Because learning changes everything.

Chapter 7
Decision Making, Learning,
Creativity, and
Entrepreneurship

© 2022 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom.
No reproduction or further distribution permitted without the prior written consent of McGraw Hill.
 Learning Objectives 1

1. Understand the nature of managerial decision

making, differentiate between programmed and
nonprogrammed decisions, and explain why
nonprogrammed decision making is a complex,
uncertain process.
2. Describe the six steps managers should take to
make the best decisions, and explain how
cognitive biases can lead managers to make poor
decisions.

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 Learning Objectives 2

3. Identify the advantages and disadvantages of

group decision making, and describe techniques
that can improve it.
4. Explain the role that organizational learning and
creativity play in helping managers to improve
their decisions.
5. Describe how managers can encourage and
promote entrepreneurship to create a learning
organization, and differentiate between
entrepreneurs and intrapreneurs.

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 The Nature of Managerial Decision Making 1

Decision making:
• 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.

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 The Nature of Managerial Decision Making 2

Decisions in response to opportunities:

• This occurs when managers respond to ways to improve
organizational performance to benefit customers,
employees, and other stakeholder groups.

Decisions in response to threats:

• Events inside or outside the organization are adversely
affecting organizational performance, and managers seek
ways to increase performance.

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 Decision Making 1

Programmed decision:
• Programmed decision involves routine, virtually
automatic decision making that follows established
rules or guidelines.
• Decisions have been made so many times in the
past that managers have developed rules or
guidelines to be applied when certain situations
inevitably occur.
• Manufacturing supervisor hires new workers when
existing workers’ overtime increases by more than
10 percent.
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 Decision Making 2

Nonprogrammed decisions:
• Nonroutine decision making that occurs in
response to unusual, unpredictable
opportunities and threats.
• No rules because the situation is unexpected
or uncertain and managers lack the
information they would need to develop rules
to respond to it.

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 Decision Making 3

Intuition:
• Feelings, beliefs, and hunches that come readily
to mind, require little effort and information
gathering, and result in on-the-spot decisions.

Reasoned judgment:
• Decision that requires time and effort and results
from careful information gathering, generation of
alternatives, and evaluation of alternatives.

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 The Classical Model 1

Classical model of decision making:

• A prescriptive approach to decision making
based on the assumption that the decision maker
can identify and evaluate all possible alternatives
and their consequences and rationally choose the
most appropriate course of action.

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 The Classical Model 2

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

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 Figure 7.1 The Classical Model of Decision
Making

Access the text alternative for slide images.

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 The Administrative Model 1

Administrative model:
• 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.
• Based on 3 important concepts: bounded
rationality, incomplete information, and
satisficing.

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 The Administrative Model 2

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.

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 Figure 7.2 Why Information Is
Incomplete

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 Causes of Incomplete Information 1

Risk:
The degree of probability that the possible
outcomes of a particular course of action will occur.
• 90% new drug failure rate in biotechnology industry.

Uncertainty:
Probabilities of alternative outcomes cannot be
determined and future outcomes unknown.
• Apple’s Newton PDA.

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 Causes of Incomplete Information 2

Ambiguous information:
• Information that can be
interpreted in multiple and
often conflicting ways.

Young woman or old

woman?

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 Causes of Incomplete Information 3

Time constraints and information costs:

• No time or money to search for all possible
alternatives and evaluate potential consequences.

Satisficing:
• Searching for and choosing a satisfactory
response to problems and opportunities rather
than trying to make the best decision.

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 Figure 7.4 Six Steps in Decision Making

Access the text alternative for slide images.

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 Figure 7.5 General Criteria for Evaluating
Possible Courses of Action

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 Feedback Procedure
1. Compare what actually happened to what was
expected to happen as a result of the decision.
2. Explore why any expectations for the decision were
not met.
3. Derive guidelines that will help in future decision
making.

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 Cognitive Biases and Decision Making

Heuristics:
• 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.

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 Figure 7.6 Sources of Cognitive Bias at
the Individual and Group Levels

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 Sources of Cognitive Biases 1

Confirmation Bias:
• The tendency to make decisions based on strong
existing beliefs even when evidence suggests
those beliefs may be wrong.

Representativeness:
• A cognitive bias resulting from the tendency to
generalize inappropriately from a small sample or
from a single vivid event or episode.

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 Sources of Cognitive Biases 2

Illusion of control:
• The tendency to overestimate one’s own ability to
control activities and events.
• Top managers.

Escalating commitment:
• 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.
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 Group Decision Making 1

Superior to individual decision making.

Choices less likely to fall victim to bias.
Able to draw on combined skills of group
members.
Improve ability to generate feasible
alternative.

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 Group Decision Making 2

Potential disadvantages:
1. Can take much longer for groups than
individuals to make decisions.
2. Can be difficult to get two or more
managers to agree because of different
interests and preferences.
3. Can be undermined by biases.

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 Group Decision Making 3

Groupthink:
• 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.

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 Figure 7.7 Devil’s Advocacy and
Dialectical Inquiry

Access the text alternative for slide images.

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 Organizational Learning and Creativity 1

Organizational learning:
• Managers seek to improve an employee’s desire
and ability to understand and manage the
organization and its task environment.

Learning organization:
• A learning organization is one 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.
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 Organizational Learning and Creativity 2

Creativity
• A decision maker’s
ability to discover
original and novel
ideas that lead to
feasible alternative
courses of action.
• Get off email and
lose the desk! Think
outside the box!

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 Figure 7.8 Senge’s Principles for Creating
a Learning Organization

Access the text alternative for slide images

.
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 Promoting Group Creativity 1

Brainstorming:
• Managers meet face-to-face to generate and
debate many alternatives.

Production blocking:
• There might be a loss of productivity in
brainstorming sessions due to the unstructured
nature of brainstorming.

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 Promoting Group Creativity 2

Nominal group technique:

• 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.

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 Promoting Group Creativity 3

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.

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 Entrepreneurship 1

Entrepreneurs:
• Individuals who notice opportunities and decide how to
mobilize the resources necessary to produce new and
improved goods and services.

Social entrepreneurs:
• Individuals who pursue initiatives and opportunities and
mobilize resources to address social problems and needs
in order to improve society and well-being through creative
solutions.

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 Entrepreneurship 2

Intrapreneurs:
• Managers, scientists, or researchers who work
inside an organization and notice opportunities to
develop new or improved products and better
ways to make them.

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 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.

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 Entrepreneurship and Management
Frequently, a founding entrepreneur lacks
the skills, patience, and experience to engage
in the difficult and challenging work of
management.
• Entrepreneurship is not the same as
management.

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 Intrapreneurship and Organizational
Learning
Product champion.
• A manager who takes “ownership” of a project and
provides the leadership and 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.

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 Example: Xerox PARC
The Palo Alto Research Center is a Xerox research
and development division.
Many innovations, such as the laser printer, personal
workstation, WYSIWYG printing, and G UI came out
of PARC.

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 End of Main Content

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© 2022 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom.
No reproduction or further distribution permitted without the prior written consent of McGraw Hill.