Judgement and Decision Making - Research Paper Example

Introduction Every operation of a business requires the person in charge to make a decision regarding the activity that is being undertaken. The decision process is gilded by the existence of information about the operation or activity and the possible outcome of the action. If the impact of the action is better, the decision is taken or implemented and if the outcome is negative the decision is not taken. This paper explores different perspectives of decision on acquisitions or mergers. It reviews the impact of a bias in decisions relating to the same and how a bias can be avoided in such decisions. In the end it opines that the existence of a bias should be avoided to create a condition of high quality decisions and reduce the impact of negativity. In making decisions about acquisitions and mergers, the intention of the decision maker would be influenced by the fact that the venture would be more profitable or that the resultant company would be of high value. The decision would also be biased by the fact that it would be more achievable to run a business that is merged for obvious benefits that are given by the other company. The decision taken in this case is futuristic. It looks at the possible outcome of the combined operations in the future and its benefits. As such the decision taken is skewed by the fact that the manager has a future intention for the business. The bias in this decision is not influenced by the fact that there could be any other operational effects of the business but is solely based on the future of the business. Uncertainties and the influence on business decisions There are several influences that could lead to the bias of acquisition decisions by the future. Uncertainty is a factor in this case and the decision framework to apply would be the Bayesian method (cyert & degroot 1987). Value for instance is one factor that would affect the decision or the bias of a decision maker in such case. In mergers or acquisitions, the effect on the decision could be largely impacted by the value of acquired in terms of value. The overall value of the company that is acquired at the time and the net effect that the acquisition of the company will have is a basis of making the decision. In this case, the sole benefit of the value is what informs the bias. The necessity to hold a partial perspective of the acquisition process is in the case of value informed by the major benefits in terms of value that the process holds. Personal likings and perceptions can also inform the level of bias in a decision. Despite the fact that a decision in business should be free from the inclinations of personal interest and likings there is a possibility of personal life interfering with the official duty. Pinto (2008) identifies the fact that a business decision can take an input of the personal social life if individuals making the decision. it looks at the formation of teams as an instance of business decisions that can be influenced by a personal bias. To the same the conclusion is that the team membership and the formation can be guided by the personal interests of the team leader. In acquisitions and merger, the personal inclinations can inform a bias. The individual’s intention in the deal can lead to a bias that makes or breaks a deal that is related to the acquisition. The impact of a bias due to personal likings could be positive or negative depending on the outcome of the related processes. In acquisitions or mergers, the impact of the decision will majorly be determined by the profitability of the decision. its impact can either cause the firm to reach profitable levels or sink to the levels of loss that cannot be reversed. The inclination on the decision to merge or not to merge can be interpreted in two ways. The point of view could be that a merger is supported. The other alternative is that the decision could lead to other non benefits that could lead to the closure of business which in general terms is not an acceptable choice at the time. As such closure of the business would lead to the non beneficial impacts that would impact on the performance of the executive at that point. The bias towards the formation of a merger has possible consequences on the profitability of a business (Bruner 2004). At the time of inception of a business, the intention of the executive is to produce the best formula to make the company profitable. However the inclination on the decision is based on the fact that the decision is of similar influence. The formation of mergers has a number of influences that are inclined to the different stakeholders of the business. it should be identified that the overall intention of a merger or an acquisition is to create a condition of improved productivity (Connel(2008). Why companies do not pursue attractive mergers and acquisitions. The aim will in fact influence the employees or the business model taken by the company. A business model strives to improve the possibility of the business profitability and as such is inclined towards profitability. The impact of a bias towards mergers will have a level 0of impact toward the stakeholders in general. The level of impact on the employees and the management of the company is significant. First it has to be noted that the level of influence is as a result of an inclination taken that cannot be varied. The lack of variability of the choice has implications that can be avoided or perpetuated at the time of talking the bias. For instance in a case where the bias is seen to produce negative effects, the decision can be varied to make more meaning in the line of business that is taken by an executive. Conversely taking a decision that is not positive or limited in options would prevent the possibility of the achieving success. The effect of mergers is therefore likely to generate a number of biases that could inform the decision taken by the business executive. In normal terms three formal options could be taken these are the decision to adopt the merger, the negative option or the decision to take a balanced perspective on the issue and not adopt any side. Each of these positions have an effect on the stakeholders that are involved in the business. For instance, the positive effects of mergers can be linked to the level of profitability of the business. In this case, the profitability of the joint venture is the possible positivity that leads to the formation of the merger of the acquisition. Effects of the merger or acquisitions on a firm The decision to merge has an effect on both the management and the employees alike. To the employees, the possible effect of the decision is based can be psychological. In effecting a merger, there is a possibility that the merging firms can have a redundancy on the employees needed to deliver on a function. As a result, the resultant company can decide to downsize on the number of employees that it will have. The choice is putting a number of stakeholders in an uncertain situation. The choice that is made at this time also presents a number of uncertainties. The expectation that a merger would work is majorly due to the fact that the forecast by the management that this position is the best overall situation. The likelihood of failure remains as optimal as the probability of failure in doing business. it is undoubted that the effect of the decision is going to be impacted by the level of rifts that is associated by the same. In as much as there can b an amount of empirical evidence on the subject of mergers and acquisitions, the uniqueness of the current situation creates a level of uncertainty on the survival of the venture. Considering the future of the company the possible decision that can be made could be biased on the side of the advantages of the acquisition or the disadvantages of the same. The possible effects of this decision could be limited to the advantages. The advantages of acquisitions and the implantations are several. If the decision taken is biased on the fact that acquisitions or a merger is beneficial the economies of scale that is gained by the company could be the possible cause of the bias. The decision maker could reason that the merger can cause a possible level of production to increase and thus an economy of scale is achieved. The decision that is arrived at this point is the ability to generate a larger production capability of the firm and therefore achieving an economy of scale. A bias towards the acquisition would have an effect on the employees of a firm. In this scenario, the possibility of merging or acquiring a company could have been decided against by some members of the merging companies. The bias towards the possibility of an acquisition would force the decision maker to generally go ahead with the company acquisition. As such the comfort at work and the reasons that made the employees vote against the joint venture would not be realized by the employees. For instance if the same employees had voted against the acquisition on ethical grounds, the merger would then force the same employees to take a decision on the same ground. The bias towards the formation of the joint venture would mean that the employees affected in this way have to consider taking a different position on their stance with relation to the company. A consideration of exit or continued relation is possible due to the fact that their ethics are not considered by the decision makers. A bias towards the advantages of the formation of a joint venture would mean that the joint venture is formed regardless of what the feelings of both companies are. Considering the opinions of the other members of the organization can also slow down the decision making process. In considering the opinions of other members in a decision, the possibility of the process being more protracted is high. First, gathering the opinions would take a longer time and then evaluating the opinions would also cover a substantive amount of time. As a result the decision making process would be lengthy and the efficacy is likely to be reduced. In fact in a case where members make conflicting positions on a single subject, the possibility of covering all the aspects raised in the decision is difficult. An acquisition can be the best case in time that the decision has to be made but any form of delay could hamper the possible benefits that could be attained at the time. A delay in the decision process could lead to the possible negative consequences that are matched by the same. A bias in this case could be a solution to the negative impacts associated with the lack of merging (Wilkinso & Treas 2011; Reddy 1997). The subject of the discussion of the same is also biased on the same facts. However the impact of the decision on the same would skew the decision of the executive. It is highly likely that a merger would generate a level of synergy by combining the power of the two individual companies. In production or marketing the synergy or advantages enjoyed by the individual companies is likely to be doubled. Gaughan (2011) highlights the importance of mergers and acquisitions. The most probable advantage that it talks about is the fact that mergers can be beneficial in the creation of a compounded advantage to the merging firms. Technically is expected that the advantage that is created will result on the synergy advantage that is experienced by the resulting firm. It is possible that the acquisition of a company would lead to more advantages than the disadvantages that is associated by the same. In marketing, the two companies that form a merger can reap the benefits of the marketing channels used by both of them to make more sales. It is possible that a bias can have negative impacts in business. in a case where the decision taken leads to negative impacts, the bias would also imply the same. For instance if the decision taken in acquisition mean that the overall value of a company would decline then the bias towards the same would mean that the value of the company has to decline. The psychological effects of acquisitions on employees are also a possible negative impact of mergers. This can be due to the feeling that the level of job security is reduced by the formation of a new company. The employees can feel that as a result of the merger, restructuring of the management and operations could lead to a number being sent home at any stage of the formation of a new company. The result of the new restructuring of the teams in the company could be a major cause of the psychological effects on the employees caused by the bias to create a merged entity. It is therefore necessary to avoid a bias in decisions regarding acquisitions and mergers ­Chen,, & Shih 2008; Depamphilis 2013) To avoid a bias in decisions regarding an acquisition or a merger, the first stage is to have a level of balance on the facts informing the decision to make an acquisition. For instance at the time of the acquisition, the value of the company could be high and as such the decision to make the acquisition looks beneficial. However in the long run, the acquisition would prove to be of no good. The bias toward the acquisition could be higher at the time forcing the decision maker to vote with the acquisition. In this case, the weighting of the importance of all the factors regarding the process is not done. The input of all the facts regarding a process is important. The Bayesian theory of decision making opines that there is a possibility of revising a decision based on the existence of new evidence that did not exist at the time when a decision is taken. However, the quality of a decision could be more efficient if the evidence that is available is all considered at the time of making the decision. Variety and decision making In as much as the input of the other members of the organization would imply that the process is slowed down. The slowness of the process is due to the fact that the collection of the evidence would take time. Evaluation of the opinions and the critical analysis of the entire body of facts given can also make the process slow. However, taking the opinion of others is a method that can be used to avoid the existence of a bias in decision making process. In fact the input of other people is a means that could lead more evidence or facts related to the same situation. The effect of variety in the organization can also be attributed to the high quality of decisions that is generated by executives that consider the input of other people. Within any organization, the existence of variety implies that talent can be achieved in the numbers as compared to the few. It is also highly likely that in the variety, a quality decision can be arrived at by the numbers. It is documented that the level of diversity that is created by the difference in members of an organization can create benefits like a variety in talent. In considering the opinion of the other members it is possible to improve the quality of the decision as the members will be looking at the situation from different perspectives (Schlachter 2013). A major cause of bias is the fact that the decision maker looks at the benefit of the position taken from their own position. As a result, if the benefits are seen to outweigh the perceived disadvantages from their position, the decision is adopted a viable option. The viable option in this case might not be best position comparative to other members of the organization. As such the consideration of other peoples input is necessary to avoid problems related to the same. Kemshall& Pritchard (1996) also review the making of a such decision. The problem of this fact is that decisions are influenced by the time and probability of the influence. Conclusion Finally, it is important to recognize that the existence of a bias in decision has both advantages and disadvantages in business. A bias can open up opportunities that could otherwise not be achievable in normal circumstance. For instance, in the formation of mergers or in an acquisition, there is a possibility of completion between different entities. A bias in this case can lead to a faster decision process that would then make one company beat another competing for the same acquisition. As such a bias can create opportunities if the bias is causing the decision maker to incline towards a positive direction. Kahneman, D. (1998) opines about the same. The possible negative benefits of a bias cannot be without the possibility of negative effects. The inclination on a particular direction can be of negative impact. It would be difficult to take the input of others in a case since an individual’s decision is already skewed by their bias. The treatment of other people’s input will also be poor due to the influence of a bias. In as much as that input would be of high quality to the decision it would be disregarded due to the effect of a bias. Therefore it is important to have a balanced perspective in generating decision in business or any other field. Reference BRUNER, R. F. (2004). Applied mergers and acquisitions. Hoboken, N.J., John Wiley & Sons. CHEN, C.-H., & SHIH, H.-T. (2008). Mergers and Acquisitions in China: Impacts of WTO Accession. Cheltenham, Edward Elgar . CONNELL, R. B. (2008). Why companies do not pursue attractive mergers and acquisitions. Amherst, NY, Cambria Press. CYERT, R. M., & DEGROOT, M. H. (1987). Bayesian Analysis and Uncertainty in Economic Theory. Dordrecht, Springer Netherlands. DEPAMPHILIS, D. M. (2013). 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