Chapter 05 – Decision Making, Learning, Creativity, and Entrepreneurship
5-1
Chapter 05
Decision Making, Learning, Creativity,
and Entrepreneurship
Learning Objectives 5-2
Key Definitions/Terms 5-2
Chapter Overview 5-4
Lecture Outline 5-4
Lecture Enhancers 5-15
Management in Action 5-17
Building Management Skills 5-21
Managing Ethically 5-23
Small Group Breakout Exercise 5-23
Be the Manager 5-25
Case in the News 5-26
Supplemental Features 5-27
Manager’s Hot Seat 5-27
Instructor’s PowerPoint Slides 5-28
CHAPTER CONTENTS
Chapter 05 – Decision Making, Learning, Creativity, and Entrepreneurship
5-2
LO 5-1. Understand the nature of managerial decision making, differentiate
LO 5-2. Describe the six steps that managers should take to make the best
decisions.
LO 5-4. Explain the role that organizational learning and creativity play in
helping managers to improve their decisions.
LO 5-5. Describe how managers can encourage and promote
entrepreneurship to create a learning organization, and
differentiate between entrepreneurs and intrapreneurs.
administrative model: An approach to decision
creativity: A decision maker’s ability to discover
KEY DEFINITIONS/TERMS
LEARNING OBJECTIVES
Chapter 05 – Decision Making, Learning, Creativity, and Entrepreneurship
5-3
entrepreneur: An individual who notices
opportunities and decides how to mobilize the
resources necessary to produce new and improved
intrapreneur: A manager, scientist, or researcher
who works inside an organization and notices
opportunities to develop new or improved products
and better ways to make them.
nominal group technique: A decision-making
technique in which group members write down ideas
and solutions, read their suggestions to the whole
group, and discuss and then rank the alternatives.
nonprogrammed decision making: Nonroutine
organizational learning: The process through which
managers seek to improve employees’ desire and
ability to understand and manage the organization
programmed decision making: Routine, virtually
automatic decision making that follows established
rules or guidelines.
reasoned judgment: A decision that requires time
decision.
skunkworks: A group of intrapreneurs who are
deliberately separated from the normal operation of
an organization to encourage them to devote all their
attention to developing new products.
CHAPTER OVERVIEW
Chapter 05 – Decision Making, Learning, Creativity, and Entrepreneurship
In this chapter, we examine how managers make decisions and explore how individual, group, and
organizational factors affect the quality of the decisions they make. We discuss the nature of managerial
decision-making and examine the models of the decision-making process that help reveal its complexities.
The main steps of the decision-making process and the biases that may cause managers to make poor
decisions are explored. Also, how managers can promote organizational learning and creativity and
improve the quality of decision making throughout an organization is explored. Finally, the role of both
the entrepreneur and the intrapreneur are examined.
NOTE ABOUT INSTRUCTOR’S POWERPOINT
SLIDES
The Instructor PowerPoint Slides include most Student
PowerPoint slides, along with additional material that
can be used to expand the lecture. Images of the
Instructor PowerPoint slides can be found at the end of
this chapter on page 5-28.
Management Snapshot (pp. 161-162 of text)
Decision Making and Learning
Why Is Decision Making and Learning of Utmost Importance for Entrepreneurs and Managers?
Managers make decisions day in and day out under considerable uncertainty. As a result, even highly
effective managers sometimes make bad decisions. Effective managers recognize the critical importance
of making decisions on an ongoing basis as well as learning from previous decisions.
Jim McCann bought a flower shop for $10,000 and decided to turn it into a larger organization. Ten years
later he had over 20 flower stores. Then McCann became a distributor for 1-800-Flowers, the first
company that enabled customers to call a toll-free number to order flowers. Later, he bought the 800
flower business for $2 million and then realized that he inherited $7 million in debt.
LECTURE OUTLINE
I. The Nature of Managerial Decision Making
A. Decision making is the process by which managers respond to
opportunities and threats by analyzing the options and making
determinations, or decisions about specific organizational goals
and courses of action.
1. A good decision results in the selection of appropriate goals
and courses of action that increase organizational performance.
Bad decisions result in lower performance.
2. Decision making in response to opportunities occurs when
managers search for ways to improve organizational
performance. Decision-making in response to threats occurs
when events adversely affect organizational performance and
managers search for ways to increase performance.
3. Decision making is central to being a manager, and
whenever managers engage in planning, organizing, leading,
and controlling, they are constantly making decisions.
4. Managers are always searching for ways to make better
decisions in order to improve organizational performance.
B. Programmed and Nonprogrammed Decision Making
1. Programmed decision-making is a routine, virtually
automatic process. These decisions have been made so many
times in the past that managers have developed rules or
guidelines to be applied when certain situations inevitably
occur.
2. Most decision-making that relates to the day-to-day running
LO 5-1: Understand the
nature of
managerial decision
making, differentiate
between
programmed and
nonprogrammed
decisions, and
explain why
nonprogrammed
decision making is a
complex, uncertain
process.
POWERPOINT SLIDES 5-4 TO
5-17
TEXT REFERENCE
FOCUS ON DIVERSITY:
Programmed Decision Making
at UPS
UPS is unrivaled in its use of
programmed decision making.
Practically all the motions,
behaviors, and actions that its
drivers perform each day have
been carefully honed to
maximize efficiency and
minimize strain and injuries
while delivering high-quality
customer service.
Chapter 05 – Decision Making, Learning, Creativity, and Entrepreneurship
the-spot decisions. Reasoned judgments are decisions that
take time and effort and result from careful information
gathering, generation of alternatives, and evaluation of
alternatives.
5. Although “exercising” one’s judgment is a more rational
process than “going with” one’s intuition, both processes are
often flawed and can result in poor decision making. Thus, the
likelihood of error is much greater in nonprogrammed decision
making than in programmed decision making.
6. Sometimes managers have to make rapid decisions and don’t
have time to carefully consider the issues involved, while in
other cases, they do have the time available to make reasoned
judgments.
C. The Classical Model
1. The classical model is prescriptive, that is, it specifies how
decisions should be made. Managers using this model make a
series of simplifying assumptions about the nature of the
decision-making process.
2. The model’s premise is that managers have access to all the
information they need to make the optimum decision. It also
assumes that managers can easily list and rank each alternative
from least to most preferred to make the optimum decision.
D. The Administrative Model
1. The administrative model explains why decision making is
always inherently risky and uncertain and why managers
usually make satisfactory rather than optimum decisions. It is
based upon three important concepts: bounded rationality,
incomplete information, and satisficing.
2. Bounded rationality describes the situation in which the
number of alternatives a manager must identify is so great and
the amount of information so vast that it is difficult to evaluate.
transparent sides is used to
teach trainees selection so they
can actually see the instructor
performing the steps and then
practice the steps themselves
rather than trying to absorb the
material in a lecture. Video
recorders track and document
what trainees do correctly and
incorrectly so they can see it for
themselves rather than relying
on feedback from an instructor.
Clearly, when learning
programmed decision making is
of utmost importance, as it is at
UPS, it is essential to take into
account diversity in learning
styles and approaches. (pp. 164-
165)
Chapter 05 – Decision Making, Learning, Creativity, and Entrepreneurship
probabilities of alternative outcomes cannot be determined,
and future outcomes are unknown.
b. Much of the information managers have at their disposal
is ambiguous information, which can be interpreted in
multiple and often conflicting ways.
c. Due to time constraints and information costs,
managers are unable to search for all possible alternatives
and evaluate all the potential consequences.
4. Due to the limitations mentioned above, managers do not
attempt to discover every alternative in an attempt to reach the
optimum decision. Instead, they search for and choose an
acceptable or satisfactory response to problems from a limited
sample of all potential alternatives. This strategy is called
satisficing.
II. Steps in the Decision-Making Process
A. Using the work of March and Simon as a basis, researchers
developed a step-by-step model of the decision-making process.
There are six steps that managers should consciously follow to
make a good decision.
1. Recognize the Need for a Decision
Some stimuli usually spark the realization that a decision needs
to be made. The stimuli may originate from the actions of
managers inside an organization or from changes in the
external environment. Be it proactive or reactive, it is
imperative that managers recognize this need and respond in a
timely and appropriate manner.
2. Generate Alternatives
consider these four criteria simultaneously. Some of the worst
managerial decisions can be traced to poor assessment of the
Chapter 05 – Decision Making, Learning, Creativity, and Entrepreneurship
5-8
alternatives.
a. Legality: Managers must ensure that a possible course
of action is legal.
b. Ethicalness: Managers must ensure that a possible
course of action is ethical and will not unnecessarily harm
any stakeholder group.
when it is available.
5. Implement the Chosen Alternative
Once a decision has been made, it must be implemented. Many
managers make a decision and then fail to act on it. To ensure
goal, and hold them accountable for their performance.
6. Learn from Feedback
a. Compare what actually happened to what was expected
to happen as a result of the decision.
POWERPOINT SLIDES 5-18 TO
5-26
Chapter 05 – Decision Making, Learning, Creativity, and Entrepreneurship
5-9
III. Group Decision Making
When managers work as a team, their choices of alternatives are
less likely to suffer from biases. They are able to draw on the
group’s combined skills and accumulated knowledge. Group
decision-making allows managers to process more information and
correct each other’s errors. Managers included in the decision-
making process will most likely cooperate with its implementation.
When a group makes a decision, the likelihood of its successful
implementation increases. The disadvantages of group decision
making include the long time it often takes and the possibility of
being undermined by biases.
assessing information relevant to a decision.
2. When managers are subject to groupthink, they collectively
embark on a course of action without developing appropriate
criteria to evaluate alternatives. Typically, the group rallies
around one central manager and becomes blindly committed to
3. Pressures for harmony and agreement have the unintended
effect of discouraging individuals from raising issues that
weaknesses before implementation. One member of the
decision-making group plays the role of devil’s advocate by
critiquing and challenging the way in which the group
evaluated alternatives and selected one alternative over the
other.
TEXT REFERENCE
MANAGEMENT INSIGHT:
Decision Making and Learning
from Feedback at GarageTek
Decision making has been an
ongoing challenge for Marc
Shuman, founder and president
of GarageTek. Since founding
maximize storage capacities.
Shuman decided to franchise the
idea to minimize competition. He
observed that some of his
franchises were having serious
problems. With the help of a
He discovered that the struggling
franchises either had low levels
For Shuman, making good
decisions and learning from prior
ones are still an ongoing
challenge. GarageTek currently
has over 60 franchises in the
world. (pp. 174-175)
Chapter 05 – Decision Making, Learning, Creativity, and Entrepreneurship
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
experiences and opinions that the group members can draw
from as they generate, assess, and choose among alternatives.
2. Diverse groups are less prone to groupthink because of the
differences that already exist among them.
IV. Organizational Learning and Creativity
A. The quality of managerial decision making ultimately depends
on innovative responses to opportunities and threats.
1. Organizational learning is the process through which
managers seek to improve employees’ desire and ability to
understand and manage the organization.
everything possible to maximize the thinking ability of groups
and individuals and thus maximize the potential for
organizational learning to take place.
3. At the heart of every learning organization is creativity, the
ability of a decision maker to discover original and novel ideas
B. Creating a Learning Organization: Peter Senge developed
five principles for creating a learning organization.
1. Top managers must allow every person in the organization
to develop a sense of personal mastery.
3. Managers must do everything they can to promote group
creativity and team learning.
4. Managers must emphasis the importance of building a
shared vision.
5. Managers must encourage systems thinking.
C. Promoting Individual Creativity: Research indicates that
when certain conditions are met, managers are more likely to be
1. Employees must be provided the opportunity and freedom to
generate new ideas.
LO 5-3: Identify the
advantages and
disadvantages of
group decision
making, and
describe techniques
that can improve it.
POWERPOINT SLIDES 5-27 TO
5-30
2. The employees have an opportunity to experiment, to take
risks, and to make mistakes and learn from them.
3. Employees must not fear that they will be penalized or
looked down upon for ideas that at first seem outlandish.
4. Individual creativity can be promoted by providing
constructive feedback so that employees will know how they
are doing and visibly rewarding creative employees.
1. Brainstorming is a group problem-solving technique in
which managers meet face-to–face to generate and debate a
wide variety of alternatives from which to make a decision.
This technique is very useful in some situations but at other
times can result in a loss of productivity due to production
blocking, the loss of productivity in brainstorming sessions
due to the unstructured nature of brainstorming. A
brainstorming session is conducted as follows:
a. One manager describes the problem in broad outline.
b. Group members share their ideas and generate
alternative courses of action.
technique session is conducted as follows:
a. One manager outlines the problem to be addressed and
group members write down ideas and solutions.
LO 5-4: Explain the role
that organizational
learning and
to improve their
decisions.
POWERPOINT SLIDES 5-31 TO
5-39
Chapter 05 – Decision Making, Learning, Creativity, and Entrepreneurship
have been read.
c. The alternatives are discussed, and group members can
critique to identify its pros and cons.
d. Each member ranks all the alternatives, and the highest-
3. The Delphi Technique: The Delphi Technique is a written
approach to creative problem solving. It works as follows:
a. The group leader writers a statement of the problem and
a series of questions to which participating managers are to
respond.
b. The questionnaire is sent to the managers and
departmental experts who are most knowledgeable about
the problem. They are asked to generate solutions and mail
the questionnaire back to the group leader.
c. A team of top managers records and summarizes the
responses. The results are then sent back to the
participants, with additional questions to be answered
before a decision can be made.
d. The process is repeated until a consensus is reached and
the most suitable course of action is apparent.
V. Entrepreneurship and Creativity
A. Entrepreneurs are individuals who notice opportunities and
decide how to mobilize the resources necessary to produce new
and improved goods and services. Thus, entrepreneurs are a very
important source of creativity.
1. Social entrepreneurs are individuals who pursue initiatives
and opportunities to address social problems and needs in order
to improve society and well-being.
2. An intrapreneur is an employee of an existing organization
who notices opportunities for either quantum or incremental
product improvements and is responsible for managing the
3. Many intrapreneurs become dissatisfied when their superiors
decide neither to support nor to fund their new product ideas
Chapter 05 – Decision Making, Learning, Creativity, and Entrepreneurship
B. Entrepreneurship and New Ventures
1. Characteristics of Entrepreneurs: Entrepreneurs are likely
to be high on the personality trait of openness to experience.
They also are likely to have an internal locus of control and
believe that they are responsible for what happens to them.
2. Entrepreneurs are likely to have a high level of self-esteem,
a high need for achievement, and a strong desire to perform
challenging tasks and meet high personal standards of
excellence.
3. Entrepreneurship and Management: One way people
become involved in entrepreneurial ventures is to start a
business from scratch. When people who start solo ventures
succeed, they frequently need to hire other people to help them
run the business.
a. Entrepreneurship is noticing the opportunity to satisfy
a customer need and deciding how to use the resources to
make a product that satisfies the need.
b. Some entrepreneurs find it hard to delegate authority. As
a result they become overloaded, and the quality of their
information systems and technology or to create the
operations management procedures that are critical to
increasing organizational efficiency.
new product. An entrepreneur must hire managers who can
create an operating system that will let the new venture
survive and prosper.
C. Intrapreneurship and Organizational Learning: The
promote
entrepreneurship to
create a learning
organization, and
differentiate between
Chapter 05 – Decision Making, Learning, Creativity, and Entrepreneurship
2. Skunkworks: A skunkworks is a group of intrapreneurs
who are deliberately separated from the normal operation of an
organization to encourage them to devote all their attention to
developing new products.
a. Development time is shortened and the quality of the
final product is enhanced.
b. The term skunkworks was coined at the Lockheed
Corporation, which formed a team of design engineers to
develop special aircraft, such as the U2 spy plane. The
secrecy of this unit and the speculation about its goals led
others to refer to it as “the skunkworks.”
3. Rewards for Innovation: To encourage managers to bear
risk and uncertainty, it is necessary to link performance to
rewards.
a. Increasingly, companies are rewarding intrapreneurs on
the basis of the outcome of the product development
process by granting them large bonuses and stock options
if their products sell. In addition to money, they often
receive promotion to the ranks of top management.
b. Organizations must reward intrapreneurs equitably if
they wish to prevent them from leaving to become outside
entrepreneurs who might form a competitive new venture.
Chapter 05 – Decision Making, Learning, Creativity, and Entrepreneurship
5-15
Lecturer Enhancer 5.1
WORLD-CLASS BAD DECISIONS
In the Decision Making Hall of Fame, one room should be reserved for truly bad decisions. One of the
classics, already mentioned in an earlier chapter, was Hewlett-Packard’s decision not to develop a product
created by an employee. The employee, Steve Wozniak then co-founded Apple Computer.
Some rejected ideas have involved whole industries. When Alexander Graham Bell invented the
telephone in 1876, he had a hard time attracting backers. President Rutherford B. Hayes used a prototype
telephone and remarked, “That’s an amazing invention, but who would ever want to use one of them?”
LECTURE ENHANCERS
Chapter 05 – Decision Making, Learning, Creativity, and Entrepreneurship
5-16
A young inventor, Chester Carlson, took his idea to twenty corporations, all of whom turned him down.
He finally got a small New York company named Haloid Co. to purchase the rights to his electrostatic
paper-copying process. Haloid became Xerox Corporation, and Carlson’s process made both Xerox and
Carlson very rich.
Lecture Enhancer 5.2
TEACHING CREATIVITY TO BUSINESS STUDENTS
Jeff Skoll, a vice president of eBay whose net worth is $2.16 billion, says one of the most valuable
courses he took at Stanford’s Graduate School of Business was Dr. Michael L. Ray’s “Personal Creativity
in Business.” Dr. Ray has been teaching this course for 21 years, and although it is unlike anything else
the business school offers, it fills up quickly each quarter. It would be unimaginable in most other
business schools, yet it has inspired numerous Stanford graduates to become Internet entrepreneurs.
“The course enabled me to step back and look at what I wanted to accomplish in my life.” says Skoll, who
received his MBA in 1995 and became eBay’s first president the following year. He is now vice president
for strategic planning at the online auction site.
purpose and career, time and stress, relationships, balance, and finding true prosperity. Students choose a
form of creative expression, such as dance or poetry reading, and to loosen their inhibitions, they may
meditate in the dark or create “mood doodles” with crayons in their journals. To deal with stress, they
might record their anxieties in journals or limit their fretting to a designated “worry time.”
Another one of Dr. Ray’s successful alums is Jim Collins, an educator, business consultant, and author of
Chapter 05 – Decision Making, Learning, Creativity, and Entrepreneurship
What stimulated Dr. Ray, who holds a doctorate in social psychology, to teach a course in creativity to
soon-to–be corporate executives and entrepreneurs? Ray says, “People were coming here and getting
technologically trained but nowhere did they stop and ask, who am I, at essence, and why am I here?
What is the purpose of all of this? People need to take the risk of being vulnerable, and when they do,
they are not only accepted, but applauded.”
Lecture Enhancer 5.3
BUREAUCRACY STRANGLES INTRAPRENEURSHIP
In the 1980s “intrapreneurship” became a buzzword among managers who wanted to introduce small–
business fervor into lumbering corporations. The idea was that the parent company would provide seed
money to employees, who would gain the satisfaction of running their own shop while producing
products that benefited their corporate sponsor.
The ventures did produce some successes. IBM developed its IBM Personal Computer through such a
venture. At Xerox Corporation, about half dozen successful companies have been created. Most, though,
have fallen flat. Companies like Control Data Corporation and Northwestern Bell Telephone Co. have
ended their programs. So did IBM, which says the program was unnecessary after the company
decentralized. Of the fourteen ventures Eastman Kodak created, six have been shut down, three have been
Notes for Topics for Discussion and Action
DISCUSSION
1. What are the main differences between programmed decision making and nonprogrammed decision
making?
MANAGEMENT IN ACTION