Communication in Organizations Decision Theory 1 von 65 20. Mai 2003 UNIVERSITÄT HILDESHEIM...

Communication in OrganizationsDecision Theory

1 von 6520. Mai 2003

UNIVERSITÄT UNIVERSITÄT HILDESHEIMHILDESHEIM


Communication in Organizations

Decision Theory Anna Lazor / Bettina Ferring / Christoph

Münch

20. Mai 2003


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Structure

Introduction Making decisions step by step The bounded rationality model Decision making under uncertainty Advantages and Disadvantages of Group Decision

Making Individual vs. Group Decision Making Ethical Decision Making The Role of Culture in Shaping Decisions


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What is a decision?


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Historical facts

“Sapere aude!“ motto of the enlightenment

Francisco Goya 1797-98: “the sleep of reason produces monsters“

The individual appears, natural freedom to think for yourself


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Freedom to think = high responsibility The difficulty in life is the choice “It could be argued that the essence of living is free choice - the

process of making decisions. To be deprived of choices is to lose all meaning“ (Driver 1979 p. 59)

Good decision-making brings about a better life, it gives you

some control over your life. A good decision is never an accident; it is always the result of

high intention, sincere effort, intelligent direction and skillful execution; it represents the wise choice of many alternatives.


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Programmed and nonprogrammed decisionsThere are two general types of decision :

1. Programmed decision: structured, repeatedly tested, well defined, clear set

of options from which a choice can be made Example: Replacement of an office copy machine

2. Nonprogrammed decision: unstructured, unique, new, require a special

treatment, unsharply defined A single solution is custom-tailored to the problem!


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Making decisions step by stepCreating a model which can

describe different stages in decision making

Two major stages: 1.: problem identification 2.: problem solution

Reflection before action!As a Chinese proverb says, "Tochop a tree quickly, spend twicethe time sharpening the ax.“Carpenters say, "Measure twice,cut once."


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Step 1: Monitor the decision environment

The manager monitors internal and external information that will indicate deviations from planned or acceptable behavior. • Talk to colleagues• Financial statements• Performance evaluations• Industry indices• Competitor‘s activities• …


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Step 2: Define the decision problem

The manager responds to deviations by identifying essential details of the problem• Where• When• Who was involved• Who was affected• How are current activities influenced


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Step 3: Specify decision objectives

The manager determines what performance outcomes should be achieved by a decision.


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Step 4: Diagnose the problem

The manager digs below the surface to analyze the cause of the problem. Additional data may be gathered to facilitate this diagnosis. Understanding the cause enables appropriate treatment.


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Step 5: Develop alternative solutions

Before a manager can move ahead with a decisive action plan, he or she must have a clear understanding of the various options available to achieve desired objectives. The manager may seek ideas and suggestions from other people.


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Step 6: Evaluate alternatives

This step may involve the use of statistical techniques or personal experience to assess the probability of success. The merits of each alternative are assessed as well as the probability that it will reach the desired objectives.


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Step 7: Choose the best alternative

This step is the core of the desision making process. The manager uses his or her analysis of the problem, objectives, and alternatives to select a single alternative that has the best chance for success.


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Step 8: Implement the chosen alternative

Finally, the manager uses managerial, administrative, and persuasive abilities and gives directions to ensure that the decision is carried out. The monitoring activity (step 1) begins again as soon as the solution is implemented.


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Enter: The reality

Models can not stand the test of reality!

The model is just an ideal managers may work toward but never reach.

In fact, some heavy constraints do avert the model to be realized in an actual decision making process.


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Constraints

Limited time Limited information Need for agreement (cooperation) Corporate culture and structure Own desire for prestige / success …


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Bounded rationality model

Herbert A. Simon

Born in 1916

Died in 2001

He got the prize in

economic sciences in memory

of Alfred Nobel in 1978

"for his pioneering research into

the decision-making process

within economic organizations"


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Sequential consideration of alternatives

Unlike the treatment of alternatives in the step-

by-step model (which requires that all

alternatives under consideration be identified

before any evaluation takes place), here the

various alternatives are identified and

considered one at a time. Those that prove

inadequate in the light of the evaluative criteria

are discarded before other alternatives are considered.


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Use of heuristics

Heuristics are rules that guide the search for

alternatives into areas where there is a good

chance of finding satisfactory solutions. Aiming at satisfactory sub-optimal solutions! Short-cuts in the decision making process- “When the stock of goods gets down to four,

that is the time to buy more.“- …


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Satisficing

In the previous model, the optimal course of action is chosen after considering all possible alternatives. Impossibility to do so in reality!

The decision makers judge one alternative at a timeagainst certain standards of acceptability, and choose the first alternative which meets the minimal acceptable criteria or the minimum conditions for success!Acceptance of a satisfactory outcome!


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Decision making under uncertainty

As a result of the bounded rationality, all decisions carry some element of uncertainty and risk

Cosequences of an action must be undetstood in the cotext of their perceived likelihood to occurrence


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Reactions to risk I

Rational ideal for decision making under uncertainty is to select the alternative with the highest expected value

The expected value (EV) of an action is the value assigned to each possible consequence of the action, multiplied by the probabilities that each of these possible consequences will occur.


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Reactions to risk II

Do decision makers rely on expected-value calculations, when they make decisions?


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Reactions to risk III

You can have (A) $10 million for sure

( EV = $10 million) or (B) flip a coin and receive $22 million if heads appears and nothing if tails appears (EV = $11 million)


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Reactions to risk IV

Expected value (EV)

EV =

($22,000,000*50%)+($0million*50%)=$11,000,000


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Risk neutral

Typical decision maker is not risk neutral

it assumes that decision maker is indifferent between risky and certain autsomes if they have same EV


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Risk-averse

Risk-averse decision makers ignore the EV-solution and choose option associated with less risk

Risk-seeking behavior is just the opposite of risk-averse behavoir

Decision maker is risk seeking when he pays a premium to experience risk• Such as gambling in Las Vegas


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Risk in organizations – Framing and Escalation Framing – decision makers become

increasingly likely to take risks when confronting potential losses

And increasingly likely to avoid risks when confronting possible gains

Escalation – to commit resources to a failing cause based on the (slim) hope that there will be a dramatic positive change


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Advantages of Group Decision Making

Brings multiple knowledge and skills to the decision

• Resource pooling: group has more information than do any of its members

• Synergy: members can stimulate and encourage each other


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• Diversity: heterogenity of members can alter the group‘s effectiveness

“Cultural diversity provides the biggest asset for teams with difficult, discretionary tasks requiring innovation.“


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• Transactive memory: combination of knowledge related to each individual within a team

• Situated expertise: concerning group member‘s external ties, „who knows whom“


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Expedits acceptance by the group

Increases commitment to decisions

Generally results in higher quality decisions


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Disadvantages of Group Decision Making

Requires more time

“satisfice“ even when better decision is possible

Individual expertise may be ignored in favour of group consensus

Encourages riskier decisions


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Disadvantages of Group Decision Making

Creates possibility of “groupthink“• Irving Janis first identified groupthink as a factor

that influenced the misguided Bay of Pigs invasion in 1961

• Occurs in highly cohesive groups

• Distorted think- and decision processes make it impossible to make rational decisions


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Groupthink


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Symptoms of Groupthink

Invulnerability

Members feel they are safe and protected from dangers, ostracism or ineffective action

Rational

Members ignore warnings by rationalizing moral and ethical


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Morality

Members believe their actions are inherently moral and ethical

Stereotypes

Members view opponents as truly evil or stupid and unworthy of or incompetent at negotiations


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Pressure

Members pressure all group members to conform to the group‘s decision

Self-censorship

Members do not express any questions about the group‘s decision


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Unanimity

Members perceive that everyone in the group has the same view

Mindguards

Members may keep averse information that might ruin their perceptions of consensus and the effective decision


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When make decisions in groups?

Potential benefits are substantial

High error costs

Difficult to reverse or salvage a decision after action has begun

Feedback will not be available until long after the decision has been implemented


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When make decisions in groups?

Information is incomplete or uncertain

Many feasible alternatives exist

Identifying the optimal alternative is difficult


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Individual vs. Group Decision Making

Type of problem or task• Individual: when efficiency is desired• Group: when diverse knowledge and skills are

required

Acceptance of the decision• Individual: when acceptance is not important• Group: when acceptance by group members is

valued


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Quality of the solution• Individual: if „best member“ can be identified• Group: when several group members can improve

the solution

Characteristics of the individuals• Individual: when person cannot collaborate• Group: when group members have experience

working together


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Climate of the decision making• Individual: when climate is competitive• Group: climate is supportive of group problem

solving

Amount of time available• Individual: when relatively little time is available• Group: when relatively more time is available


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Summary

Group decision making is not without difficulties.

Group decision making increases communication, commitment, development and ownership of a problem and solution.


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Summary

It‘s an important step to make the right choice between individual and group decision making.

„A Decision how to make a decision.“


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Ethical decision making

Ethics are moral standards, not governed by law, that focus on the human consequences of action

Ethics require behaviour that meets higher standards than that established by low, including selfless behaviour rather than calculated

Ethics are a product of a society‘s culture, which includes its traditions, customs, values, and norms


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The capitalist system would not function if individuals were truly altruistic

People are likely to be more highly motivated if they are encouraged to pursue their own self-interest.

Destinction needs to be made• Short-term self-interests

• Long-term self-interests social dilemma


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Social dilemma - when the best long-term interests of the individual (society) conflict with the immediate interests of the individual


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Managing organizational ethics

78% have codes of ethics 51% have telephone lines for reporting

ethical concerns 30% have offices that deal with ethical

and legal compliance Many companies have corporate ethics

programs


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Institutionalizing ethics

Board-level committees that monitor the ethical behaviour of the organization• Developing ethics policies • Evaluating company or employee actions• Investigating and adjudicating policy

violations

Ethics training programs


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The role of culture in shaping decisionsCulture considered as beliefs assumptions values expectations paradigms frames of reference

that is both a product and a process


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The role of culture in shaping decisions profound impact on decision making

predispose individuals to make certain decisions at the expense of others

cultural influence will be subtle and unseen

culture forces its members to see the world to given parameters


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Decision making participation

In cultures with low expectations for influencing decision making – individual managerial decisions are effective• Subordinates expect to take orders and implement

them

In cultures that value the opinions of individuals - could encounter resistance• Members feel as though they should influence all

phases of management


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Cultural Contingencies of Decision Making Problem Recognition Information Search Construction of Alternatives Choice Implementation


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Cultural Contingencies of Decision Making1.Problem Problem Situation

Recognition Solving Acceptance

2.Information Gathering Gathering

Search „facts“ ideas

3.Construction Future-oriented Past-,present-

of Alternatives Alternatives future-oriented

4.Choice Individual Group decision

decision making making

5.Implementation Fast Slow


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Japan – group decision making

„Ringisei“ – the most frequently used decision-making process

Requires the circulation of documents to organization members

Ensures that subordinates have the opportunity to voice their views and possibly influence the final decision


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Korea – decision making at the top Large family conglomerates known as chaebols

„Family members“ make all decisions• Employees implement them

Some Korean organizations use the consensus decision making system• Just a formal process to rationalize and formalize

the decisions made by the top executives Highly formal communication structure


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Israel – democratic decision making

The kibbuz, a collective farm or industry, uses democratic participation in all aspects of its operations

Principles – community ownership, absolute equality of members, democratic decision making and primacy of the group over individuals

Democratic ideology permeates the kibbuz involving all members in major decisions

Communication in Organizations Decision Theory 1 von 65 20. Mai 2003 UNIVERSITÄT HILDESHEIM...

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