MANAGEMENT 215 NOTES:

MIDTERM + FINAL
Ch.1 Intro to Management & Organizations
Who are Managers?

• The way a company manages its people can significantly affect its financial performance.
• Important skills a manager should have: multitasking and cross-training
• Manager: Someone who coordinates and oversees the work of other people so that
organizational goals can be accomplished. A manager’s job is not about personal
achievement- it is about helping others do their work.

1-Top managers: Responsible for making organization-wide decisions and establishing the
plans and goals that affect the entire organization. (Vice president, president, managing
director, chief executive officer, chief operating officer…)

2-Middle managers: Those found between the lowest and top levels of the organization
(regional manager, project leader, store manager…). Manage the work of first-line
managers.

3-First-line managers: Manage the work of non-managerial employees, who typically are
involved with producing the organization’s products or servicing the customers
(Supervisors)

What is Management?

• Management: Involves coordinating and overseeing the work activities of others so that
their activities are completed effectively and efficiently by the people responsible of doing
them.

Efficiency (High Efficiency = Low Resource Waste)

-Getting the most output from the least amount of inputs. (Scarcity of resources)
-“Doing things right”
-MEANS to get things done

Effectiveness (High Effectiveness = High goal attainment)

-Doing the work activities that will help the organization reach its goals (meeting customers
demand, implementing software solutions, creating innovative solutions for businesses
worldwide…)
“Doing the right things”
-ENDS to attain organizational goals.

Ø Ultimate Managerial goal: High efficiency + High effectiveness

What Do Managers Do?

1- Functions (Fayol’s Approach)

Ø Efficiently and effectively coordinate the work of others

Ø Management exists to achieve some particular purpose and give the means to
achieve that purpose

– Planning: Define goals, establish strategies for achieving goals and develop plans to
integrate and coordinate activities.
– Organizing: Determine tasks to be done, who is to do them, how the tasks are to be
grouped, who reports to whom, and where decisions are to be made.
– Leading and motivating: Motivate employees, help resolve work group conflicts, influence
individuals or teams as they work, select to most effective communication channel and
deal with employee behavior issues
– Controlling, Monitoring, Comparing and Correcting: Evaluating whether things are going
as planned; monitor and evaluate performance; compare progress with goals, if they are
not being achieved, it is the manager’s job to get work back on track.

2- Roles (Mintzberg’s Approach)

– Interpersonal Roles (involves subordinates and persons outside the organization)

Figurehead (One represents a unit (Ex. President of a university)
Leader
Liaison (connects units and people)
– Informational Roles (Collecting, receiving and disseminating information)
Monitor (collecting info)
Disseminator (sharing info internally)
Spokesperson (sharing info to outsiders)
– Decisional Roles
Entrepreneur (Have new idea, takes risks à build a business)
Disturbance Handler (Two types of conflict: effective conflict leads to hating others and
cognitive conflict leads to hating others’ ideas)
Resource Allocator (dealing with allocating scarce resources)
Negotiator (conflict of interest, bargaining power)
 3- Skills (Robert Katz Approach)

– Technical skills
Job-specific knowledge and techniques needed to perform work tasks.
More important to first-line managers because they manage employees who use tools and
techniques to produce the organization’s products or services.

– Human skills
Ability to work well with others, individually and in groups.
Communicate, motivate, lead, and inspire enthusiasm and trust.
Important to middle managers

– Conceptual skills
Skills managers use to think in abstract and conceptualize complex situations
Helps visualize how the organization fits into its broader environment.
Important to top managers.

An Organization

Organization: Deliberate arrangement of people to accomplish some specific purpose. All

organizations share three common characteristics:

– Distinct Purpose (expressed through goals)

– Composed to people
– Develop some deliberate structure within which members do their work (can be open and
flexible, with no specific job duties or explicit job arrangements)

How Is the Manager’s Role Changing?

Importance of Innovation
Innovation means doing things differently, exploring new territory and taking risks. Important for
an organization to be competitive.

Changes Affecting Manager’s Job

– Technology and the Digital Age (work-personal life balance)

– Increased Security threats (Risk management, uncertainty, global concerns)
– Increased emphasis on ethics (Redefined values, accountability)
– Increased competitiveness (Innovation, globalization, customer service)
Ch.2 History of Management
Historical Background of Management

– Adam Smith

Division of Labor & Job Specialization will benefit all organizations and societies in the
economy

Job specialization that is the breakdown of jobs into narrow and repetitive tasks increases
productivity by increasing each worker’s skill, saving time in changing tasks and creating labor-
saving inventions and machinery.

– Industrial Revolution (18th C)

Machine power was substituted for human power

Factories needed ‘managers’ to forecast demand, ensure that enough material was on hand to
produce the wanted products, assign tasks to people and direct activities.

Classical Approach

– Scientific management

Frederick Taylor

Ø Use of scientific methods to define the “one best way” for a job to be done.
o Putting the right person on the job with the right tools and equipment
o Standardized method of doing a job
o Providing an economic incentive to the worker
Ø Concerned with first-line managers

Frank & Lillian Gilbreth

Ø Time and motion study

Ø Optimize worker productivity through reducing wasted motion.
Ø Invented micro chronometer that recorded a worker’s motions and identifies wasted
motions and eliminated them.
Ø Result: Hire the most qualified workers for a job and design incentive systems based on
outputs.
– General administrative Theory

Looking at management from the perspective of the entire organization. It focuses on what
managers do and what constituted good management practices.

Henri Fayol

Ø The practice of management was distinct from other organizational functions

Ø Concerned with all the managers, unlike Taylor
Ø 14 principles of management that can be applied to all organizational situations.

Max Weber:

Ø German sociologist who studied organizations

Ø Ideal type of organization: Bureaucracy
-Technical competence
-Theory of authority
-Division of labor
-Authority Hierarchy
-Detailed rules and regulations
-Impersonal relationships
-Rationality

Behavioral Approach

Organizational Behavior: Field of study that researches the actions (behavior) of people at work.

Advocates: Robert Owen, Hugo Munstberg, Mary Parker Follett and Chester Bernard

Common Beliefs: People are the most important asset of the organization and should be managed
accordingly.

– The Hawthorne Studies

A series of productivity experiments conducted at Western Electric Company Works.

Experimented the impact of various lighting levels on worker productivity.

Findings:
o Productivity unexpectedly increased under imposed adverse working conditions.
o The effect of incentive plans was less than expected.

Results:
o Social norms, group standards and attitudes more strongly influence individual output and
work behavior than do monetary incentives..
Contemporary Approach

Management began to look at what was happening outside the organization (external
environment)

– Systems Approach

Coordination of the organization’s parts is essential for proper functioning of the organization.
Decisions and actions taken in our area of the organization will have an effect in other areas of
the organization.

Systems: A set of interrelated and interdependent parts arranged in a manner that produces a
unified whole.

o Closed systems are not influenced by and do not interact with their environment. All
system input and output is internal.
o Open systems are influenced by and do interact with their environment.

Chester Barnard:

Organizations are open systems. They take input (resources) from the environment and
process them into outputs that are distributed back into the environment.

– Contingency (situational) Approach

Management is not, and cannot be based on simplistic principles to be applied in all situations.
There is no one universally applicable set of management rules by which to manage
organizations.

Organizations are different, face different situations and require different ways of managing.
Organization size, routineness of task technology, environmental uncertainty, and individual
differences all differ among organizations.
Ch.3 Organizational Culture & Environment

The Manager: Omnipotent or Symbolic?

Omnipotent/Dominant View
Ø The managers (their decisions and actions) are directly responsible for an organization’s
success or failure
Ø Good Managers anticipate change, exploit opportunities, correct poor performance, and
lead the organization.
Ø When company is doing well, the managers take credit; when it’s doing bad, the
managers are held responsible and fired

Symbolic View
Ø The manager’s ability to affect outcomes (success of failure) is influenced and
constrained by external factors (economy, customers, competitors, government,
industry conditions etc..)
Ø An organization’s success or failure goes beyond the control of the manager
Ø Managers symbolize control & influence. They develop plans and make decisions but
their actions are limited by external factors.

Reality
Ø Managers are not so powerful nor so helpless
Ø Their decisions & actions are constrained from both internal factors (organizational
culture) and external factors.

Organizational Culture

v A system of shared meanings, common beliefs, and ways of doing things held by
organizational members that determines how they act towards each other.
v The personality of an organization
v Culture is:
– A perception: Employees perceive it on a basis of what they experience within the org.
– Descriptive: Concerned with how employees perceive it and not whether they like it.
– Shared: Org culture is described throughout the whole org in similar terms no matter
the different backgrounds or organizational levels of the employees.
v 7 Dimensions of the Organizational Culture:
 o Attention to Detail: Degree to which employees are expected to exhibit
precision & detailed analysis.
o Outcome orientation: Degree to which managers focus on outcome rather than
how they were achieved.
o People orientation: Degree to which management decisions take into account
the effects on people in the organization.
o Team orientation: Degree to which work is organized around teams rather than
individuals.
o Aggressiveness: Degree to which employees are aggressive & competitive rather
than cooperative.
o Stability: Degree to which organizational decisions & actions aim at maintaining
stability and the status quo
o Innovation & Risk taking: Degree to which employees are encouraged to be
innovative & to take risks.

Strong Culture

v Organizations where the key values are deeply held and widely shared thus have
greater influence on employees rather than do weaker cultures.
v Benefits of a strong culture:
o Employees are loyal
o Better planning, organizing, leading and control.
o High organizational performance
o Employees know what they are supposed to do and what is expected from them
o Employees strongly identify with the culture and can tell stories about the organization’s
history and founder.
v Drawbacks of a strong culture:
o Might prevent employees from trying new approaches.
Where Does the Culture come from?

• Vision of the founders

• Early culture by establishing what they want
Philosphy of
Founders

• Managers judge job candidates on the job requirements

as well as how well they will fit in
Selection • Job candidates research the organization's culture and
determine if they will be comfortable
Process

• The actions of top managers have a major impact on the

culture
• Manager's should be receptive to their teams' concerns.
• Employees should follow constructive direction; this
Top culture encourages them to maintain a high standard of
Mngmnt conduct in their actions and decisions.

• A process that helps new employees learn the way of doing

Socializa- things in the organization and adapt.
tion • Can be done through training
How Do Employees Learn Culture?
Stories
v Narrative of significant events or people that convey the spirit of the organization
(Ex. Founders, rule breaking, and reaction to past mistakes)
v To help employees learn the culture, the stories anchor the present in the past, provide
explanations and legitimacy for current practices, exemplify what is important to the
org, and provide compelling pictures of the organization’s goals.

Rituals
v Repetitive sequences of activities that express and reinforce the important values and
goals of the org. (Ex. Annual award ceremonies)

Material Symbols
v The high power of material symbols or artifacts in creating an org’s personality.
v Examples: the layout of the facilities, employees’ dress code, the type of automobiles
provided to top executives, the availability of corporate aircraft, size of offices, the
elegance of furnishing, executive perks, employees fitness centers, on-site dining
facilities, reserved parking spaces…

Language
v Usage of language as a way to identify and unite members of a culture
v By learning the language, members attest to their acceptance of the culture and their
willingness to help preserve it. Once learned, the language acts as a common
denominator that bonds members.

How Culture Affects Managers

Ø Planning: Taking risks, plans developed by individuals or teams, degree of environmental

scanning in which management will engage.
Ø Organizing: How much autonomy should be designed into employees jobs, Whether tasks
should be done by individuals or in teams, The degree to which department managers interact
with each other
Ø Leading: The degree to which managers are concerned with increasing employee job
satisfaction, What leadership styles are appropriate, Whether all disagreements-even
constructive ones-should be eliminated
Ø Controlling: Whether to impose external controls or to allow employees to control their own
actions, Evaluating employees based on what criteria, What repercussions will occur from
exceeding one’s budget
Current Organizational Culture Issues

Creating an Ethical Culture

v If the organization’s culture content is strong and supports high ethical standards, it
should have a very powerful and positive influence on employee behavior.
v An organization culture most likely to shape high ethical standards is the one that is high
in risk tolerance, low to moderate in aggressiveness, and focused on means as well as
outcomes
v Communicate ethical expectations, be a visible role model, Provide ethics training,
visibly reward ethical acts and punish unethical ones,

Creating an Innovative Culture

v Challenge & Involvement: Are employees involved in, motivated by, and committed to
the long-term goals and success of the organization?
v Freedom: Can employees independently define their work, exercise discretion, and take
initiative in their day-to-day activities?
v Trust & Openness: Are employees supportive and respectful to each other?
v Idea time: Do individuals have time to elaborate on new ideas before taking action?
v Playfulness/humor: Is the workplace spontaneous and fun?
v Conflict Resolution: Do individuals make decisions and resolve issues based in the good
of the org versus personal interest?
v Debates: Are employees allowed to express opinions and put forth ideas for
considerations and review?
v Risk-taking: Do managers tolerate uncertainty and ambiguity and are employees
rewarded for taking risks?

Creating a Customer-Responsive Culture

v Type of employee: hire people with personalities and attitude consistent with customer
service.
v Type of job environment: Design jobs where employees have control to satisfy
customers without rigid procedures
v Empowerment: Give service-contact employees the discretion to make day-to-day
decisions on job-related activities.
v Role Clarity: Reduce uncertainty of what can or cannot be done by training
v Consistent desire to satisfy customers: Clarify organizational commitment to doing
whatever it takes, even if it is outside an employee’s normal job requirements.
Creating a Culture that Supports Diversity
v Diversity-supportive cultures are important nowadays.
v Diversity contributes to more creative solutions and enhances employee morale.

The Environment
The factors and forces outside the organization that affect its performance.

Specific Environment
v External forces that directly impact a manager’s decisions and actions
v Directly relevant to the achievement of the org’s goals.
v An organization’s specific environment is unique to it.

o Customers: Organizations exist to meet the needs of customers. They create uncertainty
because their tastes may change.
o Suppliers: Managers seek to ensure a steady flow of needed inputs (supplies) at the
lowest price possible. An org’s supplies being limited or delayed in delivery can
constrain manager’s decisions and actions. Suppliers can be financial or labor inputs.
o Competitors: All organizations have competitors. Managers cannot afford to ignore the
competition. They compete for resources such as land or location, or competing for the
$ of a customer.
o Pressure Groups: Managers must recognize special-interest groups that attempt to
influence the actions of organizations. (Environmental or human rights activists
picketing, boycotting, or threating to get manager to change some decisions or action)

The General Environment

v External forces that are broad and impact all organizations. Even though they are not
specific to a company, managers should include them when they plan, organize, lead
and control.
o Political & Legal: Federal, state, and local laws, as well as global and other country laws
and regulations, influence what an organization can and cannot do. (Change in political
systems like in Russia and china—law of firing an employee—political instability)
o Economic: Interest rates, inflation, unemployment, changes in disposable income, stock
market fluctuation, and the stage of general business cycle (prosperity)
o Demographic: Trends in population characteristics (such as gender, age, level of
education, geographic location, income and family composition). Changes in these
characteristics may constrain manager’s decisions.
 o Socio-cultural: Managers must adapt their practices to the changing expectations of
their surrounding society (values, customers, tastes)
(Ex. As employees began seeking a more balanced lifestyle, organizations gave flexible
scheduling, family leave policies, on-site childcare facilities)
o Technology: The most rapid changes have occurred in technology. Companies that
capitalize on technology prosper. If you don’t invest in new technologies then you’re
behind and competitors who did will gain a competitive advantage. Technology has
changed the fundamental ways that structure organizations.
o Globalization is one of the major factors affecting organizations and managers as they
are faced with global competition and world markets.
o Natural: Natural crises such as earthquakes

How the Environment Affects Managers

Environmental Uncertainty
v The extent to which managers have knowledge of and are able to predict change which
their organization’s external environment is affected by:
1- Complexity of the environment (# of components and knowledge about them)
2- Degree of change in environmental components(how dynamic or stable)

High = dynamic (unpredictable change)

Low = stable (no new competitors, few technological breakthroughs, and little
activity by pressure groups…)
Managing Stakeholders Relationships
v Stakeholder: Every single party that gets affected positively or negatively by an
organization—they are any constituencies in an organization’s environment that are
affected by its decisions and actions (Ex. Employees, stockholders, competitors,
customers, suppliers, unions)
v It is important to maintain good relationship with those stakeholders – this helps
improve predictability of environmental changes and reducing the impact of change,
and increases organizational performance.
v High-performing companies tend to consider the interest of all major stakeholder
groups as they make decisions.
v To manage the stakeholders relationship managers should:
o Identify the stakeholders
o Determine what particular interests or concerns the stakeholders might have
o Decide how critical each stakeholder is to the org’s decisions and actions
o Determine how to manage the external stakeholders relationship
o The more critical the stakeholder and the more uncertain the environment, the
more the managers need to rely on establishing explicit stakeholders
partnerships rather than just acknowledging their existence.
Ch. 4: Managing in a Global Environment

Global Perspectives & Attitudes

Ethnocentric Attitude
Ø It is the parochialistic belief that the best work approaches and practices are those of
the home country (where offices are located)
Ø Managers believe that people in foreign countries do not have the needed skills,
expertise, knowledge, or experience to make the best business decisions as people in
the home country do
Ø They do not trust foreign employees with key decisions or technology.
Ø Ego—We are the best

Parochialism
Ø Viewing the world solely through one’s own eyes and perspectives (ex. Monolingualism)
Ø Do not recognize that others have different ways of living and working.
Ø Ignore other’s values and customs and rigidly apply a narrow and restricted attitude of
“ours is better than theirs” to foreign cultures

Polycentric
Ø View that employees in the host country (where the company is doing business) know
the best work approaches and practices for running their business.
Ø Managers with this attitude view foreign operations different and difficult to
understand so they rely on the host country.
Ø They are likely to let employees in the host country figure out how best to do things.

Geocentric
Ø A world-oriented view
Ø Focuses on using the best approaches and people from around the globe, regardless of
origin
Ø Requires developing an understanding of cross-cultural differences
Ø Type of attitude needed to be taken by managers in today’s global environment.
Different Types of International Organizations

Multinational Corporation (MNC)

Ø Any type of international company that maintains operations in multiple countries.
Ø Categories of MNC’s:

o Global Company (Ex. Sony, Apple)

- Centralizes its management and other decisions in the home country and then
implements it globally
- Most senior managers are from home country and are developed there.
- Ethnocentric attitude
- Global companies treat the world market as an integrated whole and focus on
global efficiency.
- Culture of the home country is dominant in the organization

o Multidomestic corporation (Ex. Nestle, Frito-Lay)

- Decentralizes management and other decisions to the local country
- Senior managers of each subsidiary are usually developed domestically and are
nationals of the country.
- Polycentric attitude
- Customization; Adapt product to meet the needs of local markets (Some
products may exist locally but not in the country of origin)
- Organizational culture varies across countries, but local company culture refleces
the national culture of the domestic company.

o Transnational or borderless organization (Ex. Mcdo, iBM, Ford)

- Uses comparative advantage of countries and the unique resources in every
country.
- Recruit from all over the world for positions in all over the world.
- Eliminates artificial geographic barriers
- Emphasis on a strong corporate structure
- Company doesn’t have one base-business outside the country
- Geocentric attitude
How Organizations go International

Ø Global Sourcing
o Get sources from everywhere, as long as efficiency is increasing
o Purchasing labor & material from around the world based on lowest cost.
o Goal: take advantage of lower costs in order to be more competitive, thus have a
competitive advantage at minimal risk.
o Some companies stop at this point and benefit from the competitive advantage
created because each successive stage requires more investment and risk.
Ø Exporting: Making products domestically and selling them abroad
Ø Importing: Involves acquiring products made abroad and selling them domestically.

Both importing and exporting entail minimal investment and risk, which is why many
companies use these approaches.

Ø Licensing or franchising
o One organization giving another the right to use its brand name, technology, or
product specifications in return for a lump-sum payment or a fee
o Follow specific branding and quality controls.
o Licensing is used by manufacturing organization that makes or sells another
company’s products
o Franchising is used by service org that want to use another company’s name and
operating methods

When an organization has been doing business internationally for a while and has
gained experience in international markets, managers may decide to make more of a
direct investment through:

Ø Strategic alliance
Partnerships between an organization and a foreign company in which both share
resources (technology, manufacturing capability distribution channels) and knowledge
in developing new products while remaining independent organizations
Ex. Google & Samsung

Joint Venture
A specific type of strategic alliance in which the partners agree to form a separate
independent organization jointly owned and managed for some business purpose.
 Ex. Smart is a result of a joint venture between Mercedes and Swatch, Alliances in the
airlines industry)

§ Merging: A+B=C
§ Acquiring and take over= A+B=A
§ Becoming a part= A+B=Ab (7up)
§ Joint venture= A+B=A+B+(a+b)

Ø Foreign Subsidiary

o Direct investment in a foreign country by setting up a separate and independent

production facility or office or buying an existing local operation.
o Management may be centralized (global) or decentralized (multidomestic)
o Involves greatest commitment of resources and poses greatest amount of risk

Managing in a Global Environment

Challenges faced when working in a new country:
Ø The Political & Legal Environment

• A political environment doesn’t have to be unstable to scare managers; it is just the idea
of moving into a different environment from that which they are used to.
- Political and legal stability facilitate predictions and expectations
- Some countries have risky political climates in which managers face huge uncertainty.
- Political and governmental interference occurs in many countries and affects consumers.

Ø The Economic Environment

• The type of economic system adopted by the country:

– Free market economy: resources owned & controlled by the private sector
– Planned economy: economic decisions are planned by a central government
• Currency exchange rates (affects profit)
• Inflation rates (anticipate possible changes in a country’s monetary policies and make
good decisions)
• Diverse tax policies (minimize a business’s overall tax obligation)
Ø The Cultural Environment

• National vs. Organizational culture

National culture is the values and attitudes shared by individuals from a specific country
that shape their behavior and their beliefs about what is important.
Studies show that national culture has more effect on employees that does their
organization’s culture
• Hofstede’s Framework of Assessing Cultures:
– Individualistic vs. Collectivistic: People look after their own—People expect group to
look after them
– High vs. Low power distance: Employees accept wide difference in power and respect
authority—plays down inequalities and employees are not afraid to approach their
bosses
– High vs. Low uncertainty avoidance: Employees are threatened with ambiguity and
experience anxiety—comfortable with risks, tolerant of different perspectives
– Achievement vs. Nurturing: assertiveness & competition—relationships and concern
– Long-term vs. Short-term orientation: People look for the future—people value tradition
and past

Global Management in Today’s World

– Challenges
o Openness associated with globalization
o Significant cultural differences (e.g., Americanization)
o Adjusting leadership styles and management approaches
– Risks
o Loss of investments in unstable countries
o Increased terrorism
o Economic interdependence
Ch. 6 Managers as Decision Makers
The Decision-Making Process

Step 1: Identifying the Problem

• Every Decision starts with a Problem, a gap between an existing and desired condition.
• Managers have to be cautious not to confuse between problems and symptoms of
problems.
• Problem identification is subjective

Step 2: Identifying Decision Criteria

• Criteria that are important or relevant to resolve the problem
• Costs, risks, growth in sales, revenues, savings, productivity

Step 3: Allocating Weights to the Criteria

• If the relevant criteria are not equally important, the decision maker must weigh the
items in order to give them the correct priority in the decision.
• Give the most important criteria a weight of 10

Step 4: Developing Alternatives

• List the alternatives that could work to solve the problem
• Creativity

Step 5: Analyzing Alternatives

• Decision maker must evaluate each alternative by using the criteria

Step 6: Selecting an Alternative

• Choosing the best alternative or the one that the generated the highest total in step 5

Step 7: Implementing the Alternative

• Put the decision into action by communicating it to those affected and getting their
commitment to it.
• Managers should reassess the environment for any changes, especially with a long-term
decision—“Are the criteria, alternatives and choices still the best ones, or has the
environment changed in such a way that you need to reevaluate?

Step 8: Evaluating Decision Effectiveness

• Evaluating the outcome of the decision to see if the problem was resolved.
Managers Making Decisions
There are three perspectives on how managers make decisions:

1. Rationality
• In many cases, managers cannot decide with complete rationality, because, among
other things, information is off-limits or not available to them, or because they do not
have time to assess every possible alternative and contingency.
• We assume that manager’s decision making will be rational—we assume that they will
make logical and consistent choices to maximize value.
• Assumption of rationality:
o A rational decision maker would be fully objective and logical
o The problem would be clear and the decision maker would have a clear and
specific goal and know all possible alternatives and consequences
o Will select the alternative that that maximizes outcomes in the organization’s
interests rather than in their personal interests.

2. Bounded Rationality (more realistic approach)

• It states that managers make decisions rationally but are limited (bounded) by their
ability to process information and time constraints
• Managers cannot analyze all information on all alternatives, managers satisfice rather
than maximize; which means they accept solutions that are good enough.
• Influenced by biases: self-interest/escalation of commitment
• Escalation of commitment: an increased commitment to a previous decision despite
evidence that it may have been wrong

3. Intuitive Decision Making

• Intuitive decision making: It is making decisions on the basis of experience, feelings, and
accumulated judgment. Five different aspects of intuition:
Types of Decisions

Structured Problems & Programmed Decisions

• Problems are straightforward
• Goal is clear & Problem is familiar and completely defined
• Information accessible
• Programmed decisions: It is a repetitive decision that can be handled using a routine
approach. Three types:
o Procedure: A series of sequential steps a manger uses to respond to a structured
problem.
o Rule: An explicit statement that tells a manager what can or cannot be done. –
simple to follow and ensures consistency
o Policy: Guideline for making a decision—In contrast to a rule, it establishes
general parameters for the decision maker rather than specifically stating what
should or should not be done

• Policy Ex. Accept all customer-returned merchandise.

• Procedure Ex. Follow all steps for completing merchandise return documentation. Check
merchandise, check receipt, document reason for return, get approval of ….
• Rules Ex. Managers must approve all refunds over $50.00. No credit purchases are refunded
for cash

Unstructured Problems and Non-programmed Decisions

• Problems that are new and unusual and for which information is ambiguous or
incomplete.
• Non-programmed decisions are unique and nonrecurring and involve custom-made
solutions
• Solution relies on judgment or creativity

Decision-Making Conditions

Certainty
• The ideal situation for making a decision.
• Situation in which a manager can make accurate decisions because the outcome of
every alternative is known.
Risk

• A more common situation than certainty

• Conditions in which the decision maker is able to estimate the likelihood of certain
outcomes resulting from a certain decision
• Managers have historical data from past experiences or secondary information that lets
them assign probabilities to different alternatives

Uncertainty
• Not certain about the outcomes and cannot make reasonable probability estimates
• The choice of alternative is influenced by the limited amount of available info and by the
psychological orientation of a decision maker
o Maximax: An optimist manager—maximizing the maximum possible payoff
o Maximin: A pessimist manager—maximizing he minimum possible payoff
o Minimax : Minimize his maximum regret

Decision-Making Styles
• Thinking Style reflects two things:
o The source of information used
o How the information is processed

Linear Thinking Style

• A person’s preference for using external data and facts and processing this information
through rational, logical thinking to guide decisions and actions

Nonlinear Thinking Style

• A person’s preference for internal sources of information and processing this
information with internal insights, feelings, and hunches to guide decisions and actions

Decision-Making Biases and Errors

Overconfidence Bias:
• Decision makers tend to think they know more than they do or hold unrealistically
positive views of themselves & their performance.

Immediate Gratification Bias:

• Decision makers tend to want immediate rewards & to avoid immediate costs. (Decision
choices that provide quick payoffs are more appealing than those that provide payoffs in
the future)
Anchoring Effect:
• Decision makers fixate on initial information as a starting point and then, once set,
ignore subsequent information.

Availability Bias:
• Decision makers tend to remember events that are the most recent and vivid in
their memory. (This bias distorts their ability to recall events in an objective manner
and results in distorted judgments and probability estimates.

Sunk Cost Error:

• Decision makers forget that current choices cannot correct the past. They
incorrectly fixate on past expenditures of time, money or effort in assessing choices
rather than on future consequences

Self-Serving Bias:
• Decision Makers who are quick to take credit to their successes and to blame failure
on outside factors.

Group Decision Making

Decision made through convening a group of people

• Not always possible due to time constraints

• Groups usually make higher quality decisions
• However, groups are often inferior to the best individual
– Effectively capitalising on potential advantages
– Effectively minimising potential problems

Social Facilitation: The tendency for the presence of others to enhance performance on simple
tasks and impair performance on complex tasks.

Social Loafing: People tend to exert less effort in group tasks for which individual’s
contributions are pooled.

ð The more people in the group, the more each individual’s effort decreases.
 ADVANTAGES DISADVANTAGES
More information Domination
-Only the louder people are heard and they
may not necessarily have the most valid
opinions
Different perspectives Satisficing
-Rather than maximizing or optimizing
Intellectual stimulation through group Groupthink
discussions so the decision is more informed -Group members avoid disagreement and
and of higher quality they strive for consensus
-No devil’s advocate
People understand the rationale: buy-in Goal displacement
-Group loses sight of its original goal and new
less important goal emerges
Higher level of commitment which raises
chance of a successful implementation

Effective Group Managerial Decision Making

Leadership
Effective group decision making leader minimises process related
problems through:

– Avoiding domination
– Encouraging input
– Avoiding groupthink and satisficing
– Remembering goals

Constructive Conflict
Air legitimate differences:

• Legitimate: Cognitive conflicts are differences in perspective or judgment

– Play devil’s advocate: criticising ideas to ensure their downsides are fully exposed

– Dialectic: structured debate between plan and counterplan

• Illegitimate: Affective conflicts are emotional and directed at other people

– Stay task-related and be impersonal: it’s not about you, it’s about the task!
Creativity

• Essential for custom–making solutions

• “Creative Revolution”
• Creativity is not only about art:
– Creation: bringing a new thing into being
– Synthesis: join two previously unrelated things
– Modification: improve something or give it a new application
– Brainstorming essential for creativity
– Used to elicit ideas about problems and executed through:
• Avoiding criticism
• Exhausting ideas (i.e. nominal group technique; brainwriting)
• Combining ideas