Leading E-commerce Firms in Australia - Essay Example

Observation Review (Name) (Course) (Institution) (Instructor’s name) (Date) Summary of observation While working for one of the leading e-commerce firms in Australia, I learned of the sudden move to relocate its headquarters to Hong Kong. The move, as explained by the management, was influenced by the need to be closer to the market because majority of the firm’s clients were from the Hong Kong region. This was informed by industry dynamics which requires close proximity of the supplier to the market in order to understand and react aptly to changes in the external business environment. However, the nature of the industry, e-commerce also allows that the business can be conducted from anywhere across the world though geographic proximity offers added advantages. For the said firm, the advantages of geographic proximity held better prospects than the costs of relocation. The company thus announced its move to relocate with all major administrative and managerial activities closed down. The management short-listed a number of employees for relocation to the new offices in Hong Kong. Another set of employees was laid off as their services in the new offices were deemed redundant. However, not all short-listed employees were open for the idea of relocation and thus they chose to quit and seek employment elsewhere in Australia. Some of those employees who relocated did so with their families while others left their families behind. In the aftermath, there were considerable job losses, low morale among employees left behind and a lot of uncertainty for the relocated employees. The decision to relocate was rational at the time of execution in that is was geared towards increasing the firm’s market share, increasing the return on investment and meeting customer needs. However, the results were not as desired. The firms operations in Australia took a downward trend. Clients felt like they had been abandoned and as a result, the firms market share in Australia decreased considerably. The relocation decision under bounded rationality Business leadership and management is characterised by numerous decision making opportunities. The decisions made in leadership and management have far reaching consequences on the business entity both in the short and long term. Business leaders should always strive to achieve organization goals and by maximizing on the strengths, exploiting opportunities, reducing weaknesses and controlling threats. Therefore, organizations have first to self-analyze and understand their strengths, weaknesses, opportunities and threats to their business (Daft 2009). Any mistake in this stage in analysing and interpreting such analysis can lead to wrong informed decisions that could lead to unwanted results. For this reason, the decisions have to be rational and well informed. However, in some cases, some organizations have made wrong decisions leading to oftentimes catastrophic results while in other cases, a timely well informed rational decision could be the turning point for a business. The theory of bounded rationality explains the making of such decisions to say that decision maker are limited by their rationality and their rationality is limited by the information they have, their combined cognitive abilities and the fixed amount of time within which to make a decision (Gigerenzer & Selten 2002). Furthermore, the rationality used in making decisions is also constrained by the information seeking or data collection methods used in SWOT analysis. Therefore, the decision makers often choose a satisfactory option, as limited by their rationality, as opposed to an optimal option unlimited by their rationality. Dubrin (2008) says that majority of limits of bounds in rational decision making have to do with processing and recall of information. Recall comes into place where learning from experience is require while processing refers to tackling new decision making situations without full information. The company’s relocation of headquarters to Hong Kong is not isolated as other firms have relocated to China and other Asian markets in a bid to cut labour costs. The firm’s move into Hong Kong appears to be an attempt to copy populist views that operating in China and other Asian countries can help organizations increase profits as a result of a lower wage bill. A former Unisys top executive, Lawrence Weinbach said that “if we want to be leaders, we are going to have to make decision with maybe 75% of the facts. If you wait for 95%, you are going to be a follower” (Dubrin 2008, p. 154). Daft (2009) concurs to say that managers apply bounded rationality where information is inadequate. From this, it can be assumed that the company CEO choose the first reasonable alternative for the firm and in the process postponing the making the truly optimal decision. For instance, the issue of high labour wages for Australian firms can be a major financial problem for Australian firms but firms in China and Hong Kong are also faced with a problem of growing labour wages. The firm faces a critical situation the growth in labour wages supersedes the growth in the market thus eating on profits. During critical situation like the one that faced the firm, resources are usually strained and employees are stretched. Wayne (2009) says that there are optimal limits to the decision that a firm makes in such situations. In most cases, the most preferred decisions are to cut down on labour costs and outsource some services. Dubrin (2008) says that under bounded rationality, decision makers use reasonably rapid and reasonably accurate strategies influenced by information available. For the given firm, the option was to relocate its headquarters to another country to ‘enjoy the benefits of geographic proximity in a virtual business’ and cut labour costs. In so doing, the firm downsized as some positions were deemed redundant. For employees who were relocated, they were to work in a new workplace environment, in a country with a new culture, new environment, new employees and new language whose also labour wages are on the rise. Such a move will reduce the productivity of such employees, lose large chunks of tacit knowledge from experienced employees as a result of downsizing and cause a lot of family disturbances to some workers as a result of relocation. Furthermore, clients in Australia will feel less important, abandoned and their loyalty to the firm is likely to go down and the firm will lose its market share in the country. In the long run, the firm may not realize its long term objectives and will have to rethink its cost reduction strategies. Bounded rationality thus postulates that the decision to relocate was not optimal but satisfactory given the available information and cognitive abilities. In case of unbounded rationality, the firm’s CEO could have made a different decision. His current decision is largely based on industry trends and intuition that the relocating to Hong Kong can benefit the firm better. The firm has successfully outsourced in Philippines in the past hence could have opened another branch in China. Possible personal decision Faced with the same situation, as the CEO of the firm, I would have chosen to create a new subsidy specifically for the Asian and Hong Kong markets with regional headquarters in Hong Kong and retaining the parent’s firm headquarters in Australia. While the main goal of the current CEO’s decisions are well intended, the outcomes might not be as desired. While the CEO used a bounded rational approach, an unbounded rational approach would seek to protect and preserve the organization’s best resource, the workforce. My decision could differ from the current decision in that my approach would not be limited by the desire to reduce costs and increase profits but rather the long term viability of the firm. The move to relocate to Hong Kong does not add much value to the firm because the firm engages in business online and relocating to Hong Kong will negatively impact its human resource which is often a source of competitive advantage for many firms (Wayne 2009). Time is a limited factor in entering a new market. As aforementioned, not acting fast enough could mean that the firm loses its pioneering advantage in the new market (Dubrin 2008). However, the firm is not new in the market hence there is no urgency. On the other hand, other players who have based operations in China re better equipped in terms of quick decision making in a large market without waiting for approval from the headquarters especially given the different time zones. However, retaining the headquarter sin Australia could bear the same results with no added costs of relocations. This will involve creating better communication lines between the newly created subsidiary in Hong Kong and the headquarters. Furthermore, the new subsidiary will be allowed a relatively higher degree of freedom from the headquarters. However, the move to retain the headquarters in Australia might not be optimal though it appears to be so. Many organisations are relocating to China and other Asian countries to exploit the fast growing economies. The CEO thus went a notch higher and instead of just launching operations in the Hong Kong market, went ahead and relocated headquarters to Hong Kong. My decision to retain Headquarters in Australia is also constrained by information (Daft 2009). Retaining headquarters in Australia and establishing a new subsidiary in Hong Kong would make the firm to be branded as an “outsider” and “new comer” in the region hence does not have the capacity to handle clients’ needs. Failure to relocate into the region could mean that the firm loses a very good opportunity for growth and also to establish itself in the Hong Kong market as a major player. As discussed above, bounded rationality is a common approach among decision makers. Limited information, time and cognitive abilities limit how business leaders make decision. Therefore, many organizational decisions made are made in order to save time and meet business objectives which are largely to increase return on investments and also meet consumer needs. However, these decisions are not rational optimal. To make rational optimal decisions might take very long which is usually not feasible in business. References Daft, R. (2009). Organization Theory and Design. London: Cengage Learning Dubrin, A. (2008). Essentials of Management. Sydney: Cengage Learning Gigerenzer, G. & Selten, R. (2002). Bounded Rationality. Cambridge: MIT Press. Wayne J. T. (2009). Leadership: Bounded Rationality, Mentor Leadership Training, accessed online on 29th September 2012 from http://www.peermentor.net/pdfs/Bounded_Rationality.pdf Read More