Chapter Twelve

Chapter Twelve Decision Making and Negotiation

Chapter Objectives • Describe the nature of decision making. • Discuss the decision-making process from a variety of perspectives. • Explain related behavioral aspects of decision making. • Describe group decision making in organizations. • Discuss negotiation in organizations.

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The Nature of Decision Making • Decision Making – The process of choosing one alternative from among several. – Decisions in organizations can be classified according to frequency and to information conditions. • Frequency – how often a particular decision situation recurs • Information conditions – how much information is available about the likelihood of various outcomes

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Figure 12.1: Elements of Decision Making

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Types of Decisions • A Programmed Decision – A decision that recurs often enough for a decision rule to be developed

• A Nonprogrammed Decision – A decision that recurs infrequently and for which there is no previously established decision rule

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Table 12.1: Characteristics of Programmed and Nonprogrammed Decisions

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Decision-Making Scenarios • Conditions of Certainty – The manager knows the outcome of each alternative

• Conditions of Risk – The decision maker cannot know with certainty what the outcome of a given action will be but has enough information to estimate the probabilities of various outcomes

• Conditions of Uncertainty – The decision maker lacks enough information to estimate the probabilities of possible outcomes

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Figure 12.2: Alternative Outcomes Under Different Information Conditions

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The Rational Decision-Making Process • The rational decision-making approach is a systematic, step-by-step process for making decisions • It further assumes the organization is economically based and managed by decision makers who are entirely objective and have complete information.

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Figure 12.3: The Rational Decision Making Process

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The Behavioral Approach to Decision Making • The rational approach assumes managers operate logically and rationally, the behavioral approach acknowledges the importance of human behavior in the decision-making process. – A crucial assumption of the behavioral approach is that decision makers operate with bounded rationality rather than with perfect rationality as assumed by the rational approach.

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The Behavioral Approach to Decision Making (continued) • Bounded Rationality – The idea that decision makers cannot deal with information about all aspects and alternatives pertaining to a problem and therefore choose to tackle some meaningful subset of it

• Characteristics of the Behavioral Approach: – Suboptimizing – Satisficing

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The Behavioral Approach to Decision Making (continued) • Suboptimizing – Knowingly accepting less than the best possible outcome. • Frequently it is not feasible to make the ideal decision is a real-world situation given organizational constraints. • The decision maker often must suboptimize to avoid unintended negative effects on other departments, product lines, or decisions.

• Satisficing – Examining alternatives only until one finds a solution that meets minimal requirements.

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The Practical Approach to Decision Making • The Practical Approach – Combines the steps of the rational approach with the conditions in the behavioral approach to create a more realistic approach for making decisions. – The steps in this process are the same as in the rational approach; however, the conditions recognized by the behavioral approach are added to provide a more realistic process.

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Figure 12.4: Practical Approaches to Decision Making With Behavioral Guidelines

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The Personal Approach to Decision Making • The conflict model deals with the personal conflicts people experience in particularly difficult decision situations. (Also called the Janis-Mann concept.) • Terms used in the model: – Self-reactions – comparisons alternatives with internalized moral standards – Unconflicted adherence – continuing with current activities if doing so does not entail serious risks – Unconflicted change – making decisions in present activities if doing so presents no serious risks Copyright © Houghton Mifflin Company. All rights reserved.

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Ethics and Decision Making • Ethics – An individual’s personal beliefs about what is right and wrong behavior

• In general, ethical dilemmas for managers may center on direct personal gain, indirect personal gain, or simple personal preferences. • Managers should carefully and deliberately consider the ethical context of every one of their decisions.

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Escalation of Commitment • Escalation of commitment is the tendency to persist in an ineffective course of action. – There are several possible reasons for escalation of commitment: • Some projects require much front-end investment and offer little return until the end, requiring the investor to stay in all the way to get any payoff. • Sometimes the social structure, group norms, and group cohesiveness support a project so strongly that cancellation is impossible.

– One way to avoid escalation of commitment is to have good information about the ongoing potential of a project. Copyright © Houghton Mifflin Company. All rights reserved.

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Group Decision Making • People in organizations work in variety of groups: formal or informal, permanent or temporary. • Most of these groups make decisions that affect the welfare of the organization and its people.

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Group Polarization • Group Polarization – The tendency for a group’s average postdiscussion attitudes to be more extreme than its average prediscussion attitudes. – Can be caused by a number of factors including: • Persuasive arguments • Diffusion of responsibility

– Can profoundly affect group decision making if group members are known to lean toward a particular decision before a discussion, since their postdecision position will likely be even more extreme.

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Groupthink • Groupthink – A mode of thinking that occurs when members of a group are deeply involved in a cohesive in-group and their desire for unanimity offsets their motivation to appraise alternative courses of action. – The current trend toward increasing use of teams in organizations may increase instances of groupthink because self-managing teams tend to be susceptible to this type of thought.

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Symptoms of Groupthink • An illusion of invulnerability • Collective efforts to rationalize or discount warnings. • An unquestioned belief in the group’s inherent morality • Stereotyped views of “enemy” leaders as too evil to warrant genuine attempts to negotiate • Direct pressure on a member who expresses strong arguments against any of the group stereotypes Copyright © Houghton Mifflin Company. All rights reserved.

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Symptoms of Groupthink (continued) • Self-censorship of deviations from the apparent group consensus • A shared illusion of unanimity • The emergence of self-appointed “mindguards,” or members who protect the group from adverse information

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Table 12.2: Prescriptions for Preventing Groupthink

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Group Decision Making Participation • A major issue in group decision making is the degree to which employees should participate in the process. – Early management theories, such as the scientific management school, advocated a clear separation between the duties of managers and workers. – Other approaches have urged that employees be allowed to participate in decisions to increase their ego involvement, motivation, and satisfaction.

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Group Decision Making Participation (continued) • Advantages – Groups are superior for judgment tasks. – In problem-solving tasks, groups generally produce more and better solutions than do individuals. – Complex problems are more appropriate for groups. – Increases greater interest in the task.

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• Disadvantages – One especially capable individual may make a better judgment than a group. – An individual or small group may be able to accomplish some things faster than a large group. – Individual decision-making avoids the special problems of group decision-making (groupthink or group polarization.) – If the problem is fairly straightforward, it may be more appropriate to have a single individual work on it.

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Group Problem Solving • Brainstorming – A technique used in the idea generation phase of decision making that assists in developing numerous alternative courses of action.

• The Nominal Group Technique – A method in which group members follow a generate-discussion-vote cycle until they reach an appropriate decision.

• The Delphi Technique – A method of systematically gathering judgments of experts for use in developing forecasts

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Negotiation in Organizations • Negotiation – The process in which two or more parties (people or groups) reach an agreement even though they have different preferences.

• Approaches to Negotiation – Interest in negotiation has grown steadily – Four primary approaches to negotiation have dominated this study: • • • •

individual differences situational characteristics game theory cognitive approaches

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Individual Differences • Early psychological approaches concentrated on the personality traits of the negotiators. – Traits investigated have included demographic characteristics and personality variables. – The assumption of this type of research was that the key to successful negotiation is selecting the right person to do the negotiation, one who has the appropriate demographic characteristics or personality. – This type of research rarely showed positive results because situational variables negated the effects of the individual differences. Copyright © Houghton Mifflin Company. All rights reserved.

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Situational Characteristics • Situational characteristics are the context within which negotiation takes place, including: – Types of communication between negotiators – Potential outcomes of the negotiations – Relative power of the parties (both positional and personal) – Time frame available for negotiation – Presence of other parties

• The shortcomings of the situational approach are similar to those of the individual characteristics approach. Copyright © Houghton Mifflin Company. All rights reserved.

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Game Theory • Game Theory – Developed by economists using mathematical models to predict the outcomes of negotiation situations. • Problems: – It requires the ability to describe all possible outcomes for every possible move in every situation before the negotiation starts—an often tedious process; if possible at all. – It assumes negotiators are rational at all times.

• This approach, although elegant in its prescriptions, is usually unworkable in a real negotiation situation. Copyright © Houghton Mifflin Company. All rights reserved.

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Cognitive Approaches • The fourth approach to negotiation consists of several cognitive approaches, which recognize that negotiators often depart from perfect rationality during negotiations • They try to predict how and when negotiators will make these departures. • These cognitive approaches have advanced the study of negotiation a long way beyond the early individual and situational approaches.

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Win-Win Negotiation • Win-Win Negotiation – One of the best of these models is the “Win-Win Negotiator” developed by Ross Reck and his associates.

• The Win-Win approach does not treat negotiations as a game resulting in winners and losers. – Instead, it approaches negotiation as an opportunity for both sides to be winners.

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