2.8: Summary

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Key Terms

Bounded rationality: The concept that when we make decisions, we cannot be fully rational because we don’t have all the possible information or the cognitive processing ability to make fully informed, completely rational decisions.

Brainstorming: A process of generating as many ideas or alternatives as possible, often in groups.

Confirmation Bias: The tendency to pay attention to information that confirms our existing beliefs and to ignore or discount information that conflicts with our existing beliefs.

Creativity: The generation of new or original ideas.

Critical Thinking: A disciplined process of evaluating the quality of information, especially by identifying logical fallacies in arguments.

Decision-making: The action or process of thinking through possible options and selecting one.

Devil's Advocate: A group member who intentionally takes on the role of being critical of the group’s ideas in order to discourage groupthink and encourage deep thought and discussion about issues prior to making decisions.

Emotional Intelligence: The ability to understand and manage emotions in oneself and in others.

Escalation of Commitment: The tendency of decision makers to remain committed to poor decision, even when doing so leads to increasingly negative outcomes.

Evidence-based Decision-making: A process of collecting the best available evidence prior to making a
decision.

Groupthink: The tendency of a group to reach agreement very quickly and without substantive discussion.

Heuristics: Mental shortcuts that allow a decision maker to reach a good decision quickly. They are strategies that develop based on prior experience.

Nonprogrammed Decisions: Decisions that are novel and not based on well-defined or known criteria.

Process conflict: Conflict about the best way to do something; conflict that is task-oriented and constructive, and not focused on the individuals involved.

Programmed Decision: Decisions that are repeated over time and for which an existing set of rules can be
developed.

Reactive System: System of decision-making in the brain that is quick and intuitive.

Reflective System: System of decision-making in the brain that is logical, analytical, and methodical.

Relationship Conflict: Conflict between individuals that is based on personal (or personality) differences; this type of conflict tends to be destructive rather than constructive.

Satisficing: Choosing the first acceptable solution to minimize time spent on a decision.

Stakeholders: Individuals or groups who are impacted by the organization. These include owners, employees, customers, suppliers, and members of the community in which the organization is located.

Suppression of Dissent: When a group member exerts his or her power to prevent others from voicing their thoughts or opinions.

Summary of Learning Outcomes

2.2 Overview of Managerial Decision-Making

1. What are the basic characteristics of managerial decision-making?

Managers are constantly making decisions, and those decisions often have significant impacts and implications for both the organization and its stakeholders. Managerial decision-making is often characterized by complexity, incomplete information, and time constraints, and there is rarely one right answer. Sometimes there are multiple good options (or multiple bad options), and the manager must try to decide which will generate the most positive outcomes (or the fewest negative outcomes). Managers must weigh the possible consequences of each decision and recognize that there are often multiple stakeholders with conflicting needs and preferences so that it often will be impossible to satisfy everyone. Finally, managerial decision-making can sometimes have ethical implications, and these should be contemplated before reaching a final decision.

2.3 How the Brain Processes Information to Make Decisions: Reflective and Reactive Systems

2. What are the two systems of decision-making in the brain?

The brain processes information to make decisions using one of two systems: either the logical, rational (reflective) system or the quick, reactive system. The reflective system is better for significant and important decisions; these generally should not be rushed. However, the reactive system can be lifesaving when time is of the essence, and it can be much more efficient when based on developed experience and expertise.

2.4 Programmed and Nonprogrammed Decisions

3. What is the difference between programmed and nonprogrammed decisions?

Programmed decisions are those that are based on criteria that are well understood, while nonprogrammed decisions are novel and lack clear guidelines for reaching a solution. Managers can establish rules and guidelines for programmed decisions based on known fact, which enables them to reach decisions quickly. Nonprogrammed decisions require more time to resolve; the decision maker may need to conduct research, collect additional information, gather opinions and ideas from other people, and so on.

2.5 Barriers to Effective Decision-Making

4. What barriers exist that make effective decision-making difficult?

There are numerous barriers to effective decision-making. Managers are limited in their ability to collect comprehensive information, and they are limited in their ability to cognitively process all the information that is available. Managers cannot always know all the possible outcomes of all the possible options, and they often face time constraints that limit their ability to collect all the information that they would like to have. In addition, managers, like all humans, have biases that influence their decision-making, and that can make it difficult for them to make good decisions. One of the most common biases that can confound decision-making is confirmation bias, the tendency for a person to pay attention to information that confirms her existing beliefs and ignore information that conflicts with these existing beliefs. Finally, conflict between individuals in organizations can make it challenging to reach a good decision.

2.6 Improving the Quality of Decision-Making

5. How can a manager improve the quality of her individual decision-making?

Managers tend to get better at decision-making with time and experience, which helps them build expertise. Heuristics and satisficing can also be useful techniques for making programmed decisions quickly. For nonprogrammed decisions, a manager can improve the quality of her decision-making by utilizing a variety of other techniques. Managers should also be careful to not skip steps in the decision-making process, to involve others in the process at various points, and to be creative in generating alternatives. They should also engage in evidence-based decision-making: doing research and collecting data and information on which to base the decision. Effective managers also think critically about the quality of the evidence that they collect, and they carefully consider long-term outcomes and ethical implications prior to making a decision.

2.7 Group Decision-Making

6. What are the advantages and disadvantages of group decision-making, and how can a manager improve the quality of group decision-making?

Groups can make better decisions than individuals because group members can contribute more knowledge and a diversity of perspectives. Groups will tend to generate more options as well, which can lead to better solutions. Also, having people involved in making decisions that will affect them can improve their attitudes about the decision that is made. However, groups sometimes fail to generate added value in the decision-making process as a result of groupthink, conflict, or suppression of dissent.

Managers can improve the quality of group decision-making in a number of ways. First, when forming the group, the manager should ensure that the individual group members are diverse in terms of knowledge and perspectives. The manager may also want to assign a devil’s advocate to discourage groupthink. Managers should also encourage all group members to contribute their ideas and opinions, and they should not allow a single voice to dominate. Finally, they should not allow personality conflicts to derail group processes.

Chapter Review Questions

What are some of the factors that enabled to Jen Rubio and Stephanie Korey to make good decisions when they established their luggage company, Away?
What are the two systems that the brain uses in decision-making? How are they related to programmed and nonprogrammed decisions?
What is a heuristic, and when would it be appropriate to use a heuristic for decision-making?
What is confirmation bias? Explain how it can be a barrier to effective decision-making.
What is a logical fallacy?
What are the two types of conflict? Which one is constructive, and which is destructive?
What are the steps in the decision-making process? Which ones do people tend to skip or spend insufficient time on?
What can individuals do to improve the quality of their decision-making?
What can groups or group leaders do to improve the quality of group decision-making?
What are the benefits of decision-making in a group, instead of individually?

Management Skills Application Exercises

If you wanted to buy a new car, what research would you do first to increase the likelihood of making a good decision? As a manager, do you think you would engage in more research or less research than that prior to making big decisions for the organization?
Think about a big decision that you have made. What impact did your emotions have on that decision? Did they help or hinder your decision-making? Would you make the same decision again?
If you were faced with an ethical dilemma at work, who would you want to talk to for advice prior to reaching a decision?
Which would be better to involve a group with, a programmed or a nonprogrammed decision? Why?
If you were manager of a group with a lot of personality conflict, what would you do?

Managerial Decision Exercises

Imagine that you are a manager and that two of your employees are blaming one another for a recent project not going well. What factors would you consider in deciding whom to believe? Who else would you talk to before making a decision? What would you do to try to reduce the likelihood of this happening again?
You have been asked whether your organization should expand from selling its products only in North America to selling its products in Europe as well. What information would you want to collect? Who would you want to discuss the idea with before making a decision?
You have a colleague who decided the organization should pursue a new technology. Nine months into the project of transitioning to the new technology, based on new information you are convinced that the new technology is not going to work out as anticipated. In fact, you expect it to be a colossal failure. However, when you try to talk to your colleague about the issue, she won’t listen to your arguments. She is adamant that this new technology is the correct direction for your organization. Why do you think she is so resistant to seeing reason? Given what you learned in this chapter, what could you do to persuade her?
Your manager has asked you to take the lead on a new and creative project. She has encouraged you to create your own team (from existing employees) to work with you on the project. What factors would you want to consider in deciding who should join your project team? What would you want to do as the team leader to increase the likelihood that the group will be successful?
Identify the logical flaw(s) in this argument:

We want to have effective leaders in this organization.
Taller individuals tend to be perceived as more leader-like.
Men are usually taller than women.
So, we should only hire men to be managers in our organization.

Critical Thinking Case

Vinyl Records Make a Comeback

The music industry has seen a series of innovations that have improved audio quality—vinyl records sales were eventually surpassed by compact discs in the 1980s, which were then eclipsed by digital music in the early 2000s. Both of the newer technologies boast superior sound quality to vinyl records. Vinyl should be dead . . . yet it’s not. Some say this is simply a result of nostalgia—people love to harken back to older times. However, some audiophiles say that vinyl records produce a “warm” sound that can’t be reproduced in any other format. In addition, a vinyl record is a tangible product (you can feel it, touch it, and see it when you own the physical record) and is more attractive, from an aesthetic perspective, than a CD. It is also a format that encourages listening to an entire album at once, rather than just listening to individual tracks, which can change the listening experience.

Whatever the reasons, vinyl is making an impressive comeback. Sales growth has been in the double digits for the last several years (over 50% in 2015 and again in 2016) and is expected to exceed $5 billion in 2017. Sony, which hasn’t produced a vinyl record since 1989, recently announced that it is back in the vinyl business.

One of the biggest challenges to making vinyl records is that most of the presses are 40+ years old. In the record-making process, vinyl bits are heated to 170 degrees, and then a specialized machine exerts 150 tons of pressure to press the vinyl into the shape of the record. About a dozen new vinyl record manufacturers have sprung up in the last decade in the United States. Independent Record Pressing, a company based in New Jersey, began producing vinyl records in 2015 using old, existing presses. Their goal upon starting up was to produce over a million records a year. Even at that level of production, though, demand far outstrips the company’s capacity to produce because of the limited number of presses available. They could run their machines nonstop, 24 hours a day, and not catch up with demand.

The big question is what the future holds for this industry. Will this just be a passing fad? Will the vinyl record industry remain a small niche market? Or is this the renaissance, the rebirth of a product that can withstand the test of time and alternative technologies? If it’s a rebirth, then we should see demand continue to grow at its recent rapid pace . . . and if demand remains strong, then investing in new presses may well be worthwhile. If this is just a short-lived nostalgic return to an outdated media, however, then the large capital investment required to purchase new presses will never be recouped. Even with the recent growth, vinyl records still accounted for only 7% of overall music industry sales in 2015. That may be enough to get old presses running again, but so far it hasn’t been enough to promote a lot of investment in new machines. The cost of a new press? Almost half a million dollars.

At least one manufacturer is optimistic about the future of vinyl. GZ Media, based in Czechoslovakia, is currently the world’s largest producer of vinyl records. President and owner Zdenek Pelc kept his record factory going during the lean years when vinyl sales bottomed out. He admits that the decision was not wholly logical; he continued in part because of an emotional attachment to the media. After demand for vinyl records practically disappeared, Pelc kept just a few of the presses running to meet the demand that remained. His intention was to be the last remaining manufacturer of vinyl records. Pelc’s emotional attachment to vinyl records seems to have served him well, and it’s a great example of why basing decisions on pure logic doesn’t always lead to the best results. Consumers make purchasing decisions in part based on the emotional appeal of the product, so it shouldn’t be surprising that consumers also feel an emotional attachment to vinyl records, as Pelc did.

When demand for vinyl records was low, Pelc stored the company’s presses that were no longer in use so that they could be cannibalized for parts as needed. When sales began to grow again in 2005, he started pulling old machines out of storage and even invested in a few new ones. This has made GZ Media not only the largest vinyl record producer in the world, but also one of the only ones with new factory equipment. GZ Media produces over 20 million vinyl records a year, and Pelc is excited to continue that trend and to remain a major manufacturer in what is currently still considered a niche market.

Critical Thinking Questions

Why do you think vinyl records are appealing to customers?
Do you think the sales growth will continue to be strong for vinyl sales? Why or why not?
What research would you want to conduct prior to making a decision to invest in new presses?

Sources: Lee Barron, “Back on record – the reasons behind vinyl’s unlikely comeback,” The Conversation, April 17, 2015, https://theconversation.com/back-on-...comeback-39964. Hannah Ellis-Peterson, “Record sales: vinyl hits 25-year high,” The Guardian, January 3, 2017, www.theguardian.com/music/20...tripsstreaming. Allan Kozinn, “Weaned on CDs, They’re Reaching for Vinyl,” The New York Times, June 9, 2013. Rick Lyman, “Czech company, pressing hits for years on vinyl, finds it has become one,” The New York Times, August 6, 2015. Alec Macfarlane and Chie Kobayashi, “Vinyl comeback: Sony to produce records again after 28-year break,” CNN Money, June 30, 2017, money.cnn.com/2017/06/30/news...rds/index.html. Kate Rogers, “Why millennials are buying more vinyl records,” CNBC.com, November 6, 2015. https://www.cnbc.com/2015/11/06/why-...l-records.html. Robert Tait, “In the groove: Czech firm tops list of world’s vinyl record producers,” The Guardian, August 18, 2016.