Chapter 10 Decision Making by Individuals and Groups
Michael A. Hitt C. Chet Miller Adrienne Colella Slides by R. Dennis Middlemist
Knowledge Objectives 1. 2. 3. 4.
Describe the basic steps in decision making. Discuss the four decision-making styles, emphasizing the effectiveness of each one. Explain the role of risk-taking propensity and reference points. Define cognitive bias and explain the effects of common types of cognitive bias on decision making.
Knowledge Objectives 5. 6. 7.
Discuss common pitfalls of group decision making. Describe key group decision-making techniques. Explain the factors managers should consider in determining the level of associate involvement in managerial decisions.
Decision-Making Process Define the Problem
Identify Criteria
Decisions: Choices of actions from among multiple feasible alternatives • Define the problem
Gather and Evaluate Data
–
Gaps between where we are today and where we would like to be tomorrow
• Identify the criteria –
What information is needed in order to evaluate alternatives?
• Gather and evaluate data –
Adapted from Exhibit 10-1: The Decision-Making Process
Collect information relevant to the criteria and potential alternatives
Decision-Making Process Define the Problem
Identify Criteria
Decisions: Choices of actions from among multiple feasible alternatives • List and evaluate alternatives
Gather and Evaluate Data
–
–
List and Evaluate Alternatives
Develop an complete list of possible solutions to the problem (few constraints) Assess each alternative using each criterion from step 2
• Select best alternative –
Select Best Alternative
Choose the one which satisfies the criteria the best
• Implement and follow up –
Implement and Follow Up Adapted from Exhibit 10-1: The Decision-Making Process
Monitor the results
Optimal versus Satisfactory Decisions
Optimal decision –
The maximizing decision, yielding the absolute best result
Satisficing decision –
Satisfactory rather than optimal decision
Lack capability to collect and process all of the information relevant for a particular decision Will never know if all possible alternatives have been identified Lack of time and other necessary resources for completing all of the decision activities Thus, a tendency to choose the first satisfactory alternative discovered
Decision-Making Styles
Individual’s predispositions can affect decision process at two critical stages –
Gathering (Perceiving) of information
–
Sensing style Intuition style
Evaluating (Judging) of alternatives
Thinking style Feeling style
Define the Problem
Decision-Making Styles
Develop and Evaluate List of Alternatives Choose Best Alternative
Perceptual Influences
Feedback
Gather and Evaluate Data
Perceptual Influences
Identify Criteria Sensing
Intuition
Using the five senses to identify factual details
Using abstractions and describing the “big picture�
Thinking
Feeling
Using objective analysis and rational procedures
Using subjective values with emotional and personal factors
Implement and Follow Up Adapted from Exhibit 10-2: Influence of Decision Styles
Degree of Acceptable Risk
Risk exists when the outcome of a chosen course of action is not certain Risk-taking propensity (Willingness to take chances) –
Low risk takers
–
May collect and evaluate more information May become paralyzed by trying to obtain and consider too much information
High risk takers
May may decisions based on too little information May jump to decisions too quickly
Degree of Acceptable Risk
Reference point –
Possible level of performance used to evaluate one’s current standing, and may be
– –
a goal a minimum acceptable level of performance the average performance level of others
If one’s current standing is below his reference point he may take more risk to move above it If one’s current standing is above his reference point he may take less risk to avoid moving below it
Cognitive Biases Ease of recall bias Relying too much on information that is easy to recall from memory
Confirmation bias Seeking information that confirms early beliefs and ideas
Cognitive Biases
Sunk-cost bias Not treating past investments (time, effort, money) as sunk-costs when deciding to continue an investment
Anchoring bias Emphasizing too much, the first piece of information encountered
Group Decision Making
Decisions often are made by groups of people – – – –
May be composed of individuals at different or at the same level in the organization May make some decisions without managerial input Tend to follow the same decision-making process Will have dynamics and interpersonal processes that make group decision making very different from decisions made by an individual
Decision-Making Process Common Information Bias
Diversity-based Infighting Risky Shift
Groupthink
Brainstorming
Nominal Group Technique
Group Decision Making
Delphi Technique
Devil’s Advocacy Dialectical Inquiry
Adapted from Exhibit 10-3: Group Decision-Making Phenomena—Pitfalls and Techniques
Group Decision-Making Pitfalls
Groupthink –
Group members maintain or seek consensus at the expense of identifying and debating honest disagreements
Group members like one another and therefore do not want to criticize each other’s ideas Group members have high regard for the group’s collective wisdom and therefore yield to early ideas or the ideas of a leader Group members derive satisfaction from membership in a group possessing a positive self-image and therefore try to prevent the group from having any serious divisions
Group Decision-Making Pitfalls
Groupthink –
Symptoms include
Self-censorship Pressure Unanimity
Rationalization Invulnerability Mindguards
Morality Stereotype
Common information bias –
Group members overemphasize information held by a majority, failing to be mindful of information held by one or a few group members reduces
Availability of unique information ideas Perspectives possessed by individual group members
Group Decision-Making Pitfalls
Diversity-based infighting –
Instead of creating rich discussions and insight, diverse ideas create ill will and fractured groups
May occur when individuals feel strongly about their ideas No mechanisms exist to channel disagreement in productive ways
Risky Shift –
Groups make either riskier decisions than would have been made by individual members acting alone
Direction of shift may be affected by diffusion of responsibility
Group Decision-Making Techniques
Brainstorming –
Large number of ideas are generated while evaluation of the ideas is deferred
Imagination is encouraged. No idea is too unique or different, and the more ideas offered the better Using or building on the ideas of others is encouraged There is no criticism of any idea, no matter how bad it may seem at the time Evaluation is postponed until the group can no longer think of any new ideas
Group Decision-Making Techniques
Nominal group technique 1. 2. 3. 4.
Individuals silently, and without discussion, write down their ideas Each member presents one idea at a time, until all ideas are presented, without discussion Ideas presented on a blackboard and then discussed to clarify and evaluate Silent and independent vote or ranking of alternative choices
Delphi technique –
Highly structured survey of participants regarding their opinions or best judgments
Group Decision-Making Techniques
Dialectical inquiry – –
Debate between very different sets of recommendations and assumptions to encourage full discussion Overcomes tendency of group to avoid conflict when evaluating alternatives
Devil’s advocacy –
–
Individual or subgroup argues against the recommended actions and assumptions put forth by other members of the group Also overcomes tendency of group to avoid conflict when evaluating alternatives
Who Should Decide? (Vroom-Yetton Method) Exhibit 10-4
Managerial Approaches to Associate Involvement in Decision Making Approach
Level of Associate Involvement in Decision
Low
High
AI—Manager solves problem or makes decision alone, using information to which she has current access. AII—Manager requests information or may not explain the problem to associates. Associates’ role in process is only to provide specific information requested. CI—Manager explain problem to relevant associates, one by one, requesting input as individuals. After discussion with individuals, manager makes decision along, either using or not using associate’s input. CII—Manager explains problem to associates as a group, obtaining group members’ ideas and suggestions. Later, manager makes decision alone, either using or not using associate’s input. GII—Manager explains problem to associates as a group, working together with them to generate and evaluate alternatives and agree on a solution. Manager acts as facilitator, does not force group to accept his solution, and will accept and implement a solution supported by the group.
Adapted from Exhibit 10-4: Managerial Approaches to Associate Involvement in Decision Making
Who Should Decide? (Vroom-Yetton Method) ď Ź
Questions asked to determine level of associate involvement in decision making A.
B. C. D. E. F. G.
Is there a quality requirement such that one solution is likely to be more rational than solution, or will any number of solutions work reasonably well)? Do I have sufficient information to make a high-quality decision? Is the problem structured (do I know the question to ask and where to look for relevant information? Is acceptance of the decision by associates critical to effective implementation? If I were to make the decision by myself, is it reasonably certain that it would be accepted by my associates? Do the associates share the organizational goals to be attained in solving this problem? Is conflict among associates likely in preferred solutions?
Who Should Decide? (Vroom-Yetton Method) A
B
C
D
E
F
1-AI
No
Yes
Yes
G
2-AI
No 3-GII
Problem
No
4-AI
No
Yes No
Yes Yes
Yes
Decision points Recommended strategies
No
Yes
No
Yes
9-AII
Yes
11-CII
No 10-AII Yes No 14-CII
No
Yes
Yes
No Yes
No
5-AI
7-CII
6-GII
No 8-CI
Yes
12-GII
No 13-CII
Value of Individual vs. Group Decision Making
Important considerations for judging the overall value of group decision vs. individual decision making – – – – –
Time Cost Nature of the problem Satisfaction and commitment Personal growth
Value of Individual vs. Group Decision Making Exhibit 10-6 Communication
Advantages and Disadvantages of Group Decision Making In the United States
Elsewhere
Groups can accumulate more knowledge and facts and thus generate more and better alternatives.
Groups take more time to reach decisions than do individuals.
Groups often display superior judgment when evaluating alternatives, especially for complex problems.
Group social interactions may lead to premature compromise and failure to consider all alternatives fully.
Group involvement in decisions leads to a higher level of acceptance of the decisions and satisfaction.
Groups are often dominated by one or two “decision leaders� which may reduce acceptance, satisfaction and quality.
Group decision making can result in growth for members of the group.
Managers may rely too much on group decisions, leading to loss of their own decision and implementation skills.
Adapted from Exhibit 10-6: Advantages and Disadvantages of Group Decision Making