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Business Research for Optimal Decision Making

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Think about a recent business decision you have made that was either a success or a failure. Your supervisor asked you to email him/her a self-evaluation of this decision as part of your yearly evaluation. You are to be as objective and open minded as possible. Analyze your decision using Bazerman's six steps as a guide: define the problem, identify the criteria, weigh the criteria, generate alternatives, rate each alternative on each criterion, compute the optimal decision. Make sure your email addresses the following issues:

Were there any discrepancies between the calculated "optimal" decision and your actual (or favored) decision? If so, what might account for the discrepancies?

What problems, if any, did you encounter when completing the steps? (For example, were you able to compute an optimal decision? If not, why not?)

Are there any weaknesses in the "fully rational" model of decision-making? If so, what are they?

Source:

Bazerman, M. H. (2006). Judgment in Managerial Decision Making (6th ed.). New York: Wiley.

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Solution Preview

Hi,
Interesting question!

Let's take a closer look (also attached). I also attached an article for you to consider, and from which part of this response is drawn.

RESPONSE:

Let's look at the steps of the model using a hypothetical example, so you can see how Bazerman's six steps decision-making model is applied.

Experts on decision making recommend a more systematic and calculating approach. For example, Bazerman (1994, p. 4) says that rational decision-making should include the following six steps:

Hypothetical Example:

1. Define the problem, characterizing the general purpose of your decision.

Should I merge the acquired company into my company or operate the acquired company as a separate business entity - the results of this strategy will be two separate companies under one senior management "umbrella" the senior management team that is responsible for running both companies?

The purpose of my decision is to make the most profitable business decision. The structure of the transaction is of critical importance because it affects the form and liabilities of the ongoing business, the protections available to its owners, and the taxation of each entity and its owners.

2. Identify the criteria, specifying the goals or objectives that you want to be able to accomplish.
a. Increase profit margin
b. Downsize in a way that will respect and motivate the most number of employees
c. Maintain as many employees as possible

3. Weight the criteria, deciding the relative importance of the goals.

In the order presented above

4. Generate alternatives, identifying possible courses of action that might accomplish your various goals.

a. Merge the acquired company into my company
b. Or operate the acquired company as a separate business entity. The results of this strategy will be two separate companies under one senior management "umbrella" the senior management team that is responsible for running both companies?

5. Rate each alternative on each criterion, assessing the extent to which each action would accomplish each goal.

a. Merge the acquired company into my company

PROS
- Potential to increase shareholder value - that of achieving cost and/or revenue benefits.
- Improve channels of delivery
- While improving sales and revenue, it can also provided a competitive advantage over the competition. For example, the proposed merger of mobile phone carriers VoiceStream and Cingular Wireless could improve service and add features, experts said, but the deal could also hurt competition in the telecommunications industry

(Source: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2002/08/21/BU76999.DTL&type=business)

CONS
- Lack of experience about the risks and activities of mergers and acquisitions - choose to go the monetary role which ignores the importance of others experience and expertise.
- Lack of agreement about the best strategic implementation strategy - Other executives has learned the hard way that when the merging of two businesses doesn't go smoothly, talent soon quits and projects drag out.

- Possibility of destroying shareholder value - Several solid studies report that as many as 75% of all mergers actually destroy ...

Solution Summary

Through a step-by-step decision-making process and illustrative examples. this solution discusses whether or not there were any discrepancies between the calculated "optimal" decision and the actual (or favored) decision, and if so, what might account for the discrepancies. It also discusses the problems that a person encounters when completing the steps e.g were you able to compute an optimal decision and, if not, why not? Supplemented with one highly informative article on emotional reasoning.

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