Decision Making – Report to Stakeholders
Executive summary
This report presents the decision-making process used to arrive at the best decision alternative for HH. The company is a growing manufacturer of winter hats for children and adults. Over the past, the organization has experienced a slower growth rate as a result of increasing production costs for adult hats. However, the organizations have objectives to grow its revenues and attract new investors who will have provided the needed capital for its growth. This report utilizes decision-making theory and particularly the use of an unweighted and weighted decision matrix as a tool to help assess and establish which decision is optimum among the various alternatives. The final decision is then given and its justification provided which shows which alternative HH should take and why.
Biases that may impact the process
Decision-making may be exposed to a wide range of potential biases. For instance, one source of bias could be people in an organization who feel overconfident with the way they have done things in the past (Big Think, 2014). One may make a wrong decision because of being overconfident with present systems. Further, the bias could result from being reliant on present routines and norms (Practical Psychology, 2016). Being stuck with how the organization does things is a potential blockage to creativity and some people willing to make a change may feel powerless. For this case, however, what is more, likely is confirmation bias where one searches for information that they already consider right and thus does so to conform to what one believes. Another potential bias is hindsight bias that might emanate from overestimation especially estimating the relevance of different objectives or the weight assigned to each alternative. Further, another potential bias is attribution where one may be attracted to a particular decision by one’s relation or attribution with another object (Pope-Caldwell & Washburn, 2022). These biases can be reduced by enhancing one’s awareness and also being knowledgeable about how the biases can be reduced.
Triggers/Opportunities leading to the need for a decision
A number of triggers exist that have made it necessary for a decision. Among them investors interests in growing their investment capital and gaining more returns. Further, the E-commerce platforms have been seen to have better performance than in-person sales, and there is a need to boost their performance. Besides, there is a threat of entry of a chain-based e-commerce platform that comes with a cheaper product line. as such, developing a strong e-commerce base will help to bar competition from the Chinese company. it also creates an opportunity for developing a cheaper alternative, to cut both its production costs ad also be able to compete with the Chinese e-commerce. If a cheaper line is produced, the company has an opportunity to build up a bigger store to accommodate the large volume of product orders that is projected with a low cost of production. Further, the company sells products whose demand is high during winter and has seen an opportunity to develop one suitable for summer too.
Goal of Decision
HH wants to establish and maintain good business growth. The present growth strategy has faced challenges in the recent past with heightened production costs and slow growth. The overall goal is to make a decision that will help restructure the company’s growth, increase its revenues and enhance its long-term success. This goal satisfies the interests of the business’ stakeholders.
Decision Statement: Which strategy will help restructure the business growth?
Purpose, Scope, and Perspective
The purpose of this decision-making process is to find the optimum alternative that best meets the organization’s objectives. The purpose is to make a decision that restructures the growth strategy for this firm, but not to increase its product line or widen its scope or market share. Its scope lies in assessing four alternatives against 4 objectives and establishing both weighted and unweighted decision-making outputs. Exclude strategies that do not meet the core objectives of reducing cost, ales growth, attracting investors, and long-term business success. Further, this business the alternative with the most output is considered the best alternative as it meets most of the organizations’ objectives. Importantly though, no alternative will be able to meet all the organizations’ objectives. Subjective areas can cost reduction and sales growth.
Objectives
This report features only four objectives for analysis. The first objective is increasing the organization’s sales, an important goal in the growth of an organization. The second goal is reducing the cost of production which is meant to be used to curb the problem of the slow growth rate. The organization further seeks to have long-term success. This is important for investors and other stakeholders as the survival and success of the organization in the long term means good for stakeholders who rely on goods and services offered by the organization or who benefit from the business (Panpatte & Takale, 2019). Lastly, the organization’s objective is to attract investors. These objectives are the most critical for this organization and it would be difficult for the organization to survive or be considered successful if either are too low or unmet.
Alternatives
The alternatives used here help to achieve the business alternatives in different ways. For instance, developing a new product line helps to enhance innovation, helps the organization to compete well, and thus, ensures its long-term sustainability and attracts investors.
Table 1: Unweighted matrix
Available alternatives to restructure HH’s growth
Increase sales
Reduce production cost
Long term success/ sustainability
Attract investors
Straight score
Continue producing the same hat types
0
1
1
1
3
Create a new line of hats
2
2
3
2
9
Partner with a larger company
3
0
2
3
8
Merge with another company
3
2
2
3
10
From the four alternatives and objectives listed in the above matrix, HH assigned weights on how each alternative meets each objective. Each alternative was weighted per objective, and a weight of between 0 and 3 was assigned where 0 means it does not meet the objective while 3 means it meets the objective at best.
Continuing to produce the same product type the company is currently producing will not meet the objective to increase the company sales, as recent months have seen declining sales. This earned it a zero weight on this objective. Creating a new line of hats might fetch into new customer needs and thus has a high chance of helping increase sales for the company, earning a weight of 2. HH further assigned a weight of 3 for the two remaining alternatives, i.e. partnering with a larger company and also signing a merger. For both alternatives, the company will have wider operations, product lines, and a wider customer base, thus record-high sales.
The other objective of the company is to reduce production costs. The current challenges have been occasioned by problems in the rising costs of the production of hats. To achieve good profits, the sets reducing production costs as one of its key objectives. If the company continues to produce the current types of hats it is producing, there is little chance that the cost of production will go down the only saved cost is what would otherwise go into research and development to produce new product lines, thus earning a low weight of 1. Partnering with other companies like retailers Walmart and Target, who sell the company’s products have no way of influencing the reduction of production cost. While these ears have a weight of zero, the other two alternative ears each have a weight of 2 because creating new product lines may mean requiring new materials and equipment, some of which may essentially require a lower cost. Merging with another company may benefit the company through the scale of production and reduce the unit cost of production.
The company also seeks to attain long-term sustainability. Taking the alternative of continuing production of the same product does not contribute to sustainability as it is faced with challenges like competition from new entrants, copying of the company’s product, and changing consumer tastes. However, it still earns a 1-point weight as there is still little chance of the absence of these risks and the company would continue production for a long period. Developing a new product earns the highest weight of 3 as it enhances innovation and bars the company’s threats from competition and risk of consumer taste change. the other two alternatives i.e. partnership and merger would lead to the same effect on sustainability and each earns a weight of 2. This is because they increase the customer base and scope of production.
Lastly, the above decision matrix shows the objective of attracting investors. Attracting new investors helps to increase capital and thus helps the organization achieve its objectives. By continuing with the production of the same product, the company is likely to attract few investors if it performs well. creating a new product line increases, the chances of performance improvement and thus may attract new investors. Going into a partnership or merger would best meet the objective of attracting new investors and earns a weight of 3. This is because a higher volume of operations results from these alternatives and requires higher funding besides being attractive to investors.
Table 2: Weighted matrix
Available alternatives to restructure HH’s growth
Increase sales
Reduce production cost
Long term success/ sustainability
Attract investors
Weighted score
Importance/ weight
20%
40%
30%
10%
100%
Continue producing same hat types
0 x 20%
1 x 40%
1 x 30%
1 x 10%
0.8
Create a new line of hats
3 x 20%
2 x 40%
3 x 30%
2 x 10%
2.5
Partner with larger company
3 x 20%
0 x 40%
2 x 30%
3 x 10%
1.5
Merge with another company
3 x 20%
2 x 40%
2 x 30%
3 x 10%
2.3
To aid in making the decision on the alternatives and based on how well it meets the objectives it is also important to consider that different objectives bear a different level of importance. In other words, different organizations will put a different value on different objectives. Based on the above four objectives, HH puts more value on the reduction of production costs. By reducing its cost, the company will be able to lower its prices and increase its profit margin. Selling at a competitively low price may enable the company to outcompete the Chinese e-commerce company which is known to have a cheaper line. it will also help it in competing with LL Bean which comes with an alternative product. A weight of 40% is assigned to this objective. If this objective is met, the investor may as well forego some of the other objectives or may achieve them indirectly.
A similar consideration is made in giving an important rate for the other objectives. The second most important objective is attaining long-term success or sustainability. This is assigned a weight of 30%, followed by increasing sales by 20% and lastly attracting investors by 10%. Long-term success is important as business stakeholders are interested in both the short-term and long-term success of a company. For instance, investors would like to invest their finances in organizations that will give them good returns for a long period as opposed to those who perform well in the short term and cannot survive into the future. Increasing sales will help the organization get more revenues, serve many customers and serve the interests of its investors and other stakeholders. For instance, this will assure continued employment for the company’s employees and possibly increased benefits. Lastly, HH assigns attracting new investors the lowest importance. Although attracting new investors is critical in finding the organization’s operations, it is not the ultimate goal for an organization, as it also leads to dilution of the firm’s returns to more investors. If other objectives are met like sales growth, the generated income could be re-invested back rather than add new investors.
Evaluation and final decision
Based on the unweighted decision matrix, margining with another company has seen the optimum output. This means that by using this tool, the company should merge with another company which will help it meet all its objectives equally. However, using the weighted matrix, the optimum output is to create a new product line. this means that this alternative meets HH’s best objectives. Bolland & Lopes (2018) write that an organization should choose the optimum decision from the weighted output of the decision matrix. Therefore, the final decision that HH should take is to create a new product line
References
Big Think. (2014). Cognitive Biases 101, with Peter Baumann | Big Think [Video].
Bolland, E. J., & Lopes, C. J. (2018). Decision-making and business performance. Edward Elgar Publishing.
Panpatte, S., & Takale, V. D. (2019). To study the decision-making process in an organization for its effectiveness. The International Journal of Business Management and Technology, 3(1), 73-78.
Pope-Caldwell, S. M., & Washburn, D. A. (2022). Overcoming cognitive set bias requires more than seeing an alternative strategy. Scientific Reports, 12(1). https://doi.org/10.1038/s41598-022-06237-0
Practical Psychology. (2016). 12 Cognitive Biases Explained – How to Think Better and More Logically Removing Bias [Video].
The post Decision Making – Report to Stakeholders Executive summary This report presents the appeared first on PapersSpot.
