Decision Making by Individuals and Groups

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Decision Making by Individuals and Groups
Hitt et al Chapter 10 Abridged and Augmented

• MGT 5371-001
• Managing Organizational Behavior Design
• May 6-21-07
• John D. Blair, PhD
• Georgie G. William B. Snyder Professor in
  Management

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What is the decision-making process in
organizations?

• Decision making is the process of choosing a
  course of action for dealing with a problem or
  opportunity.
• Steps in systematic decision making.
• Recognize and define the problem or opportunity.
• Identify and analyze alternative courses of
  action, and estimate their effects on the problem
  or opportunity.
• Choose a preferred course of action.
• Implement the preferred course of action.
• Evaluate the results and follow up as necessary.

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Types of decisions

• Programmed decisions.
• Involve routine problems that arise regularly and
  can be addressed through standard responses.
• Nonprogrammed decisions.
• Involve nonroutine problems that require
  solutions specifically tailored to the situation
  at hand.

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Decision environments

• Certain decision environments.
• Exist when information is sufficient to predict
  the results of each alternative in advance of
  implementation.
• Risk decision environments.
• Exist when decision makers lack complete
  certainty regarding the outcomes of various
  courses of action, but they are aware of the
  probabilities associated with their occurrence.

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Uncertain decision environments

• Exist when managers have so little information on
  hand that they cannot even assign probabilities
  to various alternatives and their possible
  outcomes.
• Described as a rapidly changing setting in terms
  of
• External conditions.
• The information technology requirements needed
  for analyzing and making decisions.
• The people who influence problem and choice
  definitions.

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Uncertain decision environments (cont.)

• Can be described in terms of types of risks
  encountered by the organization.
• Strategic risks are threats to overall business
  success.
• Operational risks are threats inherent in the
  technologies used to reach business success. 
• Reputation risks are threats to a brand or to the
  firms reputation

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Degree of Acceptable Risk

• Risk exists when the outcome of a chosen course
  of action is not certain
• Risk-taking propensity (Willingness to take
  chances)
• Low risk takers
• May collect and evaluate more information
• May become paralyzed by trying to obtain and
  consider too much information
• High risk takers
• May may decisions based on too little information
• May jump to decisions too quickly

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Degree of Acceptable Risk Cont.

• Reference point
• Possible level of performance used to evaluate
  ones current standing, and may be
• a goal
• a minimum acceptable level of performance
• the average performance level of others
• If ones current standing is below his reference
  point he may take more risk to move above it
• If ones current standing is above his reference
  point he may take less risk to avoid moving below
  it

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Classical decision theory

• Classical decision theory assumes the manager
  faces a clearly defined problem, knows all
  possible action alternatives and their
  consequences, and then chooses the optimum
  solution.
• Widespread application of classical decision
  theory is restricted by bounded rationality.

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Classical versus behavioral decision theory

• Classical decision theory does not appear to fit
  well in the modern business world, though it can
  be used toward the bottom of many firms.
• Behavioral decision theory accepts the notion of
  bounded rationality. It assumes the manager acts
  only in terms of what is perceived about a given
  situation, and then chooses a satisficing
  solution.

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Decision making realities

• Decision making information may not be available.
• Bounded rationality and cognitive limitations
  affect the way people define problems, identify
  alternatives, and choose preferred solutions.

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Decision making realities (cont.).

• Most decision making in organizations goes beyond
  step-by-step rational choice.
• Decisions must be made under risk and
  uncertainty.
• Decisions should be ethical.

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Cognitive Biases
Ease of recall bias Relying too much on
information that is easy to recall from memory
Confirmation bias Seeking information that
confirms early beliefs and ideas
Cognitive Biases
Sunk-cost bias Not treating past investments
(time, effort, money) as sunk-costs when deciding
to continue an investment
Anchoring bias Emphasizing too much, the first
piece of information encountered
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Optimal versus Satisfactory Decisions

• Optimal decision
• The maximizing decision, yielding the absolute
  best result
• Satisficing decision
• Satisfactory rather than optimal decision
• Lack capability to collect and process all of the
  information relevant for a particular decision
• Will never know if all possible alternatives have
  been identified
• Lack of time and other necessary resources for
  completing all of the decision activities
• Thus, a tendency to choose the first satisfactory
  alternative discovered

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The garbage can model

• A model of decision making that views problems,
  solutions, participants, and choice situations as
  mixed together in the garbage can of the
  organization.
• The garbage can model highlights two important
  organizational facts of life.
• Different individuals may do choice making and
  implementation.
• Many problems go unsolved.

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Intuition

• The ability to know or recognize quickly and
  readily the possibilities of a given situation.
• A key element of decision making under risk and
  uncertainty.

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Judgmental heuristics

• Simplifying strategies or rules of thumb used
  to make decisions.
• Make it easier to to deal with uncertainty and
  limited information.

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Types of heuristics

• Availability heuristic.
• Bases a decision on similarity to past
  occurrences that are easily remembered.
• Representativeness heuristic.
• Bases a decision on similarities between an event
  and stereotypes of similar occurrences.
• Anchoring and adjustment heuristic.
• Bases a decision on incremental adjustments to an
  initial value determined by historical precedent
  or some reference point.

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Group Decision Making

• Decisions often are made by groups of people
• May be composed of individuals at different or at
  the same level in the organization
• May make some decisions without managerial input
• Tend to follow the same decision-making process
• Will have dynamics and interpersonal processes
  that make group decision making very different
  from decisions made by an individual

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Value of Individual vs. Group Decision Making

• Important considerations for judging the overall
  value of group decision vs. individual decision
  making
• Time
• Cost
• Nature of the problem
• Satisfaction and commitment
• Personal growth

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Value of Individual vs. Group Decision Making
Groups can accumulate more knowledge and facts
and thus generate more and better alternatives.
Groups take more time to reach decisions than do
individuals.
Groups often display superior judgment when
evaluating alternatives, especially for complex
problems.
Group social interactions may lead to premature
compromise and failure to consider all
alternatives fully.
Group involvement in decisions leads to a higher
level of acceptance of the decisions and
satisfaction.
Groups are often dominated by one or two
decision leaders which may reduce acceptance,
satisfaction and quality.
Group decision making can result in growth for
members of the group.
Managers may rely too much on group decisions,
leading to loss of their own decision and
implementation skills.
Adapted from Exhibit 10-6 Advantages and
Disadvantages of Group Decision Making
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Group Decision-Making Pitfalls

• Groupthink
• Group members maintain or seek consensus at the
  expense of identifying and debating honest
  disagreements
• Group members like one another and therefore do
  not want to criticize each others ideas
• Group members have high regard for the groups
  collective wisdom and therefore yield to early
  ideas or the ideas of a leader
• Group members derive satisfaction from membership
  in a group possessing a positive self-image and
  therefore try to prevent the group from having
  any serious divisions

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Group Decision-Making Pitfalls Cont.

• Groupthink
• Symptoms include
• Self-censorship
• Pressure
• Unanimity

• Rationalization
• Invulnerability
• Mindguards

• Morality
• Stereotype

• Common information bias
• Group members overemphasize information held by a
  majority, failing to be mindful of information
  held by one or a few group members reduces
• Availability of unique information ideas
• Perspectives possessed by individual group members

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Group Decision-Making Pitfalls Cont.

• Diversity-based infighting
• Instead of creating rich discussions and insight,
  diverse ideas create ill will and fractured
  groups
• May occur when individuals feel strongly about
  their ideas
• No mechanisms exist to channel disagreement in
  productive ways
• Risky Shift
• Groups make either riskier decisions than would
  have been made by individual members acting alone
• Direction of shift may be affected by diffusion
  of responsibility

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Group Decision-Making Techniques

• Brainstorming
• Large number of ideas are generated while
  evaluation of the ideas is deferred
• Imagination is encouraged. No idea is too unique
  or different, and the more ideas offered the
  better
• Using or building on the ideas of others is
  encouraged
• There is no criticism of any idea, no matter how
  bad it may seem at the time
• Evaluation is postponed until the group can no
  longer think of any new ideas

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Group Decision-Making Techniques Cont.

• Nominal group technique
• Individuals silently, and without discussion,
  write down their ideas
• Each member presents one idea at a time, until
  all ideas are presented, without discussion
• Ideas presented on a blackboard and then
  discussed to clarify and evaluate
• Silent and independent vote or ranking of
  alternative choices
• Delphi technique
• Highly structured survey of participants
  regarding their opinions or best judgments

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Group Decision-Making Techniques Cont.

• Dialectical inquiry
• Debate between very different sets of
  recommendations and assumptions to encourage full
  discussion
• Overcomes tendency of group to avoid conflict
  when evaluating alternatives
• Devils advocacy
• Individual or subgroup argues against the
  recommended actions and assumptions put forth by
  other members of the group
• Also overcomes tendency of group to avoid
  conflict when evaluating alternatives

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In choosing problems to address, ask and answer
the following questions

• Is the problem easy to deal with?
• Might the problem resolve itself?
• Is this my decision to make?
• Is this a solvable problem within the context of
  the organization?

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Reasons for decision making failure

• Managers too often copy others choices and try
  to sell them to subordinates.
• Subordinates may believe the manager is imposing
  his or her will rather than working for
  everyones interests.
• Managers may focus on the problems they see
  rather than the outcomes they want.
• Managers use participation too infrequently.

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Key problem attributes in the Vroom, Yetton,
and Jago framework

• The required quality of the decision.
• The commitment needed from subordinates.
• The amount of information the leader has.
• Commitment probability.
• Goal congruence.
• Subordinate conflict.
• Subordinate information.

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Who Should Decide? (Vroom-Yetton Method)

• Questions asked to determine level of associate
  involvement in decision making
• Is there a quality requirement such that one
  solution is likely to be more rational than
  solution, or will any number of solutions work
  reasonably well)?
• Do I have sufficient information to make a
  high-quality decision?
• Is the problem structured (do I know the question
  to ask and where to look for relevant
  information?
• Is acceptance of the decision by associates
  critical to effective implementation?
• If I were to make the decision by myself, is it
  reasonably certain that it would be accepted by
  my associates?
• Do the associates share the organizational goals
  to be attained in solving this problem?
• Is conflict among associates likely in preferred
  solutions?

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Authority decisions in the Vroom, Yetton, and
Jago framework

• Manager or team leader uses information that he
  or she possesses and decides what to do without
  involving others.
• Variant 1 ? manager solves the problem or makes
  the decision alone.
• Variant 2 ? manager obtains the necessary
  information from others and then decides.

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Consultative decisions in the Vroom, Yetton, and
Jago framework.

• Manager or team leader solicits input from other
  people and then, based on this information and
  its interpretation, makes a final choice.
• Variant 1 ? manager seeks input from others
  individually and then makes a decision.
• Variant 2 ? manager seeks input from others
  collectively and then makes a decision.

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Group decisions in the Vroom et al. decision
making framework

• Manager or team leader consults with others as a
  group and allows them to help make the final
  choice.

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Who Should Decide? (Vroom-Yetton Method)
Approach
Level of Associate Involvement in Decision
Adapted from Exhibit 10-4 Managerial Approaches
to Associate Involvement in Decision Making
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Who Should Decide? (Vroom-Yetton Method)
A
B
C
D
E
F
G
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Knowing when to quit

• The natural desire to continue on a selected
  course of action reinforces escalating
  commitment.
• Escalating commitment is the tendency to continue
  and renew effort on a previously chosen course of
  action, even though it is not working.
• Tendency to escalate commitments often outweighs
  the willingness to disengage from them.
• Good decision makers are willing to reverse
  previous decisions.

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Stages in the creative thinking process

• Preparation.
• Concentration.
• Incubation.
• Illumination
• Verification.

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Ways of fostering creativity

• Diversifying teams to include members with
  different backgrounds, training, and
  perspectives.
• Encouraging analogical reasoning.
• Stressing periods of silent reflection.
• Recording all ideas so that the same ones are not
  rediscovered.
• Establishing high expectations for creativity.
• Developing a physical space that encourages fun,
  divergent ideas.

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Creativity is higher when

• Linguistic ability, willingness to engage in
  divergent thinking, and intelligence are present.
• Individuals are motivated by and derive
  satisfaction from task accomplishment.
• There are opportunities for creativity, as many
  constraints as possible are eliminated, and
  rewards are provided for creative efforts.

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Creativity is higher when (cont.)

• The decision maker emphasizes engagement in the
  creative process and counsels individuals to
  share their ideas with others.
• The decision maker encourages subordinates to
  recognize ambiguity, contact others with
  different views, and be prepared to make
  considerable changes.

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Ways to infuse ethics into decision making

• Develop a code of ethics and follow it.
• Establish procedures for reporting violations.
• Involve employees in identifying ethical issues.
• Monitor ethical performance.
• Reward ethical behavior.
• Publicize ethical efforts.

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Morality is involved in

• Choosing problems.
• Deciding who should be involved in making
  decisions.
• Estimating the impacts of decision alternatives.
• Selecting an alternative for implementation.
• An effective decision needs to solve a problem as
  well as match moral values and help others.