Initial proposal

Recent business decision

Think about a recent business decision you have made that was either a
success or a failure. Your supervisor asked you to email him/her a
self-evaluation of this decision as part of your yearly evaluation. You
are to be as objective and open minded as possible. Analyze your
decision using Bazerman's six steps as a guide: define the problem,
identify the criteria, weigh the criteria, generate alternatives, rate
each alternative on each criterion, compute the optimal decision. Make
sure your email addresses the following issues:

Were there any discrepancies between the calculated "optimal" decision
and your actual (or favored) decision? If so, what might account for the
discrepancies?

What problems, if any, did you encounter when completing the steps? (For
example, were you able to compute an optimal decision? If not, why not?)


Are there any weaknesses in the "fully rational" model of
decision-making? If so, what are they?

Case Scenario: Think about a recent business decision you have made that
was either a success or a failure. Your supervisor asked you to email
him/her a self-evaluation of this decision as part of your yearly
evaluation. You are to be as objective and open minded as possible.
Analyze your decision using Bazerman's six steps as a guide: define the
problem, identify the criteria, weigh the criteria, generate
alternatives, rate each alternative on each criterion, compute the
optimal decision.

Example of Business Decision:

Experts on decision making recommend a more systematic and calculating
approach. For example, Bazerman (1994, p. 4) says that rational
decision-making should include the following six steps:

1. Define the problem, characterizing the general purpose of your
decision.

Should I merge the acquired company into my company or operate the
acquired company as a separate business entity (the results of this
strategy will be two separate companies under one senior management
"umbrella" (the senior management team that is responsible for
running both companies)? The purpose was to make the most profitable
business decision. The structure of the transaction is of critical
importance because it affects the form and liabilities of the ongoing
business, the protections available to its owners, and the taxation of
each entity and its owners.

2. Identify the criteria, specifying the goals or objectives that you
want to be able to accomplish.

Increase profit margin

Downsize in a way that will respect and motivate the most number of
employees

Maintain as many employees as possible

3. Weight the criteria, deciding the relative importance of the goals.

In the order presented above

4. Generate alternatives, identifying possible courses of action that
might accomplish your various goals.

Merge the acquired company into my company

Or operate the acquired company as a separate business entity. The
results of this strategy will be two separate companies under one senior
management "umbrella" the senior management team that is responsible for
running both companies?

5. Rate each alternative on each criterion, assessing the extent to
which each action would accomplish each goal.

a. Merge the acquired company into my company

Pros

Potential to increase shareholder value - that of achieving cost and/or
revenue benefits.

Improve channels of delivery

While improving sales and revenue, it can also provided a competitive
advantage over the competition. For example, the proposed merger of
mobile phone carriers VoiceStream and Cingular Wireless could improve
service and add features, experts said, but the deal could also hurt
competition in the telecommunications industry (Source: HYPERLINK
"http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2002/
08/21/BU76999.DTL&type=business"
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2002/0
8/21/BU76999.DTL&type=business )

CONS



Lack of experience about the risks and activities of mergers and
acquisitions – choose to go the monetary role which ignores the
importance of others experience and expertise.

Lack of agreement about the best strategic implementation strategy –
Other executives has learned the hard way that when the merging of two
businesses doesn't go smoothly, talent soon quits and projects drag out.


Possibility of destroying shareholder value - Several solid studies
report that as many as 75% of all mergers actually destroy shareholder
value instead of achieving cost and/or revenue benefits.

Partner decides to micromanage - Like most entrepreneurs, the American
Dental Partners founder would not have welcomed pressure to acquire just
for the sake of growth. "You want to make sure you bring in a partner
who's not going to micromanage," he says. Company builders who sense
that a potential equity partner may push too hard for acquisitions just
to spur growth will be smart to delete that firm from the shortlist. The
critical point is this: the entrepreneur runs the acquisition show, and
must be comfortable with all likely deals ((Source: HYPERLINK
"http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2002/
08/21/BU76999.DTL&type=business"
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2002/0
8/21/BU76999.DTL&type=business )

b. Or operate the acquired company as a separate business entity. The
results of this strategy will be two separate companies under one senior
management "umbrella" the senior management team that is responsible for
running both companies.

PROS

Retain control over your own company and the strategic planning and
decision making process.

A company might benefit by teaming with the management of another
corporation, or might achieve an increase in its market share.

The combination might also improve channels of delivery for the parties
to the transaction, helping them compete more effectively.

There may be positive estate planning or retirement motives. (Source:
HYPERLINK "http://library.findlaw.com/2000/Oct/1/129257.html"
http://library.findlaw.com/2000/Oct/1/129257.html ).

Potential tax benefits

CONS

Potential accounting and legal concerns (see HYPERLINK
"http://library.findlaw.com/2000/Oct/1/129257.html"
http://library.findlaw.com/2000/Oct/1/129257.html ).

Stakeholders may not agree

Employees may create potential problems if they disagree with this
strategy

6.Compute the optimal decision, evaluating each alternative by
multiplying the expected effectiveness of each alternative with respect
to a criterion times the weight of the criterion, then adding up the
expected value of the alternative with respect to all criteria.

Two alternatives: To merge the acquired company into my company or
operate the acquired company as a separate business entity. The results
of this strategy will be two separate companies under one senior
management "umbrella" the senior management team that is responsible for
running both companies?

Best Decision: To operate the acquired company as a separate business
entity. The results of this strategy will be two separate companies
under one senior management "umbrella" the senior management team that
is responsible for running both companies?

Based on Goals as Criteria:

a. Increase profit margin

b. Downsize in a way that will respect and motivate the most number of
employees

c. Maintain as many employees as possible

I picked the alternative with the highest expected value and make a
decision based on calculation, not on subjective emotional reactions.
You would know it is working if your objectives have been realized, or
are being realized. For example, your company is benefiting profit wise
by teaming up with the management and your market share has increased.
You have increased or improved your channel of delivery and have the
competitive advantage over the competition. Thus, the strategy is
working if your initial intentions for the acquisition are coming to
pass, and other positive consequences outweigh to potential risks.
(Source: HYPERLINK
"http://cogsci.uwaterloo.ca/Articles/Pages/how-to-decide.html"
http://cogsci.uwaterloo.ca/Articles/Pages/how-to-decide.html ).



2. Make sure your email addresses the following issues: Were there any
discrepancies between the calculated "optimal" decision and your actual
(or favored) decision? If so, what might account for the discrepancies?

Actually they coincided, but only because I was considering the fact
that the optimal decision had more cons listed than did the optimal
decision. So maybe I cheated a bit. I had a “gut feeling� about one
alternative to the other, just because it “made more sense� to me.
In this case, it coincided with the chosen decision, but that is not
always the case. In fact, that is one criticism of this model, that
there is little room for intuition and emotional judgments based on this
“rational� decision-making model.

Explanation for “gut feeling� decisions: Abductive inference is
accomplished in humans by a neural network that performs parallel
constraint satisfaction in a way that maximizes explanatory coherence.
People have no conscious access to this process: when you realize you
prefer one theory over another, you do not really know why, although you
may be able to retrace your intellectual history of acquiring the
various hypotheses and evidence that contributed to your preference. All
you can say is that one theory "makes more sense" to you than the other.
This is not to say that inferences based on explanatory coherence are
irrational, since they may well involve maximization of coherence with
respect to the available hypotheses and evidence. But given the limited
access to mental processes, there is no way you can directly know that
you have maximized coherence. This is where emotions are crucial.
According to this author’s recent theory of emotional coherence, the
way you know that you have achieved explanatory coherence is by a
feeling of happiness that emerges from the satisfaction of many
constraints in your neural network (Thagard 2000, p. 194ff.) Highly
coherent theories are praised by scientist for their elegance and
beauty. Because we cannot extract from our brains judgments such as
"Acceptance of theory T1 satisfies .69 of the relevant constraints", we
have to fall back on the overall emotional judgment such as "T1 just
makes sense." Thus the feeling of happiness that emerges from a
coherence judgment is part of our ability to assess scientific theories.
Ideally, a good theory generates a kind of emotional gestalt that
signals its coherence with the evidence and the rest of our beliefs.
Negative emotions attached to a theory signal that it does not fit with
our other beliefs, and a general feeling of anxiety may signal that none
of the available theories is very coherent. In fact, such anxiety
triggered a search for new hypotheses.

So my gut feeling could represent an emotional gestalt and, according to
this theory, may be a valid sign of a highly coherent evaluation of
competing hypotheses to the “rational� decision making process.

The problem is that such a feeling may instead signal a different kind
of coherence based on wishful thinking or motivated inference rather
than fit with the evidence. I once got a letter from someone urging me
to send my explanatory coherence computer program to him right away,
because he had a theory of the universe that no one else believed, and
my program might help him convince other people. Presumably his
attachment to his theory was based more on satisfaction of personal
goals than on it providing the best explanation of all the evidence.
Noting the role of emotion in appreciating coherence may seem to endorse
the romantic view: If it feels good, believe it (See HYPERLINK
"http://cogsci.uwaterloo.ca/Articles/Pages/critique.html"
http://cogsci.uwaterloo.ca/Articles/Pages/critique.html for more
coverage).

What problems, if any, did you encounter when completing the steps? (For
example, were you able to compute an optimal decision? If not, why not?)


It was too mechanical for my liking, and I felt held back by ignoring my
inner senses of intuition, my “got feeling.� See attached article
“ Emotional Reason� for more on this topic.

Are there any weaknesses in the "fully rational" model of
decision-making? If so, what are they?

Yes, there is because often our “gut feeling� means something when
making business decisions. One author says it like this: Practical
inference is not simply produced by practical syllogisms or cost-benefit
calculations, but requires assessment of the coherence of positively and
negatively interconnected goals and actions. This assessment is an
unconscious process based in part on emotional valences attached to the
various goals to be taken into consideration, and yields a conscious
judgment that is not just a belief about what is the best action to
perform but also a positive emotional attitude toward that action.
Reason and emotion need not be in conflict with each other, if the
emotional judgment that arises from a coherence assessment takes into
account the relevant actions and goals and the relations between them.
The procedure I recommend, Informed Intuition, shows how decisions can
be both intuitive and reasonable ( HYPERLINK
"http://cogsci.uwaterloo.ca/Articles/Pages/how-to-decide.html"
http://cogsci.uwaterloo.ca/Articles/Pages/how-to-decide.html ).