BUS815 L10-11Decision Making Leadership Slides

1

Leadership & Decision Making

BUS815 Week 10/11

2

Leadership Theories

Leaders move things forward

3

What is leadership and how does it differ from management? •  Management is the advantageous exercise of

an organisation’s resources (Brooks 1999)

•  ‘the art of getting things done through and with people in formally organised groups’ (Koontz in McKenna p28)

•  Role of management is to promote stability or to enable the organization to run smoothly (Schermerhorn Ch 11)

4

What is leadership and how does it differ from management? •  Leadership

–  process of influencing others to understand and agree about what needs to be done and how to do it, and the process of facilitating individual and collective efforts to accomplish shared efforts

–  Formal leadership –  Informal leadership

5

What is leadership and how does it differ from management? •  Formal leadership

–  exerted by persons appointed to or elected to positions of formal authority in organizations

•  Informal leadership –  exerted by persons who become influential

because they have special skills that meet the resource needs of others

6

What is leadership and how does it differ from management? •  Approaches to leadership

–  Trait and behavioral theory perspectives –  Situational contingency perspectives –  Transformational and charismatic perspectives

7

What is leadership and how does it differ from management?

•  Trait perspectives –  assume that traits play a central role in

differentiating between leaders and non-leaders or in predicting leader or organizational outcomes.

8

9

What is leadership and how does it differ from management? •  Behavioral theories

–  assumes that leadership is central to performance and other outcomes

–  Focuses on leader behaviors rather than traits

10

What is leadership and how does it differ from management? •  Michigan leadership studies

–  Employee-centered supervisors •  Place strong emphasis on subordinate’s welfare •  Also know as human relations oriented

–  Production-centered supervisors •  Place strong emphasis on getting the work done •  Also known as task oriented

11

What is leadership and how does it differ from management? •  Ohio State leadership studies

–  Consideration •  Sensitive to people’s feelings and making things pleasant

for the followers

–  Initiating structure •  Concerned with spelling out the task requirements and

clarifying other aspects of the work agenda

12

What is leadership and how does it differ from management? •  Leadership Grid

–  Developed by Blake and Mouton –  Built on the Ohio U work - particularly the dual

emphasis of consideration and initiating structure –  Measured people along those two dimensions and

plotted them on a 9 x 9 Grid (matrix) reflecting levels of concern for people and concern for task

13

What is leadership and how does it differ from management? •  Leadership Grid

–  The aim was to become a 9,9 manager, someone with a “team management” style

–  Well accepted in industry in the 1960s and 70s –  Widely used in IBM, a world leading organisation

at the time, and a user of teams and matrix structures

14

What is leadership and how does it differ from management? •  Leadership Grid Difficulties

–  Same as for Ohio work –  model is based on two independent dimensions

•  Are they independent? •  Is it possible to be maximally concerned for both at the

same time? •  Do we tend to emphasise one over the other at different

times?

15

What are situational contingency approaches to leadership?

–  The previous behavioural models considered leadership as a set of behaviours for all situations

–  Situation/Contingency-based leadership models start from the belief that leader traits and behaviors can act in conjunction with situational contingencies

–  The effects of leader traits are enhanced by their relevance to situational contingencies

16

What are situational contingency approaches to leadership?

–  So, if you are you and cannot change there will situations where you will be a good leader and others where you will not. It depends on the match between your traits and behaviours and the situation you are in.

–  Situation/Contingency models set out to define the situation that the manager is in and then either the managers style (to determine fit) or the required style (to enable managers to adapt their style)

17

What are situational contingency approaches to leadership?

•  There are a range of approaches. The major theories are: –  Fiedler –  House –  Hersey and Blanchard –  Graen

18

What are situational contingency approaches to leadership?

•  Hersey and Blanchard –  There is no single best way to lead. –  The critical situational contingency is “follower

readiness” - the extent to which people (followers) have the ability and willingness to accomplish a particular task(s)

–  Ability and willingness are two separate dimensions

–  Four readiness states are identified based on different combinations of high and low levels of the two attributes

19

What are situational contingency approaches to leadership?

•  Hersey and Blanchard –  Leadership is again about two dimensions - one

about people and relationships and one about tasks and productivity

–  Each of the four types of Readiness have a matching Leader Behaviour

20

21

What are situational contingency approaches to leadership?

•  Hersey and Blanchard – People can develop in terms of ability and

willingness. Leadership style can adapt to compensate. For example R1 to R3 implies Telling to Participating

22

23

What are situational contingency approaches to leadership?

•  Romance of leadership –  is where people attribute romantic, almost

magical, qualities to leadership

•  Benefits of leadership? –  For the manager/unit –  For the company

24

What is implicit leadership?

•  Inference-based –  Emphasizes leadership effectiveness as inferred

by perceived group/organizational performance outcomes

25

What is implicit leadership?

•  Recognition-based –  is leadership effectiveness based on how well a

person fits characteristics of a good or effective leader

26

What are charismatic/transformational perspectives?

•  Charismatic leaders –  Leaders who by force of their personal abilities,

are capable of having a profound and extraordinary effect on followers

27

What are charismatic/transformational perspectives?

Conger and Kanungo’s three-stage charismatic leadership model Stage 1: the leader critically evaluates the status

quo Stage 2: the leader formulates and articulates future

goals and a idealized future vision. Stage 3: the leader shows how the goals and vision

can be achieved, emphasizing innovative and unusual means.

28

•  Transactional leadership –  Involves leader-follower exchanges necessary for

achieving routine performance that is agreed upon by leaders and followers

What are charismatic/transformational perspectives?

29

What are charismatic/transformational perspectives?

•  Leader-follower exchanges involve: –  Use of contingent rewards. –  Active management by exception. –  Passive management by exception. –  Abdicating responsibilities and avoiding decisions.

30

What are charismatic/transformational perspectives?

•  Transformational leadership –  Leaders broaden and elevate followers’ interests,

generate awareness and acceptance of the group’s mission, and stir followers to look beyond self-interests

31

What are charismatic/transformational perspectives?

•  Dimensions of transformational leadership –  Charisma –  Inspiration –  Intellectual stimulation –  Individualized consideration

32

What are charismatic/transformational perspectives?

Can people be trained in the new leadership? –  People can be trained to adopt new leadership

approaches. –  Leaders can devise improvement programs to

address their weaknesses and work with trainers to develop their leadership skills.

–  Leaders can be trained in charismatic skills.

33

Emerging Leadership Perspectives

34

What is integrative leadership?

•  A range of theories about leadership which extend the previous models in various ways. –  Full Range Leadership Theory - uses nine dimensions

covering both transformational and transactional leadership, emphasizing contextual variables

–  Shared Leadership - leadership is “owned” by more than one person in a situation

–  GLOBE, Cross-cultural Leadership - incorporates cultural factors

–  Leadership at the strategic apex

35

What is moral leadership?

•  Moral leadership –  A range of leadership approaches that have

gained more prominence recently due to ethical failures such as Enron

–  Ethical leadership –  Authentic leadership –  Servant leadership –  Spiritual leadership

36

Decision Making

Leaders are decisive

37

Decision Making Defined

Decision making is a conscious process of making choices among one or more alternatives, with the intention of moving toward some desired state of affairs

38

Rational Choice

39

Rational Choice Paradigm

•  Rational choice paradigm: effective decision makers identify, select and apply the best possible alternative

•  Two key elements of rational choice 1.  Subjective expected utility: determines choice with

highest value (maximisation) 2.  Decision-making process: systematic application

of stages of decision making

40

Subjective Expected Utility Estimating the best possible alternative (maximisation) Expected—probability of an outcome occurring •  E.g. chance that outcome 3 will occur is 90% if choice ‘A’ is chosen, 30% if choice ‘B’ is chosen

Utility—value or happiness produced by each option from value of expected outcomes •  Choice ‘B’ has higher utility (value) than choice ‘A’ •  Choice ‘B’ expected utility is (0.8×7)+(0.2×–2)+(0.3×1)=6.4

Outcome 1 (+7)

Outcome 2 (-2)

Outcome 3 (+1)

0.8

0.2

0.3

Outcome 1 (+7)

Outcome 2 (-2)

Outcome 3 (+1)

0.2

0.5

0.9

Utility (expected happiness)

Probability of outcome occurring

41

Rational Choice Decision Process

42

Rational Choice Decision Process

•  Identify problem or opportunity –  Symptom vs problem

•  Choose decision process –  e.g. (non) programmed

•  Develop/identify alternatives –  Search, then develop

•  Choose best alternative –  Subjective expected utility

•  Implement choice •  Evaluate choice

43

Rational Choice Decision Process

•  Identify problem or opportunity –  Symptom vs problem

•  Choose decision process –  e.g. (non) programmed

•  Develop/identify alternatives –  Search, then develop

•  Choose best alternative –  Subjective expected utility

•  Implement choice •  Evaluate choice

44

Problems with the Rational Choice Paradigm

•  The model assumes that people are efficient and logical information-processing machines

•  In reality, people have difficulty recognising problems and failures and cannot simultaneously process huge volumes of information

•  The model focuses on logical thinking and completely ignores emotions

45

Identifying Problems and Opportunities

46

Problems with Problem Identification

• Stakeholder framing

• Mental models

• Decisive leadership

• Solution-focused problems

• Perceptual defence

47

Identifying Problems and Opportunities Effectively

1. Be aware of perceptual and diagnostic limitations

2. Fight against pressure to look decisive

3. Maintain ‘divine discontent’ (aversion to complacency)

4. Discuss the situation with colleagues—see different perspectives

48

Making Choices: Rational vs OB Views

Goals are ambiguous, conflicting and lack agreement

Goals are clear, compatible and agreed upon

People are able to calculate all alternatives and their outcomes

People evaluate all alternatives simultaneously

People have limited information processing abilities

People evaluate alternatives sequentially

Rational choice paradigm assumptions

Observations from organisational behaviour

49

Making Choices: Rational vs OB Views continued

People evaluate alternatives against an implicit favourite

People use absolute standards to evaluate alternatives

People make choices using factual information

People choose the alternative with the highest payoff (SEU)

People make choices using perceptually distorted information

People choose the alternative that is good enough (satisficing)

Rational choice paradigm assumptions

Observations from organisational behaviour

50

Problem - Biased Decision Heuristics People have built-in decision heuristics that bias evaluation of alternatives

1. Anchoring and adjustment—initial information (e.g. opening bid) influences evaluation of subsequent information

2. Availability heuristic—we estimate probabilities by how easily we can recall the event, even though other factors influence ease of recall

3. Representativeness heuristic—we estimate probabilities by how much they are similar to something else (e.g. stereotypes) even when better information about probabilities is available

51

Paralysed by Choice •  Decision makers are less likely

to make any decision at all as the number of options increases

•  Occurs even when there are clear benefits to selecting any alternative (such as joining a company retirement plan)

•  Evidence of human information processing limitations

Courtesy of Microsoft

52

53

The four perspectives on decision making Rational process to get to the right answer

Open process to build consensus

Ritual to build legitimacy

Process in which different coalitions exercise power

54

What is involved in the decision-making process?

•  Decisions are made in the context of three general environments. – Certainty – Risk – Uncertainty

55

What is involved in the decision-making process?

A decision environment is certain –  When information is sufficient to predict the

results of each alternative in advance of implementation.

56

What is involved in the decision-making process?

A decision environment is risky –  When decision makers lack complete certainty

regarding the outcomes of various courses of action, but they are aware of the probabilities associated with their occurrence.

57

What is involved in the decision-making process?

A decision environment is uncertain –  When managers have so little information on

hand that they cannot even assign probabilities to various alternatives and their possible outcomes.

58

Figure 9.3 Decision making viewed from the classical and behavioral perspectives

59

end of lecture