7.

The Nature of Decision Making A decision is a choice made from among available alternatives. Decision making is the process of identifying and choosing alternative courses of action. A decision-making style reflects the combination of how an individual perceives and responds to information. Decision-making styles may tend to have a value orientation, which reflects the extent to which a person focuses on either task or technical concerns versus people and social concerns when making decisions. Decision-making styles may also reflect a person's tolerance for ambiguity, the extent to which a person has a high or low need for structure or control in his or her life. When the dimensions of value orientation and tolerance for ambiguity are combined, they form four styles of decision making: directive, analytical, conceptual, and behavioral. 7.2 Two Kinds of Decision Making: Rational & Nonrational Two models managers follow in making decisions are rational and nonrational. In the rational model, there are four steps in making a decision: Stage 1 is identifying the problem or opportunity. A problem is a difficulty that inhibits the achievement of goals. An opportunity is a situation that presents possibilities for exceeding existing goals. This is a matter of diagnosisanalyzing the underlying causes. Stage 2 is thinking up alternative solutions. Stage 3 is evaluating the alternatives and selecting a solution. Alternatives should be evaluated according to cost, quality, ethics, feasibility, and effectiveness. Stage 4 is implementing and evaluating the solution chosen. The rational model of decision making assumes managers will make logical decisions that will be the optimum in furthering the organization's best interests. The rational model is prescriptive, describing how managers ought to make decisions. Nonrational models of decision making assume that decision making is nearly always uncertain and risky, making it difficult for managers to make optimum decisions. Three nonrational models are satisficing, incremental, and intuition. (1) Satisficing falls under the concept of bounded rationalitythat is, that the ability of decision makers to be rational is limited by enormous constraints, such as time and money. These constraints force managers to make decisions according to the satisficing modelthat is, managers seek alternatives until they find one that is satisfactory, not optimal. (2) In the incremental model, managers take small, short-term steps to alleviate a problem rather than steps that will accomplish a long-term solution. (3) Intuition is making choices without the use of conscious thought or logical inference. The sources of intuition are expertise and feelings. 7.3 Evidence-Based Decision Making & Analytics Evidence-based management means translating principles based on best evidence into organizational practice. It is intended to bring rationality to the decision-making process. Scholars Jeffrey Pfeffer and Robert Sutton identify seven implementation principles to help companies that are committed to doing what it takes to profit from evidence-based management: (1) treat your organization as an unfinished prototype; (2) "no brag, just facts"; (3) see yourself and your organization as outsiders do; (4) have everyone, not just top executives, be guided by the responsibility to gather and act on quantitative and qualitative data; (5) you may need to use vivid stories to sell unexciting evidence to others in the company; (6) at the very least, you should slow the spread of bad practices; and (7) you should learn from failure by using the facts to make things better. Applying the best evidence to your decisions is difficult, for seven reasons: (1) There's too much evidence. (2) There's not enough good evidence. (3) The evidence doesn't quite apply. (4) People are trying to mislead you. (5) You are trying to mislead you. (6) The side effects outweigh the cure. (7) Stories are more persuasive, anyway. Perhaps the purest application of evidence-based management is the use of analytics, or business analytics, the term used for sophisticated forms of business data analysis. Among organizations that have made a commitment to quantitative, fact-based analysis, scholars have found three key attributes: (1) They go beyond simple descriptive statistics and use data mining and predictive modeling to identify potential and most profitable customers. (2) Analytics competitors don't gain advantage from one principal application but rather from multiple applications supporting many parts of the business. (3) A companywide embrace of analytics impels changes in culture, processes, behavior, and skills for many employees, and so requires the support of top executives. 7.4 Making Ethical Decisions Corporate corruption has made ethics in decision making once again important. Many companies have an ethics officer to resolve ethical dilemmas, and more companies are creating values statements to guide employees as to desirable business behavior. To help make ethical decisions, a decision treea graph of decisions and their possible consequencesmay be helpful. Managers should ask whether a proposed action is legal and, if it is intended to maximize shareholder value, whether it is ethicaland whether it would be ethical not to take the proposed action. A goal for managers should be to rely on moral principles so that their decisions are principled, appropriate, and defensible, in accordance with "the magnificent seven" general moral principles for managers. 7.5 Group Decision Making: How to Work with Others Groups make better decisions than most individuals acting alone, though not as good as the best individual acting alone. Using a group to make a decision offers five possible advantages: (1) a greater pool of knowledge; (2) different perspectives; (3) intellectual stimulation; (4) better understanding of the reasoning behind the decision; and (5) deeper commitment to the decision. It also has four disadvantages: (1) a few people may dominate or intimidate; (2) it will produce groupthink, when group members strive for agreement among themselves for the sake of unanimity and so avoid accurately assessing the decision situation; (3) satisficing; and (4) goal displacement, when the primary goal is subsumed to a secondary goal. Some characteristics of groups to be aware of are (1) groups are less efficient, (2) their size affects decision quality, (3) they may be too confident, and (4) knowledge counts-decisionmaking accuracy is higher when group members know a lot about the issues. Participative management (PM) is the process of involving employees in setting goals, making decisions, solving problems, and making changes in the organization. PM can increase employee job involvement, organizational commitment, and creativity and can lower role conflict and ambiguity. Using groups to make decisions generally requires that they reach a consensus, which occurs when members are able to express their opinions and reach agreement to support the final decision. Two problem-solving techniques aid in problem solving. (1) Brainstorming is a technique used to help groups generate multiple ideas and alternatives for solving problems. A variant is electronic brainstorming, in which group members use a computer network to generate ideas. (2) In computer-aided decision making, chauffeur-driven systems may be used, which ask participants to answer predetermined questions on electronic keypads or dials, or group-driven systems may be used, in which participants in a room express their ideas anonymously on a computer network. 7.6 How to Overcome Barriers to Decision Making When confronted with a challenge in the form of a problem or an opportunity, individuals may respond in perhaps four ineffective ways and three effective ones. The ineffective reactions are as follows: (1) In relaxed avoidance, a manager decides to take no action in the belief that there will be no great negative consequences. (2) In relaxed change, a manager realizes that complete inaction will have negative consequences but opts for the first available alternative that involves low risk. (3) In defensive avoidance, a manager can't find a good solution and follows by procrastinating, passing the buck, or denying the risk of any negative consequences. (4) In panic, a manager is so frantic to get rid of the problem that he or she can't deal with the situation realistically. The effective reactions consist of deciding to decidethat is, a manager agrees that he or she must decide what to do about a problem or opportunity and take effective decision-making steps. Three ways to help a manager decide whether to decide are to evaluate (1) importance how high priority the situation is; (2) credibilityhow believable the information about the situation is; and (3) urgencyhow quickly the manager must act on the information about the situation. Heuristics are rules of thumb or strategies that simplify the process of making decisions. Some heuristics or barriers that tend to bias how decision makers process information are availability, confirmation representativeness, sunk cost anchoring and adjustment, and escalation of commitment. (1) The availability bias means that managers use information readily available from memory to make judgments. (2) The confirmation bias means people seek information to support their own point of view and discount data that do not. (3) The representativeness bias is the tendency to generalize from a small sample or a single event. (4) The sunk cost bias is when managers add up all the money already spent on a project and conclude that it is too costly to simply abandon it. (5) The anchoring and adjustment bias is the tendency to make decisions based on an initial figure or number. (6) The escalation of commitment bias describes when decision makers increase their commitment to a project despite negative information about it. An example is the prospect theory, which suggests that decision makers find the notion of an actual loss more painful than giving up the possibility of a gain. 8.1 What Kind of Organizational Culture Will You Be Operating In? Organizational culture is a system of shared beliefs and values that develops within an organization and guides the behavior of its members. Four types of culture are (1) clan, which has an internal focus and values flexibility; (2) adhocracy, which has an external focus and values flexibility; (3) market, which has a strong external focus and values stability and control; and (4) hierarchy, which has an internal focus and values stability and control. Organizational culture appears as three layers. Level 1 is observable artifacts, the physical manifestations of culture. Level 2 is espoused values, explicitly stated values and norms preferred by an organization, although employees are frequently influenced by enacted values, which represent the values and norms actually exhibited in the organization. Level 3 consists of basic assumptions, the core values of the organization. Culture is transmitted to employees in symbols, stories, heroes, and rites and rituals. A symbol is an object, act, quality, or event that conveys meaning to others. A story is a narrative based on true events, which is repeatedand sometimes embellished on to emphasize a particular value. A hero is a person whose accomplishments embody the values of the organization. Rites and rituals are the activities and ceremonies, planned and unplanned, that celebrate important occasions and accomplishments in the organization's life. Culture, which can powerfully shape an organization's success over the long term, has four functions. (1) It gives members an organizational identity. (2) It facilitates collective commitment. (3) It promotes social-system stability. (4) It shapes behavior by helping employees make sense of their surroundings. 8.2 Developing High-Performance Cultures What types of organizational culture can increase an organization's competitiveness and profitability? Three perspectives have been proposed: (1) The strength perspective assumes that the strength of a corporate culture is related to a firm's long-term financial performance; (2) the fit perspective assumes that an organization's culture must align, or fit, with its business or strategic context; and (3) the adaptive perspective assumes that the most effective cultures help organizations anticipate and adapt to environmental changes. Among the mechanisms managers use to embed a culture in an organization are: (1) formal statements; (2) slogans and sayings; (3) stories, legends, and myths; (4) leader reactions to crises; (5) role modeling, training, and coaching; (6) physical design; (7) rewards, titles, promotions, and bonuses; (8) organizational goals and performance criteria; (9) measurable and controllable activities; (10) organizational structure; and (11) organizational systems and procedares. 8.3 What Is an Organization? An organization is a system of consciously coordinated activities or forces of two or more people. There are three types of organizations classified according to the three different purposes for which they are formed: for-profit, nonprofit, and mutual-benefit. Whatever the size of organization, it can be represented in an organization chart, a boxes-and-lines illustration showing the formal lines of authority and the organization's official positions or division of labor. Two kinds of information that organizations reveal about organizational structure are (1) the vertical hierarchy of authoritywho reports to whom, and (2) the horizontal specializationwho specializes in what work. 8.4 The Major Elements of an Organization Organizations have seven elements: (1) common purpose, which unifies employees or members and gives everyone an understanding of the organization's reason for being; (2) coordinated effort, the coordination of individual efforts into a group or organization-wide effort; (3) division of labor, having discrete parts of a task done by different people; (4) hierarchy of authority, a control mechanism for making sure the right people do the right things at the right time; (5) span of control, which refers to the number of people reporting directly to a given manager; (6) authority and accountability, responsibility, and delegation. Authority refers to the rights inherent in a managerial position to make decisions, give orders, and utilize resources. Accountability means that managers must report and justify work results to the managers above them. Responsibility is the obligation you have to perform the tasks assigned to you. Delegation is the process of assigning managerial authority and responsibility to managers and employees lower in the hierarchy. Regarding authority and responsibility, the organization chart distinguishes between two positions, line and staff. Line managers have authority to make decisions and usually have people reporting to them. Staff personnel have advisory functions; they provide advice, recommendations, and research to line managers. (7) Centralization versus decentralization of authority. With centralized authority, important decisions are made by higher-level managers. With decentralized authority, important decisions are made by middle-level and supervisory-level managers. 8.5 Basic Types of Organizational Structures Organizations may be arranged into seven types of structures. (1) In a simple structure, authority is centralized in a single person; this structure has a flat hierarchy, few rules, and low work specialization. (2) In a functional structure, people with similar occupational specialties are put together in formal groups. (3) In a divisional structure, people with diverse occupational specialties are put together in formal groups by similar products or services, customers or clients, or geographic regions. (4) In a matrix structure, an organization combines functional and divisional chains of command in grids so that there are two command structuresvertical and horizontal. (5) In a team-based structure, teams or workgroups are used to improve horizontal relations and solve problems throughout the organization. (6) In a network structure, the organization has a central core that is linked to outside independent firms by computer connections, which are used to operate as if all were a single organization. (7) In a modular structure, a firm assembles product chunks, or modules, provided by outside contractors. 8.6 Contingency Design: Factors in Creating the Best Structure The process of fitting the organization to its environment is called contingency design. Managers taking a contingency approach must consider five factors in designing the best kind of structure for their organization at that particular time. (1) An organization may be either mechanistic or organic. In a mechanistic organization, authority is centralized, tasks and rules are clearly specified, and employees are closely supervised. In an organic organization, authority is decentralized, there are fewer rules and procedures, and networks of employees are encouraged to cooperate and respond quickly to unexpected tasks.

(2) An organization may also be characterized by differentiation or integration. Differentiation is the tendency of the parts of an organization to disperse and fragment. Integration is the tendency of the parts of an organization to draw together to achieve a common purpose. (3) Organizational size is usually measured by the number of full-time employees. Larger organizations tend to have more rules, regulations, job specialization, and decentralization. Smaller organizations tend to be more informal, have fewer rules, and have less work specialization. (4) Technology consists of all the tools and ideas for transforming materials, data or labor (inputs) into goods or services (outputs). Firms may be classified according to three forms of technology in increasing levels of complexity. In small batch technology, often the least complex technology, goods are custom-made to customer specifications in small quantities. Large-batch technology is mass production, assembly-line technology. Continuous-process technology is highly routinized technology in which machines do all the work. (5) The four-stage organizational life cycle has a natural sequence of stages: birth, youth, midlife, and maturity. The birth stage is the nonbureaucratic stage, the stage in which the organization is created. The youth stage is the prebureaucratic stage, a stage of growth and expansion. In the midlife stage, the organization becomes bureaucratic, a period of growth evolving into stability. In the maturity stage, the organization becomes very bureaucratic, large, and mechanistic. The danger at this point is lack of flexibility and innovation.

9.1 Strategic Human Resource Management Human resource management consists of the activities managers perform to plan for, attract, develop, and retain an effective workforce. The purpose of the strategic human resource management process is to get the optimal work performance that will help realize the company's mission and vision. Two concepts important to human resource management are (1) human capital, the economic or productive potential of employee knowledge, and (2) social capital, the economic or productive potential of strong, trusting, and cooperative relationships. Strategic human resource planning consists of developing a systematic, comprehensive strategy for (a) understanding current employee needs and (b) predicting future employee needs. Understanding current employee needs requires first doing a job analysis to determine, by observation and analysis, the basic elements of a job. Then a job description can be written, which summarizes what the holder of the job does and how and why he or she does it. Next comes the job specification, which describes the minimum qualifications a person must have to perform the job successfully. Predicting employee needs means a manager needs to become knowledgeable about the staffing an organization might need and the likely sources of staffing, perhaps using a human resource inventory to organize this information. 9.2 The Legal Requirements of Human Resource Management Four areas of human resource law that any manager needs to be aware of are as follows: (1) Labor relations are dictated in part by the National Labor Relations Board, which enforces procedures whereby employees may vote to have a union and for collective bargaining. Collective bargaining consists of negotiations between management and employees about disputes over compensation, benefits, working conditions, and job security. (2) Compensation and benefits are covered by the Social Security Act of 1935 and the Fair Labor Standards Act, which established minimum wage and overtime pay regulations. (3) Health and safety are covered by the Occupational Safety and Health Act of 1970, among other laws. (4) Equal employment opportunity is covered by the Equal Employment Opportunity (EEO) Commission, whose job it is to enforce antidiscrimination and other employment related laws. Three important concepts covered by EEO are (a) discrimination, which occurs when people are hired or promotedor denied hiring or promotionfor reasons not relevant to the job, such as skin color or national origin; (b) affirmative action, which focuses on achieving equality of opportunity within an organization; and (c) sexual harassment, which consists of unwanted sexual attention that creates an adverse work environment and which may be of two typesthe quid pro quo type, which may cause direct economic injury, and the hostile environment type, in which the person being harassed experiences an offensive work environment. 9.3 Recruitment & Selection: Putting the Right People into the Right Jobs Recruiting is the process of locating and attracting qualified applicants for jobs open in the organization. (1) Internal recruiting means making people already employed by the organization aware of job openings. (2) External recruiting means attracting job applicants from outside the organization. A useful approach with external recruitment is the realistic job preview, which gives a candidate a picture of both positive and negative features of the job and organization before he or she is hired. The selection process is the screening of job applicants to hire the best candidates. Three types of selection tools are background information, interviewing, and employment tests. (1) Background information is ascertained through application forms, rsums, and reference checks. (2) Interviewing takes three forms. (a) The unstructured interview involves asking probing questions to find out what the applicant is like. (b) The structured interview involves asking each applicant the same questions and comparing their responses to a standardized set of answers. The first type of structured interview is the situational interview, in which the interview focuses on hypothetical situations. (c) The second type of structured interview is the behavioral description interview, in which the interviewer explores what applicants have actually done in the past. (3) Employment tests are legally considered to consist of any procedure used in the employment selection decision process, but the three most common tests are ability tests, personality tests, and performance tests. Some companies have assessment centers, in which management candidates participate in activities for a few days while being assessed in performance tests by evaluators. Other tests include drug testing, polygraphs, and genetic screening. With any kind of test, an important legal consideration is the test's reliability, the degree to which a test measures the same thing consistently, and validity, whether the test measures what it purports to measure and is free of bias. 9.4 Orientation, Training, & Development Three ways in which newcomers are helped to perform their jobs are through orientation, training, and development. (1) Orientation consists of helping the newcomer fit smoothly into the job and organization. Following orientation, the employee should emerge with information about the job routine, the organization's mission and operations, and the organization's work rules and employee benefits. (2) Training must be distinguished from development. Training refers to educating technical and operational employees in how to better do their current jobs. (3) Development is the term describing educating professionals and managers in the skills they need to do their jobs in the future. Both training and development may be effected through on-the-job training methods and off-the-job training methods. 9.5 Performance Appraisal Performance appraisal consists of assessing an employee's performance and providing him or her with feedback. Appraisals are of two general typesobjective and subjective. Two good reasons for having objective appraisals are that they measure results and they are harder to challenge legally. (1) Objective appraisals are based on facts and are often numerical. An example is management by objectives. (2) Subjective appraisals are based on a manager's perceptions of an employee's traits or behaviors. Trait appraisals are ratings of subjective attributes such as attitude and leadership. Behavioral appraisals measure specific, observable aspects of performance. An example is the behaviorally anchored rating scale (BARS), which rates employee gradations in performance according to scales of specific behaviors. Most performance appraisals are made by managers, but they may also be made by co-workers and subordinates, customers and clients, and employees themselves (self-appraisals). Sometimes all of these may be used, in a technique called the 360-degree assessment, in which employees are appraised not only by their managerial superiors but also by their peers, subordinates, and sometimes clients. In another evaluation technique, forced ranking performance review systems, all employees within a business unit are ranked against one another, and grades are distributed along some sort of bell curve. Effective performance feedback can be effected in two ways: (1) Formal appraisals are conducted at specific times throughout the year and are based on performance measures that have been established in advance. (2) Informal appraisals are conducted on an unscheduled basis and consist of less rigorous indications of employee performance. 9.6 Managing an Effective Workforce: Compensation & Benefits Compensation has three parts: wages or salaries, incentives, and benefits. (1) In the category of wages or salaries, the concept of base pay consists of the basic wage or salary paid employees in exchange for doing their jobs. (2) Incentives include commissions, bonuses, profit-sharing plans, and stock options. (3) Benefits are additional nonmonetary forms of compensation, such as health insurance, retirement plans, and family leave. 9.7 Managing Promotions, Transfers, Disciplining, & Dismissals Managers must manage promotions, transfers, disciplining, and dismissals. (1) In considering promotions, managers must be concerned about fairness, nondiscrimination, and other employees' resentment. (2) Transfers, or moving employees to a different job with similar responsibility, may take place in order to solve organizational problems, broaden managers' experience, retain managers' interest and motivation, and solve some employee problems. (3) Poor performing employees may need to be disciplined or demoted. (4) Dismissals may consist of layoffs, downsizings, or firings. 10.1 The Nature of Change in Organizations Among supertrends shaping the future of business: (1) The marketplace is becoming more segmented and moving toward more niche products. (2) There are more competitors offering targeted products, requiring faster speed-to-market. (3) Some traditional companies may not survive radically innovative change. (4) China, India, and other offshore suppliers are changing the way we work. (5) Knowledge, not information, is becoming the new competitive advantage. Two types of change are reactive and proactive. Reactive change is making changes in response to problems or opportunities as they arise. Proactive change involves making carefully thought out changes in anticipation of possible or expected problems or opportunities. Forces for change may consist of forces outside the organization or inside it. (1) External forces consist of four types: demographic characteristics, market changes, technological advancements, and social and political pressures. (2) Internal forces may be of two types: employee problems and managers' behavior. Four areas in which change is most apt to be needed are people, technology, structure, and strategy. (1) People changes may require changes in perceptions, attitudes, performance, or skills. (2) Technology is any machine or process that enables an organization to gain a competitive advantage in changing materials used to produce a finished product. (3) Changing structure may happen when one organization acquires another. (4) Changing strategy may occur because of changes in the marketplace. 10.2 Organization Development: What It Is, What It Can Do Organization development (OD) is a set of techniques for implementing planned change to make people and organizations more effective. Often OD is put into practice by a change agent, a consultant with a background in behavioral sciences who can be a catalyst in helping organizations deal with old problems in new ways. OD can be used to manage conflict, revitalize organizations, and adapt to mergers. The OD process follows a three-step process: (1) Diagnosis attempts to ascertain the problem. (2) Intervention is the attempt to correct the diagnosed problems. (3) Evaluation attempts to find out how well the intervention worked. Four factors that make OD work successfully are (1) multiple interventions are used; (2) top managers give the OD program their support; (3) goals are geared to both short- and long-term results; and (4) OD is affected by culture. 10.3 Promoting Innovation within the Organization Innovations may be a product innovation or a process innovation. A product innovation is a change in the appearance or performance of a product or service or the creation of a new one. A process innovation is a change in the way a product or service is conceived, manufactured, or disseminated. Innovations may also be an incremental innovation or a radical innovation. An incremental innovation is the creation of a product, service, or technology that modifies an existing one. A radical innovation is the creation of a product, service, or technology that replaces an existing one. Four characteristics of innovation are that (1) it is an uncertain business; (2) people closest to the innovation know the most about it, at least initially; (3) it may be controversial; and (4) it can be complex because it may cross organizational boundaries. Innovation doesn't happen as a matter of course. Three ways to make it happen are to provide the right organizational culture, so that it is viewed as a benefit rather than as a boondoggle; to provide the resources; and to provide the rewards, so that experimentation is reinforced in ways that matter. Three steps for fostering innovation are as follows. (1) Recognize problems and opportunities and devise solutions. (2) Gain allies by communicating your vision. (3) Overcome employee resistance and empower and reward them to achieve progress. 10.4 The Threat of Change: Managing Employee Fear & Resistance The degree to which employees feel threatened by change depends on whether the change is adaptive, innovative, or radically innovative. Adaptive change, the least threatening, is reintroduction of a familiar practice. Innovative change is the introduction of a practice that is new to the organization. Radically innovative change, the most threatening, involves introducing a practice that is new to the industry. Ten reasons employees resist change are as follows: (1) individuals' predisposition toward change; (2) surprise and fear of the unknown; (3) climate of mistrust; (4) fear of failure; (5) loss of status or job security; (6) peer pressure; (7) disruption of cultural traditions or group relationships; (8) personality conflicts; (9) lack of tact or poor timing; and (10) nonreinforcing reward systems. Kurt Lewin's change model has three stagesunfreezing, changing, and refreezingto explain how to initiate, manage, and stabilize planned change. (1) In the unfreezing stage, managers try to instill in employees the motivation to change. One technique used is benchmarking, a process by which a company compares its performance with that of high-performing organizations. (2) In the changing stage, employees need to be given the tools for change, such as new information. (3) In the refreezing stage, employees need to be helped to integrate the changed attitudes and behavior into their normal behavior. In a model corresponding with Lewin's, John Kotter's suggests an organization needs to follow eight steps to avoid the eight common errors senior management usually commits. The first four represent unfreezing: establish a sense of urgency, create the guiding coalition, develop a vision and strategy, and communicate the change vision. The next three steps represent the changing stage: empower broad-based action, generate short-term wins, and consolidate gains and produce more change. The last step, corresponding to refreezing, is to anchor new approaches in the organization's culture.