1.

Fundamentals
Management – an activity, influencing others to achieve organizational goals through planning,
organizing, leading and controlling → 4 management functions.

10 management roles (Mintzberg)

Interpersonal roles Informational roles Decisional roles

• Figurehead (symbolic head) • Monitor (nerve center of • Entrepreneur (searches for
• Leader (motivator and internal and external opportunities and initiates
activator) information) improvement)
• Liaison (maintainer of outside • Disseminator (transmits • Disturbance handler
network) information to insiders) (responsible for corrective
• Spokesperson (transmits actions)
information to outsiders) • Resource allocator
(responsible for allocation of all
kinds of resources)
• Negotiator (responsible for
representing organization at
negotiations

How does management manage? - Theoretical perspectives and management theories

Planning • Behavior in companies is influenced directly by managers

perspective • Managers plan, organize, lead, control
Cognitive • Behavior in companies is guided by similar cognitive schemes
perspective • Impact of managers only indirect through influence on corporate culture
Symbolistic • Behavior in companies is guided by symbols, stories etc.
perspective • Impact of managers only indirect through influence on corporate culture
Structural • Behavior in companies is guided by structural conditions in the external and
perspective internal environment
• Impact of managers only indirect if at all existant
Deterministic • Environmental, organizational, and other factors drive development of
theories companies
• Top managers play more a symbolic than a substantive role
• Performance outcomes only attributed to top managers in order to make sense
of complex organizational outcomes
 Examples:
o Population ecology
o Industrial economies
o Contingency Theory: there is no universal approach to
management. It depends on the internal and external factors, such
as technology, size, or market demands.
o Institutional theory
Voluntaristic • Top managers formulate collective purpose that binds organizational participants
theories • Top managers infuse values and create organizational culture
• Leaders’ perceptions of reality shape a company’s course of action
• Examples: Human relations, Behavioral theory of the firm, Strategic choice,
Upper Echelons (the attributes of managers drive their decisions and actions)
Institutional 3 isomorphic mechanisms that make organizations similar:
theories 1. Coercive isomorphism: Pressures from laws and societal expectations.
2. Mimetic isomorphism: Imitation of successful organizations and best
practices.
3. Normative isomorphism: Professional norms spread through education
and networks.

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Upper Echelons Theory

Core Assumption of the Upper Echelons: Top managers' attributes drive decisions and actions
V – Values
(Psychological factors like values, cognition, personality traits shape executives' decisions.)
O – Observable experiences
(Such as age, tenure, education, and background influence their actions.)
L – Limited Field of Vision
(Executives don't see everything; they selectively focus on what’s important to them.)
T – Thinking Filters
(Selective perception and interpretation filter information and shape their "construed reality.")
S – Strategy Shapes Performance
(Their decisions impact firm strategy, which leads to the firm’s overall performance.)

The Upper Echelons Perspective posits that organizational outcomes—such as strategy and performance
—are partially predicted by the characteristics of top executives. UEP suggests that the attributes,
values, and cognitive bases of senior executives influence their decisions and actions, thus shaping
organizational outcomes. These attributes include both psychological factors (e.g., values, personality
traits) and observable experiences (e.g., age, education, functional background).

Executives operate with a "limited field of vision" and interpret information through selective
perception and interpretation based on their unique cognitive makeup. This selective filtering shapes
their construed reality, leading them to make decisions that align with their subjective interpretation of
the world. The perspective emphasizes the "managerial discretion" or latitude of action available to
managers, which varies based on external factors (e.g., market growth) and internal factors (e.g.,
organizational culture).

1. Objective Situation: All potential company stimuli (environmental and organizational)

2. Executive's Orientation:
 Psychological factors (values, cognition, personality)
 Observable experiences (age, tenure, education, background)
3. Filtering Process:
 Limited field of vision
 Selective perception
 Interpretation
4. Construed Reality: Executive's filtered view of the situation
5. Decision-Making: Based on construed reality
6. Outcomes: Firm strategy and performance
Key Point: Executive orientation filters objective reality, shaping decisions and company outcomes.
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Example: Steve Jobs' perspective and experiences influenced Apple's innovative strategies and success.
Steve Jobs’ 2005 Stanford commencement speech:
1. Objective Situation: Jobs faced external stimuli such as competition and technological changes.
His experiences, like dropping out of college and being fired from Apple, shaped his view.
2. Executive Orientation: His psychological factors (creativity, resilience) and observable
experiences (education, tenure at Apple) influenced his decision-making.
3. Filtering Process: Jobs’ selective perception focused on passion and innovation, viewing failures
as opportunities for growth.
4. Construed Reality: He saw the world through the lens of intuition, creativity, and risk-taking.
5. Decision-Making: Jobs’ belief in "thinking different" shaped Apple’s focus on design and
innovation.
6. Outcomes: His leadership drove Apple’s success, with groundbreaking products and strong
market performance.

Managerial discretion (Hambrick/Finckelstein)

Positively affect discretion Negatively affect discretion

Task environment • Market growth • Oligopolistic market structure
• Demand instability • Quasi-legal constraints
• Product differentiability • Powerful outside factors
Internal organization • Resource availability • Inertial forces (Size, age culture)
• Capital intensity
• Powerful inside factors
Managerial characteristics • Aspiration level • Commitment
• Tolerance for ambiguity
• Cognitive complexity
• Internal locus of control
• Power base

2. Planning
The Stakeholder Theory – organizational goals are shaped by the interests and influence of dominant
stakeholders (shareholders, financiers, customers, employees, suppliers, government, and society).
The company must balance these stakeholders' needs, as they all have a stake in the organization’s
outcomes.

SUCCES-framework (how to communicate goals convincingly)

S imple, U nexpected, C oncrete, C redible, E motional, S tory

Example of Transgenerational
Control Intention (TCI)
S imple Focus on one core message The core message is that TCI
to clarify your idea affects family-firm performance
based on who pursues it — family
managers harm performance,
while nonfamily managers don’t.
U nexpected Create attention through The surprising insight is that family
mysteries and surprise managers’ emotional attachment
(due to socioemotional wealth)
can hurt the firm, unlike nonfamily
managers.
C oncrete Create understanding and Examples like how cognitive biases
support by being concrete in family managers lead to poor
examples decisions, while nonfamily
managers make more rational
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 choices.
C redible Gain credibility yourself by The study is based on data from
using credible sources 107 German family firms, showing
these effects empirically.
E motional Create excitement by Emphasize the emotional stakes in
appealing to emotions family firms and how they cloud
decision-making.
S tory Lead and inspire teams by A family firm deciding between
using stories family and nonfamily management,
showing how emotional
attachment impacts the business.

The SUCCES-framework relates to Henkel Strategy:

 Simple: Clear, focused targets (sales, EM sales, EPS growth).

Goal communication platforms

 General information: Letter to employees, Employee assembly, Town meeting
 More individual information: Newsletter, Seminars, Leadership talks
 Individual information: Employee survey, Team discussions

Organizational learning process: (Crossan et al.)

1. Intuiting 2. Interpreting 3. Integrating 4. Institutionalizing

Recognizing patterns Explaining insights to Developing shared Embedding new
or possibilities from oneself and others understanding and behaviors into the
personal experience through language and coordinated action organization by
(using experiences, dialogue. within the group. defining tasks and
images, metaphors). actions and creating
mechanisms for
sustained learning.
goal setting, personally goal communication, goal transfer into goal transfer into
to others organizational culture organizational culture,
routines
Organizational culture = the collective behavior of the members of an organization.

At Southwest Airlines, employees intuitively recognized the need for customer satisfaction, and
leadership interpreted these insights to shape policies that focus on low-cost, reliable services. These
practices were integrated into operational procedures and eventually institutionalized as part of the
company’s culture.

Dimensions of organizational culture:

 Member identity  Risk tolerance
 Group emphasis  Reward criteria
 People focus  Conflict tolerance
 Unit integration  Means-end orientation
 Control  Open-system focus

Schein’s Culture Framework

1. Artefacts: Visible, conscious aspects of culture (e.g., logos, dress codes).
2. Espoused Values: Stated values and norms that guide behavior (e.g., mission statements, core
values).
3. Basic Underlying Assumptions: Invisible, unconscious beliefs that truly influence behavior (e.g.,
beliefs about teamwork or leadership, assumptions about competition).

Nordstrom's organizational chart is an example of an artefact with customers at the top, followed by
salespeople and then managers below.

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 Google's artefacts Google's Espoused Values: Google's Underlying
Assumptions
1. Symbols: 1. User Focus: Prioritize the user’s needs in all 1. Belief in Human
Unconventional office decisions. Creativity: Creativity
designs (e.g., ski 2. Excellence: Do one thing exceptionally well. thrives in a flexible,
gondolas, pub-like 3. Speed: Prioritize efficiency and quick delivery. open environment.
meeting rooms, 4. Democracy: Value the open nature of the 2. Trust in People:
subway-themed areas) web and collective input. Google believes
2. Patterns of Action: 5. Flexibility: Answers and solutions should be employees, when
The 20% rule for accessible anywhere, anytime. trusted with
personal projects, TGIF 6. Ethics: Make money without compromising autonomy and
meetings, and integrity. information, will
transparency initiatives 7. Curiosity: Encourage continuous learning and deliver exceptional
exploration of new information. work.
8. Global Reach: Information should be
accessible to everyone, everywhere.
9. Balance: Maintain a serious approach to work
without rigid formalities.
10. Continuous Improvement: Strive for
greatness, knowing "good enough" isn’t
sufficient.

Conditions for changing organizational culture:

Conditions that support organizational culture Levers for change:

change:
 Crisis situation  Power-holder or expert structures
 Executive turnover  Structural changes
 Young and small organizations  Process changes
 Weak culture  Personnel changes
→ successful cultural change within the organization.

Characteristics of strength of an organizational culture:

1. Conciseness: Are espoused values so clear and concise that each individual employee can align
his/her behavior to them?
2. Degree of diffusion: Is a large number of employees convinced by the espoused values of the
company?
3. Depth of anchorage: Are espoused values deeply rooted in the consciousness of the employees?
Strong organizational culture Weak organizational culture
• Gives meaning/serves as a point of references • Less structural inertia, reorientation possible
for actions • Diversity instead of one-sideness, openess
• Creates a feeling of belonging/team spirit
• Improves communication and cooperation
(similar perception, goals)
• Accelerates decision making and
implementation
• Stability
• Substitute for structural measures (more
flexible)

Case Study: Southwest Airlines

1. Goals
A) Vision: to become the world’s most loved, most flown, and most profitable airline.
How to measure? → Customer satisfaction, # of tickets, number of miles, revenue, RoA, profit margin
B) Purpose: to connect people through friendly, reliable, and low-cost air travel.

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2. The organizational culture (Schein)
1. Artefacts:
 Symbols: The Southwest Airlines logo, uniforms, and Spirit magazines.
 Patterns of Action: Recognition programs such as “shoutouts” in corporate videos and stories
shared through internal communication channels like Southwest Spirit Magazine.
 Reward Programs: helping families spend extra time together during a deployment or enabling
people to travel during emergencies.
2. Espoused values:
The core values of Southwest Airlines include providing friendly, reliable, and low-cost air travel.
The company’s principles:
 customer satisfaction
 employee dedication
 continuous improvement
- reliable + low cost => efficiency
3. Underlying assumptions:
At the deepest level, Southwest Airlines operates with assumptions of dedication, loyalty, and
teamwork. The company believes in creating a sense of purpose beyond just a paycheck, with the
underlying assumption that happy and motivated employees will lead to customer satisfaction and,
ultimately, business success.
“Our vision is to become the world’s most loved, most flown, and most profitable airline”
- always strive for improvement (never be satisfied with status quo)
- always focus on the customer
- be part of a crusade (fighting together for customer satisfaction)
3. How do goals and organizational culture at Southwest Airlines support each other?
The goals and organizational culture at Southwest Airlines are closely aligned:
1. Vision Alignment: The culture of employee recognition and motivation supports the vision of
becoming the most loved and profitable airline. Metrics like customer satisfaction and
profitability measure success.
2. Purpose and Values: The purpose of providing friendly, reliable, and low-cost air travel aligns
with core values of customer satisfaction, dedication, and efficiency, ensuring employees are
driven to continuously improve.
3. Underlying Assumptions: The belief that happy employees lead to customer satisfaction drives
both culture and goals, fostering loyalty and profitability.
4. Continuous Improvement: The culture of always striving for improvement ensures focus on
customer satisfaction and supports the company’s goal of becoming the most profitable airline.
4. What does it take to create this culture?
How achieve goals?
 Designing Artefacts (corporate videos, public recognition, and reward programs)
 Appropriate Organization Structure (A team-oriented and flexible structure allows quick
decision-making and efficient operations, supporting reliability and low-cost services)
 Experts bring out best products (Industry professionals ensure top-tier products and services)
What KPIs?
 Customer satisfaction (Measures happiness with service, essential for loyalty and success)
 Flights per customer (Tracks repeat business, indicating customer loyalty)
 Time for luggage (Measures baggage handling speed, contributing to customer satisfaction and
efficiency)

3. Organizing (Organization Structures)

Organization structures and processes ensure an efficient division and coordination of labor

Elements of organizational design

Organization structure Process Design
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  Internal structure of the organization  Organization of the flow of activities
 Distribution of tasks and responsibilities  Coordination of organization units and
activities

Design elements of organization structure

The design elements of organizational structure
at Apple
1. Task specialization and departmentalization Functional Organization: Experts in specific areas
(functions, products, regions) (like hardware, software, AI, and design) lead
their respective functions, ensuring deep
specialization within those domains
2. Chain of command Single P&L Responsibility: The entire company
o determines how orders flow within an operates under one profit and loss (P&L)
organization statement, with all decisions ultimately flowing
Basic forms: Unity-of-command system / up to the CEO. Apple's senior vice presidents
Multiple-chain-of-command system manage functional areas rather than product
lines, which centralizes decision-making authority
at the top.
3. (De-) Centralization and span of control Centralized Expertise: leaders with the most
technical expertise have the authority to make
decisions within their domain. This is key for
navigating the rapid technological changes the
company faces
4. Formalization (formalized versus agil) Expert-Led Leadership: formalized leadership
based on technical expertise. This minimizes the
number of general managers.

The degree of (de-)centralization - where the responsibility for decision-making lies within an
organization
Degrees of decentralization and management roles
↑ Centralization
Role of Top Managers At Apple, decision-making is
highly centralized:
Centralized Managers make all decisions for the The CEO and senior leaders make
management divisions key decisions. There are no
general managers, and decisions
are based on expertise, not profits
Coordination Managers make all decisions about Leaders ensure collaboration
coordination between divisions across teams (e.g., hardware,
software), aligning expertise for
product innovation
Direction Setting Managers set goals for the divisions Top managers set goals and make
long-term strategic decisions,
prioritizing product quality over
short-term financial targets
Cohesion Managers ensure group integrity Apple's leadership maintains
organizational unity, ensuring all
teams work toward shared goals
Information Make no management decisions, but only Information is shared effectively
ensure proper information exchange across functions. Teams
between divisions collaborate extensively
↓ Decentralization

As decentralization increases, top managers move from making decisions to ensuring communication.

Objectives of organization structure

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  Market orientation (the company is close to its customers, is able to detect changes etc.)
 Resource efficiency (shoud be used efficiently, wasting should be avoided)
 Qualification and motivation (employes can be further developed)
 Flexibility (adaptation of the structure in case of changes in the market)

Types of organizational structures

Type Advantages Problems Comments

1. Functional  Resource efficiency - Market orientation Is based on:
- Qualification and a more functional task
motivation specialization
- Flexibility unity of command system
higher decentralization of
decision making
is more formal
2. Divisional  Market orientation - Resource efficiency the danger lies in ignoring
 Qualification and (duplication of synergy potentials betw
motivation activities and 0een different units
 Flexibility resources)

3. Matrix  Intended: - Resource

 Resource efficiency inefficiencies
 Market orientation - Coordination
 Qualification and problems and
motivation conflict
 Flexibility - Communication
problems and
demotivation
4. Process  Customer / Market- - Indivisible
orientation resources
 Motivation - Difficulties in
 Flexibility; structural defining the
adaptability processes
 Efficiency: Reduction - Different optimal
in information flow, processes
working and waiting - Implementation
times barriers

A process organization introduces defining separate processes, such as new product development and
order processing.
Advantages of Process Organization: Problems of Process Organization:
 Strong customer-supplier relationships  Difficulty in defining processes
(internal and external)  Potential for different optimal processes
 Accountability for results  Implementation barriers
 Higher market orientation
 Increased motivation
 Improved efficiency (reduced information
flows, working, and waiting times)
 Greater flexibility

Types of resistance against structural change

Sources Consequences
 Individual resistance  Slow implementation
- E.g. Habits  Performance setbacks
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 - Fear of the unknown  …
- Perceptual biases
- Fear of undesired
 Organizational resistance
- Structural inertia (power structures,
established processes, etc.)
- Organizational routines

Problems of traditional organization structures

‘Management Gaps’ ‘Functional Gaps’ ‘Operational Islands’

- Filtering of information - Silo thinking - Problems with coordination
- Impediments to diffusion (teams work in isolation, and control
of information limiting collaboration & - Lack of clear accountability
coordination) e.g. at Microsoft
- NIH syndrome The stack-ranking system
(resistance to external created unclear
ideas, believing only accountability, as employees
internal ideas are valid) focused more on
outperforming peers than
collective success.

Project organization (is a secondary organization structure and is time limited)

Goals:
Flexibility Innovativeness Productivity
o to set up & dissolve o Know-how-exchange o Accountability
o Limited time horizon o Small organizational unit o Motivation
o Staffing o Functional integration
o Clear goals (content, time,
cost)

Three types of organizational units of project organization

(0. Management: Setting of general direction)
1. Steering committee
 Appoint team members
 Discusses and adopts results/recommendations
 Supervises implementation
 Informs the board of directors
2. Team leaders / core team
 Conducts project planning and analysis
 ‘Sparring partner’ for the project team
 Coordinates analyses and recommendations
3. Cross-functional project team
 Conducts analyses
 Elaborates recommendations
 Presents results and recommendations to the steering committee

Ambidextrous organization
Exploration Exploitation
 High degree of innovation; reacting  Efficient processes leading to short-term
flexible to changes profits
 Risk: ongoing innovation leads to  Risk: no innovative solutions in the
needless change and causes high costs pipeline, in case of environmental change

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 Structural ambidexterity Contextual ambidexterity
Development of organizational structures that Development of supporting non-structural
enable exploration and exploitation factors, for example processes, culture,
managerial style
Companies try to increase ambidexterity by implementation of structural measures
Structural measures:
Existing business segments: New, innovative business segments:
 Developed processes and systems  Own processes and systems
 Efficiency-oriented culture  Entrepreneurial / innovative culture
 but is harder / more complex to
implement
 strongly embedded in culture

Nokia uses structural ambidexterity by separating business segments and new ventures:
 Existing business segments (like Networks, Mobile Phones) focus on efficiency with established
processes.
 New Ventures Organization focuses on innovation with its own processes.
This allows Nokia to explore new ideas while keeping core operations efficient. Ventures can be sold,
closed, or integrated.

Apple balances both exploration and exploitation strategies, which are key to ambidexterity. On one
hand, the company focuses on high innovation, creating cutting-edge products like the iPhone, while
also exploiting its well-established, efficient processes in manufacturing and marketing to maintain
profitability. Apple's unified functional structure enables flexibility and responsiveness to changes in its
fast-paced industry, a hallmark of exploration, while leveraging efficient and scalable operations for
exploitation.

Requirements of contextual ambidexterity

1. Discipline (Motivates to achieve defined goals voluntarily)
Main drivers:
- Clear standards for performance
- Clear standards for behaviour
• e.g. at Apple decisions made by experts, with accountability tied to both
results and quality.
2. Ambition (Motivates to increase targets, to “walk the extra mile“)
Main drivers:
- Common vision
- Community spirit
- Meaning of actions
 e.g. at Apple experts motivated to "go the extra mile" in achieving goals.
3. Support (Motivates to supports others of the company)
Main drivers:
- Freedom of action in lower hierarchies
- Community spirit
 e.g. at Apple - community spirit and freedom for cross-functional
collaboration.
4. Trust (Motivates to trust the effort made by others)
Main drivers:
- Clear decision and performance processes
- Standards for fairness
 Teams are accountable without controlling all resources

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3. Organizing (HR Management)
HR Value Chain
•
HR Strategy
•
HR Planning and Controlling
•
Personal Leadership
•
HR information systems
Personal Leadership
•
Finding the right people (job analysis, recruiting, selecting)
•
Maintaining an effective workforce (motivation, job design)
•
Managing talent (training, development, appraisal)
•
Termination of contracts

Motivation theories
1. Content theories (What motivates individuals?): Herzberg‘s two-factor theory
2. Process theories (How are individuals motivated?): Vroom’s expectancy theory

Herzberg‘s Two-Factor Theory

Question: Describe an incident that you associate with high/low work satisfaction.

Different factors associated with satisfaction and dissatisfaction (Motivators & Hygiene factors)
Motivators Hygiene factors
 Achievement  Company policy and administration
 Recognition  Supervision
 Work itself  Relationship with supervisor
 Responsibility  Work conditions
 Growth  Salary
Job satisfaction factors that make people feel basic necessities like salary, company policies,
satisfied (like achievement, recognition, and work conditions. If they’re lacking, people
responsibility, and growth opportunities). They feel dissatisfied, but having them won’t
motivate employees to perform better. necessarily motivate them.
Example: Google uses recognition (e.g., public Example: Google offers competitive salaries,
acknowledgment), inspiring work (e.g., 20% health benefits, free meals, on-site wellness
project time), and growth opportunities through services, and flexible work conditions.
continuous feedback and autonomy.
Southwest uses public recognition (e.g.,
shoutouts, uniforms with logos) and reward
programs to motivate employees.

Vroom’s Expectancy Theory

Vroom suggests that people are motivated when they believe three things:
Effort → Performance → Reward
1. Effort → Performance: If they work hard, they’ll perform well.
2. Performance → Reward: If they perform well, they’ll get a reward.

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 3. Value of Reward: The reward they receive is something they want.

Example at Google:
Effort → Performance: Employees understand how their efforts contribute to the company’s goals.
Performance → Reward: Both monetary (e.g., salary, stock options) and non-monetary rewards (e.g.,
recognition, personal development) are tied to performance.
Value of Reward: Google’s unique perks, such as autonomy and personal project time (20% rule), are
highly valued by employees.

Google’s Incentives: Employees believe that their hard work (effort) will lead to innovation and
recognition (performance), and they are motivated by rewards such as career growth, recognition, or
the satisfaction of working on innovative projects (value of the reward).
Southwest’s Incentives: Employees work hard (effort) because they know it will lead to better
performance (such as customer satisfaction), and in turn, they are rewarded through recognition
programs and career growth opportunities (value of the reward).
Monetary Incentive Systems
have to fulfill five quality criteria and demand four design steps
Quality Criteria Design Steps
1. Goal orientation 1. Type of incentive:
(Principal-Agent-Theory) •
Fixed (reflect market requirements)
2. Performance orientation - Salary
(effort-performance- - Additional benefits
probability) •
Variable (reflect performance)
3. Individualization
- Variable bonuses
(value of reward)
- Employee stock ownership plans
4. Transparency
2. Assessment base:
(performance-reward
 Accounting- based (Profit, ROI)
probability)
 Shareholder- value-based (Dividends,
5. Economical
share/option prices, EVA, shareholder value)
(benefits are higher than costs)
3. Compensation function:
E.g. fixed compensation until reaching 100% of goal
achievement. Then a linear growing compensation with or
without an upper barrier. The latter encourages balanced
risk-taking behavior.
4. Payout mode:
determines when a monetary incentive is paid out.
Short-term payout is more motivating, but may cause
shortsightedness.
Long-term payout encourages decisions with foresight.
1. Goal Orientation: Google’s 1. Type of Incentive:
rewards foster innovation, o Fixed: Salaries, benefits.
creativity, and employee o Variable: Bonuses, stock options.
satisfaction 2. Assessment Base:
2. Performance Orientation: o Accounting: Profit, ROI.
Bonuses and stock plans o Shareholder value: Stock ownership.
3. Individualization: Perks like 3. Compensation Function: Mix of short-term
salaries, 20% project time, and (bonuses) and long-term (stock ownership)
wellness services rewards.
4. Transparency: Clear link 4. Payout Mode: Short-term bonuses and long-term
between performance and stock options motivate immediate and future
rewards, ensuring employees performance.
understand how their efforts
lead to compensation.
5. Economical: The benefits
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 (innovation, satisfaction)
outweigh costs, ensuring long-
term retention and high
performance.

Job Design “Very Friendly Managers Encourage Every Worker"

To create jobs that people desire to perform because they are so inherently appearing.

Important job-related incentives: Application at Google

1. Management by objectives (joint goal Google uses an OKR (Objectives and Key Results)
setting) system. Employees and teams set ambitious
Management by Objectives = a process of joint goals and review them quarterly.
goal setting between a supervisor and an E.g., employees can see company-wide
employee Objectives and Key Results and track progress,
1. Jointly plan (Set objectives, set which keeps them motivated and on target.
standards, choose action, develop plan)
2. Individually act (Provide support,
perform tasks)
3. Jointly control (Review results, discuss
implementations, review MBO cycle)
2. Employee recognition (employee of the Google publicly recognizes employees, especially
month) managers, based on feedback from surveys.
3. Enlargement and enrichment (for job) Google provides the opportunity to work on
different projects under the 20% rule
(where employees can spend 20% of their time
working on projects of their choice).
4. Work environment and scheduling Google's promotes collaboration with open
(combo or open office) spaces, casual collision zones, and unique layouts
(e.g., pub-like meeting rooms or ski gondolas in
different locations). It also offers flexible working
hours.
5. Variable incentive schemes E.g. stock options and bonuses.
6. Fixed salary systems Fixed salaries + other benefits (e.g., free meals,
wellness services)

Process of talent management

1. Career paths Pre-defined career paths can serve as an incentive for employees.
McKinsey: Associate → Engagement Manager (3 years) → Partner (6 years).
2. Required In consulting → off-the-job training is used for consulting skills, while on-the-job
qualifications training emphasizes professional knowledge and leadership.
3. Development Focus changes as employees advance through higher positions:
approach Associate: problem-solving, communication, and project management.
Engagement Manager: applying knowledge, teamwork, and negotiation skills.
Partner: firm leadership and client relations.
4. Performance Performance appraisal and feedback focus on:
appraisal and 1. Planning: Training, promotions, pay raises.
feedback 2. Evaluation: Quality of training, selection validation.
3. Feedback: Strengths, weaknesses, career goals.
Methods:
 360-degree feedback
 Employee comparison/ranking
 Behaviorally Anchored Rating Scales (BARS)
 Critical incidents
 Graphic rating scales

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 4. Leading
4.1 Fundamentals of Individual and Group Behavior

MBTI - Myers-Briggs Type Indicator is a personality construct that assesses preferences in how people
perceive the world and make decisions.
4 personal type dimensions (dichotomy)

Extraversio ← Source of energy → Introversio

n Sensing ← Way of gathering information n
Thinking ← Decision→ making →
Intuitio
Judging ← How you relate to the external n Feeling
world →
Perceivin

ISFJ and ESTJ are very common MBTI types.

The Big Five Framework

1. Openness: Degree of intellectual curiosity, creativity and a preference for novelty and variety a person has.
2. Conscientiousness: Tendency to be organized and dependable, to show self- discipline, act dutifully, aim for
achievement, and prefer planned rather than spontaneous behavior
3. Extraversion: Energy, assertiveness, sociability and the tendency to seek stimulation in the company of others.
4. Agreeableness: Tendency to be compassionate and cooperative rather than suspicious and antagonistic
towards others.
5. Neuroticism: Tendency to be prone to psychological stress. The tendency to experience unpleasant emotions
easily, such as anger, anxiety, depression and vulnerability.
Personality traits (BIG FIVE MODEL)
Openness, conscientiousness, extraversion, agreeableness, neuroticism
O C E A N
 Openness – creativity, change, diversity & new experiences
 Conscientiousness – self-regulating, self-disciplined, achievement orientated
 Extraversion – outgoing, talkative, energetic social interaction
 Agreeableness – harmony, altruism, trusting, not competitive
 Neuroticism – fear, guilt, worry, stress

Core Self-Evaluation
Core self-evaluation (CSE) represents the fundamental appraisals individuals make about their self-
worth and capabilities. (basic judgments people make about their own value and abilities)

A higher order personality construct composed of:

14
  Locus of Control
 Self-Esteem
 Emotional Stability
 Generalized Self-Efficacy
 CSE affects the interaction among executives and the processes within TMTs (Top Management Teams).
 Executives are attracted by industries and organizations that fit to their own dispositions.
 Hyper CSE executives will manifest this trait in their job behaviors.

PsyCap

Positive psychological capital is defined as the positive and developmental state of an individual as
characterized by four factors:

1. Hope, 2. Self-Efficacy, 3. Optimism, 4. Resilience

PsyCap is malleable and has positive effects in organizations.

Individual-level Antecedents Team-level Organizational-level Antecedents

Antecedents
 Positive emotions  Leader  Positive and supportive
 Strong gender role orientation characteristics  climate
 Over-all well being  Leadership  Satisfaction with buddying in
 Employees‘s trust in behavior  the workplace
organization  Perceived external prestige
 Country of origin  Stress
 Work-family conflicts

Group = two or more individuals, interacting and interdependent, who have come together to achieve
particular objectives.
Why does group behavior differ from the aggregation of the behavior of its members?
 reduce the individual's feeling of insecurity
 provide prestige, recognition, status, and self-esteem
 fulfill the need for affiliation and interaction
 represent power
 pool talent, knowledge, and power

Types of groups
1. Formal groups 2. Informal groups
 Command groups: Group composed of  Interest groups: Group composed of
individuals who report directly to a given individuals working together to attain a
manager specific objective with which each is
 Task groups: Group composed of concerned
individuals working together to complete  Friendship groups: Group composed of
a job task individuals brought together because
they share one or more common
characteristics

Advantages of different group sizes

Small groups (3-5 members)
 Faster at completing task
 Better at doing something productive with a given input
Large groups (12 or more)
 Better at gaining diverse input and at problem solving
 More effective in general fact-finding
Empirical evidence shows that groups of 5 or 7 (odd numbers!) combine the advantages of small and
large groups best.
15
Roles, norms and status are mental/immaterial concepts describing group structures

Roles Norms Status

• Patterns of behavior expected • Acceptable standards of • A prestige/value judgment
from someone occupying a behavior shared by all group attributed to a person based on
given position in a social unit members the grading, position or rank in
• All individuals are required to • Norms act as a means of the group
play a number of diverse roles influencing the behavior of • Relative stable reputation of
on and off their jobs group members with a an individual
• In the social sciences judged minimum of external control • Formally imposed (hierarchy,
as central frame for individual • e.g. norms dictate that one job) or informally acquired
behavior in groups should not engage in loud (eductaion, age, experience)
discussion that makes it
impossible to hear the lecturer
Describe what is expected Provide identification/ Status and symbols of status
orientation if assessed as fair influence motivation

Roles in groups (Belbin)

Role = behavior patterns expected of / displayed by someone occupying a position in a social unit.
Group roles
Thinking Action People
• Plant • Shaper • Coordinator
Strengths: Creative, Strengths: Challenging, Strengths: Mature, confident,
imaginative, freethinking, dynamic, thrives identifies talent; clarifies goals.
generates ideas and solves on pressure; has the drive and Weaknesses: manipulative and
difficult problems. courage to overcome obstacles. might offload their own share of
Weaknesses: ignore incidentals, Weaknesses: provocative, and the work.
and may be too preoccupied to may sometimes offend
communicate effectively. people’s feelings.
• Implementer • Resource Investigator
• Monitor-Evaluator Strengths: Practical, reliable, Strengths: Outgoing,
Strengths: Sober, strategic and efficient. Turns ideas into enthusiastic, communicative.
discerning; sees all options and actions and organizes work that Explores opportunities and
judges accurately. needs to be done. develops contacts.
Weaknesses: lacks the drive Weaknesses: inflexible and slow Weaknesses: overoptimistic
and ability to inspire others and to respond to new possibilities and can lose interest once the
can be overly critical. • Completer-Finisher intial enthusiasm has passed.
• Specialist Strengths: Painstaking,
Strengths: Single-minded, conscientious, anxious, searches • Team Worker
dedicated, provides rare out of errors polishes and Strengths: Cooperative,
knowledge and skills. perfects. perceptive and diplomatic;
Weaknesses: Weaknesses: inclined to worry listens and averts friction.
might contribute only on a unduly and reluctant to Weaknesses: indecisive in
narrow front and dwell on delegate. crunch situations and tends to
technicalities. avoid confrontation.

Cohesion = a social process that pushes group members closer together

Elements influencing group cohesion

Positive influence on group cohesion Negative influence on group cohesion

Small groups ← Group size → Large groups (more than 20)

Successful/ acknowledged ← Success → Less successful / less

groups acknowledged groups
16
 Homogeneous groups ← Group structure (skills, attitudes) → Heterogeneous groups

Groups enabling many face-to- ← Interactions → Groups with obstacles to social

face contacts interaction (e.g. assembly line)
Groups exposed to intergroup ← Type of competition → Groups exposed to intragroup
competition competition

Effects of cohesion
 Cohesion is not correlated with performance
 Cohesion reduces variance in individual performance
 Cohesion has positive effects on performance only if the group identifies itself with the
organization's goals
 Highly cohesive groups that follow different goals are a threat to the organization

Microsoft's Cultural Transformation under Satya Nadella:

 Nadella’s transformation of Microsoft from a competitive, siloed organization to one fostering
collaboration and cohesion. Prior to Nadella’s leadership, Microsoft experienced low cohesion
with internal competition and conflict between teams. Nadella's focus on fostering a unified
"One Microsoft" culture, where collaboration was encouraged, led to increased group cohesion.
Southwest Airlines' Organizational Culture:
 At Southwest Airlines, a highly cohesive culture is a key factor in their success. The company
emphasizes teamwork, recognition, and a shared sense of purpose, fostering group cohesion.
This cohesion aligns employees with the company’s goals, leading to better customer
satisfaction and employee dedication. In Southwest Airlines, small, motivated teams (a positive
factor for cohesion) contribute to the overall success of the organization.
Types and effects of diversity
Sources of diversity
Demographic diversity Cognitive diversity Affective diversity
• Age • Knowledge and perspectives • Positive affect
• Tenure • Task-relevant information • Negative affect
• Gender • Attitudes and beliefs • Distinct emotions
• Functional background • Personality
• Educational background

Potential positive & negative effects of diversity in groups

positive effects negative effects

• Informational advantages (increased • Focus on shared information (sampling bias,
information sharing) repetition bias)
• Higher creativity/ lower levels of biases • Sharing of preference- consistent information
• Reduced information sharing in teams
4.2 Individual and Group Decision-Making
Strategic decision-making process

1) Understanding 2) Situation Analysis 3) Development of 4) Evaluation and

Psychological Alternatives Decision
Foundations
 Rational vs.  Comprehensive  Holistic  Informed choice
Behavioral School analysis of generation of
of Thought situation options
 Biases and
Heuristics
 Which factors  How do I develop  Which factors
should I focus on? multiple influence decision

17
  How can I prevent alternatives? behavior?
errors in judgment?  How can biases be  How can I check
reduced? the quality of my
decision?
Rational vs. behavioral school of thought

Rational School Behavioral School

Assumptions on decision Decision makers are rational in their Decision makers are influenced by
maker thinking and can thus make optimal systematic biases that guide their
decisions based on appropriate tools decisions and lead to irrational behavior
Goal Calculate and identify the best Reduce the influence of biases in the
possible solution alternative decision process to arrive at better
decisions
Normative frameworks Decision analysis Debiasing frameworks

Rational School
Characteristics of Homo Oeconomicus
Concept of rational school. The economic man
 Thinks rationally
 Has fixed preferences
 Has complete information
 Reacts to restrictions
 Maximizes own utility
• Decision makers act to generate highest possible well-being for themselves
• Decision makers pursue fixed outcome at lowest cost
• Decision makers pursue best outcome at fixed cost
Rational choice behavior is based on the concept of expected value!

Expected value concept

1. Every decision problem can be described by monetary outcomes and probabilities

2. The value of each alternative can be determined by combining these characteristics to calculate
the expected value
3. Decision makers select the alternative with the highest expected value

Decision Analysis

1. Decision Structuring 2. Assessment and Information 3. Evaluation of Decision

Gathering Problem
• Different alternatives • Monetary outcome of • Expected value of different
• Decision criteria (e.g. alternatives alternatives
expected profit) • Probabilities • Maximum value

Advantages & limitations of rational decision making

Advantages Limitations
• Allows a quantitative analysis of decision • In business situations, the outcomes of
situations and its outcomes alternatives are often not clearly defined
• Provides a clear result that is easy to interpret • Complexity limits our ability to have perfect
• Gives a normative recommendation for action information
• Creates some certainty in uncertain decisions • Individual utilities cannot always be clearly
defined
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Behavioral School
Frameworks explaining irrational decision behavior

Bounded Rationality Prospect Theory

„The capacity of the human mind for formulating „Prospect theory is an attempt to articulate some
and solving complex problems is very small of the principles of perception and judgment that
compared with the size of the problems“ limit the rationality of choice“
Simon (1957) Tversky & Kahneman (1986)

Major findings of Prospect Theory:

•
Decision makers are loss averse
•
Decision makers are reference-dependent
•
Overweighting of low probabilities and underweighting of high probabilities
Heuristics
Heuristics are mental shortcuts or decision rules, which simplify complex decision problems.

+ -
• Ease decision making • Exclude variety of options
• Reduce time of the process • Are used subconsciously
• Provide time-pressured decision makers with a • Can lead astray in their thinking
simple way of dealing with the complex world • Can lead to systematic biases
• Produce correct or partially correct judgments
Predictable environments Unpredictable environments
- „High validity“ environment - „Low validity“ environment
- Learning based on experience is possible - Learning based on experience is not possible
- Heuristics are good for decision making - Heuristics are bad for decision making

Complexity, volatility and growth dynamics in the environment lead to uncertainty.

Definition Cause Effect on Strategic E.g.:

Decision Process
Overconfidence bias
A tendency to Accuracy of own • Managers tend to Trying to forecast rates
overestimate knowledge is based on become unreceptive on S&P 500 index.
predictive abilities availability of for new evidence of
supporting evidence alternative CFOs were completely
perspectives unaware of their
• Decision makers predictive ability. They
underestimate overestimated their
completion times of ability to predict the
projects S&P 500. It led to
• Managers increased and
overestimate their unjustified risk taking.
accuracy in trend
recognition
• Increased risk taking
• Biased risk
assessment
Anchoring bias
A tendency to be The externally set • Managers tend to • Increasing print
affected by random anchor leads decision overpay at mergers or subscriptions of „The
outside information makers to look for acquisitions Economist“
when making decisions information compatible • Provides a dangerous • Introduction of the
or estimates with anchor / powerful tool for iPhone in its pricing

19
 strategic negotiations: strategy
First offers anchor
negotiation outcomes.
• New potential for
changing customer
behavior in sales and
marketing
Framing bias
A tendency to change Decision makers are • Presentation of • Asian disease
preferences depending risk seeking towards information changes problem: How many
on alternative wording losses and risk averse decision outcome will die?
describing identical facing gains. • Makes decision • Company in
objective information makers subject to difficulties: What
external manipulation alternative to choose?
• Norms and reporting • Ground beef: Fat or
systems in lean?
organizations rather • Organ donations:
than facts may cause Opt-in or opt-out form
differences in
evaluations
Confirmation bias
A tendency to evaluate Decision makers feel • Managers tend to Hiring Decisions
new information based confident that own accept suggestions - Managers tend to hire
on initially held beliefs opinion is true uncritically executives similar to
• Decision makers themselves
exaggerate the - Performance
likelihood of unlikely evaluations are
and improbable events frequently better than
• New critical justified
information may not - Employees objectively
be considered in the performing bad are
decision making kept too long
process Mergers &
Acquisitions
- In M&A process
negative information
are undervalued or
disregarded
- Executives stick to
long to bad M&A
decisions
Status Quo bias
A tendency to Loss aversion of • Managers tend to Keeping electricity
overvalue the status decision makers prolong necessary supply with same
quo over new decisions service reliability
alternatives • Decision makers are
less open to innovation
• Decision makers
underestimate the
degree of
environmental change
Optimism bias
A tendency to Previous experiences • Managers tend to • Financing: Issued
overestimate own of success confirm neglect their debt rather than equity
abilities judgment competitors • Acquisition: Overpaid

20
 • Decision makers take for target companies
unjustified risks • Mergers: Committed
• Managers create to value destroying
organizational hybris, mergers
which amplifies • Thyssen Krupp: Steal
overestimation of plants in US
organizational
capabilities
• The negative effect of
overoptimism is
accelerated if CEOs
receive public
awards or recognition
Illusion of control bias
A tendency to Uncertainty and • Managers tend to BP - Deepwater
overestimate own randomness are feel unjustified control Horizon; Polaroid
influence on random disregarded over environmental Sofortbildkameras
outcomes or events developments
• Decision makers
overestimate ability to
accurately react to
environmental changes
• Managers take larger
risks in their decisions
Group Think
Description Consequences
Description: • The group excludes external people
• Pursuit of social conformity / consensus gains • Feeling of superiority and invulnerability
dominant influence • Decreasing quality of decisions
• Individual unconsciously stops questioning the
group‘s opinion
• Criticism is expressed only very carefully
Risk Shift
Description Consequences
• Individual members judge the risks as small • In groups, individuals tend to commit
since responsibility is shared themselves to greater risks compared to if
• In discussions, "risk takers" dominate compared they are alone
to „risk-averse“ team members

Further Examples of irrational behavior

 JP Morgan uses behavioral biases in its fund management division.
 Discounts in retail create irrational behavior and purchasing decisions.
 The power of free: Free Service (skype); Free Sample (Ben&Jerry’s); Free Product (OH!SAFT)

Debiasing Tools
Decision makers are irrational and influenced by cognitive illusions and simplifications.
Debiasing tools
1. Consider the opposite 2. Group decision making 3. Integration of Feedback
Task: Making strategic Task:
“What are some of the reasons decisions in a group • Integrate feedback from different
that my initial judgment might internal and external sources
be wrong?” • Especially effective from external
experts
• Especially effective from
heterogeneous experts
21
  Overconfidence bias Success rate:
 Hindsight bias Guessing - 25 %
 Anchoring bias Call one expert - 65 %
Group decision of
audience - 91 %
Comprehensive Decision Processes
 Exhaustive inclusion of alternatives
 High level of investigatory activity
o In a stable environment performance increases with comprehensiveness.
o In turbulent environment performance reaches its peak at a certain level of process
сomprehensiveness. It does not make sense to increase comprehensiveness any further, as
performance goes down again.

Complex decision-making process:

1. Situation Analysis → 2. Development of Alternatives → 3. Evaluation and Decision
Situation Analysis Development of Alternatives Evaluation and Decision
This involves a comprehensive Once the situation is analyzed, This step requires evaluating
analysis of the situation, taking it’s essential to generate the generated alternatives and
into account both external and multiple alternatives, which making an informed choice.
internal factors. The key here is can reduce the impact of biases Here, the decision-maker needs
to avoid biases and such as confirmation bias and to check quality of the decision.
misjudgments by using a status quo bias.
holistic approach to gather
relevant data and insights.
Debiasing method
 Prediction markets  Scenario Planning  NUDGES Framework:
 360° stakeholder feedback It can reduce overconfidence ensuring that feedback is
 Cognitive mapping and confirmation biases by given, structuring complex
Diverse Data Collection allowing decision-makers to choices, and anticipating
Involve different explore multiple future errors in decision-making
perspectives (stakeholders, scenarios. processes can all help to
reduce bias.
departments) to avoid  Wargaming counters
 Pre-Mortem Analysis
confirmation bias. groupthink bias by
Imagining the decision has
encouraging diverse failed and analyzing why.
perspectives.  Decision Quality Control
1. Ask Yourself
2. Ask About the Proposal
3. Ask the Recommenders
Counters confirmation bias
by encouraging critical
questioning of assumptions
 Devil’s Advocacy
Assign someone to argue
against the preferred
alternative. This counters
groupthink and ensures all
options are critically
evaluated.

3 debiasing tools for Situation Analysis:

1. Prediction Markets
2. 360° Stakeholder Feedback

22
3. Cognitive Mapping
1) Prediction markets are based on “The Wisdom of Crowds”
E.g. Google Prediction Market

Google used prediction markets to predict the outcome of political and technological developments
 Made accurate and decisive predictions
 Excellent prediction tool when uncertainty is high
 Enabled additional information sharing in the organization

Benefits for strategic decision process Limitations for strategic decision process
 Holistic information can be obtained from the  Traders must possess information on the
prices event
 Aggregates information  Information of traders may be highly
 Allows analyzing developments over time correlated
 Can be easily checked in retrospect for  Risk for market manipulation
accuracy  Outcomes have to be measureable

2) 360° Stakeholder Feedback

 Helps to examine the assumptions and mental models of decision makers concerning future
developments
 Feedback by 60-200 internal and external stakeholders (shareholders, key employees, key business
partners, scenario experts, …), that ideally have different perspectives on the company or industry.
 1st questionnaire asks to name most important factors on PESTEL-dimension (Political, Economic,
Social, Technological, Environmental, Legal), that might influence a company or industry over the
next years. The result is clustered into 40-50 influence factors.
 2nd questionnaire asks to locate influence factors on two dimensions:- Impact on company or
industry (Scale 1-10)- Uncertainty of occurrence (Scale 1-10)
 Two important results of data analysis:
o Blind Spots: Factors, which are consciously or unconsciously disregarded (where evaluations of
internal and external stakeholders deviate)
o Weak Signals: First indicators for important developments and external changes (have been
mentioned by a few participants in 1st questionnaire, but rated highly in the 2nd questionnaire)

3) Cognitive Mapping

Writing down influence factors and their interdependencies, improves analyzing their impact on a
project.
Benefit: Structured overview of important influence factors and their interrelations
Debiasing effect: Reduces the framing bias
E.g.: Cognitive map for buying a ship
Debiasing Development of Alternatives
Problems with Alternatives Generation
 Often the range of found alternatives is very small
 Often focussing on status quo
 First alternative considered is most obvious one
 All consequent alternatives are anchored by that initial option

=> Many unconsidered alternatives and very narrow field of possible solutions

Scenario Planning

Useful tool to generate multiple alternatives.

1. Considers possible paths of development starting from current
situation.
23
 2. Generating different possible futures by grouping key environmental influences
 Result is a limited number of logically consistent, but different scenarios
 The point is not to predict which outcome will occur, but:
o to challenge management ́s assumptions about the environment
o to test the sensitive of possible strategies
o to develop options how success can be ensured for every scenario

Scenario Matrix

 Provides the basic framework for the detailed scenario

development process
 Displays positive and negative developments on scenario
dimensions

Cognitive benefits of scenario planning

Scenario Method Cognitive Benefit

Development of Multiple Scenarios Formulation of contradicting viewpoints

Consideration of disregarded assumptions
Integration of External Perspectives Change in mental models
Creation of cognitive conflict
Facilitation of Strategic Thinking Expansion in field of vision
Generation of multiple frames of reference
Feedback Through Group Process Exchange of information
Disconfirmation of existing beliefs

Experimental Research:
 Decision experiments were conducted with MBA students in the United States and the United
Kingdom
 Participants conducted a scenario planning exercise in different groups and were tested for the
respective biases
 The effect on the bias can be analyzed by comparing the bias level before and after the
workshop

Findings:
 Scenario planning reduces the overconfidence bias
 Scenario planning reduces the confirmation bias

Debiasing effect of scenario planning: Scenario planning reduces the overconfidence bias, confirmation,
framing bias and leads to higher decision quality than traditional planning tools

Wargaming used to simulate a market with various participants:

1. Market Team: 2. Key-Player Teams: 3. Control Team:

Simulates customers and Represent the main market Ensures the realism and dynamics of
evaluates the strategies participants, including the the Wargame by simulating regulatory
of key players. company, competitors, bodies and external shocks.
suppliers, and government.
Benefits:
These teams:  Experience the future dynamics
 Negotiate contracts of an industry
 Develop new offerings  Experience the customer’s and
24
 Form or dissolve competitor’s point of view
alliances  Create common understanding
 React to strategic about strategic moves and
moves decisions
Siemens frequently uses Wargames in its strategic decision-making processes:
 Step-by-step simulation of the future
 Employees think and discuss out of the box “what if” scenarios
 Future decisions of customers and competitors are understood by all participants

Choice architecture = determines the way important information or strategic options are presented to
the decision maker
 to prevent mistakes in decision making
 to influence decision makers and choices

The NUDGES Framework

 can help improve the choice architecture for strategic decisions.
 reduces biased judgment and mistakes by undesired outside factors.
Сhecklist Boeing example
iNcentives Understanding and Which factors are Boeing prioritized cost-
presenting, what people important for the cutting over safety. Better
care about. decision maker? alignment of incentives
could have focused on
promoting safety.
Understand mappings How are alternatives How can the Pilots didn’t fully
described or presented? project be understand the new MCAS
What features of the presented as system. Ensuring clear
alternatives are being objective as communication and
presented? possible? understanding of safety
impacts would have
helped.
Defaults The option that prevails, Have we used any Safety should have been
if you do not decide. defaults? the default priority, like
adding a second altimeter
instead of cutting costs.
Give feedback What will be the result Is a continuous Engineers’ safety concerns
of a decision? feedback system were ignored. A strong
part of the feedback system would
proposal? encourage safety reports
without fear of retribution.
Expect error Avoid false decisions Is the proposal Boeing underestimated
because of error. intuitive? pilot errors, assuming
minimal training was
enough. Human error is
crucial in aviation.
Structure complex Which elements of Are Self-regulation led to
choices alternatives are recommendation poorly managed safety
displayed and how are s clearly decisions. A more
they displayed? structured? structured approach would
have prioritized safety.

Premortem Analysis

Can help assess the quality of a project or strategic decision.

25
 1. Team is informed that project has failed  Analyzes what did go wrong rather than
(hypothetically) what might go wrong.
2. Everybody individually writes down reasons for  Includes factors that team members
this failure would not usually mention.
3. Points on individual lists are discussed in the
group
4. Decision is critically reflected in light of new
factors

1. Ask yourself 3 questions to challenge

yourself
Decision Quality Control
2. Ask about the proposal 6 questions to challenge the
focuses on three important
people proposing a course of
areas in order to improve
action
decision quality
3. Ask the recommenders 3 questions to challenge the
proposed action

One member of the group is  Encourages new

assigned as the devil’s advocate perspectives and ideas
Devil‘s Advocate Concept for the meeting  Counteracts group think
allows challenging assumptions Devil’s advocate challenges and risk shift
and counteracts group biases in group decision and all major
the decision process arguments
Devil’s advocate helps identify
underlying assumptions

Decision-Screening Tool
Paper: „Are you ready to decide?“

Two Sets of Questions Consideration of Different Points of View:

 Ensures confirmation bias is checked.
 Questions focus on the diversity of opinions and sources.
 Diverse inputs indicate assumptions have been challenged
Consideration of Downside Risk
 Safeguards against overconfidence.
 Questions evaluate the thoroughness of downside risk assessment at company, industry, and
macro levels.
 Consideration of different points of view (vs. risk of confirmation bias)  Six questions
(checking assumptions, diversity of opinions)
 Consideration of downside risk (vs. risk of overconfidence)  Six questions (referring company,
industry and macro levels)

Result: 2-by-2 Matrix with 4 recommendations: Reconsider, Reach out, Stress-test, Decide

Decide The decision process includes safeguards against

both confirmation bias and overconfidence,
indicating readiness to proceed.
Reach Out The proposal has been tested for resilience to
downside risks but may be based on narrow
assumptions. Broaden perspectives using
techniques like the vanishing-options test, where
executives generate new ideas by imagining that
26
 none of the current proposals are available.
Stress-Test The decision reflects a variety of viewpoints but
may not have been sufficiently challenged.
Conduct thorough risk reviews, such as a
premortem analysis or involving an outside
devil’s advocate to play the role of an objective
challenger.
Reconsider The decision process lacks comprehensiveness.
Follow a dual strategy to generate new
perspectives and conduct new risk evaluations.
Ensure both the breadth of assumptions and
depth of risk analysis are revisited.

Debiasing techniques proposed by Meissner et al. (2015: 2f.)

1. Systematic use of devil’s advocate or “premortem”
 proactively identifying potential flaws or risks in a plan by critically evaluating and imagining
possible failure scenarios before finalizing decisions
2. Formal scenario-planning exercise
 Expanding the range of assumptions underpinning a plan

3. War gaming
 Executives put themselves in their competitors‘ shoes
Examples:
 Shell: Used wargaming to realize that a "change-the-rules" strategy would provoke competition,
saving them $130 million.
 Sterling Pharmaceutical: Used wargaming to predict market reactions, allowing them to delay a
competitor’s product launch and boost market share.
4. Decision-screening tool (focuses on two sets of questions to avoid confirmation bias and
overconfidence by expanding perspectives and thoroughly evaluating risks)
First set of questions → confirmation bias Second set of questions → overconfidence bias
 Focuses on which sources assumptions stem  Focuses on whether possible negative results
from and how diverse the expressed opinion is have been thoroughly evaluated =
= „consideration of different points of view“ “consideration of downside risk

Decision Making Frameworks

Predictably irrational decision making  Decision Making Frameworks  Less biased decision making
in strategic issues

5. Controlling
From a management perspective, financial controlling has to address four important topic areas:
27
 1. Profitability: Are profits being generated, and how can they be increased?
2. Liquidity: Is the company capable of settling payments and financing growth?
3. Capital: Does the company have enough cash for investments, and can it raise capital
efficiently?
4. Value Creation: Has the company's value increased? What are the associated risks?
Example: EVA as an indicator of value creation. EVA is calculated as:
EVA = NOPAT− (Capital Employed × Cost of Capital)
 NOPAT (Net Operating Profit After Taxes) = EBIT (Earnings Before Interest and Taxes) - Taxes
from operations
o EBIT relates to revenue and cost management.
o Tax management affects taxes deducted from EBIT.
 Capital Charge = Capital Employed × Cost of Capital
o Capital employed involves asset management.
o Cost of capital is influenced by financial engineering.
EVA measures value creation by considering operational profits after taxes and the cost of capital
employed in the business.

The Balanced Scorecard helps organizations align their vision and strategy with performance measures
across four perspectives:
1. Financial: Focuses on shareholder value and financial success (ROI, revenue growth, asset
management)
2. Customer: Ensures customer satisfaction and market performance (innovation, pricing, service
excellence)
3. Internal Business Processes: Enhances efficiency and effectiveness in core business processes to
meet customer and shareholder expectations.
4. Learning & Growth: Focuses on employee satisfaction, innovation, and continuous
improvement.

Loss Aversion in Family Firms (Transgenerational Control Intention - TCI):

1. Challenge Yourself:
o Scenario Planning: Family managers can use scenario planning to evaluate different
long-term outcomes, balancing SEW with financial performance.
o Premortem Analysis: Managers can simulate worst-case scenarios (e.g., losing SEW) to
reduce loss aversion by identifying potential gains from diversification and innovation.
2. Challenge the Proposal:
o Devil's Advocate: assign someone within the family or management team to critically
evaluate any decision proposals. This person’s role is to actively seek out potential risks
that have been overlooked due to loss aversion or emotional attachment to family
control.
3. Challenge the Recommender:
o 360° feedback collects data from a wide range of internal and external stakeholders,
ensuring that the recommender's proposal is evaluated from different perspectives
(e.g., family members, non-family managers, employees, and external experts). This
reduces confirmation bias.
Overconfidence bias and Groupthink (Group-Level Overconfidence in Teams):
Debiasing Tool:
 Devil’s Advocate: Introducing a devil’s advocate in group discussions ensures that team
members critically assess decisions, reducing the risk of overconfidence and groupthink.
Overconfidence and Confirmation Bias in Boeing 737 MAX Case:
Debiasing Tool:
 Decision Checklists: Boeing could implement decision-making checklists that require detailed
safety evaluations to ensure risks are thoroughly assessed before moving forward.
What debiasing tools could be applied in each step of Decision Quality Control? How could they be used
by Boeing?

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1. Challenge Yourself: Premortem Analysis could have helped Boeing identify risks before the
crisis occurred by forcing executives to imagine the failure of the 737 MAX and analyze reasons
for that failure.
2. Challenge the Proposal: Scenario Planning could have been implemented to explore different
future scenarios and assess the resilience of the 737 MAX across multiple contexts.

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 3. Challenge the Recommender: Cognitive Mapping would have allowed Boeing to visualize the
assumptions and dependencies involved in the decision-making process, exposing critical areas
that were overlooked.
Overconfidence bias (Core Self-Evaluation & Prospect Theory):
Debiasing Tool:
 Balanced Scorecard: Introducing performance metrics that account for both financial and non-
financial goals can moderate risk-taking by providing a more balanced view of potential
outcomes.
Artefacts Espoused Values Basic Underlying
Assumptions
Google Symbols: Unconventional 1. User Focus 1. Belief in Human
office designs (pub-like 2. Excellence Creativity
meeting rooms). 3. Speed 2. Trust in People:
Patterns of Action: 20% rule 4. Democracy Employees will deliver
for personal projects, 5. Flexibility exceptional work when
TGIF meetings, transparency 6. Ethics trusted with autonomy
initiatives. 7. Curiosity and information.
8. Global Reach
9. Balance
10. Continuous
Improvement
Biases at Google Debiasing Tools for Google
1. Overconfidence Bias: Google's  Devil’s Advocate: a formal devil’s advocate role
success and its reputation as a top in meetings, especially for major project
company may lead to overconfidence decisions or new innovations. This person’s role
among employees and leaders. is to challenge the assumptions behind ideas,
2. Groupthink: While Google forcing the team to consider alternative
emphasizes collaboration, the highly perspectives and potential downsides.
democratic nature of decision-making  Pre-mortem Analysis: Before launching any
(e.g., TGIF meetings, surveys) might major project or new product, Google could
create an environment where adopt pre-mortem analyses, where teams
dissenting opinions are not fully imagine the project has failed and work
expressed. backward to identify all potential reasons for its
3. Optimism Bias: The 20% rule could failure. This helps counteract overconfidence
also foster an overly optimistic view of and optimism bias.
these projects, leading to inflated
expectations or lack of scrutiny for
failure risks.
Southwest Symbols: The Southwest 1. Dedication, loyalty, 1. Customer satisfaction
Airlines Airlines logo, uniforms, Spirit and teamwork are key. 2. Employee dedication
magazines. 2. Happy and motivated 3. Continuous
Patterns of Action: employees lead to improvement
Recognition programs like customer satisfaction and 4. Efficiency (reliable
“shoutouts” in corporate business success. and low-cost air travel)
videos, Spirit Magazine stories. 3. Striving for constant
Reward Programs: Family improvement.
support during deployment,
travel emergencies.
Apple Symbols: Minimalist product 1. Innovation and design 1. Innovation is driven
designs, sleek retail spaces. excellence 2. User focus: by deep technical
Patterns of Action: Collective prioritize user experience expertise.
decision-making, expert 3. Secrecy for 2. A unified structure
leadership structure. competitive advantage supports collective
decision-making.
3. Users are the center
of product
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 development.
Microsoft Symbols: New communication 1. Growth mindset 1. Everyone can grow
platforms like Microsoft (learn-it-alls) and succeed with the
Teams, collaborative spaces. 2. Customer obsession right mindset.
Patterns of Action: Shift from 3. Collaboration and 2. Collaboration is more
stack ranking to continual inclusion valuable than
feedback, cross-team 4. Cloud-first, mobile-first competition.
collaboration approach 3. Technology should
5. Empowering people empower users and
and organization organizations globally.
Biases at Microsoft Debiasing Tools for Microsoft
 Status Quo Bias: The stack-ranking  Devil’s Advocate: Appointing a devil’s
system discouraged change, leading advocate in meetings to challenge prevailing
to a toxic work environment. assumptions and biases.
 Groupthink: Teams were often afraid  Scenario Planning: Using scenario planning
to challenge the status quo. to visualize different outcomes, preventing
 Confirmation Bias: Employees overconfidence in the decisions made.
focused on ideas that would secure  Prediction Markets: A system where
their rankings, following existing employees predict project outcomes based
beliefs rather than considering on internal knowledge, increasing
alternative solutions. transparency and reducing bias.

Boeing Symbols: Planes, technology 1. Safety first 1. Safety must be the

centers, Aerospace Safety 2. Innovation in aviation top priority, no
Committee post-737 MAX. 3. Accountability compromises.
Patterns of Action: Enhanced 4. Continuous 2. Innovation drives the
safety protocols, stricter FAA improvement future of aviation.
integration, new leadership 3. Trust in internal and
after safety concerns. external checks ensures
long-term success.
4. Leadership must
balance safety and
business growth.
Biases at Boeing: Debiasing Tools for Boeing:
 Optimism Bias: Boeing  Premortem Analysis identify risks before the
underestimated the risks associated crisis occurred by forcing executives to
with new software on the 737 MAX, imagine the failure of the 737 MAX and
believing that issues could be analyze reasons for that failure.
managed easily.  Scenario Planning - different future
 Confirmation Bias: Boeing executives scenarios and assess the resilience of the
ignored warnings from both internal 737 MAX across multiple contexts.
and external stakeholders about  Cognitive Mapping - visualize the
safety concerns. They relied heavily assumptions and dependencies involved in
on previously successful approaches the decision-making process, exposing
without adequately considering new critical areas that were overlooked.
risks.
 Groupthink: The culture at Boeing
discouraged dissenting opinions,
leading to a lack of critical analysis

Group Dynamics and Leadership

4a) Explain the Belbin Team Roles theory. How does it help in building effective teams?
Belbin’s Team Roles theory identifies nine roles that individuals can play within teams, including:
 Shapers: Challenge and push the team forward.
 Coordinators: Help the team focus on collective objectives.

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  Team Workers: Foster collaboration and harmony within the group. By understanding each
member’s strengths and weaknesses, teams can distribute roles effectively, ensuring that all key
tasks are covered and that the group functions cohesively.
4b) How do the roles of Shapers and Team Workers contribute to overall team performance? Provide
examples from real companies like Microsoft or Google.
 Shapers at Microsoft push the team to innovate and meet ambitious goals, as seen in their
cloud-first transformation.
 Team Workers at Google help create a collaborative environment, ensuring that engineers and
developers work together effectively on projects like Google Search. These roles complement
each other, balancing drive with team cohesion.
4c) Discuss the concept of psychological safety and its importance in fostering innovation and team
collaboration.
Psychological safety is the belief that team members can express themselves without fear of negative
consequences. It fosters an environment where people feel free to share ideas, take risks, and
collaborate without fear of ridicule or retribution. This encourages innovation because individuals are
more likely to offer creative solutions or admit mistakes, both of which are crucial for learning and
improvement.
4d) How did Google's focus on psychological safety enhance the performance of its teams? Provide
examples from their best teams research.
Google’s research on high-performing teams found that psychological safety was the most important
factor in team success. Teams where members felt safe to take risks and be vulnerable with one another
outperformed others. This focus on open communication and trust enabled teams to solve problems
more effectively and innovate more frequently.
4e) What role does leadership play in creating a psychologically safe environment? Discuss using
examples from either Google or Southwest Airlines.
Leadership plays a critical role in fostering psychological safety by encouraging open communication,
supporting team members, and demonstrating vulnerability. At Google, leaders model this behavior by
admitting mistakes and seeking feedback from their teams. Similarly, at Southwest Airlines, leadership
focuses on recognizing employees’ contributions and creating an inclusive environment, which
encourages team collaboration and innovation.

Organizational Learning Framework (Crossan et al.) and apply it to how Southwest Airlines adapted to
its growing market.
The Organizational Learning Framework includes four stages: intuiting, interpreting, integrating, and
institutionalizing. At Southwest Airlines, employees intuitively recognized the need for customer
satisfaction, and leadership interpreted these insights to shape policies that focus on low-cost, reliable
services. These practices were integrated into operational procedures and eventually institutionalized as
part of the company’s culture.
Intuiting and interpreting in Apple’s innovation process
At Apple, intuiting plays a critical role in identifying new product ideas based on consumer needs and
emerging technology trends. Leaders and teams interpret these insights to develop innovative products
like the iPhone, Mac, and Apple Watch. Intuiting and interpreting are key elements in Apple’s product
development process, where creative ideas are translated into tangible, market-leading products

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