Because learning changes everything.

Chapter 7
Decision Making, Learning,
Creativity, and
Entrepreneurship

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 Learning Objectives 1

1. Understand the nature of managerial decision

making, differentiate between programmed and
nonprogrammed decisions, and explain why
nonprogrammed decision making is a complex,
uncertain process.
2. Describe the six steps managers should take to
make the best decisions, and explain how
cognitive biases can lead managers to make poor
decisions.

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 Learning Objectives 2

3. Identify the advantages and disadvantages of

group decision making, and describe techniques
that can improve it.
4. Explain the role that organizational learning and
creativity play in helping managers to improve
their decisions.
5. Describe how managers can encourage and
promote entrepreneurship to create a learning
organization, and differentiate between
entrepreneurs and intrapreneurs.

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 Figure 7.4 Six Steps in Decision Making

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 Six Steps in Decision Making
Step 1. Recognize the need for a decision
• Sparked by an event such as environment changes
• Managers must first realize that a decision must be made
Step 2. Generate alternatives
• Managers must develop feasible alternative courses of
action
• If good alternatives are missed, the resulting decision is
poor
• It is hard to develop creative alternatives, so managers
need to look for new ideas

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 Six Steps in Decision Making
Step 3. Evaluate alternatives
• What are the advantages and disadvantages of each
alternative?
• Managers should specify criteria, then evaluate
Step 4. Choose among alternatives
• Rank the various alternatives and make a decision
• Managers must be sure all the information available is
brought to bear on the problem or issue at hand

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 Figure 7.5 General Criteria for Evaluating
Possible Courses of Action

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 General Criteria for Evaluating Possible Courses of
Action
• Successful managers use four criteria to evaluate the pros
and cons of alternative courses of action.
• A manager must consider four criteria simultaneously.
Some of the worst managerial decisions can be traced to
poor assessment of the alternatives.
• Legality: Managers must ensure that a possible
course of action is legal.
• Ethicalness: Managers must ensure that a possible
course of action is ethical and that it will not
unnecessarily harm any stakeholder group.
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 General Criteria for Evaluating Possible Courses of
Action
• Economic feasibility: Managers must decide
whether, given the organization’s performance goals,
the alternatives can be accomplished without causing
harm to other goals of the organization.
• Practicality: Managers must decide whether they
have the capabilities and resources required to
implement the alternative.

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 General Criteria for Evaluating Possible Courses of
Action

Next Step: Choose Among Alternatives

The next step is to rank the various alternatives using the criteria listed
above, in order to make a decision. Managers must be sure all the
information that is available is used.
Next Step: Implement the Chosen Alternative
• Once a course of action has been determined, it must be
implemented.
• Many managers make a decision and then fail to act on it.
• To ensure that implementation occurs, top managers must assign to
middle managers the responsibility for making follow-up decisions,
give them the sufficient resources required to achieve the goal, and
hold them accountable for their performance.
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 Six Steps in Decision Making
Step 5. Implement chosen alternative
• Managers must now carry out the alternative
• Often a decision is made and not implemented
Step 6. Learn from feedback
• Managers should consider what went right and wrong with
the decision and learn for the future
• Without feedback, managers do not learn from experience
and will repeat the same mistake over

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 Feedback Procedure
1. Compare what actually happened to what was
expected to happen as a result of the decision.
2. Explore why any expectations for the decision were
not met.
3. Derive guidelines that will help in future decision
making.

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 In Class Activity
Steps in the D.M process:

Explain your decision making steps for buying a

new computer…

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 Cognitive Biases and Decision Making
Heuristics:
• Rules of thumb that simplify the process of making
decisions.
• Decision makers use heuristics to deal with
bounded rationality
• If the heuristic is wrong, however, then poor
decisions result from its use.

Systematic errors:
• Errors that people make over and over and that
result in poor decision making.
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 Figure 7.6 Sources of Cognitive Bias at
the Individual and Group Levels

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 Sources of Cognitive Biases 1

Confirmation Bias:
• The tendency to make decisions based on strong
existing beliefs even when evidence suggests
those beliefs may be wrong.
• Managers tend to seek and use information
consistent with existing beliefs & ignore
information that contradicts those beliefs.
Representativeness:
• A cognitive bias resulting from the tendency to
generalize inappropriately from a small sample or
from a single vivid event or episode.
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 Sources of Cognitive Biases 2

Illusion of control:
• The tendency to overestimate one’s own ability to
control activities and events.
• Top managers (Mergers rarely work, yet top
managers overestimate their ability to combine)
companies.
Escalating commitment:
• A source of cognitive bias resulting from the
tendency to commit additional resources to a
project even if evidence shows that the project is
failing.
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 Group Decision Making 1

Superior to individual decision making.

Choices less likely to fall victim to bias.
Able to draw on combined skills of group
members.
Improve ability to generate feasible
alternative.

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 Group Decision Making 2

Potential disadvantages:
1. Can take much longer for groups than
individuals to make decisions.
2. Can be difficult to get two or more
managers to agree because of different
interests and preferences.
3. Can be undermined by biases.

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 Group Decision Making 3

Groupthink:
• Pattern of faulty and biased decision making that
occurs in groups whose members strive for
agreement among themselves at the expense of
accurately assessing information relevant to a
decision.
• The group’s influence tends to convince each
member that the idea must go forward.

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How to improve quality of group & individual DM
and overcome cognitive and groupthink biases?

Two techniques to counteract groupthink and cognitive

biases are:
Devil’s advocacy: critical analysis of a preferred alternative
to ascertain its strengths & weaknesses before it is
implemented.
Dialectical inquiry: two groups of managers are assigned to
a problem, each group is responsible for evaluating
alternatives and selecting one of them. They criticize and
debate with each other.

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 Figure 7.7 Devil’s Advocacy and
Dialectical Inquiry

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