Armandyasika W.P.

350011/ AKT-IUP
Chapter 7:
Decision Making, Learning, Creativity, and Entrepreneurship
The Nature of Managerial Decision Making
Decision Making:
Process which managers respond to opportunities and threats that confront them by
analyzing options and making determinations about specific goals and courses of
action.
1. Decisions in response to opportunities:
Occurs when managers respond to ways to improve performance of organization to
benefit customers, employees, and other stakeholder groups
2. Decisions in response to threats
Events inside or outside the organization are adversely affecting the company
performance
3. Programmed Decision
Routine, virtually automatic process
4. Non-Programmed Decisions
Non routine decision making that occurs in response to unusual, unpredictable
opportunities and threats
5. Intuition
Beliefs, and hunches that come readily to mind, require little effort and information
gathering and result in on-the-spot decisions
6. Reasoned judgment
Decisions that take time and effort to make and result from careful information
gathering, generation of alternatives, and evaluation of alternatives
7. Classical Model of Decision Making
Prescriptive model of decision making that assumes the decision maker can identify and
evaluate all possible alternatives and their consequences and rationally choose the most
appropriate course of action.
8. Optimum decision
The most appropriate decision in light of what managers believe to be the most
desirable future consequences for their organization.



Armandyasika W.P.
350011/ AKT-IUP

Administrative Model
An approach to decision making that explains why decision making is inherently uncertain and
risky and why managers usually make satisfactory rather than optimum decisions.
1. Bounded rationality
Cognitive limitations that constrain ones ability to interpret, process, and act on
information.
2. Incomplete information
Because of risk and uncertainty, ambiguity, and time constraints. There are five factor
that cause incomplete information which is:
Risk: The degree of probability that the possible outcomes of a particular course
of action will occur.
Uncertainty: The probabilities of alternative outcomes cannot be determined
and future outcomes are unknown
Ambiguous Information: Information that can be interpreted in multiple and
often conflicting ways
Time constraints and information costs: Managers have neither the time nor
money to search for all possible alternatives and evaluate potential
consequences
Satisficing: Searching for and choosing an acceptable, or satisfactory response to
problems and opportunities, rather than trying to make the best decision
6 Steps in Decision Making








Armandyasika W.P.
350011/ AKT-IUP

Feedback Procedure
1. Compare what actually happened to what was expected to happen as a result of the
decision
2. Explore why any expectations for the decision were not met
3. Derive guidelines that will help in future decision making

Cognitive Biases and Decision Making
1. Heuristics
Rules of thumb that simplify the process of making decisions.
2. Systematic errors
Errors that people make over and over and that result in poor decision making

Sources of Cognitive Biases
1. Prior Hypothesis Bias
A cognitive bias resulting from the tendency to base decisions on strong prior beliefs
even if evidence shows that those beliefs are wrong.
2. Representativeness
A cognitive bias resulting from the tendency to generalize inappropriately from a small
sample or from a single vivid event or episode.
3. Illusion of Control
The tendency to overestimate ones own ability to control activities and events.
4. Escalating Commitment
A source of cognitive bias resulting from the tendency to commit additional resources to
a project even if evidence shows that the project is failing.



Armandyasika W.P.
350011/ AKT-IUP
Potential Disadvantages on Group Decision Making
1. Can take much longer than individuals to make decisions
2. Can be difficult to get two or more managers to agree because of different
interests and preferences
3. Can be undermined by biases
Groupthink
Pattern of faulty and biased decision making that occurs in groups whose members strive for
agreement among themselves at the expense of accurately assessing information relevant to a
decision
Organizational Learning and Creativity
1. Organizational learning
Managers seek to improve a employees desire and ability to understand and manage
the organization and its task environment so as to raise effectiveness.
2. Learning organization
An organization in which managers try to maximize the ability of individuals and groups
to think and behave creatively and thus maximize the potential for organizational
learning to take place.
3. Creativity
The ability of the decision maker to discover novel ideas leading to a feasible course of
action.
Building Group Creativity
1. Brainstorming
Managers meet face-to-face to generate and debate many alternatives.
2. Production Blocking
Occurs because group members cannot simultaneously make sense of all the
alternatives being generated, think up additional alternatives, and remember what they
were thinking

Armandyasika W.P.
350011/ AKT-IUP
3. Nominal Group Technique
A decision making technique in which group members write down ideas and solutions,
read their suggestions to the whole group, and discuss and then rank the alternatives.
4. Delphi Technique
A decision-making technique in which group members do not meet face-to-face but
respond in writing to questions posed by the group leader.
5. Entrepreneurs
Individuals who notice opportunities and take the responsibility for mobilizing the
resources necessary to produce new and improved goods and services.
6. Social entrepreneurs
Those who pursue initiatives and opportunities to address social problems and needs in
order to improve society
7. Intrapreneurs
A manager, scientist, or researcher who works inside an organization and notices
opportunities to develop new or improved products and better ways to make them

Characteristics of Entrepreneurs
Open to experience: they are original thinkers and take risks.
Internal locus of control: they take responsibility for their own actions.
High self-esteem: they feel competent and capable.
High need for achievement: they set high goals and enjoy working toward them.
Entrepreneurship and Management
Frequently, founding entrepreneur lacks the skills, patience, and experience to engage in the
difficult and challenging work of management


Armandyasika W.P.
350011/ AKT-IUP
Intrapreneurship and Organizational Learning
1. Product champions
Taking ownership of a product from concept to market.
2. Skunkworks
Keeping a group of intrapreneurs separate from the rest of the firm to encourage them
to devote all their attention to developing new products.
3. Rewards for innovation
Linking innovation by workers to valued rewards.