Organizational Behaviour, emerging knowledge and practice for the real world, by S. McShane, M. Von Glinow (fifth edition) – Summary chapter 7

Decision making is the 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 calculation the probability that various outcomes will occur from the choices and the expected satisfaction from each of those outcomes. An opportunity is a deviation between current expectations and a potentially better situation that was not previously expected.

There are five main problems of problem identification:

1. Solution-focused problems
   This is identifying a problem as a veiled-solution, but this is not really the problem.
2. Decisive leadership
   Leaders that announce problems or opportunities before logically assessing the situation does not help with identifying the problem.
3. Stakeholder framing
   Stakeholders hide or provide information in ways that the decision-maker sees the situation as a problem, opportunity or steady sailing. This information is not always accurate and can lead to a wrongly identified problem.
4. Perceptual defence
   People can fail to become aware of problems because they block out bad news as a coping mechanism.
5. Mental models
   Mental models can blind us from seeing unique problems or opportunities. Things have to fit in mental models.

Identifying problems can be improved by acquiring new perspectives, having leaders that have the willpower to resist the temptation of decisive decision making and create a norm of divine discontent (never being satisfied with the current conditions).

Bounded rationality is the view that people are bounded in their decision-making capabilities, including access to limited information, limited information processing and a tendency toward satisficing rather than maximizing when making choices. Problems with goals are that problems are often ambiguous and problems can conflict. Sequential evaluation occurs because all alternatives are not usually available to the decision-maker at the same time. The implicit favourite is a preferred alternative that the decision-maker uses repeatedly as a comparison with other choices. The main reason why decision-makers compare alternatives against an implicit favourite is the need to minimize cognitive dissonance. There are three main decision-making heuristics:

1. Anchoring and adjustment heuristic
   This is the tendency to be influenced by an initial anchor point such that they do not move away sufficiently from that point as new information is provided.
2. Availability heuristic
   This is the tendency to assign higher probabilities to objects or events that are easier to recall.
3. Representativeness heuristic
   This is a tendency to evaluate probabilities of events or objects by the degree to which they resemble other events of objects.

Clustering illusion is the tendency to see patterns from a small sample of events when those events are random. Satisficing is selecting an alternative that is good enough, rather than the alternative with the highest value. People stop searching for alternatives the moment they find one option that is good enough. Maximizing decision making is difficult when there are a lot of alternatives.

Emotions affect the evaluation of alternatives in three ways:

1. Emotions form early preferences
   People attach emotions to information about each alternative.
2. Emotions change the decision evaluation process
   Moods and emotions influence the process of evaluating alternatives. People pay more attention to details when in a negative mood.
3. Emotions serve as information when evaluating alternatives
   Emotions provide people with a source of information when evaluating alternatives.

Intuition is the ability to know when a problem or opportunity exists and to select the best course of action without conscious reasoning. Intuition is an emotional experience and a rapid nonconscious analytical process. Intuition is shaped over implicit processes over time through experience. Intuition should be used in combination with a careful analysis of relevant information. In order to prove effective decision making one should revisit the decisions in a different mood, think about the choices and use scenario planning, a disciplined method for imagining possible futures.

Confirmation bias makes people optimistic about their decisions until they receive very clear and undeniable information to the contrary. Escalation of commitment refers to the tendency to repeat an apparently bad decision or allocate more resources to a failing course of action. There are four main explanations of why people continue with failing decisions:

1. Self-justification effect
   People want to be seen as successful and want to show that their decisions are good, so they prefer not to accept that their decision is failing.
2. Self-enhancement effect
   This biases our perception and makes us see our probability of success as higher than it actually is.
3. Prospect theory effect
   People have a tendency to experience stronger negative emotions when experiencing a loss than positive emotions when experiencing a gain. This is why people work to avoid losses and keep working on failing decisions; to avoid losses.
4. Sunk costs effect
   People tend to keep working on a failing decision because of the value of resources already invested in the decision. Sunk costs can take the form of closing costs, the cost of shutting down a project.

One of the most effective ways to minimize escalation of commitment is to make sure that the people evaluating decision are not the same people that made the decision. This minimizes the self-justification effect. Another strategy is to establish a pre-set level at which the decision is abandoned or re-evaluated.

Creativity refers to the development of novel ideas that are of use. There are four stages of creativity: preparation (1), incubation (2), insight (3) and verification (4). Incubation assists divergent thinking, reframing a problem in a unique way and generating different approaches to the issue. Insight probably works like a flickering light; ideas may come at random times and disappear as quickly as they arrived. Verification is fleshing out the illuminated ideas and subject them to logical evaluation and experimentation.

Creative people have several characteristics: cognitive and practical intelligence (1), persistence (2), knowledge and experience (3) and independent imagination (4). These characteristics represent creative potential, but the extent to which it represents creative output also depends on the work environment. One of the most important conditions for creativity is a learning orientation, beliefs and norms that support the acquisition, sharing and use of knowledge. A second condition is motivation for the job itself. Open communication and sufficient resources are also important. A lack of pressure doesn’t stimulate creativity, but high pressure inhibits it.

There are four types of creativity-building activities:

1. Redefine the problem
   This includes revisiting projects after they’ve been set aside for a while.
2. Associative play
   This includes playing games, analysis of all characteristics and combinations of a product and use existing unrelated products.
3. Cross-pollination
   This occurs when people from different areas of the organization exchange ideas or when new people are brought into an existing team.
4. Design thinking
   This is a human-centred, solution focussed creative process that applies intuition and analytical thinking to clarify problems and generate innovative solutions.

There are four rules of design thinking:

1. Human rule
   Involve several people.
2. Ambiguity rule
   Preserve ambiguity, because creativity and experimentation are possible only when there is ambiguity in the problem and its potential solutions.
3. Re-design rule
   Review past solutions to understand how those inventions tried to satisfy human needs and use foresight tools to imagine better solutions for the future.
4. Tangible rule
   It is useful to build several low-cost prototypes to test ideas.

Creative thinking emerges naturally from playful activities.

Employee involvement refers to the degree to which employees influence how their work is organized and carried out. Employee involvement potentially improves decision-making quality and commitment. Employees are the senses of the organization and are more quickly aware of customer problems than corporate leaders and an organization could, therefore, be more efficient if there’s a high level of employee involvement. There is an optimal level of employee involvement and this depends on the situation. This depends on decision structure, the more novel a problem, the better it is if there is high employee involvement (1), source of decision knowledge (2), decision commitment (3), risk of conflict (4).