Decision Making for Cathay Pacific Airways - Literature review Example

Decision Making: Case Study of Cathay Pacific Airways Student’s Name: Instructor’s Name: Course Code: Date of Submission: Decision Making: Case Study of Cathay Pacific Airways Abstract The aim of this paper was to examine decision making in relation to various theoretical constructs and how they have been applied by using Cathay Pacific Airways as case example. The decisions that were utilized to build the below discourse is the operation plans or strategies outlined by the company in their annual report (2012). The emerging theme was that decision making is integral in ensuring success of an organization. The paper identified four critical theories that could be used to explain a decision made. These include bounded rationality, incremental learning, mixed scanning and intuitive thinking. There were eight success decisions made by the company including decision to launch award winning products & services, development of a hub in Hong Kong International Airport, making advances in fleet size and types, investing in technology while the fifth is partnership with other aviation companies. The other three decisions are tied to their commitment to sustainable environment, commitment to community through social responsibility programs and commitment to their staffs. However, the essay focused on the first four and combined the last three and analyzed them under the topic of corporate social responsibility. The emerging finding was that most of these decision were purposeful, planned and objective driven with the ultimate aim being market leadership. This implies in all the five success decisions the company utilized the concept of rationality to anticipate the future rather than muddle through. 1.0 Introduction The success of any organization or individual is tied to how they seize the opportunities, manage people, embrace leadership and anticipate change through planning and innovation among others (Ireland & Hitt, 2005, p.68). All these outlined aspirations that shape success depend greatly on how the organization is able to make decisions that are effective at all three levels of management and at individual level. Decision making is a process that occurs in all organizations whether profit or non-profit. However, competent decision making is essential for successful organizations, groups, as well as individuals (Johnson, 2009). Decision makers are tasked with the role of making decisions of significant importance in and for the organizations that they head. Most of these decisions are optional in nature and routinely impact on the value and viability of organizations. These decisions can be incremental in nature, adaptive or transformational among others (Tarter & Hoy, 1998, p.215). Gaining market leadership while creating value for end customers is tied to how companies are able to exploit various layers of advantage and key competencies in a unique way (Henry, 2008, p. 141). This implies a great deal of decision making. The aim of this essay is to examine the major decisions that led to Cathay Pacific Airways success. The paper will narrow down to five major strategic decisions made by then. In order to examine the cause of success as tied to major decisions, the paper will equally explain the impact of the same said decisions on the continuing success of the company. The basis of this discourse will be drawn from the interim report presented by Cathy Pacific Airways in 2012. The 5 strategic decisions identified will be interrogated and analyzed in the context of various theoretical constructs on decision making. 2.0 The Company Cathay Pacific established in 1946 is one of the international aviation companies based in Hong Kong with a fleet of 135 aircrafts. Furthermore, the company is a publicly listed company trading its shares in the Stock Exchange of Hong Kong Limited. Currently the company services 167 destinations which are spread over 42 countries. In addition, the company offers catering and ground-handling services. In the belief of their home city which is Hong Kong, the company has invested heavily in the airport by constructing their terminal and is planning to add 90 more aircrafts to the fleet by 2019. Moreover, as means of differentiating theirs services, ensuring market leadership and cushioning the company from extreme externalities of the markets the company has got subsidiaries and has invested in shares of other flight companies. For instance, they full own Hong Kong Dragon Airline and have a 19.53% shares in Air China Limited (Cathay, Pacific, 2012, p.1). 3.0 Contextualizing Decision Making, Theories and Success 3.1 Nexus between Strategic Decisions and Success Every organization needs to thrive and grow in its business operations. This is realized through its ability to meet the demands and expectations of the customers. Here, it means that an organization has to do things better than its rivals (Thompson & Martin, 2010). Strategic decisions can be regarded as taking advantage of organizations strengths, internal resources, capabilities and core competencies. It is these strengths that enable companies to create and maintain competitive advantage against competitors in the market place (Ireland & Hitt, 2005, p.68). Anticipation of future allows firm to adapt to change and shape the future as a strategic advantage (Jones and Hill, 2007, p.100). However, at times futuristic decisions made might not provide that needed solutions. Apart from pricing, for organization to stay afloat, they have to offer unrivalled services as compared to their competitors. This implies having services that create value to the target customers (Ghani, 2012, p.144). A strategy has to be viewed from three perspectives. These include opportunity, capability and competitiveness. These three, plus the company aspirations and values are what drives an organization to succeed and reach greater heights. Their importance can be seen in the fact that they ultimately affect choices made within organizations, as well as the overall organizational performance (Thompson & Martin, 2010). According to Michael Porter, there are two basic types of competitive advantage, which include cost advantage and differentiation advantage (Porter, 1998, p.46). This implies that strategic decisions have to be made in tandem with the later points. 3.2 Theories on Decision Making In brief, it is significant to analyze the theories pertaining how people make decision. There are four major categories that can used to analyze how one has made (Tarter & Hoy, 1998). There is the concept of rationality in decision making or what Herbert Simon (1993 cited in Tarter & Hoy, 1998, p.213) calls satisficing strategy. The same concept is marked by the process of optimization. The tenets of this approach are being purposeful, deliberate and rational by relegating personal bias so as to deliver the best solutions. This helps the decision maker decide on what results are required which are suitable through means-ends analysis (Tarter & Hoy, 1998, p.214). The second model is based on what is known as incremental framework. In this context, when one is faced with close to impossible situation compounded with limited information he or she has to monitor changes and make possible adjustments as the process continues. This concept was highlighted by Lindblom 1959 through the muddling through process (Tarter & Hoy, 1998, p.25). The third approach is the one presented by Etzioni 1967 of mixed scanning where the decision maker is adaptive in the process of determining outcomes (Tarter & Hoy, 1998, p.216). The last approach is intuitive thinking. According to Hodgkinson and William (2008, p. 459), intuition can be regarded as the capacity for either immediate insight or direct knowledge generated by subconscious mental activity of an individual. Researchers argue that intuitive insights occur in a rapid and effortless manner. The game of chess provides a classic example of an intuitive approach to decision making. Novice chess players and grand masters base their decision on intuition to accomplish desirable outcome which is emerging victorious (Robbins et al., 2009, p.124). 4.0 Decisions that Guaranteed Success Beresford & Sloper (2008:3) notes that theories of judgment, 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 framework which is presented here will form the basis of subsequent argument with the later observation (how individuals think) informing the essay. Cathay Pacific Airways (2012, p.5-8) in review of their operations identified approximately eight decisions that they implemented in the hope of allowing them to gain market leadership by creating value to customers and improving their brand image. The first strategic operations decision was to launch award winning products & services. The second is the development of a hub in Hong Kong International Airport. The third is making advances in fleet size and types. The fourth being investing in technology while the fifth is partnership with other aviation companies. The other three decisions are tied to their commitment to sustainable environment, commitment to community through social responsibility programs and commitment to their staffs. In discussing these decisions, the first four decisions stated will be discussed. The fifth discussion will combine the last three decisions and discuss them under the umbrella of corporate social responsibility. As an overall overview, all the observations made about operation strategies made by Cathay Pacific are all planned. By not making reactionary decisions and anticipating change it means that the company was objective oriented in the process rather than making decisions without prior planning. Being objective by outlining what will be done so as to take advantage of opportunities and anticipate change can be best explained through bonded rationality process. These decisions are best understood from the economic motivation or utilitarian approach as an example of consequentilism approach of taking most of the opportunities. On the other hand being objective, they have employed non-consequentialism approach in making their decision by being conscious of the environment, community and employees. 5.0 Analysis of the Decisions From the above observation that most of the decisions were planned it means the best decision making theory that can be used to explain them is bounded rationality. Rationality as an approach to decision making is closely related to economic theories of choice. Hodgkinson and Starbuck (2008, p. 457) posit that in rational approach to decision making, a choice has to be made among a set of alternatives. Such alternatives then generate outcomes which can be evaluated based on individual preferences. Uncertain events, contingencies, as well as states of nature significantly influence the path between alternatives and outcomes leading to various outcomes. Therefore, decision makers rationally select the alternative which will produce the maximum satisfaction of their expected preference (Chandra, Krovi and Rajagopalan, 2009, p. 48). This approach to decision making is popular due to its use of decision analysis and decision trees. Decision makers such as managers and leaders are required to consider more alternatives and batches of available options at the same time. In addition, it is essential that they integrate various approaches to decision making in order to be able to juggle schedules, budgets, as well as organizational options in a simultaneous manner (Johnson, 2009). This arguments best fits their first decision which is to launch products that “wow” the customers. In launching these award winning products and services, from the critical perspective, all the arrangements are well planned and flow in certain patter. For instance, in February 2012, they installed premium economy class cabins in their long-distance planes. This endeavor saw the company fit 15 aircrafts by June and they estimate that by the end of 2012 they shall have fitted 48 aircrafts and that by the end of 2013 they shall have installed 86 aircrafts (Cathay Pacific Airways, 2012, p.5). This kind of statement is unique as it shows a lot of planning by anticipating the future instead of muddling through of working on incremental basis (Tarter & Hoy, 1998, p.215 & 216). The same argument presented above of neither working from incremental basis nor muddling through is seen from the objective approach implemented in other decisions under the need to launch award winning services and products. For instance, in this year (March, 2012), they are introducing long-haul economy seats which enhance the comfort of passengers. The planned decision is affirmed on how they outline the stages of attaining the same. In their operations strategy, they expect that by the end of 2012, they shall have fitted 42 aircrafts with long-haul economy seats. Moreover, they have engaged in refurbishment of Cathay Pacific lounge at Hong Kong International Airport. Jones (1999, p. 297) notes that bounded rationality approach to decision making asserts that decision makers are goal-oriented or rather objective and adaptive in their decision making. As such, in bounded rationality decision makers are intentional in their decisions. However, decision makers sometimes fail in crucial decisions due to their human emotional and cognitive make-up. This is influenced by two kinds of limits. First, procedural limits which influence the how decision makers go about decision making. Second, substantive limits which directly influence particular choices made by the decision maker. The decision made by a manager or a leader is of significant importance due to the fact that a manager or a leader plays a crucial role with regard to the production, dissemination, interpretation, storage, as well as use or disuse of organizational information. According to Shanteau (2001, p. 913), a major concern in decision making has been to understand and improve decision making. Swansburg (1996, p. 273) argues that the current business and organizational environment require decision makers to be speedy in their decision making in order to be competitive. By being objective through bounded rationality approach in the first four decisions, it seems the driving force was the utilitarian concept of consequentialism Utilitarianism ethical theory also referred to as Social Consequentialism is one of the most significant consequentialist ethical theories (Sunita, 2005, p.110). According to consequential principles of moral reasoning, the goodness or badness of the results of an action determines whether the action is right or wrong. The utilitarian principle of utility seeks to either approve or disapprove the actions of individuals depending on whether or not they promote/increase the amount of an individual’s happiness (one’s interests); (faculty.stedwards.edu, 2002).The Cathay Pacific Airways driving utility is to earn revenue from their investment by making it possible to attract and lock in customers through service differentiation and value addition as compared to competitors. The subsequent three decisions fit within this argument. For instance, their decision to develop a hub at Hong Kong is supported by the fact this is a principal commerce, communication and tourism hot spot. To attain this, the company planned to support construction of third runway, add more planes and open more routes (Cathay Pacific Airways, 2012, p.6). Being purposeful is still evident in their third decision of modernizing their fleet. To attain this, their operations report outline attained objectives that those to be met. For instance, as at 30th June, 2012, the company is projecting that they will have 92 new planes by 2019. Moreover, they have been pace setters in terms of equipments by being the first Asian country to acquire Boeing 747- 8F flight simulator. Further, they realize that modernization is significant in cutting operations cost. Thus, they have been withdrawing Boeing 747- 400 BCF from operations (Cathay Pacific Airways, 2012, p.7). The fourth bit is advancement whereby they have introduced new online booking platform so that they can attain efficiency (Cathay Pacific Airways, 2012, p.7). Apart from being objective oriented, the last decision of engaging in corporate social responsibility is guided by non-consequatialism theory of Kantian ethics. Kantian ethics calls on decision makers to uphold what is morally upright and it is in this realization that the company is not only basing their performances on profits alone, but also the service to humanity. The reason behind this argument is based on the fact that corporate social responsibility aim is tied to societal framework. In the societal framework as an approach to CSR reiterates the need to incorporate the elements of social democracy and socio-economic aspects in one mix. The ultimate result of this mix would be a democratic society with economic freedom that is premised on advancing the social welfare of a given society (Iamandi, 2007, p.6). When we talk of being purposeful and planning ahead in the context of Kantian ethics then the last three decisions comes into focus. These approaches help the company enhance their reputation, do promotion and contribute to human welfare without any direct economic gain. Iamandi (2007, p.7) provides a critical literature on why companies engage in CSR. The first observation that he makes is linked to pragmatic and rational reasons. Under this observation, the author notes that it contributes towards enhancing the image of the globally in the public eye. From marketing, there is no important aspect as having a higher reputation among customers. With good brand image, a company is able to ride on the positive ranking to make higher sales and thus, the investment in CSR turns to be part of promotion strategy. For instance, to reduce their impact on environment, the company recognizes the importance of sustainability reporting. Moreover, through their foundation, they engage in charitable activities like supporting physically challenge, marketing Hong Kong as an investment destination and support UNICEF through its program dubbed “change for good” (Cathay Pacific Airways, 2012, p.8 & 9). 6.0 Conclusion The aim of this paper was to examine decision making that led to the success of Cathay Pacific Airways in the context of decision making theories. The first observation is that decision is critical to success of organization. The paper found out that there are numerous theories that are used to explain how people should make decisions and how they make decisions. These include bounded rationality that is objective driven, incremental process and muddling through. Within bounded rationality one can connect the same with economic theories, utilitarian and Kantian ethics. The emerging observation that was found out to be evident in the success of decisions made by Cathay Airways was that they were objective, planned with time frames and anticipatory to the future. This meant that other theoretical frameworks were like mixed scanning and incremental were out of the question leaving bounded rationality as the only applicable theory as the approach to analyzing their decisions. References Beresford, B. and Sloper, T. 2008. Understanding the Dynamics of Decision-Making and Choice: A Scoping Study of Key Psychological Theories to Inform the Design and Analysis of the Panel Study. ISBN 978-1-871713-24-4. Cathay Pacific Airways Limited, 2012. Interim Report. Retrieved, November 31, 2012 from: http://downloads.cathaypacific.com/cx/investor/annualreports/2012_interim- report_en.pdf. Chandra, A., Krovi, R. & Rajagopalan, B. 2009. Risk Visualization: A mechanism for Supporting Unstructured decision Making Processes. 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