Richard L. Daft - Management. 9th ed., 2010

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PART 3 PLANNING220

conscious mind. For example,  re ghters make decisions by recognizing what is

typical or abnormal about a  re, based on their experiences. Similarly, in the busi-

ness world, managers continuously perceive and process information that they may

not consciously be aware of, and their base of knowledge and experience helps them

make decisions that may be characterized by uncertainty and ambiguity.

However, intuitive decisions don’t always work out, and managers should take

care to apply intuition under the right circumstances and in the right way rather

than considering it a magical way to make important decisions.

Managers may

walk a  ne line between two extremes: on the one hand, making arbitrary decisions

without careful study; and on the other, relying obsessively on rational analysis.

One is not better than the other, and managers need to take a balanced approach

by considering both rationality and intuition as important components of effective

decision making.

Do you tend to analyze things or rely on gut feelings when it comes to making an

important decision? Complete the New Manager Self-Test below to ﬁ nd out your

predominant approach.

TakeaMoment

Making Important

Decisions

How do you make important personal deci-

sions? To ﬁ nd out, think about a time when

you made an important career decision or made

a large purchase or investment. To what extent

do each of the words below describe how you

reached the ﬁ nal decision? Please check ﬁ ve

words below that best describe how you made

your ﬁ nal choice.

1. Logic _____

2. Inner knowing _____

3. Data _____

4. Felt sense _____

5. Facts _____

6. Instincts _____

7. Concepts _____

8. Hunch _____

9. Reason _____

10. Feelings _____

SCORING AND INTERPRETATION. The odd-

numbered items pertain to a linear decision style

and the even-numbered items pertain to a nonlin-

ear decision approach. Linear means using logical

rationality to make decisions; nonlinear means to

use primarily intuition to make decisions. Of the

ﬁ ve words you chose, how many represent ratio-

nality versus intuition? If all ﬁ ve words are either

linear or nonlinear, then that is clearly your domi-

nant decision approach. If four words are either

linear or nonlinear, then that approach would be

considered your preference. Rationality approach

means a preference for the rational model of deci-

sion making as described in the text. Intuition

approach suggests a preference for the satisﬁ cing

and intuition models.

SOURCE: Charles M. Vance, Kevin S. Groves, Yongsun Paik,

and Herb Kindler, “Understanding and Measuring Linear-

Nonlinear Thinking Style for Enhanced Management Education

and Professional Practice” Academy of Management Learning &

Education 6, no. 2 (2007): 167–185.

New ManagerSelf-Test

CHAPTER 8 MANAGERIAL DECISION MAKING 221

Planning

Political Model

The third model of decision making is useful for making nonprogrammed decisions

when conditions are uncertain, information is limited, and there are manager con icts

about what goals to pursue or what course of action to take. Most organizational deci-

sions involve many managers who are pursuing different goals, and they have to talk

with one another to share information and reach an agreement. Managers often engage

in coalition building for making complex organizational decisions. A coalition is an infor-

mal alliance among managers who support a speci c goal. Coalition building is the process

of forming alliances among managers. In other words, a manager who supports a speci c

alternative, such as increasing the corporation’s growth by acquiring another company,

talks informally to other executives and tries to persuade them to support the decision.

Without a coalition, a powerful individual or group could derail the decision-making

process. Coalition building gives several managers an opportunity to contribute to deci-

sion making, enhancing their commitment to the alternative that is ultimately adopted.

The political model closely resembles the real environment in which most man-

agers and decision makers operate. For example, interviews with CEOs in high-tech

industries found that they strived to use some type of rational process in making

decisions, but the way they actually decided things was through a complex interac-

tion with other managers, subordinates, environmental factors, and organizational

events.

Decisions are complex and involve many people, information is often

ambiguous, and disagreement and con ict over problems and solutions are normal.

The political model begins with four basic assumptions:

1. Organizations are made up of groups with diverse interests, goals, and values.

Managers disagree about problem priorities and may not understand or share the

goals and interests of other managers.

2. Information is ambiguous and incomplete. The attempt to be rational is limited

by the complexity of many problems as well as personal and organizational

constraints.

3. Managers do not have the time, resources, or mental capacity to identify all dimen-

sions of the problem and process all relevant information. Managers talk to each

other and exchange viewpoints to gather information and reduce ambiguity.

4. Managers engage in the push and pull of debate to decide goals and discuss alter-

natives. Decisions are the result of bargaining and discussion among coalition

members.

An example of the political model was when AOL chief executive Jonathan Miller

built a coalition to support the development of a Yahoo-like free Web site. Opposition

to offering AOL’s rich content for free was strong, but Miller talked with other execu-

tives and formed a coalition that supported the move as the best way to rejuvenate

the declining AOL in the shifting Internet service business. The decision proved to be

a turning point, making AOL once more a relevant force on the Web and enticing tech

titans such as Google and Microsoft as potential partners.

The key dimensions of the classical, administrative, and political models are listed

in Exhibit 8.2. Research into decision-making procedures found rational, classical

coa

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EXHIBIT 8.2

Characteristics of Classical,

Administrative, and Political

Decision-Making Models

Classical Model Administrative Model Political Model

Clear-cut problem and goals Vague problem and goals Pluralistic; conﬂ icting goals

Condition of certainty Condition of uncertainty Condition of uncertainty/ambiguity

Full information about

alternatives and their

outcomes

Limited information about

alternatives and their

outcomes

Inconsistent viewpoints;

ambiguous information

Rational choice by individual

for maximizing outcomes

Satisﬁ cing choice for resolving

problem using intuition

Bargaining and discussion among

coalition members

PART 3 PLANNING222

procedures to be associated with high performance for organizations in stable envi-

ronments. However, administrative and political decision-making procedures and

intuition have been associated with high performance in unstable environments in

which decisions must be made rapidly and under more dif cult conditions.

As a new manager, use your political skills to reach a decision in the midst of disagree-

ment about goals or problem solutions. Talk with other managers or employees and

negotiate to gain support for the goal or solution you favor. Learn to compromise and

to support others when appropriate.

DECISION-MAKING STEPS

Whether a decision is programmed or nonprogrammed and regardless

of managers’ choice of the classical, administrative, or political model of

decision making, six steps typically are associated with effective deci-

sion processes. These steps are summarized in Exhibit 8.3.

Recognition of Decision Requirement

Managers confront a decision requirement in the form of either a prob-

lem or an opportunity. A problem occurs when organizational accom-

plishment is less than established goals. Some aspect of performance

is unsatisfactory. An opportunity exists when managers see potential

accomplishment that exceeds speci ed current goals. Managers see the

possibility of enhancing performance beyond current levels.

Awareness of a problem or opportunity is the  rst step in the decision

sequence and requires surveillance of the internal and external environ-

ment for issues that merit executive attention.

This process resembles

the military concept of gathering intelligence. Managers scan the world

around them to determine whether the organization is satisfactorily pro-

gressing toward its goals.

Some information comes from periodic  nancial reports, performance

reports, and other sources that are designed to discover problems before

they become too serious. Managers also take advantage of informal sources.

They talk to other managers, gather opinions on how things are going,

and seek advice on which problems should be tackled or which opportu-

nities embraced.

Recognizing decision requirements is dif cult because it

often means integrating bits and pieces of information in novel ways. For

example, the failure of U.S. intelligence leaders to recognize the imminent

threat of Al Qaeda prior to September 11, 2001, terrorist attacks has been

attributed partly to the lack of systems that could help leaders put together

myriad snippets of information that pointed to the problem.

Diagnosis and Analysis of Causes

Once a problem or opportunity comes to a manager’s attention, the understanding of

the situation should be re ned. Diagnosis is the step in the decision-making process

in which managers analyze underlying causal factors associated with the decision

situation.

Kepner and Tregoe, who conducted extensive studies of manager decision mak-

ing, recommend that managers ask a series of questions to specify underlying causes,

including the following:

▪ What is the state of disequilibrium aﬀ ecting us?

▪ When did it occur?

TakeaMoment

Jon Bon Jovi is

a rock star and entrepreneur who co-owns the

Philadelphia Soul, an expansion team of the

Arena Football League (AFL). Bon Jovi and his

partner, businessman Craig Spencer, spotted an

opportunity to capitalize on Bon Jovi’s personality

and fame, as well as his savvy marketing skills,

by acquiring the franchise. Bon Jovi personally

made decisions such as naming the team the

Soul (because “anybody can have soul,” he says)

and creating a mascot (the Soul Man), and he is

actively involved in decisions regarding everything

from advertising budgets to where to place the

autograph tables after a game.

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CHAPTER 8 MANAGERIAL DECISION MAKING 223

Planning

▪ Where did it occur?

▪ How did it occur?

▪ To whom did it occur?

▪ What is the urgency of the problem?

▪ What is the interconnectedness of events?

▪ What result came from which activity?

Such questions help specify what actually happened and why. Managers at Avon

are struggling to diagnose the underlying factors in the company’s recent troubles.

After six straight years of growing sales and earnings, revenues sagged, overhead

spiked, and the stock price plummeted. CEO Andrea Jung and other top managers

are examining the myriad problems facing Avon, tracing the pattern of the decline,

and looking at the interconnectedness of issues such as changing consumer interests,

tight government regulations in developing countries, decreases in incentives for

direct sales representatives, an approach of handling manufacturing and marketing

in each country independently, preventing the company from achieving economies of

scale, and weak internal communications that allowed problems to go unnoticed.

Development of Alternatives

The next stage is to generate possible alternative solutions that will respond to the

needs of the situation and correct the underlying causes.

For a programmed decision, feasible alternatives are easy to identify and in fact

usually are already available within the organization’s rules and procedures. Non-

programmed decisions, however, require developing new courses of action that

will meet the company’s needs. For decisions made under conditions of high uncer-

tainty, managers may develop only one or two custom solutions that will satis ce

EXHIBIT 8.3

Six Steps in the Managerial

Decision-Making Process

PART 3 PLANNING224

for handling the problem. However, studies  nd that limiting the search for alter-

natives is a primary cause of decision failure in organizations.

Decision alternatives can be thought of as tools for reducing the difference between

the organization’s current and desired performance. For example, to improve sales at

fast-food giant McDonald’s, executives considered alternatives such as using mystery

shoppers and unannounced inspections to improve quality and service, motivating

demoralized franchisees to get them to invest in new equipment and programs, taking

R&D out of the test kitchen and encouraging franchisees to help come up with success-

ful new menu items, and closing some stores to avoid cannibalizing its own sales.

Selection of Desired Alternative

Once feasible alternatives are developed, one must be

selected. The decision choice is the selection of the most

promising of several alternative courses of action. The best

alternative is one in which the solution best  ts the over-

all goals and values of the organization and achieves the

desired results using the fewest resources.

The manager

tries to select the choice with the least amount of risk and

uncertainty. Because some risk is inherent for most nonpro-

grammed decisions, managers try to gauge prospects for

success. They might rely on their intuition and experience

to estimate whether a given course of action is likely to suc-

ceed. Basing choices on overall goals and values can also

effectively guide managers’ selection of alternatives. Recall

from Chapter 3 Valero Energy’s decision to keep everyone

on the payroll after Hurricane Katrina hit the Gulf Coast,

while other re neries shut down and laid off workers. For

Valero managers, the choice was easy based on values of

putting employees  rst. Valero’s values-based decision

making helped the company zoom from number 23 to num-

ber 3 on Fortune magazine’s list of best companies to work

for—and enabled Valero to get back to business weeks faster

than competitors.

Choosing among alternatives also depends on managers’

personality factors and willingness to accept risk and uncer-

tainty. Risk propensity is the willingness to undertake risk

with the opportunity of gaining an increased payoff. The

level of risk a manager is willing to accept will in uence the

analysis of cost and bene ts to be derived from any decision.

Consider the situations in Exhibit 8.4. In each situation, which

alternative would you choose? A person with a low risk pro-

pensity would tend to take assured moderate returns by going

for a tie score, building a domestic plant, or pursuing a career

as a physician. A risk taker would go for the victory, build a

plant in a foreign country, or embark on an acting career.

Implementation of Chosen Alternative

The implementation stage involves the use of managerial, administrative, and per-

suasive abilities to ensure that the chosen alternative is carried out. This step is simi-

lar to the idea of strategy execution described in Chapter 7. The ultimate success of

the chosen alternative depends on whether it can be translated into action.

Some-

times an alternative never becomes reality because managers lack the resources or

energy needed to make things happen. Implementation may require discussion

with people affected by the decision. Communication, motivation, and leadership

skills must be used to see that the decision is carried out. When employees see that

UPS knows many businesses

have a low risk propensity when it comes to matters affecting

their cash ﬂ ow. The company’s UPS Capital Insurance division

reduces customers’ risk of delayed payments through a variety of

trade insurance policies. This advertisement for Exchange Collect

promises peace of mind for companies dealing with international

customers or suppliers. The service works like a secure inter-

national C.O.D., with UPS securing payment on behalf of the

customer before delivering goods. For UPS customers, the results

are improved cash ﬂ ow and less risk.

UPS

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CHAPTER 8 MANAGERIAL DECISION MAKING 225

Planning

managers follow up on their decisions by tracking implementation success, they are

more committed to positive action.

Evaluation and Feedback

In the evaluation stage of the decision process, decision makers gather information

that tells them how well the decision was implemented and whether it was effective

in achieving its goals. Feedback is important because decision making is a continu-

ous, never-ending process. Decision making is not completed when a manager or

board of directors votes yes or no. Feedback provides decision makers with informa-

tion that can precipitate a new decision cycle. The decision may fail, thus generating

a new analysis of the problem, evaluation of alternatives, and selection of a new alter-

native. Many big problems are solved by trying several alternatives in sequence, each

providing modest improvement. Feedback is the part of monitoring that assesses

whether a new decision needs to be made.

To illustrate the overall decision-making process, including evaluation and feed-

back, consider the decision to introduce a new deodorant at Tom’s of Maine.

Tom’s of Maine, known for its all-natural personal hygiene products, saw an opportunity to

expand its line with a new natural deodorant. However, the opportunity quickly became a

problem when the deodorant worked only half of the time with half of the customers who

used it, and its all-recyclable plastic dials were prone to breakage.

The problem of the failed deodorant led founder Tom Chappell and other managers to

analyze and diagnose what went wrong. They ﬁ nally determined that the company’s prod-

uct development process had run amok. The same group of merry product developers was

responsible from conception to launch of the product. They were so attached to the product

that they failed to test it properly or consider potential problems, becoming instead “a mutual

admiration society.” Managers considered several alternatives for solving the problem. The

decision to publicly admit the problem and recall the deodorant was an easy one for Chappell,

who runs his company on principles of fairness and honesty. Not only did the company apolo-

gize to its customers, but it also listened to their complaints and suggestions. Chappell himself

helped answer calls and letters. Even though the recall cost the company $400,000 and led to

a stream of negative publicity, it ultimately helped improve relationships with customers.

Evaluation and feedback also led Tom’s of Maine to set up acorn groups, from which it

hopes mighty oaks of successful products will grow. Acorn groups are cross-departmental

teams that will shepherd new products from beginning to end. The cross-functional teams are

a mechanism for catching problems—and new opportunities—that ordinarily would be missed.

They pass on their ideas and ﬁ ndings to senior managers and the product-development team.

Tom’s was able to turn a problem into an opportunity, thanks to evaluation and feed-

back. Not only did the disaster ultimately help the company solidify relationships with cus-

tomers, but it also led to a formal mechanism for learning and sharing ideas—something the

company did not have before.

Tom’s of Maine

Innovative Way

For each of the following decisions, which alternative would you choose?

1. In the ﬁ nal seconds of a game with the college’s traditional rival, the coach of a college football

team may choose a play that has a 95 percent chance of producing a tie score or one with a

30 percent chance of leading to victory or to sure defeat if it fails.

2. The president of a Canadian company must decide whether to build a new plant within Canada

that has a 90 percent chance of producing a modest return on investment or to build it in a

foreign country with an unstable political history. The latter alternative has a 40 percent chance

of failing, but the returns would be enormous if it succeeded.

3. A college senior with considerable acting talent must choose a career. She has the opportunity

to go on to medical school and become a physician, a career in which she is 80 percent likely

to succeed. She would rather be an actress but realizes that the opportunity for success is only

20 percent.

EXHIBIT 8.4

Decision Alternatives with

Different Levels of Risk

PART 3 PLANNING226

Tom’s of Maine’s decision illustrates all the decision steps, and the process ulti-

mately ended in success. Strategic decisions always contain some risk, but feedback

and follow-up decisions can help get companies back on track. By learning from their

decision mistakes, managers can turn problems into opportunities.

PERSONAL DECISION FRAMEWORK

Imagine you were a manager at Tom’s of Maine, the Boeing Company, a local movie

theater, or the public library. How would you go about making important decisions

that might shape the future of your department or company? So far we have dis-

cussed a number of factors that affect how managers make decisions. For example,

decisions may be programmed or nonprogrammed, situations are characterized by

various levels of uncertainty, and managers may use the classical, administrative, or

political model of decision making. In addition, the decision-making process follows

six recognized steps.

However, not all managers go about making decisions in the same way. In fact,

signi cant differences distinguish the ways in which individual managers may

approach problems and make decisions concerning them. These differences can be

explained by the concept of personal decision styles. Exhibit 8.5 illustrates the role

of personal style in the decision-making process. Personal decision style refers to

distinctions among people with respect to how they evaluate problems, generate

alternatives, and make choices. Research has identi ed four major decision styles:

directive, analytical, conceptual, and behavioral.

1. The directive style is used by people who prefer simple, clear-cut solutions to prob-

lems. Managers who use this style often make decisions quickly because they do

not like to deal with a lot of information and may consider only one or two alter-

natives. People who prefer the directive style generally are ef cient and rational

and prefer to rely on existing rules or procedures for making decisions.

2. Managers with an analytical style like to consider complex solutions based on as

much data as they can gather. These individuals carefully consider alternatives

and often base their decisions on objective, rational data from management con-

trol systems and other sources. They search for the best possible decision based on

the information available.

3. People who tend toward a conceptual style also like to consider a broad amount of

information. However, they are more socially oriented than those with an analyti-

cal style and like to talk to others about the problem and possible alternatives for

solving it. Managers using a conceptual style consider many broad alternatives,

rely on information from both people and systems, and like to solve problems

creatively.

4. The behavioral style is often the style adopted by managers having a deep concern

for others as individuals. Managers using this style like to talk to people one-on-

one and understand their feelings about the problem and the effect of a given

dec

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EXHIBIT 8.5 Personal Decision Framework

SOURCE: Based on A. J. Rowe, J. D. Boulgaides, and M. R. McGrath, Managerial Decision Making (Chicago: Science Research Associates, 1984); and Alan J. Rowe

and Richard O. Mason, Managing with Style: A Guide to Understanding, Assessing, and Improving Your Decision Making (San Francisco: Jossey-Bass, 1987).

CHAPTER 8 MANAGERIAL DECISION MAKING 227

Planning

decision on them. People with a behavioral style usually are concerned with the

personal development of others and may make decisions that help others achieve

their goals.

To learn more about how you rate on these four styles, go to the experiential exercise

on pages 232–233 that evaluates your personal decision style.

Many managers have a dominant decision style. One example is Jeff Zucker at

NBC Entertainment. Zucker uses a primarily conceptual style, which makes him well

suited to the television industry. He consults with dozens of programmers about pos-

sible new shows and likes to consider many broad alternatives before making deci-

sions.

However, managers frequently use several different styles or a combination

of styles in making the varied decisions they confront daily. A manager might use

a directive style for deciding on which printing company to use for new business

cards, yet shift to a more conceptual style when handling an interdepartmental con-

 ict. The most effective managers are able to shift among styles as needed to meet

the situation. Being aware of one’s dominant decision style can help a manager avoid

making critical mistakes when his or her usual style may be inappropriate to the

problem at hand.

WHY DO MANAGERS MAKE BAD DECISIONS?

Managers are faced with a relentless demand for decisions, from solving minor

problems to implementing major strategic changes. Even the best manager will

make mistakes, but managers can increase their percentage of good decisions

by understanding some of the factors that cause people to make bad ones. Most

bad decisions are errors in judgment that originate in the human mind’s lim-

ited capacity and in the natural biases managers display during decision making.

Awareness of the following six biases can help managers make more

enlightened choices:

1. Being in uenced by initial impressions. When considering decisions,

the mind often gives disproportionate weight to the  rst information

it receives. These initial impressions, statistics, or estimates act as an

anchor to our subsequent thoughts and judgments. Anchors can be

as simple as a random comment by a colleague or a statistic read in a

newspaper. Past events and trends also act as anchors. For example, in

business, managers frequently look at the previous year’s sales when

estimating sales for the coming year. Giving too much weight to the

past can lead to poor forecasts and misguided decisions.

2. Justifying past decisions. Many managers fall into the trap of mak-

ing choices that justify their past decisions, even if those decisions no

longer seem valid. Consider managers who invest tremendous time

and energy into improving the performance of a problem employee

whom they now realize should never have been hired in the  rst

place. Another example is when a manager continues to pour money

into a failing project, hoping to turn things around. People don’t like

to make mistakes, so they continue to support a  awed decision in an

effort to justify or correct the past.

3. Seeing what you want to see. People frequently look for informa-

tion that supports their existing instinct or point of view and avoid

information that contradicts it. This bias affects where managers look

for information, as well as how they interpret the information they

 nd. People tend to give too much weight to supporting information

TakeaMoment

Facebook

founder Mark Zuckerberg stepped into a hole

when he decided to retroﬁ t his site with a

feature named Beacon. Beacon was designed

to pass information about customer Web

activity to participating vendors, providing

a new source of revenue for Facebook. But

when Beacon was implemented, Facebook

was slammed with complaints about privacy

intrusion and a lawsuit. What caused this

poor decision? Based on the wild popularity

of his social network site and his rapid rise in

the business world, Zuckerbeg was probably

overly conﬁ dent about how users would

receive Beacon. Facebook management quickly

decided to make it easier for customers to opt-

out of the service.

PART 3 PLANNING228

and too little to information that con icts with their established viewpoints. It is

important for managers to be honest with themselves about their motives and

to examine all the evidence with equal rigor. Having a devil’s advocate is also a

good way to avoid seeing only what you want to see.

4. Perpetuating the status quo. Managers may base decisions on what has worked

in the past and fail to explore new options, dig for additional information, or

investigate new technologies. For example, DuPont clung to its cash cow, nylon,

despite growing evidence in the scienti c community that a new product, poly-

ester, was superior for tire cords. Celanese, a relatively small competitor, blew

DuPont out of the water by exploiting this new evidence, quickly capturing 75

percent of the tire market.

5. Being in uenced by problem framing. The decision response of a manager can

be in uenced by the mere wording of a problem. For example, consider a man-

ager faced with a decision about salvaging the cargo of three barges that sank off

the coast of Alaska. If managers are given the option of approving plan A that

has a 100 percent chance of saving the cargo of one of the three barges, worth

$200,000, or plan B that has a one-third chance of saving the cargo of all three

barges, worth $600,000 and a two-thirds chance of saving nothing, most managers

choose option A. The same problem with a negative frame would give managers

a choice of selecting plan C that has a 100 percent chance of losing two of the three

cargoes, worth $400,000 or plan D that has a two-thirds chance of losing all three

cargoes but a one-third chance of losing no cargo. With this framing, most man-

agers choose option D. Because both problems are identical, the decision choice

depends strictly on how the problem is framed.

6. Overcon dence. Most people overestimate their ability to predict uncertain out-

comes. Before making a decision, managers have unrealistic expectations of their

ability to understand the risk and make the right choice. Overcon dence is great-

est when answering questions of moderate to extreme dif culty. For example,

when people are asked to de ne quantities about which they have little direct

knowledge (“What was Wal-Mart’s 2007 revenue?” “What was the market value

of Google as of March 14, 2008?”), they overestimate their accuracy. Evidence

of overcon dence is illustrated in cases in which subjects were so certain of an

answer that they assigned odds of 1,000 to 1 of being correct but in fact were

correct only about 85 percent of the time. When uncertainty is high, managers

may unrealistically expect that they can successfully predict outcomes and hence

select the wrong alternative.

As a new manager, be aware of biases that can cloud your judgment and lead to bad

decisions. The Manager’s Shoptalk describes a new way of thinking about decision

making that can help you avoid decision traps such as overconﬁ dence, seeing only

what you want to see, or justifying past decisions.

INNOVATIVE GROUP DECISION MAKING

The ability to make fast, widely supported, high-quality decisions on a frequent basis

is a critical skill in today’s fast-moving organizations.

In many industries, the rate

of competitive and technological change is so extreme that opportunities are  eeting,

clear and complete information is seldom available, and the cost of a slow decision

means lost business or even company failure. Do these factors mean managers should

make the majority of decisions on their own? No. The rapid pace of the business envi-

ronment calls for just the opposite—that is, for people throughout the organization

to be involved in decision making and have the information, skills, and freedom they

need to respond immediately to problems and questions.

TakeaMoment

CHAPTER 8 MANAGERIAL DECISION MAKING 229

Planning

At a time when decision making is so important,

many managers do not know how to make a good

choice among alternatives. Using evidence-based

decision making can help. Evidence-based decision

making simply means a commitment to make more

informed and intelligent decisions based on the best

available facts and evidence. It means being aware of

our biases and seeking and examining evidence with

rigor. Managers practice evidence-based decision

making by being careful and thoughtful rather than

carelessly relying on assumptions, past experience,

rules of thumb, or intuition.

Here are some ideas for applying evidence-based

decision making:

▪ Demand Evidence. Educate people throughout

the organization to use data and facts to the

extent possible to inform their decisions. Many

manager problems are uncertain, and hard facts

and data aren’t available, but by always asking

for evidence, managers can avoid relying on

faulty assumptions. Managers at one computer

company kept blaming the marketing staff for

the trouble the company had selling their prod-

ucts in retail stores. Then, members of the senior

team posed as mystery shoppers and tried to buy

the company’s computers. They kept encounter-

ing sales clerks that tried to dissuade them from

purchasing the  rm’s products, citing the exces-

sive price, clunky appearance, and poor cus-

tomer service. Real-world observations told them

something that was very different from what

they assumed.

▪ Practice the Five Whys. One simple way to get

people to think more broadly and deeply about

problems rather than going with a super cial

understanding and a  rst response is called the

Five Whys. For every problem, managers ask

“Why?” not just once, but  ve times. The  rst

why generally produces a super cial explanation

for the problem, and each subsequent why

probes deeper into the causes of the problem

and potential solutions.

▪ Do a Post-Mortem. A technique many com-

panies have adopted from the U.S. Army to

encourage examination of the evidence and

continuous learning is the after-action review.

After implementation of any signi cant decision,

managers evaluate what worked, what didn’t,

and how to do things better. Many problems

are solved by trial and error. For example, post-

mortem reviews of decisions regarding attacks

from roadside bombs in Iraq led soldiers to sug-

gest implementation of an overall counterinsur-

gency strategy rather than relying so much on

technology.

▪ Balance Decisiveness and Humility. The best

decision makers have a healthy appreciation

for what they don’t know. They’re always

questioning and encouraging others to ques-

tion their knowledge and assumptions. They

foster a culture of inquiry, observation, and

experimentation.

SOURCES: Based on Jeffrey Pfeffer and Robert I. Sutton,

“Evidence-Based Management,” Harvard Business Review

(January 2006): 62–74; Rosemary Stewart, Evidence-based

Decision Making (Abingdon, UK: Radcliffe Publishing, 2002);

Joshua Klayman, Richard P. Larrick, and Chip Heath, “Orga-

nizational Repairs,” Across the Board (February 2000): 26–31;

and Peter Eisler, Blake Morrison, and Tom Vanden Brook,

“Strategy That’s Making Iraq Safer Was Snubbed for Years,”

USA Today, December 19, 2007.

Evidence-Based Management

Manager’sShoptalk

Managers do make some decisions as individuals, but decision makers more often

are part of a group. Indeed, major decisions in the business world rarely are made

entirely by an individual.

Start with Brainstorming

Brainstorming uses a face-to-face interactive group to spontaneously suggest a wide

range of alternatives for decision making. The keys to effective brainstorming are

that people can build on one another’s ideas; all ideas are acceptable, no matter how

crazy they seem; and criticism and evaluation are not allowed. The goal is to generate

as many ideas as possible. Brainstorming has been found to be highly effective for

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