Fundamentals of Management, 8th ed

110

Part 2: Planning

Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

---

teams—the kind of teams that make so many organizational decisions today. Under

these circumstances, the greater the gap between highest- and lowest-paid executives,

the weaker the firm’s financial performance. Why? According to Pfeffer and Sutton,

wide disparities in pay often weaken both trust among team members and 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 collabo-

ration 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 commer-

cial airline pilots occur on the first day that reconfigured crews work together.

21

BEHAVIORAL ASPECTS OF DECISION MAKING

If all decision situations were approached as logically as described in the previous section,

more decisions might prove to be successful. Yet decisions are often made with little con-

sideration for logic and rationality. Some experts have estimated that U.S. companies use

rational decision-making techniques less than 20 percent of the time.

22

And, even when

organizations try to be logical, they sometimes fail. For example, when Starbucks opened

its first coffee shop in New York, it relied on scientific marketing research, taste tests, and

rational deliberation in making a decision to emphasize drip over espresso coffee. How-

ever, that decision still proved wrong, as New Yorkers strongly preferred the same

espresso-style coffees that were Starbucks mainstays in the West. Hence, the firm had to

hastily reconfigure its stores to better meet customer preferences.

On the other hand, sometimes when a decision is made with little regard for logic, it

can still turn out to be correct.

23

An important ingredient in how these forces work is the

behavioral aspect of decision making. The administrative model better reflects these sub-

jective considerations. Other behavioral aspects include political forces, intuition and

escalation of commitment, risk propensity, and ethics.