organizational behavior ace institute of management m-b-a-e term iv, spring trimester 2011 module 3:...

ORGANIZATIONAL BEHAVIORAce Institute of Management

M-B-A-e Term IV, Spring Trimester 2011

3: Module The Group

© 2003 Prentice Hall Inc. All rights reserved. PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie Cook

Decision Making

• Defined as choosing between alternatives. • Closely related to all the traditional management

functions.

• Classical theorists, Fayol & Urwick: Decision making process affects delegation & authority.

• Beginning of a meaningful analysis of decision-making process.

• Chester Barnard - “The Functions of the Executive”, states ‘The processes of decision… are largely techniques for narrowing choice.’

Stages of Decision Making (Mintzberg & his colleagues)

• Phase 1: IDENTIFICATIONRecognition and Diagnosis of a problem or opportunity.

• Phase 2: DEVELOPMENTSearch for existing solutions or design of a new solution.

• Phase 3: SELECTION• Judgment of the decision maker

– (experience or intuition than logical analysis)• Analysis of alternatives

– on logical, systematic basis• Bargaining when the selection involves a group of decision

makers• Authorization

– (formally accepted)

Therefore, • Decision making is a dynamic process.

• There are many feedback loops in each of the phases.

• Because of: – timing, – politics, – disagreement among managers, – inability to identify and appropriate alternations,– turnover of managers, etc.

I. Behavioral Decision Making

• Developed outside the mainstream of O-B theory & research.

• By cognitive psychologists & decision theorists in economics & information science.

• Classical decision theory operated under the assumption of rationality & certainty.

• New behavioral decision theory argue that • individuals have cognitive limitations, • they must act in situations where uncertainty prevails &• in which information is often ambiguous & incomplete

Decision Rationality

• Rationality in decision making is: • it is a means to an end

• If appropriate means are chosen to reach desired ends,

• the decision is said to be rational

• However, – often there is a contradiction among the means selected to

attend the objectives

© 2003 Prentice Hall Inc. All rights reserved. 5–7

Assumptions of the Rational Decision-Making Model

1. Problem clarity

2. Known options

3. Clear preferences

4. Constant preferences

5. No time or cost constraints

6. Maximum payoff

1. Problem clarity

2. Known options

3. Clear preferences

4. Constant preferences

5. No time or cost constraints

6. Maximum payoff


Steps in the Rational Decision-Making Model

E X H I B I T 5-3

Models of Behavioral Decision making

• Describe theoretically & realistically how practicing managers make decisions

• The models range from complete rationality to complete irrationality

1. The Economic Rationality Model • Comes from the classical economics model.

• Decision maker is completely rational in every way.

• Complete & consistent system of preferences that allows a choice among the alternatives.

• Decision maker always strives to maximize outcomes.

• Where marginal cost equal marginal revenue (MC=MR).

2. New Rationality Technique

A. ABC (Activity-based Costing)• Traditionally, cost according to category of expense

(E.g. salary, supplies, etc.).

• Determines cost according to what is paid for different tasks employees perform.

• Provides more accurate breakdown of the cost data.

• E.g. Hewlett-Packard, GE, etc.

B. EVA (Finance Technique of Economic Value Added)

• True cost of all capital is determined.

• E.g. What a firm spends on research & development or employee training traditionally is an expense,

» but under EVA • is capital investments & is added into the cost of capital.

• Results in earnings higher than the cost of capital.

• EVA is determined by – subtracting the total cost of capital from the after-tax

operating profit.

C. MVA (Market Value Added)

• The difference between total market value

(the amount that investors can take out of the company)

and the invested capital

(the total amount that investors have put into the company) is MVA.

• A positive MVA shows how much wealth has been created.

• A negative balance shows how much capital has been wasted.

3. Herbert Simon's Bounded Rationality Model

• Choosing between alternatives, managers attempt to satisfice (look for the one that is satisfactory or 'good enough’).

• So, they make their choices without first determining all possible behavior alternatives.

• able to make decisions with relatively simple rules or tricks of the trade.

• do not make impossible demands on their capacity for thought.

• In comparison with the economic rationality model, – Simon's model is also rational & maximizing,

• but it is bounded.

3. Herbert Simon's (...Cont’d)

• Decision makers end up satisficing because they do not have the ability to maximize

• Many economic, social & organizational variables influence the degree to which satisficing becomes maximizing

• E.g. market structure as an economic variable, the more competitive the market, the more the decisions may be maximized

4. Judgmental Heuristics and Biases Model

• Drawn mostly from Kahneman & Tversky, cognitive decision theorists.

• Suggested that decision makers rely on heuristics (judgmental shortcuts in decision making).

• Reduce the information demands on the decision maker & realistically help in the following ways:a. Summarize the past experiences & provide an easy method

to evaluate the present.b. Substitute simple rules of thumb for complex information

collection & calculation.c. Save considerable mental activity & cognitive processing.

5. The Social Model

• Psychological influences have a significant impact on decision-making behavior.

• Social pressures & influences may cause managers to make irrational decisions.

• Staw & Ross have identified 4 major reasons why escalation of commitment might happen:

1. Project characteristics.Problems of the project may lead the decision maker to stick with or increase the commitment to a wrong course of action.

2. Psychological determinants.Once the decision goes bad, ego-defensive

mechanisms begin & defensive shields are set up.

5. The Social Model (...Cont’d)

3. Social forces.Considerable peer pressure on decision makers.

4. Organizational determinants.Breakdown in communication, dysfunctional politics & resistance to change.

• Some management behavior is irrational but still very realistic.

Decision Making Habits & Leadership Styles

1. Directive Style.• Efficient, logical, pragmatic & systematic in their approach to problem solving. • Focus on facts and getting things done quickly. • They like to exercise power, want to be in control and display on autocratic leadership

style.2. Analytical Style.• Like to analyze situations, evaluate more information & alternatives than directive

decision makers.• Take a long time to make decisions, but respond to uncertain situations.• They have an autocratic leadership style.3. Conceptual Style.• Like to consider many options & future possibilities.• Gather a great deal of information, rely on intuition, willing to take risks, discover

creative solutions to problems.4. Behavioral Style.• Tend to work well with others.• Opinions are openly exchanged, receptive to suggestions, supportive, warm prefer

verbal to written information.• Avoid conflict, concerned with keeping everyone happy.

II. Participative Decision-Making Techniques

• Participation involves individuals or groups in the process.

• Individual participation techniques. • An employee affects the decision making of a manager.

• Group Process.• Consultative & democratic technique.

• Consultative technique. • Managers ask for & receive involvement from their

employees, but managers have the right to make the decision.

• Democratic form.• There is total participation & the group makes the final

decision by consensus.

• It can be formal or informal.

• It entails intellectual, emotional or physical involvement.

• The more experience & the more open and unstructured the task, the more participation.

• However, participative decision making may be difficult because of leadership style, personality or the parties involved; situational, environmental & contextual factors, etc.

• It is time consuming as well.

III. Creativity and Group Decision Making

• Creative decisions are a major challenge facing modern management.

• A key challenge facing organizations in today’s highly competitive environment is to be more creative & innovative.

• Creativity involves combining responses or ideas of individuals or groups in novel ways.

• It draws on observation, experience, knowledge & the indefinable ability each person has to arrange common elements into new patterns.

Two widely recognized dimensions that helps in identifying creative process:

• Divergent thinking: – Ability to generate novel, appropriate, responses to

questions & problems.

• Cognitive thinking: – Person’s use of & preference for elaborate, intricate,

complex stimuli & thinking patterns. – Are interested in philosophical or abstract problems.

• But, creative people are not necessarily more intelligent.

Teresa Amabile, creativity researcher proposes that creativity is a function of 3 major components:

• Expertise consists of knowledge:technical, procedural & intellectual

• Creative-thinking skills determine how – flexibly & imaginatively people can deal with problems &

make effective decisions

• Motivation is the inner passion to solve the problem at hand

• Creativity results in people looking at things differently• Are more intuitive & • Takes advantage of good ideas & are able to break old

ways of thinking


The Three Components of Creativity

E X H I B I T 5-4

Group Decision Making

The Delphi Technique• A popular group decision-making technique today.• For long-range forecasting.• Has been named after the oracle at Delphi in ancient Greece.• A group of experts & non-experts is deliberately formed who make

anonymous predictions into the problem decision the group is charged with.

• The members do not come face to face.• Each member then receives feedback from what the others have inputted.• On the basis of the feedback, another round of anonymous inputs is made

until the multiple feedback remains the same.• A major key to the success of the technique lies in the anonymity.• Delphi can be applied to a variety of program planning & decision

problems in any type of organization.• Criticisms: time consumption, cost, Ouija-board effect (much like the

parlor game of that name, Delphi can claim no scientific support.)

The Nominal Group Technique• Has been used by social psychologists in their research for many years.• It is simply a ‘paper group’.• It is a group in name only as no verbal exchange is allowed between

members. • In terms of number of ideas, uniqueness of ideas & quality of ideas,

research has found nominal groups to be superior to real groups. • NGT consists the following steps:- Silent generation of ideas in writing.- Round-robin feedback from group members, who record each idea in a

short phrase or a flip chart or blackboard.- Discussion of each recorded idea for clarification & evaluation.- Individual voting or priority ideas, with the group decision being

mathematically derived through rank ordering or rating.


How Are Decisions Actually Made in Organizations


How Are Decisions Actually Made in Organizations (…Cont’d)• How/Why problems are identified

– Visibility over importance of problem• Attention-catching, high profile problems• Desire to “solve problems”

– Self-interest (if problem concerns decision maker)

• Alternative Development– Satisficing: seeking the first alternative that solves

problem.– Engaging in incremental rather than unique problem

solving through successive limited comparison of alternatives to the current alternative in effect.


Making Choices


Decision-Style Model

E X H I B I T 5-5


Organizational Constraints on Decision Makers

• Performance Evaluation– Evaluation criteria influence the choice of actions.

• Reward Systems– Decision makers make action choices that are favored by the

organization.

• Formal Regulations– Organizational rules and policies limit the alternative choices of

decision makers.

• System-imposed Time Constraints– Organizations require decisions by specific deadlines.

• Historical Precedents– Past decisions influence current decisions.


Cultural Differences in Decision Making

• Problems selected• Time orientation• Importance of logic and rationality• Belief in the ability of people to solve

problems• Preference for collect decision making


Ethics in Decision Making

• Ethical Decision Criteria– Utilitarianism

• Seeking the greatest good for the greatest number.

– Rights• Respecting and protecting basic rights of individuals.

– Justice• Imposing and enforcing rules fairly and impartially.


Ethics in Decision Making

• Ethics and National Culture– There are no global ethical standards.– The ethical principles of global organizations that

reflect and respect local cultural norms are necessary for high standards and consistent practices.



3: Module The Group

Module 3: Organizational Behaviour & Leadership - – Ace Institute of Management

PowerPoint Compilation by Course Moderator Satish Jung ShahiPowerPoint Compilation by Course Moderator Satish Jung Shahi

© 2003 Prentice Hall Inc. All rights reserved.

Simulation 4: “The Rope Game”Simulation 4: “The Rope Game”

There is a rope lying on the ground touching the feet of some members of the group. Your task as a group is to form a perfect square of the rope with all the four sides being equal in size and corners with ninety degrees each.


Simulation 4: “The Rope Game” (cont’d)

Please analyze the result of “The Rope Game” keeping in mind the key attributes of “Role Allocation”, “Responsibility”, and “Information Sharing”:

1. Team Building.2. Problem Solving.3. Verbal Communication.4. Evaluation of each option.5. Mid-course correction.


What Is Leadership?

management

Use of authority inherent in designated formal rank to obtain compliance from organizational members


A) Trait Theories

Leadership TraitsLeadership Traits::

• Ambition and energyAmbition and energy

• The desire to leadThe desire to lead

• Honesty and integrityHonesty and integrity

• Self-confidenceSelf-confidence

• IntelligenceIntelligence

• Job-relevant knowledgeJob-relevant knowledge

Leadership TraitsLeadership Traits::

• Ambition and energyAmbition and energy

• The desire to leadThe desire to lead

• Honesty and integrityHonesty and integrity

• Self-confidenceSelf-confidence

• IntelligenceIntelligence

• Job-relevant knowledgeJob-relevant knowledge


A) Trait Theories (cont’d)

Limitations:Limitations:

• No universal traits that predict leadership in all situations.No universal traits that predict leadership in all situations.

• Traits predict behavior better in “weak” than “strong” Traits predict behavior better in “weak” than “strong” situations.situations.

• Unclear evidence of the cause and effect of relationship of Unclear evidence of the cause and effect of relationship of leadership and traits.leadership and traits.

• Better predictor of the appearance of leadership than Better predictor of the appearance of leadership than distinguishing effective and ineffective leaders.distinguishing effective and ineffective leaders.

Limitations:Limitations:

• No universal traits that predict leadership in all situations.No universal traits that predict leadership in all situations.

• Traits predict behavior better in “weak” than “strong” Traits predict behavior better in “weak” than “strong” situations.situations.

• Unclear evidence of the cause and effect of relationship of Unclear evidence of the cause and effect of relationship of leadership and traits.leadership and traits.

• Better predictor of the appearance of leadership than Better predictor of the appearance of leadership than distinguishing effective and ineffective leaders.distinguishing effective and ineffective leaders.


B) Behavioral Theories

• Trait theory:Trait theory:Leaders are born, not made.Leaders are born, not made.

• Behavioral theory:Behavioral theory:Leadership traits can be taught.Leadership traits can be taught.

• Trait theory:Trait theory:Leaders are born, not made.Leaders are born, not made.

• Behavioral theory:Behavioral theory:Leadership traits can be taught.Leadership traits can be taught.


B) i. Ohio State Studies


B) ii. University of Michigan Studies


B) iii. The

Managerial Grid

E X H I B I T 11-1


B) iii. The Managerial Grid (cont’d)The extreme five managerial behaviors are as follows:1, 1 - Improvised management, i.e. manager exhibiting

minimum concern for both production & people.9, 1 – Authority-compliance, i.e. manager highly concerned for

production but little concern for people.1, 9 – Country club management/lassiez-faire type, i.e. opposite

to 9, 1.5, 5 – Middle of the road, i.e. manager maintaining adequate

concern for both people & production.9, 9 – Team management, i.e. manager that exhibits maximum

concern for both people & production for the best style of managerial behavior.


B) iv. Scandinavian Studies


Case 2: Pratap Mehta

Case 2, “The Answer to Pratap Mehta”

Please read the following case and answer as specified.

(Case 2 is one of the seven cases you will be dealing throughout the Organizational Behaviour & Leadership module. Out of seven, the top five will be considered for final grading. Each case will carry 6/100 marks on your internal assessment)



3: Module The Group

Module 3 : Organizational Behaviour & Leadership – Ace Institute of Management

PowerPoint Compilation by Course Moderator Satish Jung ShahiPowerPoint Compilation by Course Moderator Satish Jung Shahi


C) i. Fiedler’s Model: Defining the Situation (cont’d)


E X H I B I T 11-2

C) i. Findings from Fiedler Model

(cont’d)


C) ii. Cognitive Resource Theory

Research Support:

• Less intelligent individuals perform better in leadership roles under high stress than do more intelligent individuals.

• Less experienced people perform better in leadership roles under low stress than do more experienced people.

Research Support:

• Less intelligent individuals perform better in leadership roles under high stress than do more intelligent individuals.

• Less experienced people perform better in leadership roles under low stress than do more experienced people.


C) iii. Hersey and Blanchard’s Situational Leadership Theory

Follower r

eadiness: a

bility and w

illingness

Follower r

eadiness: a

bility and w

illingness

Leader: decreasing need for support and supervisionLeader: decreasing need for support and supervision


(cont’d)Maturity (M) or Readiness Level (R):• Readiness Level One (R1/M1): Unable and unwilling or

insecure -- Tell• Readiness Level Two (R2/M2): Unable but willing or

confident -- Sell• Readiness Level Three (R3/M3): Able but unwilling or

insecure -- Participate• Readiness Level Four (R4/M4): Able and willing or

confident – Delegate




(cont’d)


C) iv. Leader–Member Exchange Theory


C) iv. Leader-Member Exchange Theory (cont’d)

E X H I B I T 11-3


C) v. Path-Goal Theory


C) v. The Path-Goal Theory (cont’d)

E X H I B I T 11-4


C) vi. Leader-Participation Model


C) vi. Contingency Variables in the Revised

Leader-Participation Model (cont’d)

E X H I B I T 11-5


D) Transactional Leaders

Contingent Reward. Management by

Exception. Laissez-Faire. Traditional Style of

Leadership.


E) Charismatic Leaders Self-confidence. Vision. Ability to articulate the vision. Strong convictions about the

vision. Behavior that is often out of the

ordinary. Perceived as being a change

agent.


F) Transformational Leadership Charisma. Inspiration. Vision. Intellectual Stimulation. Individualized Consideration.


Transactional Versus Transformational

Transactional leaders guide or motivate their followers in the direction of established goals by clarifying role and task requirements.

Transformational leaders provide individualized consideration, intellectual stimulation, and possess charisma.

Transformational leadership builds on top of transactional leadership.


Home Assignment:

“The Great Unifier”

You have to read “The Great Unifier” and answer at least two questions given at the end of the case.

Your submission deadline is the next M-B-A-e O-B & L Class. Please meet your deadline!

organizational behavior ace institute of management m-b-a-e term iv, spring trimester 2011 module 3:...

Documents

rational decision

processes of decision

classical decision theory

decision maker experience

new behavioral decision

accepted slide

maximum payoff slide

complete irrationality