Decision Making

in Organizations

Chapter 10

Learning Objectives
1.
2.

3.

4.
5.

6.

Identify the steps in the analytical model of decision making and

distinguish between the various types of decisions people make.
Describe different individual decision styles and the various
organizational and cultural factors that influence the decisionmaking process.
Distinguish among three approaches to how decisions are made:
the rational-economic model, the administrative model, and image
theory.
Identify the various factors that lead people to make imperfect
decisions.
Compare the conditions under which groups make more superior
decisions than individuals and when individuals make more
superior decisions than groups.
Describe various traditional techniques and high-tech techniques
that can be used to enhance the quality of individual decisions and
group decisions.
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Decision Making
The process of making choices from among
several alternatives.
Analytical Model of the Decision-Making
Process:
Process An eight-step approach to
organizational decision making that focuses
on both the formulation of problems and the
implementation of solutions.
Formulation: The process of understanding a

problem and making a decision about it.

Implementation: The process of carrying out a
decision.

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The Decision-Making
Process

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Organizational Decisions
Programmed vs.
Nonprogrammed
Certain vs.
Uncertain
Top-down vs.
Empowered
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Programmed vs.
Nonprogrammed

Programmed:
Programmed Highly routine decisions
made by lower-level personnel following
preestablished organizational routines
and procedures.
Nonprogrammed:
Nonprogrammed Decisions made about a
highly novel problem for which there is no
prespecified course of action.
Strategic:
Strategic Nonprogrammed decisions typically
made by high-level executives regarding the
direction their organization should take to
achieve its mission.
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Programmed vs.
Nonprogrammed

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Certain vs. Uncertain

Usually expressed as statements of risk.
What makes an outcome risky is the probability of
obtaining the desired outcome.
Objective probabilities are based on concrete, verifiable data.
Subjective probabilities are based on personal beliefs or
hunches.

To make the best possible decisions in organizations,

people seek to manage the risks they take.
Efforts to reduce uncertainty include
Establishing linkages with other organizations
Increasing access to information
Relying on past experience and expertise

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Top-Down vs. Empowered

Top-Down Decision Making:
Making

The
practice of vesting decision-making
power in the hands of superiors as
opposed to lower-level employees.
Empowered Decision Making:
Making The
practice of vesting power for making
decisions in the hands of employees
themselves.
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Factors Affecting Decisions

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Individual
differences
Group influences
Organizational
barriers
Cultural
differences
Time pressure
10

Individual Differences
Decision Style:
Style Differences between people
with respect to their orientations toward
decisions.
Decision Style Model:
Model The conceptualization
according to which people use one of four
predominant decision styles:
Directive
Analytical
Conceptual
Behavioral
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Decision-Style Model

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Group Decision Making

Potential Benefits:
Benefits
Pooling of resources
Specialization of labor
Greater acceptance

Potential Problems:
Problems
Wasted time
Disruptive conflict
Intimidation by group leaders

Groupthink:
Groupthink The tendency for members of highly
cohesive groups to so strongly conform to group
pressures regarding a certain decision that they
fail to think critically, rejecting the potentially
correcting influences of outsiders.

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Groupthink

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Cultural Differences
Whether

situations are perceived as

problems requiring a decision be made.
What type of decision-making unit
(individual or group) is employed.
Who is expected to make the decision
(i.e., at what level is the decision made).
How much time should be taken to
make the decision.
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Time Pressure
Inexperienced individuals generally take
longer to make decisions than experts do.
Expert decision makers rely on their gut
instinct by drawing on a wealth of
accumulated experiences.

To increase decision-making effectiveness

under time constraints:

Recognize your prime objectives

Rely on outside experts
Anticipate crises
Learn from mistakes

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Decision-Making
Approaches
The

RationalEconomic
Model
The
Administrative
Model
Image Theory
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The Rational-Economic
Model
Rational Decisions:
Decisions Decisions that
maximize the chance of attaining an
individuals, groups, or
organizations goals.
Rational-Economic Model:
Model The
model of decision making according
to which decision makers consider
all possible alternatives to problems
before selecting the optimal solution.
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The Administrative Model

A model of decision making that recognizes the
bounded rationality that limits the making of optimally
rational-economic decisions.
Satisficing Decisions:
Decisions Decisions made by selecting
the first minimally acceptable alternative as it becomes
available.
Bounded Rationality:
Rationality The major assumption of the
administrative model that organizational, social, and
human limitations lead to the making of satisficing
rather than optimal decisions.
Bounded Discretion:
Discretion The tendency to restrict decision
alternatives to those that fall within prevailing ethical
standards.

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Image Theory
A theory of decision
making that
recognizes that
decisions are made in
an automatic, intuitive
fashion based on
actions that best fit
their individual
principles, current
goals, and plans for
the future.

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Imperfections in Individual
Decisions

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Framing Effects
Reliance on
Heuristics
Bias toward Implicit
Favorites
Hindsight Bias
Person Sensitivity
Bias
Escalation of
Commitment Bias
21

Framing Effects
The tendency for people to make different decisions based
on how the problem is presented to them.
Risky Choice Framing Effect:
Effect The tendency for people to
avoid risks when situations are presented in a way that
emphasizes positive gains and to take risks when situations
are presented in a way that emphasizes potential losses
that may be suffered.
Attribute Framing Effect:
Effect The tendency for people to
evaluate a characteristic more positively when it is
presented in positive terms than when it is presented in
negative terms.
Goal Framing Effect:
Effect The tendency for people to be more
strongly persuaded by information that is framed in
negative terms than information that is framed in positive
terms.

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Framing Effects

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Heuristics
Simple decision rules used to make quick
decisions about complex problems.
Availability Heuristic:
Heuristic The tendency for people to
base their judgments on information that is
readily available to them although it may be
potentially inaccurate, thereby adversely affecting
decision quality.
Representativeness Heuristic:
Heuristic The tendency to
perceive others in stereotypical ways if they
appear to be typical representatives of the
category to which they belong.
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Hindsight Bias
The tendency for
people to perceive
outcomes as more
inevitable after
they have occurred
(i.e., in hindsight)
than they did
before they
occurred (i.e., in
foresight).
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Person Sensitivity Bias

The tendency for people to give others too little
credit when things are going poorly and too
much credit when things are going well.

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Escalation of Commitment
The tendency for individuals to continue to support
previously unsuccessful courses of action.

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When are Groups Superior to

Individuals?
Complex Decision Tasks
For groups to be superior to individuals, they
must be composed of a heterogeneous
collection of experts with complementary skills
who can freely and openly contribute to their
groups product.

Simple Decision Tasks

On simple tasks, two heads may be better than
one if at least one of those heads has in it
enough of what it takes to succeed.
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Group vs. Individual Decision

Making

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When are Individuals Superior to

Groups?
On poorly structured, creative tasks,
individuals perform better than groups.
Brainstorming:
Brainstorming A technique designed to
foster group productivity by encouraging
interacting group members to express their
ideas in a noncritical fashion.
Four main rules:
Avoid criticizing each others ideas
Share even far-out suggestions
Offer as many comments as possible
Build on others ideas to create your own

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Brainstorming

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Improving Decision Making

Individual

Techniques

Training individuals to improve group

performance
Making ethical decisions
Group

Techniques

The Delphi technique

Nominal group technique
Stepladder technique
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Training: Errors to Avoid

Hypervigilance
Unconflicted

Adherence
Unconflicted
Change
Defensive
Avoidance
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Hypervigilance
Problem:
Solution:
Problem:
Solution:
Keep in mind that its
Thestate
state in
inwhich
whichan
an

The
Keep in mind that its
individualfrantically
frantically
individual
best to
to stick
stickwith
with one
one
best
searchesfor
forquick
quick
searches
suggestion and
and work
work
suggestion
solutionsto
toproblems
problems
solutions
outthoroughly.
thoroughly.
ititout
and
goes
from
one
idea
and goes from one idea
Reassure decision

toanother
anotherout
outof
ofaa
Reassure decision
to
makersthat
that their
their level
level
senseof
ofdesperation
desperation
makers
sense
thatone
oneidea
idea isnt
isnt
ofskill
skilland
and education
education
that
of
workingand
andthat
that
isadequate
adequateto
tosolve
solve
working
is
anotherneeds
needsto
tobe
be
another
theproblem.
problem.
the
consideredbefore
beforetime
time
considered
runsout.
out.
runs
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Unconflicted Adherence
Problem:
Problem:
Thetendency
tendencyfor
for
The
decisionmakers
makersto
to
decision
stickto
tothe
thefirst
firstidea
idea
stick
thatcomes
comesto
to their
their
that
mindswithout
withoutmore
more
minds
deeplyevaluating
evaluatingthe
the
deeply
consequences.
consequences.

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Solution:
Solution:
Think about the difficulties

Think about the difficulties

associatedwith
with your
your
associated
ideas.
ideas.
Force yourself to consider

Force yourself to consider

different ideas.
ideas.
different
Consider the special and

Consider the special and

uniquecharacteristics
characteristicsof
of
unique
theproblem
problemyou
youare
are
the
facing,and
andavoid
avoidcarrying
carrying
facing,
overassumptions
assumptionsfrom
from
over
previousproblems.
problems.
previous
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Unconflicted Change
Problem:
Problem:
The tendency
tendency for
for
The
people to
to quickly
quickly
people
change their
their
change
minds and
and to
to
minds
adopt the
the first
first
adopt
new idea
idea to
to come
come
new
along.
along.

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Solution:
Solution:
Ask yourself
yourself about:
about:
Ask
The
The risks
risks and
and

problems of
of adopting
adopting
problems
the solution.
solution.
the
The
The good
good points
points of
of the
the

first idea.
idea.
first
The
The relative
relative strengths
strengths

and weaknesses
weaknesses of
of
and
both ideas.
ideas.
both
36

Defensive Avoidance
Problem:
Problem:
The tendency
tendency for
for
The
decision makers
makers to
to
decision
fail to
to solve
solve
fail
problems because
because
problems
they go
go out
out of
of their
their
they
way to
to avoid
avoid
way
working on
on the
the
working
problem at
at hand.
hand.
problem
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Solution:
Solution:
Avoid
Avoid

procrastination.
procrastination.
Avoid
Avoid disowning
disowning

responsibility.
responsibility.
Dont
Dont ignore
ignore

potentially
potentially
corrective
corrective
information.
information.
37

Ethics Questions
1.
2.
3.

4.
5.
6.

Does the contemplated decision violate

the obvious shall nots?
Will anyone get hurt?
How would you feel if your decision was
reported on the front page of your
newspaper?
What if you did it 100 times?
How would you feel if someone did it to
you?
Whats your gut feeling?
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Delphi Technique
A method of improving group decisions using the opinions of
experts, which are solicited by mail and then compiled.
The expert consensus is used to make a decision.

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Nominal Group Technique

A technique for
improving group
decisions in which small
groups of individuals
systematically present
and discuss their ideas
before privately voting
on their preferred
solution. The most
preferred solution is
accepted as the groups
decision.
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Stepladder Technique
A technique for improving the quality of group decisions that minimizes
the tendency for group members to be unwilling to present their
ideas by adding new members to a group one at a time and requiring
each to present his or her ideas independently to a group that
already has discussed the problem at hand.

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Computer-Based
Approaches

Electronic Meetings:
Meetings The practice of bringing
individuals from different locations together for a
meeting via telephone or satellite transmissions,
either on television monitors or via shared space
on a computer screen.
Computer-Assisted Communication:
Communication The sharing
of information, such as text messages and data
relevant to the decision, over computer networks.
Group Decision Support Systems (GDSS):
Interactive computer-based systems that combine
communication, computer, and decision
technologies to improve the effectiveness of group
problem-solving meetings.

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