MGMT1135 Comprehensive Notes on Chapter 7, 8, 10-15 PDF

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Comprehensive notes on textbook chapters 7, 8, 10, 11, 12,13, 14, 15...

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Chapter 7 Decision Making and Creativity Decision making - the conscious process of making choices among alternatives with the intention of moving towards some desired state of affairs - effective decision making involves identifying, selecting and applying the best possible alternative Rational choice paradigm - the view in decision making that people should - and typically do - use logic and all of the available information to choose the alternative with the highest value - selects the choice with the most satisfactory consequences through the calculation of subjective expected utility - Subjective expected utility (SEU) - the probability (expectancy) of satisfaction (utility) resulting from choosing a specific alternative in a decision - the probabilities are ‘subjective’ because they represent perceptions from available information - all rational choice decisions rely primarily on 2 pieces of information: - (1) the valence or expected satisfaction of the outcomes (utility) - (2) the probability of those good or bad outcomes occurring (expectancy) by choosing that particular alternative Rational choice decision-making process

- Problem - a deviation between the current and the desired situation - Opportunity - a deviation between current expectations and a potentially better situation that was not previously expected

- Programmed decisions - decisions that follow standard operating procedures; they have been resolved in the past, so the optimal solution has already been identified and documented.

- Non-programmed decisions - require all of the steps in the decision model because the

problems are new, complex or ill-defined Problem with the rational choice paradigm - seems logical, but is impossible to apply in reality because people are not and cannot be perfectly rational. Problems with problem identification - Stakeholder framing - employees, suppliers, customers and other stakeholders highlight or hide information so the decision maker sees the situation as a problem, opportunity or steady sailing. Decision makers fall prey to these constructed realities because they have a need to simplify the daily bombardment of complex and often ambiguous information.

- Solution-focused problems - describing the problem in terms of the solution, without adequately

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diagnosing the problem. One reason why people fall into the solution-focused problem trap is that they have been reinforced by past successes, so those solutions quickly come to mind when new problems arise. Also, decision makers are comforted by closure to problems, so they seek out solutions while still defining the problem. Unfortunately, they fail to fully diagnose the underlying causes that need to be addressed. Decisive leadership - many leaders announce problems or opportunities before having a chance to logically assess the situation because executives are often evaluated by their decisiveness, including how quickly they can identify and form a solution/decision. Perceptual defence - the perceptual process tends to screen out information that threatens a person’s self-concept and causes one to fail to notice the problem. Mental models - (visual or relational images in our mind of the external world; they fill in information that we don’t immediately see, which helps us understand and navigate in our surrounding environment) can blind us from seeing unique problems or opportunities because they produce a negative evaluation of things that are dissimilar to the mental model. If an idea doesn’t fit the existing mental model, then it is quickly dismissed as unworkable or undesirable.

Improve problem and opportunity recognition - become aware of the five problem identification biases described above - leaders - muster stronger willpower to resist the temptation to look decisive when a more thoughtful examination of the situation should occur. - leaders - create a norm of ‘divine discontent’ - creates a mindset that more actively searches for problems and opportunities - employees discuss the situation with colleagues Searching from evaluating and choosing alternatives The rational choice paradigm assumes that decision makers have well-articulated and agreed organisational goals, that they efficiently and simultaneously process facts about all alternatives and the consequences of those alternatives, and that they choose the alternative with the highest pay-off. Herbert Simion objected, and suggested that people engage in bounded rationality because they process limited and imperfect information and rarely select the best choice. Bounded rationality - the view that people are bounded in their decision-making capabilities, including having access to limited information, limited information processing and a tendency towards satisficing rather than maximising when making choices. Rational choice assumptions vs organisational behaviour findings about choosing alternatives - Problems with goals - Rational choice paradigm - organisational goals are clear and agreed-on, and provide a standard against which each alternative is evaluated. - Observation - organisational goals are often ambiguous or in conflict with each other. - Problems with information processing - RCP - assumes that decision makers can process information about all alternatives and their consequences, whereas this is not possible in reality. - O - people evaluate only a few alternatives and only some of the main outcomes of those alternatives. • Decision makers typically assess alternatives sequentially rather than all at the same time because all of the alternatives are not usually available to the decision maker at the same time. Consequently, when a new alternative comes along, it is immediately compared to an implicit favourite - a preferred alternative that the decision maker uses repeatedly as a comparison with other choices. - the comparison process undermines effective decision making because people distort information to support their implicit favourite over the alternative choice. - human beings have built-in decision heuristics that automatically distort either the probability of outcomes or the value (utility) of those outcomes. 3 most studied heuristics: - Anchoring and adjustment heuristics - a natural tendency for people to be influenced by an initial anchor point such that they do not sufficiently move away from that point as new

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information is provided. One explanation - human beings tend to compare alternatives rather than evaluate them purely against objective criteria. - Availability heuristic - a natural tendency to assign higher probabilities to objects or events that are easier to recall from memory, even though ease of recall is also affected by nonprobability factors (e.g. emotional response, recent events). - Representative heuristic - a natural tendency to evaluate probabilities of events or objects by the degree to which they resemble (are representative of) other events or objects rather than on objective probability information. Another form - clustering illusion - the tendency to see patterns from a small sample of events when those events are, in fact, random. Problems with maximisation - RCP - people want to - and are able to - choose the alternatives with the highest pay-off - O - rather than aiming for maximisation, people engage in satisficing - selecting an alternative that is satisfactory or ‘good enough’, rather than the alternative with the highest value (maximisation). People then satisfice when they select the first alternative that exceeds a standard of acceptance for their needs and preferences. Occurs because alternatives present themselves over time, not all at once. Consequently, decision makers rely on sequential evaluation of new alternatives against an implicit favourite, which calls for a satisficing decision rule - choose the first alternative that is ‘good enough’. Another reason - people lack the capacity and motivation to process the huge volume of information required to identify the best choice. Consequently, when exposed to many alternatives, decision makers become cognitive misers by engaging in satisficing.

Evaluating opportunities - decision makers do not evaluate several alternatives when they find an opportunity. An opportunity is usually experienced as an exciting and rare revelation, so decision makers tend to have an emotional attachment to the opportunity. Unfortunately, this emotional preference motivate decision makers to apply the opportunity and short-circuit any detailed evaluation of it. Emotions and making choices Another weakness with the rational choice paradigm - it completely ignores the effect of emotions in human decision making - Emotions affect the evaluation of alternatives in 3 ways: - Emotions form early preferences - preferences shaped by emotional markers before conscious evaluation of alternatives is made. Logical analysis also influences our choice, but it requires strong logical evidence to change our initial preferences (initial emotional markers). Both emotions and logic influence our decisions - people with damaged emotional brain centres have difficulty making choices. - Emotions change the decision evaluation process - shapes how we evaluate information - e.g. we pay more attention to details when in a negative mood, and less in a good mood. - Decision makers rely on stereotypes and other shortcuts to speed up the choice process when they experience anger, and anger also makes them more optimistic about the success of risky alternatives. - Fear tends to make them less optimistic - Emotions serve as information when we evaluate alternatives - we listen in on our emotions to gain guidance when making choices. Intuition and making choices Intuition - the ability to know when a problem or opportunity exists and to select the best course of action without conscious reasoning. - is both an emotional experience and a rapid non-conscious analytic process - gut feelings we experience are emotional signals that have enough intensity to make us consciously aware of them. These signals warn us of impending danger or motivate us to take advantage of an opportunity. - Some intuition also directs us to preferred choices relative to other alternatives - all gut feelings are emotional signals, but not all emotional signals are intuition.

- main distinction - intuition involves rapidly comparing our observations with deeply held patterns

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learned through experience. They are mental models that help us to understand whether the current situation is good or bad, depending on how well that situation fits our mental model. When a template fits or doesn’t fit the current situation, emotions are produced that motivate us to act. emotional responses are not always based on well-grounded mental models, so the extent to which our gut feelings in a situation represent intuition depends on our level of experience in that situation. intuition also relies on action scripts - programmed decision routines that speed up our response to pattern matches or mismatches. Actions scripts are generic, so we need to consciously adapt them to the specific situation.

Making choices more effectively - decisions tend to fail when leaders are decisive rather than contemplative-, but decisions can also be ineffective when leaders take too long to choose. However, the former is a greater concern. - by systematically assessing alternatives against relevant factors, decision makers minimise the implicit favourite and satisficing problem - remember that decisions are influenced by both rational and emotional processes. - Scenario planning - a systematic process of thinking about alternative futures and what the organisation should do to anticipate and react to those environments. Is useful for choosing the best solutions before the problems occur, because alternative courses of action are evaluated without the pressure and emotions that occur during real emergencies. Evaluating decision outcomes Decision makers aren’t completely honest with themselves when evaluating the effectiveness of their decisions. - Confirmation bias or post-decisional justification - the non-conscious tendency for people to screen out information that is contrary to their decisions, beliefs, values and assumptions, whereas confirming information is more readily noticed and cognitively processed. Escalation of commitment - the tendency to repeat an apparently bad decision or allocate more resources to a failing course of action - escalation of commitment is usually framed as poor decision making, but some experts argue that throwing more money into a failing project is sometimes a logical attempt to further understand an ambiguous situation. - 4 main explanations: - Self-justification effect - people are motivated to demonstrate that their decisions will be successful, and this includes continuing to support those decisions even when there is evidence that they are not having the desired outcomes. This effect is particularly evident when decision makers are personally identified with the project, have staked their reputations to some extent on the project’s success and have low self-esteem. - Self-enhancement effect - when presented with evidence that a project is in trouble, the selfenhancement process biases our interpretation of the information as a temporary aberration from an otherwise positive trend line. When we eventually realise that the project isn’t going to succeed, we continue to invest because our sense of probability of rescuing the project is above average. Self-justification and self-enhancement often occur together, but they are different mechanisms. Self-justification is a deliberate attempt to maintain a favourable public image, whereas self-enhancement operates mostly non-consciously. - Prospect theory effect - a natural tendency to feel more dissatisfaction from losing a particular amount than satisfaction from gaining an equal amount. Stopping a project is a certain loss, which is more painful to most people than the uncertainty of success associated with continuing to fund the project. - Sunk cost effect - people inherently feel motivated to invest more resources in projects that have high sunk costs.

Evaluating decision outcomes more effectively - to minimise escalation of commitment and confirmation bias - ensure that the people who made the original decision are not the same people who later evaluate that decision. This separation of roles minimises the self-justification effect. - also, publicly establish a pre-set level at which the decision is abandoned or re-evaluated. But, conditions are often so complex that it is difficult to identify an appropriate point at which to abandon a project. - 3rd - find a source of systematic and clear feedback. - 4th - involve several people in the evaluation Creativity - the development of original ideas that make a socially recognised contribution - also helps us choose alternatives because we need to visualise the future in different ways and to figure out how each choice might be useful or a liability in those scenarios - creativity is valuable throughout the decision making process The creative process

- First stage - preparation - the process of investigating the problem or opportunity in many ways - involves developing a clear understanding of what you are trying to achieve through a novel solution and then actively studying information seemingly related to the topic

- 2nd - incubation - the period of reflective thought, working on the problem in the background. - assists in divergent thinking - reframing a problem in a unique way and generating different

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approaches to the issue. Contrasts with convergent thinking - calculating the conventionally accepted ‘right answer’ to a logical problem. Divergent thinking breaks us away from existing mental models so that we can apply concepts or processes from completely different areas of life. 3rd - illumination or insight - the experience of suddenly becoming aware of a unique idea. This stage begins with a ‘fringe’ awareness before the idea fully enters our consciousness. These bits of inspiration are fleeting and can be quickly lost if not documented. Illumination presents ideas that are usually vague, roughly drawn and untested. Last stage - verification - whereby we flesh out the illuminated ideas and subject them to detailed logical evaluation and experimentation. This stage often calls for further creativity as the ideas evolve into finished products or services.

Characteristics of creative people 4 main characteristics: - cognitive and practical intelligence - above-average intelligence when it comes to synthesising information, analysing ideas and applying ideas. Practical intelligence - the capacity to evaluate the potential usefulness of one’s ideas.

- Persistence - creative people have persistence, which is based on a higher need for

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achievement, a strong motivation from the task itself and a moderate or high degree of selfesteem. People have a general tendency to dismiss or criticise creative ideas, whereas creative people rely on persistence to withstand these negative social forces. Knowledge and experience - a foundation of knowledge and experience is required to discover or acquire new knowledge. However, it could result in rigid mental models that are less adaptable to new information or rules. To overcome the limitations of expertise, some corporate leaders like to hire people from other industries and areas of expertise. Independent imagination - possess a cluster of personality traits and values that support an independent imagination: high openness to experience, moderately low need for affiliation, and strong values around self-direction and stimulation. Low need for affiliation - less embarrassed when making mistakes. Self-direction - values of creativity and independent thoughts; stimulation includes the values of excitement and challenge.

Organisational conditions supporting creativity - learning orientation - leaders recognise that employees make reasonable mistakes as part of the creative process - motivation from the job itself is another important condition for creativity - employees tend to be more creative when they believe their work benefits the organisation and/ or larger society (task significance) and when they have the freedom to pursue novel ideas without bureaucratic delays (autonomy). - jobs encourage creativity when they are challenging and aligned with the employee’s competencies. - open communication and supplying sufficient resources, provide a comfortable degree of job security, by designing non-traditional workspaces, support from leaders and co-workers, while competition among co-workers improves creativity too. Activities that encourage creativity - redefining the problem, asking people unfamiliar with the issue to explore the problem together - associative play - attempts to bring out creativity by literally engaging in playful activities with coworkers - morphological analysis - involves different dimensions of a system and the elements of each dimension and then looking at each combination - encourages people to carefully examine combinations that initially seem nonsensical - cross pollination - occurs when people from different areas of the organisation exchange ideas or when new people are brought into an existing team. Employee involvement in decision making - Employee involvement or participative management - the degree to which employees influence how their work is organised and carried out. - low involvement - employees are asked individually for specific information but the problem is not described to them. - Higher involvement - when the problem is described and employees are asked individually or collectively for information relating to that problem. - moving up the involvement scale, the problem is described to employees, who are collectively given responsibility for developing recommendation, but the decision maker is not bound to accept them - highest level - entire decision-making process is handed over to employees. The original decision maker serves only as a facilitator...