DECISION MAKING

Introduction
Personal at all levels in organization must constantly make decisions
and solve problems. Managers are often confronted with unmanageable
situations. They have to continuously tackle both simple and complex
problems. Some problems require immediate action, while others unfold
slowly and need consistent action. For managers, the decision-making and
problem-solving tasks are particularly important parts of their job.
Whatever a modern manager does, he does through decision-making.
Each managerial decision, whether it is concerned with planning, organizing,
staffing or directing is related with the process of decision-making.
Managers decisions provide the framework within which other organization
members make their decisions and act. It is because of this pervasiveness of
decision-making that Professor Herbert Simon has called the process of
managing as a process of decision making.
In the words of Felix M. Lopez, A decision represents a judgement, a
final resolution of a conflict of needs, means or goals and a commitment to
action made in the face of uncertainty, complexity and even irrationality.
The important elements of a decision are that:
(i)

it involves rationality because through decisions an endeavor

is made to better ones happiness; and

(ii)

decision
making
involves
certain
commitment.
This
commitment may for short-run or long run depending upon
the type of decisions.

Thus, decision making permeates every task of managers, exists in

every part of an organization and associates with every action.

What is Decision Making?

A decision is the selection of a course of action. It is a choice from
among a set of alternatives. The word decision is derived from the Latin
words de ciso which means a cutting away or a cutting off or in a practical
sense, to come to a conclusion. Webster, dictionary states decision making
as, the art of determining in ones own mind upon an opinion or course of
1

DECISION MAKING
action. It is a process of selecting a course of action with rationality from
available alternatives, to produce a desired result.

Some of the important definitions of decision-making are given below:

According to D.E. McFarland, A decision is an act of choice wherein
an executive forms a conclusion about what must not be done in a given
situation. A decision represents a course of behaviour chosen from a number
of possible alternatives. In the words of Haynes and Massie, A decision
is a course of action which is consciously chosen for achieving a desired
result. According to George R. Terry, Decision making is the selection based
on some criteria from two or more possible alternatives. Szilagyi defines
decision making as A process involving information, choice of alternative
actions, implementation, and evaluation that is directed to the achievement
of certain stated goals.
In other words, decision-making is the process by which the decision
maker tries to jump over the obstacles between his current position and the
desired future position. It should be noted that a decision is a choice between
two or more alternatives while decision making is a sequence of certain
steps leading to that selection.
Managerial decision-making involves an entire process of establishing
the goals, designing tasks, searching for alternatives and developing plans in
order to find the best solution to the decision problem. The elements of a
decision-making process are:
The decision-maker;
The decision problem;
The environment in which the decision is to be taken;
Objectives of the decision-maker;
The available alternative course of action;
The outcome expected from various alternatives;
The final choice of the alternative taken

Characteristics of Decision Making

The basis characteristics of the decision making process is enumerated as
follows:
2

DECISION MAKING
1. Decision making is a selective process. In it only the best possible
alternative is chosen out of many alternatives available. The best
choice can be made only by evaluation of alternatives.
2. It involves all actions like defining the problem and analyzing the
various alternatives which take place before a final choice is made.
3. Decision-making is goal-oriented process. Decisions are usually made
to achieve some purpose or goal or objectives.
4. Decision making is a human and rational process involving intellectual
abilities. However, it cannot be completely quantified as some
decisions are based on intuitions and instincts.
5. A management decision is a revolution or commitment of mind to act
in specific manner in the given circumstances. It may involve to do or
not to do anything.
6. Decision is not mechanical job. It is risk-taking and a challenge to
judgement. It involves uncertainty. (Drucker)
7. Decision making is a dynamic process and situational. It involves time
dimension and time leg. A particular problem may have different
decisions at different times depending upon the situation.
8. It is the focal creative psychic event where knowledge, thought,
feeling, and imagination are fused into action. (G.L.S. Shackle)
9. Decision making is the core of planning and includes forecasting.
10.
Decisions may be positive i.e., for doing a thing. They may be
negative i.e., for not doing a thing.
11.
Decision making is the end process preceded by deliberation
and reasoning.
12.
To a large degree, decision making is directed at solving
problems.
13.
Decision making is an integral part of managerial process. It
affects all aspects of managing.
14.
Decision making is a continuous process. Managerial job is
perpetually a decision making exercise. A manager has to take a
number of decisions close from the start of the day.
15.
Decision making is an iterative activity. It is recurring task and
managers can learn from past decisions

Importance of Decision-Making
Decision-making is an indispensable component of the management
process. It permeates all management and covers every part of an
3

DECISION MAKING
enterprise. Consciously or unconsciously, the manager is always engaged in
decision making or determining what is to be done, who will do it, how it is to
be done, why is it to be done and where is it to be done unless he decides,
he cannot move further.
Decision-making is at the core of planning. Managers sometimes take it
as their central task. In fact whatever a manager does, the does through
decision-making only; the end products of managers work are decisions and
actions.
For example, a manager has to decide:
What are the long term objectives of the organization, how to achieve
these objectives, what strategies, policies, procedures to be adopted
(Planning);
How the jobs should be structured, what type of structure, how to
match jobs with individuals (Organizing);
How to motivate people to peak performance, which leadership style
should be used, how to integrate effort and resolve conflicts (Leading);
What activities should be controlled, how to control them, (Controlling).
Thus, decision-making is a central, important part of the process of
managing. The importance of decision-making in management is such that
H.A. Simon called the process of managing as the process of decisionmaking.
Decision making involves thinking and deciding before doing. As
Koontz and ODonnell pointed out, Decision making process is the
determination of objectives, policies, programmes, procedures, strategies
etc. of the enterprise. A manager has to take a number of decisions in every
filed of organizational life, from the beginning to the close of the day.
According to Gluek the importance of decision making lies in two important
facts:
Managers spend a great deal of their time in decision making. In order
to improve managerial decisions, it is necessary to know how to make
effective decisions.
4

DECISION MAKING
Managers are evaluated on the basis of number and importance of
good and effective decision. In order to be effective the manager
should learn the art of making better decisions.
Stressing the importance of decision making and the glorious task
which an executive performs, John McDonald says, The business executive
is by profession a decision maker. Uncertainty is his opponent, overcoming it
is his mission. Whether the outcome is a consequence of luck or wisdom, the
moment of decision is without doubt the creative event in the life of the
executive.
Indeed, management cannot be imagined without the art of making
decisions. Its importance is reflected through the following points:
Decision making is the blood of administration.
Decision making exists in every part and at every level of organization,
thus we can say that it is synonymous with managing.
Decision making is total tasks of manager at every stage to produce
effective decisions and for effective control.
Decision making is the basic thread of the entire managerial process
and functions.
Through good decision making a sound organizational structure could
be build.
Decisions provide creative solutions to problems and explore
opportunities.
Thus, decision-making is undoubtedly the heart and core executive
activity in the every business. As such we can conclude that modern
decision-making is the primary task of the manager of every business
concern and really the essence of management.

Steps Involved in Decision Making

Identifying and Defining the Problem
Classification and Gathering of Relevant
Diagnosis and Analysis of the Problem
5
Generation and Development of
Evaluation
Selection
Implementation
Monitoring,
of the
of Alternatives
the Best
Feedback,
of Solution
the Decision
and Review

DECISION MAKING

Figure 1: Steps Involved in Decision

Identifying and Defining the Problem

The first step in decision making is to recognize that there is a problem,

that needs to be tackled and it is important enough for managerial action.
Problems generally arise because of disparity between what is and what
should be. To identify the gaps between the current and desired state of
affairs, managers should look for problems that need to be solved. At this
stage the emphasis should be on defining the questions in a right way rather
than finding answers to the questions. A clear understanding of the real
problem is the most important task in the process of decision-making as the
right answer can be found only for a right question. C. I. Barnard says that,
knowing the right question is winning almost half the battle. The manager
should try to find out what the decision is really about, not what the decision
should be. Actually, accurately defining a problem is as essential for
manager as knowing the correct disease is for a doctor.

Classification and Gathering Relevant Data

After recognizing the problem the next phase of decision making involves
classifying the problem and gathering relevant information. Information can
be gathered internally or externally, depending on the needs of the situation.
Some problems are unique to the company itself so that all the data that is
generated is internal and the basic source of this data is the management
6

DECISION MAKING
information system, while for some problems, the data are collected from
both internal and external environment.
Classification is necessary in order to know who should take the decision
and who should be consulted in making it. Without proper classification, the
effectiveness of the decision may be jeopardizing. After the collection and
classification of data, it is stored, sorted out and interpreted so that it is
presented to the decision maker in the form of information. It is important
that this information be relevant and adequate.

Diagnosis and Analysis of the Problem

Diagnosing the problem means knowing the real cause of the gap
between what is and what should be. It is an understanding of the problem in
relation to the objectives of the organization. The problem should be
understood in terms of its elements, its magnitude, its urgency, its courses,
and its relations with other problems. The problem and its boundaries should
be understood well by proper diagnosis. To do so we have to resolve the
following issues:

What is happening and what was expected to happen? This means

to what length of time, the decision will be applicable to a course of
action.
Explain the deviations and their causes.
The critical objectives that need to be met in the given context.
Cause of the problem.
Should I make this decision?
What decisions have already been made?

Generation and Development of Alternatives

After diagnosing and analyzing a business problem, with the help of

relevant management information, the decision-maker should formulate
many alternative solutions for the business problem, because if we have the
possibility of choosing, only then decisions are required; otherwise we can
continue status quo.
7

DECISION MAKING
There is hardly any problem in the world wherein alternatives cannot
be developed. So we must develop a range of alternatives in order to decide.
This can be done by mixing up resources in different proportions, thinking
about the same problem in different perspectives, changing the premising
itself, making more people to participate, creativity etc. It is desirable that
we should think of as many alternatives as possible before the decision
stage. The development of alternatives can be facilitated through the use of
four principles such as:
Pushing for a high volume of ideas increases the probability that
some of them will be effective solutions.
Criticism during the idea-generation stages inhibits thinking.
Often the best ideas come from combinations of the ideas of others.
Often in practice some ideas may never be used, but they may
trigger some usable ideas from others

Evaluation of the Alternatives

After developing all alternatives, the next step should be to judge and
evaluate them through some good decision criteria. Both tangible and
intangible factors should be considered while evaluating different
alternatives. Tangible factors are those which can be expressed numerically,
such as cost, profits, time taken, money invested, return on investment etc.
Intangible factors are mostly qualitative and cannot be quantified,
such as quality, efficiency, public relations, reputation of the company,
employee morale, human relations etc. The main purpose of evaluation of
alternatives is to find out the expected consequences of each alternative, if
put into action and to what extent the various objectives would be met or not
met under each alternative solution. Several techniques are available for
analyzing the options in order to understand their implications.
Possible changes in the organizational environment that might pose
either a threat or an opportunity in a given period of time should also be
considered by the decision maker. In this respect, the effect of the choice of
the alternative on the current as well as long term organizational objectives
and strategies must be considered.

DECISION MAKING

Selection of the Best Solution

After evaluation of all alternatives that next step in the selection of the
best solution. Based on the evaluation of various alternatives, the decision
maker has to choose the best possible decision that optimizes achievement
of objectives within given constraints, maximizes the benefits, and satisfies
the involved individuals to the greatest extent, ensure its feasibility. The
process of selection of the best alternative becomes easy and logical, when
the criteria for selection are laid down in the initial stage itself. Criteria are
basically clear conditions that must be satisfied to arrive at a useful,
objective, effective, and good decision. Peter Drucker has laid down four
criteria in order to weight the consequences of various alternatives. They
are:

Risk;
Economy of Effort, money and Time;
Situation or Timing at a particular point of time;
Limitation of Resources.

Koontz and ODonnell have suggested three bases which should be

followed by a manager for selection among the alternatives. These are
experience, experimentation and research and analysis.
Experience
In making a choice, a manager is influenced to a great extent by his past
experience. Sometimes, managers give undue importance to past
experience. Such an attitude may be fatal in certain situations. So he should
take sufficient care while depending upon his past experience. He should
compare both the situations. However, he can give much reliance to past
experience in case of routine decisions, but in case of strategic decisions, he
should give the least possible weightage to his past experience to reach at a
rational decision.

Experimentation
Under this, the manager tests the solution under actual or simulated
conditions. But it is not always possible to put this technique into practice
because it is very expensive. It is utilized as the last resort after other
9

DECISION MAKING
planning techniques have been tried. It can be utilized on a small scale to
test the effectiveness of the decision. For instance, a company may test a
new product in a certain area before expanding its sale nation wide.

Research and Analysis

It is considered to be the most effective technique for selecting
alternatives where major decisions are involved. It involves a search for
relationships between the more critical variables, constraints and premises
that bear upon the goal sought. In a real sense, it is the pencil and paper
approach to decision making. It weighs various alternatives by making
models. It takes the help of computers and certain mathematical techniques.
This makes the choice of the alternative more rational and objective.

Implementation of the Decision

After taking the final management decision the next problem of

management is to put decision into effect. The language of the decision
should be simple and easily understandable. All concerned should know it
and their full co-operation for the implementation should be sought in mild
and courteous language. For effective implementation what matters the
most is that the people involved in implementing the decision understand
the problem as well as an alternative choice made to solve the problem and
are fully committed to its successful implementation. For effective
implementation, managers should plan the implementation process very
meticulously and carefully. Implementation analysis can provide a clear view
of resource requirements, people and group affected, and any cautions to
exercise when implementing the option

Monitoring, Feedback, and Review

As after sales service is important, as it is also necessary to see that

decisions have served the purpose for which these have been implemented.
One requires some system as to its feedback and in case of need, follow up
in terms of revision of some aspects of a decision. Irrespective of positive or
negative feedback, evaluating a decision is always useful. A positive
10

DECISION MAKING
feedback reassures that the decision has worked well and should be
continued and / or applied elsewhere in similar situations. However, a
negative feedback implies that the decision is ineffective requiring additional
time, effort, resources, etc. The continuous review of decisions helps in
building a feedback mechanism, so that we may learn from them. The review
mechanism sheds light on the weak links in the various steps in decision
making. Accordingly, taking corrective actions to strengthen various steps
involved leads to improvements in the quality of decisions and
institutionalizes the decision-making process.

Types of Decisions
Decisions have been classified by management experts on different
bases. The various types of decisions are:

1. Programmed and Non-Programmed Decisions

Decision making is the cognitive process of selecting a course of action
from among multiple alternatives. A decision is a choice made between two
or more available alternatives. Managers have to vary their approach to
decision making, depending on the particular situation. It is useful to
distinguish between situations that call for programmed decisions and those
that call for non-programmed decisions.
Programmed decisions are those made in accordance with some habit,
rule, or procedure. Every organization has written or unwritten policies that
simplify decision making in recurring situations by limiting or excluding
alternatives. For example, we would not usually have to worry about what to
pay a newly hired employee; organizations generally have an established
salary scale for all positions. Routine procedures exist for dealing with routine
problem. Programmed decisions are used for dealing with complex as well as
with uncomplicated issues. If a problem recurs, and if its component
elements can be defined, predicted, and analyzed, then it may be a situation
for programmed decision making.
To some extent, of course, programmed decisions limit our freedom,
but policies, rules, or procedures by which we make programmed decisions
save the time, thus allowing us to devote attention to other, more important
activities.

11

DECISION MAKING
Non-programmed decisions, on the other hand, are those that deal
with unusual or exceptional problems. If a problem has not come up often
enough to be covered by a policy or procedure, it must be handled by nonprogrammed decision. Such problems as how to allocate an organizations
resources, what to do about a failing product line- in fact, most of the
significant problems a manager will face, usually require non programmed
decisions. As one moves up in the organizational hierarchy, the ability to
make non programmed decisions becomes more important. For this reason,
most management development programs try to improve managers abilities
to make non programmed decisions usually by trying to teach them to
analyze problems systematically and to make logical decisions.
Programmed Decisions
Type of
Problem

Procedure
Example

Frequent, repetitive, routine,

much certainty regarding
cause-and-effect
relationships
Dependence on policies,
rules, and definite
procedures
Salary to a new plant
supervisor

Non-programmed
Decisions
Unstructured, exceptional,
much uncertainty regarding
cause-and-effect relationships
Necessity for creativity,
intuition, creative problem
solving
Diversification into new
products and markets

2. Routine and Strategic Decisions

Routine decisions are made by following certain established rules or
procedures and policies. These decisions do not require fresh information or
knowledge. Routine decisions are taken at middle or lower level of
management, who are responsible for the supervision of actual operations.
Such decisions are repetitive and programmed decisions. Their impact is of
short term duration and affects a limited part of the organization. Due to its
short term impact the authority for making tactical or routine decisions is
delegated to the lower level managers. Drucker says, They are always onedimensional. The situation is given and the requirements are evident. The
only problem is to find out the most economical adaptation of known
resources.
Strategic or basic decisions, on the other hand, are more important
and so they are taken generally by the top management and middle
management and these are related to policy matters. Plant location,
12

DECISION MAKING
selection of distribution channels, decision relating to a new product etc. are
some examples of strategic business decisions. Such decisions influence
organizational structure, working condition, objectives etc. These decisions
require a good deal of deliberation and these are unique and one-time
decisions which involve long-range commitments and huge investments.
They are important because any mistake might become danger for the
concern.
Strategic/ Non-routine
Decisions
Decisions are made by top
management
Have long term implications
For problems which are important
and critical for survival, growth and
development of organization

Routine/ Basic tactical Decisions

Decisions are made by the lower
level managers
Have short-term implications
Concerned with simple, routine and
repetitive problems

Need more managerial judgement

and experience

Need predetermining
procedure, rules and less
management
judgement

3. Policy and Operative Decisions

Policy decisions determine the basic policy of the organization and are
taken up at top-level management. The policies decided at the top become
the basis for operative decisions. No decision may go beyond the policy
framework of the organization. These are important in nature and have long
term impact and the affect whole organization.
Operative decisions are taken by the lower managements in order to
put into action the policy decisions. For by instance, the bonus issue is a
policy matter which is to be decided by the top management, and calculation
of bonus is an operating decision which is taken at the lower levels to
execute the policy decision.

4. Organizational and Personal Decisions

When a person takes a decision in the organization as an executive, it
will be an organizational decision. The power to take organizational decision
can be delegated from the superior to the subordinate.

13

DECISION MAKING
On the other hand, personal decisions are taken by managers in their
individual capacity and not as members of the organization. Personal
decisions are not delegated. It is important to note that the managers may to
some extent be personally involved in any organizational decision they
make.

5. Individual and Group Decisions

In small concerns only the owner takes all-important decisions. Even in
big organizations a person of top management may be allowed to take a
decision about a particular matter. It is known as individual decisions. Group
decisions are taken by group of person, example of this are the board of
directors or a committee. These decisions are taken after thorough
deliberation among people who are assigned this job.
In India, individual decision-making is still very popular because a large
number of business organizations are small and owned by a single individual.
But in joint stock company organization the group decisions are common.
There are some merits and demerits both of each type of business decision.

Decisions under Certainty, Risk and Uncertainty

In deciding how to solve a problem, managers frequently find it useful
to locate the problem from predictable situations to situations extremely
difficult to predict. Three words to describe different positions on this
continuum are: certainty, risk, and uncertainty.
Under conditions of certainty, we know what will happen in the future.
Under risk we know what the probability of each possible outcome is. Under
uncertainty we do not know the probabilities and may be not even the
possible outcomes.
If a decision maker has the accurate, measurable, reliable information
and is in a position to predict the consequences of the action about to be
taken, then he/she is said to operate under a condition of certainty. The
decision maker knows the exact consequences of the action that would be
taken. The future in this case is highly predictable. The linear programming is
an example of a tool for locating an optical solution under certainty.

14

DECISION MAKING
When decision makers can estimate the various outcomes vis-a-vis the
decision taken, and yet are not sure of the ultimate outcome, predictability is
lower, and then it is a condition of risk. In this condition complete information
is unavailable, but we have a good idea of the probability of particular
outcomes. Oil companies, for example, may not know regarding oil
production estimate of a particular well, but in a drilling program involving a
great many wells, good estimates can be made of the number of wells that
will be successful.
In case decision makers have inadequate or insufficient information
about the consequences of their actions then they operate under uncertainty.
Uncertainty is the situation in which decision makers have no idea about the
outcome of their chosen alternative. In this situation the decision maker tries
to identify the relevant structural environments or states of nature or
conditions that may exist in the near future. For example, in marketing a new
product, the decision may depend on whether management anticipates a
period of prosperity, recession, or stagnant.

Approaches in Solving Problems

A business manager can make decisions by intuition, without
considering carefully all the alternatives. Practically, everyone takes
decisions in this way because of the feeling that the particular course is the
best one. This kind of feeling has no logic behind it. Moreover, it is difficult to
explain why one is feeling in a particular way. Psychologists emphasize that
there are forces other than reason within a person which influence and shape
a decision. Decisions based on intuition are subjective and are taken without
any conscious effort to weight the advantages and disadvantages of various
alternatives. On the other hand, if a decision is taken after thorough analysis
and reasoning and weighing the consequences of various alternatives, such
a decision will be called an objective or a rational decision. These are the two
extremes in decision making.
According to D.E. McFarland, Rationality in decision-making implies
that the decision maker tries to maximize the results in a situation by
choosing a best course of action for achieving the optimum solution of a
problem. In the words of George A. Steiner, A rational business decision is
one which effectively and efficiently assure the achievement of aims for
which the means are selected.
15

DECISION MAKING
To actual practice, each person takes a decision which involves a
combination of intuition and rational thinking. Rationality in decision-making
helps executive to choose and evaluate decision alternatives in terms of a
system of values, their own or those of the company, Bertram M. Gross
suggests three dimensions to determine rationality, first-desirability or the
extent to which a given action satisfies human interests; second, feasibility
or the adoption of means to given ends; and third, consistency.

Qualitative Evaluation
It refers to the evaluation of alternatives using intuition and subjective
judgment. Stevenson states that managers tend to use the qualitative
approach when:
1.
2.
3.
4.

The problem is fairly simple.

The problem is familiar.
The costs involved are not great.
Immediate decisions are needed.

Example: A chemical manufacturing plant operates on three shifts with the

following schedule:
First shift: 6:00 a.m. to 2:00 p.m.
Second shift: 2:00 p.m. to 10:00 p.m.
Third shift: 10:00 p.m. to 6:00 a.m.
Each shift consists of 200 workers manning 200 machines. On
November 24, 2015, the operations went smoothly until the operations
manager, a chemical engineer, was notified at 1:00 p.m. that five of the
workers assigned to the second shift could not report for work because of
injuries sustained in a traffic accident while they were on their way to the
factory.
Because of time constraints, the manager made an instant decision on
who among the first shift workers would work overtime to man the five
machines.

Quantitative Evaluation

16

DECISION MAKING
It refers to the evaluation of alternatives using any technique in a
group classified as rational and analytical.

Quantitative Models for Decision Making

Quantitative Decision

The quantitative decision making uses mathematical models to seek

optimal solutions to the problems in the given business situation well
recognizing the constraints imposed by the environment. This approach is
problem oriented and more useful in the case of structured decisions.
It is suitable in decision situations where most of the important factors
are controllable to a reasonable extent and the manager has complete
control over the decision making. Such decision situations are more common
in case of operational decisions.
The following are quantitative techniques which may be useful in decision
making:
A. INVENTORY MODEL
Inventory refers to idle goods or materials that are held by an organization
for use sometime in the future. While inventory serves an important and
essential role, the expense associated with financing and maintaining
inventories is a substantial part of the cost of doing business.
Two important questions that must be answered in order to effectively
manage inventories are as follows:
1. How much should be ordered when the inventory for an item is
replenished?
2. When should the inventory be replenished?
Inventory Models consist of several types, all designed to help the engineer
manager make decisions regarding inventory. They are as follows:
A.1 Economic Order Quantity Model (EOQ)

17

DECISION MAKING
This one is used to calculate the number of items that should be ordered at
one time to minimize the total yearly cost of placing orders and carrying the
items in inventory.

Total cost =Order Cost + Holding Cost

Total cost = SD/Q + HQ/2
WHERE :
D - annual demand
Q - order quantity
S - cost of placing order
H - annual per-unit holding cost

A.2 Production Order Quantity Model (POQ)

This is an economic order quantity technique applied to production orders.

18

DECISION MAKING

A.3 Quantity Discount Model

This is an inventory model used to minimize the total cost when quantity
discounts are offered by suppliers. A quantity discount is often offered by
sellers to entice buyers to purchase in larger quantities. The seller is able to
move more goods or materials, and the buyer receives a more favorable
price for the goods.

B. QUEUING THEORY
The one that describes how to determine the number of service units
that will minimize both customer waiting time and cost of service. Queuing
theory is applicable to companies where waiting lines are common situation.
Queuing theory is generally considered a branch of operations research
because the results are often used when making business decisions about
the resources needed to provide a service.
19

DECISION MAKING

There are a number of measure that can help a manager to balance

the capacity and waiting costs:

Average time in the queue

Average length in the queue
Average customer in the system
Number of customers in the queue
Probability of system being used

Examples of Queuing System:

Commercial Queuing System : Commercial organizations serving

external customers
Transportation Serving System: Vehicles are customers or services
Business Internal service system

C. FORECASTING
"The collection of past and current information to make predictions about
the future"
Forecasting plays a major role in decision
making because forecasts are useful in
improving the efficiency of the decisionmaking process. Businessmen use various
qualitative
and
quantitative
demand
forecasting techniques to predict future
demand for products and accordingly take
business decisions.
Businessmen can understand the
changes taking place in the economy in a

20

DECISION MAKING
better fashion by undertaking economic forecasting. Risk and uncertainty are
the two major components of the business decision-making process.
Risk is a condition where the businessman can measure the possible
outcomes and losses arising from a certain decision. However, uncertainty
arises when the risk involved in decision-making cannot be calculated by
businessmen.
D. REGRESSION ANALYSIS
A popular technique among economists and
statisticians, regression analysis uses complex
statistical equations to estimate the impact of
one or more factors, known as predictors or
independent variables, on an outcome of
interest, known as a dependent variable.
Economists have used regression analysis to
estimate the effect of education and experience
on workers' annual earnings.
A company manager or business economist could use regression
analysis to estimate the effect of advertising expenses on the company's
profits. Analysis of the data using this technique can estimate whether a
correlation exists between the two and whether that relationship is
statistically significant.
E. SIMULATION
Simulation is a broad term indicating
any type of activity that attempts to
imitate an existing system or situation in a
simplified manner. Simulation is basically
model building, in which the simulator is
trying to gain understanding by replicating
something and then manipulating it by
adjusting the variables used to build the
model.
Simulations have great potential in
decision making. In the basic decisionmaking steps, one is the evaluation of
alternatives. If a manager could simulate alternatives and predict their

21

DECISION MAKING
outcomes at this point in the decision process, he or she would eliminate
much of the guesswork from decision making.
F. LINEAR PROGRAMMING
All businesses face limited resources, including facility space,
production equipment, supplies and labor. This makes optimal allocation of
these resources a challenge for any manager.
Linear programming, a popular technique in operations research and
management analysis, is a mathematical method for determining how to
achieve an optimal outcome, such as highest profits or lowest operating
costs, subject to certain constraints, such as limited labor and supplies.
Operations researchers and analysts in manufacturing and transportation
have used linear programming to analyze and resolve problems related to
planning, scheduling and distribution.
G. PAYBACK ANALYSIS
Payback analysis comes in handy
if a manager needs to decide whether to
purchase a piece of equipment. Say, for
exam ple, that a manager is purchasing
cars for a rental car company. Although
a lessexpensive car may take less time
to pay off, some clients may want more
luxurious models. To decide which cars
to purchase, a manager should consider
some factors, such as the expected useful life of the car, its warranty and
repair record, its cost of insurance, and, of course, the rental demand for the
car. Based on the information gathered, a manager can then rank
alternatives based on the cost of each car. A higherpriced car may be more
appropriate because of its longer life and customer rental demand. The
strategy, of course, is for the manager to choose the alternative that has the
quickest payback of the initial cost.
Many individuals use payback analysis when they decide whether they
should continue their education. They determine how much courses will cost,
how much salary they will earn as a result of each course completed and
perhaps, degree earned, and how long it will take to recoup the investment.
If the benefits outweigh the costs, the payback is worthwhile.
22

DECISION MAKING

H.DECISION TREE
A decision tree shows a
complete picture of a potential decision
and allows a manager to graph
alternative decision paths. Decision
trees are a useful way to analyze
hiring,
marketing,
investments,
equipment purchases, pricing, and
similar decisions that involve a
progression
of
smaller
decisions.
Generally, decision trees are used to
evaluate decisions under conditions of
risk.
The term decision tree comes from the graphic appearance of the
technique that starts with the initial decision shown as the base. The various
alternatives, based upon possible future environmental conditions, and the
payoffs associated with each of the decisions branch from the trunk.
Decision trees force a manager to be explicit in analyzing conditions
associated with future decisions and in determining the outcome of different
alternatives. The decision tree is a flexible method. It can be used for many
situations in which emphasis can be placed on sequential decisions, the
probability of various conditions, or the highlighting of alternatives

23

DECISION MAKING

Management Case Study #1: Computers Into Thin Air

by Steven Cerri

In this article Im going to analyze one technical management case. In this

case study Ill set up the initial conditions and then tell you what I did and how it
turned out. These are real world cases. These situations happened to me. Ive
changed the names.
Initial Conditions: I was the general manager of a corporate division office. Our
company developed large software systems. I had four program managers reporting
to me, each with a program worth between $3 and $5 million. Bob was one of those
program managers.
I arrived at work one Monday morning at 8:00 am. By 8:01am every member
of the finance department was lined up outside my office complaining that someone
had stolen all their PCs right off their desks.
The first question I asked was, Had we been robbed? By 8:15am we knew
the answer. No robbery had occurred. The PCs werent taken from the building, they
had just been moved. All the PCs from the finance department had been found on
the desks of Bobs engineering team. Bobs team was made up of 15 system
analysts and programmers working on a 2-year program worth about $3.5 million.
I instructed the financial staff to leave the computers on the engineers desks
for now, until we could figure out exactly what happened. The financial staff was
understandably ready to tar and feather Bob, while my job was to keep everybody
calm. Without any real information, my goal was to make sure everybody remained
calm and didnt come to their own conclusions.
By 8:30am Bob had arrived at the office, but none of his team had yet
arrived. When Bob arrived I asked to see him in my office alone. What the heck
happened, Bob? I didnt yell it out, I just said it with emphasis on the word What.
Bob calmly explained that his team had committed to the customer that a
specific deliverable would be in the customers hands by Monday morning. The
team decided the only way to get it done was to work through the weekend. By
Saturday afternoon they realized they were not going to get it done unless they had
24

DECISION MAKING
more computing power. So they took the computers off the desks of the finance
department. They worked through Sunday and late into Sunday night and got the
product delivered to the customer on time, Monday morning. When they left Sunday
evening they were just too tired to put the PCs back on the desks of the financial
staff. So Monday morning when the financial staff arrived they found no messages,
no thank-you notes, no explanations, and no computers.
Bobs team had worked hard, and had delivered the product to the customer
on time. The financial staff was upset but the customer was happy.
There you have the case. What would you do? Would you chastise Bob for not
anticipating the problem and tell him he should have foreseen the problem? Would
you praise him for getting the product to the customer on time regardless of the
consequences to the staff?
Would you tell the financial staff to just forget about it, or get over it?
Would you stay out of it and let Bob and his team and the financial department
solve their own issue to get past this? Would you get in the middle of this situation
or stay out? What would you have told Bob? What would you have told the financial
team?

My Response:
Now I had several choices. Bob was in charge of a very important program
with a very important customer. Bob was also what I called a race horse. He was a
relatively independent employee. I could point Bob in a direction, give him minimal
direction and get out of his way. I could be confident that he would get the job done.
He had relatively good judgment. I didnt want to do anything that would reduce his
drive or independence. I often gave him freedom to exercise his judgment.
If I disciplined Bob severely, I would be sending him mixed signals. He would
get the impression that sometimes I would give him a great deal of independence.
He would also get the message that sometimes, if he did something I didnt approve
of, I would reprimand him. Which message did I want to send? It was important from
my point of view to give Bob a consistent set of signals and clear direction.
On the other hand, the members of the finance department were upset. I had
to respect their feelings and their sense of ownership as well. Could I find a middle
ground that would provide a positive outcome for both Bob and the finance
department?
This is the dilemma that managers often face and this is also why
management seldom has a right answer. As engineers and scientists we often
look for the right answers to problems. However, as managers, a right answer often
doesnt exist. Often there are effective answers and usually several of them. The
25

DECISION MAKING
best approach for me in this situation was to find a win-win for both parties as
opposed to a win-lose. There was no right answer. There were only more or less
effective answers.
Now that Ive set the stage for you, before I tell you exactly what I did, I want
to make certain you understand my motivations. I had specific outcomes that I
wanted to achieve and they were as follows:
1. I wanted Bob to continue feeling that he could exercise his judgment and that
I would support him.
2. I wanted to make sure that Bob and his team understood that satisfying the
customer was their number one priority.
3. I wanted to make certain that Bob and his team understood that honoring
their commitments to the customer was one piece of evidence of their
number one priority.
4. I wanted the finance department to feel I respected what they did and that I
respected their territory as well.
5. I wanted the finance department to feel part of the commitment to Bobs
customer as well.
6. I wanted Bob to make amends or to apologize in some fashion to the
finance department.
7. I wanted to give Bob some guidance about how to handle this kind of
situation in the future if it ever came up again.
As you can see, this list has some potentially contradictory aspects to it. My goal
was to determine how to achieve all seven outcomes.

My decision was to do the following two steps:

Step #1:
I took Bob into a spare office, (i.e., neutral ground) closed the door and asked
Bob exactly what he was thinking and what he had done. I then told him that I was
torn regarding my response.
I wanted to train Bob to be a manager so I let him understand what I was
going through. I told that I didnt like his action, but I did approve of his intention. I
indicated that I would not want to tell him not to do it again because I was pleased
that he did what it took to get the product to the customer on time. But we had to
figure out a way to do it more effectively if the circumstances ever warranted such
behavior in the future. He agreed.
I asked Bob what he would do differently now that he had the benefit of
hindsight.

26

DECISION MAKING
He indicated that he would probably have called someone and told them he
was going to take the computers. I responded that it might be difficult to get
someone on the phone and if he couldnt reach someone on the phone what would
be his fall back position? He indicated that he didnt know what he could do in that
case.
I told him that he could have taken a whole host of actions:
First: He could have called someone in the finance department to tell them what he
was doing (his idea).
Second: He could have called me.
Third: He could have returned the computers back to the desks of each of the
finance members before Monday morning
Fourth: He could have written a note to each person whose computer had been
taken explaining what had happened
After discussing these four choices, it was clear that the only available action
left for Bob was to apologize to each of the people whose computers had been
taken. Bob agreed.
I ended my meeting with Bob by telling him that I really appreciated his
actions toward getting the product to the customer on time. I told him that I wanted
him to continue taking that kind of initiative. I also told him that in the future, I
wanted him to think carefully about how his actions might impact others and to take
actions to minimize that impact. He agreed.
Now that Bob and I had had our discussion and I knew that Bob would be
apologizing to each of the members of the finance department, my next step was to
talk to the finance department.

Step #2:
I quickly set up a meeting with the finance department. My goal was for them
to feel respected and at the same time, support the actions Bob and his team had
taken.
I gathered the finance department members in our conference room. I began
by telling the members of the finance department about my meeting with Bob. I
told them exactly what my thoughts were and exactly what I said to Bob and what
he said in return.
There was no reason to keep my discussion with Bob secret. This was not a
confidential negotiation. And, by telling the finance department what I had said to
27

DECISION MAKING
Bob I was also telling them indirectly what I valued and what my boundaries were in
this situation. By doing this I was letting them know how I would have wanted Bob
to behave. I was telling them what I expected acceptable behavior to be for Bob. If
they were going to demand a different standard from Bob than what I expected,
they were going to have to explain it and defend it.
If I wanted them to support Bob and at the same time feel respected, then
why wouldnt I tell them that, straight up. By doing this I am achieving two
outcomes at once. First Im telling them that I respect them and second, Im telling
them that I want them to respect Bob as well.
By the time I got to the point where I told them that Bob would be apologizing
to each of them, they all felt that the apology would be sufficient. They all agreed
that it was important for Bob and his team to satisfy the customer and to deliver on
our commitments. But they also wanted Bob to remember to take a slightly different
approach in the future.
By the time the meeting was over they had a great attitude. They all agreed
that it was important for Bob and his team to deliver the product to the customer as
promised. No problem.
They also felt that Bob had not done everything he could have done to make
the removal of the PCs as painless as possible to the finance department members.
Therefore, they were going to hold Bobs feet to the fire and make him deliver the
apology which they would graciously accept. And that would be the end of it.
By the end of the day, Bob had returned the PCs to the finance department,
Bob had apologized to each of the finance department members (individually) and it
was as if the event never took place.

28

DECISION MAKING

Moving decision making down the line

A British Steel case study

Introduction
Today, we have moved well beyond the time
when decisions were made at the top of an
organization and then passed down the line to
ground
floor
operatives.
In
modern
organizations, important decisions need to be
made by individual employees who are directly
involved in production processes and interact
face-to-face
with
customers.
The
term
associated with this change is empowerment.
Many modern employees are empowered to think things through for
themselves and take the appropriate actions. This involves a higher level of
trust in employees - that they will make the right decisions. However, to
ensure that employees are able to take on the new responsibilities
associated with empowerment, it is essential that they are given the
necessary training for their enhanced duties. This case study focuses on
methods used by a leading UK company to move decision making down the
line. It examines how British Steel Strip Products, Integrated Works at
Llanwern, engaged in a training programme based on empowerment,
resulting in the company winning the National Training Award in 1995.

The Llanwern Works

Llanwern Works is a fully integrated steelmaking plant and a principal

unit within British Steels Strip Products business. It was constructed on a
greenfield site near Newport, Gwent. The plant has a liquid steel capacity of
three million tonnes per year, which is processed into hot and cold rolled
strip steel (including zinc alloy coated strip) to precise tolerances in both coil
and sheet form.
29

DECISION MAKING

Recently, organisational restructuring at Llanwern has fully combined

the Works with its sister plant, Port Talbot, to become a responsive single
operating unit (Integrated Works), employing 7,500 people and capable of
producing just over six million tonnes of steel per year.

Business environment

Llanwerns traditional products are supplied to

blue chip customers in the automotive, consumer
durables
and
construction
industries.
All
operational activities within the plant are driven
by the demanding standards of product quality
and service required by these customers. This is
achieved within an established Total Quality
Performance (TQP) culture. TQP refers to the
approach used by British Steel in order to improve its performance on a
systematic and continuous basis. It allows the entire organisation to focus on
the needs of the customer.

Nowadays, there is intense competition in the market place - worldwide, there is a considerable overcapacity for steel strip products i.e. too
many producers making more products than the market currently demands.
In order to survive and prosper, it is essential to beat the competition. Senior
managers at British Steel recognised the best way forward was to improve
manufacturing performance and increase output per head. This could only be
achieved by having a highly skilled, fully flexible and committed workforce.

Staying ahead of the field

30

DECISION MAKING
Due to intense international competition, British Steel Strip Products
recognised the urgent need for a rigorous training programme, geared
towards improving manufacturing performance, productivity and creating a
skilled, flexible and committed staff. The Works adopted an all-embracing
approach and training was extended across the breadth of the Cold Mill
workforce from admiral to cabin boy.

Improved performance
In 1993, the quality of cold mill steel was
causing some commercial concerns. Significant
increases in surface quality required for steel
used in car body panels came from the
automotive sector - mainly from Japanese car
companies with production units in the UK. At the
same time, the Works TQP philosophy was
taking root and senior management was anxious that the principle of TQP
should be reflected within a more participative style of management. Studies
also revealed standards had fallen below those of some of British Steels
main competitors. Many employees believed that the only way to improve
quality was to lower the volume of production. They did not realize that both
quality and output could be raised simultaneously.
Managers chose to overcome these deficiencies by drastically
improving the product quality performance of the mill through the increased
personal competence, attitude and involvement of the workforce.
Management set out to change attitudes and improve employees skills by
focusing on three overriding objectives:
1. To ensure product, process strategy and performance was totally
focused on meeting the customers definition of quality.
2. To achieve a transformation in the cold mill workforces (including
management) perception of quality effort on volume.
3. To unleash the full potential of production operatives by providing the
necessary culture and skills for a more participative style of decision
making within the operation.
Key objectives
In creating the training programme, two objectives had to be met:

31

DECISION MAKING
1. Increase operators product/process knowledge, problem-solving and
decision making skills. Operative competency was traditionally based
on technical skills. It did not include the problem solving/decision
making skills and product/process knowledge which would reduce time
spent by operatives referring to management for help.
2. To improve management style and expertise, thus making the
programme effective. The new empowerment based approach could
only be effective if it was fully understood and supported by all
managers.

The Cold Mills Development Programme (CMDP) was designed and

launched. Llanwern selected nine Lead Unit Trainers on the basis of job
knowledge,
communication
skills,
selfconfidence/
assertiveness,
perseverance and a sense of humour. There were a number of steps involved
in training design.

Step 1: Developing a Cold Mill operator profile:

Analysis of job demands. This consisted of a questioning approach studying operator jobs and interviewing shift managers, supervisors and
senior operators. It enabled unit trainers to gauge key demands,
competencies and behaviours which, although not directly trained for in the
past, nevertheless differentiated very good operators from those working to
a demonstrably lower standard.
Identification of competencies using psychometric assessment. After
job analysis, a further study was carried out on two distinct groups of current
operators - one of perceived high level performers and one of lower
performers. This provided an overview of the typical skills, abilities,
behaviour attitudes and personality characteristics which separated the high
performers from the under performers. The analysis generated an ideal
operator profile, allowing management to focus on the characteristics of an
ideal employee.
32

DECISION MAKING
The aim was to encourage existing employees to recognise the right
characteristics, as well as using the profile for recruiting new employees. The
profiles concentrated on job specifications (objectives, duties and
responsibilities, job skills requirements) and personal specifications (physical
characteristics, social factors, abilities and personal qualities). In general
terms, more successful operators had developed an understanding and
familiarity with customer specification, the product/process and end-use and
were more sociable, stable and intellectually effective.

Step 2 - Competence matrix development

The
nine
Lead
trainers
were
introduced to the programme during a
three day workshop, which enabled
them to write comprehensive training
manuals. Unit trainers then produced
competency
matrices
(detailed
outlines
of
the
competencies
individual employees would need) for each production unit within the
department, based on the traditional method of assessing newly identified
skills to pre-defined standards. The required level of job skill and knowledge
was indicated for each competence. Manuals were rigorously checked,
amended and finally approved by management, to ensure that training
design was appropriate to the changes that were being introduced.

Step 3 Supportive management development skills programme

The next important stage involved training the managers to support the new
initiatives. Managers needed to develop:
33

DECISION MAKING

the managerial skills to support the benefits of shopfloor training; team

building, delegation and co-ordination, setting objectives and evaluating
performance
an understanding of the complementary relationship between training
for personal empowerment and TQP/team building
a culture (i.e. way of doing things in the organisation) in which the
central importance of customer/commercial considerations was of overriding
importance
state-of-the-art knowledge of current cold mill technology.
Having established the nature, purpose and procedures for the delivery of
the training, it was then possible to implement the training programme.
Training manuals were used to assess all operators individually, to identify
competency shortfalls and consequent training needs. Managers and
supervisors followed a series of modules to develop their understanding of
production management, supply chain management, process and product
technology. They also visited major customers and took part in competitive
edge workshops.

Training
The programme was introduced to the
Llanwern Cold Mill in August 1993. Briefing
sessions were used to present the concept,
objectives and practical aspects of operator
training to all managers and supervisors.
Senior departmental management ensured
that the importance of the training
programme was appreciated by all members
of the department and given the appropriate priority. Manuals were used to
assess all operators within the units concerned and, in total, 342 operators
were assessed between August and October 1993.

Following assessment, unit trainers agreed a priority training

programme with management and detailed training started in October 1993.
Junior operators were trained for promotion, releasing senior operators for
34

DECISION MAKING
extensive high level training. Competence training was carried out on an
individual basis with classroom training prior to on-the-job training. A series
of detailed tests was used to check whether the required standards had been
met. All 105 managers/supervisors were fully briefed on organisational
objectives prior to the start of the formal training. Training was then
delivered in two distinct parts:

Part 1
This consisted of a series of lectures by steel industry experts at the
companys residential management college, Ashorne Hill. Five modules were
covered over a 12 month period:

Process management module - developed an understanding of the key

elements of cold mill production management and its commercial
importance. World best performance was also reviewed.
Cold Mills technical module - examined, in depth, cold mills
technology, process and products.
Supply chain management - logistics, partnerships and alliances
(internal and external) were reviewed.
Nissan visits - two day visits to Nissan (Sunderland) to study the
perceptions and concerns of a major customer.
Competitive edge workshop - addressed key concerns such as low
yield, cost control and preparing performance improvement plans (following
customer visits).

Part 2
Individual assessments carried out by senior works management and
based on British Steels Core Management Competencies and Production
Training Standards highlighted development needs for individual managers
to be tackled through personal action plans.
Innovative and more effective alternatives to traditional course based
training were sought; individual and team projects, foreign visits focusing on
set topics and European steel plant exchanges with the results presented by
35

DECISION MAKING
individuals to senior plant management. In all cases, managers performance
continues to be appraised formally on an annual basis with appropriate
actions developed as required.
The Results

The results of the training programme at Llanwern justified the

importance attached by management to this initiative. Managers have
shown an improved management profile, self-esteem and effectiveness,
trainers are better motivated and feel that they own the design and
delivery of the programme and operators have greater problem-solving skills,
confidence and motivation.

Fantastic savings resulted. Sheet rejections were reduced from 40

tonnes in 1992 to 10 tonnes in 1995. Line availability improved from 66.5%
in 1992/93, to 77.9% in 1994/95. In 1994/95, there was an overall yield
saving of 2.4 million. The Continuous Rolling Mill achieved an outstanding
record of 31,475 tonnes per week in April 1995 compared to 17,981 in 1992.
The value of training cannot be demonstrated better!

Conclusion

The British Steel case study provides an object lesson for modern
organisations faced with a competitive business environment. In order to be
the best, you have to beat the best. This involves leading organisations
setting themselves standards to beat their previous best. Today, it is
essential that all members of an organisation realise their potential, both for
their own personal fulfilment and also to enable the organisation they work
for to function efficiently. British Steel recognised the need to trust its
employees, allowing them to make important decisions related to their own
specialities and work competencies. However, in order to help employees
take on this trust and responsibility, they needed the skills and expertise to
become better decision makers. To complement these changes, it was also
36

DECISION MAKING
necessary to change the attitude and approach
of management so that new managers would
become facilitators of the empowerment
process. Managers also needed detailed
training to adopt these new styles of
management. A key part of the process was
allowing experienced trainers to take ownership
of and to develop the new training course
themselves - i.e. empowering the trainers. The process has been a
resounding success.

Reference:
http://businesscasestudies.co.uk/british-steel/moving-decisionmaking-down-the-line/conclusion.html#axzz3xUXqelU0

Staying ahead by meeting changing consumer needs

A Heinz case study
Introduction
Consumers buying habits reflect their
personality, income, age, lifestyle and
aspirations. What people want to buy changes
over the years. Many consumers constantly
seek out new products that meet their
changing needs more closely. This is
particularly true whenever consumers pursue
the pleasures of food.
To grow their business profitably, companies must constantly review
their product portfolio. Marketeers and product developers must use their
understanding of consumer behaviour to satisfy changing consumer needs.
This is true even for industrial giants with brands that are household names.
Heinz has a series of icon products that are brand leaders and with which the
company is closely associated like salad cream, baked beans, tomato
ketchup. However, Heinz knows that it cannot afford to rely simply on the
existing strength of these icon products, so the company has created an
innovative culture focused upon consumer needs in order to encourage the
development of new ideas.

37

DECISION MAKING
This case study shows how the popularity of Heinz core icon products
has been maintained and enhanced, by developing aspects of the product or
brand, to keep them relevant and satisfying for modern consumers. It also
covers innovations introduced by Heinz in order to stay ahead of the
competition and bring new consumers to the Heinz brand.
Heinz
Heinz began in the USA, with an American boy, barely one third of a
hectare of land, and a horse and cart. Henry J Heinz was an industrious
young lad who helped his father in his Pittsburgh brickyard. Grateful for his
support, his parents gave him a small garden of his own when he was ten. He
soon began to sell the vegetables he grew and by the age of 15 he took the
first step into convenience foods. By bottling horseradish in clear glass jars
Henry Heinz was clearly different to other manufacturers who bottled their
goods in coloured glass jars to hide the cheap fillers used to add to the
ingredients. This was the first move to meeting consumers needs and
underpinning Heinz values of offering quality products.
Today, Heinz is one of the worlds major global companies operating in
some 200 countries, offering more than 5,700 product varieties, with No 1
and No 2 branded businesses in more than 50 world-wide markets.
The Product MIx
The product mix is the complete range of
products produced by a company. When managing a
large range of products serving several markets, firms
must develop ways of analysing the performance of
these products.
Changes in consumer tastes mean that even
though products such as Heinz Tomato Ketchup have
staying power, there is always a demand for new
products.
Refreshing
existing
concepts
through
innovation extends the way in which products are used
and consumed.
Firms need to use their knowledge of their market to: identify gaps and
trends in existing and new markets develop creative ideas.
Gap filling products include innovative product extensions that match
changing consumer needs. For example, many companies offer an optional
organic product or range which co-exist alongside their mainstream lines.
Heinz products are sold within fast-moving consumer goods markets. Today
these markets are characterised by:
intense competitive activity
innovative and creative products
38

DECISION MAKING

rapidly changing markets reflecting different lifestyle/expectations.

For example, within these markets, many of todays consumers do not
want to spend time cooking. They want: products that are convenient that
can be effortlessly cooked a broader range of product options with more
choices to meet their needs, tastes and lifestyles convenient packaging that
enables products to be eaten direct from the microwave products that do not
create any washing up products that can be eaten on the move.
Over and above these generic qualities, many consumers want the
reassurance that comes from superior quality associated with a brand
heritage. Heinz is well placed to meet this requirement.
New product development
Heinz 7 Image 1New product development (NPD) is
a sequential process of finding ideas for new goods,
turning those ideas into commercially viable additions,
replacements or extensions to existing product lines.
Heinz knows that the innovation process depends on
generating a stream of new ideas. These can come from
various sources, such as, from consumer feedback,
employees, in-house brainstorming sessions and market
research. By encouraging these new ideas, Heinz can
also focus on those which meet consumers needs and are practical for the
market place.
Microwaveable packaging
The key functions of any pack are to provide the consumer with a
functional concept that protect its contents in transit, storage and use. These
requirements play an important part in determining the shape and size of the
packaging and also the materials used.
Packaging:
attracts potential consumers
communicates information
creatively identifies and unifies products as part of a range or
brand, eg Heinz Tomato Ketchup.
Heinz is accustomed to using new technologies to keep its products in
line with changing consumer needs, such as ring pulls on cans or plastic and
foil packaging. Consumer buying habits reveal that they want foods that can
be cooked conveniently and quickly. Through its microwaveable formats,
Heinz is using packaging to add value to its existing product portfolio in a
way that has enabled the company to meet a whole new range of consumer
requirements. For example:
39

DECISION MAKING

Heinz Microwaveable Pasta Meals are the first instant microwaveable pot
snack made with real and not Heinz 7 Image 6dehydrated pasta. Heinz
Microwaveable Pasta Meals are aimed particularly at busy working women
who are on the go and looking for a satisfying, quick meal that is
convenient and healthy. The meals come in four flavours to suit all tastes.
Heinz Baked Beans have come out of the can and
into a microwaveable pot too. Over 90% of people
have access to a microwave at work, and the
number of households owning microwaves has
increased by 50% in the last ten years. Not
surprisingly, product development is concentrating
on convenience and speed without loss of taste or
quality.
Heinz offers a range of microwaveable soups. The
new packaging covers favourites such as Cream of
Tomato and Cream of Mushroom. The soups can be heated in two minutes
and eaten directly and conveniently from the microwaveable bowl.
Heinz Sponge Puddings are also available in a microwaveable format.
They provide quality, pleasure and convenience at home and at work,
meeting modern consumer needs for quick luxury treats.
Organic products
Heinz recently changed the dynamics of the
market for organic foods. When it launched its first
organic range of baby food, Heinz addressed the
concerns of many parents. The initial range of 12
products heralded the first arrival of a major brand into
the organic sector, providing a wider choice of baby
food. Heinz has also launched organic versions of some
of its icon brands, including Tomato Ketchup, Baked
Beans, Spaghetti and Soup.
Heinz soups are available in an organic option in response to rising
consumer demand; sales of organic soup grew fourfold in twelve months
during 2000 and 2001. Two recipes on offer are Heinz Organic Cream of
Tomato and Heinz Organic Garden Vegetable.
The company is also introducing organic babyfoods under a new
concept: Simply. Heinz Simply Fruit and Vegetable products offer simple
blends of organic fruit and organic vegetable pures in transparent plastic
pots. They are aimed principally at mothers who, until now, have been
reluctant to buy prepared baby food, preferring to make their own.
40

DECISION MAKING
New flavours and ranges
Heinz is constantly developing new product ranges, extensions,
flavours and varieties to meet changing consumer needs. Heinz has a new
range of canned tomato products and has also launched a new condiment
sauce collection. These look to expand the existing markets and provide
consumers with a familiar brand noted for value and quality.
New partnerships
Successful firms are always looking for creative partnerships that offer
benefits to all parties. Heinz recently joined forces with Walkers to create a
new and unique flavoured crisp: Heinz Tomato Ketchup flavour. This type of
innovation brings together two well-known brands, enabling a food
manufacturer like Heinz to extend out of its traditional markets.
New promotions
To serve fast-moving consumer
goods markets within an everincreasing
fragmented
media
environment, firms need to set up a
mix of communication routes that
have the ability to reach specific
target audiences.
For example, as a core icon product Heinz Salad Cream became
relevant to a whole new generation of consumers following its relaunch in
March 2000. A range of quirky 30-second TV commercials was created in
spring 2001 to support Heinz Salad Cream, in which Heinz is depicted as the
gold standard in salad creams in a humorous and memorable way "There is
only one salad cream worth tasting and thats Heinz Salad Cream Vintage
1914!"
A new web-site has also been created to complement the brand repositioning as well as the TV advertisements thus providing a mix of
communication routes, which complement the brand message.
Conclusion
Through new ideas, constant innovation and
development of its core icon brands, Heinz is able to stay
at the forefront of its markets. By responding to the
changing needs of consumers, Heinz has achieved a high
level of consumer satisfaction. Heinz continues to enjoy
the benefits of:
high levels of brand awareness and customer loyalty
an enlarge d customer base with a constant demand for products
41

DECISION MAKING

high levels of customer confidence, which encourages support of new

and existing Heinz products even when faced with new offerings from
rival producers.

References
Medina, R. Engineering Management. pp. 20-42
Retrieved
from
Reference:
http://businesscasestudies.co.uk/britishsteel/moving-decision-making-down-theline/conclusion.html#axzz3xUXqelU0
Retrieved
from
http://businesscasestudies.co.uk/heinz/staying-ahead-bymeeting-changing-consumer-needs/the-product-mix.html#axzz3xUXqelU0

42