FSU Management Decision Making Process Paper

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Managerial Decision-Making
Exhibit 2.1
(i_yudai/ flickr/ Attribution 2.0 Generic (CC BY 2.0))
Introduction
Learning Outcomes
After reading this chapter, you should be able to answer these questions:
1. What are the basic characteristics of managerial decision-making?
2. What are the two systems of decision-making in the brain?
3. What is the difference between programmed and nonprogrammed decisions?
4. What barriers exist that make effective decision-making difficult?
5. How can a manager improve the quality of her individual 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?
EXPLORING MANAGERIAL CAREERS
Up, Up, and Away: How Stephanie Korey and Jen Rubio founded their luggage company
Jen Rubio and Stephanie Korey faced a number of important decisions in starting their luggage
company, Away—beginning with the decision to start a business! That decision came about after Rubio’s
luggage broke on a trip. She found it frustrating that all the luggage options were either inexpensive
($100 or less) but low quality, or high quality but incredibly expensive ($400 and above). There was no
midrange option. So in 2015 Rubio and her friend Stephanie Korey began researching the luggage
industry. They found that much of the reason for the high prices on quality luggage was because of how
it was distributed and sold, through specialty retail shops and department stores. If they opted instead
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for a model in which they sold directly to consumers, they could provide high-quality luggage at more of
a midrange ($200-$300) price. After considerable research, the two were convinced that they had an idea
worth pursuing. Rubio and Korey settled on the company name “Away,” which is intended to invoke the
pleasure that comes from travelling.
Both of the founders had prior experience working for a start-up in the e-commerce space (Warby
Parker), which helped them with making sound choices. Rubio’s background was more in branding and
marketing, while Korey’s was in operations and supply chain management—so each was able to bring
great expertise to various aspects of the business. They raised money initially from friends and family,
but within a few months they sought venture capital funding to ensure that they had enough money to
get off to a successful start.
A big decision that Rubio and Korey had to make fairly early in the process of establishing their business
was to settle on an initial design for the product. This decision required extensive marketing and
consumer research to understand customer needs and wants. They asked hundreds of people what they
liked about their existing luggage, and what they found most irritating about their existing luggage.
They also contracted with a two-person design team to help create the first prototype. This research and
development ultimately led to the design of an attractive hard case that is surprisingly lightweight. It
also boasts extremely high-quality wheels (four of them, not two) and high-quality zippers. As a bonus,
the carry-on includes a built-in battery for charging phones and other devices.
The two founders also had to choose a partner to manufacture their product. Because their product had
a hard, polycarbonate shell, Rubio and Korey discovered that manufacturing in the United States was not
a viable option—the vast majority of luggage manufacturers using a polycarbonate shell were based in
Asia. They researched a number of possible business partners and asked lots of questions. In addition,
they eventually visited all of the factories on their list of options to see what they were actually like. This
was an important piece of research, because the companies that looked best on paper didn’t always turn
out to be the best when they visited in person. Rubio and Korey ended up working with a manufacturing
partner in China that also produces luggage for many high-end brands, and they have been extremely
pleased with the partnership. They continue to devote time to building and maintaining that
relationship, which helps to avoid issues and problems that might otherwise come up.
By the end of 2015, Rubio and Korey had developed their first product. Because the luggage was not
going to be available in time for the holiday shopping season, they decided to allow customers to
preorder the luggage. To drum up interest, the duo engaged in a unique storytelling effort. They
interviewed 40 well-respected members of the creative community about their travel experiences and
created a hardcover book of travel memoirs called The Places We Return To. Not only was the book
interesting and engaging, it also made lots of people in the creative community aware of Away luggage.
Starting in November 2015, the travel memoir book was available for free with the purchase of a gift card
that could be redeemed in February 2016 for luggage. The book project generated tremendous advance
interest in the product, and the 1,200 printed copies sold out. Away generated $12 million in first-year
sales.
Stephanie Corey and Jen Rubio faced many important and novel decisions in initially developing and
building their business. They have been successful in part because they made those decisions wisely—by
relying on shared knowledge, expertise, and lots of research before reaching a decision. They will
continue to face many decisions, big and small. They have expanded their product line from one piece of
luggage to four, with more luggage—and other travel accessories—in the works for the future. Their
company, which is based in New York, has grown to over 60 employees in the first two years. These
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employees include the two design-team members who were contracted to help create their first
prototype; Rubio and Korey appreciated working with them so much, they offered them full-time
positions with Away. Each new hire represents new decisions—decisions about what additional work
needs to be done and who they should hire to do it. Each new product also brings additional
decisions—but it seems Rubio and Korey have positioned themselves (and their business) well for future
successes.
Sources: Kendall Baker, “An Interview With the Co-Founder of Away,” The Hustle, December 5, 2016,
https://thehustle.co/episodes; Bond Street Blog, “Up and Away,” Bond Street, https://bondstreet.com/
blog/jen-rubio-interview/; Josh Constine, “Away nears 100k stylish suitcases sold as it raises $20M,”
TechCrunch, May 19, 2017, https://techcrunch.com/; Adeline Duff, “ The T&L Carry-On: Away Travel CoFounders Jen Rubio and Stephanie Korey,” Travel & Leisure, March 9, 2017,
http://www.travelandleisure.com/; Burt Helm, “How This Company Launched With Zero Products –and
Hit $12 Million in First-Year Sales,” Inc.com, July/August 2017, https://www.inc.com/; Veronique Hyland,
“The Duo Trying to Make Travel More Glamorous,” The Cut, December 22, 2015,
https://www.thecut.com/.
Managers and business owners—like Jen Rubio and Stephanie Korey—make decisions on a daily basis. Some
are big, like the decision to start a new business, but most are smaller decisions that go into the regular
running of the company and are crucial to its long-term success. Some decisions are predictable, and some are
unexpected. In this chapter we look at important information about decision-making that can help you make
better decisions and, ultimately, be a better manager.
2.1
Overview of Managerial Decision-Making
1. What are the basic characteristics of managerial decision-making?
Decision-making is the action or process of thinking through possible options and selecting one.
It is important to recognize that managers are continually making decisions, and that the quality of their
decision-making has an impact—sometimes quite significant—on the effectiveness of the organization and its
stakeholders. Stakeholders are all the individuals or groups that are affected by an organization (such as
customers, employees, shareholders, etc.).
Members of the top management team regularly make decisions that affect the future of the organization and
all its stakeholders, such as deciding whether to pursue a new technology or product line. A good decision can
enable the organization to thrive and survive long-term, while a poor decision can lead a business into
bankruptcy. Managers at lower levels of the organization generally have a smaller impact on the
organization’s survival, but can still have a tremendous impact on their department and its workers. Consider,
for example, a first-line supervisor who is charged with scheduling workers and ordering raw materials for her
department. Poor decision-making by lower-level managers is unlikely to drive the entire firm out of existence,
but it can lead to many adverse outcomes such as:
• reduced productivity if there are too few workers or insufficient supplies,
• increased expenses if there are too many workers or too many supplies, particularly if the supplies have a
limited shelf life or are costly to store, and
• frustration among employees, reduced morale, and increased turnover (which can be costly for the
organization) if the decisions involve managing and training workers.
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Deciding When to Decide
While some decisions are simple, a manager’s decisions are often complex ones that involve a range of
options and uncertain outcomes. When deciding among various options and uncertain outcomes, managers
need to gather information, which leads them to another necessary decision: how much information is needed
to make a good decision? Managers frequently make decisions without complete information; indeed, one of
the hallmarks of an effective leader is the ability to determine when to hold off on a decision and gather more
information, and when to make a decision with the information at hand. Waiting too long to make a decision
can be as harmful for the organization as reaching a decision too quickly. Failing to react quickly enough can
lead to missed opportunities, yet acting too quickly can lead to organizational resources being poorly allocated
to projects with no chance of success. Effective managers must decide when they have gathered enough
information and must be prepared to change course if additional information becomes available that makes it
clear that the original decision was a poor one. For individuals with fragile egos, changing course can be
challenging because admitting to a mistake can be harder than forging ahead with a bad plan. Effective
managers recognize that given the complexity of many tasks, some failures are inevitable. They also realize
that it’s better to minimize a bad decision’s impact on the organization and its stakeholders by recognizing it
quickly and correcting it.
What’s the Right (Correct) Answer?
It’s also worth noting that making decisions as a manager is not at all like taking a multiple-choice test: with a
multiple-choice test there is always one right answer. This is rarely the case with management decisions.
Sometimes a manager is choosing between multiple good options, and it’s not clear which will be the best.
Other times there are multiple bad options, and the task is to minimize harm. Often there are individuals in the
organization with competing interests, and the manager must make decisions knowing that someone will be
upset no matter what decision is reached.
What’s the Right (Ethical) Answer?
Sometimes managers are asked to make decisions that go beyond just upsetting someone—they may be
asked to make decisions in which harm could be caused to others. These decisions have ethical or moral
implications. Ethics and morals refer to our beliefs about what is right vs. wrong, good vs. evil, virtuous vs.
corrupt. Implicitly, ethics and morals relate to our interactions with and impact on others—if we never had to
interact with another creature, we would not have to think about how our behaviors affected other individuals
or groups. All managers, however, make decisions that impact others. It is therefore important to be mindful
about whether our decisions have a positive or a negative impact. “Maximizing shareholder wealth” is often
used as a rationalization for placing the importance of short-term profits over the needs of others who will be
affected by a decision—such as employees, customers, or local citizens (who might be affected, for example,
by environmental decisions). Maximizing shareholder wealth is often a short-sighted decision, however,
because it can harm the organization’s financial viability in the future.1 Bad publicity, customers boycotting the
organization, and government fines are all possible long-term outcomes when managers make choices that
cause harm in order to maximize shareholder wealth. More importantly, increasing the wealth of shareholders
is not an acceptable reason for causing harm to others.
As you can see from these brief examples, management is not for the faint of heart! It can, however, be
incredibly rewarding to be in a position to make decisions that have a positive impact on an organization and
its stakeholders. We see a great example of this in the Sustainability and Responsible Management box.
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Chapter 2 Managerial Decision-Making
SUSTAIN ABILITY AND RESPONSIBLE M AN AGEMENT
Brewing Sustainable Success
The focus of a manager or a business owner is often primarily on doing well (making a profit).
Sometimes, though, organizational leaders choose to pursue two big goals at once: doing well, and
simultaneously doing good (benefiting society in some way). Why? Generally because they think it’s an
important thing to do. The business provides an opportunity to pursue another goal that the founders,
owners, or managers are also passionate about. In the case of New Belgium Brewing, the company’s
cofounders, Jeff Lebesch and Kim Jordan, were passionate about two things: making great beer and
environmental stewardship. So it should come as no surprise that their brewery is dedicated to reducing
its environmental footprint. The brewery has created a culture that fosters sustainability in a wide range
of ways, such as by giving employees a bicycle on their one-year anniversary as a way to encourage them
to ride bicycles to work. The organization is also active in advocacy efforts, such as the “Save the
Colorado” (river) campaign, and it works hard to promote responsible decision-making when it comes to
environmental issues. In fact, in 1999, following an employee vote, the brewery began to purchase all of
its electricity from wind power, even though it was more expensive than electricity from coal-burning
power plants (which meant reduced profitability and less money for employee bonuses).
While the brewery still relies primarily on wind power, it also now generates a portion of its electricity
onsite—some from rooftop solar panels, and even more from biogas, the methane gas byproduct that is
created by microbes in the brewery’s water treatment plant. The company cleans the wastewater
generated from beer production, and in doing so it generates the biogas, which is captured and used for
energy to help run the brewery.
Brewing is water intensive, so New Belgium works hard to reduce water consumption and to recycle the
water that it does use. The company also reduces other types of waste by selling used grain, hops, and
yeast to local ranchers for cattle feed. The company, which has been employee owned since 2013, also
works with the local utility through a Smart Meter program to reduce their energy consumption at peak
times.
All of these efforts at doing good must come at a cost, right? Actually, research shows that companies
that are committed to sustainability have superior financial performance, on average, relative to those
that are not. In coming up with creative ways to reduce, reuse, and recycle, employees often also find
ways to save money (like using biogas). In addition, organizations that strive to do good are often
considered attractive and desirable places to work (especially by people who have similar values) and are
also valued by the surrounding communities. As a result, employees in those organizations tend to be
extremely committed to them, with high levels of engagement, motivation, and productivity. Indeed, it
seems clear that the employees at the New Belgium Brewery are passionate about where they work and
what they do. This passion generates value for the organization and proves that it is, in fact, possible to
do well while having also made the decision to do good. And in the case of New Belgium Brewery, that
means working to protect the environment while also making delicious beer.
Discussion Questions
1. What challenges does New Belgium Brewery face in pursuing environmental goals?
2. Can you think of any other examples of companies that try to “do good” while also doing well?
3. Would you like to work for an organization that is committed to something more than just
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profitability, even if it meant your salary or bonus would be smaller?
Sources: Karen Crofton, “How New Belgium Brewery leads Colorado’s craft brewers in energy,” GreenBiz,
August 1, 2014, https://www.greenbiz.com/. Darren Dahl, “How New Belgium Brewing Has Found
Sustainable Success,” Forbes, February 8, 2016, https://www.forbes.com/. Jenny Foust, “New Belgium
Brewing Once Again Named Platinum-Level Bicycle Friendly Business by the League of American
Bicyclists,” Craft Beer.com, February 18, 2016. Robert G. Eccles, Ioannis Ioannou, & George Serafeim,
“The Impact of Corporate Sustainability on Organizational Processes and Performance,” Management
Science, 60, 2014, https://doi.org/10.1287/mnsc.2014.1984. New Belgium Brewery Sustainability web
page, http://www.newbelgium.com/sustainability, accessed September 18, 2017.
CONCEPT CHECK
1. What are some positive outcomes of decision-making for an organization? What are some possible
negative outcomes?
2. How is managerial decision-making different from a multiple-choice test?
3. In addition to the owners of a business, who are some of the other stakeholders that managers
should consider when making decisions?
2.2
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 human brain processes information for decision-making using one of two routes: a reflective system and a
reactive (or reflexive) system.2,3 The reflective system is logical, analytical, deliberate, and methodical, while
the reactive system is quick, impulsive, and intuitive, relying on emotions or habits to provide cues for what
to do next. Research in neuropsychology suggests that the brain can only use one system at a time for
processing information [Darlow & Sloman] and that the two systems are directed by different parts of the
brain. The prefrontal cortex is more involved in the reflective system, and the basal ganglia and amygdala
(more primitive parts of the brain, from an evolutionary perspective) are more involved in the reactive
system.4
Reactive Decision-Making
We tend to assume that the logical, analytical route leads to superior decisions, but whether this is accurate
depends on the situation. The quick, intuitive route can be lifesaving; when we suddenly feel intense fear, a
fight-or-flight response kicks in that leads to immediate action without methodically weighing all possible
options and their consequences. Additionally, experienced managers can often make decisions very quickly
because experience or expertise has taught them what to do in a given situation. These managers might not
be able to explain the logic behind their decision, and will instead say they just went with their “gut,” or did
what “felt” right. Because the manager has faced a similar situation in the past and has figured out how to
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deal with it, the brain shifts immediately to the quick, intuitive decision-making system. 5
Reflective Decision-Making
The quick route is not always the best decision-making path to take, however. When faced with novel and
complex situations, it is better to process available information logically, analytically, and methodically. As a
manager, you need to think about whether a situation requires not a fast, “gut” reaction, but some serious
thought prior to making a decision. It is especially important to pay attention to your emotions, because
strong emotions can make it difficult to process information rationally. Successful managers recognize the
effects of emotions and know to wait and address a volatile situation after their emotions have calmed down.
Intense emotions—whether positive or negative—tend to pull us toward the quick, reactive route of decisionmaking. Have you ever made a large “impulse” purchase that you were excited about, only to regret it later?
This speaks to the power our emotions exert on our decision-making. Big decisions should generally not be
made impulsively, but reflectively.
The Role of Emotions
Being aware of the role emotions play in decision-making does not mean that we should ignore them.
Emotions can serve as powerful signals about what we should do, especially in situations with ethical
implications. You can read more about this particular type of decision-making in the Ethics in Practice box later
in this chapter. Thinking through how we feel about the possible options, and why we feel that way, can
greatly enhance our decision-making.6 Effective decision-making, then, relies on both logic and emotions. For
this reason, the concept of emotional intelligence has become popular as a characteristic of effective
managers. Emotional intelligence is the ability to recognize, understand, pay attention to, and manage one’s
own emotions and the emotions of others. It involves self-awareness and self-regulation—essentially, this is a
toggling back and forth between emotions and logic so that we analyze and understand our own emotions
and then exert the necessary control to manage them as appropriate for the situation. Emotional intelligence
also involves empathy—the ability to understand other peoples’ emotions (and an interest in doing so).
Finally, emotional intelligence involves social skills to manage the emotional aspects of relationships with
others. Managers who are aware of their own emotions can think through what their emotions mean in a
given situation and use that information to guide their decision-making. Managers who are aware of the
emotions of others can also utilize that information to help groups function more effectively and engage in
better group decision-making. While emotional intelligence seems to come easily to some people, it is
something that we can develop and improve on with practice. A model of emotional intelligence is presented
in Exhibit 2.2.
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Exhibit 2.2
Emotional Intelligence (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
CONCEPT CHECK
1. Explain the two systems used by the brain in decision-making.
2. What is emotional intelligence, and why is it important for decision-making?
2.3
Programmed and Nonprogrammed Decisions
3. What is the difference between programmed and nonprogrammed decisions?
Because managers have limited time and must use that time wisely to be effective, it is important for them to
distinguish between decisions that can have structure and routine applied to them (called programmed
decisions) and decisions that are novel and require thought and attention (nonprogrammed decisions).
Programmed Decisions
Programmed decisions are those that are repeated over time and for which an existing set of rules can be
developed to guide the process. These decisions might simple, or they could be fairly complex, but the criteria
that go into making the decision are all known or can at least be estimated with a reasonable degree of
accuracy. For example, deciding how many raw materials to order should be a programmed decision based on
anticipated production, existing stock, and anticipated length of time for the delivery of the final product. As
another example, consider a retail store manager developing the weekly work schedule for part-time
employees. The manager must consider how busy the store is likely to be, taking into account seasonal
fluctuations in business. Then, she must consider the availability of the workers by taking into account
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requests for vacation and for other obligations that employees might have (such as school). Establishing the
schedule might be complex, but it is still a programmed decision: it is made on a regular basis based on wellunderstood criteria, so structure can be applied to the process. For programmed decisions, managers often
develop heuristics, or mental shortcuts, to help reach a decision. For example, the retail store manager may
not know how busy the store will be the week of a big sale, but might routinely increase staff by 30% every
time there is a big sale (because this has been fairly effective in the past). Heuristics are efficient—they save
time for the decision maker by generating an adequate solution quickly. Heuristics don’t necessarily yield the
optimal solution—deeper cognitive processing may be required for that. However, they generally yield a good
solution. Heuristics are often used for programmed decisions, because experience in making the decision over
and over helps the decision maker know what to expect and how to react. Programmed decision-making can
also be taught fairly easily to another person. The rules and criteria, and how they relate to outcomes, can be
clearly laid out so that a good decision can be reached by the new decision maker. Programmed decisions are
also sometimes referred to as routine or low-involvement decisions because they don’t require in-depth mental
processing to reach a decision. High- and low-involvement decisions are illustrated in Exhibit 2.3.
Exhibit 2.3
High-Involvement and Low-Involvement Decisions. (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
Nonprogrammed Decisions
In contrast, nonprogrammed decisions are novel, unstructured decisions that are generally based on criteria
that are not well-defined. With nonprogrammed decisions, information is more likely to be ambiguous or
incomplete, and the decision maker may need to exercise some thoughtful judgment and creative thinking to
reach a good solution. These are also sometimes referred to as nonroutine decisions or as high-involvement
decisions because they require greater involvement and thought on the part of the decision maker. For
example, consider a manager trying to decide whether or not to adopt a new technology. There will always be
unknowns in situations of this nature. Will the new technology really be better than the existing technology?
Will it become widely accepted over time, or will some other technology become the standard? The best the
manager can do in this situation is to gather as much relevant information as possible and make an educated
guess as to whether the new technology will be worthwhile. Clearly, nonprogrammed decisions present the
greater challenge.
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The Decision-Making Process
While decisions makers can use mental shortcuts with programmed decisions, they should use a systematic
process with nonprogrammed decisions. The decision-making process is illustrated in Exhibit 2.4 and can be
broken down into a series of six steps, as follows:
1. Recognize that a decision needs to be made.
2. Generate multiple alternatives.
3. Analyze the alternatives.
4. Select an alternative.
5. Implement the selected alternative.
6. Evaluate its effectiveness.
While these steps may seem straightforward, individuals often skip steps or spend too little time on some
steps. In fact, sometimes people will refuse to acknowledge a problem (Step 1) because they aren’t sure how
to address it. We’ll discuss the steps more later in the chapter, when we review ways to improve the quality of
decision-making.
Exhibit 2.4
The Decision-Making Process. (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
You may notice similarities between the two systems of decision-making in our brains and the two types of
decisions (programmed and nonprogrammed). Nonprogrammed decisions will generally need to be
processed via the reflective system in our brains in order for us to reach a good decision. But with
programmed decisions, heuristics can allow decision makers to switch to the quick, reactive system and then
move along quickly to other issues.
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CONCEPT CHECK
1. Give an example of a programmed decision that a manager might face.
2. Give an example of a nonprogrammed decision.
3. What are heuristics, and when are they helpful?
4. How are programmed and nonprogrammed decisions connected to the reflective and reactive
systems in the brain?
2.4
Barriers to Effective Decision-Making
4. What barriers exist that make effective decision-making difficult?
There are a number of barriers to effective decision-making. Effective managers are aware of these potential
barriers and try to overcome them as much as possible.
Bounded Rationality
While we might like to think that we can make completely rational decisions, this is often unrealistic given the
complex issues faced by managers. Nonrational decision-making is common, especially with nonprogrammed
decisions. Since we haven’t faced a particular situation previously, we don’t always know what questions to ask
or what information to gather. Even when we have gathered all the possible information, we may not be able
to make rational sense of all of it, or to accurately forecast or predict the outcomes of our choice. Bounded
rationality is the idea that for complex issues we cannot be completely rational because we cannot fully grasp
all the possible alternatives, nor can we understand all the implications of every possible alternative. Our
brains have limitations in terms of the amount of information they can process. Similarly, as was alluded to
earlier in the chapter, even when managers have the cognitive ability to process all the relevant information,
they often must make decisions without first having time to collect all the relevant data—their information is
incomplete.
Escalation of Commitment
Given the lack of complete information, managers don’t always make the right decision initially, and it may not
be clear that a decision was a bad one until after some time has passed. For example, consider a manager who
had to choose between two competing software packages that her organization will use on a daily basis to
enhance efficiency. She initially chooses the product that was developed by the larger, more well-established
company, reasoning that they will have greater financial resources to invest in ensuring that the technology is
good. However, after some time it becomes clear that the competing software package is going to be far
superior. While the smaller company’s product could be integrated into the organization’s existing systems at
little additional expense, the larger company’s product will require a much greater initial investment, as well as
substantial ongoing costs for maintaining it. At this point, however, let’s assume that the manager has already
paid for the larger company’s (inferior) software. Will she abandon the path that she’s on, accept the loss on
the money that’s been invested so far, and switch to the better software? Or will she continue to invest time
and money into trying to make the first product work? Escalation of commitment is the tendency of decision
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makers to remain committed to poor decision, even when doing so leads to increasingly negative outcomes.
Once we commit to a decision, we may find it difficult to reevaluate that decision rationally. It can seem easier
to “stay the course” than to admit (or to recognize) that a decision was poor. It’s important to acknowledge
that not all decisions are going to be good ones, in spite of our best efforts. Effective managers recognize that
progress down the wrong path isn’t really progress, and they are willing to reevaluate decisions and change
direction when appropriate.
Time Constraints
Managers often face time constraints that can make effective decision-making a challenge. When there is little
time available to collect information and to rationally process it, we are much less likely to make a good
nonprogrammed decision. Time pressures can cause us to rely on heuristics rather than engage in deep
processing. While heuristics save time, however, they don’t necessarily lead to the best possible solution. The
best managers are constantly assessing the risks associated with acting too quickly against those associated
with not acting quickly enough.
Uncertainty
In addition, managers frequently make decisions under conditions of uncertainty—they cannot know the
outcome of each alternative until they’ve actually chosen that alternative. Consider, for example, a manager
who is trying to decide between one of two possible marketing campaigns. The first is more conservative but
is consistent with what the organization has done in the past. The second is more modern and edgier, and
might bring much better results . . . or it might be a spectacular failure. The manager making the decision will
ultimately have to choose one campaign and see what happens, without ever knowing what the results would
have been with the alternate campaign. That uncertainty can make it difficult for some managers to make
decisions, because committing to one option means forgoing other options.
Personal Biases
Our decision-making is also limited by our own biases. We tend to be more comfortable with ideas, concepts,
things, and people that are familiar to us or similar to us. We tend to be less comfortable with that which is
unfamiliar, new, and different. One of the most common biases that we have, as humans, is the tendency to
like other people who we think are similar to us (because we like ourselves).7 While these similarities can be
observable (based on demographic characteristics such as race, gender, and age), they can also be a result of
shared experiences (such as attending the same university) or shared interests (such as being in a book club
together). This “similar to me” bias and preference for the familiar can lead to a variety of problems for
managers: hiring less-qualified applicants because they are similar to the manager in some way, paying more
attention to some employees’ opinions and ignoring or discounting others, choosing a familiar technology
over a new one that is superior, sticking with a supplier that is known over one that has better quality, and so
on.
It can be incredibly difficult to overcome our biases because of the way our brains work. The brain excels at
organizing information into categories, and it doesn’t like to expend the effort to re-arrange once the
categories are established. As a result, we tend to pay more attention to information that confirms our existing
beliefs and less attention to information that is contrary to our beliefs, a shortcoming that is referred to as
confirmation bias.8
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In fact, we don’t like our existing beliefs to be challenged. Such challenges feel like a threat, which tends to
push our brains towards the reactive system and prevent us from being able to logically process the new
information via the reflective system. It is hard to change people’s minds about something if they are already
confident in their convictions. So, for example, when a manager hires a new employee who she really likes and
is convinced is going to be excellent, she will tend to pay attention to examples of excellent performance and
ignore examples of poor performance (or attribute those events to things outside the employee’s control). The
manager will also tend to trust that employee and therefore accept their explanations for poor performance
without verifying the truth or accuracy of those statements. The opposite is also true; if we dislike someone,
we will pay attention to their negatives and ignore or discount their positives. We are less likely to trust them
or believe what they say at face value. This is why politics tend to become very polarized and antagonistic
within a two-party system. It can be very difficult to have accurate perceptions of those we like and those we
dislike. The effective manager will try to evaluate situations from multiple perspectives and gather multiple
opinions to offset this bias when making decisions.
Conflict
Finally, effective decision-making can be difficult because of conflict. Most individuals dislike conflict and will
avoid it when possible. However, the best decision might be one that is going to involve some conflict.
Consider a manager who has a subordinate who is often late to work, causing others to have to step away
from their responsibilities in order to cover for the late employee. The manager needs to have a conversation
with that employee to correct the behavior, but the employee is not going to like the conversation and may
react in a negative way. Both of them are going to be uncomfortable. The situation is likely to involve conflict,
which most people find stressful. Yet, the correct decision is still to have the conversation even if (or especially
if) the employee otherwise is an asset to the department.
Exhibit 2.5
Dante Disparte Dante Disparte is the founder and CEO of Risk Cooperative and also coauthor of Global Risk Agility and Decision
Making. He suggests that unforeseen and unanticipated risks are becoming more frequent and less predictable and are having a greater impact
on more people at one time. Credit (New America/ flickr/ Attribution 2.0 Generic (CC BY 2.0))
If the bad behavior is not corrected, it will continue, which is going to cause more problems in the workplace in
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Chapter 2 Managerial Decision-Making
the long run. Other employees may recognize that this behavior is allowed, and they may also start coming to
work late or engaging in other negative behaviors. Eventually, some employees may become sufficiently
frustrated that they look for another place to work. It’s worth noting that in this situation, the best employees
will find new jobs the most quickly. It’s important for managers to recognize that while conflict can be
uncomfortable (especially in the short-term), there are times when it is necessary for the group, department,
or organization to function effectively in the long run.
It is also helpful to think about conflict in terms of process conflict or relationship conflict.9 Process conflict,
conflict about the best way to do something, can actually lead to improved performance, as individuals explore
various options together in order to identify superior solutions. Relationship conflict is conflict between
individuals that is more personal and involves attacks on a person rather than an idea. This kind of conflict is
generally harmful and should be quelled when possible. The harm from relationship conflict arises at least in
part because feeling personally attacked will cause an individual to revert to the reactive system of the brain.
Effective managers should be particularly aware of the possibility of relationship conflict when giving feedback
and should keep feedback focused on behaviors and activities (how things are done) rather than on the
individual. Being aware of and dealing with relationship conflict points to why emotional intelligence and
empathy are beneficial in organizational leaders. Such leaders are more likely to be attentive to the harmful
consequences of relationship conflict. The “Managerial Leadership” segment shows how one CEO encourages
empathetic collaboration and how that effort is proving beneficial.
MANAGERIAL LEADERSHIP
Satya Nadella’s Transformation of Microsoft
When Satya Nadella became the CEO of Microsoft in 2014, he set in motion a major transformation of the
organization’s culture. He wanted it to shift from a culture that valued “know-it-alls” to one that values
“learn-it-all.” Instead of employees feeling the need to prove that they were the smartest person in the
room, he wanted them to become curious and effective listeners, learners, and communicators. Only
through continual learning and collaboration with one another, and with customers, would Microsoft
remain able to develop and provide great technology solutions.
One of Nadella’s first mandates as CEO was to ask all the members of the top management team to read
the book Nonviolent Communication by Marshall Rosenberg. The primary focus of the book is on
empathetic communication—a kinder, gentler approach than Microsoft employees were accustomed to.
Nadella believes that developing empathy leads to a heightened understanding of consumer needs and
wants and an enhanced ability to develop better products and services through collaboration.
Nadella has also embraced diversity and inclusion initiatives, though he readily acknowledges that there
is more to be done. This is, in part, an extension of his focus on empathy. However, it’s also good
business, because increasing the diversity of perspectives can help to drive innovation.
This cultural shift is reflected in Microsoft’s new mission statement: “To empower every person and every
organization on the planet to achieve more.” Empowering every person includes Microsoft’s own
employees. Achieving diversity is particularly a challenge in an industry that is male dominated, and
Nadella admits that he has made mistakes based on his own biases. At a Women in Computing
conference early in his tenure as CEO, Nadella suggested that women did not need to ask for raises
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Chapter 2 Managerial Decision-Making
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when they deserved them; the system, he said, would work it out. He later admitted that he was wrong
and used the mistake as a platform for making greater strides in this arena.
Senior management team meetings at Microsoft have apparently changed dramatically as a result of the
culture change driven by Nadella. Previously, members felt the need to constantly prove that they knew
all the right answers at team meetings. Nadella has established different norms; he seeks out honest
opinions from team members and gives positive feedback on a regular basis. By moving the focus away
from always being right and toward a focus of continual learning, the culture at Microsoft has become
more collaborative, and employees are more willing to take risks to create something amazing. The
culture shift seems to be paying off: Microsoft’s products are being described as “cool” and “exciting,”
its cloud-computing platform is outperforming the competition, and its financial performance has
improved dramatically. Transforming the culture of an organization is a massive undertaking, but
Nadella’s leadership of Microsoft clearly shows that it’s a decision that can pay off.
Discussion Questions
1. Do you think a culture focused on learning makes sense for Microsoft? Why or why not?
2. What are the advantages of a culture that emphasizes empathetic communication? Can you think of
any disadvantages?
3. The job of CEO means making big decisions that impact the entire organization—like deciding to
change the culture. How do you think you prepare for that job?
Sources: Kendall Baker, “Confirmed: Microsoft is a legit threat to Apple,” The Hustle, March 16, 2017. Bob
Evans, “10 Powerful examples of Microsoft CEO Satya Nadella’s Transformative Vision,” Forbes, July 26,
2017. Harry McCraken, “Satya Nadella Rewrites Microsoft’s Code,” Fast Company, September 18, 2017,
https://www.fastcompany.com/40457458/satya-nadella-rewrites-microsofts-code. Annie Palmer,
“Microsoft has been reborn under CEO Satya Nadella,” The Street, September 20, 2017.
CONCEPT CHECK
1. Explain the concept of confirmation bias.
2. List and describe at least three barriers to effective decision-making.
3. When is conflict beneficial, and when is it harmful? Why?
2.5
Improving the Quality of Decision-Making
5. How can a manager improve the quality of her individual decision-making?
Managers can use a variety of techniques to improve their decision-making by making better-quality decisions
or making decisions more quickly. Table 2.1 summarizes some of these tactics.
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Chapter 2 Managerial Decision-Making
Summary of Techniques That May Improve Individual Decision-Making
Type of Decision
Programmed
Technique
Benefit
Heuristics (mental shortcuts)
Saves time
Satisficing (choosing first acceptable solution)
Saves time
Nonprogrammed
Systematically go through the six steps of the
Improves quality
decisions
decision-making process.
decisions
Talk to other people.
Improves quality: generates more
options, reduces bias
Be creative.
Improves quality: generates more
options
Conduct research; engage in evidence-based
Improves quality
decision-making.
Engage in critical thinking.
Improves quality
Think about the long-term implications.
Improves quality
Consider the ethical implications.
Improves quality
Table 2.1 (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
The Importance of Experience
An often overlooked factor in effective decision-making is experience. Managers with more experience have
generally learned more and developed greater expertise that they can draw on when making decisions.
Experience helps managers develop methods and heuristics to quickly deal with programmed decisions and
helps them know what additional information to seek out before making a nonprogrammed decision.
Techniques for Making Better Programmed Decisions
In addition, experience enables managers to recognize when to minimize the time spent making decisions on
issues that are not particularly important but must still be addressed. As discussed previously, heuristics are
mental shortcuts that managers take when making programmed (routine, low-involvement) decisions.
Another technique that managers use with these types of decisions is satisficing. When satisficing, a decision
maker selects the first acceptable solution without engaging in additional effort to identify the best solution.
We all engage in satisficing every day. For example, suppose you are shopping for groceries and you don’t
want to overspend. If you have plenty of time, you might compare prices and figure out the price by weight (or
volume) to ensure that every item you select is the cheapest option. But if you are in a hurry, you might just
select generic products, knowing that they are cheap enough. This allows you to finish the task quickly at a
reasonably low cost.
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Chapter 2 Managerial Decision-Making
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Techniques for Making Better Nonprogrammed Decisions
For situations in which the quality of the decision is more critical than the time spent on the decision, decision
makers can use several tactics. As stated previously, nonprogrammed decisions should be addressed using a
systematic process. We therefore discuss these tactics within the context of the decision-making steps. To
review, the steps include the following:
1. Recognize that a decision needs to be made.
2. Generate multiple alternatives.
3. Analyze the alternatives.
4. Select an alternative.
5. Implement the selected alternative.
6. Evaluate its effectiveness.
Step 1: Recognizing That a Decision Needs to Be Made
Ineffective managers will sometimes ignore problems because they aren’t sure how to address them.
However, this tends to lead to more and bigger problems over time. Effective managers will be attentive to
problems and to opportunities and will not shy away from making decisions that could make their team,
department, or organization more effective and more successful.
Step 2: Generating Multiple Alternatives
Often a manager only spends enough time on Step 2 to generate two alternatives and then quickly moves to
Step 3 in order to make a quick decision. A better solution may have been available, but it wasn’t even
considered. It’s important to remember that for nonprogrammed decisions, you don’t want to rush the
process. Generating many possible options will increase the likelihood of reaching a good decision. Some
tactics to help with generating more options include talking to other people (to get their ideas) and thinking
creatively about the problem.
Talk to other people
Managers can often improve the quality of their decision-making by involving others in the process, especially
when generating alternatives. Other people tend to view problems from different perspectives because they
have had different life experiences. This can help generate alternatives that you might not otherwise have
considered. Talking through big decisions with a mentor can also be beneficial, especially for new managers
who are still learning and developing their expertise; someone with more experience will often be able to
suggest more options.
Be creative
We don’t always associate management with creativity, but creativity can be quite beneficial in some
situations. In decision-making, creativity can be particularly helpful when generating alternatives. Creativity is
the generation of new or original ideas; it requires the use of imagination and the ability to step back from
traditional ways of doing things and seeing the world. While some people seem to be naturally creative, it is a
skill that you can develop. Being creative requires letting your mind wander and combining existing
knowledge from past experiences in novel ways. Creative inspiration may come when we least expect it (in the
shower, for example) because we aren’t intensely focused on the problem—we’ve allowed our minds to
wander. Managers who strive to be creative will take the time to view a problem from multiple perspectives,
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Chapter 2 Managerial Decision-Making
try to combine information in news ways, search for overarching patterns, and use their imaginations to
generate new solutions to existing problems. We’ll review creativity in more detail in Chapter 18.
Step 3: Analyzing Alternatives
When implementing Step 3, it is important to take many factors into consideration. Some alternatives might be
more expensive than others, for example, and that information is often essential when analyzing options.
Effective managers will ensure that they have collected sufficient information to assess the quality of the
various options. They will also utilize the tactics described below: engaging in evidence-based decisionmaking, thinking critically, talking to other people, and considering long-term and ethical implications.
Do you have the best-quality data and evidence?
Evidence-based decision-making is an approach to decision-making that states that managers should
systematically collect the best evidence available to help them make effective decisions. The evidence that is
collected might include the decision maker’s own expertise, but it is also likely to include external evidence,
such as a consideration of other stakeholders, contextual factors relevant to the organization, potential costs
and benefits, and other relevant information. With evidence-based decision-making, managers are
encouraged to rely on data and information rather than their intuition. This can be particularly beneficial for
new managers or for experienced managers who are starting something new. (Consider all the research that
Rubio and Korey conducted while starting Away).
Talk to other people
As mentioned previously, it can be worthwhile to get help from others when generating options. Another good
time to talk to other people is while analyzing those options; other individuals in the organization may help
you assess the quality of your choices. Seeking out the opinions and preferences of others is also a great way
to maintain perspective, so getting others involved can help you to be less biased in your decision-making
(provided you talk to people whose biases are different from your own).
Are you thinking critically about the options?
Our skill at assessing alternatives can also be improved by a focus on critical thinking. Critical thinking is a
disciplined process of evaluating the quality of information, especially data collected from other sources and
arguments made by other people, to determine whether the source should be trusted or whether the
argument is valid.
An important factor in critical thinking is the recognition that a person’s analysis of the available information
may be flawed by a number of logical fallacies that they may use when they are arguing their point or
defending their perspective. Learning what those fallacies are and being able to recognize them when they
occur can help improve decision-making quality. See Table 2.2 for several examples of common logical
fallacies.
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Chapter 2 Managerial Decision-Making
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Common Logical Fallacies
Name
Description
Examples
Non
The conclusion
Our biggest competitor
sequitur
that is presented
is spending more on
(does not
isn’t a logical
marketing than we are.
follow)
conclusion or isn’t
They have a larger share
the only logical
of the market. Therefore,
conclusion based
we should spend more
on the
on marketing.
argument(s).
The unspoken assumption:
They have a larger share
of the market BECAUSE
they spend more on
marketing.
False cause
Ways to Combat This Logical Fallacy
• Examine all the arguments. Are they
reasonable?
• Look for any assumptions that are
being made in the argument
sequence. Are they reasonable?
• Try to gather evidence that
supports or refutes the arguments
and/or assumptions.
In this example, you should ask: Are there
any other reasons, besides their
spending on marketing, why our
competitor has a larger share of the
market?
Assuming that
“Our employees get sick
This is similar to non sequitur; it makes
because two
more when we close for
an assumption in the argument
things are related,
holidays. So we should
sequence.
one caused the
stop closing for
other
holidays.”
• Ask yourself whether the first thing
really causes the second, or if
something else may be the cause.
In this case, most holidays for which
businesses close are in the late fall and
winter (Thanksgiving, Christmas), and
there are more illnesses at this time of
year because of the weather, not
because of the business being closed.
Table 2.2 (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
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Chapter 2 Managerial Decision-Making
Common Logical Fallacies
Name
Description
Examples
Ad
Redirects from
“You aren’t really going
hominem
the argument
to take John seriously,
(attack the
itself to attack the
are you? I heard his
man)
person making
biggest client just
the argument
dropped him for another
vendor because he’s all
talk and no substance.”
Ways to Combat This Logical Fallacy
• Does the second person have
something to gain, a hidden
agenda, in trying to make you
distrust the first person?
• If the first person’s argument came
from someone else, would it be
persuasive?
The goal: if you stop
trusting the person,
you’ll discount their
argument.
Genetic
You can’t trust
“This was made in China,
This fallacy is based on stereotypes.
fallacy
something
so it must be low
Stereotypes are generalizations; some
because of its
quality.”
are grossly inaccurate, and even those
origins.
“He is a lawyer, so you
can’t trust anything he
says.”
Appeal to
If we have always
“We’ve always done it
tradition
done it one
this way.”
particular way,
“We shouldn’t change
that must be the
right or best way.
this; it works fine the
way it is.”
that are accurate in SOME cases are
never accurate in ALL cases. Recognize
this for what it is—an attempt to prey on
existing biases.
• Consider whether the situation has
changed, calling for a change in the
way things are being done.
• Consider whether new information
suggests that the traditional
viewpoint is incorrect. Remember,
we used to think that the earth was
flat.
Table 2.2 (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
This OpenStax book is available for free at http://cnx.org/content/col28330/1.8
Chapter 2 Managerial Decision-Making
41
Common Logical Fallacies
Name
Description
Examples
Bandwagon
If the majority of
“Everybody does it.”
approach
people are doing
“Our customers don’t
it, it must be
good.
want to be served by
people like that.”
Ways to Combat This Logical Fallacy
• Remember that the majority is
sometimes wrong, and what is
popular isn’t always what is right.
• Ask yourself whether “following the
pack” is going to get you where you
want to be.
• Remember that organizations are
usually successful by being better
than their competitors at
something . . . so following the
crowd might not be the best
approach to success.
Appeal to
Redirects the
“We should do it for
emotion
argument from
[recently deceased]
logic to emotion
Steve; it’s what he would
have wanted.”
• Develop your awareness of your
own emotions, and recognize when
someone is trying to use them.
• Ask yourself whether the argument
stands on its own without the
appeal to your emotions.
Table 2.2 (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
Have you considered the long-term implications?
A focus on immediate, short-term outcomes—with little consideration for the future—can cause problems. For
example, imagine that a manager must decide whether to issue dividends to investors or put that money into
research and development to maintain a pipeline of innovative products. It’s tempting to just focus on the
short-term: providing dividends to investors tends to be good for stock prices. But failing to invest in research
and development might mean that in five years the company is unable to compete effectively in the
marketplace, and as a result the business closes. Paying attention to the possible long-term outcomes is a
crucial part of analyzing alternatives.
Are there ethical implications?
It’s important to think about whether the various alternatives available to you are better or worse from an
ethical perspective, as well. Sometimes managers make unethical choices because they haven’t considered the
ethical implications of their actions. In the 1970s, Ford manufactured the Pinto, which had an unfortunate flaw:
the car would easily burst into flames when rear-ended. The company did not initially recall the vehicle
because they viewed the problem from a financial perspective, without considering the ethical implications. 10
People died as a result of the company’s inaction. Unfortunately, these unethical decisions continue to
occur—and cause harm—on a regular basis in our society. Effective managers strive to avoid these situations
by thinking through the possible ethical implications of their decisions. The decision tree in Exhibit 2.6 is a
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Chapter 2 Managerial Decision-Making
great example of a way to make managerial decisions while also taking ethical issues into account.
Exhibit 2.6
Ethical Decision Tree (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
Thinking through the steps of ethical decision-making may also be helpful as you strive to make good
decisions. James Rest’s ethical decision-making model11 identifies four components to ethical decisionmaking:
1. Moral sensitivity—recognizing that the issue has a moral component;
2. Moral judgment—determining which actions are right vs. wrong;
3. Moral motivation/intention—deciding to do the right thing; and
4. Moral character/action—actually doing what is right.
Note that a failure at any point in the chain can lead to unethical actions! Taking the time to identify possible
ethical implications will help you develop moral sensitivity, which is a critical first step to ensuring that you are
making ethical decisions.
Once you have determined that a decision has ethical implications, you must consider whether your various
alternatives are right or wrong—whether or not they will cause harm, and if so, how much and to whom. This
is the moral judgment component. If you aren’t sure about whether something is right or wrong, think about
how you would feel if that decision ended up on the front page of a major newspaper. If you would feel guilty
or ashamed, don’t do it! Pay attention to those emotional cues—they are providing important information
about the option that you are contemplating.
The third step in the ethical decision-making model involves making a decision to do what is right, and the
fourth step involves following through on that decision. These may sound, but consider a situation in which
your boss tells you to do something that you know to be wrong. When you push back, your boss makes it clear
that you will lose your job if you don’t do what you’ve been told to do. Now, consider that you have family at
home who rely on your income. Making the decision to do what you know is right could come at a substantial
cost to you personally. In these situations, your best course of action is to find a way to persuade your boss
that the unethical action will cause greater harm to the organization in the long-term.
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Chapter 2 Managerial Decision-Making
43
Step 4: Selecting an Alternative
Once alternative options have been generated and analyzed, the decision maker must select one of the
options. Sometimes this is easy—one option is clearly superior to the others. Often, however, this is a
challenge because there is not a clear “winner” in terms of the best alternative. As mentioned earlier in the
chapter, there may be multiple good options, and which one will be best is unclear even after gathering all
available evidence. There may not be a single option that doesn’t upset some stakeholder group, so you will
make someone unhappy no matter what you choose. A weak decision maker may become paralyzed in this
situation, unable to select among the various alternatives for lack of a clearly “best” option. They may decide
to keep gathering additional information in hopes of making their decision easier. As a manager, it’s
important to think about whether the benefit of gathering additional information will outweigh the cost of
waiting. If there are time pressures, waiting may not be possible.
Recognize that perfection is unattainable
Effective managers recognize that they will not always make optimal (best possible) decisions because they
don’t have complete information and/or don’t have the time or resources to gather and process all the
possible information. They accept that their decision-making will not be perfect and strive to make good
decisions overall. Recognizing that perfection is impossible will also help managers to adjust and change if
they realize later on that the selected alternative was not the best option.
Talk to other people
This is another point in the process at which talking to others can be helpful. Selecting one of the alternatives
will ultimately be your responsibility, but when faced with a difficult decision, talking through your choice with
someone else may help you clarify that you are indeed making the best possible decision from among the
available options. Sharing information verbally also causes our brains to process that information differently,
which can provide new insights and bring greater clarity to our decision-making.
Step 5: Implementing the Selected Alternative
After selecting an alternative, you must implement it. This may seem too obvious to even mention, but
implementation can sometimes be a challenge, particularly if the decision is going to create conflict or
dissatisfaction among some stakeholders. Sometimes we know what we need to do but still try to avoid
actually doing it because we know others in the organization will be upset—even if it’s the best solution.
Follow-through is a necessity, however, to be effective as a manager. If you are not willing to implement a
decision, it’s a good idea to engage in some self-reflection to understand why. If you know that the decision is
going to create conflict, try to think about how you’ll address that conflict in a productive way. It’s also
possible that we feel that there is no good alternative, or we are feeling pressured to make a decision that we
know deep down is not right from an ethical perspective. These can be among the most difficult of decisions.
You should always strive to make decisions that you feel good about—which means doing the right thing, even
in the face of pressures to do wrong.
Step 6: Evaluating the Effectiveness of Your Decision
Managers sometimes skip the last step in the decision-making process because evaluating the effectiveness of
a decision takes time, and managers, who are generally busy, may have already moved on to other projects.
Yet evaluating effectiveness is important. When we fail to evaluate our own performance and the outcomes of
our decisions, we cannot learn from the experience in a way that enables us to improve the quality of our
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Chapter 2 Managerial Decision-Making
future decisions.
Attending fully to each step in the decision-making process improves the quality of decision-making and, as
we’ve seen, managers can engage in a number of tactics to help them make good decisions. Take a look at the
Ethics in Practice box to see an example of how one particular manager puts these techniques into practice to
make good decisions.
ETHICS IN PRACTICE
Rob Ault, Project Manager, Bayside Community Church
Bradenton, Florida
When it comes to decision-making, ethical dilemmas require particular care. Because managers make
many decisions, it should not be surprising that some of those decisions will have ethical implications.
With multiple stakeholders to consider, sometimes what is best for one group of stakeholders is not what
is best for others. I talked to Rob Ault about his experiences with ethical dilemmas over the course of his
career. Rob has been in managerial roles for over 25 years, since he was 19 years old. He told me that he
had experienced a number of ethical dilemmas in that time.
Rob has spent most of his career working for for-profit organizations, and for about half of that time he
has worked in a union environment. What he has found most frustrating, regardless of environment, was
when it was clear to him what was right, but what was right conflicted with what his boss was telling him
to do. This included a situation in which he felt an employee should be fired for misbehavior (but wasn’t),
as well as situation in which he was asked to fire someone undeservedly. What we mostly talked about,
though, was his process. How did he go about making decisions in these challenging situations?
Rob clearly stated that his approach to these situations has changed with experience. What he did early
in his career is not necessarily what he would do now. He said that it takes experience and some maturity
to recognize that, as a leader, the decisions you make affect other people’s lives. He also explained that a
starting point for the decision-making process is always a recognition of the fact that you have been
hired to generate a benefit for your company. So a manager’s decisions need to come from the
perspective of what is going to be in the best long-term interest of the organization (in addition to what
is morally right). This isn’t always easy, because short-term consequences are much easier to observe
and predict.
I asked Rob who he talked to prior to making decisions in situations with an ethical component. Rob told
me that he felt one of the most important things you should do as a leader is to intentionally create and
build relationships with people you trust in the organization. That way you have people you know you
can talk to when difficult situations come up. He was very clear that you should always talk to your boss,
who will tend to have a broader understanding of what is going on in the context of the larger
organization. He also told me that he liked to talk to his father, who happened to work in human
resource management for a large Fortune 500 organization. His father was always helpful in providing
the perspective of how things were likely to play out long-term if one person was allowed to bend the
rules. Rob realized eventually that the long-term consequences of this were almost always negative: once
one person is allowed to misbehave, others find out about it and realize that they can do the same thing
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without repercussions. Rob also seeks out the opinions of other individuals in the organization before
reaching decisions with an ethical component; he told me that when he worked in a union environment,
he tried to make sure he had a good relationship with the union steward, because it was helpful to get
the perspective of someone who was committed to the side of the employee.
The biggest ethical dilemma Rob faced was one that he actually couldn’t talk to me about. He disagreed
with what he was being asked to do, and when it was clear that he had no other choice in the matter, he
quit his job rather than do something he felt wasn’t right. He accepted a severance package in exchange
for signing a nondisclosure agreement, which is why he can’t share any details . . . but it was clear from
our conversation that he feels he made the right choice. That particular ethical dilemma makes it clear
how challenging managerial decision-making can sometimes be.
Discussion Questions
1. If you were faced with an ethical dilemma, from whom would you seek advice?
2. Describe some decisions that might be good for an organization’s profitability in the short-term, but
bad for the organization in the long-term.
3. What factors would you take into consideration if you were thinking about leaving your job rather
than do something unethical?
CONCEPT CHECK
1. Explain what satisficing is and when it may be a good strategy.
2. What are the six steps in the decision-making process?
3. What are the four steps involved in ethical decision-making?
2.6
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?
Involving more people in the decision-making process can greatly improve the quality of a manager’s
decisions and outcomes. However, involving more people can also increase conflict and generate other
challenges. We turn now to the advantages and disadvantages of group decision-making.
Advantages of Group Decisions
An advantage to involving groups in decision-making is that you can incorporate different perspectives and
ideas. For this advantage to be realized, however, you need a diverse group. In a diverse group, the different
group members will each tend to have different preferences, opinions, biases, and stereotypes. Because a
variety of viewpoints must be negotiated and worked through, group decision-making creates additional work
for a manager, but (provided the group members reflect different perspectives) it also tends to reduce the
effects of bias on the outcome. For example, a hiring committee made up of all men might end up hiring a
larger proportion of male applicants (simply because they tend to prefer people who are more similar to
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themselves). But with a hiring committee made up of an equal number of men and women, the bias should be
cancelled out, resulting in more applicants being hired based on their qualifications rather than their physical
attributes.
Having more people involved in decision-making is also beneficial because each individual brings unique
information or knowledge to the group, as well as different perspectives on the problem. Additionally, having
the participation of multiple people will often lead to more options being generated and to greater intellectual
stimulation as group members discuss the available options. Brainstorming is a process of generating as
many solutions or options as possible and is a popular technique associated with group decision-making.
All of these factors can lead to superior outcomes when groups are involved in decision-making. Furthermore,
involving people who will be affected by a decision in the decision-making process will allow those individuals
to have a greater understanding of the issues or problems and a greater commitment to the solutions.
Disadvantages of Group Decisions
Group decision-making is not without challenges. Some groups get bogged down by conflict, while others go
to the opposite extreme and push for agreement at the expense of quality discussions. Groupthink occurs
when group members choose not to voice their concerns or objections because they would rather keep the
peace and not annoy or antagonize others. Sometimes groupthink occurs because the group has a positive
team spirit and camaraderie, and individual group members don’t want that to change by introducing conflict.
It can also occur because past successes have made the team complacent.
Often, one individual in the group has more power or exerts more influence than others and discourages
those with differing opinions from speaking up (suppression of dissent) to ensure that only their own ideas
are implemented. If members of the group are not really contributing their ideas and perspectives, however,
then the group is not getting the benefits of group decision-making.
How to Form a Quality Group
Effective managers will try to ensure quality group decision-making by forming groups with diverse members
so that a variety of perspectives will contribute to the process. They will also encourage everyone to speak up
and voice their opinions and thoughts prior to the group reaching a decision. Sometimes groups will also
assign a member to play the devil’s advocate in order to reduce groupthink. The devil’s advocate
intentionally takes on the role of critic. Their job is to point out flawed logic, to challenge the group’s
evaluations of various alternatives, and to identify weaknesses in proposed solutions. This pushes the other
group members to think more deeply about the advantages and disadvantages of proposed solutions before
reaching a decision and implementing it.
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Chapter 2 Managerial Decision-Making
Exhibit 2.7
47
The Devils Advocate At a meeting of McDonald’s franchise owners, attorney Brian Schnell was placed in the audience as a devil’s
advocate and often would strongly disagree with franchisee attorney Bob Zarco that the National Labor Relations Board (NLRB)’s jointemployer ruling on McDonald’s is a boon for franchisees. He would raise his hand often and vehemently, which Zarco had asked him to do
before the meeting. In that way, the franchisors’ articulate arguments could be heard by all franchisee leaders in attendance, and rebutted.
Credit (Mr. Blue MauMau/ flickr/ Attribution 2.0 Generic (CC BY 2.0))
The methods we’ve just described can all help ensure that groups reach good decisions, but what can a
manager do when there is too much conflict within a group? In this situation, managers need to help group
members reduce conflict by finding some common ground—areas in which they can agree, such as common
interests, values, beliefs, experiences, or goals. Keeping a group focused on a common goal can be a very
worthwhile tactic to keep group members working with rather than against one another. Table 2.3
summarizes the techniques to improve group decision-making.
Summary of Techniques That May Improve Group Decision-Making
Type of
Technique
Benefit
Decision
Group
Have diverse members in the
Improves quality: generates more options, reduces
decisions
group.
bias
Assign a devil’s advocate.
Improves quality: reduces groupthink
Table 2.3 (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
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Chapter 2 Managerial Decision-Making
Summary of Techniques That May Improve Group Decision-Making
Type of
Technique
Benefit
Decision
Encourage everyone to speak up
Improves quality: generates more options, prevents
and contribute.
suppression of dissent
Help group members find
Improves quality: reduces personality conflict
common ground.
Table 2.3 (Attribution: Copyright Rice University, OpenStax, under CC-BY 4.0 license)
Conclusion
Decision-making is a crucial daily activity for managers. Decisions range from small and simple, with
straightforward answers, to big and complex, with little clarity about what the best choice will be. Being an
effective manager requires learning how to successfully navigate all kinds of decisions. Expertise, which
develops gradually through learning and experience, generally improves managerial decision-making, but
managers rarely rely solely on their own expertise. They also conduct research and collect information from
others; they pay attention to their own biases and to ethical implications; and they think critically about the
information that they have received to make decisions that will benefit the organization and its stakeholders.
CONCEPT CHECK
1. Explain why group decision-making can be more effective than individual decision-making.
2. What are some things that can prevent groups from making good decisions?
3. As a manager, what can you do to enhance the quality of group decision-making?
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Chapter 2 Managerial Decision-Making
49
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 decisions 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
2.1 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
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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.
2.2 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.
2.3 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.
2.4 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.
2.5 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.
2.6 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?
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Chapter 2 Managerial Decision-Making
51
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 decisionmaking 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
1. 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?
2. What are the two systems that the brain uses in decision-making? How are they related to programmed
and nonprogrammed decisions?
3. What is a heuristic, and when would it be appropriate to use a heuristic for decision-making?
4. What is confirmation bias? Explain how it can be a barrier to effective decision-making.
5. What is a logical fallacy?
6. What are the two types of conflict? Which one is constructive, and which is destructive?
7. What are the steps in the decision-making process? Which ones do people tend to skip or spend
insufficient time on?
8. What can individuals do to improve the quality of their decision-making?
9. What can groups or group leaders do to improve the quality of group decision-making?
10. What are the benefits of decision-making in a group, instead of individually?
Management Skills Application Exercises
1. 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?
2. 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?
3. If you were faced with an ethical dilemma at work, who would you want to talk to for advice prior to
reaching a decision?
4. Which would be better to involve a group with, a programmed or a nonprogrammed decision? Why?
5. If you were manager of a group with a lot of personality conflict, what would you do?
Managerial Decision Exercises
1. 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
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talk to before making a decision? What would you do to try to reduce the likelihood of this happening
again?
2. 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?
3. 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?
4. 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?
5. 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
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Chapter 2 Managerial Decision-Making
53
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
1. Why do you think vinyl records are appealing to customers?
2. Do you think the sales growth will continue to be strong for vinyl sales? Why or why not?
3. 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-record-the-reasons-behind-vinyls-unlikely-comeback-39964.
Hannah Ellis-Peterson, “Record sales: vinyl hits 25-year high,” The Guardian, January 3, 2017,
https://www.theguardian.com/music/2017/jan/03/record-sales-vinyl-hits-25-year-high-and-outstripsstreaming. 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, http://money.cnn.com/2017/06/30/news/sony-music-brings-backvinyl-records/index.html. Kate Rogers, “Why millennials are buying more vinyl records,” CNBC.com, November
6, 2015. https://www.cnbc.com/2015/11/06/why-millennials-are-buying-more-vinyl-records.html. Robert Tait,
“In the groove: Czech firm tops list of world’s vinyl record producers,” The Guardian, August 18, 2016.

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