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Chapter 3 Managerial Decision Making LEARNING OBJECTIVES 1 Describe the kinds of decisions you will face as a manager. 2 Summarize the steps in making “rational” decisions. 3 Recognize the pitfalls you should avoid when making decisions. 4 Evaluate the pros and cons of using a group to make decisions. 5 Identify procedures to use in leading a decision-making group. 6 Explain how to encourage creative decisions. 7 Discuss the processes by which decisions are made in organizations. 8 Describe how to make decisions in a crisis. CHAPTER OUTLINE Characteristics of Managerial Decisions Lack of Structure Uncertainty and Risk Conflict The Phases of Decision Making Identifying and Diagnosing the Problem Generating Alternative Solutions Evaluating Alternatives Making the Choice Implementing the Decision Evaluating the Decision The Best Decision Barriers to Effective Decision Psychological Biases Time Pressures Social Realities Decision Making in Groups Potential Advantages of Using a Group Potential Problems of Using a Group Managing Group Decision Making Leadership Style Constructive Conflict Encouraging Creativity Brainstorming Organizational Decision Making Constraints on Decision Makers Organizational Decision Processes Decision Making in a Crisis CHAPTER RESOURCES Experiential Exercises 3.1 Decision Making in Action 3.2 Group Problem Solving at a Social Enterprise Cases Soaring Eagle Skate Company Part One Supporting Case Zappos Eliminates All Managers and Titles Case Incidents Employee Raiding Effective Management Social Enterprise Saul Garlick's Social Enterprise: Nonprofit or For-profit? Lecturettes LECTURETTE 3.1 – The Eco-Cars LECTURETTE 3.2 – Eight Steps to Success in Negotiating KEY STUDENT QUESTIONS Managerial decision making in textbooks is heavily theory-driven, and most students want to know more about the practical ins and outs of day-to-day decision-making. Two questions drive a host of other concerns: 1. “How can I make good decisions?” 2. “How can I make sure I don’t fall into the decision-making traps you are describing when you talk about things like psychological biases and time pressures?” •To make “good” decisions, students have to master the art of rational decision-making, as well as learning to recognize and avoid common decision-making pitfalls. Point out that while it is never possible to make the “perfect” decision, training in these areas can help people to make better decisions. •A variety of practical suggestions for avoiding decision-making pitfalls can be found in the example for Objective 3 in the “Class Roadmap.” While these suggestions are not research-based, students will respond to their no-nonsense advice based on real-world experience. CLASS ROADMAP POWERPOINTS Slide 1 Managerial Decision Making Slide 2 Chapter Introduction Quote Slide 3 Learning Objectives MANAGEMENT IN ACTION Can Uber Overcome its Poor Decisions? Uber Technologies, Inc., the app-based ride-hailing service launched in San Francisco in 2010, claims to be “changing the logistical fabric of cities around the world” by allowing users to hail a ride via their smartphone. Since going global in 2013, the game-changing company has provided fast access to two billion reliable rides for passengers in more than 540 cities in 70 countries around the world and enabled thousands of independent drivers to earn a share of the fees. Recently valued at $70 billion, Uber appears to have made some smart decisions. However, Uber has also made decisions that damaged its reputation and may threaten its future growth and profits. Insisting its drivers are independent contractors is a risky business model whose legality is questioned. Uber has come under scrutiny in countries around the world for conducting flawed background checks on drivers and protests by taxi drivers have forced it from some markets. Allegations by a female software engineer at Uber about a heedless company culture rife with sexism and harassment have forced the company to investigate. A report has also surfaced alleging that for years the company has misused data. I. CHARACTERISTICS OF MANAGERIAL DECISIONS POWERPOINTS Slide 4 Characteristics of Managerial Decisions Slide 5 Lack of Structure Slide 6 Examples of Decisions by Type Slide 7 Uncertainty and Risk Slide 8 Conflict and its Levels LO 1: Describe the kinds of decisions you will face as a manager A. Lack of Structure 1. Lack of structure is the usual state of affairs in managerial decision-making. 2. Programmed decisions are decisions encountered and made before having objectively correct answers, and solvable by using simple rules, policies, or numerical computations. 3. Non-programmed decisions are new, novel, complex decisions having no proven answers. (Exhibit 3.2) Example 3.1 Uncertainty and Risk A decision made with certainty is a decision made with complete information—for example, a manager who decides to buy a new computer for the office knows exactly how much that computer will cost. A decision made with uncertainty is a decision made with little or no information—for example, a manager who decides to design and manufacture an entirely new product, with no information except a gut feeling on whether or not a market for that product exists. Finally, a decision made under risk is made using probabilistic information - for example, the manager who hires a new employee based on a test that says that employee has a 75 percent chance of success. Former Defense Secretary, Donald Rumsfield, describes situations of true uncertainty as “unknown unknowns.” That is, compared to when decision-makers are aware of the risks facing them (known unknowns), true uncertainty exists when we haven’t even thought of the possible threats facing us and is the riskiest situation for a manager. B. Uncertainty and Risk 1. Certainty exists when decision-makers have accurate and comprehensive information. 2. Uncertainty is the state that exists when the decision makers have insufficient information 3. Risk exists when the probability of an action being successful is less than 100 percent, and losses may occur C. Conflict 1. Conflict—opposing pressures from different sources, occurring on the level of psychological conflict or of conflict between individuals or groups 2. There are two levels of conflict: a. Psychological conflict occurs when several options are attractive, or when none of the options are attractive. b. Conflict arises between individuals or groups. CONNECT Click and Drag: Making a Major Decision at Capterra (An alternative keyboard version is also available.) SUMMARY Most managerial decisions are challenging because they lack structure and entail risk, uncertainty, and conflict. Faced with these challenges, how can managers make good decisions? The exercise presents the case of Michael Ortner and Rakesh Chilakapati, cofounders of Capterra, an online directory of companies that sell business software. They wanted to bring more traffic and listings to the site. After an investigation, they came to a decision point on a new website feature. Regrettably, they could not agree if it was prudent to execute their choice. After months of debate, one of the owners made the decision on his own. Two years later, revenue had jumped by 30 percent. Both partners are now in agreement that the choice was a great idea. ACTIVITY The goal of this activity is to demonstrate the six-stage decision-making process. After reading the mini case students are present questions on the decision process. CLASS DISCUSSION IDEAS One possibility of a class discussion is to investigate the process steps in decision making. Or another class discussion could be a more general discussion regarding the good outcomes, such as in this case. Does this mean that the decision-making process was a good one? II. THE PHASES OF DECISION MAKING POWERPOINTS Slide 9 The Phases of Decision Making Slide 10 Identifying and Diagnosing the Problem Slide 11 Generating Alternative Solutions Slide 12 Evaluating Alternatives Slide 13 Making the Choice Slide 14 Social Enterprise Slide 15 Implementing the Decision Slide 16 Implementation Questions Slide 18 Evaluating the Decision LO 2: Summarize the steps in making “rational” decisions A. Identifying and Diagnosing the Problem 1. The first stage in the decision-making process is to recognize that a problem exists and must be solved. 2. Questions to ask and answer in this stage include (Exhibit 3.4): a. What specific short- and long-term goals should be met? b. What is/are the cause(s) of the deviation? c. How can you describe the deviation as specifically as possible? d. Which of these goals are absolutely critical to the success of the decision? e. Is there a difference between what is actually happening and what should be happening? Example 3.2 Rational Decision Making Rational decision making may seem to be straightforward—a relatively easy process that most people use instinctively. But researchers Thomas Turrentine and Kenneth Kurani found out something interesting about rational decision-making with regards to new car purchases and our estimates of cost savings over time-based on gasoline consumption—virtually no one uses a rational process! In fact, there are hardly any households that track gas costs over time or figure them into household budgets, and our knowledge of gas prices disappears almost as soon as we leave the gas station. As a result, most of us simply don’t have the information we need to make a rational decision about gas consumption and cost savings when we are at the dealership shopping for a new car. B. Generating Alternative Solutions 1. The second stage, problem diagnosis is linked to the development of alternative courses of action aimed at solving the problem. 2. Ready-made solutions are ideas that have been seen or tried before 3. Custom-made solutions are new, creative solutions designed specifically for the problem C. Evaluating Alternatives 1. The third stage involves determining the value or adequacy of the alternatives that were generated. Which solution will be the best? 2. Key questions to ask (Exhibit 3.5): a. Which goals does each alternative meet and fail to meet? b. Which alternatives are most acceptable to you and to other important stakeholders? c. If several alternatives may solve the problem, which can be implemented at the lowest cost or greatest profit? d. If no alternative achieves all your goals, can two or more of the best ones be combined? Contingency plans are alternative courses of action that can be implemented based on how the future unfolds. D. Making the Choice 1. Maximizing is a decision realizing the best possible outcome. 2. Satisficing means choosing an option that is acceptable, although not necessarily the best or perfect. 3. Optimizing means that you achieve the best possible balance among several goals. E. Implementing the Decision 1. The decision-making process does not end once a choice is made. 2. Decision makers must understand the choice and why it was made. 3. They must be committed to its successful implementation. 4. They must plan implementation carefully. a. Determine how things will look when the decision is fully operational. b. Chronologically order, perhaps with a flow chart, the steps necessary to achieve a fully operational decision. c. List the resources and activities required implementing each step. d. Estimate the time needed for each step. e. Assign responsibility for each step to specific individuals. 5. Decision makers should assume that things will not go smoothly during implementation. Useful questions to ask are (Exhibit 3.6): a. What problems could this action cause? b. What can we do to prevent the problems? c. What unintended benefits or opportunities could arise? d. How can we make sure they happen? e. How can we be ready to act when the opportunities come? F. Evaluating the Decision 1. The final stage in the decision-making process is evaluating the decision. 2. Collect information on how well the decision is working. 3. Decision evaluation is useful whether the feedback is positive or negative. 4. If the decision appears inappropriate, it’s back to the drawing board. Management in Action Progress Report A Huge Problem at Uber Susan Fowler kept meticulous records of the year she worked for Uber as a software engineer. During that time, she was an exemplary employee but reportedly faced repeated instances of sexism and sexual harassment, only to see the offending managers let off with a reprimand at best. Sometimes her complaints to human resources were denied, sometimes they were belittled and minimized as a “first offense,” and at other times, according to the revealing blog post she wrote later, Fowler was told she herself was the problem. Fowler’s explosive blog post also included allegations that brutally competitive behavior originated with the company’s top managers: “It seemed like every manager was fighting their peers and attempting to undermine their direct supervisor so that they could have their direct supervisor’s job. . . . They boasted about it in meetings, told their direct reports about it, and the like.” Her accusations sparked an immediate reaction from the company’s founder, Travis Kalanick. At a meeting of all employees, Kalanick announced a thorough investigation into the company culture. Questions • Why do you think it took so long for Uber’s management to recognize that the company had a problematic corporate culture? What indications of the problem did it apparently overlook? Answers will vary; however, responses may touch upon an unhealthy corporate culture and tacit support from senior management. • Assuming the investigation confirms that the problem is an aggressive company culture that discriminates against women, how do you think the company’s managers should begin to generate solutions? While there are multiple possible answers, students may mention training, aggressive enforcement of policy, and leadership change. III. THE BEST DECISION POWERPOINTS Slide 18 The Best Decision LO 3: Recognize the pitfalls you should avoid when making decisions 1. Vigilance is a process in which a decision-maker carefully executes all six stages of decision making, including making provisions for implementation and evaluation. 2. Managers need to know that they did their best to make the best possible decision. Example 3.3 Best Decision Sometimes, coming up with the “best” decision involves a willingness to simply admit failure. Coca Cola’s CEO and Chairman, Neville Isdell, is candid about the fact that success is often built on failed decisions. At Coke’s annual meeting in 2006, Isdell told investors, “You will see some failures. As we take more risks, this is something we must accept as part of the regeneration process.” Isdell believes that drink failures such as “Choglit” (a chocolate milk drink) and “OK Soda” (which tried to capture Gen X drinkers) helped the organization move forward to discover successes such as “Vitamin Water.” IV. BARRIERS TO EFFECTIVE DECISION MAKING POWERPOINTS Slide 19 Barriers to Decision Making A. Psychological Biases 1. Illusion of control is a belief that one can influence events, even when one has no control over what will happen. 2. Framing effects refer to a decision bias influenced by the way in which a problem or decision alternative is phrased or presented 3. Discounting the future is a bias weighing short-term costs and benefits more heavily than longer-term costs and benefits. B. Time Pressures 1. Instead of relying on long-range planning and futuristic forecasts, focus on real-time information. 2. Involve people more effectively and efficiently. C. Social Realities 1. Interpersonal factors decrease decision-making effectiveness. 2. Many decisions are the result of intensive social interactions, bargaining, and politicking. CONNECT Video Case: ISeeIt! Animated Video: Decision-Making Heuristics SUMMARY When making decisions, people frequently rely on cognitive shortcuts to facilitate the process. Accordingly, eight common types of decision-making biases are reviewed in this brief five-minute animated video. ACTIVITY After the video on the decision-making heuristics, students answer a series of multiple-choice question to reinforce their understanding of these common heuristics. CLASS DISCUSSION IDEAS The instructor may wish to involve the students in the exercise by having them offer how they have applied the heuristics and the potential issues with using them. CONNECT Click and Drag: Psychological Bias at Work in Job Search (An alternative multiple-choice version is also available. SUMMARY When managers use the six-stage decision-making processes, better decisions result, but vigilance and full execution of the rational process is the exception rather than the rule. Managers who make sure they engage in these processes are more effective. Why don't people automatically invoke such rational processes? One reason is that people have biases that interfere with objective rationality. Biases impact the way in which we conduct various activities, such as job searches. In this activity, students consider the job search experiences of several individuals and identify the psychological barrier to effective decision making that is operating to inhibit their respective job search. ACTIVITY The goal of this activity is to demonstrate the biases that frequently interfere with making objective decisions. After reading the mini case that features brief descriptions of job seekers, students match the person with the psychological bias or other decision barrier that he or she is exhibiting. CLASS DISCUSSION IDEAS Instructors may wish to facilitate a discussion to explore methods that student may use to overcome or lessen the impact of the biases feature in the exercise. V. DECISION MAKING IN GROUPS POWERPOINTS Slide 20 Pros and Cons of Group Decision Making Slide 21 Groupthink and Goal Displacement LO 4: Evaluate the pros and cons of using a group to make decisions A. Potential Advantages of Using a Group 1. More information is available when several people are making the decision. 2. There are a greater number of perspectives on the issues or different approaches to solving the problem. 3. An opportunity for intellectual stimulation is achieved. 4. People are more likely to understand why the decision was made. 5. Groups lead to a higher level of commitment to the decision. B. Potential Problems of Using a Group 1. Sometimes one group member dominates the discussion. 2. Satisficing is more likely with groups. 3. Pressure to avoid disagreement can lead to a phenomenon called groupthink. a. Groupthink is a phenomenon that occurs in decision-making when group members avoid disagreement as they strive for consensus 4. Goal displacement often occurs in groups. a. Goal displacement is a condition that occurs when a decision-making group loses sight of its original goal and a new, possibly less important goal emerges. CONNECT Video Case: Panera Bread SUMMARY In this 10-minute video, CEO Ron Shaich presents his vision of Panera Bread. Shaich works with his executive team and store managers to plan and control company growth through setting goals, collecting and analyzing data, and continually revisiting their initial company vision. The video also touches on employee empowerment and engagement. ACTIVITY After viewing the video, students are directed to answer a series of multiple-choice questions. CLASS DISCUSSION IDEAS Emphasizing the importance of a vision to achieve organizational outcomes, have a class discussion on whether or not Panera’s vision impacts how the planning process is executed. Teaching Tip A widely recommended tool to help students understand how decisions are made in groups is the movie 12 Angry Men. If you can, get the 1957 version. Go through the material above on the advantages and disadvantages of group decision making, then ask the class to watch for examples of each of these things in the movie. This exercise leads to rich discussions of the nature of group decision making and how groups can change and evolve over time. Example 3.4 Groupthink Is the evening news an example of groupthink at work? According to Brian Lowry, a reporter for the Daily Variety, journalists propagate groupthink every time they latch onto a story and report it incessantly, almost without thought. Ask students how many have heard of Adam Lansford, the person responsible for killing 20 children and 6 adults at Sandy Hook Elementary School in Connecticut. In the months following December 14, 2012, school districts around the nation scrambled to increase security systems and hire additional armed security officers. And yet, the risk of students being killed in a car on the drive to school is far greater than the possibility of getting shot by a crazed gunman. In 2011, almost 30,000 people lost their lives in automobile accidents in the United States. VI. MANAGING GROUP DECISION MAKING POWERPOINTS Slide 22 Exhibit 3.8 Managing Group Decision Making Slide 23 Conflict Types Slide 24 Encouraging Conflict Slide 25 Encouraging Creativity Slide 26 Brainstorming Slide 27 Improving the Effectiveness of Brainstorming LO 5: Identify procedures to use in leading a decision-making group. A. Leadership style 1. The leader of a decision-making body must attempt to minimize process-related problems. 2. The leader should avoid dominating the discussion. 3. Don’t lose sight of the problem. 4. Make a decision! B. Constructive Conflict 1. The most constructive type of conflict is cognitive conflict or issue-based differences in perspectives or judgments about issues. 2. Affective conflict is emotional and directed at other people. 3. A devil’s advocate has the job of criticizing ideas to ensure that their downsides are fully explored. 4. The dialectic goes a step beyond devil’s advocacy by requiring a structured debate between two conflicting courses of action. Example 3.5 Problems with group decision-making Jared Diamond, the professor of Geography at the University of California, Los Angeles, who wrote Guns, Germs, and Steel, tells a story about the Easter Islanders, a Polynesian people who settled a heavily forested island. Over time, the group learned the benefits of chopping down trees to make everything from shelters to canoes. Unfortunately, they continued chopping down trees until the last tree was gone, and most of them died when their food source disappeared, and they started eating each other. Diamond offers four reasons for problems with group decision making: 1) failure to anticipate a problem; 2) failure to perceive that a problem exists; 3) failure to even try to solve the problem; and 4) failure of problem-solving attempts. The good news is that knowledge of these four problems can help group leaders to work with groups more effectively in the decision-making process. LO 6: Explain how to encourage creative decisions C. Encouraging Creativity 1. You are being creative if you (Exhibit 3.9): a. bring a new thing into being (creation) b. join two previously unrelated thing (synthesis) c. improve something or give it a new application (modification) D. Brainstorming 1. Brainstorming is a process in which group members generate as many ideas about a problem as they can; criticism is withheld until all ideas have been proposed. Multiple Generations at Work Crowdsourcing: An Inexpensive Source of Creative Ideas When faced with a difficult work problem to solve, a Baby Boomer manager’s first impulse is to seek the opinion of experts who have significant experience and a proven track record in the area in question. In contrast, a millennial employee may be more inclined to crowdsource or solicit ideas, opinions, and suggestions from members of large online networks. A variety of individuals are using crowdsourcing to their advantage. Anyone from cash-starved entrepreneurs to charities and large companies can use it to accomplish a variety of objectives and goals. Example 3.6 Thinking creatively With 9/11, Victorinox and Wenger, manufacturers of Swiss Army Knives faced a dilemma. Sales plunged as people found out that they were not allowed to carry pocket knives on planes. Thinking creatively, Victorinox and Wenger took two different approaches to the problem. Victorinox modified the knife itself, adding things such as flashlights and a memory stick to its knives, and created detachable blades so that a traveler can still take the other components of the knife through airport security. Wenger changed the look and feel of its knives, focusing on giving customers knives that mold to their hands. In addition, the two companies merged as a way of pooling resources . Teaching Tip This is a good brainstorming problem if you want the entire class to work on the same problem. In large lectures, break the class into small groups and give a prize for the most creative idea, the idea closest to the one suggested by the manufacturer, etc. VII. ORGANIZATIONAL DECISION MAKING POWERPOINTS Slide 28 Models of Organizational Decision Processes (1 of 2) Slide 29 Models of Organizational Decision Processes (2 of 2) Slide 29 Models of Organizational Decision Processes (2 of 3) Slide 30 Decision Making in a Crisis Slide 31 Elements of a Crisis Plan Slide 32 Management in Action Slide 33 In Review LO 7: Discuss the processes by which decisions are made in organizations. A. Constraints on decision makers are financial, legal, market, human, or organizational. B. Organizational decision processes 1. Bounded Rationality is a less-than-perfect form of rationality in which decision-makers cannot be perfectly rational because decisions are complex and complete information is unavailable or cannot be fully processed Models of organizational decision processes Incremental model is a model of organizational decision-making in which major solutions arise through a series of smaller decisions. Coalitional model is a model of organizational decision making in which groups with differing preferences use power and negotiations to influence decisions. Garbage can model is a model of organizational decision making depicting a chaotic process and seemingly random decisions. Example 3.7 Decision-making in the Marines General Peter Pace, U.S. Marine Corps and Vice Chairman of the Joint Chiefs of Staff, offers the following insights into how decisions are made in the Marine Corps.: People who have the responsibility for making decisions must make them. Pace tells the story of being in Vietnam on patrol. Each time the unit came to a fork in the road, Pace asked his commander whether he should go left or right. Finally, the commander said “You’re the lieutenant. You’re up there to make the decisions. Figure it out.” In a crisis, you may not have time to get a lot of input before making a decision. For that reason, it is important to be collaborative in non-crisis situations, because then people will be more likely to trust the decisions you have to make on your own. It is better to be doing something than doing nothing. The most effective decision may be the least predictable one—talk about possibilities before making a final decision. Talk about your mistakes, so that both you and others can learn from them. Don’t ask anyone to do something unless you are willing to accept the risks and give them the resources to do it. Learning has to be an ongoing process. Put together a “lessons learned” team to share information and promote better understanding. LO 8: Describe how to make decisions in a crisis. C. Decision Making in a Crisis 1. Managers must make decisions under pressure in a crisis. 2. An effective plan for crisis management includes: a. Strategic actions b. Technical and structural actions c. Communication actions d. Psychological and cultural actions 3. Ultimately, management should be able to answer the following: a. What kinds of crises could your company face? b. Can your company detect a crisis in its early stages? c. How will it manage a crisis if one occurs? d. How can it benefit from a crisis after it has passed? Example 3.8 Decision-making in a crisis The crises described in the text talk primarily about what a CEO should do when something bad has happened to the organization. But it is also instructive for students to study how the decisions team leaders make in a crisis can literally mean the difference between life and death for those caught up in the crisis. One example, the Storm King Mountain incident, is described by Michael Useem as a series of nine decisions made by Smokejumper Don Mackey during a forest fire in 1994. These decisions, some good and some bad, led to the deaths of 12 firefighters, who were less than 100 yards short of safety when they died. Have students review the following decisions and discuss which of the above rules they obey/disobey. Time until fire blowup Decision Made 16.5 hrs. Don Mackey, a smokejumper who has leaped into the Storm King fire six hours prior, radios a request for two more fire crews. 10.5 hrs. Don Mackey asks for aerial surveillance of the fire—his request is turned down. 6.5 hrs. Mackey and another smokejumper, Butch Blanco, the leader of another crew, take a helicopter up to survey the fire. 6 hrs. Mackey suggests the risky strategy of cutting a fire line below the flames on the west flank of the ridge—Blanco agrees. 2 hrs. Mackey wonders whether he or Blanco is in charge, but does not talk with Blanco about it. As a result, neither man assigns someone to a lookout position. 1.5 hrs. A local weather forecast predicts strong winds, but no rain. Mackey neither asks for nor receives, the information. 30 min. Mackey orders another firefighter, Sarah Doehring, to leave the fire line, and go to the top of the main ridge. As a result, Doehring is not killed with the other firefighters. 6 min. As the fire blows up and becomes a continuous flaming front, Mackey sends six firefighters to Lunchspot Ridge, where they all reach safety. 0 min. Mackey risks and loses his life by going back to the fire line to assist crew members in getting to safety on the ridge. CONNECT Click and Drag: Crisis Management Before and After the Storm (An Alternate Matching Version is also available.) SUMMARY At one point or another, most organizations face some type of crisis. In these situations, management must make decisions under a great deal of pressure, and while many companies don’t concern themselves with crisis management, it is imperative that it can be on every management team’s agenda. Management guru Ram Charan suggests that there are specific things that leaders should do after the crisis in order to move their companies forward. Those include: (1) Change your mindset. Acknowledge that the world has changed. Question everything that worked during the boom years. Prepare for the worst so you can beat competitors who haven’t. (2) Get your financial house in order. Strengthen your balance sheet so you can raise funds to invest for growth. (3) Make a move for market share. The pie is getting smaller, and unprepared competitors are getting weaker. Buy assets at low prices. Solicit new customers while your rivals are cutting back on service. (4) Rethink your reward system. Although it is tempting to make across-the-board pay cuts, make sure you reward your best people, so they aren’t tempted to leave to join a healthier, higher-paying employer. If you have to cut someone’s pay, start with yourself. (5) Dare to innovate. ACTIVITY The goal of this activity is to demonstrate the impact of crisis management plans. Students directed to match the actions of the crisis management plan to the corresponding recommendation of Ram Charan. CLASS DISCUSSION IDEAS Instructor’s may wish to follow up on the exercise by offering a “crisis” that a student may face. For example, can Ram Charan’s steps be applied to failing a test in a challenging course? Management in Action Onward Uber in Crisis There is little doubt that Uber’s innovative technology has disrupted the taxi industry. While its service has been a boon to many a late-night partygoer and stranded office worker, the company has also recently experienced a series of escalating crises that could imperil its future. In addition to allegations of widespread sexism and sexual harassment, Uber recently faced accusations from current and former employees that for years it has fraudulently applied a data-sharing program to secretly identify and evade enforcement officials in cities where it had been banned or was not yet authorized to operate. Intended as a means of identifying potentially problematic riders to protect its drivers, the program, called VTOS (for violation of terms of service), employs a software tool called Greyball. Together these technologies have reportedly been used to tag would-be riders Uber suspected might be municipal enforcement officers. Despite some doubts within the company about whether it was legal or ethical, the Greyballing strategy has been used in the United States and about 12 foreign countries. Questions •What management decisions within Uber probably led to the Greyball crisis? There are numerous approaches to this question; however, students may focus on framing effects and discounting the future. •What principles of group decision-making could help Uber make decisions during this crisis? Student responses may include methods such as Devil’s advocate and dialectic. Students may also speak to cultural changes that would allow for a contribution to be more safely made and given consideration. BOTTOM LINE What qualities or results of a management decision make it a “good” decision? A good management decision maintains or improves the company’s value and profitability. This might result from innovation, high quality, great service, speedy execution, cost competitiveness, or sustainable products or processes. A good decision also is ethical. What could be the negative consequences of making decisions that maximize only innovation? Decisions that are merely innovative may ignore quality, service, speed, costs, sustainability, or ethics. Not every innovation is in the company’s best interests. What might be the long-term consequences of not investing in energy efficiency? Not investing in efficiency would save money in the present in exchange for spending more on energy in the future. Depending on the details of a particular situation, and given the potential for energy prices to rise, the long-term consequences could be very high energy costs. Students might also consider impacts on the environment and the company’s reputation. When you are under time pressure, what can you do to avoid mistakes? The chapter suggests three methods: monitoring real-time information to keep decisions realistic and attuned to results, involving experts in the decision making to obtain good advice and insights, and taking a realistic view of conflict so that it views are considered by the conflict doesn’t hamper progress. In addition, students may have other ideas based on their own experiences with time pressure. When you’re meeting with a group, how can you help to make sure everyone is contributing? One basic approach is to make sure you are listening carefully and not taking over the whole discussion. Another is to notice whether others are contributing and to invite ideas from people who are quiet. Students may have additional ideas based on their own experiences with group activities. Why is listening a part of stimulating creativity? Given that group work can stimulate creative ideas, those ideas will be lost if participants in the group don’t listen to the ideas in order to build on them. Say you’re a manager who dreamed up a great process for cutting costs. Whose buy-in might you need to implement this innovation? Students might think someone in a powerful position in an organization can merely dictate ideas and have them be implemented. But the reality is that success requires managers to obtain the commitment of the people required for implementing the idea. Only with that implementation does an idea in the manager’s mind become an innovation in the organization. Depending on the idea, managers also might need the approval of others, such as colleagues in other departments, union leaders, and government officials. SOCIAL ENTERPRISE Saul Garlick’s Social Enterprise: Nonprofit or For-Profit? While still in high school, Saul Garlick founded a nonprofit to fight poverty in Africa by encouraging entrepreneurship. He later decided he could best do the work of his non-profit by converting it to a for‐profit social enterprise, ThinkImpact. Questions 1. What are the advantages and disadvantages of market-based solutions to problems in developing countries? Market-based solutions are advantageous in your ability to raise money and strategize in a way that additional revenues will come in. These revenues would be used for returning profit to those who have invested. However, a disadvantage is that you would also be managed by your investors and will also have some tax disadvantages with the money that has been raised. 2. Would you consider attending a Think Impact learning program in an international location? Why or why not? The program seems intriguing whereas students and faculty could study social entrepreneurship, which is a growing area of business. By having a hands-on approach to learning about social entrepreneurship in areas such as Africa, students and faculty would have a great insight into the application of theories learned in the classroom. Nevertheless, these travels have their own burdens and risks, which may turn off some students and faculty who do not want to travel to such locations and/or believe that the organization being for-profit brings a negative connotation. LECTURETTES LECTURETTE 3.1 The Eco-Cars The Decision to Catch-up 1. Japanese automakers have kicked their eco-car efforts into high gear by selling adaptations of current-model cars and sport-utility vehicles equipped with hybrid powertrains. Honda Motor Co. has decided to sell a hybrid Civic in Japan starting in 2012. Toyota has responded by adding the Camry and Highlander SUV to their existing Prius to expand their presence in the eco-car market. 2. Where’s Detroit? Playing catch-up again. The hybrid decision by U.S. automakers to fight environmentalists’ efforts to toughen federal gas-mileage rules has been the plan of management to become more competitive. U.S. manufacturers are being squeezed by regulations and by competitors who have found a way to sell environmentalism. After borrowing from future allowances to meet federal fuel-economy standards, Ford Motor Co. now must boost mileage in its fleet if it’s to avoid millions of dollars in fines. Ford recently added the Transit Electric light-duty vehicle to its existing eco-vehicles which include the Escape mini-SUV and the Fusion. GM is producing the economical Chevy Volt. Hybrid Pickups 1. Ford, GM, and Chrysler are all scrambling to match Honda and Toyota. Ford plans to introduce a gas-and-electric version of its new Escape SUV that would get 40 mpg, nearly twice the mileage of the gas-powered model. Ford projects to sell as many as 20,000 of the hybrid version annually. A similar decision has been made by General Motors Corp. They have responded with these hybrids: the Chevrolet Tahoe, Cadillac Escalade, Silverado and GMC pickup trucks Chrysler has decided to produce a hybrid Durango SUV to be competitive in this market. 2. Managers of the big three American automobile manufacturers are hedging that by the time its hybrids are available on a mass scale that technology will be more developed and Washington will support the initiative with tax incentives. Daimler Chrysler says it could sell as many as 80,000 hybrid Durango’s if the government turbo-charges the market with tax incentives. 3. Critics state the popularity of the Honda and Toyota cars makes it appear that U.S. automakers may be fumbling a huge opportunity. Managerial decision making by the big three has missed it in the past, and there’s a good possibility they can make the wrong decision this time as well. Hybrids may turn out to be much more than just a stopgap solution. Ultimately, the goal is to make cars that run on fuel cells requiring not one drop of gasoline. In the meantime, carmakers are learning valuable lessons with hybrid cars’ electric systems, which will likely find their way into those next-generation vehicles. The decision for consumers is whether the benefits of owning such an eco-car will exceed the satisfaction of driving a gasoline-powered vehicle. LECTURETTE 3.2 Eight Steps to Success in Negotiating According to Mintzberg, an important managerial role is one of decision-making. This role is analyzed and broken into four steps. One step involves the manager’s responsibility for negotiating contractual agreements, for example with labor unions. Good negotiating skills are particularly important in today’s business environment. “Americans are the least likely to plan ahead. We’re very impulsive because we’re trying to get more done faster. As a result, we may get into more conflicts. We end up making agreements that don’t stick,” says Kare Anderson, president of The Compelling Communication Group. Consequently, employing the right negotiating tactics is more important than ever. Following are eight fundamental steps to winning at the negotiating game: 1. Take stock of your weaknesses. Most people don’t have a clue about how to get what they want—other than to make demands and dig in their heels. Take time to learn the basics by signing up for a reputable training session. 2. Determine your bottom-line goal. You have to identify the one thing you must come away with. It should be one tangible, concrete objective. If you can’t tell whether or not your goal has been achieved, then it’s not solid enough. 3. Learn as much as possible about the other party. If you’re negotiating with a business, collect company brochures, annual reports, trade journals, and newspapers that cover local business news. You can also search the Internet and commercial databases for information on whom else might be a negotiation for the same thing you’re after. 4. Establish a relationship before the negotiation begins. The worst place for the first meeting with the individual with whom you’re negotiating is the negotiation table. Try to have a pre-meeting to get acquainted and let them know you realize this is an important negotiation for both of you and you believe both can benefit by getting a sense of how each other operates. It is also helpful if you get to know the people who are nearest the other party. 5. Create and stick to an agenda. Formulating a blueprint helps keep the discussion on track and reduces the chances of extraneous issues working their way in. Both parties must have input for blueprints to be acceptable. Make a copy for your consensus and distribute it to the members of both negotiating teams. 6. Don’t let the talks get personal. Emotions can run high when there’s a lot at stake, and it’s easy to vent frustration by lashing out at the other party. The best approach is to sit back and listen, don’t get into it, don’t cave into the other person, and refuse to fight on their level. Spread out your range of negotiation items. 7. If there’s a stalemate, find the underlying cause. “Stalemates usually develop over small things, not the large matters. Fear and uncertainty are often what kills the deal,” says Michael Hoesly. 8. When a deadlock looks hopeless, buy time. If there’s a deadlock, take a timeout to think about what’s been said. Take time to review what you’ve been arguing about and try to approach it another way. When all else fails, you can bring in an impartial third party to act as a counter-balance. The experiences and suggestions of business people, as well as specialists in the field, indicate negotiators are made, not born. With careful forethought and perhaps a measure of training, just about anyone can develop the ability to win the best deal possible. Instructor Manual for Management: Leading and Collaborating in a Competitive World Thomas S. Bateman, Scott A. Snell, Robert Konopaske 9781259927645, 9781259546945

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