Decision making and creativity- summary of chapter 7 of Organizational Behavior by Mcshane, S. (8th edition)

Organizational Behavior
Chapter 7
Decision making and creativity

Rational choice decision making

Decision making: the conscious process of making choices among alternatives with the intention of moving toward some desired state of affairs.

Rational choice decision making selects the best alternative by calculating the probability that various outcomes will occur from the choices and the expected satisfaction from each of those outcomes.
Rely primarily on two pieces of information:

• The probability that each outcome will occur
• The valence or expected satisfaction of each outcome

Rational choice decision-making process

Steps:

1. To identify the problem or recognize an opportunity
2. Choose the best decision process
3. Discover or develop possible choices
4. Select the choice with the highest value
5. Implement the selected choice
6. Evaluate the selected choice

Programmed decisions: follow standard operating procedures.
They have been resolved in the past, so the optimal solution has already been identified and documented.

Non-programmed decisions: require all steps in he decision model because the problems are new, complex, or ill-defined.

Identifying problems and opportunities

Problems with problem identification

Five of the most widely recognized problems:

Solution-focused problems

Some decision makers describe the problems as a veiled solution.
They fail to fully diagnose the underlying causes that need to be addressed.

Decisive leadership

Many leaders announce problems or opportunities before having a change to logically asses the situation. The result is often a misguided effort to solve an ill-defined problem or resources wasted on a poorly identified opportunity.

Stakeholder framing

Stakeholders provide (or hide) information in ways that makes the decision maker see the situation as a problem, opportunity, or steady sailing.

Perceptual defense

People sometimes fail to become aware of problems because they block out bad news as a coping mechanism.

Mental models

Decision makers are victims of their own problem framing due to existing mental models.
Mental models are visual or relational images in our mind of the external world.

Identifying problems and opportunities more effectively

One way to improve the process is by becoming aware of the five problem identification biases.
Another way is to create a norm of ‘divine discontent’. Decision makers with this mindset are never satisfied with current conditions, so they more actively search for problems and opportunities.
Or discussing the situation with colleagues and clients.

Searching for, evaluating and choosing alternatives

Bounded rationality: the view that people are bounded in their decision-making capabilities. Including:

• Access to limited information
• Limited information processing
• A tendency toward satisfying rather than maximizing when making choices

Additional flaws are overlooked by bounded rationality.

Problems with information processing

People evaluate only a few alternatives and only some of the main outcomes of those alternatives.

Implicit favorite: a preferred alternative that the decision makes uses repeatedly as a comparison with other choices.
Sometimes, decision makers aren’t even aware of this favoritism.
Confirmation bias
Humans need to minimize cognitive dissonance.

Biased decision heuristics

Three of the most widely studies heuristic biases:

• Anchoring and adjustment heuristic
  A natural tendency for people to be influenced by an initial anchor point such that they do not sufficiently move away from that point as new information is provided
• Availability heuristic
  A natural tendency to assign higher probabilities to objects or events that are easier to recall from memory, even though ease of recall is also affected by non-probability factors
• Representativeness heuristic
  A natural tendency to evaluate probabilities of events or objects by the degree to which they resemble other events or object rather than on objective probability information.

Clustering illusion: the tendency to see patterns from a small sample of events when those events are, in fact, random.

Problems with maximization

Satisficing: selecting an alternative that is satisfactory or ‘good enough’ rather than the alternative with the highest value.

Maximizing decision makes run into trouble where there are many alternatives, those alternatives have many features, and the quality of those features for each alternative is ambiguous.
When presented wit ha large number of choices, people often choose a strategy that is less cognitively challenging, they don’t choose at all.

Evaluating opportunities

Decision makers do not evaluate several alternatives when they find an opportunity.
An opportunity is usually experienced as an exciting and rare revelation, so decision makers often tend to have an emotional attachment to the opportunity.

Emotions and making choices

It is impossible for humans to make perfectly rational decisions.
The rational choice view completely ignores the effect of emotions in human decision making.

Emotions form early preferences

Our brain very quickly attaches specific emotions to information about each alternative, and our preferred alternative is strongly influences by those initial emotional markers.
Logical analysis also influences with alternative to choose, but it requires strong logical evident to change our initial preferences.
Even logical analysis depends on emotions to sway our decision.
Information produced from logical analysis is tagged with emotional markers that then motivate us to choose or avoid a particular alternative.

Emotions change the decision evaluation process

Mood and specific emotions influence the process of evaluating alternatives.
We pay more attention to details when in a negative mood. In a positive mood, we rely more on a programmed decision routine.
Emotions shape how we evaluate information, not just which choice we select.

Emotions serve as information when we evaluate alternatives

We listen to our emotions to gain guidance when making decisions.
Most emotional experiences remain below the level of conscious awareness, but people actively try to be more sensitive to these subtle emotions when making a decision.

Intuition and making choices

Intuition: the ability to know when a problem or opportunity exists and to select the best course of action without conscious reasoning.

Some people rely more on intuition whereas others rely more on logical analysis when making decisions. But they never completely replace each other.

Intuition is both an emotional and a rapid nonconscious analytic process.
The gut feelings we experience are emotional signals that have enough intensity to make us consciously aware of them.

All gut feelings are emotional signals, but not all emotional signals are intuition.
Intuition involves rapidly comparing our observations with deeply held patterns learned trough experience. They are mental models. When a template fits or doesn’t fit the current situation, emotions are produced that motivate us to act.
Intuition signals that a problem or opportunity exist long before conscious rational analysis has occurred.

Intuition also relies on action scrips, programmed decision routines that speed up our response to pattern matches or mistakes.
Action scrips are generic, so we consciously adapt them to the specific situation.

Making choices more effectively.

• Decisions tend to have a higher value rate when leaders are decisive rather than contemplative about the available options.
• Remember that decisions are influenced by both rational and emotional processes
• Scenario planning: a systematic process of thinking about alternative futures and what the organization should do to anticipate and react to those environments.

Evaluating decision outcomes

Decision makers aren’t completely honest with themselves when evaluating the effectiveness of their decisions.

Postdecisional justification
Decision makers ignore or under-emphasize negative outcomes of the choice they make and overemphasize new information about its positive features.

Escalation of commitment

Escalation of commitment: The tendency to repeat an apparently bad decision or allocate more resources to a failing course of action.

Self-justification effect

People try to convey a positive public image of themselves.
Self-justification in decision making involves appearing to be rational and competent.

Self-enhancement effect

Self-enhancement: a person’s inherent motivation to have a positive self-concept.
Increases the risk of escalation of commitment.
When presented with evidence that a project is in trouble, the self-enhancement process biases our interpretation of the information as a temporary aberration from a otherwise positive trend line.
Mostly nonconsciously.

Prospect theory effect

A natural tendency to feel more dissatisfaction from losing a particular amount than satisfaction from gaining an equal amount.
Motivates us to avoid losses, which typically occurs by taking the risk of investing more in that losing project.
Escalation of commitment is the less painful option at the time.

Suck costs effect

The value of resources already invested in the decision.
People inherently feel motivate to invest more resources in projects that have sunk costs.
A variation is time investment.
Sunk costs can take the form of closing costs, the financial or nonfinancial penalties associated with shutting down a project.

Escalation of commitment is usually framed as poor decision making, but persistence may be the better choice under some circumstances.

Evaluating decision outcomes more effectively

• Ensure people who made the original decision are not the same people who evaluate that decision.
  Minimizes the self-justification effect.
  But the second person might continue to escalate the project if he or she emphasizes with the decision maker, has a similar mindset, or has similar attributes such as age.
• Publicly establish a preset level at which the decision is abandoned or reevaluated.
  But conditions are often complex.
• Find a source of systematic and clear feedback.
• Involve several people in the evaluation.

Creativity

Creativity: the development of original ideas that make a socially recognized contribution.

The creative process

Stages:

1. Preparation
   The process of investigating the problem or opportunity in many ways.
   Developing a clear understanding of what you are trying to achieve through a novel solution and then actively studying information seemingly related to the topic.
2. Incubation
   The period of reflective thought.
   Maintaining a low-level awareness by frequently revisiting the problem.
   Divergent thinking: reframing a problem in a unique way and generating different approaches to the issue.
3. Illumination
   The experience of suddenly becoming aware of a unique idea.
   Inspiration is fleeting and can be quickly lost if not documented. Might come at any time.
4. Verification
   Subject the ideas to detailed logical evaluation and experimentation.

Characteristics of creative people

• Cognitive and practical intelligence
  Above-average intelligence to synthesize information, analyze ideas, and apply their ideas.
  And the capacity to evaluate the potential usefulness of their ideas.
• Persistence
• Knowledge and experience
  A foundation of knowledge and experience to discover or acquire new knowledge.
• Independent imagination

Organizational conditions supporting creativity

• Learning orientation: beliefs and norms that support the acquisition, sharing and use of knowledge as well as work conditions that nurture these learning processes.
• Motivation from the job itself.
• If the job is challenging and aligned with the employee’s knowledge and skills.
• Open communication and sufficient resources.
• Organizations provide a comfortable degree of job security.
• Designing nontraditional workspaces.
• Support from leaders and coworkers.

Activities that encourage creativity

Cornerstones of creativity in organizations:

• Hiring people with strong creative potential
• Providing a work environment that supports creativity
• Activities that help employees think more creatively

Four types of creativity-building activities

• Redefine the problem
• Associative play
  Variations:
  • Literally play games
  • Systematically investigating all combinations of characteristics of a product, event or other target.
  • A challenge to use existing unrelated products.
• Cross-pollination
  When people from different areas of the organization exchange ideas or when new people are brought into an existing team.
• Design thinking

Design thinking

A human-centered, solution-focused creative process that applies both intuition and analytical thinking to clarify problems and generate innovative solutions.

Four rules:

• The human rule
  Design thinking is a team activity.
  Designers need to empathize with clients and end users and involve them in the design process.
• The ambiguity rule
  Creativity and experimentation are possible only when there is ambiguity in the problem and its potential solutions.
  Design thinkers preserve ambiguity rather to seek clarity too quickly.
• The re-design rule
  Designers review past solutions to understand how inventions tried to satisfy human needs.
  They find out how those solutions tried to work as well as understand their flaws and limitations.
  Then they use foresight tools to imagine better solutions to the future.
• The Tangible rule
  Spending less time planning and more time doing.
  Designers build several low-costs prototypes of their ideas rather than analyze those ideas at a purely conceptual level.

Employee involvement in decision making

Employee involvement: the degree to which employees influence how their work is organized and carried out.
Also called participative management.
Has become a natural process in every organization, but the level of involvement varies with the situation.

Low level involvement occurs where employees are individually asked for specific information but the problem is not described to them.

Benefits of employee involvement

Employee involvement potentially improves decision-making quality and commitment.
It improves the identification of problems and opportunities.
Can potentially improve the number and quality of solutions generated.
Under specific conditions, it improves the evaluation of alternatives.
Involvement tends to strengthen employee commitment to the decision.

Contingencies of employee involvement

There is an optimal level of employee involvement, and that ideal level depends on the situation.
Four contingencies:

• Decision structure
  Programmed or nonprogrammed.
• Source of decision knowledge
  If the leader lacks sufficient knowledge
• Decision commitment
  If employees are unlikely to accept a decision made without their involvement, some level of participation is usually necessary.
• Risk of conflict
  Two types of conflict undermine the benefits of employee involvement
  • Employee goals and norms conflict with the organization
  • Whether employees will agree with each other