12- Copyright 2010 Pearson Education, Inc.

Publishing as Prentice Hall 1

Organizational Theory,
Design, and Change

Sixth Edition
Gareth R. Jones

Chapter 12

Decision Making,
Learning, Knowledge
Management, and
Information Technology
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Learning Objectives
1. Differentiate between several models
of decision making that describe how
managers make decisions
2. Describe the nature of organizational
learning and the different levels at
which learning occurs
3. Explain how organizations can use
knowledge management and
information technology to promote
organizational learning to improve
the quality of their decision making
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Learning Objectives (cont.)
4. Identify the factors, such as the
operation of cognitive biases, that
reduce the level of organizational
learning and result in poor decision
making
5. Discuss some techniques that
managers can use to overcome these
cognitive biases and thus open the
organization up to new learning
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Organizational Decision Making
! Organizational decision making:
the process of responding to a
problem by searching for and
selecting a solution or course of
action that will create value for
organizational stakeholders
! Programmed decisions: decisions
that are repetitive and routine
! Nonprogrammed decisions:
decisions that are novel and
unstructured
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Models of Organizational
Decision Making
! The rational model: decision making
is a straightforward, three-stage
process
! Stage 1: Identify problems that need to
be solved
! Stage 2: Design and develop a list of
alternative solutions and courses of action
to solve the problems
! Stage 3: Compare likely consequences of
each alternative and decide which course
of action offers the best solution
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Figure 12.1: The Rational
Model of Decision Making
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Models of Organizational
Decision Making (cont.)
! The rational model (cont.)
! Underlying assumptions
! Decision makers have all the information
they need
! Decision makers can make the best
decision
! Decision makers agree about what needs
to be done
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Models of Organizational
Decision Making (cont.)
! The rational model (cont.)
! Criticisms of the assumptions
! Information and uncertainty: the
assumption that managers are aware of all
alternative courses of action and their
consequences is unrealistic
! Managerial abilities: managers have only a
limited ability to process the information
required to make decisions
! Preferences and values: assumes managers
agree about what are the most important goals
for the organization
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The Carnegie Model
! Introduces a new set of more realistic
assumptions about the decision-making
process
! Satisficing: limited information searches
to identify problems and alternative
solutions
! Bounded rationality: a limited capacity
to process information
! Organizational coalitions: solution
chosen is a result of compromise,
bargaining, and accommodation between
coalitions
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Table 12.1: Differences Between
the Rational and Carnegie Models
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Models of Organizational
Decision Making (cont.)
! The incrementalist model:
managers select alternative courses of
action that are only slightly, or
incrementally, different from those
used in the past
! Perceived to lessen the chances of
making a mistake
! Called the science of muddling through
! They correct or avoid mistakes through a
succession of incremental changes
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Models of Organizational
Decision Making (cont.)
! The unstructured model: describes
how decision making takes place in
environments of high uncertainty
! Unstructured model recognizes
uncertainty in the environment
! Managers rethink their alternatives when
they hit a roadblock
! Decision making is not a linear,
sequential process
! Tries to explain how organizations make
nonprogrammed decisions
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Models of Organizational
Decision Making (cont.)
! The garbage can model: a view of decision making
that takes the unstructured process to the extreme
! Decision makers are as likely to start decision making
from the solution side as the problem side
! Create decision-making opportunities that they can
solve with ready-made solutions based on their
competencies and skills
! Different coalitions may champion different alternatives
! Decision making becomes a garbage can in which
problems, solutions, and people all mix and contend for
organizational action
! Selection of an alternative depends on which persons
or groups definition of the current situation holds sway
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The Nature of Organizational
Learning
! Organizational learning: the
process through which managers seek
to improve organization members
desire and ability to understand and
manage the organization and its
environment
! Creates an organizational capacity to
respond effectively to the changing
business environment
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The Nature of Organizational
Learning (cont.)
! Types of organizational learning
! Exploration: organizational
members search for and experiment
with new kinds or forms of
organizational activities and
procedures
! Exploitation: organizational
members learn ways to refine and
improve existing organizational
activities and procedures
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The Nature of Organizational
Learning (cont.)
! Learning organization: an
organization that purposefully designs
and constructs its structure, culture,
and strategy so as to enhance and
maximize the potential for
organizational learning to take place
! Employees at all levels must be able to analyze
the way an organization performs and
experiments with change to increase
effectiveness
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Levels of Organizational
Learning
! Individual-level learning: managers
need to facilitate the learning of new skills,
norms, and values so that individuals can
increase their own personal skills and
abilities
! Employees develop a sense of personal
mastery to create and explore what they want
! Employees must develop a commitment and
attachment to their job so they will enjoy
experimenting and risk taking
! Organizations should encourage employees to
assume more responsibility for their decisions
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Levels of Organizational
Learning (cont.)
! Group-level learning: managers need
to encourage learning by promoting the
use of various kinds of groups so that
individuals can share or pool their skills
and abilities
! Allows for the creation of synergy
! Group routines can enhance group
effectiveness
! Group learning is even more important than
individual learning in promoting organizational
learning
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Levels of Organizational
Learning (cont.)
! Organizational-level learning:
managers can promote organizational
learning through the way they create an
organizations structure and culture
! Cultural values and norms are an
important influence on learning
! Adaptive cultures: value innovation and
encourage and reward experimentation and
risk taking by middle and lower-level
managers
! Inert cultures: are cautious and
conservative, and do not encourage risk
taking by middle and lower-level managers
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Levels of Organizational
Learning (cont.)
! Organizations can improve their
effectiveness by copying and
imitating each others distinctive
competences
! Encourages explorative and exploitative
learning by cooperating with suppliers and
distributors to discover new ways to handle
inputs and outputs
! Systems thinking: argues that in order to
create a learning organization, managers
must recognize the effects of one level of
learning on another
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Figure 12.2: Levels of
Organizational Learning
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Knowledge Management and
Information Technology
! Knowledge management: a type of
IT-enabled organizational relationship
that has important implications for
both organizational learning and
decision making
! Involves sharing and integrating of
expertise within and between functions
and divisions through real-time,
interconnected IT
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Knowledge Management (cont.)
! Codification approach: knowledge is
carefully collected, analyzed, and stored
in databases where it can be retrieved
easily by users who input organization-
specific commands and keywords
! Suitable for standardized product or service
! Personalization approach: IT
designed to identify who in the
organization might possess the
information required for a custom job
! More reliance on know-how, insight, and
judgment to make decisions
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Factors Affecting
Organizational Learning
! Several factors may reduce
organizational learning over time
! Managers may develop rules and
standard operating procedures to
facilitate programmed decision making
! Past success with SOPs inhibits learning
! Programmed decision making drives out
nonprogrammed decision making
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Factors Affecting
Organizational Learning (cont.)
! Cognitive structure: system of
interrelated beliefs, preferences,
expectations, and values that
predetermine responses to and
interpretations of situations
! These shape the way managers make
decisions and perceive environmental
opportunities and threats
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Factors Affecting
Organizational Learning (cont.)
! Types of cognitive biases
! Cognitive biases: systematically bias
cognitive structures to cause
misperception and misinterpretation of
information, thereby affecting
organizational learning and decision
making
! Cognitive dissonance: state of
discomfort or anxiety experienced when
there is an inconsistency between ones
beliefs and actions
! Managers seek or interpret information that
confirms and reinforces their beliefs and
ignore information that does not
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Factors Affecting
Organizational Learning (cont.)
! Types of cognitive biases (cont.)
! Illusion of control: causes managers to
overestimate the extent to which the
outcomes of an action are under their
personal control
! Frequency: deceives people into
assuming that extreme instances of a
phenomenon are more prevalent than they
really are
! Representativeness: leads managers to
form judgments based on small and
unrepresentative samples
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Factors Affecting
Organizational Learning (cont.)
! Types of cognitive biases (cont.)
! Projection: allows managers to justify and
reinforce their own preferences and values
by attributing them to others
! Ego-defensiveness: leads managers to
interpret events in such a way that their
actions appear in the most favorable light
! Escalation of commitment: leads
managers to remain committed to a losing
course of action and refuse to admit that
they have made a mistake
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Figure 12.3: Distortion of Organizational
Decision Making by Cognitive Biases
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Improving Decision Making
and Learning
! Strategies for organizational learning
! Cause managers to continuously unlearn
old ideas and confront errors in their
beliefs and perceptions
! Listening to dissenters
! Converting events into learning
opportunities
! Experimenting
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Improving Decision Making
and Learning (cont.)
! Game theory: tool to help managers
improve decision making and enhance
learning
! Interactions between organizations are viewed
as a competitive game
! Two basic types of game
! Sequential move game: players move in turn,
and one player can select a strategy to pursue
after considering its rivals choice of strategies
! Simultaneous move game: the players act at
the same time, in ignorance of their rivals
current actions
! Useful for organizations competing against
a limited number of rivals that are highly
interdependent
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Figure 12.4: A Decision Tree
for UPSs Pricing Strategy
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Improving Decision Making
and Learning (cont.)
! Nature of the top-management team
! The way the top management is
constructed and the type of people who
are on it affect organizational learning
! Wheel configuration decreases org
learning because managers report
separately to the CEO
! Wheel works best when problems are simple
and require minimal coordination
! Circle configuration works best for team
and organizational learning
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Improving Decision Making
and Learning (cont.)
! Learning occurs best when there is
heterogeneity of the top-
management team
! Groupthink: the conformity that
emerges when like-minded people
reinforce one anothers tendencies to
interpret events and information in
similar ways
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Figure 12.5: Types of Top-
Management Teams
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Improving Decision Making
and Learning (cont.)
! Devils advocate: a person who is
responsible for critiquing ongoing
organizational learning
! A method for overcoming cognitive biases
and promoting organizational learning by
institutionalizing dissent
! Dialectical inquiry: teams of decision
makers generate and evaluate
alternative scenarios and provide
recommendations
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Improving Decision Making
and Learning (cont.)
! Collateral organizational
structure: an informal organization of
managers that is set up parallel to the
formal organization structure to
shadow the decision making and
actions of managers in the formal
organization
! Allows an organization to maintain its
capacity for change at the same time that
it maintains its stability
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Figure 12.6: How Devils Advocacy and
Dialectical Inquiry Alter the Rational Approach
to Decision Making