P1-2.

How might the following management theories /approaches be useful to

Starbucks : scientific management, organizational behavior, quantitative
approach, systems approach?

1.0 Introduction:
2.0 Classical Approach

2.1 Definition :

 these first studies of management, often called the classical

approach, emphasized rationally and making organizations and
workers as efficient as possible.

 Two major theories comprise the classical approach : scientific

management and general administrative theory.

 The two most important contributors to scientific management

theory were Frederick W.Taylor and the husband-wife team of
Frank and Lilian Gilbreth.

 The two most important contributors to general administrative

theory were Henri Fayol and Max Weber.

Textbook 1:

 First we examine the so-called classical management theories that

emerged around the turn of the 20th century.

 These include the scientific management, which focuses on

matching people and task to maximize efficiency, and
administrative management, which focuses on the identifying the
principles that will lead to the creation of the most efficient system
of organization and management.
(Jones, George, 2016)
Textbook 2:
 The classical perspective on management emerged during the
 nineteenth and early twentieth centuries.
 Problems arose in tooling the plants, organizing managerial
structure, training employee ( many of them English-speaking
immigrants), scheduling complex manufacturing operations, and
dealing with increased labor dissatisfaction and resulting strikes.
 These myriad new problems and the development of large, complex
organization demanded a new approach to coordination and control,
and a “new sub-species of economic man-the salaried manager was
born.
 These professional managers began developing and testing
solutions to the mounting challenges of organizing, coordinating
and controlling large numbers of people and increasing worker
productivity. (Daft. 2015)
Textbook 3:
 the operational perspective on management thought originated in he
nineteenth and early twentieth centuries when the factory system
and modern corporations evolved to meet the challenges of
managing large, complex organization.
(Gomez-Meija, Balkin, Cardy, 2015)
2.2 Scientific Management
2.3 Definition :

 Taylor’s book described the theory scientific management : the use

of scientific management to define the “one best way” for a job
done.

 Taylor worked at the Midvale and Bethlehem Steel Companies in

Pennsylvania.

 As a mechanical engineer with a Quaker and Puritan background,

he was continually appalled by workers’ inefficiencies.

 Employees used vast different techniques to do the same job

 They often “took it easy” on the job, and Taylor believe that worker
output was only about one-third of what was possible.

 Virtually no work standards existed, and workers were placed in

jobs with little or no concern for matching their abilities and
 aptitudes with the task they required to do.

 Taylor set out to remedy that by applying the scientific method to

shop-floor jobs

 He spent more than two decades passionately pursuing the “one

best way” for such jobs to be done.

 Taylor experience at Midvale led him to define clear guidelines for

improving the efficiency.

 He argued that the these four principle of management (see exhibit

MH-2) would result in prosperity for both workers and managers.

 Exhibit MH-2 : Taylor’s scientific management principles

 Based on his groundbreaking studies of manual work using

scientific principles, Taylor became known as the “father” of
scientific management.

 Frank and his wife Lillian, a psychologist, studies work to eliminate

inefficient hand-and-body motions.

 The Gilbreths also experimented with the design and use the proper
tools and equipment optimizing work performance.

 Frank is probably best known for his bricklaying experiments.

 By carefully analyzing the bricklayer’s job, he reduced the

 number of motions in laying exterior brick from 18 to about 5, and
in laying interior brick from 18 to 2.

 Using Gilbreth’s techniques, a bricklayer was more productive and

less fatigued at the end of the day.

 The Gilbreths also devised a classification scheme to label 17 basic

hand motions (such as search,grasp,hold), which they called
therbligs ( Gillbreth spelled backward with the th transposed).

Textbook 1:
 The evolution of modern management began in the closing decades
of th 19th century, after the industrial revolution had swept through
Europe and America.

 In the new economic climate, managers of all types of

organizations- political,educational, and economic- were trying to
find better ways to satisfy customers’ needs.

 Initially management theorists were interested in why the new

machine shops and factory system were more efficient and
produced greater quantities of goods and services than older
craft-style production operations.

 Nearly 200 years before Adam Smith had been one of the first
writers to investigate the advantages associated with producing
goods and in services in factories.

 A famous economist, Smith journeyed around England in the 1700s

studying the effects of the industrial revolution.

 In a study of factories that produced various pins or nails, Smith

identified two different manufacturing methods

 The first was similar to crafts-style production, in which each

worker was responsible for all the 18 tasks involved in producing a
pin.
 The other had each worker performing only one or a few of these
18 tasks.

 Smith found that the performance of the factories in which workers

specialized in only one or a few tasks was much greater than the
performance of the factory in which each worker performed all 18
pin-making tasks

 In fact, Smith found that 10 workers specializing in a particular task

could make 48,000 pins a day, whereas those workers who
performed all the tasks could make only a few thousand

 Smith reasoned that this performance difference occurred because

the workers who specialized became much more skilled at their
specific tasks and as a group were thus able to produce a product
faster than the group of workers who each performed many tasks.

 Smith concluded that increasing the level of job specialization —

the process by which a division of labor occurs as different workers
specialize in tasks— improves efficiency and leads to higher
organizational performance.

 Frederick W. Taylor (1856–1915) is best known for defining the

techniques of scientific management, the systematic study of
relationships between people and tasks for the purpose of
redesigning the work process to increase efficiency.

 Taylor was a manufacturing manager who eventually became a

consultant and taught other managers how to apply his scientific
management techniques.

 Taylor believed that if the amount of time and effort that each
worker expends to produce a unit of output (a finished good or
service) can be reduced by increasing specialization and the
division of labor, the production process will become more
efficient.

 According to Taylor, the way to create the most efficient division

of labor could best be determined by scientific management
techniques rather than by intuitive or informal rule-of-thumb
 knowledge

 Based on his experiments and observations as a manufacturing

manager in a variety of settings, he developed four principles to
increase efficiency in the workplace:

 Principle 1: Study the way workers perform their tasks, gather all
the informal job knowledge that workers possess, and experiment
with ways of improving how tasks are performed

 To discover the most efficient method of performing specific tasks,

Taylor studied in great detail and measured the ways different
workers went about performing their tasks.

 One of the main tools he used was a time-and-motion study, which

involves the careful timing and recording of the actions taken to
perform a particular task

 Once Taylor understood the existing method of performing a task,

he then experimented to increase specialization

 He tried different methods of dividing and coordinating the various

tasks necessary to produce a finished product.

 Taylor also sought to find ways to improve each worker’s ability to

perform a particular task.

 Principle 2: Codify the new methods of performing tasks into

written rules and standard operating procedures.

 Once the best method of performing a particular task was

determined, Taylor specified that it should be recorded so this
procedure could be taught to all workers performing the same task

 These new methods further standardized and simplified

jobs—essentially making jobs even more routine. In this way
efficiency could be increased throughout an organization.
 Principle 3: Carefully select workers who possess skills and
abilities that match the needs of the task, and train them to perform
the task according to the established rules and procedures

 To increase specialization, Taylor believed workers had to

understand the tasks that were required and be thoroughly trained to
perform the tasks at the required level.

 Workers who could not be trained to this level were to be

transferred to a job where they were able to reach the minimum
required level of proficiency.

 Principle 4: Establish a fair or acceptable level of performance for a

task, and then develop a pay system that rewards performance
above the acceptable level.

 To encourage workers to perform at a high level of efficiency, and

to give them an incentive to reveal the most efficient techniques for
performing a task, Taylor advocated that workers benefit from any
gains in performance.

 They should be paid a bonus and receive some percentage of the

performance gains achieved through the more efficient work
process.

 By 1910 Taylor’s system of scientific management had become

nationally known and in many instances was faithfully and fully
practiced.

 However, managers in many organizations chose to implement the

new principles of scientific management selectively

 This decision ultimately resulted in problems.

 Scientific management brought many workers more hardship than

gain and a distrust of managers who did not seem to care about
workers’ well-being.
 These dissatisfied workers resisted attempts to use the new
scientific management techniques and at times even withheld their
job knowledge from managers to protect their jobs and pay.

 It is not difficult for workers to conceal the true potential efficiency

of a work system to protect their interests.

 Experienced machine operators, for example, can slow their

machines in undetectable ways by adjusting the tension in the belts
or by misaligning the gears.

 Unable to inspire workers to accept the new scientific management

techniques for performing tasks, some organizations increased the
mechanization of the work process.

 Henry Ford also used the principles of scientific management to

identify the tasks that each worker should perform on the
production line and thus to determine the most effective division of
labor to suit the needs of a mechanized production system.

 From a performance perspective, the combination of the two

management practices— (1) achieving the right worker–task
specialization and (2) linking people and tasks by the speed of the
production line—makes sense

 It produces the huge cost savings and dramatic output increases that
occur in large organized work settings.

 Two prominent followers of Taylor were Frank Gilbreth (1868–

1924) and Lillian Gilbreth (1878–1972), who refined Taylor’s
analysis of work movements and made many contributions to
time-and-motion study.

 Their aims were to (1) analyze every individual action necessary to

perform a particular task and break it into each of its component
actions, (2) find better ways to perform each component action, and
(3) reorganize each of the component actions so that the action as a
whole could be performed more efficiently—at less cost in time
and effort.
 The Gilbreths often filmed a worker performing a particular task
and then separated the task actions, frame by frame, into their
component movements.

 Their goal was to maximize the efficiency with which each

individual task was performed so that gains across tasks would add
up to enormous savings of time and effort.

 Their attempts to develop improved management principles were

captured—at times quite humorously—in the movie Cheaper by the
Dozen, a new version of which appeared in 2004, which depicts
how the Gilbreths (with their 12 children) tried to live their own
lives according to these efficiency principles and apply them to
daily actions such as shaving, cooking, and even raising a family.
 They studied how physical characteristics of the workplace
contribute to job stress that often leads to fatigue and thus poor
performance.

 They isolated factors that result in worker fatigue, such as lighting,

heating, the color of walls, and the design of tools and machines.

 Their pioneering studies paved the way for new advances in

management theory.

 In workshops and factories, the work of the Gilbreths, Taylor, and

many others had a major effect on the practice of management.
 In comparison with the old crafts system, jobs in the new system
were more repetitive, boring, and monotonous as a result of the
application of scientific management principles, and workers
became increasingly dissatisfied.
 Frequently the management of work settings became a game
between workers and managers: Managers tried to initiate work
practices to increase performance, and workers tried to hide the true
potential efficiency of the work setting to protect their own
well-being.
(Jones, George, 2016)
Textbook 2:
 Scientific management emphasizes scientifically determined jobs
and management practiced as the ways to improve efficiency and
 labor productivity.
 Taylor suggested that decisions based on rules of thumb and
tradition be replaced with precise procedures developed after
careful study of individual situations.
 Although known as the father of scientific management, Taylor was
not alone in this area.
 Henry Grantt, an associate of Taylor’s, developed the Gantt chart- a
bar graph that measures planned and completed work along each
stage of production by time elapsed.
 Two other important pioneers in this area were the
husband-and-wife team of Frank B. and Lilian M. Gilbreth.
 Frank B. Gilbreth (1868-1924) pioneered time and motion study
and arrived at many of his management techniques independently
of Taylor.
 Exhibit 2.2 shows the basic ideas of scientific management.
 To use this approach, managers should develop standard methods
for doing each job, select workers with the appropriate abilities,
train workers in the standard methods , support workers and
eliminated interruptions, and provide wage incentives.


(Daft, 2012)
Textbook 3:
 In the last half of the nineteenth century, organizations were unable
to obtain increased productivity from employees despite making
large investment in new technologies.
 At Midvale, Taylor carefully documented the large amount of time
 that was wasted by workers who were ill equipped and poorly
trained to perform the simple tasks.
 Complicating the situation, there were no systematic rules to serve
as guidelines for doing the jobs most efficiently.
 Workers learned their jobs by the use of rules of thumbs and
trial-and-error processes.
 In response to the inefficiencies he observed in the steel industry,
Taylor developed scientific management, which is summarized in
Table 1.2
 The scientific method should be applied to determining the one best
way to do a particular job.
 This optimal approach to work spares the worker from management
criticism and provides managers and owners with the most output
from each worker.


 Next, Taylor supported the use of scientific selection methods to
make the best matches between workers and jobs.
 Taylor found this approach inefficient, and he suggested using
measure of workers aptitudes,traits, and performance to
scientifically determine the fit between person and job.
 Finally, Taylor perceived a clear separation between the work of
employees and managers.
 In Taylor’s view, employees did the physical work and managers
planned, directed and coordinated employees’ efforts so that the
goals would be reached.
 In one of the most famous applications, Henry Ford utilized
scientific management in the production process of the factury that
manufactured the Model-T Ford .
 The lasting contribution of scientific management was to transform
management into a more objective, systematic body of knowledge
in which best practices can be discovered for different jobs.
 Scientific management had a shortcomings.
 It did not appreciate the social context of work and the needs
 (beyond pay) of workers.
 It often led to dehumanizing working conditions in which every
aspect of a worker’s effort was measured, prohibiting employees
initiative.
 Scientific management also assumed that workers had no useful
ideas, and that only managers and experts were capable of coming
up with the good ideas or innovations.
(Gomez-Meija, Balkin, Cardy, 2015)
Example from textbook (Robbins 2016)
 Th owners thought Schultz’s style and high energy would clash
with the existing culture.
 But Schultz was quite persuasive and was able to allay the owners’
fears.
 They asked him to join the company as director of retail operations
and marketing, which he enthusiastically did.
 Schultz’s passion for the coffee business was obvious.
 Although some of the company employees resented the fact that he
was an ‘outsider,” Schultz had found his niche and he had lots of
idea for the company.
 As he says, “I wanted to make a positive impact.”
Example from the internet :
 Starbucks uses scientific management principles to create a
welcoming environment for partners.
 The first principle that Starbucks use is the specialized selecting
and training of workers.
 Starbucks has a Rotational Development Program to provide the
knowledge and professional skills for the first entry at Starbucks.
 It based at Corporate Headquarters in Seattle, and it is two-year
program consisting of three, eight months rotations in various areas
within a specific business unit.
 The program is aim to develop strong and successful leaders for
growing business. Then, looking into the single unit, each worker
has their own responsibility in the production line of coffee and
food.
 To provide the best service to the customers consistently, there are
many specialized requirements for Café lead and cook.
 They should have at least one-year certificate from college or
technical school, or six month to one year related experience and
training.
  The proficient of using food service equipment with Food Handlers
Card is also the required ability for all the cooking staffs.
 Each individual must perform each responsibility satisfactorily to
achieve a common success in the customer service.

 To ensure the Starbucks success, the second principle Starbucks use

is the co-operation with workers.
 A supervisor, as assistant of the store manager, is necessary to
co-operate with workers to ensure work is being done using the one
best method for performing tasks.
 Supervisor should direct the work of others with effective
communication skills and strong interpersonal skills is also required
for solving the problems and build friendly relationship within the
team.
 The most important is that supervisor works as part of team and
maintain the regulations as well.
 Starbucks has developed the one best way for performing its
mission.
 The Standards of Business Conduct is to restate its longstanding
commitment to provide guidance to all global partners.
 All partners act honestly with uniforms, providing best fresh
products to customers.
 A health and safe environment is building by efforts from every
partner in order that the high quality production leads to successful
business.

3.0 Behavioral Approach :

3.1 Definition :
 The field of study that researches the actions (behaviour) of people
at work is called organizational behavior (OB)
 Much of what managers do today when managing people-
motivating, leading, building trust, working with a team, managing
conflict, and so forth-has comeout of OB research.
 Four stand out as early advocates of the OB approach : Robert
Owen, Hugo Munsterberg, Mary Parker Follett, and Chester
Barnard.
 their contributors were varied and distinct, yet all believed that
people were the most important asset of the organization and should
be managed accordingly.
 Their ideas provided the foundation for such management practises
as employee selection procedures, motivation programs, and work
teams.

Exhibit MH-5: Early OB Advocates

 Without question, the most important contribution to the OB field
came out of the Hawthorne Studies, a series of studies conducted at
the Western Electric Company Works in Cicero, Illinois.
 These study which start 1924, were initially designed by Western
Electric Company industrial engineers as a scientific management.
 They wanted to examine the effect of various lighting levels on
worker productivity.
 Like any good scientific experiment, control and experimental
group were set up, with the experimental group working under a
constant intensity.
 In 1927, the Western Electric engineers asked Harvard professor
Elton Mayo and his associates to join the study as consultant.
 Thus began a relationship that would last through 1932 and
encompass numerous experiments in the redesign of jobs, changes
in workday and workweek length, introduction of rest periods, and
individual versus group wage plans.
 Scholars generally agree that the Hawthorne Studies had a
game-changing impact on management beliefs about the role of
people in organizations.
 Mayo concluded that people’s behavior and attitudes are closely
related., that group factors significantly affect individual behavior,
that group standard establish individual worker output, and that
money is less a factor in determining output than group standards,
group attitudes and security.
 These conclusions led to a new emphasis on the human behavior
factor in the management of organizations.


Textbook 1 :
 Although their writings were different, these theorists all espoused a
theme that focused on behavioral management , the study of how
managers should personally behave to motivate employees and
encourage them to perform at high levels and be committed to
achieving organizational goals.
 If F. W. Taylor is considered the father of management thought,
Mary Parker Follett (1868–1933) serves as its mother. Much of her
writing about management and about the way managers should
behave toward workers was a response to her concern that Taylor
was ignoring the human side of the organization.
 She pointed out that management often overlooks the multitude of
ways in which employees can contribute to the organization when
managers allow them to participate and exercise initiative in their
everyday work lives.
 Follett proposed that “authority should go with knowledge . . .
whether it is up the line or down.”
 In other words, if workers have the relevant knowledge, then
workers, rather than managers, should be in control of the work
process itself, and managers should behave as coaches and
facilitators—not as monitors and supervisors.
 In making this statement, Follett anticipated the current interest in
self-managed teams and empowerment.
 She also recognized the importance of having managers in different
departments communicate directly with each other to speed
decision making.
 She advocated what she called “cross-functioning”: members of
different departments working together in cross-departmental teams
to accomplish projects—an approach that is increasingly used
today.
 Fayol also mentioned expertise and knowledge as important sources
of managers’ authority, but Follett went further.
 She proposed that knowledge and expertise, and not managers’
formal authority deriving from their position in the hierarchy,
should decide who will lead at any particular moment.
 Follett took a horizontal view of power and authority, in contrast to
Fayol, who saw the formal line of authority and vertical chain of
command as being most essential to effective management.
 Follett’s behavioral approach to management was very radical for
its time.
 To increase efficiency, they studied ways to improve various
characteristics of the work setting, such as job specialization or the
kinds of tools workers used.
 d. One series of studies was conducted from 1924 to 1932 at the
Hawthorne Works of the Western Electric Company.
 This research, now known as the Hawthorne studies, began as an
attempt to investigate how characteristics of the work
setting—specifically the level of lighting or illumination— affect
worker fatigue and performance.
 The researchers conducted an experiment in which they
systematically measured worker productivity at various levels of
illumination.
 The experiment produced some unexpected results.
 The researchers found that regardless of whether they raised or
lowered the level of illumination, productivity increased.
 In fact, productivity began to fall only when the level of
illumination dropped to the level of moonlight—a level at which
workers could presumably no longer see well enough to do their
work efficiently.
 The researchers found these results puzzling and invited a noted
Harvard psychologist, Elton Mayo, to help them.
 Mayo proposed another series of experiments to solve the mystery.
 These experiments, known as the relay assembly test experiments,
were designed to investigate the effects of other aspects of the work
context on job performance, such as the effect of the number and
length of rest periods and hours of work on fatigue and monotony.
 The goal was to raise productivity.
 During a two-year study of a small group of female workers, the
researchers again observed that productivity increased over time,
but the increases could not be solely attributed to the effects of
changes in the work setting.
 Gradually the researchers discovered that, to some degree, the
results they were obtaining were influenced by the fact that the
researchers themselves had become part of the experiment
 In other words, the presence of the researchers was affecting the
results because the workers enjoyed receiving attention and being
the subject of study and were willing to cooperate with the
researchers to produce the results they believed the researchers
desired.
 Subsequently it was found that many other factors also influence
worker behavior, and it was not clear what was actually influencing
the Hawthorne workers’ behavior.
 However, this particular effect—which became known as the
Hawthorne effect —seemed to suggest that workers’ attitudes
toward their managers affect the level of workers’ performance.
 In particular, the significant finding was that each manager’s
personal behavior or leadership approach can affect performance.
 This finding led many researchers to turn their attention to
managerial behavior and leadership.
 If supervisors could be trained to behave in ways that would elicit
cooperative behavior from their subordinates, productivity could be
increased.
 From this view emerged the human relations movement , which
advocates that supervisors be behaviorally trained to manage
subordinates in ways that elicit their cooperation and increase their
productivity.
 The importance of behavioral or human relations training became
even clearer to its supporters after another series of
experiments—the bank wiring room experiments
 Workers who violated this informal production norm were
subjected to sanctions by other group members.
 Those who violated group performance norms and performed
above the norm were called “ratebusters”; those who performed
below the norm were called “chiselers.”
 The experimenters concluded that both types of workers threatened
the group as a whole.
 Ratebusters threatened group members because they revealed to
managers how fast the work could be done.
 Chiselers were looked down on because they were not doing their
share of the work.
 One implication of the Hawthorne studies was that the behavior of
managers and workers in the work setting is as important in
explaining the level of performance as the technical aspects of the
task.
 Managers must understand the workings of the informal
organization , the system of behavioral rules and norms that emerge
in a group, when they try to manage or change behavior in
organizations.
 Many studies have found that as time passes, groups often develop
elaborate procedures and norms that bond members together,
allowing unified action either to cooperate with management to
 raise performance or to restrict output and thwart the attainment of
organizational goals.
 It was becoming increasingly clear to researchers that
understanding behavior in organizations is a complex process that is
critical to increasing performance.
 5 Indeed, the increasing interest in the area of management known
as organizational behavior , the study of the factors that have an
impact on how individuals and groups respond to and act in
organizations, dates from these early studies.
(Jones, George, 2016)
Textbook 2 :
 The behavioral science approach uses scientific methods and draws
from sociology, psychology,anthropology,economics and other
disciplines to develop theories about human behavior and
interaction in an organizational setting.
 One specific set of management techniques based in the behavioral
sciences approach is organization development (OD).
 In the 1970s, organization development evolved as a separate field
that applied the behavioral sciences to improve internal
relationships and increases problem-solving capabilites.
 Other concepts that grew out of the behavioral sciences approach
included matrix organizations, self-managed teams, ideas about
corporate culture, and management by wandering around.
(Daft, 2012)
Textbook 3 :
 The behavioral perspective incorporates psychological and social
process of human behavior to improve productivity and work
satisfactions.
 Operational theorists view management as a mechanical process in
which employees would fit into any job or organization designed
for optimum efficiency if given monetary incentives to do so.
 Hawthorne effect is the finding that paying special attention to
employees motivates them to put greater effort into their jobs (from
the Hawthorne management studies)
 They labelled the phenomenon the Hawthorne effect, and suggested
that when a manager or leader shows concern for employees, their
motivation and productivity are likely to improve.
 Later studies at Hawthorne revealed that the informal organization
had a profound effect on a group productivity.
 Individuals who exceeded the group performance norm were
considered ‘ratebusters” and those who perform below the norm
 were viewed as the “chiselers”.
 The work group disciplined both types of norm violations because
ratebusters could speed up the pace of work beyond what we
considered fair, while chiselers avoided doing the fair share of the
work.
 The Hawthorne studies provided evidence that employee attitudes
significantly affect performance in a manner which differs from the
financial incentives championed by advocates of scientific
management.
(Gomez-mejia/ Balkin/ Cardy, 2015)
Example from textbook (Robbin 2016) :
 In fact, his intention to restore quality control led him to a decision
to close (all that times) 7,100 U.S. stores for one evening to retrain
135,00 baristas on the coffee experience . . . what it meant, what it
wa.
 It was a bold decision, and one that many “experts” felt would be a
disaster.
 Another controversial decision was to hold a leadership conference
with all store managers (some 8000 of them) and 2000 other
partners-all at one time and locations. Why ?
 To energize and galvanize these employees around what starbucks
stands for and what needed to be done for the company to survive
and prosper.
Example from internet :
 Howard believes in treating people with respect and dignity.
 He always cared about his employees and gave them the
opportunities to come forward and show their abilities for the
company.
 In 1999, Schultz stepped down from the post of CEO for Smith and
continued as chairman and chief global strategist of company.
 According to Howard's, "treat people like family and they will be
loyal and give their all" and on his philosophy Starbucks created
different benefit programs for employees including part timers.
 It consist of stock share plan, work life balance etc.
 Schultz played a major role in developing an employee ownership
program at Starbucks shortly after he bought the company.
 He introduced 'Bean Stock' plan in which all employees were
eligible to get the shares of the company.
 Make them feel like an owner improved employee's performance
 and to retain them.
 It boosted employee commitment and maintained low employee
turnover (Long, 2002).

4.0 Quantitative Approach

4.1 Definition :
 Based on research in space-time geometry, one airline innovated a
unique boarding process called “reverse pyramid” that has at least
two minutes in boarding time.
 This is an example for the quantitative approach, which is the use of
quantitative techniques to improve decision making.
 This approach also is known as management science.
 What exactly does quantitative approach do? It involves applying
statistics optimization models, information models, computer
simulations and other quantitative techniques to management
activities.
 Work scheduling can be more efficient as a result of critical-path
scheduling analysis.
 The economic order quantity model helps managers determine
optimum inventory levels.
 Another area where quantitative techniques are used frequently is in
total quality management.

Exhibit MH-6 : What is quality management?

 It was inspired by a small group of quality experts, the most famous

being W. Edwards Deming and Joseph M. Juran.
 Total quality management or TQM, is a management philosophy
 devoted to continual improvement and responding to customer
needs and expectations.

 The term customer includes anyone who interacts with the

organization’s product or services, internally or externally.

 Continual improvement isn’t possible without accurate

measurements, which require statistical techniques that measure
every critical variable in the organization’s work processes.

Textbook 1 :
 Management science theory is a contemporary approach to
management that focuses on the use of rigorous quantitative
techniques to help managers make maximum use of organizational
resources to produce goods and services.
 In essence, management science theory is a contemporary extension
of scientific management, which, as developed by Taylor, also took
a quantitative approach to measuring the worker–task mix to raise
efficiency.
 There are many branches of management science; and IT, which is
having a significant impact on all kinds of management practices, is
affecting the tools managers use to make decisions.
 Quantitative management uses mathematical techniques—such as
linear and nonlinear programming, modeling, simulation, queuing
theory, and chaos theory—to help managers decide, for example,
how much inventory to hold at different times of the year, where to
locate a new factory, and how best to invest an organization’s
financial capital.
 IT offers managers new and improved ways of handling information
so they can make more accurate assessments of the situation and
better decisions.
 Operations management gives managers a set of techniques they
can use to analyze any aspect of an organization’s production
system to increase efficiency.
 IT, through the Internet and through growing B2B networks, is
transforming how managers acquire inputs and dispose of finished
products.
 Total quality management (TQM) focuses on analyzing an
organization’s input, conversion, and output activities to increase
product quality.
 Once again, through sophisticated software packages and
computer-controlled production, IT is changing how managers and
employees think about the work process and ways of improving it.
 Management information systems (MISs) give managers
information about events occurring inside the organization as well
as in its external environment—information that is vital for effective
decision making.
 IT gives managers access to more and better information and
allows more managers at all levels to participate in the decision
making process.
(Jones, George, 2016)
Textbook 2 :
 The quantitative perspective also referred to as management
science, provided a way to address those problems.
 This view is distinguished for its application of mathematics,
statistics and other quantitative techniques to management decision
making and problem solving.
 Managers soon saw how quantitative techniques could be applied to
large-scale business firms.
 Let’s look at three subsets of the quantitative perspective.
 Operations research grew directly out of the World War II military
groups (called operational research teams in Great Britain and
operations research teams in United States). It consists of
mathematical model building and other applications of
quantitative techniques to managerial problems.
 Operations management refers to the field of management that
specializes in the physical production of goods and services.
Operations management specialist use a quantitative techniques to
solve the manufacturing problems.
 Information technology (IT) is the most recent sub field of the
quantitative perspective. Which is often reflected in management
information system design to provided relevant information o
managers in a timely and cos-efficient manners.
(Daft 2012)
Textbook 3 :
 The focus is on the development of various statistical tools and
techniques to improve efficiency and allow management to make
informed decisions regarding the costs and benefits of alternative
course of action.
 Four of these quantitative methods, which are still widely use today,
included : (1) break-even analysis (2) basic economic order quantity
 (EOQ) (3) material requirement planning, MRP and (4) quality
management.
 Break-even analysis.
 Break-even analysis provides formulas which assess the total
fixed costs associated with producing a product, the variable costs
for each units, and the contribution made by the sales of each unit to
recovering both fixed and variable cost.
 The break-even point is the number of units which must be sold
at a given price to recover all fixed and variable costs.

 The economic order quantity (EOQ)

 The formula is generally credited to Ford W. Harris, who
argued in his book Operations and Cost the effective management
of inventories is critical to sustained profitability.
 EOQ’s objective is to minimize the total costs of inventory.
 Mathematically, the EOQ model demonstrates that the optimal
reorder point occurs when the total set up cost is equal to the total
holding cost.

 Material requirement planning , MRP

 Is a set of tools designed to manage components where the
demand for the items is linked to another demands.
 MRP helps a company reduce inventory costs and ensures that
all item will be available when needed.

 Quality management
 Total quality management (TQM) is an organization wide
approach that focuses on quality as an overarching goal.
 The basis of this approach is the understanding that all
employees and organizational units should be working
harmoniously to satisfy the customer.
 The TQM perspective views quality as the central purpose of
the organization, in contrast to the focus on efficiency advocated by
the operational perspective.
 The key elements of the TQM approach are
 Focus on the customer : it is important to identify the
organization’s customers. External customers consume the
organization’s product or service. Internal customers are employees
 who receive the output of employees.
 Employee involvement : since quality is considered the job of
all employees, employees should be involved in quality initiatives.
Front-line employees are likely to have the closet contact with
external customers and thus can make the most valuable
contributions to quality. In TQM workers are are often organized
into empowered teams that have the authority to make the quality
improvements.
 Continuous improvement : the quest for quality is a
never-ending process in which people are continuously working to
improve the performance, speed, and number of features of the
product or service. Continuous improvement means that small,
incremental improvements that occur on a regular basis will
eventually add up to vast improvements in quality.
(Gomez-mejia/ Balkin/ Cardy, 2015)
Example in textbook (Robbins 2016) :
 Starbucks’ main product is coffee- more than 30 blends and
single-origin coffees.
 In addition to fresh-brewed coffee, here’s a sampling of other
products the company also offers :
 Handcrafted beverages: Hot and ice espresso beverages, coffee and
noncoffee blended beverage, Tazo teas and smoothies.
 Merchandise : Home espresso machines, coffee brewers and
grinders, premium chocolates, coffee mugs and coffee accessories,
compact discs, and other assorted items.
 Global consumer products : Starbucks Frappuccino coffee drinks,
Starbucks Iced Coffee drinks, Starbucks Liqueurs and a line os
super-premium ice creams.
 Starbucks card and my starbucks rewards program: A reloadable
stored-value card and a consumer rewards program
 Brand Portfolio : Starbucks Entertainment, Ethos Water, Seattle’s
Best Coffee and Tazo tea.
Example in internet :
 Starbucks has been a successful company over many decades
largely because of its stellar business strategies.
 The company engages in both horizontal and vertical integration.
 Horizontal integration is evident in Starbucks' evolution of
products.
 Vertical integration can be seen in the acquisitions that support the
supply chain and business operations.
 Market research is appropriate for each change in the integration of
operations that will be customer-facing or will impact the services
customers experience.
 Consider that Starbucks has conducted market research on dairy
substitutes in its hand-crafted coffee beverages.
 Note also that Starbucks is highly attentive to monitoring social
medianetworks for consumer brand affinity and customer
complaint.
 Starbucks also actively solicits customer suggestions on its website.
 Market research can take many different forms and can also be
conducted on the major channels.
 For their market research on dairy substitutes in coffee beverages,
Starbucks employed at least these three market research approaches:
 Cultural trends (the dairy "problem," health-conscious
consumers, nut allergies)
 Environmental factors in supply chain management (the
almond crop "problem")
 Social media monitoring (word-of-mouth, brand ambassadors)
 Customer preferences tracking (website customer comments)
 In-store product testing

 At 84,000 votes, coconut milk is the second most requested

improvement pitched
to MyStarbucksIdea.comhttps://ideas.starbucks.com/which is a
website where customers offer ideas and suggestions on a wide
range of topics.
 Starbucks vice president of brewed espresso, Christine Barone, told
MarketWatch that,
 “Delivering the options our customers want is always the highlight
of my day. We have a high bar for anything we pair with our high
quality espresso and this coconut milk is smooth and perfectly
complements the coffee. I personally love it in an iced vanilla latte.”
 The Non-Dairy Market Research Question
 Health-conscious consumers and customers with special dietary
limitations, such as allergies to nuts (almond milk) and lactose
intolerance (dairy products), are seeing the results of voicing their
preferences to Starbucks and other coffee beverage companies.
 Despite a market nervous about nut allergies, Peet's Coffee, a
Starbucks rival in California, offers lattes and other beverages with
almond milk.
  During the past year, the Coffee Bean & Tea Leaf chain has offered
its customers almond-coconut milk as an alternative to dairy.
 Starbucks first offered soy milk to customers in 1997, and other
major coffee house chains provide soy milk as an alternative to
milk.
 Mintel, the market research company, reports that during the period
from 2011 to 2013, overall sales of dairy milk products and
nondairy alternatives grew a scant 1.8 percent to $24.5 billion
(Reuters).
 During the same period of time, sales in the alternative milk
category rose 33 percent to nearly $2 billion, making it the
fastest-growing category within the dairy milk products and
nondairy alternatives group 9 (Reuters).
 Starbucks regularly tests products in stores.
 During 2014, Starbucks tested the use of coconut milk as a
non-dairy alternative to milk and cream in the brand's hand-crafted
beverages.
 The market research took place in Starbucks stores located
Cleveland, Los Angeles, and Oregon.
 The results of the market research were sufficiently positive to
cause Starbucks to select coconut milk instead of almond milk as an
alternative to traditional dairy products in coffee beverages.

5.0 Contemporary Approach :

5.1 Definition :
 Starting in the 1960s, management began to look at what was
happening in the external environment outside the boundaries of the
organization.
 Two contemporary management perspectives-system and and
contingency-are part of this approach.
 A system is a set of interrelated and interdependent parts arranged
in a manner that produce a unified whole.
 Closed system are not influenced by and do not interact with their
environment.
 In contrast, open systems are influenced by and do interact with
their environment.
 Exhibit MH-7: organization as an open system

 How does the system approach contribute to our understanding of

management? Researchers envisioned an organization as made up
of “interdependent factors, including individuals,groups,attitudes,
motives, formal structure, interactions, goals, status and authority.
 What this means is that as managers coordinate work activities in
the various parts of the organization, they ensure that all these part
are working together so the organization’s goals can be achieved.

 In addition, the systems approach implies that decisions and actions

in one organizational area will affect other areas.
 Finally, the systems approach the recognizes that organizations are
not self-contained.
 They rely on their environment for essential inputs and as outlets to
absorb their outputs.
 How relevant is the system approach to management? Quite
relevant.
 The contingency approach,(sometimes called the situational
approach) says that organizations are different, face different
situations(contingencies) and require different ways of managing.
 Exhibit MH-8 : popular contingency variables.

 Although the list is by no means comprehensive- more than 100

different variable have been identified- it represents those most
widely used and gives you an idea by what we mean by the term
contingency variable.
Textbook 1 :

 An important milestone in the history of management thought

occurred when researchers went beyond the study of how managers
can influence behavior within organizations to consider how
managers control the organization’s relationship with its external
environment, or organizational environment —the set of forces and
conditions that operate beyond an organization’s boundaries but
affect a manager’s ability to acquire and utilize resources.

 One way of determining the relative success of an organization is to

consider how effective its managers are at obtaining scarce and
valuable resources.

 The importance of studying the environment became clear after the

development of open-systems theory and contingency theory during
the 1960s.

 One of the most influential views of how an organization is affected

by its external environment was developed by Daniel Katz, Robert
Kahn, and James Thompson in the 1960s.

 These theorists viewed the organization as an open system —a

 system that takes in resources from its external environment and
converts or transforms them into goods and services that are sent
back to that environment, where they are bought by customers (see
Figure 2.4 ).


 At the input stage an organization acquires resources such as raw
materials, money, and skilled workers to produce goods and
services.

 Once the organization has gathered the necessary resources,

conversion begins.

 At the conversion stage the organization’s workforce, using

appropriate tools, techniques, and machinery, transforms the inputs
into outputs of finished goods and services such as cars,
hamburgers, or flights to Hawaii.

 At the output stage the organization releases finished goods and

services to its external environment, where customers purchase and
use them to satisfy their needs.

 The money the organization obtains from the sales of its outputs
allows the organization to acquire more resources so the cycle can
begin again.

 The system just described is said to be open because the

organization draws from and interacts with the external
environment in order to survive; in other words, the organization is
open to its environment.
 A closed system , in contrast, is a self-contained system that is not
 affected by changes in its external environment.

 Organizations that operate as closed systems, that ignore the

external environment, and that fail to acquire inputs are likely to
experience entropy , which is the tendency of a closed system to
lose its ability to control itself and thus to dissolve and disintegrate.

 Management theorists can model the activities of most

organizations by using the open systems view.

 Manufacturing companies like Ford and General Electric, for

example, buy inputs such as component parts, skilled and
semiskilled labor, and robots and computer controlled
manufacturing equipment; then at the conversion stage they use
their manufacturing skills to assemble inputs into outputs of cars
and appliances.

 Researchers using the open-systems view are also interested in how

the various parts of a system work together to promote efficiency
and effectiveness.

 Systems theorists like to argue that the whole is greater than the
sum of its parts; they mean that an organization performs at a higher
level when its departments work together rather than separately.

 Synergy , the performance gains that result from the combined

actions of individuals and departments, is possible only in an
organized system.

 The recent interest in using teams combined or composed of people

from different departments reflects systems theorists’ interest in
designing organizational systems to create synergy and thus
increase efficiency and effectiveness.

 Another milestone in management theory was the development of

contingency theory in the 1960s by Tom Burns and G. M. Stalker in
Britain and Paul Lawrence and Jay Lorsch in the United States.

 The crucial message of contingency theory is that there is no one

best way to organize: The organizational structures and the control
 systems that managers choose depend on (are contingent on)
characteristics of the external environment in which the
organization operates.

 According to contingency theory, the characteristics of the

environment affect an organization’s ability to obtain resources; and
to maximize the likelihood of gaining access to resources, managers
must allow an organization’s departments to organize and control
their activities in ways most likely to allow them to obtain
resources, given the constraints of the particular environment they
face.

 In other words, how managers design the organizational hierarchy,

choose a control system, and lead and motivate their employees is
contingent on the characteristics of the organizational environment
(see Figure 2.5 ).

 An important characteristic of the external environment that affects

an organization’s ability to obtain resources is the degree to which
the environment is changing.

 Changes in the organizational environment include changes in

technology, which can lead to the creation of new products (such as
Blu-ray discs) and result in the obsolescence of existing products
(VHS tapes); the entry of new competitors (such as foreign
organizations that compete for available resources); and unstable
economic conditions.
 In general, the more quickly the organizational environment is
changing, the greater are the problems associated with gaining
access to resources, and the greater is managers’ need to find ways
to coordinate the activities of people in different departments to
respond to the environment quickly and effectively.
(Jones, George, 2016)
Textbook 2 :
 Management fads and fashions comes and go, but managers are
always looking for new techniques and approaches the more
adequately respond to customer needs and the demands of the
environment.
 Three popular recent trends that have shown some staying power, as
reflected in the Shoptalk Box, are customer relationship
management,outsourcing and supply chain management.
 These techniques are related to the shift to a technology-driven
workplace.

 Customer relationship management one of today’s most popular

applications of technology is for customer relationship
management.
 Customer relationship management (CRM) system use the latest
information technology to keep in in close touch with customers
and to collect and manage large amounts of customer data.
 These data can help employees and managers act on customer
insights, make better decision and provide superior customer
services.
 Meeting the customers needs and desires is a primary goal for
organizations, and using CRM to give a customers what they really
want provides the tremendous boost to customer services and
satisfactions

 Outsourcing information technology has also contributed to the

rapid growth of outsourcing, which means contracting our selected
functions or activities to other organizations that can do work more
cost efficiently.
 Outsourcing requires that managers not only be technologically
savvy but that they learn to manage a complex web of relationship.
 These relationships might reach far beyond the boundaries of the
physical organization ; they are built through flexible e-links
between a company and its employees, suppliers, partners and
customers.
 Supply chain management refers to managing the sequence of
suppliers and purchasers, covering all stages of processing from
obtaining raw materials to distributing finished good to customers.


 A supply chain is a network of multiple businesses and individuals
that are connected through the flow of products or services.
(Daft,2012)

Textbook 3 :
 The systems theory a modern management theory that views the
organization as a system of interrelated parts that function in a
holistic way to achieve a common purpose.
 Open and closed systems :
 Open systems interact with the environment in order to survive.
 Closed systems do not need to interact with the environment.
 The operational and bureaucratic perspectives on management
treated the organization as if it were a closed system by overlooking
the effect of the environment of management practice.
 Systems theory argues that the environment must always be
taken into consideration in management decision thinking.
(Gomez-mejia/ Balkin/ Cardy, 2015)
Example from textbook (Robbins 2016) :
 His goals were to fix the troubled stores, to reawaken the emotional
attachment with customers, and to make long-terms changes like
reorganizing the company and revamping the supply chain.
 The first thing he did.however was o apologize to the staff for the
decision that had brought the company to this point.
Example from internet :
 One thing that’s been important to Howard Schultz from day one is
the relationship he has with his employees.
 He treasures those relationships and feels they’re critically
important to the way the company develops its relationship with its
customers and the way it is viewed by the public.
 He says, “we know that our people are the heart and soul of our
success.”
 Starbucks 200,000-plus employees worldwide serve millions of
customer each week.
 That’s a lot of opportunities to either satisfy or disappoint the
customer.
 The experiences customers have in the stores ultimately affect the
company’s relationship with its customers.
 That’s why starbucks has created a unique relationship with its
employees. Starbucks provides all employees who work more than
20 hours a week health care benefits and stock options.
Suggestion and Recommendation :
 Throughout the history management, experts have learned ways to
improve the efficiency and effectiveness of work.
 What was learned in each of the periods of management
development still hold some truth and usefulness for managers
today.
 Companies like Starbucks would benefit from the use of scientific
management and the quantitative approaches in the production side
of their business.
 Scientific management could be used to make their retail
establishments more efficient and quantitative management can help
to improve the logistics of the company.
 Examining how organizational behavior can be used, the company
already applies some technique to help employees feel like they are
contributing and to help increase employees satisfaction.
 Managers should understand the use a number of Fayol’s fourteen
management principles, including division of work esprit de corps,
and unity of command.
 Summary :
 Starbucks managers an top executives alike must view the company
as a complete system, realizing that the successful management and
operation of each part of the company affects the well being of the
entire corporations.

P1-11 How might biases and errors affect the decision making done by Starbucks
executives? By Starbucks store managers? By Starbucks partners?

1.0 Introduction:
2.0 Decision-Making Biases and Errors
2.1 Definition :

 When managers make decisions, they not only use their own
particular style, they may use “rules of thumbs” or heuristic, to
simplify their decision making.

 Rules of thumbs can be useful because they help make complex,

uncertain, and ambiguous those rules and reliable.

 Why? Because they may lead to errors and biases in processing and
evaluating information.

 Exhibit 2-11 identifies 12 common decision errors of managers and

biases they may have.

Exhibit 2-11 : Common decision-making biases

 When decision makers tend to think they know more than they do
or hold unrealistically positive views of themselves and their
performance, they’re exhibiting the overconfidence bias.

 The immediate gratification bias describes decision makers who

tend to want immediate rewards and to avoid the immediate cost.

 For these individuals, decision choices the provide quick payoffs

are more appealing than those payoffs in the future.
 The anchoring bias describes how decision makers fixate on initial
information as a starting point and then, once set, fail to adequately
adjust for subsequent information.

 First impressions, ideas, prices and estimates carry unwarranted

weight relative to information receive later.

 When decision makers selectively organize and interpret events

based on their biased perceptions, they're using the selective
perception bias.

 This influences the information they pay attention to, the problem
they identify, and the alternatives they develop.

 Decision makers who seek out information that reaffirms their past
choices and discounts information that contradicts past judgments
exhibit the confirmation bias.

 These people tend to accept at face value information that confirms

their preconceived views and are critical and skeptical of
information that challenges these views.

 The framing bias is when decision makers select and highlight

certain aspect of a situation while excluding others.

 By drawing attention to specific aspects of situation and highlight

hem, while the same tine downplaying or omitting other aspects,
they distort what they see and create incorrect references points.

 The availability bias happens when decision makers tend to

remember events that are the most recent and vivid in their
memory.

 The results? It distorts their ability to recall events in an objective

manner and results in distorted judgments and probability
estimates.
 When decision makers asses the likelihood of an event based on
how closely it resembles other events or sets of events, that’s the
representation bias.
 Managers exhibiting this bias draw analogies and se identical
situation where they don’t exist.

 The randomness bias describe the actions of decision makers who

try to create meaning out of random events.

 They do these because most decision makers have difficulty

dealing with chance even though random event happen to
everyone, and there’s nothing that can be done to predict them.

 The sunk costs error occurs when decision makers forget that
current choices cant correct the pass.

 They incorrectly fixate on past expenditures of time, money, or

effort in assessing choices rather than on future consequences.

 Decision makers who are quick to take credit for their successes
and to blame the failure on outside factors are exhibiting the
self-serving bias.

 Finally, the hindsight bias is the tendency for decision makers to

falsely believe that they would have accurately predicted the
outcome of an event once that outcome is actually known.

 Beyond that, the managers also should pay attention to “how” they
make decisions and try identify the heuristic they typically use and
critically evaluate the appropriateness of those heuristic.

Textbook 1 :
 In the 1970s psychologists Daniel Kahneman and the late Amos
Tversky suggested that because all decision makers are subject to
bounded rationality, they tend to use heuristics , which are rules of
thumb that simplify the process of making decisions
 Kahneman and Tversky argued that rules of thumb are often useful
 because they help decision makers make sense of complex,
uncertain, and ambiguous information.
 Systematic errors are errors that people make over and over and
that result in poor decision making
 Because of cognitive biases, which are caused by systematic errors,
otherwise capable managers may end up making bad decisions
 0 Four sources of bias that can adversely affect the way managers
make decisions are prior hypotheses, representativeness, the
illusion of control, and escalating commitment (see Figure 7.6 )


 Prior hypothesis bias is a decision makers who have strong prior
beliefs about the relationship between two variables tend to make
decisions based on those beliefs even when presented with
evidence that their beliefs are wrong. In doing so, they fall victim
to prior hypothesis bias .
 Moreover, decision makers tend to seek and use information that
is consistent with their prior beliefs and to ignore information that
contradicts those beliefs.
 Representativenes bias has many decision makers inappropriately
generalize from a small sample or even from a single vivid case or
episode; these are instances of the representativeness bias
 Illusion eror is other errors in decision making result from the
illusion of control , which is the tendency of decision makers to
overestimate their ability to control activities and events. Top
managers seem particularly prone to this bias.
 Having worked their way to the top of an organization, they tend to
have an exaggerated sense of their own worth and are
overconfident about their ability to succeed and to control events.
 The illusion of control causes managers to overestimate the odds of
a favorable outcome and, consequently, to make inappropriate
decisions.
 As mentioned earlier, most mergers turn out unfavorably; yet time
and time again, top managers overestimate their abilities to
combine companies with vastly different cultures in a successful
merger
 Escalating commitment having already committed significant
resources to a course of action, some managers commit more
resources to the project even if they receive feedback that the
project is failing.
 Feelings of personal responsibility for a project apparently bias the
analysis of decision makers and lead to this escalating
commitment .
 The managers decide to increase their investment of time and
money in a course of action and even ignore evidence that it is
illegal, unethical, uneconomical, or impractical (see Figure 7.5 ).


 Often the more appropriate decision would be to cut their losses
and run.
 Be aware of your biases is how can managers avoid the negative
effects of cognitive biases and improve their decision making and
problem-solving abilities? Managers must become aware of biases
and their effects, and they must identify their own personal style of
making decisions.
 One useful way for managers to analyze their decision-making
style is to review two decisions that they made recently—one
decision that turned out well and one that turned out poorly.
 Problem-solving experts recommend that managers start by
determining how much time to spend on each of the
decision-making steps, such as gathering information to identify
the pros and cons of alternatives or ranking the alternatives, to
 make sure they spend sufficient time on each step.
(Jones, George, 2016)
Textbook 2 :
 Heuristics or “rules of thumb” is a strategies that simplify the
process of making decisions.
 Among those that tend to bias how decision makers process
information are (1) availability; (2) representativeness;
(3)confirmation; (4) sunk costs; (5) anchoring and adjustment and
(6) escalation of commitment
 The availability bias: using only the information available
 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 stocked by the news media, which
tends to favor news that is unusual or dramatic.
 The confirmation bias : seeking information to support one’s point
of view.
 The confirmation bias is when people seek information to
support their point of view and discount data that do not.

 The representativeness biass : faulty generalizing from a small

sample or single event.
 The representativeness bias, the tendency to generalize from a
small sample or a single event.

 The sunk cost bias : money already spent seems to justify

continuing.
 The sunk cost bias or sunk cost fallacy: is when managers add
up all the money already spent on a project and conclude is it too
costly to simply abandon 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.

 The anchoring & adjustment bias : being influenced by an initial

figure.
  The anchoring & adjustment bias, the tendency to make
decisions based on an initial figure.

 The escalation of commitment bias : feeling overly invested in a

decision
 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.
(Kinicki/Williams,2015)

Textbook 3 :
 It is a major leap of faith to assume that all decision making is
rational. It is not. This is because rational decision making is based
on the following assumptions:
 The problem is clear and unambiguous
 There is a single, well-defined goal that all parties agree to.
 Full information is available.
 All the alternatives and their consequences are known.
 The decision preferences are clear.
 The decision preferences are constant and stable over time.
 There are no time and cost constraints affecting the decision.
 The decision solution will maximize the economic payoff.

 They include organization politics, emotions and personal

preferences, and the illusion o control.

 Organization politics :
 Organizations are likely to have coalitions, which are political
alliances between employees who agree on goals and priorities.
 Organization politics involves the exercise of power in an
organization to control resources and influence policy.
 Organization politics is more likely to be present in firms with
democratic culture where power is decentralized and decisions are
made through consensus.
 Emotions and personal preferences :
 Decision makers are not robots choosing alternatives without
emotion or passion.
 Many times a poor decision is reached because the decision
makers is having a bad day.
 The two emotions which are the most disruptive to quality
decision making are anger and depression.
 Personal preferences include a variety of individual quirks.
 It is vital to make certain the person or group making a
decision is not swayed by an individual agenda o pattern of
decision making.

 Illusion of control :
 Another limitation of rational decision making results from the
illusion of control, which is the tendency for a decision maker to be
overconfident of his or her ability to control activities and events.
 Top executives are especially susceptible to this problem,
because they can be isolated from the rank and file employees and
may be surrounded with “yes men”

(Gomez-meija/Balkin/cardy, 2015)
Example from textbook (Robbins 2016) :
 On thing you may not realize is that after running the show for 15
years at Starbucks, Howard Schultz, at age 46 stepped out of the
CEO job in 200 (he remained as chairman of the company) because
he was “a bit bored.”
 At first the company thrived, but then the perils of rapid
mass-market expansion began to set in ans customer traffic began
to fall for the first time ever.
 As he watched what was happening, there were times when he felt
the decision being made were not good ones.
 In fact, his intention to restore quality control led him to a decision
o close all (at that time) 7100 U.S. stores for one evening to retrain
135,000 baristas on the coffee experience. . . what it meant, what it
was.
 It was a bold decision, and one that many “experts” felt would be a
public relations and financial disasters.
Example from the internet :
 On Schultz's return from Italy, he shared his revelation and ideas
 for modifying the format of Starbucks stores with Baldwin and
Bowker.
 But instead of winning their approval, Schultz encountered strong
resistance.
 Baldwin and Bowker argued that Starbucks was a retailer, not a
restaurant or bar.
 They feared that serving drinks would put them in the beverage
business and dilute the integrity of Starbucks' mission as a coffee
store.
 They pointed out that Starbucks was a profitable small, private
company and there was no reason to rock the boat.
 But a more pressing reason for their resistance emerged
shortly—Baldwin and Bowker were excited by an opportunity to
purchase Peet's Coffee and Tea.
 The acquisition took place in 1984; to fund it, Starbucks had to
take on considerable debt, leaving little in the way of financial
flexibility to support Schultz's ideas for entering the beverage part
of the coffee business or expanding the number of Starbucks stores.
 For most of 1984, Starbucks managers were dividing their time
between their operations in Seattle and the Peet's enterprise in San
Francisco.
 Schultz found himself in San Francisco every other week
supervising the marketing and operations of the five Peet's stores.
 Starbucks employees began to feel neglected and, in one quarter,
did not receive their usual bonus due to tight financial conditions.
 Employee discontent escalated to the point where a union election
was called, and the union won by three votes.
 Baldwin was shocked at the results, concluding that employees no
longer trusted him.
 In the months that followed, he began to spend more of his energy
on the Peet's operation in San Francisco.
 It took Howard Schultz nearly a year to convince Jerry Baldwin to
let him test an espresso bar. After Baldwin relented, Starbucks'
sixth store, which opened in April 1984, became the first one
designed to sell beverages and the first one in downtown Seattle.
 Schultz asked for a 1,500-square-foot space to set up a full-scale
Italian-style espresso bar, but Jerry agreed to allocating only 300
square feet in a corner of the new store.
 There was no pre-opening marketing blitz and no sign announcing
Now Serving Espresso—the lack of fanfare was part of a deliberate
experiment to see what would happen.
 By closing time on the first day, some 400 customers had been
served, well above the 250-customer average of Starbucks'
best-performing stores.
 Within two months the store was serving 800 customers per day.
The two baristas could not keep up with orders during the early
morning hours, resulting in lines outside the door onto the
sidewalk.
 Most of the business was at the espresso counter; sales at the
regular retail counter were only adequate.
 Schultz was elated by the test results; his visits to the store
indicated that it was becoming a gathering place and that customers
were pleased with the beverages being served.
 Schultz expected that Baldwin's doubts about entering the beverage
side of the business would be dispelled and that he would gain
approval to take Starbucks to a new level.
 Every day he went into Baldwin's office to show him the sales
figures and customer counts at the new downtown store.
 But Baldwin was not comfortable with the success of the new
store; he believed that espresso drinks were a distraction from the
core business of selling fine arabica coffees at retail and rebelled at
the thought that people would see Starbucks as a place to get a
quick cup of coffee to go.
 He adamantly told Schultz, "We're coffee roasters. I don't want to
be in the restaurant business . . . Besides, we're too deeply in debt
to consider pursuing this idea."
 While he didn't deny that the experiment was succeeding, he didn't
want to go forward with introducing beverages in other Starbucks
stores.
 Schultz's efforts to persuade Baldwin to change his mind continued
to meet strong resistance, although to avoid a total impasse
Baldwin finally did agree to let Schultz put espresso machines in
the back of two other Starbucks stores.
 Over the next several months, Schultz—at the age of 33—made up
his mind to leave Starbucks and start his own company.
 His plan was to open espresso bars in high-traffic downtown
locations that would emulate the friendly, energetic atmosphere he
had encountered in Italian espresso bars.
 Schultz had become friends with a corporate lawyer, Scott
Greenberg, who helped companies raise venture capital and go
public.
 Greenberg told Schultz he believed investors would be interested in
providing venture capital for the kind of company Schultz had in
 mind.
 Baldwin and Bowker, knowing how frustrated Schultz had
become, supported his efforts to go out on his own and agreed to
let him stay in his current job and office until definitive plans were
in place.
 Schultz left Starbucks in late 1985.

Suggestion and Recommendation :

 all managers in Starbucks need to analysis before making a
decision and the impact of decision making biases and errors so
that they can make a better decision for the future.
Summary :
 All top managers in Starbucks which is executives, store managers
and partner need to really understand how the decision making and
errors would affect the company if they didn’t understand better. It
will affect the top managers to make a decision in the future.