Bounded Rationality<\/h3>\r\n
While we might like to think that we can make completely rational decisions, this is often unrealistic given the complex issues faced by managers. Nonrational decision-making is common, especially with nonprogrammed decisions. Since we haven\u2019t faced a particular situation previously, we don\u2019t always know what questions to ask or what information to gather. Even when we have gathered all the possible information, we may not be able to make rational sense of all of it, or to accurately forecast or predict the outcomes of our choice. Bounded rationality<\/span> is the idea that for complex issues we cannot be completely rational because we cannot fully grasp all the possible alternatives, nor can we understand all the implications of every possible alternative. Our brains have limitations in terms of the amount of information they can process. Similarly, as was alluded to earlier in the chapter, even when managers have the cognitive ability to process all the relevant information, they often must make decisions without first having time to collect all the relevant data\u2014their information is incomplete.<\/p>\r\n\r\n<\/div>\r\n Given the lack of complete information, managers don\u2019t always make the right decision initially, and it may not be clear that a decision was a bad one until after some time has passed. For example, consider a manager who had to choose between two competing software packages that her organization will use on a daily basis to enhance efficiency. She initially chooses the product that was developed by the larger, more well-established company, reasoning that they will have greater financial resources to invest in ensuring that the technology is good. However, after some time it becomes clear that the competing software package is going to be far superior. While the smaller company\u2019s product could be integrated into the organization\u2019s existing systems at little additional expense, the larger company\u2019s product will require a much greater initial investment, as well as substantial ongoing costs for maintaining it. At this point, however, let\u2019s assume that the manager has already paid for the larger company\u2019s (inferior) software. Will she abandon the path that she\u2019s on, accept the loss on the money that\u2019s been invested so far, and switch to the better software? Or will she continue to invest time and money into trying to make the first product work? Escalation of commitment<\/span> is the tendency of decision makers to remain committed to poor decision, even when doing so leads to increasingly negative outcomes. Once we commit to a decision, we may find it difficult to reevaluate that decision rationally. It can seem easier to \u201cstay the course\u201d than to admit (or to recognize) that a decision was poor. It\u2019s important to acknowledge that not all decisions are going to be good ones, in spite of our best efforts. Effective managers recognize that progress down the wrong path isn\u2019t really progress, and they are willing to reevaluate decisions and change direction when appropriate.<\/p>\r\n\r\n<\/div>\r\n Managers often face time constraints that can make effective decision-making a challenge. When there is little time available to collect information and to rationally process it, we are much less likely to make a good nonprogrammed decision. Time pressures can cause us to rely on heuristics rather than engage in deep processing. While heuristics save time, however, they don\u2019t necessarily lead to the best possible solution. The best managers are constantly assessing the risks associated with acting too quickly against those associated with not acting quickly enough.<\/p>\r\n\r\n<\/div>\r\n In addition, managers frequently make decisions under conditions of uncertainty\u2014they cannot know the outcome of each alternative until they\u2019ve actually chosen that alternative. Consider, for example, a manager who is trying to decide between one of two possible marketing campaigns. The first is more conservative but is consistent with what the organization has done in the past. The second is more modern and edgier, and might bring much better results . . . or it might be a spectacular failure. The manager making the decision will ultimately have to choose one campaign and see what happens, without ever knowing what the results would have been with the alternate campaign. That uncertainty can make it difficult for some managers to make decisions, because committing to one option means forgoing other options.<\/p>\r\n\r\n<\/div>\r\n Our decision-making is also limited by our own biases. We tend to be more comfortable with ideas, concepts, things, and people that are familiar to us or similar to us. We tend to be less comfortable with that which is unfamiliar, new, and different. One of the most common biases that we have, as humans, is the tendency to like other people who we think are similar to us (because we like ourselves).<\/p>\r\n\r\n It can be incredibly difficult to overcome our biases because of the way our brains work. The brain excels at organizing information into categories, and it doesn\u2019t like to expend the effort to re-arrange once the categories are established. As a result, we tend to pay more attention to information that confirms our existing beliefs and less attention to information that is contrary to our beliefs, a shortcoming that is referred to as confirmation bias<\/span>.<\/p>\r\n\r\n In fact, we don\u2019t like our existing beliefs to be challenged. Such challenges feel like a threat, which tends to push our brains towards the reactive system and prevent us from being able to logically process the new information via the reflective system. It is hard to change people\u2019s minds about something if they are already confident in their convictions. So, for example, when a manager hires a new employee who she really likes and is convinced is going to be excellent, she will tend to pay attention to examples of excellent performance and ignore examples of poor performance (or attribute those events to things outside the employee\u2019s control). The manager will also tend to trust that employee and therefore accept their explanations for poor performance without verifying the truth or accuracy of those statements. The opposite is also true; if we dislike someone, we will pay attention to their negatives and ignore or discount their positives. We are less likely to trust them or believe what they say at face value. This is why politics tend to become very polarized and antagonistic within a two-party system. It can be very difficult to have accurate perceptions of those we like and those we dislike. The effective manager will try to evaluate situations from multiple perspectives and gather multiple opinions to offset this bias when making decisions.<\/p>\r\n\r\n<\/div>\r\n Finally, effective decision-making can be difficult because of conflict. Most individuals dislike conflict and will avoid it when possible. However, the best decision might be one that is going to involve some conflict. Consider a manager who has a subordinate who is often late to work, causing others to have to step away from their responsibilities in order to cover for the late employee. The manager needs to have a conversation with that employee to correct the behavior, but the employee is not going to like the conversation and may react in a negative way. Both of them are going to be uncomfortable. The situation is likely to involve conflict, which most people find stressful. Yet, the correct decision is still to have the conversation even if (or especially if) the employee otherwise is an asset to the department.<\/p>\r\n \r\n If the bad behavior is not corrected, it will continue, which is going to cause more problems in the workplace in the long run. Other employees may recognize that this behavior is allowed, and they may also start coming to work late or engaging in other negative behaviors. Eventually, some employees may become sufficiently frustrated that they look for another place to work. It\u2019s worth noting that in this situation, the best employees will find new jobs the most quickly. It\u2019s important for managers to recognize that while conflict can be uncomfortable (especially in the short-term), there are times when it is necessary for the group, department, or organization to function effectively in the long run.<\/p>\r\n It is also helpful to think about conflict in terms of process conflict or relationship conflict.<\/p>\r\n\r\n Effective managers should be particularly aware of the possibility of relationship conflict when giving feedback and should keep feedback focused on behaviors and activities (how things are done) rather than on the individual. Being aware of and dealing with relationship conflict points to why emotional intelligence and empathy are beneficial in organizational leaders. Such leaders are more likely to be attentive to the harmful consequences of relationship conflict. The \u201cManagerial Leadership\u201d segment shows how one CEO encourages empathetic collaboration and how that effort is proving beneficial.<\/p>\r\n\r\n When Satya Nadella became the CEO of Microsoft in 2014, he set in motion a major transformation of the organization\u2019s culture. He wanted it to shift from a culture that valued \u201cknow-it-alls\u201d to one that values \u201clearn-it-all.\u201d Instead of employees feeling the need to prove that they were the smartest person in the room, he wanted them to become curious and effective listeners, learners, and communicators. Only through continual learning and collaboration with one another, and with customers, would Microsoft remain able to develop and provide great technology solutions.<\/p>\r\n One of Nadella\u2019s first mandates as CEO was to ask all the members of the top management team to read the book Nonviolent Communication<\/em> by Marshall Rosenberg. The primary focus of the book is on empathetic communication\u2014a kinder, gentler approach than Microsoft employees were accustomed to. Nadella believes that developing empathy leads to a heightened understanding of consumer needs and wants and an enhanced ability to develop better products and services through collaboration.<\/p>\r\n Nadella has also embraced diversity and inclusion initiatives, though he readily acknowledges that there is more to be done. This is, in part, an extension of his focus on empathy. However, it\u2019s also good business, because increasing the diversity of perspectives can help to drive innovation.<\/p>\r\n This cultural shift is reflected in Microsoft\u2019s new mission statement: \u201cTo empower every person and every organization on the planet to achieve more.\u201d Empowering every person includes Microsoft\u2019s own employees. Achieving diversity is particularly a challenge in an industry that is male dominated, and Nadella admits that he has made mistakes based on his own biases. At a Women in Computing conference early in his tenure as CEO, Nadella suggested that women did not need to ask for raises when they deserved them; the system, he said, would work it out. He later admitted that he was wrong and used the mistake as a platform for making greater strides in this arena.<\/p>\r\n Senior management team meetings at Microsoft have apparently changed dramatically as a result of the culture change driven by Nadella. Previously, members felt the need to constantly prove that they knew all the right answers at team meetings. Nadella has established different norms; he seeks out honest opinions from team members and gives positive feedback on a regular basis. By moving the focus away from always being right and toward a focus of continual learning, the culture at Microsoft has become more collaborative, and employees are more willing to take risks to create something amazing. The culture shift seems to be paying off: Microsoft\u2019s products are being described as \u201ccool\u201d and \u201cexciting,\u201d its cloud-computing platform is outperforming the competition, and its financial performance has improved dramatically. Transforming the culture of an organization is a massive undertaking, but Nadella\u2019s leadership of Microsoft clearly shows that it\u2019s a decision that can pay off.<\/p>\r\n\r\n Exercises<\/p>\r\n\r\n<\/header>\r\n Key Takeaways<\/p>\r\n\r\n<\/header>\r\n There are a number of barriers to effective decision-making. Effective managers are aware of these potential barriers and try to overcome them as much as possible.<\/p>\n While we might like to think that we can make completely rational decisions, this is often unrealistic given the complex issues faced by managers. Nonrational decision-making is common, especially with nonprogrammed decisions. Since we haven\u2019t faced a particular situation previously, we don\u2019t always know what questions to ask or what information to gather. Even when we have gathered all the possible information, we may not be able to make rational sense of all of it, or to accurately forecast or predict the outcomes of our choice. Bounded rationality<\/span> is the idea that for complex issues we cannot be completely rational because we cannot fully grasp all the possible alternatives, nor can we understand all the implications of every possible alternative. Our brains have limitations in terms of the amount of information they can process. Similarly, as was alluded to earlier in the chapter, even when managers have the cognitive ability to process all the relevant information, they often must make decisions without first having time to collect all the relevant data\u2014their information is incomplete.<\/p>\n<\/div>\n Given the lack of complete information, managers don\u2019t always make the right decision initially, and it may not be clear that a decision was a bad one until after some time has passed. For example, consider a manager who had to choose between two competing software packages that her organization will use on a daily basis to enhance efficiency. She initially chooses the product that was developed by the larger, more well-established company, reasoning that they will have greater financial resources to invest in ensuring that the technology is good. However, after some time it becomes clear that the competing software package is going to be far superior. While the smaller company\u2019s product could be integrated into the organization\u2019s existing systems at little additional expense, the larger company\u2019s product will require a much greater initial investment, as well as substantial ongoing costs for maintaining it. At this point, however, let\u2019s assume that the manager has already paid for the larger company\u2019s (inferior) software. Will she abandon the path that she\u2019s on, accept the loss on the money that\u2019s been invested so far, and switch to the better software? Or will she continue to invest time and money into trying to make the first product work? Escalation of commitment<\/span> is the tendency of decision makers to remain committed to poor decision, even when doing so leads to increasingly negative outcomes. Once we commit to a decision, we may find it difficult to reevaluate that decision rationally. It can seem easier to \u201cstay the course\u201d than to admit (or to recognize) that a decision was poor. It\u2019s important to acknowledge that not all decisions are going to be good ones, in spite of our best efforts. Effective managers recognize that progress down the wrong path isn\u2019t really progress, and they are willing to reevaluate decisions and change direction when appropriate.<\/p>\n<\/div>\n Managers often face time constraints that can make effective decision-making a challenge. When there is little time available to collect information and to rationally process it, we are much less likely to make a good nonprogrammed decision. Time pressures can cause us to rely on heuristics rather than engage in deep processing. While heuristics save time, however, they don\u2019t necessarily lead to the best possible solution. The best managers are constantly assessing the risks associated with acting too quickly against those associated with not acting quickly enough.<\/p>\n<\/div>\n In addition, managers frequently make decisions under conditions of uncertainty\u2014they cannot know the outcome of each alternative until they\u2019ve actually chosen that alternative. Consider, for example, a manager who is trying to decide between one of two possible marketing campaigns. The first is more conservative but is consistent with what the organization has done in the past. The second is more modern and edgier, and might bring much better results . . . or it might be a spectacular failure. The manager making the decision will ultimately have to choose one campaign and see what happens, without ever knowing what the results would have been with the alternate campaign. That uncertainty can make it difficult for some managers to make decisions, because committing to one option means forgoing other options.<\/p>\n<\/div>\n Our decision-making is also limited by our own biases. We tend to be more comfortable with ideas, concepts, things, and people that are familiar to us or similar to us. We tend to be less comfortable with that which is unfamiliar, new, and different. One of the most common biases that we have, as humans, is the tendency to like other people who we think are similar to us (because we like ourselves).<\/p>\n While these similarities can be observable (based on demographic characteristics such as race, gender, and age), they can also be a result of shared experiences (such as attending the same university) or shared interests (such as being in a book club together). This \u201csimilar to me\u201d bias and preference for the familiar can lead to a variety of problems for managers: hiring less-qualified applicants because they are similar to the manager in some way, paying more attention to some employees\u2019 opinions and ignoring or discounting others, choosing a familiar technology over a new one that is superior, sticking with a supplier that is known over one that has better quality, and so on.<\/p>\n It can be incredibly difficult to overcome our biases because of the way our brains work. The brain excels at organizing information into categories, and it doesn\u2019t like to expend the effort to re-arrange once the categories are established. As a result, we tend to pay more attention to information that confirms our existing beliefs and less attention to information that is contrary to our beliefs, a shortcoming that is referred to as confirmation bias<\/span>.<\/p>\n In fact, we don\u2019t like our existing beliefs to be challenged. Such challenges feel like a threat, which tends to push our brains towards the reactive system and prevent us from being able to logically process the new information via the reflective system. It is hard to change people\u2019s minds about something if they are already confident in their convictions. So, for example, when a manager hires a new employee who she really likes and is convinced is going to be excellent, she will tend to pay attention to examples of excellent performance and ignore examples of poor performance (or attribute those events to things outside the employee\u2019s control). The manager will also tend to trust that employee and therefore accept their explanations for poor performance without verifying the truth or accuracy of those statements. The opposite is also true; if we dislike someone, we will pay attention to their negatives and ignore or discount their positives. We are less likely to trust them or believe what they say at face value. This is why politics tend to become very polarized and antagonistic within a two-party system. It can be very difficult to have accurate perceptions of those we like and those we dislike. The effective manager will try to evaluate situations from multiple perspectives and gather multiple opinions to offset this bias when making decisions.<\/p>\n<\/div>\n Finally, effective decision-making can be difficult because of conflict. Most individuals dislike conflict and will avoid it when possible. However, the best decision might be one that is going to involve some conflict. Consider a manager who has a subordinate who is often late to work, causing others to have to step away from their responsibilities in order to cover for the late employee. The manager needs to have a conversation with that employee to correct the behavior, but the employee is not going to like the conversation and may react in a negative way. Both of them are going to be uncomfortable. The situation is likely to involve conflict, which most people find stressful. Yet, the correct decision is still to have the conversation even if (or especially if) the employee otherwise is an asset to the department.<\/p>\n <\/p>\n If the bad behavior is not corrected, it will continue, which is going to cause more problems in the workplace in the long run. Other employees may recognize that this behavior is allowed, and they may also start coming to work late or engaging in other negative behaviors. Eventually, some employees may become sufficiently frustrated that they look for another place to work. It\u2019s worth noting that in this situation, the best employees will find new jobs the most quickly. It\u2019s important for managers to recognize that while conflict can be uncomfortable (especially in the short-term), there are times when it is necessary for the group, department, or organization to function effectively in the long run.<\/p>\n It is also helpful to think about conflict in terms of process conflict or relationship conflict.<\/p>\n Process conflict,<\/span> conflict about the best way to do something, can actually lead to improved performance, as individuals explore various options together in order to identify superior solutions. Relationship conflict<\/span> is conflict between individuals that is more personal and involves attacks on a person rather than an idea. This kind of conflict is generally harmful and should be quelled when possible. The harm from relationship conflict arises at least in part because feeling personally attacked will cause an individual to revert to the reactive system of the brain.<\/p>\n <\/p>\n Effective managers should be particularly aware of the possibility of relationship conflict when giving feedback and should keep feedback focused on behaviors and activities (how things are done) rather than on the individual. Being aware of and dealing with relationship conflict points to why emotional intelligence and empathy are beneficial in organizational leaders. Such leaders are more likely to be attentive to the harmful consequences of relationship conflict. The \u201cManagerial Leadership\u201d segment shows how one CEO encourages empathetic collaboration and how that effort is proving beneficial.<\/p>\n When Satya Nadella became the CEO of Microsoft in 2014, he set in motion a major transformation of the organization\u2019s culture. He wanted it to shift from a culture that valued \u201cknow-it-alls\u201d to one that values \u201clearn-it-all.\u201d Instead of employees feeling the need to prove that they were the smartest person in the room, he wanted them to become curious and effective listeners, learners, and communicators. Only through continual learning and collaboration with one another, and with customers, would Microsoft remain able to develop and provide great technology solutions.<\/p>\n One of Nadella\u2019s first mandates as CEO was to ask all the members of the top management team to read the book Nonviolent Communication<\/em> by Marshall Rosenberg. The primary focus of the book is on empathetic communication\u2014a kinder, gentler approach than Microsoft employees were accustomed to. Nadella believes that developing empathy leads to a heightened understanding of consumer needs and wants and an enhanced ability to develop better products and services through collaboration.<\/p>\n Nadella has also embraced diversity and inclusion initiatives, though he readily acknowledges that there is more to be done. This is, in part, an extension of his focus on empathy. However, it\u2019s also good business, because increasing the diversity of perspectives can help to drive innovation.<\/p>\n This cultural shift is reflected in Microsoft\u2019s new mission statement: \u201cTo empower every person and every organization on the planet to achieve more.\u201d Empowering every person includes Microsoft\u2019s own employees. Achieving diversity is particularly a challenge in an industry that is male dominated, and Nadella admits that he has made mistakes based on his own biases. At a Women in Computing conference early in his tenure as CEO, Nadella suggested that women did not need to ask for raises when they deserved them; the system, he said, would work it out. He later admitted that he was wrong and used the mistake as a platform for making greater strides in this arena.<\/p>\n Senior management team meetings at Microsoft have apparently changed dramatically as a result of the culture change driven by Nadella. Previously, members felt the need to constantly prove that they knew all the right answers at team meetings. Nadella has established different norms; he seeks out honest opinions from team members and gives positive feedback on a regular basis. By moving the focus away from always being right and toward a focus of continual learning, the culture at Microsoft has become more collaborative, and employees are more willing to take risks to create something amazing. The culture shift seems to be paying off: Microsoft\u2019s products are being described as \u201ccool\u201d and \u201cexciting,\u201d its cloud-computing platform is outperforming the competition, and its financial performance has improved dramatically. Transforming the culture of an organization is a massive undertaking, but Nadella\u2019s leadership of Microsoft clearly shows that it\u2019s a decision that can pay off.<\/p>\n <\/p>\n<\/div>\n Exercises<\/p>\n<\/header>\n Key Takeaways<\/p>\n<\/header>\n What barriers exist that make effective decision-making difficult?<\/p>\nEscalation of Commitment<\/h3>\r\n
Time Constraints<\/h3>\r\n
Uncertainty<\/h3>\r\n
Personal Biases<\/h3>\r\n
Conflict<\/h3>\r\n
<\/div>\r\n
Managerial Leadership: Satya Nadella\u2019s Transformation of Microsoft<\/h3>\r\n
\r\n \t
Sources: Kendall Baker, \u201cConfirmed: Microsoft is a legit threat to Apple,\u201d The Hustle, March 16, 2017. Bob Evans, \u201c10 Powerful examples of Microsoft CEO Satya Nadella\u2019s Transformative Vision,\u201d Forbes, July 26, 2017. Harry McCraken, \u201cSatya Nadella Rewrites Microsoft\u2019s Code,\u201d Fast Company, September 18, 2017, https:\/\/www.fastcompany.com\/40457458\/satya-nadella-rewrites-microsofts-code. Annie Palmer, \u201cMicrosoft has been reborn under CEO Satya Nadella,\u201d The Street, September 20, 2017.<\/em><\/h6>\r\n<\/div>\r\n \r\n\r\n<\/div>\r\n
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\r\n \t
Glossary<\/h3>\r\n
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\r\n \t
\r\n \t
\r\n \t
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Barriers to Effective Decision-Making<\/h2>\n
Bounded Rationality<\/h3>\n
Escalation of Commitment<\/h3>\n
Time Constraints<\/h3>\n
Uncertainty<\/h3>\n
Personal Biases<\/h3>\n
Conflict<\/h3>\n
<\/div>\n
Managerial Leadership: Satya Nadella\u2019s Transformation of Microsoft<\/h3>\n
\n
Sources: Kendall Baker, \u201cConfirmed: Microsoft is a legit threat to Apple,\u201d The Hustle, March 16, 2017. Bob Evans, \u201c10 Powerful examples of Microsoft CEO Satya Nadella\u2019s Transformative Vision,\u201d Forbes, July 26, 2017. Harry McCraken, \u201cSatya Nadella Rewrites Microsoft\u2019s Code,\u201d Fast Company, September 18, 2017, https:\/\/www.fastcompany.com\/40457458\/satya-nadella-rewrites-microsofts-code. Annie Palmer, \u201cMicrosoft has been reborn under CEO Satya Nadella,\u201d The Street, September 20, 2017.<\/em><\/h6>\n<\/div>\n
\n
\n
Glossary<\/h3>\n
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