Making the Strategic Decisions - Coursework Example

Decision making process Introduction Decision making within the business environment is a vital process impacting individual performance, business outcomes and effectiveness of management practices. Business decisions can be simple in terms of defining specific resource requirements to complete a specific task. However, the growing complexity of the market environment in which the firm operates presents new challenges to managers and the overall responsibility of ensuring positive business outcomes rests on the ability of the managers to make effective decisions. The decision making process has witnessed widespread changes over the past few decades with the increasing application of decision making tools that assist managers in processing available information and arriving at accurate estimates that help in taking effective decisions. These tools are widely used to evaluate various probabilities, its implications on business performance, and choosing the best possible alternative that suit the needs of the existing conditions. Several such tools and frameworks have been identified by researchers and practitioners over the years and these frameworks have been applied in practical scenarios to aid the decision making process (Bouyssau et al., 2013). The report explores the decision making process using an example case study. The case study chosen for this report is a local bakery that sells freshly baked items and coffee. The owner of the bakery, Sam has been in this business for the last 8 years and his baking skills have contributed to the bakery’s success so far. However, the last couple of years have been tough for Sam. The customers have shifted their preference to newly opened cafeterias and this has impacted the revenues. Sam knows that in order to survive in this tough business environment he has to take some initiative to revive the business and improve its profitability. He decides to venture into online sales. The bakery’s website will enable customers to order from the convenience of their homes or offices, bulk orders and party orders. The report explores the viability of this decision and how it can impact business performance. Decision making process The decision making process has been widely studied and various theoretical frameworks have been developed to assist organizations in making more accurate decisions. One of the key aspects of the decision making process is identification of the key issue or problem that needs to be resolved. This is followed by an in-depth diagnosis of the causes behind the problem, defining the various possible alternatives to solve the problem and finally deciding and implementing on the best alternative solution (Nutt and Wilson, 2010). One of the popular approaches to decision making is the Multi-Criteria Decision Analysis (MCDA) that provides managers with a systemic approach to support the analysis of various alternatives based on multiple criteria. This approach is used to analyze complex situations and enable the managers to evaluate the decision with respect to each criterion, weighing each criterion in terms of its significance to stakeholders and business value. This model enables a systemic approach to evaluating complex problems and arrives at justified decisions. A number of software tools have been launched over the past few decades to support the decision making process using the MCDA approach. The key benefit of using these software tools is not only the computational support that it provides to managers in terms of calculating the results, but also facilitates effective construction of decision models and analysis of the results. It allows the managers to visualize the impact of the decisions on the business processes and the predictive results that will impact business performance. However, the impact of decision making on the business can be positive only when managers understand fully the implications of each criterion they are evaluating on the operational processes and performance. Thus, in order to make effective decisions the managers need to have a clear vision on the future of the business, understand the business risks and uncertainties that impact business performance, develop the skills to identify the right questions, and collect the relevant information required to support the decision making process (Bouyssou et al., 2013). Decisions, whether simple or complex, require a clear sense of direction and understand the associated implications of the decisions taken on the overall situation. Risks and uncertainty, people issues, and access to relevant information are the three vital factors that influence the decision making process (Roth and Mullen, 2002). The subsequent sections provide an in-depth assessment of Sam’s problem using the MCDA approach. The CAUSE framework is a popular tool used to analyze the issues and problems. This framework applies the key parameters namely criteria, alternatives, uncertainties, stakeholders, and external environment factors to evaluate the existing problem in detail (Belton and Stewart, 2002). The MCDA approach makes use of various tools that provide effective integration of data and information needed for the decision making process. The Visual Interactive Sensitivity Analysis or the VISA software is an effective MCDA tool that enables the user to defining the value hierarchy and determining the relative importance of each criterion. This helps in the evaluation of performance along the specified criteria. The VISA enables users to explore various possibilities or alternatives and compare the results against various criteria. The primary objective of the software is to facilitate modelling and analysis that provide a visual and interactive approach for effective communication of business decision results and subsequently contribute to effective decision making (Tsvetinov and Hazelhurst, 2000). CAUSE framework Sam’s problem has been analyzed using the CAUSE framework below. Criteria – Adopting the e-commerce approach implies additional investments for getting the website designed and developed, hiring one person to cater to the orders placed online and hiring one more person to deliver the orders. Alternatives – Sam can choose to offer his customers with a home delivery option and distribute the bakery menu locally so can customers can call for booking the orders and have it delivered to their place at the specified time. Uncertainties – The primary risk of expanding the product range is increased investment in the business. Sam may not be successful in increasing revenues and this will impact the business profits. Stakeholders – The key stakeholders affected by this decision is Sam, the entrepreneur and his staff who may not receive the desired benefits from this decision. Environmental factors and constraints – The bakery operates in a highly competitive business environment and the success of its operations will be defined by the number of customers who make a purchase at the bakery. Changing customer preferences and the presence of wide range of alternatives in the market poses extensive challenge to the business. Inadequate funds at the disposal of the entrepreneur may impose limitations on the proposed strategy. The subsequent sections provide a detailed assessment of the CAUSE framework and related factors to justify the decision making process. Criteria Cost is a primary factor influencing the profitability of any business. It is one of the key dimensions governing business decisions. Sam is considering going online to tap the extensive scope the internet can provide in terms of reaching out to customers, ease of access and the opportunity to bag bulk orders for parties and events. Sam knows the Internet is the latest trend defining customer behaviour and their preference. He has seen a number of food retailers going online and the extent to which this has enabled them to secure their business. While the internet provides a viable business opportunity, it also has an associated cost in terms of designing and developing an effective web presence. For this Sam needs the service of a website development firm to design and develop the website. Further, Sam also needs to invest in purchasing a computer and its related accessories such as printers. In addition, he also needs to employ one person who will be trained by the web development firm on the website features and functionalities. This person will be responsible for managing the online platform. This is an added cost burden for Sam. Once the web design work is complete and a person recruited for managing the online business, the next step for Sam will be to invest in a bike and another person who will be responsible for order delivery. Hence cost of taking the business online needs to be considered and evaluated against the proposed benefits. The following screenshot illustrates the preliminary value tree created using the criteria identified in this section – Software development projects can be a complex affair to handle owing to difficulties in collaborating and compiling the work of programmers, designers and other technical individuals involved in the design and development process. Most of the times it has been witnessed that IT projects fail on account of communication issues or lack of adequate planning that leads to overrunning of defined work schedules. Such eventualities can result in additional cost of developing the web interface. However, weighing these constraints against the proposed business benefits, this might be just a onetime cost for Sam. Alternatives Sam’s plan to go online to expand revenue and market shares has one alternative that requires lower investment than the proposed online strategy. This is taking orders over the phone and providing the customers with home delivery services. For this Sam needs to hire one delivery person and purchase one bike that will be used for home delivery of orders. Customers can place their orders over phone and the orders will be home delivered. This alternative provides Sam with a cost effective means of expanding revenues and market shares. He does not need to invest in designing and developing a website. He can reap the same benefits as the website through phone booking system. The cost of this alternative involves only the salary of the delivery person and the cost of procuring a bike. The following screenshot illustrates the value tree created using the criterion identified in the CAUSE framework. Uncertainties Food retailing business operates in a highly competitive environment with multiple players offering a wide range of alternatives to the customers. The business prospects are uncertain and hence Sam cannot provide an accurate assessment of earnings through the phone booking or online booking business model. The investment made for developing a website may not prove worth it if the revenue from the online platform is not substantial enough to cover the costs. Environmental factors and constraints Sam’s bakery business operates under several constraints and the performance of the business is deeply influenced by various environmental factors that guide customer choice and preference. Tapping the consumer taste and researching their preference requires continuous feedback and assessment of market trends to enable the businesses to change their product outlook to meet consumer preference. Rising income levels and changes in the lifestyles of the people are the stimulants to this change in food culture. From traditional home cooked meals to ready to eat over the counter burgers and sandwiches – the eating habits of the consumers across the globe have changed drastically. In order to cater to the changing consumer tastes and preference businesses in the food industry should carry out regular surveys and market research activities to tap these changes and implement appropriate strategies towards business growth. Extensive market research and analysis of economic forces driving the market in these regions are much required in formulating effective business strategies and establishing market presence. In the strategic planning, the firm has to predict, analyse and calculate the risk involved in trying some innovative techniques and ideas. Some aspects like, if the company can invest more and the approach to adopt one product, for a bigger market share of which the level of the competition may rise to. The food industry is an increasingly competitive market owing to increased demand and growing urge of consumers to try new flavours that can satisfy their taste buds. Over the past few decades a number of brands have emerged to tap this extensive revenue generating business. The growing competition in the industry has led to the presence of number of companies selling the same products or substitutes in the market. It is important to retain consumer interest and this requires efforts in product differentiation strategies that provide the consumers with greater choice and range of the product in terms of flavours and pack size. A significant trend in selling of food products is that the consumers get bored easily and seek new tastes. There are many new innovative food products being launched into the market on a daily basis and businesses catering to changing consumer tastes and habits need to upgrade their products at regular intervals. In this unpredictable business world, where the chances of ups and downs are difficult to ascertain, by only following the quality management and setting up the parameters are not enough. The entire business module or the theory of business has to take a U-turn. According to Drucker (1994), the three platforms in the study of business are the product or the environment for which the company is paid and the long term plan which the company considers to be the ultimate goal. It has to rule out how it can make a difference between the company and its competitors, with respect to the economic condition and the society at a broader aspect. Decision analysis Inputting the key criterion, the weightage of each criterion and value assessment of each criterion into the VISA software provides a detailed picture of the value tree. The analysis of the value tree is given in the following illustration – The following screenshot illustrates the score profile across the value tree – The score profile clearly highlights the advantages of selecting the phone booking option for Sam’s business in terms of associated costs and investment needed. The comparative assessment of costs related to online and phone booking clearly highlights the lower costs associated to the phone booking alternative. Hence, Sam should consider choosing the phone booking option to improve the revenues and credibility of his bakery. Decision analysis is not an easy task considering the wide range of variables linked to the overall business performance. Competitive forces are preventing Sam’s bakery business from flourishing and generating the desired levels of income for its proprietor. Sam needs to spend some time on analyzing the specific reasons behind the dwindling sales and revenues. Why are the customers choosing other outlets and not his bakery? The reason may be the price of products, location disadvantage, or product quality. Sam can analyze this problem only through a detailed and systematic investigation of the underlying issues. This involves talking to the customers, understanding what they like, what they expect, and visiting the other competitor outlets to find out what they are selling and at what price? The strategic alternatives open to Sam will be more accurate once he is able to accurately define the customer needs and expectations. Business decisions are hence based on a number of facts and evidences that can be collected through extensive market research. In any organization, strategy refers to the direction and scope with which the employees and the managers are supposed to work with respect to meeting the demands of the customer and business partners. It’s planning with regards to what the company is trying to achieve in the long term. Planning should be made in accordance with the resources available. Managerial strategies have become more important in today’s world as there are many areas or criteria that have to be adhered to. Competitive advantage and organizational performance are some of them. The strategic decision making process involves steps and approaches that enable organizations to perform better and gain competitive advantage in the global market. The focus is on enhancing performance and the productivity in an organization. The success of an organization depends on its ability to adapt its strategies to situational demands and evolving industry trends. A strategy can be considered as effective and good if it combines the goals, policies and the methods to be implemented in a cohesive whole. Conclusion In order for the strategic decisions to be correct and successful, the infrastructure, the inherent cost, the anticipated or the predicted investment arising due to the future expenditures and for working in accordance with the strategies should be taken into consideration. . The decision making process involved in adopting a specific business strategy require an analysis of the associated advantages and disadvantages and its economic cost and effectiveness The essential requisite for success is those skills, resources and attributes which are essential for the working for the organization and for the company to prosper. When the resources are limited it becomes apparent that the strategy should be made more carefully and keeping many concepts in mind so that they can be utilized efficiently and effectively. The essential factor is the customer which caters to the people for whom the product is to be sold. References Belton, V. and Stewart, T. (2002), Multiple criteria decision analysis: an integrated approach, Massachusetts: Kluwer Academic Publishers. Bouyssou, D., Dubois, D., Prade, H. and Pirlot, M. (2013), Decision making process: concepts and methods, West Sussex: John Wiley & Sons. Drucker, P.F. (1994). The theory of the business, Harvard Business Review Case Studies. Nutt, P.C. and Wilson, D.C. (2010), Handbook of decision making, West Sussex: John Wiley & Sons. Roth, B.M. and Mullen, J.D. (2002), Decision making: its logic and practice, Maryland: Rowman & Littlefield Publishers Inc. Tsvetinov, P. and Hazelhurst, D. (2000), Using visual interactive sensitivity analysis (VISA) in programming courses assessments, [online] available from http://eprints.qut.edu.au/1551/1/1551.pdf (accessed 10 Aug 2014). Read More