Engineering Management SHM 4542

Report- Decision Making, Learning, Creativity, and Entrepreneurship Section 1 Group 9

Group members: OW TZE WENG CHENG WEI SHENG AE100091 AE100081

WILLY JI AE100094 KOK WEE YAP AE100084 AE100062

ADILA SYAIDATUL BINTI AZMAN

Lecturer: Mr. Lokman Bin Ali Date of Submit: 7th October 2013

Table of Contents
1 THE NATURE OF MANAGERIAL DECISION MAKING ......................................................................... 1 1.1 1.2 1.3 1.3.1 1.3.2 1.4 1.5 1.5.1 1.5.2 2 Decision Making in Response to Threats ................................................................................ 1 Decision Making in Response to Opportunities ...................................................................... 1 Programmed and Non-programmed Decision Making ........................................................... 2 Programmed Decision Making ....................................................................................... 2 Non-programmed Decision Making ............................................................................... 2 The Classical Model ................................................................................................................. 3 The Administrative Model ...................................................................................................... 3 Bounded Rationality ....................................................................................................... 3 Incomplete Information ................................................................................................. 4

STEPS IN THE DECISION-MAKING PROCESS ..................................................................................... 5 2.1 2.2 2.3 2.4 2.5 2.6 Recognize the Need for a Decision ......................................................................................... 6 Generate Alternatives ............................................................................................................. 6 Assess alternatives .................................................................................................................. 6 Choose among alternatives .................................................................................................... 7 Implement the Chosen Alternative ......................................................................................... 7 Learn from Feedback .............................................................................................................. 8

3 4 5

COGNITIVE BIASES AND DECISION MAKING .................................................................................... 9 GROUP DECISION MAKING ............................................................................................................ 10 ORGANIZATIONAL AND CREATIVITY .............................................................................................. 11 5.1 5.2 5.3 5.3.1 5.3.2 5.3.3 Organizational Learning ........................................................................................................ 11 The Learning Organization .................................................................................................... 11 Building Group Creativity ...................................................................................................... 12 Brainstorming ............................................................................................................... 12 Nominal Group Technique ........................................................................................... 12 Delphi Technique.......................................................................................................... 12

ENTREPRENEURSHIP AND CREATIVITY .......................................................................................... 13 6.1 6.1.1 6.1.2 6.2 6.2.1 6.2.2 6.2.3 6.2.4 Entrepreneurship and New Ventrues ................................................................................... 13 Characteristics of entrepreneurs.................................................................................. 13 Entrepreneurship and management ............................................................................ 13 Intrapreneurship and Organizational Learning ..................................................................... 14 Characteristics of intrapreneur .................................................................................... 14 Product champion ........................................................................................................ 14 Skunkworks ................................................................................................................ 155 Rewards for innovation ................................................................................................ 15

THE NATURE OF MANAGERIAL DECISION MAKING

A good manager should have a good decision making skills. Decision making is

the process by which the managers respond to the opportunities and threats by analyzing options and making determinations about specific organizational goals and course of actions. A good manager can decide a good decision which will end up with increase in organizational performance. Decision making is a central to being a manager. This is because whether the manager is playing their principle tasks in planning, organizing, leading and controlling, they still need decision making in order to carry out the task and successfully meet the goals or requirement.

1.1

Decision Making in Response to Threats Decision making in response to threats occurs when events inside or outside the

organization adversely affect organizational performance and manager searches ways to increase the performance. Zeitz joined and became PUMA CEO at year 1993. That time the PUMA had already lost money for the past 8 years. High cost production in Germany, centralized corporate structure, and an inability to keep up with global trends are the threats to PUMA in facing the bankruptcy. Zeitz decided to shut down the Germany production plant, halved the payroll to 367 employees, bought back the licensing rights in the US and decentralized the company organization to solve the threats that had stick to the company for so many years.

1.2

Decision Making in Response to Opportunities Decision making in response to opportunity occurs when managers search for

ways to improve the organizational performance to benefit customers, employees, and the stakeholder groups. In PUMA case, Zeitz continues to pursue new opportunities at PUMA by reinventing the traditional products to combine performance with style. He partnered with creative thinkers such as Xuly Bet and Yasuhiro Mihara to create products. He even made PUMA to partner with BMW Mini to make a new driving shoe.
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1.3

Programmed and Non-programmed Decision Making 1.3.1 Programmed Decision Making Programmed decision making is a routine, virtually automatic decision that follows established rules or guidelines. This type of decision making is following a series of rules to decide whether the decision should be made or not. For example when the hotel room manager finds that the bath shampoo stock supply is less than a certain level, he or she will order a new supply from the supplier. This is not applicable to PUMA case.

1.3.2

Non-programmed Decision Making Non-programmed decision making is required for non-routine decisions.

This is because in some situation there are no ready rules for the managers to apply. These rules do not exist because the situation is unexpected or uncertain and mangers lack the information they would need to develop to cover it. Managers are relying on their intuition feelings, beliefs, and hunches that come readily to mind, require little effort and information gathering, and result in on-the-spot decision; or reasoned judgment decisions that require time and effort and result from careful information gathering, generation of alternatives, and evaluation of alternatives, to making a decision. Jochen Zeitz has made a lot of non-programmed decision in PUMA. The most obvious nonprogrammed decision was when he decided to start a new division called sport lifestyle with the sport products that were look trendy and stylish to save the company from bankruptcy. Others non-programmed decision that he had made including enter new market with new products and expanding the market internationally.

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1.4

The Classical Model The classical decision making model is a prescriptive approach to decision

making based on the assumption that the decision maker can identify and evaluate all possible alternatives and their consequences and rationally choose the most appropriate course of action. This model assumes that the managers have already accessed to all the information they need to make the optimum decision, which is the decision that the managers believe to be the most desirable consequences for the organization. This is not applicable to PUMA case.

1.5

The Administrative Model Jochen Zeitz is one of the managers that used the administrative decision model

to make his decision in PUMA. According to James March and Herbert Simon, the administrative model is an approach to decision making that explains why decision making is inherently uncertain and risky and why managers usually make satisfactory rather than optimum decisions. This model allows the managers in the real world do not have to access all the information they need to make a decision. The administrative model is based on three important concepts, which are: i) ii) iii) Bounded rationality Incomplete information Satisfying

1.5.1

Bounded Rationality

Bounded rationality is the cognitive limitations that constrain ones ability to interpret, process, and act on information. According to March and Simon, the bounded rationality describes the situation where managers have so much alternative to identify and the vast information which difficult for the managers to evaluate them all before making a decision.

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1.5.2

Incomplete Information

Information for the managers is incomplete because the full range of decisionmaking alternatives is unknowable in most situations, and the consequences associated with known alternatives are uncertain. Generally, the information is incomplete because of the three criteria, which are: i) ii) iii) Risk and uncertainty Ambiguous information Time constraints and information costs

1.5.2.1 Risk and Uncertainty Risk is where the degree of probability that the possible outcomes of a particular course of action will occur known by the managers. Risk is present when managers know the possible outcomes of a particular course of action and can assign probabilities to them.

Uncertainty is the probabilities of the outcome cannot be determined and future outcomes are unknown. In short, the overall outcomes are unpredictable. Because the probability of the given outcomes occurring is unknown, managers have little information to use in making a decision. There were many uncertainties when Jorchen Zeitz decided to start the sport lifestyle division. This is because at that time he did not know whether or not the customers like the trendy style of sport shoes and PUMA was first to the market this totally refreshing and trendy new product, there was no wellknown data that Jochen Zeitz could draw on to calculate the probability of successful launch.

1.5.2.2 Ambiguous Information Ambiguous information is the information that can be interpreted in multiple and often conflicting ways. Jochen Zeitz knew that generally trendy style sport products can gain the customers preference, but the experimental
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product line had received a lot of scepticism at first. So he did not know whether he should launch the product to the market or not.

1.5.2.3 Time Constraints and Information Cost This is the situation where the managers have neither time nor the money to search for all possible alternatives solutions and evaluate all the potential consequences of those alternatives. Jochen Zeitz had no time to evaluate all the possible alternatives consequences and decide the best solution to save the company from bankruptcy. He eventually decided to choose the trendy sport lifestyle product line to save the company. He also knew that the company has no such amount of money to allow him to make such alternative evaluations that is very costly.

STEPS IN THE DECISION-MAKING PROCESS

Researchers have developed a step-by-step model of the decision-making process and the issues and problems that managers confront at each step using the work of March and Simon as basis. There are many managers who must make important decisions with incomplete information when they face dilemmas, six steps to make a good decision should consciously be followed. The six steps of decision making process are shown in below:
Step 1: Recognize the need for a decision. Step 2: Generate alternatives Step 3: Assess alternatives Step 4: Choose among alternatives. Step 5: Implement the chosen alternative. Step 6: Learn from feedback.

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2.1

Recognize the Need for a Decision New kind of opportunities and threats which are results from changes in the

organizational environment are usually the stimuli sparking the realization that a decision must be made. These stimuli result from the actions of managers inside an organization as they are from changes in the external environment. Managers can be proactive or reactive in recognizing the need to make a decision in a timely and appropriate way if they actively pursue opportunities to use the competencies of an organization. 2.2 Generate Alternatives After manager has recognized the need to make a decision, the next step is he must generate a few of feasible alternative courses of action to take to deal with opportunity or threat. Viewing problem from a single perspective rather than from a fresh perspective has been the major problem that a manager finds it is difficult to generate creative solutions to specific problems. Abandoning existing mind-sets and developing new ones seem difficult to realise for one to come out with creative alternative to solve problems and take advantage of opportunities. For example, facing tough decisions about how to turn around the companys fortunes, Zeitz came out with a decision that rather than trying to compete based on the performance capabilities of its athletic shoes and equipment, PUMA would focus more on style, colors, and lines of shoes. Furthermore, now a top manager, Bertone continues to make decisions to seize opportunities for creative and innovative product lines such as the limited-edition line called Thrift and Mongolian Shoe BBQ.

2.3

Assess alternatives The third step in decision making is assessing alternatives. Evaluating the

advantages and disadvantages of each alternative is important. To have good assessment of the alternatives, opportunity or threat must be defined exactly, and specify the criteria that should influence the selection of alternatives for responding to the problem or opportunity. Failing to fulfilling these criteria will cause a bad decision

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made. There are four criteria that a successful manager should use to evaluate the pros and cons of alternatives generated.

Criteria Legality Is the alternative legal and will not violate any domestic and international laws or government regulations? Is the alternative ethical and will not bring harm stakeholders unnecessarily? Can organizations performance goals sustain this alternative? Does the management have the capabilities and resources required to implement the alternative?

Ethicalness

Economic Feasibility Practicality

2.4

Choose among alternatives Ranking the various alternatives based on the criteria in previous step and

making a decision are the next task to be done. Managers must be sure all the information available is brought to bear on the problem or issue at hand, however, having all relevant information for a decision does not mean manager has complete information, instead, most of the time it is incomplete. The case will be even more serious if the tendency of managers ignores critical information although it is available.

2.5

Implement the Chosen Alternative The chosen alternative has to be implemented after it has been selected, besides,

many subsequent and related decisions must be made. Many managers make a decision which seems obvious and then fail to act on it. Top managers must assign to middle managers the responsibility for making the follow up decisions necessary to achieve the goal in order to ensure that a decision is implemented. Sufficient resources must be provided besides top managers must hold the middle managers accountable for their performance. For instance, reward should be given when middle managers succeed in implementing the decision. Related to case study, PUMA
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became the major athletic apparel company as it is today due to Zeitz s bold decision to pursue the world of fashion and style. This is the result of Zeitz s decision and implementation of his decision. Former skate border, Bertone is now based in Boston as PUMAs global director of brand and management. This is as a result of Bertone successfully implemented the decision then he was promoted to become a top manager.

2.6

Learn from Feedback This is the final step and the most important step in decision making process.

Effective managers always conduct a retrospective analysis to see what they can learn from past successes or failures. In contrast, those managers who do not evaluate the results of their decision are most likely to repeat the mistakes as they do not learn from experience. A formal procedure for them to learn from the results of past decisions must be established to avoid this problem. The steps are: 1. Compare what actually happened to what was expected to happen as a result of the decision. 2. Explore why an expectations for the decision were not met. 3. Derive guidelines that will help in future decision making. Related to case study of PUMA, Zeitz indicates, It took a while-and from my perspective, a lot of energy-to protect this new little child (the lifestyle group) of PUMA from getting killed. Eventually, it became the entire company. Zeitz works received a lot of bad review, he tried to improve his product and eventually it had shined the eyes of the world.

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COGNITIVE BIASES AND DECISION MAKING

Cognitive biases are patterns of deviation in judgement that occur in particular

situations. Inferences about other people and situations might be drawn in an illogical fashion due to cognitive biases. Individuals create their own subjective social reality from their perception of input. Cognitive biases lead to perceptual distortion, inaccurate judgement, illogical interpretation or irrationality.

There are basically four sources of cognitive biases at the individual and group levels. First and foremost, prior-hypothesis bias is a cognitive bias resulting from the tendency to base decisions on strong prior beliefs even if evidence shows that those beliefs are wrong. Sometimes, this type of decision makers also tend to seek and use information that is consistent with their prior beliefs and ignore any information that contradicts those beliefs.

Another source of cognitive biases is representativeness bias. It is due to the tendency to generalize inappropriately from a small sample or from a single vivid event or episode. Taking the example of a bookstore manager in Southeast United States who decided to partner with a local independent school for a Book Day. After quite a bit of planning, the Book Day generated lackluster sales and pblicity for the store. However, when other public and independent schools approached her with similar proposals for fund-raising, she declined the proposals based on her initial bad experience with the first school. Therefore, she lost the opportunities to expand sales and gain word-of-mouth advertising and publicity for her store just because of her experience, not everyones experience.

Next, illusion of control is a source of cognitive bias resulting from the tendency to overestimate ones own ability to control activities and events. Usually, top managers are prone to this type of bias. Since they worked their way to the top of an organization, they tend to have an exaggerated sense of their own worth and are overconfident about their ability to succeed and to control events. As a result, the managers overestimate the odds of a favourable outcome and make inappropriate decisions.

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Last but not least, escalating commitment is another source of cognitive bias resulting from the tendency to commit additional resources to a project even if evidence shows that the project is falling. The managers decide to increase their investment of time and money in a course of action and even ignore evidence that is illegal, unethical, uneconomical or impractical.

In conclusion, managers should be aware of these cognitive biases so that the negative effects of cognitive biases can be avoided. The managers must be able to identify their own personal style of decision making. One useful way to avoid cognitive biases is to review the recently made decisions, one decision that turned out well and one that turned out poorly. Problem soving experts recommend that managers should start by determining how much time they spend on each of the decision-making steps. They should identify the pros and cons of alternatives and make sure that they spend sufficient time on each step. However, in PUMA case study, cognitive biases are not seen in the managers of PUMA. They somewhat made a good decision even they were facing financial crisis.

GROUP DECISION MAKING

In most organization, decisions are made in groups rather than individually.

Group decision making is actually much more superior compared to individual decision making. When managers work as a team to make decisions and solve problems, their choices of alternatives are less likely to fall victim to the biases and errors. They will be able to improve their ability to generate feasible alternatives and make good decisions. They can also generate more information in group decision making. Other members errors can also be fixed. The probability that the decision made in group to be implemented successfully also increases.

However, there are also some disadvantages of group decision making. Group decision making usually takes more time than individual decision making because it is not easy to get two or three managers to agree in a solution in a short time. We need
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to console every manager to agree with the idea since managers interests and preferences are often different. Besides, similar to individual decision making, group decision making can also be undermined by biases. A major source of group bias is groupthink.

Groupthink is a pattern of faulty and biased decision making that occurs in groups whose members strive for agreement themselves at the expense of accurately assessing information relevant to a decision. When managers are subjected to groupthink, they collectively embark on a course of action without deceloping appropriate criteria to evaluate alternatives. The group members become blindly committed to that course of action without evaluating its merits.

Therefore, in order to improve cognitive biases and groupthink, and the managers are able to make realistic decision are by the techniques of devils advocacy and dialectical inquiry. Devils advocacy is a critical analysis of preferred alternative, made in response to challenges raised by a group member who plays the role of devils advocate, defends upon unpopular or opposing alternatives for the sake of argument. Dialetical inquiry is the critical analysis of two preferred alternatives in order to find an even better alternative for te organization to adopt.

5
5.1

ORGANIZATIONAL AND CREATIVITY

Organizational Learning

The organizational learning is defined as the managers seek to improve an employees desire and ability to understand and manage the organization and its task environment so as to raise effectiveness. The PUMA does not apply this kind of strategy on the company.

5.2

The Learning Organization

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Managers try to maximize the peoples ability to behave creatively to maximize organizational learning. When creating a Learning Organization, first step the personal mastery must be achieved, the managers empower employees and allow them to create and explore. Secondly, the mental models refer the challenge employees to find new, better methods to perform a task. After that, the team learning step is learning that takes place in a group or team. Forth step is to build a shared vision people which share a common mental model of the firm to evaluate opportunities. Lastly, the systems thinking is refer to the understanding and knowing how actions in one area of the firm will impact other areas of the firm. The PUMA does not apply this kind of strategy on the company.

5.3

Building Group Creativity 5.3.1 Brainstorming

The Brainstorming is referring to the managers meet face-to-face to generate and debate many alternatives. The group members are not allowed to evaluate alternatives until all alternatives are listed. When all are listed, then the pros and cons of each are discussed and a short list created. The PUMA does not apply this kind of strategy on the company.

5.3.2

Nominal Group Technique

The nominal group technique is provides a more structured way to generate alternatives in writing and gives each manager more time and opportunity to come up with potential solutions. This process is useful when an issue is controversial and when different managers might be expected to champion different courses of action. The PUMA does not apply this kind of strategy on the company.

5.3.3

Delphi Technique

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The Delphi Technique is a written approach to creative problem solving. The group leader writes a statement of the problem to which managers respond and questionnaire is sent to managers to generate solutions. After that, the team of managers summarizes the responses and results are sent back to the participants. The process is repeated until a consensus is reached. The PUMA does not apply this kind of strategy on the company.

ENTREPRENEURSHIP AND CREATIVITY

6.1

Entrepreneurship and New Ventrues 6.1.1 Characteristics of entrepreneurs Entrepreneurs refer to Individuals who notice opportunities and take the responsibility for mobilizing the resources necessary to produce new and improved goods and services. Entrepreneurs have following characteristics:-High self-esteem -Able to take risk 6.1.2 -Feel competent -High need of achievement -Case handling skill

Entrepreneurship and management Many entrepreneurs start their business with solo ventures. When the

business grows, entrepreneur may face problem in management. Management is not same with entrepreneurship as management including planning, organizing, leading and controlling resources. When demand of a product increases, the product have to produce efficiently and effectively. In this point, hire a manager is a good option to create an operating system that will let a new venture survive and prosper. Entrepreneur should not too aggressive in all the work and may try to delegate authority to manager for prevent overloading to themselves. In PUMA case, entrepreneurship was not applicable as all the innovation was done under PUMA organization.

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6.2

Intrapreneurship and Organizational Learning 6.2.1 Characteristics of intrapreneur Intrapreneur refer to Individuals (managers, scientists, or researchers) who work inside an existing organization and notice an opportunity for product improvements and are responsible for managing the product development process. Intrapreneur possess problem solving skills and able to identify opportunities. In a learning organization, intrepreneurship is very important in order to make an organization upgrade to a higher level and produce better services or product. Many intrapreneur appeared in PUMA organization and contributed to PUMA by their innovation.

In order to promote organizational learning and intrapreneurship, following methods are used: 6.2.2 Product champion Product champion is a role who taking ownership of a product from concept to market. A product champion becomes responsible for developing a business plan for the product. When Antonio Bertone started working at PUMA at 1994, he was in charged to turn PUMAs traditional 1960s-style cleated soccer shoe into a trendy fashion sneaker using funky colors and suede. At first this experimental product line received a lot of skepticism from industry experts and retailers. However, at last it became the entire company. Antonio Bertone served as the Chief Marketing Officer of PUMA SE and served as its Deputy Member of the Management Board from 2008 to 2012. The top management at the time made a correct decide to assign product champion role to Antonio Bertone.

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6.2.3

Skunkworks Keeping a group of intrapreneurs separate from the rest of the firm is

called skunkworks. When a group of talented people work together may produce a more powerful chemistry and create good innovation or idea. It is also a good practice to give the authorities to group of intrapreneurs in charge of new division and create new venture. This is not applicable in PUMA case.

6.2.4

Rewards for innovation Rewards for innovation refer to an organization which linking

innovation by workers to valued rewards. PUMAs compensation system is competitive and performance-based. In addition to wage components, PUMA also honors the individual performance of each employee and that of the overall performance of all employees by implementing variable bonus regulations. To supplement this, PUMA offers comprehensive social benefits and other intangible perks. By having this rewards, an organization can prevent intrapreneurs leaving and becoming outside entrepreneurs who might form a competitive new venture. If intrapreneurs satisfy with the working environment and rewards, they will provide their best innovation or best idea for contribute to organization.

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