve organizational performance to benefit customers,
employees, and other stakeholder groups.

Decision making in response to threats occurs when events inside or

outside the organization adversely affect organizational performance, and
managers search for ways to increase performance.

Decision making is central to being a manager, and whenever managers

engage in planning, organizing, leading, and controlling (their four principal
tasks) they are constantly making decisions.
 Programmed and nonprogrammed
decision making
Programmed decision making is a routine, virtually automatic process.
Programmed decisions are decisions that have been made so many times in
the past that managers have developed rules or guidelines to be applied
when certain situations inevitably occurs.
This decision making is called programmed because office managers, for
example, do not need to repeatedly make new judgments about what should
be done. They can rely on long established decision rules such as these:
Rule #1: when the storage shelves are three quarters empty, order more copy
paper.
Rule #2: when ordering paper, order enough to fill shelves
Nonprogrammed decision making

Is required for these nonroutine decisions. Nonprogrammed decisions are

made in response to unusual or novel opportunities and threats.
Nonprogrammed decision making occurs when there are ready made
decision rules that managers can apply to a situation. Rules do not exist
because the situation is unexpected or uncertain and managers lack the
information they would need to develop rules to cover it. Examples of
nonprogrammed decision making include decisions to invest in a new
technology, develop a new kind of product, launch a new promotional
campaign, enter a new market, expand internationally, start a new business,
or invest in research and development and acquire other companies.
How do manager make decisions in the
absence of decision rules?
They may rely on their intuition feelings , beliefs, and hunches that come
readily to mind, require little effort and information gathering, and result in
one the spot decisions. Or they may make reasoned judgments decisions
that require time and effort and result from careful information gathering,
generation of alternatives, and evolution of alternatives.
The classical model

One of the earliest models of decision making, the classical model, is

prescriptive, which means it specifies how decisions should be made.
Managers using the classical model make series of simplifying assumptions
about the nature of the decision making process. The premise of the classical
model is that once managers recognize the need to make a decision, they
should be able to generate a complete list of all alternatives and
consequences and make the best choice. In other words, the classical model
assumes managers have access to all the information they need to make the
optimum decision, which is the most appropriated decision possible in light
of what they believe to be the most desirable consequences for the
organization.
The classical model of making
decisions
The administrative model

James March and Herbert Simon disagreed with the underlying assumptions
of the classical model of decisions making. In contrast, they proposed that
managers in the real world do not have access to all the information they
need to make a decision. Moreover, they pointed out that even if all
information were readily available, many managers would lack the mental or
psychological ability to absorb and evaluate it correctly. As a result, march
and Simon developed the administrative model of decision making to explain
why decision making is always in inherently uncertain and risky process and
why managers can rarely make decisions in the manner prescribed by the
classical model. The administrative model is based on three important
concepts: bounded rationality, incomplete information, and satisficing.
Bounded rationality
March and Simon coined the term bounded rationality to describe the
situation in which the number of alternatives a manager must identify is so
great and the amount of information so vast that it is difficult for the
manager to even come close evaluating it all before making a decision.
Incomplete information
Even if managers had unlimited ability to evaluate information, they still
would not be able to arrive at the optimum decision because they would
have incomplete information. Information is incomplete because the full
range of decision making alternatives is unknowable in most situation, and
the consequences associated with know alternatives are uncertain.
Risk and uncertainty
Forces in the organizational environmental are constantly changing. Risk is
present when managers know the possible outcomes of a particular course of
action and can assign probabilities to them.
Why information is incomplete
When the uncertainty exist, the probabilities of alternative outcomes cannot
be determined and future outcomes are unknown. Managers are working
blind, because the probability of given outcome occurring is not known,
managers have little information to use in making decision
Ambiguous information
A second reason information is incomplete is that much of the information
managers have at their disposal is ambiguous information. Its meaning is not
clear it can be interpreted in multiple and often conflicting ways.

Ambiguous information
Young woman or old woman?
Time constrains and information costs
The third reason information is incomplete is that managers have neither the
time nor the money to search for all possible alternative solutions and
evaluate all the potential consequences of those alternatives.

Satisficing
March and Simon argued that managers do not attempt to discover every
alternative when faced with bounded rationality, an uncertain future,
unquantifiable risks, considerable ambiguity, time constrains and high
information costs. They use a strategy known as satisficing, which is
exploring a limited sample of all potential alternatives. When managers
satisfice, they search for and choose acceptable, or satisfactory, ways to
respond to problems and opportunities rather than trying to make optimum
decision.
 Steps in the decision making process
Using the work of March and Simon as a basis, researchers have developed
a step by step model of the decision making process and the issues and
problems that managers confront at each step
Recognize a need for a decision
The first step in the decision making process is to recognize the need for a
decision. Some stimuli usually spark the realization that a decision must be
made. These stimuli often become apparent because changes in the
organizational environment result in new kinds of opportunities and threats.
The stimuli that spark decision making are as likely to result from the
actions of managers inside an organization as they are from changes in the
external environment. An organization possesses a set of skills,
competencies, and resources in its employees and in departments such as
marketing, manufacturing and research and development.
managers who actively pursue opportunities to use these competencies
create the need to make decisions, but the important issue is that they must
recognize this need and respond in a timely and appropriate way.
Generate alternatives
Having recognized the need to make a decision, a manager must generate a
set of feasible alternative courses of action to take in response to the
opportunity or threat. Management experts cite failure to properly generate
and consider different alternatives as one reason that managers sometimes
make bad decisions.
Asses alternatives

Once managers have generated a set of alternatives, they must evaluate the
advantages and disadvantages of each one. The key to a good assessment of
the alternatives is define the opportunity or threat exactly and then specify
the criteria that should influence the selection of alternatives for responding
to the problem or opportunity
One reason for bad decisions is that managers often fail to specify the
criteria that are important in reaching a decision. In general, successful
managers use four criteria to evaluate the pros and cons of alternative
courses of action.

1. Legality: managers must ensure that a possible course of action will not
violate any domestic or international laws or government regulations.
2. Ethicalness: managers must ensure that a possible course of action is ethical
and will unnecessarily harm any stakeholder group.
3. Economic feasibility: managers must decide whether the alternatives are
economically feasibility that is, whether they can be accomplished, given the
organizations performance goal.
4. Practicality: managers must decide whether they have the capabilities and
resources required to implement the alternative, and they must be sure the
alternative will not threaten the attainment of other organizational goals.
Choose among alternatives
Once the set of alternative solution has been carefully evaluated, the next
task is to rank the various alternatives and make a decision. When ranking
alternatives, managers must be sure all the information available is brought
to bear on the problem or issue at hand.
Implement the chosen alternative
Once a decision has been made and an alternative has been selected, it must
be implemented, and many subsequent, and related decision must be made.
After a course of action has been decided say, to develop a new line of
woman’s clothing would involve recruiting dress designers, obtaining
fabrics, finding high quality manufacturers, and signing contracts with
clothing stores to sell the new line.
Learn from feedback
The final step in the decision making process is learning from feedback.
Effective managers always conduct a retrospective analysis to see what they
can learn from past successes or failures. Managers who do not evaluate the
results of their decision do not learn from experience; instead they stagnate
and likely to make the formal procedure should include these steps:

1. Compare what actually happened to what expected to happen as a result

of decisions.
2. Explore why any expectation for the decisions were not met.
3. Derive guidelines that will help in future decisions making
Group decision making
Many important organizational decisions are made by groups or teams of
managers rather than by individuals. Group decisions making is superior to
individual decision making in several respects. When managers work as a
team to make decisions and solve problems, they are able to draw on the
combined skills, competencies and accumulated knowledge of group
members and thereby improve their ability to generate feasible alternatives
and make good decisions. Groups decision making also allows managers to
process more information and to correct one another's errors.
Some potential disadvantages are associated with group decisions making.
Groups often take much longer than individuals to make decisions. Getting
two or more managers to agree to the same solution can be difficult because
managers interests and preferences are often different. In addition, just like
decision making by individual managers, group decision making can be
undetermined by biases. A major source of group bias is groupthink.
The perils of groupthink
Groupthink is 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. When
managers are subject to groupthink, they collectively embark on a course of
action without developing appropriate criteria to evaluate alternatives.
Typically, a group rallies around one central manager, such as the CEO, and
the course of action that managers supports.
Devil’s advocacy
The existence of groupthink raises questions of how improve the quality of
group and individual decision making so managers make decisions that are
realistic and are based on through evaluation of alternatives.
Devil’s advocacy is critical analysis of a preferred alternative, made in
response to challenges raised by a group of
members who, playing the role of devil’s
advocate, defends unpopular or opposing
alternatives for the sake of argument.
Diversity among decision making

Another way to improve group decision making is to promote diversity in

decision making groups. Bringing together managers of both genders from
various ethnic, national, and functional backgrounds broadens the range of
life experiences and opinions that groups members can draw on as they
generate, assess, and choose among alternatives. Moreover, diverse groups
are sometimes less prone to groupthink because group members already
differ from each other and thus are less subject to pressures for uniformity.
Organizational learning and creativity

The quality of managerial decision making ultimately depends on innovative

responses to opportunities and threats. How can managers increase their
ability to make nonprogrammed decisions that will allow them to adapt to,
modify, and even drastically alter their tasks environments so they can
continually increase organizational performance? The answer is by
encouraging organizational learning.
Organizational learning is the process through which managers seek to
improve employers desire and ability to understand and manage the
organization and its task environment.
Learning organization is 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.
Creating a learning organization
Promoting individual creativity

Research suggest that when certain conditions are met, managers are more
likely to be creative. People must be given the opportunity and freedom to
generate new ideas. Creativity declines when managers look over the
shoulders of talented employees and try to “hurry up” a creative solution.
Promoting group creativity

To encourage creativity at the group level, organization can use group

problem solving techniques that promote creative ideas and innovate
solutions. These techniques can also prevent groupthink and help managers
uncover biases. here we look at three group decision making techniques:
brainstorming, the nominal group technique, and the Delphi technique.
Brainstorming
Brainstorming is a group problem solving technique in which managers
meet face to face to generate and debate a wide variety of alternative from
which to make a decision.
Nominal group technique
To avoid production blocking, the nominal group technique is often used. It
provides a more structured way of generating alternatives in writing and
gives each manager more time and opportunity to come up with potential
solutions. The nominal group technique is especially useful when an issue is
controversial and when different managers might be expected to champion
different courses of actions.
Delphi technique
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.
Entrepreneurship and creativity
Entrepreneur are individuals who notice opportunities and decide how to
mobilize the resources necessary to produce new and improved goods and
services. Entrepreneurs make all the planning, organizing, leading and
controlling decisions necessary to start new business ventures.
Social entrepreneur is an individual who purses initiatives and
opportunities and mobilizes resources to address social problems and needs
in order to improve society and well being though creative solutions.
Intrapreneur 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.
Entrepreneurship and
new ventures

Characteristics of entrepreneurs
Entrepreneurs are likely to have high level of self steem and feel competent
and capable of handling most situations, including the stress and uncertainly
surrounding a plunge into a risky new venture. Entrepreneurs are also likely
to have a high need of achievement and strong desire to preform challenging
tasks and meet high personal standers of excellence
Entrepreneurship and management

Entrepreneurship is not the same as management. Management encompasses

all the decisions involved in planning, organizing, leading, and controlling
resources. Entrepreneurship is the mobilization of resources to take
advantage of an opportunity to provide customers with new or improved
goods and services.
Intrapreneurship and organizational learning

Product Champion
One way to promote intrapreneurship is to encourage individuals to assume
the role of product champion, a manager who takes “ownership” of a project
and provides the leadership vision that take a product from the idea stage to
the final customer.
Skunkworks
A group of intrapreneurs who are deliberately separated from the normal
operation of an organization to encourage them to devote all their attention
to developing new products.