Class 5 (Improving Decision Processes)

PART A

Read:    William Krasker, “Freemark Abbey”, Harvard Business School Case (9-181-027). Available in your course package.

Decision Analysis is a structured approach to decision making. The note on Decision Analysis (Class 1) outlines a systematic method for approaching a decision problem. Use this note as a guide to help prepare the case.

The assignment is online. Please complete the survey here. Please submit one per group. The survey should be submitted by 8:30 on Friday morning.

http://faculty.chicagobooth.edu/george.wu/surveys/xp6.html

The questions are repeated here for your convenience.

Question 1. What should Mr. Jaeger do? Harvest Now or Wait

Question 2. Rate the strength of your decision on a 1 ("strongly support harvesting") to 7 ("strongly support ") scale.

Question 3. Please give a few reasons for your choice.  

PART B

Today, we will discuss how firms make (and can improve) decisions. I ask you to fill out the following survey to help me understand how you view the quality of your firm's decision making. This is an individual asssignment. Please complete the assignment by 9:00 on Thursday evening. Your answers are strictly confidential.

http://faculty.chicagobooth.edu/george.wu/surveys/xp5.html

The questions are repeated here for your convenience.

Question 1. Rate the quality of your firm's decision making (overall) on a 1 ("terrible") to 9 ("excellent") scale.

Question 2. Assess the degree of risk taking at your firm on a 1 ("takes much too little risk") to 5 ("takes about the right amount of risk") to 9 ("takes much too much risk") scale.

Question 3. Assess the degree of optimism/pessimism managers at your firm display in making important judgments on a 1 ("extremely pessimistic") to 5 ("generally realistic") to 9 ("extremely optimistic")

Question 4. Consider how your firm generates alternatives. Rate the quality of this process on a 1 ("terrible") to 9 ("excellent") scale.

Question 5. Consider the amount of your time your firm spends making judgments (collecting information, building models, soliciting advice, reconciling differing opinions, etc.). In general, does your firm do a good job at making judgments. Rate on a 1 ("terrible") to 9 ("excellent") scale.

Question 6. Consider your firm's evaluation process (e.g., developing objectives, combining sources of information, reaching a conclusion). Rate the quality of this process on a 1 ("terrible") to 9 ("excellent") scale

Question 7 . Consider your firm's evaluation process (e.g., developing objectives, combining sources of information, reaching a conclusion). Rate the quality of this process on a 1 ("terrible") to 9 ("excellent") scale

Question 8 . Consider any best practices your firm might have. Please discuss one (or more) that you feel might be of interest to others in this course.

Question 9 . Consider some poor decision making practices your firm might use? Please discuss one (or more) that you would like to share with the class?

Follow-up Reading (to be done after class)

PART A

Read:    Chip Heath, Richard P. Larrick, and Joshua Klayman (1998).  "Cognitive Repairs: How Organizational Practices Can Compensate for Individual Shortcomings", Research in Organizational Behavior 20, 1-37. Available in your course package.

This article nicely summarizes much of the research on judgmental biases we have discussed during the term.  Moreover, it describes how organizations impose practices designed to overcome these biases.

Preparation Questions:

1. What is a cognitive repair?  How does a cognitive repair differ from the following prescription: "follow the normative rule that applies in this situation"?

2. What conditions must be in place for a cognitive repair to be successful?

PART B

Read:    Kathleen M. Eisenhardt (1990).  "Speed and Strategic Choice: How Managers Accelerate Decision Making," California Management Review 32, 39-54. This article is in your course package and also available here:

http://proxy.uchicago.edu/login?url=http://proquest.umi.com.proxy.uchicago.edu/pqdweb?did=1445150831&sid=3&Fmt=2&clientId=13392&RQT=309&VName=PQD(You need to have a University IP or be using the proxy server or VPN to have access.)

Eisenhardt describes some field research conducted in high tech companies.  She argues that successful companies are able to make fast decisions without "skimping on analysis" and still consider a large number of alternatives.

Preparation Questions (for discussion only):

1. According to Eisenhardt, what's the conventional wisdom about effort and accuracy in decision maker?  What do Eisenhardt's managers do in order to make faster, higher quality decisions?

2. What biases, if any, do these behaviors overcome?  What biases, if any, might

3. How general is Eisenhardt's advice to decision makers in other environments?

PART C

Read:    Paul Sharpe and Tom Keelin  (1998).  "How Smithkline Beecham makes better resource-allocation decisions", Harvard Business Review. This article is in your course package and also available here:

http://proxy.uchicago.edu/login?url=http://proquest.umi.com.proxy.uchicago.edu/pqdweb?did=26901360&sid=13&Fmt=2&clientId=13392&RQT=309&VName=PQD(You need to have a University IP or be using the proxy server or VPN to have access.)

The article describes an approach that a large pharmaceutical firm is taking to make better decisions.

Preparation Questions (for discussion only):

1. What does Smithkline Beecham do that is different in their decision making from other comparably large firms?  How general is the advice offered in this article?  To other industries? To other types of decisions?