Chapter-05 Problem Solving and Decision Making

1. Chapter-05Problem Solving and Decision Making Dr. GehanShanmuganathan, (DBA)

2. Hammond’s Candies

3. Hammond’s Candies • Schuman bought the 90 year old company in 2007 • Offered $ 50 bonus for the assembly-line workers to come up with successful ideas to cut manufacturing costs • One worker suggested a tweak in machine gear that reduced workers needed on an assembly line from five to four • Another devised a new way to protect candy canes while en route to stores that resulted in a 4% reduction in breakage

4. Chapter objectives

5. 6.1 Learning Objectives • Differentiate between programmed and non-programmed decisions. • Explain the steps involved in making a non-programmed decision. • Understand the major factors influencing decision making in organizations. • Understand the nature of creativity and how it contributes to managerial work. • Describe organizational programs for improving creativity and innovation. • Implement several suggestions for becoming a more creative problem solver. • Appreciate the value and potential limitations of group decision making.

6. What is a problem ?

7. What is a problem ? • A discrepancy between ideal and actual conditions • What is a decision? • A choice among alternatives

8. Non-programmed versus Programmed decisions

9. Non-programmed decisions • A decision that is difficult because of its complexity and the fact that the person faces it infrequently • All strategic decisions are non-programmed decisions • A well-planned and highly structured organization reduces the number of non-programmed decisions • E.g- outsourcing, merging, acquisitions

10. Programmed decisions • A decision that is repetitive, or routine, and made according to a specific procedure • First level managers or supervisors make more routine decisions. E.g- signing payment vouchers • Middle managers generally make both routine and non-routine decisions • A well-managed organization encourages all managers to delegate as many non-programmed decisions as possible

11. Programmed Decisions Nonprogrammed Decisions Types of problems Repetitive, routine, frequent; decisions made according to specific procedures Novel, complex, difficult, infrequent; decisions require original thinking Proce-dures Depend on policies and rules Require creativity, intuition, tolerance for ambiguity, innovation Examples Business firm: Periodic reorders of inventory Health care: Procedure for admitting patients University: Necessary GPA for good academic standing Business firm: Diversification into new products and markets Health care: Purchase of experimental equipment University: Construction of new classrooms Programmed and Nonprogrammed Decisions: A Comparison

12. Steps in problem solving and decision making

13. “What really, really is our problem?” “Let’s dream up some great ideas.” “Some of these ideas are good; others are wacko.” Identify and diagnose the problem Develop creative alternatives Evaluate the alternative solutions “How really good was that idea?” “Now let’s take action.” “This alternative is a winner!” Evaluate and control Implement the decision Choose one alternative solution Steps in Problem Solvingand Decision Making

14. 1. Identify and diagnose the problem • The first step in problem solving and decision making is to identify a gap between desired and actual conditions • Why our sales dropped over time? • Why former customers stopped buying from us? • Why can not we have a global presence?

15. 2. Develop alternative solutions • To explore all kinds of possibilities

16. 3. Evaluate alternative solutions • Examination of pros and cons of all the possibilities and considers the feasibility of each • Evaluation parameters • Cost • Time • Return • Risk • Resources availability • Capabilities

17. 4. Choose one alternative solution • The process of weighing the alternatives must stop at some point • Analysis paralysis

18. 5. Implement the decision • Converting a decision into action

19. 6. Evaluate and control • The final step in the decision making process is to investigate how effectively the chosen alternative solved the problem • Single loop and double loop learning

20. Bounded rationality and influences on decision making

21. Bounded rationality • The observation that people’s limited mental abilities, combined with external influences over which they have little or no control, prevent them from making entirely rational decisions • Superstitions • Hong Kong people avoid 40-59 • Westerners avoid 13 • Satisficing decisions- a decision meets the minimum standards of satisfaction • Heuristics- rule of thumb using decision making • Smiling within first three minutes at an interview • Intuition – experience based reasoning

22. “I like risks and I’m really bright.” “Let’s wait before deciding.” “I’m great at hunches.” “I’ve got integrity.” “I can read people great and control my emotions.” “Our backs are to the wall, and we disagree.” Decision Maker “The IS group is feeding me great stuff.” “What does my boss want me to decide?” “Looks like a sure thing.” Factors Influencing Decision Making Personality and cognitive intelligence Intuition Procrastination Emotional intelligence Values Quality of information Crisis and conflict Political considerations Degree of uncertainty

23. Personality and cognitive intelligence • Risk taking, cautiousness, and conservatism influences decisiveness • Cautiousness will lead to low risk taking decisions • Good decision makers, by definition, are decisive • Perfectionism- people who seek perfect solution to a problem are usually indecisive • Optimism and pessimism- optimistic people are more decisive • Cognitive intelligence- imagination, adaptability, and practical intelligence • In general, intelligent and well educated people are more likely to identify problems and make sound decisions

24. Emotional intelligence • The ability to connect with people and understand their emotions • Key factors of emotional intelligence • Self- awareness – to understand your own emotions • Self- management – control one’s emotions • Social- awareness – having empathy for others • Relationship management – interpersonal skills of clear and convincing communication

25. Quality and accessibility of information • Accessing high quality and valid information for decision making • Sources • Organizational reports, Interviews, Observations, News and Case studies • Avoid • Anchoring and perceptual errors (selective, figure-ground, stereotyping, and closure)

26. Political considerations • Status quo • Take revenge • Political affiliations to stay in favor with, • Senior managers • Middle managers • Operational level staff

27. Degree of certainty • The more certain a decision maker is of the outcome of a decision, the more calmly and confidently the person will make the decision

28. Crisis and conflict • In a crisis many decision makers panic and they become less rational and more emotional than they would be in a calm environment • In such situation, some managers concentrate poorly, use poor judgment, and think impulsively • Some managers consider crisis as an exciting challenge that energizes them towards their best level of problem solving and decision making

29. Values of the decision maker • What do the manager value? • Employees • Profits • Prestige • Any other

30. Procrastination • Delaying taking an action without a valid reason • Procrastination results in indecisiveness

31. Decision making style • Managers use • Intuition • Procrastination • Satisficing • Decisive • Flexible (many options and less information) • Hierarchic • Integrative (many options more information)

32. Group problem solving and decision making

33. Group problem solving and decision making • The process of several people contributing to a final decision

34. Advantages and disadvantages of group decision making

35. Advantages and disadvantages Advantages Disadvantages • High quality due to combined wisdom of the group • Errors are likely to avoid due to individual evaluation • Gains acceptance and commitment • Time consuming • Depends on intelligent individuals • Groupthink lose ability to evaluate bad ideas

36. General method of group problem solving

37. General method of group problem solving • Identify the problem • Clarify the problem • Everyone share the same definition of the problem • Analyze the cause • Search for “what we want” • Search for alternative solutions • Select alternatives • Plan for implementation • Decide what actions are necessary • Clarify the contract • What group members have agreed to do • Develop an action plan • Provide evaluation and accountability • Hold people accountable for results

38. 1. Have a specific agenda and adhere to it 2. Rely on qualified group members 5. Build consensus so the decision is more likely to be implemented 4. Provide summaries for each major point 3. Have the leader share decision-making authority Suggestions for ImprovingGroup Problem-Solving

39. A specific method of group problem solving

40. The nominal group technique (NGT) • A group-decision making technique that follows a highly structured format

41. 1. Small group is assembled 6. Alternatives are rated and best-rated one is chosen 2. Leader presents a problem 5. Group clarifies and evaluates all suggestions 3. Members write down ideas individually 4. Each participant presents one idea to group The Nominal Group Technique

42. Creativity and innovation in managerial work

43. Creativity • The process of developing novel ideas that can be put into action • Creativity is closely linked to innovation by the application of the ideas

44. The creative personality • Creative people think outside the box or get beyond the usual constraints when solving problems • Creative people want to learn new things, stretch themselves, and strive to do better in their jobs • They break the rule challenging the status quo • Unconventional

45. Key parts of creativity • Lateral thinking • A thinking process that spreads out to find many alternative solutions to a problem • Vertical thinking In contrast • An analytical, logical process that results in few answers

46. Conditions necessary for creativity

47. Conditions necessary for creativity • Expertise • Creative-thinking skill • Internal motivation • Environment need • Encouragement from others

48. The creative and innovative organization

49. Providing challenges Allowing freedom Encouraging risk taking Establishing a Creative Atmosphere Involves. . . Providing organizational support Allocating ample resources Providing encouragement 6.5 Creativity!

50. Organizational programs for improving creativity and innovation