CH 7 Individual & Decision Group Making – Flashcards

The biggest part of a manager's job is making decisions—and quite often they are wrong. Some questions you might ask next time you're poised to make a decision: "Am I Too Cocky?" The Overconfidence Bias If you're making a decision in an area in which you have considerable experience or expertise, you're less likely to be overconfident. Interestingly, however, you're more apt to be overconfident when dealing with questions on subjects you're unfamiliar with or questions with moderate to extreme difficulty.1 Recommendation: When dealing with unfamiliar or difficult matters, think how your impending decision might go wrong. Afterward pay close attention to the consequences of your decision. "Am I Considering the Actual Evidence, or Am I Wedded to My Prior Beliefs?" The Prior-Hypothesis Bias Do you tend to have strong beliefs? When confronted with a choice, decision makers with strong prior beliefs tend to make their decision based on their beliefs—even if evidence shows those beliefs are wrong. This is known as the prior-hypothesis bias. Recommendation: Although it's always more comforting to look for evidence to support your prior beliefs, you need to be tough-minded and weigh the evidence. "Are Events Really Connected, or Are They Just Chance?" The Ignoring-Randomness Bias Is a rise in sales in athletic shoes because of your company's advertising campaign or because it's the start of the school year? Many managers don't understand the laws of randomness. Recommendation: Don't attribute trends or connections to a single, random event. "Is There Enough Data on Which to Make a Decision?" The Unrepresentative Sample Bias If all the secretaries in your office say they prefer dairy creamer to real cream in their coffee, is that enough data on which to launch an ad campaign trumpeting the superiority of dairy creamer? It might if you polled 3,000 secretaries, but 3 or even 30 is too small a sample. Recommendation: You need to be attuned to the importance of sample size. "Looking Back, Did I (or Others) Really Know Enough Then to Have Made a Better Decision?" The 20-20 Hindsight Bias Once managers know what the consequences of a decision are, they may begin to think they could have predicted it. They may remember the facts as being a lot clearer than they actually were. Recommendation: Try to keep in mind that hindsight does not equal foresight.

The subject of decisions and decision making is a fascinating subject that is at the heart of what managers do. A decision is a choice made from among available alternatives.

Decision making is the process of identifying and choosing alternative courses of action.

The Maersk example sounds like a model for thoughtful decision making, making rational choices among well-defined alternatives. But that is not always the way it works in the real world.

"Our brains do not contain a single, general-purpose decision-making unit," writes psychologist Christopher Chabris. "Instead, we have two systems: one that is rational, analytical, and slow to act, and another that is emotional, impulsive, and prone to form and follow habits." Thus, for example, politicians "have long known that appeals to emotion are more effective than appeals to logic—not because people are stupid but because the mind is designed to use logic as a tool for supporting our beliefs rather than for changing them."

Why do some engineers design electronic products (such as DVD remote controls) with so many buttons, devices ultimately useful only to other engineers? Why are some professional investors and bankers prone to taking excess risks?8 Why are some employees so reluctant to adopt new processes? The answer may be what's known as the curse of knowledge. As one writer put it about engineers, for example, "People who design products are experts cursed by their knowledge, and they can't imagine what it's like to be as ignorant as the rest of us." In other words, as our knowledge and expertise grow, we may be less and less able to see things from an outsider's perspective—hence, we are often apt to make irrational decisions. Let us look at the two approaches managers may take to making decisions: They may follow a rational model or various kinds of nonrational models.

The rational model of decision making, also called the classical model, explains how managers should make decisions; it assumes managers will make logical decisions that will be the optimum in furthering the organization's best interests. Typically there are four stages associated with rational decision making.

1. Identify the problem or opportunity 2. Think up alternative solutions 3. Evaluate alternatives & select a solution 4. Implement & evaluate the solution chosen

As a manager, you'll probably find no shortage of problems, or difficulties that inhibit the achievement of goals. Customer complaints. Supplier breakdowns. Staff turnover. Sales shortfalls. Competitor innovations. However, you'll also often find opportunities—situations that present possibilities for exceeding existing goals. It's the farsighted manager, however, who can look past the steady stream of daily problems and seize the moment to actually do better than the goals he or she is expected to achieve. When a competitor's top salesperson unexpectedly quits, that creates an opportunity for your company to hire that person away to promote your product more vigorously in that sales territory. Whether you're confronted with a problem or an opportunity, the decision you're called on to make is how to make improvements—how to change conditions from the present to the desirable. This is a matter of diagnosis—analyzing the underlying causes.

Difficulties that inhibit the achievement of goals

Situations that present possibilities for exceeding existing goals

Analyzing the underlying causes

Employees burning with bright ideas are an employer's greatest competitive resource. "Creativity precedes innovation, which is its physical expression," says Fortune magazine writer Alan Farnham. "It's the source of all intellectual property." After you've identified the problem or opportunity and diagnosed its causes, you need to come up with alternative solutions.

In this stage, you need to evaluate each alternative not only according to cost and quality but also according to the following questions: (1) Is it ethical? (If it isn't, don't give it a second look.) (2) Is it feasible? (If time is short, costs are high, technology unavailable, or customers resistant, for example, it is not.) (3) Is it ultimately effective? (If the decision is merely "good enough" but not optimal in the long run, you might reconsider.)

With some decisions, implementation is usually straightforward (though not necessarily easy—firing employees who steal may be an obvious decision, but it can still be emotionally draining). With other decisions, implementation can be quite difficult; when one company acquires another, for instance, it may take months to consolidate the departments, accounting systems, inventories, and so on.

For implementation to be successful, you need to do two things: 1. Plan carefully. Especially if reversing an action will be difficult, you need to make careful plans for implementation. Some decisions may require written plans. 2. Be sensitive to those affected. You need to consider how the people affected may feel about the change—inconvenienced, insecure, even fearful, all of which can trigger resistance. This is why it helps to give employees and customers latitude during a changeover in business practices or working arrangements.

One "law" in economics is the law of unintended consequences—things happen that weren't foreseen. For this reason, you need to follow up and evaluate the results of the decision. What should you do if the action is not working? Some possibilities: -Give it more time. You need to make sure employees, customers, and so on have had enough time to get used to the new action. -Change it slightly. Maybe the action was correct, but it just needs "tweaking"—a small change of some sort. -Try another alternative. If plan A doesn't seem to be working, maybe you want to scrap it for another alternative. -Start over. If no alternative seems workable, you need to go back to the drawing board—to stage 1 of the decision-making process.

The rational model is prescriptive, describing how managers ought to make decisions. It doesn't describe how managers actually make decisions. Indeed, the rational model makes some highly desirable assumptions—that managers have complete information, are able to make an unemotional analysis, and are able to make the best decision for the organization. We all know that these assumptions are unrealistic.

-Complete information, no uncertainty. You should obtain complete, error-free information about all alternative courses of action and the consequences that would follow from each choice. -Logical, unemotional analysis. Having no prejudices or emotional blind spots, you are able to logically evaluate the alternatives, ranking them from best to worst according to your personal preferences. -Best decision for the organization. Confident of the best future course of action, you coolly choose the alternative that you believe will most benefit the organization.

Nonrational models of decision making explain how managers make decisions; they assume that decision making is nearly always uncertain and risky, making it difficult for managers to make optimal decisions. The nonrational models are descriptive rather than prescriptive: They describe how managers actually make decisions rather than how they should. Three nonrational models are (1) satisficing, (2) incremental, and (3) intuition.

During the 1950s, economist Herbert Simon—who later received the Nobel Prize—began to study how managers actually make decisions. From his research he proposed that managers could not act truly logically because their rationality was bounded by so many restrictions. -Called bounded rationality, the concept suggests that the ability of decision makers to be rational is limited by numerous constraints, such as complexity, time and money, and their cognitive capacity, values, skills, habits, and unconscious reflexes. -Because of such constraints, managers don't make an exhaustive search for the best alternative. Instead, they follow what Simon calls the satisficing model—that is, managers seek alternatives until they find one that is satisfactory, not optimal. While "satisficing" might seem to be a weakness, it may well outweigh any advantages gained from delaying making a decision until all information is in and all alternatives weighed. However, making snap decisions can also backfire. In the 1990s, for instance, Campbell Soup Co. tried to penetrate China's soup market, where 20 billion servings are consumed a year (versus only 14 billion in the United States). But rather than research Chinese tastes and cooking customs, which would have revealed that most soups are made from scratch, the company simply exported its line of condensed soups—an example of satisficing. Wondering why they should pay for something that could be easily made from scratch and objecting to the canlike tastes of prepared soups, Chinese consumers rejected the Campbell product.

Another nonrational decision-making model is the incremental model, in which managers take small, short-term steps to alleviate a problem, rather than steps that will accomplish a long-term solution. Of course, over time a series of short-term steps may move toward a long-term solution. However, the temporary steps may also impede a beneficial long-term solution.

Small entrepreneurs often can't afford in-depth marketing research and so they make decisions based on hunches—their subconscious, visceral feelings. For instance, Ben Hugh, 32, decided to buy I Can Has Cheezburger?, a blog devoted to silly cat pictures paired with viewer-submitted quirky captions, when it linked to his own pet blog and caused it to crash from a wave of new visitors. Putting up $10,000 of his own money and acquiring additional investor financing, he bought the site for $2 million from the Hawaiian bloggers who started it. "It was a white-knuckle decision," he said later. But he expanded the Cheezburger blog into an empire that now includes 53 sites. "Going with your gut," or intuition, is making a choice without the use of conscious thought or logical inference. Intuition that stems from expertise—a person's explicit and tacit knowledge about a person, situation, object, or decision opportunity—is known as a holistic hunch. Intuition based on feelings—the involuntary emotional response to those same matters—is known as automated experience. It is important to try to develop your intuitive skills because they are as important as rational analysis in many decisions. Some suggestions appear in the table below.

As a model for making decisions, intuition has at least two benefits. (1) It can speed up decision making, useful when deadlines are tight. (2) It can be helpful to managers when resources are limited. A drawback, however, is that it can be difficult to convince others that your hunch makes sense. In addition, intuition is subject to the same biases as those that affect rational decision making. Still, we believe that intuition and rationality are complementary and that managers should develop the courage to use intuition when making decisions

1. Open up the closet. To what extent do you experience intuition; trust your feelings; count on intuitive judgments; suppress hunches; covertly rely upon gut feel? 2. Don't mix up your I's. Instinct, Insight, and Intuition are not synonymous; practice distinguishing between your instincts, your insights, and your intuitions. 3. Elicit good feedback. Seek feedback on your intuitive judgments; build confidence in your gut feel; create a learning environment in which you can develop better intuitive awareness. 4. Get a feel for your batting average. Benchmark your intuitions; get a sense of how reliable hunches are; ask yourself how your intuitive judgment might be improved. 5. Use imagery. Use imagery rather than words; literally visualize potential future scenarios that take your gut feelings into account. 6. Play devil's advocate. Test out intuitive judgments; raise objections to them; generate counterarguments; probe how robust gut feel is when challenged. 7. Capture and validate your intuitions. Create the inner state to give your intuitive mind the freedom to roam; capture your creative intuitions; log them before they are censored by rational analysis.

It was the jet that Boeing didn't build that avoided what could have been possibly the worst disaster in the company's history and gave the aircraft builder the opportunity to go in a new direction. In late 2002, Boeing was desperately trying to figure out what kind of passenger airliner to build that would allow the company to effectively compete with its European rival Airbus. In October, Boeing executives met with several global airline representatives in Seattle. A Boeing manager drew a graph on a whiteboard, with axes representing cruising range and passenger numbers. Then he asked airline representatives to locate their ideal position on the graph. "The distribution of the data," reports Time, "favored efficiency over speed—the exact opposite of what Boeing was thinking. Two months later, Boeing ditched plans for a high-speed, high-cost jetliner to embark on a new program"—what became the massive attempt to build the 787 Dreamliner.

"Too many companies and too many leaders are more interested in just copying others, doing what they've always done, and making decisions based on beliefs in what ought to work rather than what actually works," say Stanford professors Jeffrey Pfeffer and Robert Sutton. "They fail to face the hard facts and use the best evidence to help navigate the competitive environment." This is what Boeing narrowly averted in that Seattle conference, when it was getting ready to spend billions of dollars trying to outcompete Airbus by building a faster aircraft. Companies that use evidence-based management—the translation of principles based on best evidence into organizational practice, bringing rationality to the decision-making process—routinely trump the competition, Pfeffer and Sutton suggest.

Pfeffer and Sutton identify seven implementation principles to help companies that are committed to doing what it takes to profit from evidence-based management: 1. Treat your organization as an unfinished prototype. Leaders need to think and act as if their organization is an unfinished prototype that won't be ruined by dangerous new ideas or impossible to change because of employee or management resistance. Example: Some Internet startups that find their original plan not working have learned to master "the art of the pivot," to fail gracefully by cutting their losses and choosing a new direction—as did the founders of Fabulus, a review site and social network that attracted no users, and so they launched a high-end e-commerce site called Fab.com, which so far is doing well. 2. No brag, just facts. This slogan is an antidote for assertions made with complete disregard for whether they correspond to facts. Example: Former Hewlett-Packard CEO Carly Fiorina bragged to the press about HP's merger with Compaq but failed to consider facts about consumer dissatisfaction with Compaq products until after the merger. Other companies, such as DaVita, which operates dialysis centers, take pains to evaluate data before making decisions. 3. See yourself and your organization as outsiders do. Most managers are afflicted with "rampant optimism," with inflated views of their own talents and prospects for success, which causes them to downplay risks and continue on a path despite evidence things are not working. "Having a blunt friend, mentor, or counselor," Pfeffer and Sutton suggest, "can help you see and act on better evidence." 4. Evidence-based management is not just for senior executives. The best organizations are those in which everyone, not just the top managers, is guided by the responsibility to gather and act on quantitative and qualitative data and share results with others. 5. Like everything else, you still need to sell it. "Unfortunately, new and exciting ideas grab attention even when they are vastly inferior to old ideas," the Stanford authors say. "Vivid, juicy stories and case studies sell better than detailed, rigorous, and admittedly dull data—no matter how wrong the stories or how right the data." To sell an evidence-based approach, you may have to identify a preferred practice based on solid if unexciting evidence, then use vivid stories to grab management attention. 6. If all else fails, slow the spread of bad practice. Because many managers and employees face pressures to do things that are known to be ineffective, it may be necessary for you to practice "evidence-based misbehavior"—that is, ignore orders you know to be wrong or delay their implementation. 7. The best diagnostic question: What happens when people fail? "Failure hurts, it is embarrassing, and we would rather live without it," the authors write. "Yet there is no learning without failure. If you look at how the most effective systems in the world are managed, a hallmark is that when something goes wrong, people face the hard facts, learn what happened and why, and keep using those facts to make the system better." From the U.S. civil aviation system, which rigorously examines airplane accidents, near misses, and equipment problems, to Gap deciding to close a fifth of its North American stores and expand in China because of lackluster domestic sales, evidence-based management makes the point that failure is a great teacher. This means, however, that the organization must "forgive and remember" people who make mistakes, not be trapped by preconceived notions, and confront the best evidence and hard facts.

Despite your best intentions, it's hard to bring the best evidence to bear on your decisions. Among the reasons: (1) There's too much evidence. (2) There's not enough good evidence. (3) The evidence doesn't quite apply. (4) People are trying to mislead you. (5) You are trying to mislead you. (6) The side effects outweigh the cure. (Example: Despite the belief that social promotion in school is a bad idea—that is, that schools shouldn't advance children to the next grade when they haven't mastered the material—the side effect is skyrocketing costs because it crowds schools with older and angrier students, which demands more resources.) (7) Stories are more persuasive, anyway. The proper approach for an evidence-based mindset is described in the Practical Action box "The Steps in Critical Thinking"

Perhaps the purest application of evidence-based management is the use of analytics, or business analytics, the term used for sophisticated forms of business data analysis. One example of analytics is portfolio analysis, in which an investment adviser evaluates the risks of various stocks. Another example is the time-series forecast, which predicts future data based on patterns of historical data. Some leaders and firms have become exceptional practitioners of analytics. Gary Loveman, CEO of the Harrah's gambling empire, wrote a famous paper "Diamonds in the Data Mine," in which he explained how data-mining software was used to analyze vast amounts of casino customer data to target profitable patrons. Marriott International, through its Total Hotel Optimization program, has used quantitative data to establish the optimal price for hotel rooms, evaluate use of conference facilities and catering, and develop systems to optimize offerings to frequent customers. To aid in recruitment, Microsoft studies correlations between its successful workers and the schools and companies they arrived from. Thomas H. Davenport and others at Babson College's Working Knowledge Research Center studied 32 organizations that made a commitment to quantitative, fact-based analysis and found three key attributes among analytics competitors.

Companies such as Capital One look well beyond basic statistics, using data mining and predictive modeling to identify potential and most profitable customers. Predictive modeling is a data-mining technique used to predict future behavior and anticipate the consequences of change. Thus, Capital One conducts more than 30,000 experiments a year, with different interest rates, incentives, direct-mail packaging, and other variables to evaluate which customers are most apt to sign up for credit cards and will pay back their debt.

Is a data-mining technique used to predict future behavior and anticipate the consequences of change.

UPS (formerly United Parcel Service) applies analytics not only to tracking the movement of packages but also to examining usage patterns to try to identify potential customer defections so that salespeople can make contact and solve problems. More recently, as the recession reduced package delivery demand, it began testing whether UPS could be in the business of delivering direct mail, to serve as an alternative to marketing mail delivered by the U.S. Postal Service. Analytics competitors "don't gain advantage from one killer app [application], but rather from multiple applications supporting many parts of the business," says Davenport.

"A companywide embrace of analytics impels changes in culture, processes, behavior, and skills for many employees," says Davenport. "And so, like any major transition, it requires leadership from executives at the very top who have a passion for the quantitative approach."

A recent study says the world's information is doubling every two years, with 1.8 zettabytes being created and replicated in 2011 alone. That's an amount equal to more than 200 billion two-hour high-definition movies. This has led to a concept known as "big data" (often capitalized, Big Data), stores of data so vast that conventional database management systems cannot handle them and so very sophisticated analysis software and supercomputing-level hardware are required. Attracting a lot of attention in science, business, medicine, and technology, the concept of big data has been dubbed "the next frontier for innovation, competition, and productivity." While big-data analysis, or data analytics, can be used to tackle large-scale problems such as how to make electricity grids and traffic flow more effective, it also has specific, practical uses in business. HP Labs researchers, for instance, used Twitter data to accurately predict box-office revenues of Hollywood movies. Business is also interested in analyzing online behavior "to create ads, products, or experiences that are most appealing to consumers—and thus most lucrative to companies," says one technology journalist. "There's also great potential to more accurately predict market fluctuations or react faster to shifts in consumer sentiment or supply chain issues."

Do men and women differ in the way they make decisions? Do they, for example, differ in risk propensity? Risk propensity is the willingness to gamble or to undertake risk for the possibility of gaining an increased payoff. Perhaps another name for this is competitiveness. And research does seem to show that, as one scholar summarized it, "Even in tasks where they do well, women seem to shy away from competition, whereas men seem to enjoy it too much." In an experiment involving winning small amounts of money in number-memorizing tournaments, men were avid competitors and were eager to continue, partly from overconfidence regardless of their success in earlier rounds, and they rated their abilities more highly than the women rated theirs. Most women declined to compete, even when they had done the best in earlier rounds.

This brings us to the subject of decision-making style. A decision-making style reflects the combination of how an individual perceives and responds to information. A team of researchers developed a model of decision-making styles based on the idea that styles vary along two different dimensions: value orientation and tolerance for ambiguity.

-Value orientation reflects the extent to which a person focuses on either task and technical concerns or people and social concerns when making decisions. Some people, for instance, are very task focused at work and do not pay much attention to people issues, whereas others are just the opposite. -The second dimension pertains to a person's tolerance for ambiguity. This individual difference indicates the extent to which a person has a high need for structure or control in his or her life. Some people desire a lot of structure in their lives (a low tolerance for ambiguity) and find ambiguous situations stressful and psychologically uncomfortable. In contrast, others do not have a high need for structure and can thrive in uncertain situations (a high tolerance for ambiguity). Ambiguous situations can energize people with a high tolerance for ambiguity.

When the dimensions of value orientation and tolerance for ambiguity are combined, they form four styles of decision making: directive, analytical, conceptual, and behavioral.

People with a directive style have a low tolerance for ambiguity and are oriented toward task and technical concerns in making decisions. They are efficient, logical, practical, and systematic in their approach to solving problems. People with this style are action oriented and decisive and like to focus on facts. In their pursuit of speed and results, however, these individuals tend to be autocratic, to exercise power and control, and to focus on the short run.

Managers with an analytical style have a much higher tolerance for ambiguity and are characterized by the tendency to overanalyze a situation. People with this style like to consider more information and alternatives than those following the directive style. Analytic individuals are careful decision makers who take longer to make decisions but who also respond well to new or uncertain situations.

People with a conceptual style have a high tolerance for ambiguity and tend to focus on the people or social aspects of a work situation. They take a broad perspective to problem solving and like to consider many options and future possibilities. Conceptual types adopt a long-term perspective and rely on intuition and discussions with others to acquire information. They also are willing to take risks and are good at finding creative solutions to problems. However, a conceptual style can foster an indecisive approach to decision making.

The behavioral style is the most people oriented of the four styles. People with this style work well with others and enjoy social interactions in which opinions are openly exchanged. Behavioral types are supportive, receptive to suggestions, show warmth, and prefer verbal to written information. Although they like to hold meetings, people with this style have a tendency to avoid conflict and to be concerned about others. This can lead behavioral types to adopt a wishy-washy approach to decision making and to have a hard time saying no.

Research shows that very few people have only one dominant decision-making style. Rather, most managers have characteristics that fall into two or three styles. Studies also show that decision-making styles vary across occupations, job level, and countries. There is not a best decision-making style that applies to all situations. You can use knowledge of decision-making styles in three ways: 1. Know Thyself Knowledge of styles helps you to understand yourself. Awareness of your style assists you in identifying your strengths and weaknesses as a decision maker and facilitates the potential for self-improvement. 2. Influence Others You can increase your ability to influence others by being aware of styles. For example, if you are dealing with an analytical person, you should provide as much information as possible to support your ideas. 3. Deal with Conflict Knowledge of styles gives you an awareness of how people can take the same information and yet arrive at different decisions by using a variety of decision-making strategies. Different decision-making styles represent one likely source of interpersonal conflict at work.

First were the business scandals of the early 2000s, from Enron to WorldCom, producing photos of handcuffed executives. "The supposedly 'independent' auditors, directors, accountants, and stock market advisers and accountants were all tarnished," wrote Mortimer Zuckerman, editor-in-chief of U.S. News & World Report, "the engine of the people's involvement, the mutual fund industry, was shown to be permeated by rip-off artists rigging the system for the benefit of insiders and the rich." Then, as the Iraq war wore on, reports came back of sweetheart deals and gross abuses by civilian contractors working in Iraq war zones. In 2007, it became apparent that banks and others in the financial industry had forsaken sound business judgment—including ethical judgments—by making mortgage loans (subprime loans) to essentially unqualified buyers, which led to a wave of housing foreclosures and helped push the country into a recession. Since then, the media have presented us with a display of Ponzi schemes (Bernard Madoff, Allen Stanford), insider trading (Sam Waksal, Raj Rajaratnam), and corporate sleaziness (work-stressed suicides at Apple's China supplier Foxconn, a fatal accident at a Kentucky coal mine evading safety regulations), and similar matters. Through it all, voices were being raised that American capitalism was not doing enough to help the poorer nations in the world. Companies in wealthier countries, Microsoft's Bill Gates has urged, should focus on "a twin mission: making profits and also improving lives for those who don't fully benefit from market forces." All these concerns have forced the subject of right-minded decision making to the top of the agenda in many organizations. Indeed, many companies now have an ethics officer, someone trained about matters of ethics in the workplace, particularly about resolving ethical dilemmas. More and more companies are also creating values statements to guide employees as to what constitutes desirable business behavior.66 As a result of this raised consciousness, managers now must try to make sure their decisions are not just lawful but also ethical.

Someone trained about matters of ethics in the workplace, particularly about resolving ethical dilemmas.

Undoubtedly the greatest pressure on top executives is to maximize shareholder value, to deliver the greatest return on investment to the owners of their company. But is a decision that is beneficial to shareholders yet harmful to employees—such as forcing them to contribute more to their health benefits, as IBM has done—unethical? Harvard Business School professor Constance Bagley suggests that what is needed is a decision tree to help with ethical decisions. Bagley's ethical decision tree is shown on the next page.

A decision tree is a graph of decisions and their possible consequences; it is used to create a plan to reach a goal. Decision trees are used to aid in making decisions.

When confronted with any proposed action for which a decision is required, a manager should ask the following questions: 1. Is the Proposed Action Legal? This may seem an obvious question. But, Bagley observes, "recent [2002-2003] corporate shenanigans suggest that some managers need to be reminded: If the action isn't legal, don't do it." 2. If "Yes," Does the Proposed Action Maximize Shareholder Value? If the action is legal, one must next ask whether it will profit the shareholders. If the answer is "yes," should you do it? Not necessarily. 3. If "Yes," Is the Proposed Action Ethical? As Bagley, points out, though directors and top managers may believe they are bound by corporate law to always maximize shareholder value, the courts and many state legislatures have held they are not. Rather, their main obligation is to manage "for the best interests of the corporation," which includes the interests of the larger community. Thus, says Bagley, building a profitable-but-polluting plant in a country overseas may benefit the shareholders but be bad for that country—and for the corporation's relations with that nation. Ethically, then, managers should add pollution-control equipment. 4. If "No," Would It Be Ethical Not to Take the Proposed Action? If the action would not directly benefit shareholders, might it still be ethical to go ahead with it? Not building the overseas plant might be harmful to other stakeholders, such as employees or customers. Thus, the ethical conclusion might be to build the plant with pollution-control equipment but to disclose the effects of the decision to shareholders. As a basic guideline to making good ethical decisions on behalf of a corporation, Bagley suggests that directors, managers, and employees need to follow their own individual ideas about right and wrong.68 There is a lesson, she suggests, in the response of the pension fund manager who, when asked whether she would invest in a company doing business in a country that permits slavery, responded, "Do you mean me, personally, or as a fund manager?" When people feel entitled or compelled to compromise their own personal ethics to advance the interests of a business, "it is an invitation to mischief."

Not just the moods themselves but your expectations about how happy or unhappy you think future outcomes will make you perhaps also can influence your decisions. It seems that people expect certain life events to have a much greater emotional effect than in fact they do, according to Harvard University psychologist Daniel Gilbert, who has studied individual emotional barometers in decision making. College professors, for example, expect to be quite happy if they are given tenure and quite unhappy if they aren't. However, Gilbert found those who received tenure were happy but not as happy as they themselves had predicted, whereas those denied tenure did not become very unhappy. The expectation about the level of euphoria or disappointment was also found to be true of big-jackpot lottery winners and of people being tested for HIV infection. That is, people are often right when they describe what outcome will make them feel good or bad, but they are often wrong when asked to predict how strongly they will feel that way and how long the feeling will last. Even severe life events have a negative impact on people's sense of well-being and satisfaction for no more than three months, after which their feelings at least go back to normal. Perhaps knowing that you have this "immune system" of the mind, which blunts bad feelings and smoothes out euphoric ones, can help make it easier for you to make difficult decisions.

What is your typical response when you're suddenly confronted with a challenge in the form of a problem or an opportunity? There are perhaps four ineffective reactions and three effective ones.

There are four defective problem-recognition and problem-solving approaches that act as barriers when you must make an important decision in a situation of conflict: 1. Relaxed Avoidance—"There's No Point in Doing Anything; Nothing Bad's Going to Happen" In relaxed avoidance, a manager decides to take no action in the belief that there will be no great negative consequences. This condition, then, is a form of complacency: You either don't see or you disregard the signs of danger (or of opportunity). Example: Relaxed avoidance was vividly demonstrated in the months before the summer 2007 subprime mortgage meltdown, when banks made cheap housing loans to a lot of unqualified buyers, precipitating a huge financial crisis and drying up of credit. During that time, a lot of smart people in denial said not to worry, that the mortgage mess would be "contained." They included many bank presidents and even Ben Bernanke, chairman of the Federal Reserve. One nationwide online survey has also found that investors' forecasts of future returns go up after the stock market has risen and go down after it has fallen—complacency indeed. 2. Relaxed Change—"Why Not Just Take the Easiest Way Out?" In relaxed change, a manager realizes that complete inaction will have negative consequences but opts for the first available alternative that involves low risk. This is, of course, a form of "satisficing"; the manager avoids exploring a variety of alternatives in order to make the best decision. Example: Perhaps people really don't like a lot of choices. In one experiment, 40% of customers stopped by a large assortment of jam jars (24) and only 30% by a small assortment (6)—but only 3% made a purchase in the first case versus 30% in the second. 3. Defensive Avoidance—"There's No Reason for Me to Explore Other Solution Alternatives" In defensive avoidance, a manager can't find a good solution and follows by (a) procrastinating, (b) passing the buck, or (c) denying the risk of any negative consequences. This is a posture of resignation and a denial of responsibility for taking action. By procrastinating, you put off making a decision ("I'll get to this later") In passing the buck, you let someone else take the consequences of making the decision ("Let George do it"). In denying the risk that there will be any negative consequences, you are engaging in rationalizing ("How bad could it be?"). As one article states, deliberating on the matter of why no one at Penn State did more to pursue allegations that an assistant football coach was abusing young boys, "companies overlook internal problems that at best impede performance and at worst could bring down the entire organization." Example: Defensive avoidance often occurs in firms with high turnover. Although some executives try to stop high performers from exiting by offering raises or promotions, others react defensively, telling themselves that the person leaving is not a big loss. "It's psychologically threatening to those who are staying to acknowledge there's a reason some people are leaving," says the CEO of a corporate-psychology consulting company, "so executives often dismiss them as untalented or even deny that an exodus is occurring." He mentions one financial-services company whose executives insisted turnover was low when in fact 50% of hundreds of new employees quit within years. 4. Panic—"This Is So Stressful, I've Got to Do Something—Anything—to Get Rid of the Problem!" This reaction is especially apt to occur in crisis situations. In panic, a manager is so frantic to get rid of the problem that he or she can't deal with the situation realistically. This is the kind of situation in which the manager has completely forgotten the idea of behaving with "grace under pressure," of staying cool and calm. Troubled by anxiety, irritability, sleeplessness, and even physical illness, if you're experiencing this reaction, your judgment may be so clouded that you won't be able to accept help in dealing with the problem or to realistically evaluate the alternatives. Example: Panic can even be life-threatening. When a jetliner skidded off the runway at Little Rock National Airport, passenger Clark Brewster and a flight attendant tried repeatedly to open an exit door that would not budge. "About that time I hear someone say the word 'Fire!'" Brewster said. "The flight attendant bends down and says, 'Please pray with me.'" Fortunately, cooler, quicker-thinking individuals were able to find another way out.

In deciding to decide, a manager agrees that he or she must decide what to do about a problem or opportunity and take effective decision-making steps. Three ways to help you decide whether to decide are to evaluate the following: 1. Importance—"How High Priority Is This Situation?" You need to determine how much priority to give the decision situation. If it's a threat, how extensive might prospective losses or damage be? If it's an opportunity, how beneficial might the possible gains be? 2. Credibility—"How Believable Is the Information About the Situation?" You need to evaluate how much is known about the possible threat or opportunity. Is the source of the information trustworthy? Is there credible evidence? 3. Urgency—"How Quickly Must I Act on the Information About the Situation?" Is the threat immediate? Will the window of opportunity stay open long? Can actions to address the situation be done gradually?

If someone asked you to explain the basis on which you make decisions, could you even say? Perhaps, after some thought, you might come up with some "rules of thumb." Scholars call them heuristics (pronounced "hyur-ris-tiks")—strategies that simplify the process of making decisions. Despite the fact that people use such rules of thumb all the time, that doesn't mean they're reliable. Indeed, some are real barriers to high-quality decision making. Among those that tend to bias how decision makers process information are (1) availability, (2) representativeness, (3) confirmation, (4) sunk cost, (5) anchoring and adjustment, (6) overconfidence, (7) hindsight, (8) framing, and (9) escalation of commitment.

Strategies that simplify the process of making decisions

If you had a perfect on-time work attendance record for nine months but then were late for work four days during the last two months because of traffic, shouldn't your boss take into account your entire attendance history when considering you for a raise? Yet managers tend to give more weight to more recent behavior. This is because of the availability bias—managers use information readily available from memory to make judgments. The bias, of course, is that readily available information may not present a complete picture of a situation. The availability bias may be stoked by the news media, which tends to favor news that is unusual or dramatic. Thus, for example, because of the efforts of interest groups or celebrities, more news coverage may be given to fighting AIDS or breast cancer than heart disease, leading people to think the former are the bigger killers when in fact the latter is.

Managers use information readily available from memory to make judgments

As a form of financial planning, playing state lotteries leaves something to be desired. When, for instance, in one year the New York jackpot reached $70 million, a New Yorker's chance of winning was 1 in 12,913,588.89 (A person has a greater chance of being struck by lightning.) Nevertheless, millions of people buy lottery tickets because they read or hear about a handful of fellow citizens who have been the fortunate recipients of enormous winnings. This is an example of the representativeness bias, the tendency to generalize from a small sample or a single event.

The tendency to generalize from a small sample or a single event

The confirmation bias is when people seek information to support their point of view and discount data that do not. Though this bias would seem obvious, people practice it all the time.

The sunk-cost bias, or sunk-cost fallacy, is when managers add up all the money already spent on a project and conclude it is too costly to simply abandon it. Most people have an aversion to "wasting" money. Especially if large sums have already been spent, they may continue to push on with an iffy-looking project to justify the money already sunk into it. The sunk-cost bias is sometimes called the "Concorde" effect, referring to the fact that the French and British governments continued to invest in the Concorde supersonic jetliner even when it was evident there was no economic justification for the aircraft.

Managers will often give their employees a standard percentage raise in salary, basing the decision on whatever the workers made the preceding year. They may do this even though the raise may be completely out of alignment with what other companies are paying for the same skills. This is an instance of the anchoring and adjustment bias, the tendency to make decisions based on an initial figure. The bias is that the initial figure may be irrelevant to market realities. This phenomenon is sometimes seen in real estate sales. Before the crash in the real estate markets, many homeowners might have been inclined at first to list their houses at an extremely high (but perhaps randomly chosen) selling price. These sellers were then unwilling later to come down substantially to match the kind of buying offers that reflected what the marketplace thought the house was really worth.

The overconfidence bias is the bias in which people's subjective confidence in their decision making is greater than their objective accuracy. "Overconfidence arises because people are often blind to their own blindness," says behavioral psychologist Daniel Kahneman. For instance, with experienced investment advisors whose financial outcomes simply depended on luck, he found "the illusion of skill is not only an individual aberration; it is deeply ingrained in the culture of the industry." In general, he advises, we should not take assertive and confident people at their own evaluation unless we have independent reasons to believe they know what they're talking about.

The hindsight bias is the tendency of people to view events as being more predictable than they really are, as when at the end of watching a game we decide the outcome was obvious and predictable, even though in fact it was not. Sometimes called the "I knew it all along" effect, this occurs when we look back on a decision and try to reconstruct why we decided to do something.

The framing bias is the tendency of decision makers to be influenced by the way a situation or problem is presented to them. For instance, customers have been found to prefer meat that is framed as "85% lean meat" instead of "15% fat," although of course they are the same thing. Framing is important because how a problem is presented may influence us to consider a certain solution simply because of the way it was framed. (Does an idea come from Democrats? Or Republicans?)

If you really hate to admit you're wrong, you need to be aware of the escalation of commitment bias, whereby decision makers increase their commitment to a project despite negative information about it. History is full of examples of heads of state (presidents Lyndon Johnson in Vietnam and George W. Bush in Iraq) who escalated their commitment to an original decision in the face of overwhelming evidence that it was producing detrimental consequences. A website called Swoopo.com capitalizes on this bias by offering a penny auction in which, say, a $1,500 laptop is offered for bidding starting at a penny and going up one cent at a time—but it costs bidders 60 cents to make a bid. "Once people are trapped into playing," suggests one account about this form of bias, "they have a hard time stopping." The bias is that what was originally made as perhaps a rational decision may continue to be supported for irrational reasons—pride, ego, the spending of enormous sums of money, and being "loss averse." Indeed, scholars have advanced what is known as the prospect theory, which suggests that decision makers find the notion of an actual loss more painful than giving up the possibility of a gain.93 We see a variant of this in the tendency of investors to hold onto their losers but cash in their winners.

Because you may often have a choice as to whether to make a decision by yourself or to consult with others, you need to understand the advantages and disadvantages of group-aided decision making.

Using a group to make a decision offers five possible advantages.95 For these benefits to happen, however, the group must be made up of diverse participants, not just people who all think the same way. -Greater pool of knowledge. When several people are making the decision, there is a greater pool of information from which to draw. If one person doesn't have the pertinent knowledge and experience, someone else might. -Different perspectives. Because different people have different perspectives—marketing, production, legal, and so on—they see the problem from different angles. Intellectual stimulation. A group of people can brainstorm or otherwise bring greater intellectual stimulation and creativity to the decision-making process than is usually possible with one person acting alone. -Better understanding of decision rationale. If you participate in making a decision, you are more apt to understand the reasoning behind the decision, including the pros and cons leading up to the final step. -Deeper commitment to the decision. If you've been part of the group that has bought into the final decision, you're more apt to be committed to seeing that the course of action is successfully implemented.

The disadvantages of group-aided decision making spring from problems in how members interact. -A few people dominate or intimidate. Sometimes a handful of people will talk the longest and the loudest, and the rest of the group will simply give in. Or one individual, such as a strong leader, will exert disproportional influence, sometimes by intimidation. This cuts down on the variety of ideas. -Groupthink. Groupthink occurs when group members strive to agree for the sake of unanimity and thus avoid accurately assessing the decision situation. Here the positive team spirit of the group actually works against sound judgment. -Satisficing. Because most people would just as soon cut short a meeting, the tendency is to seek a decision that is "good enough" rather than to push on in pursuit of other possible solutions. Satisficing can occur because groups have limited time, lack the right kind of information, or are unable to handle large amounts of information. -Goal displacement. Although the primary task of the meeting may be to solve a particular problem, other considerations may rise to the fore, such as rivals trying to win an argument. Goal displacement occurs when the primary goal is subsumed by a secondary goal.

If you're a manager deliberating whether to call a meeting for group input, there are four characteristics of groups to be aware of: 1. They Are Less Efficient Groups take longer to make decisions. Thus, if time is of the essence, you may want to make the decision by yourself. Faced with time pressures or the serious effect of a decision, groups use less information and fewer communication channels, which increases the probability of a bad decision. 2. Their Size Affects DecisionQuality The larger the group, the lower the quality of the decision. 3. They May Be Too Confident Groups are more confident about their judgments and choices than individuals are. This, of course, can be a liability because it can lead to groupthink. 4. Knowledge Counts Decision-making accuracy is higher when group members know a good deal about the relevant issues. It is also higher when a group leader has the ability to weight members' opinions. Depending on whether group members know or don't know one another, the kind of knowledge also counts. For example, people who are familiar with one another tend to make better decisions when members have a lot of unique information. However, people who aren't familiar with one another tend to make better decisions when the members have common knowledge. Remember that individual decisions are not necessarily better than group decisions. As we said at the outset, although groups don't make as high-quality decisions as the best individual acting alone, groups generally make better decisions than most individuals acting alone. Some guidelines to using groups are presented on the next page.

1.When it can increase quality: If additional information would increase the quality of the decision, managers should involve those people who can provide the needed information. Thus, if a type of decision occurs frequently, such as deciding on promotions or who qualifies for a loan, groups should be used because they tend to produce more consistent decisions than individuals do. 2.When it can increase acceptance: If acceptance within the organization is important, managers need to involve those individuals whose acceptance and commitment are important. 3.When it can increase development: If people can be developed through their participation, managers may want to involve those whose development is most important. The guidelines may help you as a manager decide whether to include people in a decision-making process and, if so, which people.

"Only the most productive companies are going to win," says former General Electric CEO Jack Welch about competition in the world economy. "If you can't sell a top-quality product at the world's lowest price, you're going to be out of the game. In that environment, 6% annual improvement may not be good enough anymore; you may need 8% to 9%."

One technique that has been touted for meeting this productivity challenge is participative management (PM), the process of involving employees in (a) setting goals (b) making decisions (c) solving problems (d) making changes in the organization Employees themselves seem to want to participate more in management: In one nationwide survey of 2,408 workers, two-thirds expressed the desire for more influence or decision-making power in their jobs. Thus, PM is predicted to increase motivation, innovation, and performance because it helps employees fulfill three basic needs: autonomy, meaningfulness of work, and interpersonal contact.

Does participative management really work? Certainly it can increase employee job involvement, organizational commitment, and creativity, and it can lower role conflict and ambiguity. Yet it has been shown that, although participation has a significant effect on job performance and job satisfaction, that effect is small—a finding that calls into question the practicality of using PM at all. So what's a manager to do? In our opinion, PM is not a quick-fix solution for low productivity and motivation. Yet it can probably be effective in certain situations, assuming that managers and employees interact constructively—that is, have the kind of relationship that fosters cooperation and respect rather than competition and defensiveness. Although participative management doesn't work in all situations, it can be effective if certain factors are present, such as supportive managers and employee trust.

•Top management is continually involved: Implementing PM must be monitored and managed by top management. •Middle and supervisory managers are supportive: These managers tend to resist PM because it reduces their authority. Thus, it's important to gain the support and commitment of managers in these ranks. •Employees trust managers: PM is unlikely to succeed when employees don't trust management. •Employees are ready: PM is more effective when employees are properly trained, prepared, and interested in participating. •Employees don't work in interdependent jobs: Interdependent employees generally don't have a broad understanding of the entire production process, so their PM contribution may actually be counterproductive. •PM is implemented with TQM: A study of Fortune 1000 firms during three different years found employee involvement was more effective when it was implemented as part of a broader total quality management (TQM) program.

Using groups to make decisions generally requires that they reach a consensus, which occurs when members are able to express their opinions and reach agreement to support the final decision. More specifically, consensus is reached "when all members can say they either agree with the decision or have had their 'day in court' and were unable to convince the others of their viewpoint," says one expert in decision making. "In the final analysis, everyone agrees to support the outcome." This does not mean, however, that group members agree with the decision, only that they are willing to work toward its success. One management expert offers the following dos and don'ts for achieving consensus. -Dos. Use active listening skills. Involve as many members as possible. Seek out the reasons behind arguments. Dig for the facts. -Don'ts. Avoid log rolling and horse trading ("I'll support your pet project if you'll support mine"). Avoid making an agreement simply to keep relations amicable and not rock the boat. Finally, don't try to achieve consensus by putting questions to a vote; this will only split the group into winners and losers, perhaps creating bad feelings among the latter.

Decision-making experts have developed several group problem-solving techniques to aid in problem solving. Three we will discuss here are (1) brainstorming, (2) the Delphi technique, and (3) computer-aided decision making.

Brainstorming is a technique used to help groups generate multiple ideas and alternatives for solving problems. Developed by advertising executive A. F. Osborn, the technique consists in having members of a group meet and review a problem to be solved. Individual members are then asked to silently generate ideas or solutions, which are then collected (preferably without identifying their contributors) and written on a board or flip chart. A second session is then used to critique and evaluate the alternatives. A modern-day variation is electronic brainstorming, sometimes called brainwriting, in which members of a group come together over a computer network to generate ideas and alternatives. The benefit of brainstorming is that it is an effective technique for encouraging the expression of as many useful new ideas or alternatives as possible. For example, Mark Hurd, former CEO of Hewlett-Packard, used to engage in brainstorming with his top nine executives to generate ideas for how to increase sales in emerging markets. That said, brainstorming also can waste time generating a lot of unproductive ideas, and it is not appropriate for evaluating alternatives or selecting solutions.

1.Defer judgment. Don't criticize during the initial stage of idea generation. Phrases such as "we've never done it that way," "it won't work," "it's too expensive," and "our manager will never agree" should not be used. 2.Build on the ideas of others. Encourage participants to extend others' ideas by avoiding "buts" and using "ands." 3.Encourage wild ideas. Encourage out-of-the-box thinking. The wilder and more outrageous the ideas, the better. 4.Go for quantity over quality. Participants should try to generate and write down as many new ideas as possible. Focusing on quantity encourages people to think beyond their favorite ideas. 5.Be visual. Use different colored pens (e.g., red, purple, blue) to write on big sheets of flip-chart paper, whiteboards, or poster boards that are put on the wall. 6.Stay focused on the topic. A facilitator should be used for keeping the discussion on target. 7.One conversation at a time. The ground rules are that no one interrupts another person, no dismissing of someone's ideas, no disrespect, and no rudeness.

The Delphi technique was originally designed for technological forecasting but now is used as a multipurpose planning tool. The Delphi technique is a group process that uses physically dispersed experts who fill out questionnaires to anonymously generate ideas; the judgments are combined and in effect averaged to achieve a consensus of expert opinion. The Delphi technique is useful when face-to-face discussions are impractical. It's also practical when disagreement and conflicts are likely to impair communication, when certain individuals might try to dominate group discussions, and when there is a high risk of groupthink.

As in nearly every other aspect of business life, computers have entered the area of decision making, where they are useful not only in collecting information more quickly but also in reducing roadblocks to group consensus. The two types of computer-aided decision-making systems are chauffeur driven and group driven, as follows: -Chauffeur-driven systems—for push-button consensus. Chauffeur-driven computer-aided decision-making systems ask participants to answer predetermined questions on electronic keypads or dials. These have been used as polling devices, for instance, with audiences on live television shows such as Who Wants to Be a Millionaire allowing responses to be computer tabulated almost instantly. -Group-driven systems—for anonymous networking. A group-driven computer-aided decision system involves a meeting within a room of participants who express their ideas anonymously on a computer network. Instead of talking with one another, participants type their comments, reactions, or evaluations on their individual computer keyboards. The input is projected on a large screen at the front of the room for all to see. Because participation is anonymous and no one person is able to dominate the meeting on the basis of status or personality, everyone feels free to participate, and the roadblocks to consensus are accordingly reduced. Compared to traditional brainstorming, group-driven systems have been shown to produce greater quality and quantity of ideas for large groups of people, although there is no advantage with groups of four to six people. The technique also produces more ideas as group size increases from 5 to 10 members. Computer-aided decision making has been found to produce greater quality and quantity of ideas than traditional brainstorming for both small and large groups of people. However, other research reveals that the use of online chat groups led to decreased group effectiveness and member satisfaction and increased time to complete tasks compared with face-to-face groups.

To pitch a prospective client for her ad agency, Amanda Zolten knew she had to take a risk. But the client's product—kitty litter—posed a unique challenge. Lucy Belle, Ms. Zolten's cat, furnished the answer. Before she and her team met with six of the company's executives, Ms. Zolten buried Lucy Belle's mess in a box of the company's litter and pushed it under the conference-room table. No one noticed until Ms. Zolten pointed it out—and the fact that no one had smelled it. Shocked, several executives pushed back from the table. Two left the room. After a pause, those who remained started laughing, says Ms. Zolten, a senior vice president with Grey New York. "We achieved what we hoped, which was creating a memorable experience," she says. She won't know for a few weeks whether Grey won the business. But her boss, Tor Myhern, has already named Ms. Zolten the winner of his first quarterly "Heroic Failure" award—for taking a big, edgy risk. Amid worries that we are becoming less innovative, some companies are rewarding employees for their mistakes or questionable risks. The tactic is rooted in research showing that innovations are often accompanied by a high rate of failure. "Failure, and how companies deal with failure, is a very big part of innovation," says Judy Estrin of Menlo Park, California, a founder of seven high-tech companies and author of a book on innovation. ... Grey's Mr. Myhern recently started handing out the "Heroic Failure" award because he was worried that fast growth at the agency, a unit of WPP's Grey Group in New York, was making employees "a little more conservative, maybe a little slower," he says. Creator of E*Trade's talking-baby ads, Grey New York has more than doubled to 900 employees since 2008. "I thought rewarding a little risk-taking was potentially the answer," Mr. Myhern says. The award is for ideas that are "edgier or riskier, or new and totally unproven," he says. Mr. Myhern acknowledges that Ms. Zolten's prank could have gotten his eight-member team "kicked out of the room and told never to come back." He adds, "There was enough chaos in the room that we weren't sure whether it was a good or bad thing." Nevertheless, he calls the idea "absolutely brilliant" and deserving of the garish two-foot-tall "Heroic Failure" trophy. Regardless of how it turns out, he says, "we're proud that we had the idea."... Extracting lessons from foul-ups is the focal point of Michael Alter's "Best New Mistake" awards at SurePayroll, a payroll-services company in Glenview, Illinois. Only people who are trying to do a good job, make a mistake, and learn from it are eligible for the $400 annual cash award. ... Employers use a variety of tactics to foster innovation. Grey New York blocks off a "no meeting zone" every Thursday morning, to allow employees sustained time to work on creative projects. Procter & Gamble Co. has set up a division for innovation, called FutureWorks. Some add game or nap rooms, expansive art-filled atriums, hiking trails or private meditation rooms with music and adjustable lighting. Intuitive Surgical, a Sunnyvale, California, maker of surgical robots, limits work teams to five members "like jazz bands," says Gary Guthart, president and chief executive. Team members tend to share ideas easily, respond quickly to problems, and hold each other accountable, he says. However, all innovative companies tend to be alike in certain ways, Ms. Estrin says. They encourage coworkers to trust each other and take criticism in stride. Also, managers encourage intelligent risk-taking, tolerate failure, and insist that employees share information openly. At the 150-employee Consumer Electronics Association, an Arlington, Virginia, trade group, Gary Shapiro, president and chief executive, tries to make it safe to fail by talking openly about screw-ups. In his eight-page manifesto called "Gary's Guidelines," writes Mr. Shapiro, co-author of a book on innovation: "Mistakes are OK—hiding them is not."