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ManagementSixteenthEditionChapter3MakingDecisionsCopyright©2025,2021,2018PearsonEducation,Inc.AllRightsReservedLearningObjectives3.1Describetheeightstepsinthedecision-makingprocess.3.2Explainthefourapproachesmanagerscanusewhenmakingdecisions.3.3Classifydecisionsanddecision-makingstyles.3.4Describehowbiasesaffectdecisionmaking.3.5Explainhowtechnologycanimprovedecisionmaking.BeaBetterDecisionMakerAkeytosuccessinmanagementandinyourcareerisknowinghowtobeaneffectivedecisionmaker.Managersatalllevelsandineveryorganizationalunitarerequiredtomakedecisions.Ourfocusinthischapterisonhowmanagersmakedecisions.WhatIsaDecision?Decision—aconclusionorresolutionmadeafterconsideringalternativesTheDecision-MakingProcessThereareeightstepsinthedecision-makingprocess:IdentifyingaproblemIdentifyingdecisioncriteriaAllocatingweightstothecriteriaDevelopingalternativesAnalyzingalternativesSelectinganalternativeImplementingthealternativeEvaluatingdecisioneffectivenessDecision-MakingProcessStep1:IdentifyaProblemProblem:anobstaclethatmakesitdifficulttoachieveadesiredgoalorpurpose.Everydecisionstartswithaproblem,adiscrepancybetweenanexistingandadesiredcondition.Example:Amandaisamanagerofalargecustomerservicecenterlookingfornewstandingdesksforemployees.Decision-MakingProcessStep2:IdentifytheDecisionCriteriaDecisioncriteriaarefactorsthatareimportanttoresolvingtheproblem.Example:Amandadecidesthatdurability,heightrange,electroniccontrols,andcustomizationaretherelevantcriteriainherdecision.Exhibit3-1ImportantDecisionCriteriaDurability10Heightrange8Electroniccontrol6Customization4Decision-MakingProcessStep3:AllocateWeightstotheCriteriaIftherelevantcriteriaaren’tequallyimportant,thedecisionmakermustweighttheitemsinordertogivethemthecorrectpriorityinthedecision.Example:TheweightedcriteriaforAmanda’sstandingdeskpurchaseareshowninExhibit3-2.Exhibit3-2PossibleAlternativesBlankDurabilityHeightRangeElectronicControlCustomizationUpliftV27869FullyJarvis6958VariElectric8775NewHeightsXT101025VertDeskv396106Decision-MakingProcessStep4:DevelopAlternativesListviablealternativesthatcouldsolvetheproblem.Example:Amandaidentifiesfivestandingdesksaspossiblechoices(showninExhibit3-2).Decision-MakingProcessStep5:AnalyzeAlternativesStep6:SelectanAlternativeStep5:Onceyouidentifythealternativesyouneedtoanalyzethemusingthecriteriaestablishedinstep2.Step6:Choosethealternativethatgeneratesthehighesttotalinstep5.Exhibit3-3EvaluationofAlternativesBlankDurabilityHeightRangeElectronicControlCustomizationTotalUpliftV270643636206FullyJarvis60723032194VariElectric80564220198NewHeightsXT100801220212VertDeskv390486024222Decision-MakingProcessStep7:ImplementtheAlternativePutthechosenalternativeintoaction.Conveythedecisiontothoseaffectedandgettheircommitmenttoit.Decision-MakingProcessStep8:EvaluateDecisionEffectivenessEvaluatetheresultoroutcomeofthedecisiontoseewhethertheproblemwasresolved.Ifitwasn’tresolved,whatwentwrong?Exhibit3-4DecisionsManagersMayMake:PlanningandOrganizingExhibit3-4DecisionsManagersMayMake:LeadingandControllingRationalityRationaldecisionmaking:choicesthatarelogicalandconsistentandmaximizevalueAssumptionsofrationality:RationaldecisionmakerislogicalandobjectiveProblemfacedisclearandunambiguousDecisionmakerwouldhaveaclear,specificgoalandbeawareofallalternativesandconsequencesThealternativethatmaximizesachievingthisgoalwillbeselectedDecisionsaremadeinthebestinterestoftheorganizationBoundedRationalityBoundedrationality:decisionmakingthat’srational,butlimitedbyanindividual’sabilitytoprocessinformationSatisfice:acceptingsolutionsthatare“goodenough”IntuitionIntuitivedecisionmaking:makingdecisionsonthebasisofexperience,feelings,andaccumulatedjudgmentExhibit3-5WhatIsIntuition?Exhibit3-5showsthefivedifferentaspectsofintuitionidentifiedbyresearchersstudyingmanagers’useofintuitivedecisionmaking.Evidence-BasedManagementEvidence-basedmanagement(EBMgt):
thesystematicuseofthebestavailableevidencetoimprovemanagementpracticeTherearefouressentialstoEBMgt:Thedecisionmaker’sexpertiseandjudgmentExternalevidencethat’sbeenevaluatedbythedecisionmakerOpinions,preferences,andvaluesofthosewhohaveastakeinthedecisionRelevantorganizational(internal)factorssuchascontext,circumstances,andorganizationalmembersTypesofDecisions:StructuredProblemsandProgrammedDecisionsStructuredproblems:straightforward,familiar,andeasilydefinedproblemsProgrammeddecisions:repetitivedecisionsthatcanbehandledbyaroutineapproachTypesofProgrammedDecisionsProcedure:aseriesofsequentialstepsusedtorespondtoawell-structuredproblemRule:anexplicitstatementthattellsmanagerswhatcanorcannotbedonePolicy:aguidelineformakingdecisionsTypesofDecisions:UnstructuredProblemsandNonprogrammedDecisionsUnstructuredproblems:problemsthatareneworunusualandforwhichinformationisambiguousorincompleteNonprogrammeddecisions:uniqueandnonrecurringandinvolvecustom-madesolutionsExhibit3-6ProgrammedVersusNonprogrammedDecisionsCharacteristicProgrammedDecisionsNonprogrammedDecisionsTypeofproblemStructuredUnstructuredManageriallevelLowerlevelsUpperlevelsFrequencyRepetitive,routineNew,unusualInformationReadilyavailableAmbiguousorincompleteGoalsClear,specificVagueTimeframeforsolutionShortRelativelylongSolutionrelieson…Procedures,rules,policiesJudgmentandcreativityDecision-MakingStylesResearchhasidentifiedfourdifferentindividualdecision-makingstylesbasedontwodimensions:Anindividual’swayofthinkingAnindividual’stoleranceforambiguityThefourstylesaredirective,analytic,conceptual,andbehavioral.FourDecision-MakingStylesDirectivestyle:lowtoleranceforambiguityandseekrationalityAnalyticstyle:seekrationalitybuthaveahighertoleranceforambiguityConceptualstyle:intuitivedecisionmakerswithahightoleranceforambiguityBehavioralstyle:intuitivedecisionmakerswithalowtoleranceforambiguityExhibit3-7Decision-StyleModelExhibit3-7showsthedecision-stylemodelfromA.J.RoweandJ.D.Boulgarides,ManagerialDecision
Making(UpperSaddlerRiver,NJ:PrenticeHall,1992),p.29.HeuristicsHeuristicsor“rulesofthumb”canhelpmakesenseofcomplex,uncertain,orambiguousinformation.However,theycanalsoleadtoerrorsandbiasesinprocessingandevaluatinginformation.Exhibit3-8CommonDecision-MakingBiasesExhibit3-8identifies12commondecisionerrorsofmanagersandbiasestheymayhave.Decision-MakingBiasesandErrors(1of4)Overconfidencebias:holdingunrealisticallypositiveviewsofoneselfandone’sperformanceImmediategratificationbias:choosingalternativesthatofferimmediaterewardsandavoidimmediatecostsAnchoringeffect:fixatingoninitialinformationandignoringsubsequentinformationDecision-MakingBiasesandErrors(2of4)Selectiveperceptionbias:selecting,organizingandinterpretingeventsbasedonthedecisionmaker’sbiasedperceptionsConfirmationbias:seekingoutinformationthatreaffirmspastchoiceswhilediscountingcontradictoryinformationFramingbias:selectingandhighlightingcertainaspectsofasituationwhileignoringotheraspectsDecision-MakingBiasesandErrors(3of4)Availabilitybias:losingdecision-makingobjectivitybyfocusingonthemostrecenteventsRepresentationbias:drawinganalogiesandseeingidenticalsituationswhennoneexistRandomnessbias:creatingunfoundedmeaningoutofrandomeventsDecision-MakingBiasesandErrors(4of4)Sunkcostserrors:forgettingthatcurrentactionscannotinfluencepasteventsandrelateonlytofutureconsequencesSelf-servingbias:takingquickcreditforsuccessesandblamingoutsidefactorsforfailuresHindsightbias:mistakenlybelievingthataneventcouldhavebeenpredictedoncetheactualoutcomeisknown(after-the-fact)Cutting-EdgeDecisionMakingThelast20yearshaveseenadramaticchangeintheabilityofmanagerstoaccessdataandinformation.AmajorimpetusforthischangehasbeentechnologyincludingBigdata:bigdatareferstohugeandcomplexdatasetsnowavailable.Bigdatahasopenedthedoortowidespreaduseofartificialintelligence(AI).Artificialintelligence:AIisusingthepowerofcomputerstoreplicatethereasoningfunctionsofhumans.Itgoeswellbeyondthesimple“if-then”processingofcomputersoftware.AIhastheabilitytolearnandsolvecomplexproblems.BigDataBigdata:thevastamountofquantifiabledatathatcanbeanalyzedbyhighlysophisticateddataprocessingCanbeapowerfultoolindecisionmaking,butcollectingandanalyzingdatafordata’ssakeiswastedeffortArtificialIntelligenceandMachineLearningToolsArtificialIntelligence(AI)–usescomputingpowertosolvecomplexproblemsAIsystemshavetheabilitytolearnandhavefacilitatedtheuseofnewtoolssuchasMachinelearningDeeplearningAnalyticsMachineLearning,DeepLearning,andAnalyticsMachinelearning:amethodofdataanalysisthatautomatesanalyticalmodelbuildingDeeplearning:asubsetofmachinelearningthatusealgorithmstocreateahierarchicallevelofartificialneuralnetworksthatsimulatethefunctionofthehumanbrainAnalytics:theuseofmathematics,statistics,predictivemodeling,andmachinelearningtofindmeaningfulpatternsinadatasetTechnologyandHumanJudgmentAlthoughhumanjudgmentisfarfromperfect,itislikelynotwiseforcompaniestorelyentirelyonAIfordecisionmaking,especiallyforunstructuredoruncertaindecisionenvironments.Someorganizationsareusingdecision-makingapproachesthatintegratehumanjudgmentandAI.UsingAItoaugmentdecisions,asnotedpreviously,couldtakeadvantageofthestrengthsofbothapproacheswhilemitigatingtherisksofrelyingoneither.ReviewLearningObjective3.1Describetheeightstepsinthedecision-makingprocess.IdentifyproblemIdentifydecisioncriteriaWeightthecriteriaDevelopalternativesAnalyzealternativesSelectalternativeImplementalternativeEvaluatedecisioneffectivenessReviewLearningObjective3.2(1of2)Explainthefourapproachesmanagersusewhenmakingdecisions.AssumptionsofrationalityTheproblemisclearandunambiguousAsingle,well-definedgoalistobeachievedAllalternativesandconsequencesareknownThefinalchoicewillmaximizegoalachievementReviewLearningObjective3.2(2of2)Rationality:makingdecisionswhenthegoaliswell-definedandeverythingisclearandunambiguousSatisficing:whendecisionmakersacceptsolutionsthataregoodenoughIntuitivedecisionmaking:makingdecisionsonthebasisofexperience,feelings,andaccumulatedjudgmentEvidence-basedmanagement:amanagermakesdecisionsbasedonthebestavailableevidenceReviewLearningObjective3.3(1of2)Classifydecisionsanddecision-makingstyles.Programmeddecisionsarerepetitivedecisionsthatcanbehandledbyaroutineapproachandareusedwhentheproblembeingresolvedisstraightforward,familiar,andeasilydefined(structured).Nonprogrammeddecisionsareuniquedecisionsthatrequireacustom-madesolutionandareusedwhentheproblemsareneworunusual(unstructured)andforwhichinformationisambiguousorincomplete.ReviewLearningObjective3.3(2of2)Classifydecisionsanddecision-makingstyles.Individualdecision-makingstylesdifferontwodimensions;wayofthinkingandtoleranceforambiguity.Thesedimensionsresultinfourdifferentdecision-makingstyles:DirectiveAnalyticalConceptualBehavioralReviewLearningObjective3.4Describehowbiasesaffectdecisionmaking.The12commondecision-makingerrorsandbiases:OverconfidenceImmediategratificationAnchoringeffectSelectiveperceptionConfirmationFramingAvailabilityRepresentationRandomnessSunkcostsSelf-servingHindsightReviewLearningObjective3.5(1of2)Identifycutting-edgeapproachesforimprovingdecisionmaking.Bigdata,artificialintelligence,machinelearning,deeplearning,andanalyticsareallrelativelynewtoolsthatharnessthepoweroftechnologytohelpmanagersmakebetterdecisions.ReviewLearningObjective3.5(2of2)Bigdata:whentemperedwithgoodjudgment,itcanbeapowerfultoolindecisionmaking.Artificialintelligence:AIandthetoolsthatuseAIarenowpossibleduetobigdataandcomputingpower.Machinelearning,deeplearning,andanalyticscanallhelpmanagersmakebetterdecisions.Technologystilliscapableofcompletelyreplacinghumanjudgment.CopyrightThisworkisprotectedbyUnitedStatescopyrightlawsandisprovidedsolelyfortheuseofinstructorsinteachingtheircoursesandassessingstudentlearning.Disseminationorsaleofanypartofthiswork(includingontheWorldWideWeb)willdestroytheintegrityoftheworkandisnotpermitted.Theworkandmaterialsfromitshouldneverbemadeavailabletostudentsexceptbyinstructorsusingtheaccompanyingtextintheirclasses.Allrecipientsofthisworkareexpectedtoabidebytheserestrictionsandtohonortheintendedpedagogicalpurposesandtheneedsofotherinstructorswhorelyonthesematerials.ManagementSixteenthEditionChapter4InfluenceoftheExternalEnvironmentandtheOrganization’sCultureCopyright©2025,2021,2018PearsonEducation,Inc.AllRightsReservedLearningObjectives4.1Contrasttheactionsofmanagersaccordingtotheomnipotentandsymbolicviews.4.2Describetheconstraintsandchallengesfacingmanagersintoday’sexternalenvironment.4.3Discussthecharacteristicsandimportanceoforganizationalculture.TheManager:OmnipotentorSymbolic?Omnipotentview:managersaredirectlyresponsibleforanorganization’ssuccessorfailureSymbolicview:muchofanorganization’ssuccessorfailureisduetoexternalforcesoutsidemanagers’controlManagerialConstraintsIn
reality,managersareneitherall-powerfulnorhelpless.Buttheirdecisionsandactionsareconstrained.Externalconstraintscomefromtheorganization’senvironmentandinternalconstraintscomefromtheorganization’sculture.Exhibit4-1ConstraintsonManagerialDiscretionExhibit4-1showsthatexternalconstraintscomefromtheorganization’senvironmentandinternalconstraintscomefromtheorganization’sculture.TheEnvironmentandEnvironmentalUncertaintyEnvironment:institutionsorforcesoutsideoftheorganizationthatcouldpotentiallyaffectperformanceEnvironmentsdifferondegreeofenvironmentaluncertaintyEnvironmentaluncertaintyhastwodimensionsDegreeofchangeDegreeofcomplexityExhibit4-2EnvironmentalUncertaintyMatrixExhibit4-2showsthetwodimensionsofenvironmentaluncertainty.DegreeofChangeEnvironmentscanbeeitherdynamicorstableInadynamicenvironment,thecomponentsinanorganization’senvironmentchangefrequently.Inastableenvironment,thecomponentsinanorganization’senvironmentchangeverylittle.DegreeofEnvironmentalComplexityEnvironmentalcomplexitylooksatthenumberofcomponentsinanorganization’senvironmentandtheextentoftheknowledgetheorganizationhasaboutthosecomponents.Dependingontheorganizationalenvironment,managersmayneedtoknowalotaboutthecomponents,orverylittle.TheExternalEnvironmentThosefactorsandforcesoutsidetheorganizationthataffectitsperformanceEconomicDemographicPolitical/legalSocioculturalTechnologicalGlobalExhibit4-3ComponentsofExternalEnvironmentExhibit4-3showsthedifferentcomponentsthatmakeuptheexternalenvironment.TheSpecificEnvironment(1of2)Specificenvironment:thepartoftheenvironmentdirectlyrelevanttotheachievementoforganizationalgoalsMostofmanagement’sattentiontypicallyfocusesonthespecificenvironmentTheSpecificEnvironment(2of2)Thespecificenvironmentincludesoneormoreofthefollowing:SuppliersCustomersCompetitorsGovernmentInvestorsSpecialinterestgroupsSpecificEnvironmentComponents(1of2)Suppliers:Managersneedtoensureasteadyflowofinputs.Customers:Organizationsexisttomeetcustomerneeds.Competitors:Allorganizationshavecompetitorsthattheyneedtomonitor.SpecificEnvironmentComponents(2of2)Government:Federal,state,andlocalgovernmentsinfluencewhattheorganizationcanandcannotdo.Investors:Publiccompaniesareunderthescrutinyofstockholdersaswellaspotentialinvestorsbecauseorganizationaldecisionsshouldenhanceshareholdervalue.Specialinterestgroups:Specialinterestgroupscanhaveasignificantimpactontheorganization.Lobbyists,protestors,variousactiongroupsalleffectchange.Exhibit4-4TheOrganizationandItsEnvironmentExhibit4-4showsthedifferentcomponentsthatmakeupthespecificenvironment.OrganizationalCultureJustaseachindividualhasauniquepersonality,anorganization,too,hasapersonality.Organizationalculture:thesharedvalues,principles,traditions,andwaysofdoingthingsthatinfluencethewayorganizationalmembersactandthatdistinguishtheorganizationfromotherorganizationsSixDimensionsofOrganizationalCultureResearchshowstherearesixdimensionsthatappeartocaptureanorganization’sculture:AdaptabilityAttentiontodetailOutcomeorientationPeopleorientationTeamorientationIntegrityExhibit4-5ContrastingOrganizationalCultureRisktakingandchangediscouragedCreativitydiscouragedClosemanagerialsupervisionWorkdesignedaroundindividualemployeesRisktakingandchangerewardedCreativityandinnovationrewardedManagementtrustsemployeesWorkdesignedaroundteamsStrongCulturesStrongcultures:organizationalculturesinwhichthekeyvaluesareintenselyheldandwidelysharedStrongcultureshaveagreaterinfluenceonemployeesthanweakculturesExhibit4-6StrongVersusWeakCulturesStrongCulturesWeakCulturesValueswidelysharedValueslimitedtoafewpeople–usuallytopmanagementCultureconveysconsistentmessagesaboutwhat’simportantCulturesendscontradictorymessagesaboutwhat’simportantMostemployeescantellstoriesaboutcompanyhistoryorheroesEmployeeshavelittleknowledgeofcompanyhistoryorheroesEmployeesstronglyidentifywithcultureEmployeeshavelittleidentificationwithcultureStrongconnectionbetweensharedvaluesandbehaviorsLittleconnectionbetweensharedvaluesandbehaviorsWhereCultureComesfromandHowItContinuesTheoriginalsourceofthecultureusuallyreflectsthevisionofthefounders.Oncethecultureisinplace,certainorganizationalpracticeshelpmaintainit.Theactionsoftopmanagersalsohaveamajorimpactontheorganization’sculture.Exhibit4-7EstablishingandMaintainingCultureExhibit4-7illustrateshowanorganization’scultureisestablishedandmaintained.HowCultureIsSustainedStoriesRitualsMaterialartifactsandsymbolsLanguageRemoteWorkandCultureMuchofwhatweknowaboutworkplaceculturewaslearnedbystudyingtraditionalworkplaceenvironments.Mostmanagersfocusonbuildingculturebasedonphysicalproximity.Oftenremoteworkershavelittleornointeractionwithothers,whichmakesitdifficulttobuildaculture.Buildingculturewithremoteworkersrequiresmanagerstobemoreexplicitinarticulatingculturalvaluesandhelpingemployeesseewhentheirbehaviorsalignwiththeculture.HowCultureAffectsManagersBecauseanorganization’scultureconstrainswhattheycanandcannotdoandhowtheymanage,it’sparticularlyrelevanttomanagers.Successfulmanagersquicklylearnwhattodoandnotdointheirorganization.Exhibit4-8Types
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