Essay Example

  • Category:
    Business
  • Document type:
    Essay
  • Level:
    Undergraduate
  • Page:
    2
  • Words:
    1065

Business Decision-Making

Introduction

Kikoy UK Ltd makes and supplies handmade jewellery and textile across the United Kingdom. The company experiences low profit and needs to raise its revenues. The company needs to decide on whether to opt for new marketing approaches, expansion, or diversification. A decision should be made regarding which of the three has the greatest probability of bringing higher revenues. This essay argues that the Rational Mode, or «robust satisficing,” is the best framework for making a strategic decision because of the epistemic and information limitations the jewellery market offers.

Selecting the decision-makers is a critical step that precedes «robust satisficing.’ As Frisch (2011) suggests in his Political Mode, strategic decision-making should remain in the province of the executive management, or selected members of the management to avoid conflicts regarding who should make the decision. Again, Cohen’s et al. (1972) Garbage Can Mode suggests that the selection process should view the decision-making opportunity as a deeply “ambiguous stimuli” and as a potential cause for conflict. A small team of senior management should therefore be selected to make the decision.

Evaluating the options is an important step in «robust satisficing.’ The options available include diversification, expansion, and use of new marketing approaches. From the three options, it is clear that a high level of uncertainty exists as each option has potential risks and gains. This also rationalises the use of ‘robust satisficing’ rather than utility maximising. However, this is not due to the limitations of psychological or information processing (Schwart 2009). Here, it is assumed that the management team encounters significant gaps between what they know about diversification, expansion and use of new marketing approaches, and what they need to know in order to evaluate the quality of each gap. Such information gaps calls for an evaluation of the options based on their values and probability.

Therefore, multi-attribute utility approach comes in handy. In using this method, a spreadsheet is put together to list down all the important qualities regarding the three options. Each option is then given a score. Later, to acknowledge the existence of uncertainty, the values in each cell are assigned probability. For instance, the expansion options should now be investigated. One option would be to expand out of England and into Australia, United States, or Sweden. However, some members of the team may argue that the company’s low finances may not afford expansion into these countries. An additional option would be diversification, where the company comes up with a new line of products, such as eco-friendly shoes. Then again, this option is riskier, and it will require greater market research and capital investment. Regarding new marketing approaches, the company may expand its sales channel by integrating an e-commerce site, using social media and providing greater financial support to the marketing and customer service efforts. This option is comparatively more cost-effective, capable of increasing profitability, and can be used to expand to different international markets. Hence, the third option is selected, as it has greater probability of success. However, there are some uncertainties regarding its outcomes.

The Bayesian decision theory is, therefore, more applicable to the decision than the Heuristic approach since it addresses the objective and subjective uncertainty of the decision-maker regarding the outcomes of the selected option. The theory is applicable to the situation since the probability distribution logically embodies the decision-makers’ beliefs regarding the outcomes of the option selected. Indeed, based on the facts from the evaluation, the management team may decide that new marketing approach is the best option. However, there are still uncertainties regarding its viability since it may require high capital investment yet bring in low return on investment (ROI). Because of such uncertainty, a decision-making method that addresses the information gaps, regarding the viability of the option should be used. This situation is what Schwartz (2009) calls radical uncertainty. A good approach should, therefore, be based on the Info-gap decision theory. The theory is designed to handle circumstances with great uncertainty. For instance, since there is uncertainty regarding how effective starting an e-commerce site would be, the importance of designing an e-commerce site is examined with the hope of coming up with a robust decision (Cohen et al. 1972).

Once the decision to use a ‘new marketing approach’ is confirmed to be a “robust decision,” several factors will have to be considered. The reason for this is because the outcomes of the decision remain uncertain, as they subject to influences by other economic factors, and cognitive, which would make assigning probabilities realistically difficult. Such heuristics and biases may lead to bad decision. For instance, economically, the company currently undergoes financial difficulties and may find it difficult investing in a new capital-intensive project. This characterises a cognitive bias called ‘endowment effect,’ where the managers are less willing to pay for what it takes to acquire greater revenues.

Again, some objective and subjective personal uncertainties may interfere with the decision to integrate an e-commerce site. A section of the management may also be concerned about losing their jobs since marketing an e-commerce site is highly automated. Some managers may also be objective, and may require that the decision to integrate e-commerce site be piloted first. These characterise ‘status-quo biases’ as the managers are apprehensive of change, and need to make decisions choices that will guarantee that their statuses remain the same. Reaching the best decision would require the use of Cohen’s et al. (1972) Garbage Can Mode. For an objective decision to be made, a decision style called “by flight” should be used. Cohen et al. (1972) explains that the model is intended for choices that are linked to problems for certain periods until an effective choice comes along. Of the three biases, the decision to pilot the e-commerce site appears to be the most objective.

Conclusion

Based on the «robust satisficing” framework, the best strategic decision for Kikoy UK is to integrate a ‘new marketing approach’ using an e-commerce site. The site should, however, be first piloted.

References

Cohen, M, March, J and Oslen, J 1972, «A Garbahe Can Model of Organisational Choice,» Administrative Science Quarterly, pp.1-25

Frisch, B 2011, “Who Really Makes the Big Decision in Your Company,» Harvard Business Review, December 2011

Schwartz, B, Ben-Haim, Y and Dacso, C 2009, “What Makes a Good Decision? Robust Satisficing as Normative Standards of Rational Decision-making,”Journal for the Theory of Social Behaviourvol 41 no 2, pp.209-227