Rational and Psychological Decision-Making Theories and Models - Case Study Example

Running Header: Decision Making Process Student’s Name: Instructor’s Name: Course Code: Date of Submission: Executive Summary In every days life people are faced with various options. One has to choose out of these crowded options so as to arrive at a good solution. Decision making involves evaluation of the options. Decision making becomes more critical in an organisation where giving direction and providing leadership is integral. It is vital to note here that in every business venture, there is some risk involved. Indeed, some of the critical decisions made by the management on the way forward for an organisation do involve so much risk taking. Thus, it is upon the company management to make decisions on the level of risks that are acceptable in the organisation. To overcome challenges in business world, entrepreneurs should be able to make decisions that drives the towards market leadership. This has not been the case for Bags of Luck company has their managerial approach leaves a lot to be desired. In making decisions, there are numerous theoretical propositions that one can use to back her line of thinking. This is not the case for BOL. The company operation does not show a clearly argued out plan. The problem the company has in terms of making poor decisions is in strategy formulation. Secondly, the firm’s organisational structure should be reviewed as it is not serving them properly. The next concern in terms of wrong decision is on business process, procurement & material handling. The last is on human resource management where the firm has no effective plan for handling its employees who are critical. To overcome these wrong decisions, the report recommends that planning and control should be enhanced so that they can have a formal organizational structure. To attain this, the firm should hire a consultant to advice them in relation to their company size the structure they should adopt and the role of each office bearer. The next would be to reduce bottlenecks in production process. The first is to improve on material handling so as to guarantee quality and smooth flow of products. The firm can adopt Lean production approaches like Kanban which automates the tracking of materials. And in overall the report recommend professionalization of the organisation to solve any other problems like financial planning. 1.0 Introduction Decision making process is an integral factor in the success of business organisation. For an organisation to attain market leadership and sustainability, strategic decisions need to be made. Organisation management need to make decisions about internal operations & control, in relation to industry environment & larger macro environment they operate in. Oliveira (2007:12) posits that there are numerous perspectives that come into play when individuals are making decision. This paper examines critical decisions evident in Bags of Luck Company (BOL)as a case study using psychological framework of decision making. Moreover, the paper discusses the strengths and weaknesses of the decisions made by the concerned individuals in the case study. In addition, the paper proposes recommendations on how these individuals can improve their decision making in future. 2.0 Psychology and Decision Making In every days life people are faced with various options. One has to choose out of these crowded options so as to arrive at a good solution. Decision making involves evaluation of the options. Decision making becomes more critical in an organisation where giving direction and providing leadership is integral. Beresford & Sloper (2008:3) notes that theories of judgement, decision-making and choice fall broadly in two groups. The first they note is the normative theory of cognition that is based on how individual should think. The second is the descriptive theory of cognition that explains how individuals think. This paper will focus more on descriptive theory of cognition. Under descriptive theories, there are numerous models that have been developed to explain how people make decisions. Brim et al (1962:9 cited in Hansson (2005:10) notes that decision making process involves five steps. These would be identification of the problem first, obtaining necessary information, production of possible solutions, and evaluation of such solutions, selection & implementation of strategy. 3.0 Analysis of the Critical Decisions in the Context of Psychological Decision Making Models 3.1 Ability to Risk Take Risk Decision One critical decision that was made by Alfie and Ben was to acquire the relatives business and develop it further. In accepting to engage in this business without any prior experience and business training, the two brothers engaged in a prospective thinking. Zhuang (2011:1) notes that the two brothers had an acute business sense and quickly came to a legal and financial settlement with their relative to take over the factory facility. The ability to take risk by individuals have been analysed by psychologist using various models. Beresford & Sloper (2008:15) in their discourse refers to theories like expected utility and subjective utility. However, they posit that these two had inadequacies and the best that explains risk taking behaviour is the prospect theory. This theory dissects how people relate choices with results (Oliveira, 2007:14). Asch (2001) cited in Oliveira (2007:14) indicates that “individuals tend to value alternatives that offer early reassurances, the ability to avoid or delay making difficult trade­offs is greatly sought, and humans often pursue changing one’s mind”. On the other hand what makes entrepreneur unique and successful is being able to take risks. The two brothers engage in a business with no prior experiences, but with a calculated move. The strength of their decision to engage in this business is that they get rewarded as their business picks off instantly. However, engaging in this business without proper evaluation and having business and strategic plan haunted them in the later stages. This forms the weakness in the first judgement to indulge in business world. They were not able to engage in the decision making process. According to Rubinstein (1998) cited in Oliveira (2007:13) “In economic theory, for example, the rational decision-mak­ing methodology leads to the selection of an alternative after completing a simple three-step process. Decision making involves thinking. Cognitive scientists have proven that one either engages in intuitive thinking or critical thinking. Lipman (2003:26) posits that reflection is thinking that that is aware of its own assumptions and implications as well as being conscious of the reason and evidence that supports this or that conclusion. Moreover, he notes that this thinking paradigm takes in to account methodology, its own procedures, its own perspective and point of view. From the outlook, they made haphazard decision by not considering how they will run the business once they acquire it. While it was good to take the risk, it was equally good to have a road map after acquisition. 3.2 Decisions on how to Manage the Firm. 3.2.1 Organisational structure Decision Alkhafaji (2003:3) notes that recent studies have concluded that organizations engaged in strategic management have outperformed those who do not. The structure taken by the two brothers and their spouses isn’t a good approach if business would have to survive in the long run. While it is good to have family members in the management structure, it is equally prudent to have professionals running various departments in firm. The first task which they would have done and is one of the weaknesses in their organisational structure is to define roles and responsibilities. According to Goldratt’s theory of constraint an organisation is strong as its weakest link. This means that organisation’s success is tied to how it operates as a system (Dettmer, 1997). This approach has not worked in decision making area since they tend to agree on consensus rather than on factuality. Thus, as Zhuang (2011:4) notes “This management structure works well when the business is buoyant and there are no major changes in the global business environment.” However, once the challenges cropped in the firm started having troubles. This mean they did not make right choice. 3.2.2 Business Process Decision The business approach adopted by them is a prudent decision. This move paid off as they are able to build a collaborative effort with their designers. This equally serves them well as they are not employed on permanent basis. The reason for this argument is because; the firm is able to hire them when the demand is there. This saves them in recurrent expenditures. Moreover, from the process review, the firm has adopted lean production system where products are only produced when there is demand. This means they do not produce for their own sake and later look for the market, rather the opposite is true. This kind of thinking is embodied in the lean production system. The Lean manufacturing system aka Lean philosophy has been derived from the Toyota Production System (TPS) in the early 1990’s (Emiliani, 2006). Lean management has became an important route for improving performance by reduction of costs, improving quality, reducing lead times, and increasing market shares, developing new products and human resources (Monden, 1986 cited in Emiliani, 2006). Just in Time philosophy which constitutes one of the major part of the Lean Manufacturing philosophy is a system of organising production and work flow that produces high quality products by reducing waste and increasing the level of productivity. the JIT system “produces and delivers finished goods just in time to be sold, sub-assemblies just in time to be assembled into finished goods, and purchased materials just in time to be transformed into fabricated parts" (Sohal et al., 1989: 16). 3.3.3 Procurement and Material Handling Decision Decisions made under this section can be analysed in mixed reactions. In one instance, the approach is working especially by cushioning them from price fluctuations since their suppliers are local based. On the other hand lack of diversified supplier base is a critical concern as was when one of their suppliers was affected by earth quake and could not deliver raw materials. Much of the theory in supply management is based on idealized schemes of optimal routes and quantities for demand fulfillment when considered from a whole-network or chain perspective (Cousins, Lawson and Squire, 2006, p. 760). Thus, to overcome this weakness, the firm should diversify its suppliers by giving another a bigger fraction and another small portion to cushion them against unforeseen circumstances. Moreover, they should change their outdated material handling system even though it was developed for them free. One approach of automation would be to adopt Kanban process. Kanban cards, a key component of Kanban signal the movement of material within the manufacturing process and create the demand driven system. One major benefit is that is leads to faster turnaround in production and helps in lowering inventory making them more competitive (Shigeo, 1989). 3.3.4 Product and Production The production approach taken by the firm serves them well since they wait for demand to be created. However relying on this alone is risky. Their over reliance on demand pull production means that they have high turnover of products in a year. The consequence of this is that the firm has to keep changing machine specifications which adds to increased operation cost. In business, change can be driven by consumer and at the same time industry players. This then means this decision has a two perspective and can’t be treated as a complete success or failure. On one hand, they are guaranteed of sales because they produce what customers’ wants. On the other hand, it means constant restyling. This challenge is seen in situation where every season 90% of the products to not make it. 3.3.4 Human Resource Management Decision The human resource management approach taken by the firm is not effective. First they have high turnover of employees. The current business environment is highly competitive and stiff as compared to earlier years. This forced human resource managers who specialized in compensation and benefits to think of ways of balancing efficiency, effectiveness and marketplace viability so as to ensure “value exchange” between employer and employee (Alliance for work-life progress, 2006). Employees form a critical mass in company’s success and thus, the firm should adopt personnel management which is appropriate. The weakness of the decision of not to have permanent employees is the turn over. This means need for orientation of employees every now and then. 4.0 Conclusion and Recommendations Organisations exist for a prime reason to meet customer demands and expectations so that they can produce high quality products and services with an aim to make a profit. While the two brothers have sense for business, since acquiring the firm they did not have proper organisational structure to specify who is responsible for what and what the role, powers and function of everyone are. They run their business outfit as a family without professional touch in it. BOL Corporation has been in a difficult stage for meeting consumer demands due to a lack in planning and control in their production processes as a result of poor decisions in almost all aspects. As noticed in the prior section poor planning, lack of communication between divisions and improper factory layout added to the growing operational problems at BOL. Moreover, this challenge is seen in other segments of their business operations like procurement and material handling, products and production, accounts and finance. The first area that should be shifted is in planning and control so that they can have a formal organizational structure. To attain this, the firm should hire a consultant to advice them in relation to their company size the structure they should adopt and the role of each office bearer. Moreover, the family members should relinquish managerial positions and be engaged only as directors and chairperson so that each department is headed by qualified personnel. Theirs would be to offer financial resources and leadership. This will relieve the family members’ undue pressure and allow them to focus on overall supervisory role. The essence of employing professionals will solve the issues of finance control The next would be to reduce bottlenecks in production process. The first is to improve on material handling so as to guarantee quality and smooth flow of products. The firm can adopt Lean production approaches like Kanban which automates the tracking of materials. To up production that has decreased due to labour shortage, they should try and employ workers on permanent basis. This will make them secure and be attached to the organisation. In addition the company should invest in reward and performance management. The next under this would be to develop collaborative network with suppliers who are consistent and have the capacity to do it even under unforeseen circumstances. References Alkhafaji, A. F., 2003. Strategic Management: Formulation, Implementation, and Control in a Dynamic Environment. New York: Routledge. Alliance for work-life progress (2006). Work and life: what is total rewards? Retrieved on 29th July 2012 from: http://www.awlp.org/awlp/about/html/aboutus-whatis.html Beresford, B. and Sloper, T. 2008. 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