Lecture 5.

Decision Making by Individuals and Groups

Reading material: Nelson D, Campbell J,: Organizational

Behaviour, 2006
 DECISION MAKING CONCEPTS
Definition: decision making is a process of spcifying the nature
of a particular problem or opportunity and selecting among
available alternatives to solve a problem or capture an
opportunity
Aspects of decision making:
• the act (choosing between alternatives)
• the process (several steps, divided into 2 categories):
Formulation involves identifying a problem or opportunity,
acquiring information, developing desired performance
expectations, and diagnosing the causes and relationships
among factors affecting the problem or opportunity
Solution involves generating alternatives, selecting the preferred
solution, and implementing the decided course of action.
DECISION MAKING MODELS

• rational/classical
• bounded
rationality
• retrospective
model of decision
making
 I. CLASSICAL / RATIONAL
DECISION MAKING MODEL
Lindblom,1959
• Traditional approach originally developed in
economics
• Classical theory - Assumes that decision - makers are
objective, have complete information and consider all
possible alternatives and their consequences before
selecting the optional solution
• Rational economic model – decision -making is and
should be a rational process consinsting of a sequence
of steps that enhance the probablility of attaining a
desired outcome
 SIMPLIFIED STEPS OF CLASSICAL
DECISION MAKING PROCESS
1. Recognize the problem and the need for a
decision
2. Identify the objective of the decision
3. Gather and evaluate data and diagnose the
situation
4. List and evaluate alternatives
5. Select the best course of action
6. Implement the decision
7. Gather feedback, evaluate, follow up
 Unrealistic model
• Time factors
• Limits to human knowledge
• Information – processing capabilities
• Managers’ preferences and need often change

It captures how decision should be made, but

does not reflect the reality of managerial
decision making.
 II. BOUNDED RATIONALITY MODEL 1
Bounded rationality (or administrative man) model : a theory
that suggest that there are limits on how rational decision
maker can actually be (Herbert Simon, Nobel Prize winner
1978)
People usually settle for acceptable rather than maximum options
because the decisions they confront typically demand
greater information-processing capabilities than they posses.
They seek a kind of bounded or limited rationality in
decisions.
Mechanisms of this decision process:
• When acceptable (not the best!) solution is found, people
stop searching for new alternatives
• Heuristic – shortcuts in decision makink that save mental
activity
 BOUNDED RATIONALITY MODEL 2

Satisfice : to select the first alternative that is „good enough”

because the cost in time and effort are too great to optimize

Administrative man (bounded rationality) vs. economic man

(traditional) theory
Managers select the first alternative that is „good enough”
because costs of optimizing in terms of time and effort are
too great.
Managers develop shortcuts, called heuristics, to make
decisions in order to save mental activity. Heuristics are
rules of thumb that allow mangers to make decisions from
their past experience.
 Biases in Decision - making
Bias: a prejudice caused by the application of
Heuristics
1. Contrast bias – light, heavy objects
2. Reciprocation bias – socialized, repay
3. Commitment and consistency – initial decision
is made, people adjust their attitude to make it
consistent with the action and become committed to it
4. Social proof bias – In situation of uncertanity we observe
and follow others.
95 % are imitators, 5 % are initators
 Biases in Decision - making

5. Linking bias – We enjoy doing thing for people

we like, often just mention the name of desired
person
6. Authority bias – Deep – seated duty to authority,
opposite is anarchy
7. Scarcity bias – Opportunities that are difficult to
obtain are more valued. As things become less
available, we lose freedoms
 III. RETROSPECTIVE DECISION
MODEL
Retrospective decision model (implicit favorite) focuses on
how decision makers attempt to rationalize they choices after
they are made
In this type of decision making perceptual distortion is rather
frequent „tool”: highlighting the positve features of the
implicit favorit over the alternative
Intuitive decision making the primarily subconscious process of
identifying a decision and selecting a preferred alternative

Nowadays managers must make critical decisions

quickly, with incomplete information, and must
also involve employees in the process.
 „DECISION-MAKING
MANAGER”
Economic man: tries to
maximize, selects the best
possible course
Administrative man: tries to
achieve outcomes which are
satisfactory and sufficient
Bulk of organizational decision
making activity:

SATISFICING
Decision-making is one of the
main activities of managers!
 TYPES OF DECISIONS
1. Programmed decision is a standard response to a simple or
routine problem (e.g. assessment of credit applications in a
bank, reimbursement of travel expenses, etc.).High level of
certainty
SOP (Standard Operational Procedures): specify what should
be done, the sequence of steps, etc.
2. Nonprogrammed decision is a decision about a problem
that is either poorly defined or new. Decision maker must
weight the alternatives and their consequences carefully
(e.g. setting up a new organizational structure)
3. Innovative decision……….
Important relationship between the above 2 types and
organizational hierarchy: lower level managers make more
programmed (with less resources, options and risks), top
managers more unprogrammed decisions.
DECISION-MAKER LEVEL AND
TYPE OF DECISION
 GRASHAM’S LAW OF PLANNING
AND MAKING DECISIONS
Definition: the tendency for managers to let programmed
activities overshadow nonprogrammed activities (check how
you spend your decision-making time!)
 DECISION MAKING AND RISK
Managerial activity and decision making contain many
risks (woman, older managers)
Individuals differ in willingness to take risks
• Risk taking type of manager (successful managers
take more risks, they take the lead in group decision)
• Risk aversion type of manager
• Assessment of risk
• Escalation of commitment (continuing to support a
failing course of action, e.g. price war of airlines
despite heavy losses)
INFLUENCES ON EFFECTIVE
DECISION MAKING
 PARTICIPATION IN DECISION
MAKING
Participative decision making: individuals affected by
decisions influence the making of decisions
Empowerment improves task motivation and performance. It
requires decision making by lower level members of
organization.
Use of empowerment for team oriented work designs in order to
improve sense of responsibility (Volvo)

Employees can be involved in some, or all , of the stages of the

decision making process (identifying problems, selecting
solutions, evaluating results, etc.) !
The Z- problem- Solving model
 According to Z problem – solving
model
All four cognitive styles contribute to decision making
The steps of good problem solving
1. Examine facts and details – Use sensing to gather
information about the problem
2. Generate alternatives – Use intuiting to develop
possibilities
3. Analyze the alternatives objectively – Use thinking
to logically determine the effects of each alternative
4. Weight the impact – Use feeling to determine how
people involved will be affected
 Other Individual Influences on
decision making
1. The role of intuition (two brains, two
cognitive styles)
2. Creativity at work
• Presonality factors
• Tolerance
• Motivation
• Risk taking
• Desire for recognition
GROUP DECISION
 IMPACT OF GROUPS ON
DECISION MAKING
Decision making in group is a social interaction

Group participation in decision making

• clarifies more fully what is expected
• increases the likelihood that employees will work for
rewards and outcomes they value
• increases the effects of social influence on behavior
• enlarges the amount of employees’ control over their
activities
• plays important part in quality improving efforts
 THE GROUP DECISION MAKING
PROCESS
Reasons for using groups for decision making:
• Synergy
• To gain commitment
• More knowledge and experience
Social decision schemes: simple rules used to
determine final group decisions (majority-wins rule,
truth-wins rule, two-third-majority rule, first-shift
rule). These schemes can predict 80 percent of group
decisions!

Potential risks: groupthink, group polarization,

esclating commitment to a decision
 Advantages vs Diasadvantages of group
decision making
Advantages Disadvantages
• Greater pool of knowledge • Personality factor
• Different perspectives • Social conformity
• Greater comprehenson • Diffusion of responsibility
• Increased acceptance • Minority domination
• Training ground • Logrolling
• Goal displacement
• Group brainstorming
• Groupthink
• Satisficing
Factors affecting cohesiveness
• SIZE
• DURATION
• THREATS
• ISOLATION
• REWARDS
• RESTRICTED ENTRY
• SIMILARITIES
 CONTINGENCY MODEL OF
PARTICIPATIVE DECISION MAKING 1
To what extent managers should allow employees in
the work group to participate in decisions
affecting their jobs? Participative decision
making is not appropriate for every situation!
Participative Decision Makers
Cross-functional teams embrace employees from
different departments, who work together in
problem solving. Characteristics of good decision
makers in group:
• content knowledge
• general desire to participate (resulting change,
value for the organization and themself)
 CONTINGENCY MODEL OF
PARTICIPATIVE DECISION MAKING 2
Participative Decision Making Model
Participative group moves through the seven classical steps of
decision making
Involvment pf group members can vary in eack steps:
• low involvment allows members to communicate their
opinions, alternatives and solution but not to influence
final determination
• high involvment allows members not only to communicate
their opinions but also to make final determinations
Degree of involvment can range (from low to high) on each
of the seven steps of classical decision making!
High involvment in generating alternatives, planning
implementation, and evaluating results is significantly
related to higher levels of satisfaction and work group
performance.
CONTINGENCY FACTORS FOR EFFECTIVE
PARTICIPATIVE DECISION MAKING
 DECISION SPEED AND QUALITY
In turbulent, high-velocity industries (microelectronics, genetic engineering,
etc.) high quality, rapid decision making are closely related to good
corporate performance

Factors of fast decision making (Eisenhardt and Bourgeois):

1. real-time information
2. multiple simultaneous alternatives
3. two-tiered advice process (team members + experienced coworkers)
4. consensus with qualification (not after the decision is made)
5. decision integration (with planning and issues of implementation)

In low-velocity industries stability allows time for more data collection, etc.
Less need for immediate action, more time for decision making

MANAGERS MUST ASSESS TIME FACTORS OF THEIR

INDUSTRIES.
 GROUPTHINK
Groupthink is a mode of thinking in which pursuit of
agreement among members becomes so dominant that it
overrides a realistic appraisal of alternative courses of action
(Irving Janis)
Some symptoms of groupthink:
• illusion of invulnerability (Motorola vs Nokia)
• illusion of moralty (tobacco advertisements)
• self-censorship
• stereotyping the opponents
• direct pressure
• rationalization (of warning signs and negative feedbacks)
• mindguard (protection of members from adverse information)

Challenger disaster – a case of groupthink?

THE GROUPTHINK PROCESS
 CONSEQUENCES OF
GROUPTHINK
• limited search for possible solutions, alternatives
• no consideration of nonobvious advantages to alternative courses of
action
• no review of decision after new information
• rejection of experts’ advices
• disregard non-supporting facts
• few, if any contingency plan (similar to retrospective decision making
i.e. decision is made and then data are selected that support the
decision)
• defective decision making (Vietnam war, Bay of Pig invasion, etc)
Time pressure means more potential for groupthink!
 HOW TO OVERCOME
GROUPTHINK?

1. each member should evaluate proposals critically

2. considering a range of alternatives
3. assignning the same problem to two independent groups
4. invitation of external experts
5. devil’s advocate (a group member whose role is to
challenge the majority position)
6. evaluate competition carefully
7. after reaching consensus encourage the group to rethink
its position by reexamining the alternatives
GUIDELINES FOR OVERCOMING
GROUPTHINK
 ESCALATING COMMITMENT TO A
DECISION
Escalating commitment is a tendency to exhibit greater
levels of commitment to a decision as time passes and
investment are made in the decision, even after
significant evidence emerges that the origoinal decision
was incorrect
Forced compliance (biasing of attitudes) occurs when
individuals feel personal responsibility for the negative
consequences of decision
Next slide shows 4 basic elements to escalation of
commitment to decisions (prospective rationality is a
belief that future courses of action are rational and
correct)
 CONTRIBUTING FACTORS TO
ESCALATION OF COMMITMENT
DECISIONS
 HOW TO OVERCOME ESCALATION
OF COMMITMENT ?

1. Forget past „investments”, only future costs and

anticipated benefits should be considered
2. Create an atmosphere in which consistency does not
dominate
3. Encourage each member of group to evaluate the
prospects of future outcomes and their expected positive
value critically
4. a goup member can be appointed to serve as devil’s
advocate to challenge the majority position
 STRATEGIES FOR IMPROVING DECISION
MAKING 1
Improving problem formulation (focuses on
identifying causes for unsatisfaxtory behavior and
finding new opportunities and challenges)
• devil’s advocacy
• multiple advocacy (several group members
represent different opinions, opposing views)
• dialectical inquiry (a process to improve decision
making by assigning a group member the role of
questioning the underlying assumptions associated
with the formulation of the problem. „Think
outside the box!”
 STRATEGIES FOR IMPROVING
DECISION MAKING 2
Improving problem solution involves development and
evaluation of alternative courses of action and selecton and
implementation of preferred alternatives. Stimulation of
creativity of group members expands their search and
analysis
• brainstorming (a process of creating many creative solutions in short
time without evaluation their merit)
• nominal group technique (a process of having group members record
their proposed solutions, and independently rank solutions until a clearly
favored solution emerges. Not too much discussion, no influence from
other group members.)
• delphi technique (a decision making technique that never allows decision
participants to meet face-to-face but identifies a problem and offers
solutions using questionnaires to be circulated until concensus is shown.
SUMMARY OF TECHNIQUES FOR
GROUP DECISION MAKING
• Brainstorming (To generate as many ideas as possible, suspending evaluation
until all ideas suggested)
• Nominal group techniques (Structured approach focusing on generating
alternatives and choosing one)
• Delphi technique (Gathering the judgments of expert from remote locations
for decision making through coordinator)
• Devil’s advocacy (Role of critic, coming up with the potential problems of a
proposed decision)
• Dialectician inquiry (A debate between two opposing sets of
recommendations)
• Quality circles (Small groups meeting voluntarily to provide input for solving
quality or production problems) Originated from Japan
• Quality teams (Included in total quality management of organizational
structure in order to improve quality)
• Self-managed teams (Having delegated authority in the organization’s
decision making process, making many decisions reserved once for the
management)
• Belbin’s roles for „balanced group”
Thank you for your attention!