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Fundamentals of Management 6th Edition by Ricky Griffin
Edition 6ISBN: 978-0538478755Fundamentals of Management 6th Edition by Ricky Griffin
Edition 6ISBN: 978-0538478755 Exercise 2
The Art and Science of Decision Making
Is there a place for "art" in managing a business? Some researchers think so. Like Malcolm Gladwell, author of the best-selling Blink: The Power of Thinking without Thinking , they advocate greater reliance on certain nonrational and behavioral factors-especially intuition-in the decision-making process. Other researchers prefer to stick to the facts, measurable outcomes, and rational approaches and rely on scientifically conducted studies to improve managerial decision making. Interestingly, both approaches are leading managers to some unconventional conclusions-some rational, some intuitive-about the business of making decisions.
Intuition isn't unheard of in the business world. Few loan officers, for example, would give you the money for a house without some pertinent data at their fingertips, but many of them will also give a lot weight to personal feelings about your creditworthiness. Gladwell calls these feelings "thin slices" because they're so small and subtle, and experts have found that loan managers who draw upon both data and feelings tend to make better decisions than those who rely solely on the numbers. The same holds true in a broad array of other jobs, from art appraisers to police officers, from CEOs to physicians, in which intuition is widely accepted as a valuable supplement to fact-based decision making.
How, exactly, does intuition aid in decision making? Proponents argue that people make better and faster decisions when they select their facts-that is, when they focus on the most relevant facts while ignoring the rest. Even more important, they contend, is the fact that intuition is effective because it's based on experience. Experienced nurses, for instance, can often sense when a patient needs urgent attention. How? In such cases, they're often being responsive to subtle clues that they've learned to recognize over time and drawing the correct conclusions from them. Conversely, the intuitions of inexperienced workers are often faulty. Most of the battle casualties sustained in Iraq, for example, occur in the first 90 days of the soldier's deployment. Likewise, studies of airline crews show that 73 percent of serious mistakes happen when crews are working together for the first time.
Critics grant that intuition is particularly valuable when the situation calls for a quick decision, but they point out that most decision making in an organizational context isn't especially time sensitive. In one sense or another, of course, speed is important in just about any organizational activity, but as we've seen, when it comes to making strategic decisions, speed can be measured in days or weeks, not seconds or minutes. Except in emergencies, the context of most organizational decision making allows time for gathering information, generating alternatives, and discussing alternatives. Skeptics are also critical of the importance that the intuition approach places on the role of a single decision maker. Intuition, they argue, plays little part in group decision making, which is often highly effective and which is becoming much more prevalent in today's organizations. Finally, some critics believe that overstating the virtues of intuition actually encourages sloppy thinking and poor decision making.
Stanford professors Jeffrey Pfeffer and Bob Sutton, authors of Hard Facts, Dangerous Half-Truths, and Total Nonsense , have put out a call for an increased reliance on rationality in managerial decision making-an approach that they call evidence-based management (EBM). "Management decisions," they argue, "[should] be based on the best evidence, managers [should] systematically learn from experience, and organizational practices [should] reflect sound principles of thought and analysis." At www.evidencebasedmanagement.com, they define EBM as "a commitment to finding and using the best theory and data available at the time to make decisions," but their "Five Principles of Evidence-Based Management" make it clear that EBM means more than just sifting through data and crunching numbers:
1. Face the hard fact and build a culture in which people are encouraged to tell the truth, even if it is unpleasant.
2. Be committed to "fact-based" decision making-which means being committed to getting the best evidence and using it to guide actions.
3. Treat your organization as an unfinished prototype-encourage experimentation and learning by doing.
4. Look for the risks and drawbacks in what people recommend-even the best medicine has side effects.
5. Avoid basing decisions on untested but strongly held beliefs, what you have done in the past, or on uncritical "benchmarking" of what winners do.
Pfeffer and Sutton are particularly persuasive when they use EBM to question the outcomes of decisions based on "untested but strongly held beliefs" or on "uncritical 'benchmarking' of what others do." Take, for instance, the popular policy of paying high performers significantly more than low performers. Pfeffer and Sutton's research shows that pay-for-performance policies get good results when employees are working solo or independently. But it's another matter altogether when it comes to collaborative teams-the kind of teams that make so many organizational decisions today. Under these circumstances, the greater the gap between highest- and lowestpaid executives, the weaker the firm's financial performance. Why? According to Pfeffer and Sutton, wide disparities in pay often weaken trust among team members as well as the social connectivity that contributes to strong team-based decision making.
Or consider another increasingly prevalent policy for evaluating and rewarding talent. Pioneered at General Electric by the legendary Jack Welch, the practice of "forced ranking" divides employees into three groups based on performance-the top 20 percent, middle 70 percent, and bottom 10 percent-and terminates those at the bottom. Pfeffer and Sutton found that, according to many HR managers, forced ranking impaired morale and collaboration and ultimately reduced productivity. They also concluded that automatically firing the bottom 10 percent resulted too often in the unnecessary disruption of otherwise effective teamwork. That's how they found out that 73 percent of the errors committed by commercial airline pilots occur on the first day that reconfigured crews work together.
Reconsider the case presented in question 2. How might the company make use of EBM in making its decision?
Question 2
Consider the hypothetical case in which a company must choose one of the two promising new products to develop and introduce to the market. There are not sufficient funds for both products. How might the company make use of intuition in making this decision?
Is there a place for "art" in managing a business? Some researchers think so. Like Malcolm Gladwell, author of the best-selling Blink: The Power of Thinking without Thinking , they advocate greater reliance on certain nonrational and behavioral factors-especially intuition-in the decision-making process. Other researchers prefer to stick to the facts, measurable outcomes, and rational approaches and rely on scientifically conducted studies to improve managerial decision making. Interestingly, both approaches are leading managers to some unconventional conclusions-some rational, some intuitive-about the business of making decisions.
Intuition isn't unheard of in the business world. Few loan officers, for example, would give you the money for a house without some pertinent data at their fingertips, but many of them will also give a lot weight to personal feelings about your creditworthiness. Gladwell calls these feelings "thin slices" because they're so small and subtle, and experts have found that loan managers who draw upon both data and feelings tend to make better decisions than those who rely solely on the numbers. The same holds true in a broad array of other jobs, from art appraisers to police officers, from CEOs to physicians, in which intuition is widely accepted as a valuable supplement to fact-based decision making.
How, exactly, does intuition aid in decision making? Proponents argue that people make better and faster decisions when they select their facts-that is, when they focus on the most relevant facts while ignoring the rest. Even more important, they contend, is the fact that intuition is effective because it's based on experience. Experienced nurses, for instance, can often sense when a patient needs urgent attention. How? In such cases, they're often being responsive to subtle clues that they've learned to recognize over time and drawing the correct conclusions from them. Conversely, the intuitions of inexperienced workers are often faulty. Most of the battle casualties sustained in Iraq, for example, occur in the first 90 days of the soldier's deployment. Likewise, studies of airline crews show that 73 percent of serious mistakes happen when crews are working together for the first time.
Critics grant that intuition is particularly valuable when the situation calls for a quick decision, but they point out that most decision making in an organizational context isn't especially time sensitive. In one sense or another, of course, speed is important in just about any organizational activity, but as we've seen, when it comes to making strategic decisions, speed can be measured in days or weeks, not seconds or minutes. Except in emergencies, the context of most organizational decision making allows time for gathering information, generating alternatives, and discussing alternatives. Skeptics are also critical of the importance that the intuition approach places on the role of a single decision maker. Intuition, they argue, plays little part in group decision making, which is often highly effective and which is becoming much more prevalent in today's organizations. Finally, some critics believe that overstating the virtues of intuition actually encourages sloppy thinking and poor decision making.
Stanford professors Jeffrey Pfeffer and Bob Sutton, authors of Hard Facts, Dangerous Half-Truths, and Total Nonsense , have put out a call for an increased reliance on rationality in managerial decision making-an approach that they call evidence-based management (EBM). "Management decisions," they argue, "[should] be based on the best evidence, managers [should] systematically learn from experience, and organizational practices [should] reflect sound principles of thought and analysis." At www.evidencebasedmanagement.com, they define EBM as "a commitment to finding and using the best theory and data available at the time to make decisions," but their "Five Principles of Evidence-Based Management" make it clear that EBM means more than just sifting through data and crunching numbers:
1. Face the hard fact and build a culture in which people are encouraged to tell the truth, even if it is unpleasant.
2. Be committed to "fact-based" decision making-which means being committed to getting the best evidence and using it to guide actions.
3. Treat your organization as an unfinished prototype-encourage experimentation and learning by doing.
4. Look for the risks and drawbacks in what people recommend-even the best medicine has side effects.
5. Avoid basing decisions on untested but strongly held beliefs, what you have done in the past, or on uncritical "benchmarking" of what winners do.
Pfeffer and Sutton are particularly persuasive when they use EBM to question the outcomes of decisions based on "untested but strongly held beliefs" or on "uncritical 'benchmarking' of what others do." Take, for instance, the popular policy of paying high performers significantly more than low performers. Pfeffer and Sutton's research shows that pay-for-performance policies get good results when employees are working solo or independently. But it's another matter altogether when it comes to collaborative teams-the kind of teams that make so many organizational decisions today. Under these circumstances, the greater the gap between highest- and lowestpaid executives, the weaker the firm's financial performance. Why? According to Pfeffer and Sutton, wide disparities in pay often weaken trust among team members as well as the social connectivity that contributes to strong team-based decision making.
Or consider another increasingly prevalent policy for evaluating and rewarding talent. Pioneered at General Electric by the legendary Jack Welch, the practice of "forced ranking" divides employees into three groups based on performance-the top 20 percent, middle 70 percent, and bottom 10 percent-and terminates those at the bottom. Pfeffer and Sutton found that, according to many HR managers, forced ranking impaired morale and collaboration and ultimately reduced productivity. They also concluded that automatically firing the bottom 10 percent resulted too often in the unnecessary disruption of otherwise effective teamwork. That's how they found out that 73 percent of the errors committed by commercial airline pilots occur on the first day that reconfigured crews work together.
Reconsider the case presented in question 2. How might the company make use of EBM in making its decision?
Question 2
Consider the hypothetical case in which a company must choose one of the two promising new products to develop and introduce to the market. There are not sufficient funds for both products. How might the company make use of intuition in making this decision?
Explanation
Verified
Verified
The company needs to introduce a new pro...
Fundamentals of Management 6th Edition by Ricky Griffin
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