Because learning changes everything.

CHAPTER 5
Decision Making,
Learning, and
Creativity

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No reproduction or further distribution permitted without the prior written consent of McGraw Hill.
 Learning Objectives

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 that managers should take to
make the best decisions.
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.

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 The Nature of Managerial Decision Making

Decision Making:
• The process by which managers respond to
opportunities and threats by analyzing options
and making determinations about specific
organizational goals and courses of action.

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 Decision Making 1

Programmed Decision Making:

• 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.

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 Decision Making 2

Nonprogrammed Decisions:
• Nonroutine decision making that occurs in
response to unusual, unpredictable opportunities
and threats.

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 Topics for Discussion 1

What are the main differences between

programmed decision making and nonprogrammed
decision making? [LO5-1]

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 Decision Making 3

Intuition; Reasoned Judgment:

• Feelings, beliefs, • Decisions that
and hunches that take time and
come readily to effort to make and
mind, require little result from careful
effort and information
information gathering,
gathering and generation of
result in on-the- alternatives, and
spot decisions. evaluation of
alternatives.
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 The Classical Model

Classical Decision-Making Optimum Decision:

Model:
• The most appropriate
• A prescriptive model of decision in light of
decision making that what managers
assumes the decision believe to be the
maker can identify and most desirable
evaluate all possible consequences for the
alternatives and their organization.
consequences and
rationally choose the
most appropriate
course of action.

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 EXHIBIT 2-3
POSSIBLE ALTERNATIVES

Copyright©
Copyright ©2016
2014byPearson
Pearson Education, Ltd
Education, Ltd. 2-9
 EXHIBIT 2-4
EVALUATION OF ALTERNATIVES

Copyright©
Copyright ©2016
2014byPearson
Pearson Education, Ltd
Education, Ltd. 2-10
 The Classical Model of Decision Making

Figure 5.1

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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.

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 Topics for Discussion 2

In what ways do the classical and administrative

models of decision making help managers
appreciate the complexities involved in real-world
decision making? [LO5-1]

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 The Administrative Model 2

Bounded Rationality: Incomplete Information:

• Cognitive • Happens because
limitations that the full range of
constrain one’s decision-making
ability to interpret, alternative is
process, and act unknowable in most
on information. situations and the
consequences are
uncertain.

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 Why Information Is Incomplete

Figure
5.2

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 Causes of Incomplete Information 1

Risk: Uncertainty:
• The degree of • The probabilities
probability that the of alternative
possible outcomes outcomes cannot
of a particular be determined and
course of action future outcomes
will occur. are unknown.

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 Causes of Incomplete Information 2
Figure 5.3
Young Woman or Old
Woman?
Ambiguous Information:
• Information that can be
interpreted in multiple
and often conflicting
ways.

© McGraw Hill Chronicle of World History/Alamy Stock Photo

 Causes of Incomplete Information 3

Time Constraints and Information Costs:

• Managers have neither the time nor money to
search for all possible alternatives and
evaluate potential consequences.

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 Causes of Incomplete Information 4

Satisficing:
• Satisficing is a strategy of searching for and
choosing an acceptable, or satisfactory, response
to problems and opportunities, rather than trying
to make the best decision.
• Managers search for and choose acceptable, or
satisfactory, ways to respond to problems and
opportunities rather than trying to make the
optimal decision.

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 Topics for Discussion 3

Why do capable managers sometimes make bad

decisions? What can individual managers do to
improve their decision-making skills? [LO5-1, 5-2]

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 Steps in the Decision-Making Process

Figure 5.4

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 General Criteria for Evaluating Possible Courses of
Action

Figure 5.5.
Is the
possible
course of
action…

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 Group Decision Making 1

• Superior to individual making.

• Choices less likely to fall victim to bias.
• Able to draw on combined skills of group
members.
• Improve ability to generate feasible alternatives.
• Allows managers to process more information.
• Managers affected by decisions agree to
cooperate.

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 Group Decision Making 2

Groupthink:
• 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.

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 Topics for Discussion 4

In what kinds of groups is groupthink most likely to

be a problem? When is it least likely to be a
problem? What steps can group members take to
ward off groupthink? [LO5-3]

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 Group Decision Making 3

Devil’s Advocacy:
• Critical analysis of a preferred alternative,
made in response to challenges raised by a
group member who, playing the role of devil’s
advocate, defends unpopular or opposing
alternatives for the sake of argument.

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 Group Decision Making 4

Diversity among Decision Makers:

• Diverse groups are often less prone to
groupthink because group members already
differ from each other and thus are less
subject to pressures for uniformity.

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 Organizational Learning and Creativity 1

Organizational Learning:
• The process through
which managers
seek to improve
employees’ desire
and ability to
understand and
manage the
organization and its
task environment.

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 Topics for Discussion 5

What is organizational learning, and how can

managers promote it? [LO5-4]

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 Organizational Learning and Creativity 2

Learning Organization:
• 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.

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 Senge’s Principles for Creating a Learning Organization

Figure 5.6

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 Organizational Learning and Creativity 3

Creativity:
• A decision maker’s ability to discover original
and novel ideas that lead to feasible
alternative courses of action.

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 Promoting Individual Creativity

Certain conditions enhance individual creativity.

• Opportunity and freedom to generate new ideas.
• Opportunity to experiment and learn from
mistakes.
• No punishment for ideas that seem outlandish.
• Constructive feedback.

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 Promoting Group 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.
• Group member are encouraged to be as
innovative and radical as possible.
• When all alternatives are listed, the pros and cons
of each are discussed and a short list created.

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 Building Group Creativity 1

Production Blocking: Nominal Group

• Loss of productivity Technique
in brainstorming • A decision-making
sessions due to the technique in which
unstructured nature group members write
of brainstorming. down ideas and
solutions, read their
suggestions to the
whole group, and
discuss and then rank
the alternatives.
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 Building Group Creativity 2

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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 Intrapreneurship and Organizational Learning

Product Champion: Skunkworks:

• A manager who • A group that is
takes “ownership” deliberately
of a project and separated from
provides the normal operations
leadership and to encourage
vision that take a members to
product from the devote all their
idea stage to the attention to
final customer. developing new
products.
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 BE THE MANAGER

What are you going to do?

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 End of Main Content

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No reproduction or further distribution permitted without the prior written consent of McGraw Hill.