Chapter 7 Tutorial: Decision Making

Tutorial by: Israa Abdulla

Topics

• Decision Making Process (DMP)

• Steps
• Explanation
• Implementation

• K-Mart Case Study

What is Decision Making Process (DMP)?
 What is Decision Making Process (DMP)?

Gather Information
needed (define the
threat or opportunity)
New Business Six Months Later - Decision
FAIL

Action

Action

Feedback Implement Choose one Assess Generating Alternatives

Alternatives
What is Decision Making Process (DMP)?
Step 3: Assess Alternatives

Criteria’s:

1.Legal: no law violation.

2.Ethical: no harm to stakeholders.

3.Economic Feasibility: cost benefit

analysis.

4.Practical: capabilities + resources

+ no threat to organizational goal.
General Criteria for step 3: Assessing Alternatives

Successful managers use four criteria to evaluate the pros and cons of alternative courses of
action. Often, a manager must consider these four criteria simultaneously. Some of the worst
managerial decisions can be traced to poor assessment of the alternatives.
• Legality: Managers must ensure that a possible course of action is legal.

• Ethicalness: Managers must ensure that a possible course of action is ethical and that
it will not unnecessarily harm any stakeholder group.
• Economic feasibility: Managers must decide whether, given the organization’s
performance goals, the alternatives can be accomplished without causing harm to other
goals of the organization.
• Practicality: Managers must decide whether they have the capabilities and resources
required to implement the alternative.
K-Mart Case Study
K-Mart is a company that sells shoes and has two divisions,
specialty store and a discount store. The former (specialty store) ,
specializes in high quality shoes while the later (discount store) is
in lower quality shoes. Sales were declining, the share prices of
the company were decreasing, and it suffered from losses for
three consecutive years.
The company was losing and was facing a possibility of
bankruptcy. The company needed to take a decision regarding
the future of the company. If K-Mart decided to continue, then it
needs an injection of fund of about $8 million to recover. The
current value of the total company is $13m.
Kmart saw its primary options as (1) borrowing $10m from a bank;
(2) selling off its discount operations and concentrating on
specialty retailing; (3) selling off its specialty store businesses to
raise cash, or (4) selling the whole company.
The options were evaluated according to four dimensions
simultaneously. These are legal, ethical, economic feasibility and
practicality. In evaluating the alternatives, the following facts were
taken into consideration:
1.All options are allowed by law.
2. Banks and financial institutions were unwilling to lend the $10 m
due to the weak financial position of the company.
3. There are four interested buyers who are willing to pay a
maximum of $4m for the Discount Store Division. This would
reduce the wealth of the shareholders as the market value of
this division is $5 m.
4. There is one interested buyer for the specialty store who is
willing to pay the market value of this division, a $8m. Projection
of future demand of quality shoes indicates a sharp decline as
customers are increasingly interested in discount shoes.
Therefore, shareholders are willing to sell this division. The new
buyer has agreed that the current specialty store employees will
all be part of the workforce of his new company.
5. There is one interested buyer who is willing to pay $12 m for
the whole company. The stockholders are not willing to sell the
company as they are planning to remain a major player in the
shoe market.
After choosing the most appropriate decision, the company
implemented it by taking the necessary steps to sell and to use
the proceeds in its’ recovery plan. The share price increased by
20% three months after the implementation plan. Sales increased
and the company made a profit for the first quarter of the year.
 K-Mart Case Study – Answer Analysis
1- Recognise 2- Generate 3- Assess Alternatives 4- Choose 5-Implemtn 6- Learn
the need for a Alternatives Economic
among the chosen from
Legal Ethical Practical
decision and Feasibility Alternatives Alternative Feedback
define the Law and Morality of Is it possible?
situation Regulations the What are Can it be
alternative the implemented?
Does it financial What are the
harm any Costs and consequences
stakeholder Benefits? of
s group? implementatio
n?
 K-Mart Case Study – Answer Analysis
1- Recognise 2- Generate 3- Assess Alternatives 4- Choose 5-Implemtn 6- Learn
the need for a Alternatives Economic
among the chosen from
Legal Ethical Practical
decision and Feasibility Alternatives Alternative Feedback
define the Law and Morality of Is it possible?
situation Regulations the What are Can it be
alternative the implemented?
Does it financial What are the
harm any Costs and consequences
stakeholder Benefits? of
s group? implementatio
n?
Recognize Borrowing Yes Yes Yes No Sold The -The share
-Sales declining, - $10m from a price
Share prices bank Speciality company increased by
decreasing Store implement 20% three
-Suffered from Sell off Yes No No No ed it by months after
losses for three Discount the
consecutive years. operation taking the implementati
-The company was necessary on plan.
Sell off Yes Yes Yes Yes
facing a possibility of steps to
specialty
bankruptcy. -Sales
Define
retailing sell and to increased and
The company use the the company
needed to take a proceeds in made a profit
decision regarding Sell off the Yes No No No for the first
the future of the whole company its’ quarter of the
company. recovery year.
plan
SWOT Analysis
Additional Exercises
Specify the step in each of the following explanations

Step Explanation

What are the advantages and disadvantages of each alternative?

Managers should specify criteria, then evaluate.
Legal, ethical, economical then practical Criteria.
Compare what happened to what was expected to happen
Explore why any expectations for the decision were not met
Derive guidelines that will help in future decision making
Managers must develop alternative courses of action
Managers must realize that a decision must be made by reading different
indicators that act as an alarm (e.g., reduction in share prices, reduction
in number of customers, increasing number of customers complaints)
Sparked by events (stimuli) such as environment changes.

Managers must now carry out the chosen alternative – the decision.

Rank the various alternatives and make a decision.

Specify the step in each of the following explanations

Step Explanation

3. Assess What are the advantages and disadvantages of each alternative?

Alternatives Managers should specify criteria, then evaluate.
Legal, ethical, economical then practical Criteria.
6. Learn from Compare what happened to what was expected to happen
Feedback Explore why any expectations for the decision were not met
Derive guidelines that will help in future decision making
2. Generate Managers must develop alternative courses of action
Alternatives
1. Recognize the Managers must realize that a decision must be made by reading different
need for a decision indicators that act as an alarm (e.g., reduction in share prices, reduction
in number of customers, increasing number of customers complaints)
Sparked by events (stimuli) such as environment changes.

5. Implement chosen Managers must now carry out the chosen alternative – the decision.
Alternatives
4. Choose among Rank the various alternatives and make a decision.
Alternatives
Read the following case

PUMA was facing major threats. It had lost money for the past eight years and was
facing imminent bankruptcy. In response, PUMA CEO Jochen Zeitz considered changing
the company's strategy to focus more on style, colors, and lines of athletic shoes and
less on performance capabilities. Other actions considered included reducing production
costs and revising distribution in the United States. As a result, PUMA created a new
division, called “Sport Lifestyle,” and focused on creating experimental fashion products.
For example, PUMA transformed cleated soccer shoes into trendy, colorful suede
fashion sneakers. These new sneakers were sold in a variety of venues, such as Foot
Locker, Barneys, and upscale boutiques and department stores. By shifting their strategy
and focus, PUMA became the fourth-largest athletic apparel company worldwide.
Match the step with the example that illustrates it. The first one
has been done

1. Recognize the need for

a decision

2. Generate Alternatives

3. Assess Alternatives

4. Choose among
Alternatives

5. Implement chosen
Alternatives

6. Learn from Feedback

Match the step with the example that illustrates it. The first one
has been done

1. Recognize the need for

a decision

2. Generate Alternatives

3. Assess Alternatives

4. Choose among
Alternatives

5. Implement chosen
Alternatives

6. Learn from Feedback