Chapter Eight – Decision Making and Problem Solving Chapter Overview Managers routinely make both tough and easy decisions. Regardless of which decisions are made, though, it is almost certain that some observers will criticize and others will applaud. Indeed, in the rough-and-tumble world of business, there are few simple or easy decisions to make. Some managers claim to be focused on the goal of what is good for the company in the long term and make decisions accordingly. Others clearly focus on the here and now. Some decisions deal with employees, some with investors, and others with dollars and cents. But all require careful thought and consideration. This chapter describes many different perspectives of decision making. We start by examining the nature of decision making and distinguishing it from problem solving. Next, we describe several different approaches to understanding the decision-making process. We then identify and discuss related behavioral aspects of decision making. Next we discuss the major elements of group decision making. Finally, we discuss creativity, a key ingredient in many effective decisions. Learning Outcomes After studying this chapter, students should be able to: 1. Describe the nature of decision making and distinguish it from problem solving 2. Discuss the rational approach to decision making. 3. Identify and discuss the primary behavioral aspects of decision making. 4. Discuss group decision making in organization. 5. Discuss the nature of creativity and relate it to decision making and problem solving. Real World Challenge: An Ethical Challenge Summary: The CEO of an aircraft engine repair company learned that an airline has grounded jets repaired by his company because the turbines no longer worked. The airline claims that the faulty parts caused the problem. If lenders learn of the accusation, the company’s loans might be pulled at a time when the company is in the middle of its annual audit. Real World Challenge: Should the CEO disclose the information and risk the jobs of hundreds of employees and his own financial stake in the company or should he stay quiet until he has more information? Real World Response: The CEO ultimately decided not to disclose the information and signed the audit papers. Eventually, the FAA found that it was impossible to identify who was at fault for the engine failures. The company’s name was never publicly disclosed as being a possible factor in the grounding of the airplanes. Chapter Outline I. THE NATURE OF DECISION MAKING Decision making is choosing one alternative from among several. Consider a manager seeking a location for a new factory. The manager identifies a set of potential locations, assesses each in terms of a number of relevant criteria. At this point the manager must make a decision and select one. Problem solving, on the other hand, involves finding the answer to a question. Note that in some situations decision making and problem solving start out alike but may lead down different paths. Figure 8.1 shows the basic elements of decision making. Decisions made in organizations can be classified according to frequency and to information conditions. In a decision-making context, frequency is how often a particular decision situation recurs, and information conditions describe how much information is available about the likelihood of various outcomes. A. Types of Decisions The frequency of recurrence determines whether a decision is programmed or nonprogrammed. A programmed decision recurs often enough for decision rules to be developed. A decision rule tells decision makers which alternative to choose once they have predetermined information about the decision situation. Programmed decisions usually are highly structured; that is, the goals are clear and well known, the decision-making procedure is already established, and the sources and channels of information are clearly defined. When a problem or decision situation has not been encountered before, however, a decision maker cannot rely on previously established decision rules. Such a decision is called a nonprogrammed decision, and it requires problem solving. Problem solving is a special form of decision making in which the issue is unique—it often requires developing and evaluating alternatives without the aid of a decision rule. Nonprogrammed decisions are poorly structured because information is ambiguous, there is no clear procedure for making the decision, and the goals are often vague. One key element of nonprogrammed decisions is that they require good judgment on the part of leaders and decision makers. Table 8.1 summarizes the characteristics of programmed and nonprogrammed decisions. Programmed decisions, then, can be made according to previously tested rules and procedures. Nonprogrammed decisions generally require that the decision maker exercise judgment and creativity. In other words, all problems require a decision, but not all decisions require problem solving. B. Decision-Making Conditions The range of available information can be considered as a continuum whose endpoints represent complete certainty and complete uncertainty. Points between the two extremes create risk—the decision maker has some information about the possible outcomes and may be able to estimate the probability of their occurrence. Different information conditions present different challenges to the decision maker. For simplicity, assume there are only two alternatives. Under a condition of certainty, the manager knows the outcomes of each alternative. Under a condition of risk, the decision maker cannot know with certainty what the outcome of a given action will be but has enough information to estimate the probabilities of various outcomes. The decision maker who lacks enough information to estimate the probability of outcomes (or perhaps even to identify the outcomes at all) faces a condition of uncertainty. Under such circumstances, the decision maker may wait for more information to reduce uncertainty or rely on judgment, experience, and intuition to make the decision. Several approaches to decision making offer insights into the process by which managers arrive at their decisions. The rational approach is appealing because of its logic and economy. The behavioral approach, meanwhile, attempts to account for the limits on rationality in decision making. Of course, as we will see, many managers combine rationality with behavioral processes when making decisions. II. THE RATIONAL APPROACH TO DECISION MAKING The rational decision-making approach assumes that managers follow a systematic, step-by-step process. It further assumes that the organization is dedicated to making logical choices and doing what makes the most sense economically and that it is managed by decision makers who are entirely objective and have complete information. A. Steps in Rational Decision Making Figure 8.3 identifies the steps of the process, starting with stating a goal and running logically through the process until the best decision is made, implemented, and controlled. 1. State the Situational Goal The rational decision-making process begins with the statement of a situational goal—that is, a goal for a particular situation. 2. Identify the Problem The purpose of problem identification is to gather information that bears on the goal. If there is a discrepancy between the goal and the actual state, action may be needed. Reliable information is very important in this step. Inaccurate information can lead to an unnecessary decision or to no decision when one is required. 3. Determine the Decision Type Next, the decision makers must determine whether the problem represents a programmed or a nonprogrammed decision. If a programmed decision is needed, the appropriate decision rule is invoked, and the process moves on to the choice among alternatives. Choosing the wrong decision rule or assuming the problem calls for a programmed decision when a nonprogrammed decision actually is required can result in poor decisions. If the situation is wrongly diagnosed, the decision maker wastes time and resources seeking a new solution to an old problem, or “reinventing the wheel.” 4. Generate Alternatives The next step in making a nonprogrammed decision is to generate alternatives. The rational process assumes that decision makers will generate all the possible alternative solutions to the problem. However, this assumption is unrealistic because even simple business problems can have scores of possible solutions. 5. Evaluate Alternatives Evaluation involves assessing all possible alternatives in terms of predetermined decision criteria. The evaluation process usually includes (1) describing the anticipated outcomes (benefits) of each alternative, (2) evaluating the anticipated costs of each alternative, and (3) estimating the uncertainties and risks associated with each alternative. 6. Choose an Alternative Choosing an alternative is usually the most crucial step in the decision-making process. Choosing consists of selecting the alternative with the highest possible payoff, based on the benefits, costs, risks, and uncertainties of all alternatives. Even with the rational approach, however, difficulties can arise in choosing an alternative. First, when two or more alternatives have equal payoffs, the decision maker must obtain more information or use some other criterion to make the choice. Second, when no single alternative will accomplish the objective, some combination of two or three alternatives may have to be implemented. Finally, if no alternative or combination of alternatives will solve the problem, the decision maker must obtain more information, generate more alternatives, or change the goals. An important part of the choice phase is the consideration of contingency plans— alternative actions that can be taken if the primary course of action is unexpectedly disrupted or rendered inappropriate. In developing contingency plans, the decision maker usually asks such questions as “What if something unexpected happens during the implementation of this alternative?” 7. Implement the Plan Implementation puts the decision into action. To succeed, implementation requires the proper use of resources and good management skills. Sometimes the decision maker begins to doubt a choice already made. This doubt is called post-decision dissonance, a form of cognitive dissonance. To reduce the tension created by the dissonance, the decision maker may seek to rationalize the decision further with new information. 8. Control: Measure and Adjust In the final stage of the rational decision-making process, the outcomes of the decision are measured and compared with the desired goal. If a discrepancy remains, the decision maker may restart the decision-making process by setting a new goal (or reiterating the existing one). Changes can be made in any part of the process, as Figure 8.3 illustrates by the arrows leading from the control step to each of the other steps. Decision making therefore is a dynamic, self-correcting, and ongoing process in organizations. 9. Strengths and Weaknesses of the Rational Approach The rational approach has several strengths. But the rigid assumptions of this approach often are unrealistic. The amount of information available to managers usually is limited by either time or cost constraints, and most decision makers have limited ability to process information about the alternatives. In addition, not all alternatives lend themselves to quantification in terms that will allow for easy comparison. Finally, because they cannot predict the future, it is unlikely that decision makers will know all possible outcomes of each alternative. B. Evidence-Based Decision Making Evidence-based management (EBM) is defined as the commitment to identify and utilize the best theory and data available to make decisions. Advocates of this approach encourage the use of five basic “principles”: a. Face the hard facts and build a culture in which people are encouraged to tell the truth, even if it is unpleasant. b. Be committed to “fact-based” decision making – which means being committed to getting the best evidence and using it to guide actions. c. Treat your organization as an unfinished prototype – encourage experimentation and learning by doing. d. Look for the risks and drawbacks in what people recommend (even the best medicine has side effects). e. Avoid basing decisions on untested but strongly held beliefs, what you have done in the past, or uncritical “benchmarking” of what winners do. EBM advocates are particularly persuasive when they use EBM to question the outcomes of decisions based on “untested but strongly held beliefs” or on “uncritical ‘benchmarking.’” III. THE BEHAVIORAL APPROACH TO DECISION MAKING Whereas the rational approach assumes that managers operate logically and rationally, the behavioral approach acknowledges the role and importance of human behavior in the decision-making process. Herbert A. Simon was one of the first experts to recognize that decisions are not always made with rationality and logic. Rather than prescribing how decisions should be made, his view of decision making, now called the administrative model, describes how decisions often actually are made. (Note that Simon was not advocating that managers use the administrative model but was instead describing how managers actually make decisions.) A. The Administrative Model One crucial assumption of the administrative model is that decision makers operate with bounded rationality rather than with the perfect rationality assumed by the rational approach. Bounded rationality is the idea that although individuals may seek the best solution to a problem, the demands of processing all the information bearing on the problem, generating all possible solutions, and choosing the single best solution are beyond the capabilities of most decision makers. Thus, they accept less-than-ideal solutions based on a process that is neither exhaustive nor entirely rational. Decision makers operating with bounded rationality limit the inputs to the decision-making process and base decisions on judgment and personal biases as well as on logic. The administrative model is characterized by (1) the use of procedures and rules of thumb, (2) suboptimizing, and (3) satisficing. Uncertainty in decision making can initially be reduced by relying on procedures and rules of thumb. Suboptimizing is knowingly accepting less than the best possible outcome. Frequently, given organizational constraints, it is not feasible to make the ideal decision in a real-world situation. The decision maker often must suboptimize to avoid unintended negative effects on other departments, product lines, or decisions. The final feature of the behavioral approach is satisficing: examining alternatives only until a solution that meets minimal requirements is found and then ceasing to look for a better one. B. Other Behavioral Forces in Decision Making These include political forces, intuition, escalation of commitment, risk propensity, and ethics. Prospect theory is also relevant. 1. Political Forces in Decision Making Political forces can play a major role in how decisions are made. We cover political behavior in Chapter 13, but one major element of politics, coalitions, is especially relevant to decision making. A coalition is an informal alliance of individuals or groups formed to achieve a common goal. This common goal is often a preferred decision alternative. The impact of coalitions can be either positive or negative. They can help astute managers get the organization on a path toward effectiveness and profitability, or they can strangle well-conceived strategies and decisions. Managers must recognize when to use coalitions, how to assess whether coalitions are acting in the best interests of the organization, and how to constrain their dysfunctional effects. 2. Intuition Intuition is an innate belief about something without conscious consideration. This feeling is usually not arbitrary. Rather, it is based on years of experience and practice in making decisions in similar situations. Of course, all managers, but most especially inexperienced ones, should be careful not to rely on intuition too heavily. If rationality and logic are continually flouted for what “feels right,” the odds are that disaster will strike one day. 3. Escalation of Commitment Another important behavioral process that influences decision making is escalation of commitment to a chosen course of action (sometimes called the sunk cost fallacy). In particular, decision makers sometimes make decisions and then become so committed to the course of action suggested by that decision that they stay with it or even increase their investment in it, even when it appears to have been wrong. Thus, decision makers must walk a fine line. On the one hand, they must guard against sticking with an incorrect decision too long. To do so can bring about financial decline. On the other hand, managers should not bail out of a seemingly incorrect decision too soon. 4. Risk Propensity and Decision Making The behavioral element of risk propensity is the extent to which a decision maker is willing to gamble when making a decision. Some managers are cautious about every decision they make. They try to adhere to the rational model and are extremely conservative in what they do. Other managers are extremely aggressive in making decisions and are willing to take risks. They rely heavily on intuition, reach decisions quickly, and often risk big investments on their decisions. The organization’s culture is a prime ingredient in fostering different levels of risk propensity. 5. Ethics and Decision Making Ethics are a person’s beliefs about what constitutes right and wrong behavior. Ethical behavior is that which conforms to generally accepted social norms; unethical behavior does not conform to generally accepted social norms. In general, ethical dilemmas for managers may center on direct personal gain, indirect personal gain, or simple personal preferences. Managers should carefully and deliberately consider the ethical context of every one of their decisions. The goal, of course, is for the manager to make the decision that is in the best interest of the firm, as opposed to the best interest of the manager. Doing this requires personal honesty and integrity. 6. Prospect Theory and Decision Making Finally, prospect theory also offers useful insights into how people make decisions. Essentially, prospect theory focuses on decisions under a condition of risk. The theory argues that such decisions are influenced more by the potential value of gains or losses than the final outcome itself. The theory further argues that, all else being equal, people are more motivated to avoid losses than they are to seek gains. Stated another way, people may be more motivated by the threat of losing something they have than they are by the prospect of gaining something they do not have. Global Issues: Culture and Nationality Influences on Ethical Awareness Summary: Research has found that both culture and nationality influence the recognition of ethical issues. One study found that Taiwanese sales agents perceived ethical issues associated with their companies’ or competitors’ agents while U.S. sales agents perceived ethical issues with their colleagues. A study comparing the ethical awareness Australians showed that Americans were more likely than the Australians to identify an ethical problem in scenarios involving the withholding of information and the misleading of an appraiser. A third study asked global managers what to do: You are riding in a car driven by a close friend who speeds and hits a pedestrian. There are no witnesses, and you can help your friend if you testify that he was not speeding. Responses differed widely. More than 90 percent of managers in Canada, the U.S., Switzerland, and Sweden said that the rules were made for everyone and that they would not support their friend. Less than half of the managers from South Korea, Venezuela, Russia, and China would refuse to support their friend. C. An Integrated Approach to Decision Making Because of the unrealistic demands of the rational approach and the limited, short-term orientation of the behavioral approach, neither is entirely satisfactory. However, the worthwhile features of each can be combined into a practical approach to decision making, shown in Figure 8.4. The steps in this process are the same as in the rational approach; however, the conditions recognized by the behavioral approach are added to provide a more realistic process. In this synthesis of the two other approaches, the rational approach provides an analytical framework for making decisions, whereas the behavioral approach provides a moderating influence. In practice, decision makers use some hybrid of the rational, behavioral, and integrated approaches to make the tough day-to-day decisions in running organizations. IV. GROUP DECISION MAKING IN ORGANIZATIONS As we discussed in Chapter 7, people in organizations work in a variety of groups—formal and informal, permanent and temporary, and various kinds of teams. Therefore, we need to consider group decision making. The primary elements we will discuss are group polarization, groupthink, and group problem solving methods. A. Group Polarization Members’ attitudes and opinions with respect to an issue or a solution may change during group discussion. Generally, group polarization occurs when the average of the group members’ post-discussion attitudes tends to be more extreme than average pre-discussion attitudes. Several features of group discussion contribute to polarization. Persuasive arguments can encourage polarization. Polarization can profoundly affect group decision making. B. Groupthink Highly cohesive groups and teams often are very successful at meeting their goals, although they sometimes have serious difficulties as well. One problem that can occur is groupthink. According to Irving L. Janis, groupthink is “a mode of thinking that people engage in when they are deeply involved in a cohesive in-group, and when the members’ strivings for unanimity override their motivation to realistically appraise alternative courses of action.” When groupthink occurs, then, the group unknowingly makes unanimity rather than the best decision its goal. 1. Symptoms of Groupthink The three primary conditions that foster the development of groupthink are cohesiveness, the leader’s promotion of his or her preferred solution, and insulation of the group from experts’ opinions. Figure 8.5 outlines the revised groupthink process. A group in which groupthink has taken hold exhibits eight well-defined symptoms: a. An illusion of invulnerability, shared by most or all members, that creates excessive optimism and encourages extreme risk taking b. Collective efforts to rationalize or discount warnings that might lead members to reconsider assumptions before committing themselves to past policy decisions c. An unquestioned belief in the group’s inherent morality, inclining members to ignore the ethical and moral consequences of their decisions d. Stereotyped views of “enemy” leaders as too evil to warrant genuine attempts to negotiate or as too weak or stupid to counter whatever risky attempts are made to defeat their purposes e. Direct pressure on a member who expresses strong arguments against any of the group’s stereotypes, illusions, or commitments, making clear that such dissent is contrary to what is expect of loyal members f. Self-censorship of deviations from the apparent group consensus, reflecting each member’s inclination to minimize the importance of his or her doubts and counterarguments g. A shared illusion of unanimity, resulting partly from self-censorship of deviations, augmented by the false assumption that silence means consent h. The emergence of self-appointed “mindguards,” members who protect the group from adverse information that might shatter their shared complacency about the effectiveness and morality of their decisions Groupthink often helps to explain why companies and governments sometimes continue to pursue strategies and policies that are clearly failing. 2. Decision-Making Defects and Decision Quality When groupthink dominates group deliberations, the likelihood increases that decision-making defects will occur. The group is less likely to survey a full range of alternatives and may focus on only a few (often one or two). In discussing a preferred alternative, the group may fail to examine it for nonobvious risks and drawbacks. The group may not reexamine previously rejected alternatives for nonobvious gains or some means of reducing apparent costs, even when they receive new information. The group may reject expert opinions that run counter to its own views and may choose to consider only information that supports its preferred solution. Finally, the group may not consider any potential setbacks or countermoves by competing groups and therefore may fail to develop contingency plans. Defects in decision making do not always lead to bad outcomes or defeats. Nevertheless, decisions produced by defective processes are less likely to succeed. CASE STUDY: The Role of Groupthink in the Financial Crisis Summary: When an organization’s leaders and members allow themselves to be captured by their own beliefs, they see only what they want to see. Many feel that groupthink explains the excessive credit expansion that fueled the subprime mortgage meltdown and subsequent financial crisis. 1. How were the elements of groupthink illustrated in the financial crisis? In groupthink, striving for unanimity overrides the motivation to realistically appraise alternative courses of action. Alan Greenspan, who supported minimal intervention, was known to be unwelcoming to challenges to his ideas. Because Greenspan was an economic superstar, central bankers, except for White, were unwilling to challenge or criticize Greenspan’s ideas. All of the ingredients of the financial crisis were known by the central bankers more than 2 years before the crisis began. 2. What could be done to reduce the effects of groupthink in the future? Leaders could assign the role of “critical evaluator” to each group member to freely voice objections and doubts. Leaders could refrain from expressing an opinion when assigning a task to a group. The organization could set up several independent groups, working on the same problem. All effective alternatives should be examined. Each member could discuss the group’s ideas with trusted people outside the group. The group could invite outside experts to their meetings. One group member could play devil’s advocate to challenge the group’s assumptions and conclusions. 3. Do you think that increasing the diversity of the financial companies’ leadership would reduce groupthink? Why or why not? Yes. Similar people (age, race, education, gender, etc.) tend to think in the same way. Perhaps people from different backgrounds would be more willing to question ideas and counter the effects of groupthink. 3. Prevention of Groupthink Several suggestions have been offered to help managers reduce the probability of groupthink in group decision making. Summarized in Table 8.2, these prescriptions fall into four categories, depending on whether they apply to the leader, the organization, the individual, or the process. C. Participation A major issue in group decision making is the degree to which employees should participate in the process. Numerous research studies have shown that whereas employees who seek responsibility and challenge on the job may find participation in the decision-making process to be both motivating and enriching, other employees may regard such participation as a waste of time and a management imposition. Whether employee participation in decision making is appropriate depends on the situation. In tasks that require an estimation, a prediction, or a judgment of accuracy— usually referred to as “judgmental tasks”—groups typically are superior to individuals simply because more people contribute to the decision-making process. In problem-solving tasks, groups generally produce more and better solutions than do individuals. But groups take far longer than individuals to develop solutions and make decisions. If the problem to be solved is fairly straightforward, it may be more appropriate to have a single capable individual concentrate on solving it. An additional advantage of group decision making is that it often creates greater interest in the task. Participation in decision making is also related to organizational structure. For example, decentralization involves delegating some decision-making authority throughout the organizational hierarchy. D. Group Problem Solving A typical interacting group may have difficulty with any of several steps in the decision-making process. One common problem arises in the generation-of- alternatives phase: The search may be arbitrarily ended before all plausible alternatives have been identified. To improve the generation of alternatives, managers may employ any of three techniques to stimulate the group’s problem-solving capabilities: brainstorming, the nominal group technique, or the Delphi technique. 1. Brainstorming Brainstorming is most often used in the idea-generation phase of decision making and is intended to solve problems that are new to the organization and have major consequences. The intent of brainstorming is to produce totally new ideas and solutions by stimulating the creativity of group members and encouraging them to build on the contributions of others. Brainstorming does not provide the resolution to the problem, an evaluation scheme, or the decision itself. Instead, it should produce a list of alternatives that is more innovative and comprehensive than one developed by the typical interacting group. 2. The Nominal Group Technique The nominal group technique is another means of improving group decision making. Whereas brainstorming is used primarily to generate alternatives, this technique may be used in other phases of decision making, such as identification of the problem and of appropriate criteria for evaluating alternatives. This technique uses a cycle of idea generation, discussion, voting, which continues until an appropriate decision is reached. The nominal group technique has two principal advantages. It helps overcome the negative effects of power and status differences among group members, and it can be used to explore problems to generate alternatives, or to evaluate them. Its primary disadvantage lies in its structured nature, which may limit creativity. 3. The Delphi Technique The Delphi technique was originally developed by Rand Corporation as a method for systematically gathering the judgments of experts for use in developing forecasts. It is designed for groups that do not meet face to face. For instance, the product development manager of a major toy manufacturer might use the Delphi technique to probe the views of industry experts to forecast developments in the dynamic toy market. The manager who wants the input of a group is the central figure in the process. After recruiting participants, the manager develops a questionnaire for them to complete. The manager summarizes the responses and reports back to the experts with another questionnaire. This cycle may be repeated as many times as necessary to generate the information the manager needs. The Delphi technique is useful when experts are physically dispersed, anonymity is desired, or the participants are known to have trouble communicating with one another because of extreme differences of opinion. This method also avoids the intimidation problems that may exist in decision-making groups. On the other hand, the technique eliminates the often fruitful results of direct interaction among group members. V. CREATIVITY, PROBLEM SOLVING, AND DECISION MAKING Creativity is an important individual difference variable that exists in everyone. We describe it here because it plays such a central role in both decision making and problem solving. Creativity is the ability of an individual to generate new ideas or to conceive of new perspectives on existing ideas. Creativity can play a role in how a problem or decision situation is defined, what alternatives are identified, and how each is evaluated. Creativity can also enable a manager to identify a new way of looking at things. A. The Creative Individual Numerous researchers have focused their efforts on attempting to describe the common attributes of creative individuals. These attributes generally fall into three categories: background experiences, personal traits, and cognitive abilities. 1. Background Experiences and Creativity Researchers have observed that many creative individuals were raised in an environment in which creativity was nurtured. 2. Personal Traits and Creativity The traits shared by most creative people are openness, an attraction to complexity, high levels of energy, independence and autonomy, strong self-confidence, and a strong belief that one is, in fact, creative. 3. Cognitive Abilities and Creativity Cognitive abilities are an individual’s power to think intelligently and to analyze situations and data effectively. Intelligence may be a precondition for individual creativity. Creativity is also linked with the ability to think divergently and convergently. Divergent thinking is a skill that allows people to see differences between situations, phenomena, or events. Convergent thinking is a skill that allows people to see similarities between situations, phenomena, or events. Creative people are generally very skilled at both divergent and convergent thinking. B. The Creative Process Individual creative activity actually tends to progress through a series of stages. Figure 8.6 summarizes the major stages of the creative process. 1. Preparation The creative process normally begins with a period of preparation. To make a creative contribution to business management or business services, individuals must usually receive formal training and education in business. Experiences that managers have on the job after their formal training has finished can also contribute to the creative process. In an important sense, the education and training of creative people never really ends. 2. Incubation The second phase of the creative process is incubation—a period of less intense conscious concentration during which the knowledge and ideas acquired during preparation mature and develop. A curious aspect of incubation is that it is often helped along by pauses in concentrated rational thought. 3. Insight Usually occurring after preparation and incubation, insight is a spontaneous breakthrough in which the creative person achieves a new understanding of some problem or situation. Insight represents a coming together of all the scattered thoughts and ideas that were maturing during incubation. It may occur suddenly or develop slowly over time. Insight can be triggered by some external event or it can be a completely internal event in which patterns of thought finally coalesce in ways that generate new understanding. 4. Verification Once an insight has occurred, verification determines the validity or truthfulness of the insight. Verification may include the development of a product or service prototype. Once the new product or service is developed, verification in the marketplace is the ultimate test of the creative idea behind it. C. Enhancing Creativity in Organizations Managers who wish to enhance and promote creativity in their organizations can do so in a variety of ways. One important method for enhancing creativity is to make it a part of the organization’s culture, often through explicit goals. This clearly communicates that creativity and innovation are valued. Another important part of enhancing creativity is to reward creative successes, while being careful to not punish creative failures. Summary and Applications Decision making is the process of choosing one alternative from among several. Problem solving is finding the answer to a question. Programmed decisions are well-structured, recurring decisions made according to set decision rules. Nonprogrammed decisions involve nonroutine, poorly structured situations with unclear sources of information; these decisions cannot be made according to existing decision rules. The classifications—certainty, risk, and uncertainty—reflect the amount of information available regarding the outcomes of alternatives. The rational approach views decision making as a completely rational process in which goals are established, a problem is identified, alternatives are generated and evaluated, a choice is made and implemented, and control is exercised. Evidence-based decision making is a recent restatement of the need for rationality when making decisions. The use of procedures and rules of thumb, suboptimizing, and satisficing characterize the behavioral model. A variety of other behavioral processes also influence decision making in organizations. Prospect theory suggests that people are more motivated to avoid losses than to make gains. The rational and behavioral views can be combined into an integrated model. Creativity is the capacity to generate new ideas. Managers can enhance or reduce creativity in their organizations through various means. DISCUSSION QUESTIONS 1. Some have argued that people, not organizations, make decisions and that the study of “organizational” decision making is therefore pointless. Do you agree with this argument? Why or why not? Students may or may not agree that the study of “organizational” decision making is pointless. Many will agree, however, that organizational or group decision making involves a different process from individual decision making. Because decision making in organizations often is conducted by groups, it is important to study how group dynamics influence the decision-making process. I disagree with the argument that the study of "organizational" decision making is pointless because, while individuals indeed make decisions, their choices are often influenced by the organizational context, culture, and structures in which they operate. Organizations provide frameworks, resources, and shared goals that shape individual decision-making processes. Understanding how these elements interact can lead to better insights into decision-making patterns, improve efficiency, and enhance collaboration within teams. Additionally, studying organizational decision-making can help identify systemic biases, improve strategic planning, and foster accountability, ultimately contributing to more effective and informed outcomes for the organization as a whole. 2. What information did you use in deciding to enter the school you now attend? Students may have used information gathered from friends, family members, and college representatives in deciding which school to attend. Information may have taken a variety of forms: face-to-face communication and written brochures and pamphlets. In deciding to enter the school I currently attend, I considered several key pieces of information: 1. Academic Reputation: I researched the school’s rankings, faculty qualifications, and program offerings to ensure it aligned with my academic goals. 2. Course Curriculum: I reviewed the courses available in my field of study, looking for relevant subjects and opportunities for hands-on experience. 3. Campus Resources: I evaluated the availability of resources such as libraries, laboratories, and support services like academic advising and tutoring. 4. Campus Culture: I considered the school’s environment, including student organizations, extracurricular activities, and the overall community vibe to ensure it felt like a good fit. 5. Location and Cost: I assessed the school's location, cost of attendance, and available financial aid or scholarship opportunities to ensure it was a practical choice for me. 3. When your alarm goes off each morning, you have a decision to make: whether to get up and go to school or work, or to stay in bed and sleep longer. Is this a programmed or nonprogrammed decision? Why? Generally, when the alarm goes off each morning and the individual must decide whether to get up or stay in bed, a programmed decision is involved. This decision probably has occurred often enough that decision rules have been developed. In this situation, the decision maker probably has clear information about the decision situation, action-outcome probabilities, and values of outcomes. 4. Describe at least three points in the decision-making process at which information plays an important role. Information is essential when the problem is identified at the beginning of the decision-making process. The generation of alternatives also requires information. Finally, information is needed in the control phase. 5. How does the role of information in the rational model of decision making differ from the role of information in the behavioral model? The rational approach to decision making assumes the decision maker is able to gather and process all the information required in the decision-making process. The behavioral approach assumes the decision maker operates with bounded rationality rather than with perfect rationality. Thus, the behavioral approach suggests that individuals are unable to process all the relevant information and to generate all possible solutions. In other words, the decision maker limits the amount of information used in the decision-making process. 6. Why does it make sense to discuss several different models of decision making? Discussing several models of decision making is quite useful because decision-making situations differ in actual practice. One model of decision making may fit one situation, and another model may be appropriate for a different situation. Trying to fit only one model to every decision-making situation probably would be a very frustrating experience. Therefore, we can explain decision making better by using several different approaches. 7. Can you think of a time when you satisficed when making a decision? Have you ever suboptimized? Most people can think of situations where they have satisficed or suboptimized. Satisficing occurs when the decision maker examines alternatives only until a solution that meets minimal requirements is found. Examples of satisficing might include searching for a place to eat that accepts a credit card, searching for a laundry or cleaners that is close to work or home, and deciding on a particular vendor for a noncritical part or subassembly for a product. Suboptimizing occurs when the decision maker knowingly accepts less than the best possible outcome to avoid unintended negative effects on other aspects of the organization. Examples of satisficing might include selecting a supplier for a part that does the job for two different subassemblies rather than just one and finding a store that does both laundry and cleaning even though it is a little farther from your home rather than using two different stores, both of which may be closer to your home. 8. Describe a situation in which you experienced escalation of commitment to an ineffective course of action. What did you do about it? Do you wish you had handled it differently? Why or why not? Escalation of commitment refers to the tendency to persist in an ineffective course of action when evidence indicates that the project is doomed to failure. The textbook suggests four common reasons for such action. Students probably will report a situation where they had considerable investment with no payoff likely until the project’s end. Others may report situations where group norms and cohesiveness supported a group project so strongly that cancellation was not possible. 9. How comfortable or uncomfortable are you in making risky decisions? Differences will appear based on the strength of the respondent’s risk-avoidance propensity. In situations that seem to offer no alternatives but risky ones such individuals may be extremely uneasy and try to avoid such situations as much as possible. Important decisions, by their nature, often carry high risk for potential disaster. 10. Do you consider yourself to be relatively more or less creative? Recall an instance in which you made a discovery using the four phases of the creative process. People vary in their assessment of their own creativity. Some may have an inflated estimate of how creative they are because creativity is considered desirable and it may flatter a person’s ego to be considered creative. Not everyone has the same definition of what creativity is, either. Discovering that one has used the four phases of the creative process in the past, or as a fairly routine procedure, to make a discovery may provide considerable insight into just how creative one really is—more than one thought, perhaps! GROUP EXERCISE - Superheroes Learning Objective: Describe how managers can enhance decision-making creativity. Summary: Each student should pick his or her favorite superhero. Now assume that a large earthquake just hit a populated island. How could your superhero assist the island? Task: Take 5 minutes to write down your ideas. Now form groups of 5–6 students. Share your superheroes and the ideas you generated based on your superhero’s special abilities (e.g., Batman could use his gadgets and tools to help free people trapped in rubble). The group should then work together to identify true possible solutions based on the ideas generated for the superheroes (e.g., Batman’s grappling hook might be adapted for use in moving large obstacles during rescues). Questions to guide discussion: 1. How can managers enhance decision-making creativity? 2. What are the organizational challenges to creativity? (We thank Professor Jim Gort of Davenport University for suggesting this exercise.) VIDEO EXERCISE City of Greensburg Kansas Summary: A tornado devastated Greensburg Kansas. The mayor stated the tornado was actually an opportunity to rebuild a ‘green town’. There was opposition from the town residents. 1. Cite reasons for and against rebuilding Greensburg as a “green town.” Which reasons do you find most convincing and why? Reasons in favor of rebuilding as a green town: a demolished town presented a once-in-a-lifetime "blank slate" situation that allowed for unconventional thinking; long-term planning might favor energy-saving ideas like solar power and energy-efficient buildings and appliances; the high cost of going green could be offset by long-term energy savings. Reasons against building a green town: cost of materials was too expensive; the plan didn't do enough to attract downtown businesses that would help support the tax base, potentially resulting in higher property taxes on local residents; wind and solar energy depend upon uncertain climate conditions and don't necessarily save money over the long term. Student answers will vary on which reasons are convincing. 2. Do you think Greensburg’s decision-making process was effective? Explain. Residents complained that Greensburg's decision-making process was ineffective and unfair, and it appears that important steps in the rational decision making process were neglected or altogether skipped. One woman observed that residents were invited to meetings but were subsequently ignored by leaders. Mayor Lonnie McCollum said the decision process was unnecessarily rushed. A city administrator candidly admits that town officials decided against a democratic vote by the townspeople, as residents were not convinced by green arguments and would have voted against turning their hometown into a "green town." 3. What prevented the City of Greensburg from making purely rational decisions? Decision making is never purely rational due to time constraints, limited knowledge of possible alternatives, bias, and human error. In addition, people and groups encounter specific decision-related problem areas like groupthink, group polarization, escalation of commitment, the halo effect, overconfidence, and loss aversion. In real world situations, most people use bounded rationality and end up satisficing—making a satisfactory rather than optimal decision. Satisficing leads us to select the first acceptable alternative we consider, even though better alternatives may exist. Now What? Imagine being part of a group with three other coworkers trying to make a decision about whether to discontinue funding an underperforming product. The group has been working together on the product line for three years, but the product is clearly a failure. When you start to question where the decision is headed you are called disloyal and told to go with the team and give the product more time. One of the team members calls for a final vote on the group’s decision, which appears to be to continue funding a clearly awful and doomed-to-fail product. What do you say or do? Go to this chapter’s “Now What?” video, watch the challenge video, and choose a response. Be sure to also view the outcomes of the two responses you didn’t choose. OB Concepts Applied: groupthink; stereotyping; conformity pressure; self censorship; mindguards, escalating commitment Discussion Questions 1. Is this decision a programmed or non-programmed decision and what is the basis for your answer? This appears to be a non-programmed decision. However, with new products rolling out every year, Happy Time Toys should have some type of decision-making process in place for products that perform below their planned performance. Maybe Alex’s suggestion to have another manager with ‘new eyes’ view the sales results will become part of a programmed decision-making process for under-performing products. 2. How is groupthink and stereotyping illustrated in these videos? Explain your answer. Groupthink is a mode of thinking that people engage in when they are deeply involved in a cohesive in-group, when the members’ strivings for unanimity override their motivation to realistically appraise alternative courses of action. In the video, the group goes ahead and votes yes (incorrect response #1). Alex wants more time and resources for the product because of an escalating commitment, persisting with a failing course of action. Allison simply goes along with Alex, “Great! I really think this product will take off.” Bill follows the others, “Me too!” Symptoms of groupthink: • Direct pressure to conform placed on any member who questions the group, couched in terms of “disloyalty”. When Alex questions the decision to go forward with the product, he is accused of being disloyal. Alex says, “Maybe we should take a step back and review whether the product should really be continued. Those sales numbers are pretty disappointing....” Bill says: Stop being disloyal, Alex.” • Mindguards – self-appointed members who shield the group from conflicting information. Ryan withholds information from Amy about the failure of the product. Ryan says, “I’ll tell Amy we think the product just needs more marketing investment. I still think we have a winner here.” • Self censorship of ideas that deviate from the apparent group consensus. When Alex decides to abstain from voting (incorrect response #2), the group criticizes him. Allison says, “Oh come on, Alex. Get with the program.” Bill says, “That’s lame, Alex.” Later, Ryan offers an alternative idea which the group likes but doesn’t pursue. Ryan says, “We should think about setting up a more consistent process for evaluating when to cut off a product.” To counteract the effect of groupthink, the group gets an outside opinion (correct response). A manager who has not been involved in the product’s development evaluates the situation. Alex says, “I feel like we’re too close to this decision. Maybe we should ask another manager who hasn’t been involved in the Titan Tie’s development to review it and give us an opinion.” 3. Would a rational decision-making approach work? Why or why not? A rational decision-making approach works for this situation and is likely the approach used by the outside manager. The team is not using the rational approach when they decide to ask for more money and expand the marketing plan for this under-performing product. The group had so much invested in the product they wanted it to perform at any cost. A rational approach of looking at the declining sales and costs of production should have been enough to convince the team to discontinue the Titan Tie. 4. As a manager, how else might you handle this situation? Because managers are often punished for failure, they are also more likely to persist in the face of negative results. One way to handle this situation is to create reward systems that reinforce a faster recognition of failing projects can help reduce the effects of escalation of commitment. Solution Manual for Organizational Behavior: Managing People and Organizations Ricky W. Griffin, Jean M. Phillips, Stanley M. Gully 9781305501393, 9780357042502
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