- The decision problem
The problem under study is concerned with deciding, whether it is worth expanding the business of the investigation company that currently functions in one city. As the company already has the developed client base, good image and significant expertise in the field of investigative services, growing the business seems the most logical way of developing the business. However, significant concern is associated with the company’s possibility to attract the attention of clients at the new location and, therefore, profitability of the new venture.
The concern under study is supported by the fact that the management of the company has already made an attempt to open a new office at the same city, and was made to close it quite soon due to the lack of profitability. So, it is important to understand that the unsuccessful expansion to new cities can end up with the threat of bankruptcy for the company and an urgent need of actions to prevent it. On the other hand, there are many legal firms in other cities of Indianapolis that will appreciate high-quality investigative services, and there is a possibility that the expansion initiative will result in the company’s becoming a leader in the field of investigative services’ provision, functioning at several states of the USA.
The analysis of the text of the case shows that in most general terms the decision problem concerns the general framework of the future development of business. The study of the alternatives, provided in the case, shows that the decision problem that needs to be addressed with the help of management decision-making tools in terms of this assignment is choosing the most suitable location for the new office of the company.
- The event that triggered the situation
The event that triggered the situation was associated with Herbert’s feeling that there are only few law firms in Indianapolis, and the company’s being ready to expansion after ten years of successful work at the market of investigation services for law firms. As the company has worked at the market for ten years and managed to develop significant expertise and good reputation, Herbert thinks that the expansion to the markets of other major Indianapolis-like cities is the logical path for the company’s future development as the leader in the field of investigation services’ provision.
- Implied constraints
The situation under study is characterized by the range of implied constraints. As it usually happens, constraints do not involve all the variables of the problem, but only a little fraction of them (Bouyssou, Dubois, Prade &Pirlot, 2013, p.93)
The first constraint under study relates to the expertise and experience of the company’s founders. While Lee Herbert has a significant experience of working for companies, focusing on investigative services, he lacks first-hand experience of running the business. This fact can prevent Mr. Herbert from predicting threats and uncertainties, as well as tackling them at early stages of their development and approaching them in a quick and effective way. Furthermore, it can be hard for Mr. Herbert to align his services-related idea to the general track of the business development, designed by his friend, Mr.Simmons. At the same time, it is worth mentioning that Mr.Simmins may lack an in-depth understanding of all the peculiarities of law firm’s needs, associated with investigative services. While in the situation under study it is highly preferable that both partners possess both an experience in the field of investigative services’ provision, effective synergy can become a tool to develop a viable strategy of development for the company. Synergy phenomenon reflects the situation, when the output exceeds combined inputs (Oz, 2008, p.12)
Another implied constraint that can be mentioned is that the partners may lack insightful information, concerning the functioning of investigative organizations in other cities, as well as the needs of law firms that function there. The way to avoid this issue can be concerned with finding partners in other cities, who possess above-mentioned information and relevant experience in the field of investigative work and business.
Furthermore, at current decision-making stage it may be hard for partners to assess the volume of investments, necessary for the development of comprehensive expansion strategy and its implementation. The final constraint to be mentioned is that both partners have families with young children and may lack time and resources for effective combination of their work and family life.
- Definition of objectives
The decision-making problem under study is characterized by three major objectives. The first one is finding the city with a large number of Fortune 500 companies. Another objective is finding cities, where the cost of living is comparable to the one in Indianapolis. The final objective is finding cities, located at reasonable distance from Indianapolis, so that partners can spend significant amount of time at the new office, despite having families with young children in Indianapolis. Above-mentioned objectives are consistent with the company’s development strategy; attainable within the limitations, imposed by the company’s budget and compatible with the functions of the organizations (McDonald&Wilson, 2011, p.208)
Identification of alternatives
There are three alternatives to be considered with regard to the management decision problem under study.
- Expansion to Chicago, Illinois. There are 8 Fortune 500 companies, functioning in Chicago. The cost of living in Chicago is 1.045 (higher than in Indianapolis). The driving distance from Indianapolis to Chicago is 159 miles.
- Expansion to St. Louis, Missouri. There are also 8 Fortune 500 companies, functioning in St.Louis. The cost of living is less than in Indianapolis (0.809).The driving distance accounts for 461 miles.
- Expansion to Milwausee, Wisconsin. There are 5 Fortune 500 companies in Wisconsin. The cost of living is 0.910 (lower than the one is Indianapolis). The driving distance to Milwaukee is 239 miles.
- Comparing and contrasting the alternatives by fundamental objectives
The analysis shows that the alternative, concerned with expansion to St.Louis, Missouri is dominated by other alternatives, because it does not meet the most important objective (it is located too far from Indianapolis). Furthermore, it is necessary to mention that choosing Milwausee also has an important drawback, because there are only 5 Fortune 500 law firms that function in this city.
- Application of decision-making styles. Attitudes towards risk
Generally, people tend to differ in their approaches towards decision-making. The most wide-spread approach to studying the way an individual makes decision is concerned with the way one thinks (processes the information he gets), while another one concerns the degree to which an individual tolerates ambiguity. In practice, the application of this approach allows singling out four basic decision-making styles, such as the directive, analytic, conceptual and behavioural styles. The adherents of directive style can hardly tolerate ambiguity, and tend to think logically, rationally and efficiently. The person, whose dominant decision-making style is analytic, can tolerate ambiguities and try to assess the information they have as thoroughly as possible to choose the most effective alternative (Mukherjee, 2005, p.73). Managers that use conceptual decision-making style take into account all available alternatives and look for creative solutions (Daft&Marcic, 2012, p.226-227). Finally, behavioural style-oriented managers usually work in teams and consider all suggestions for the solution to the situation. Other classifications suggest that decision-making style of a person may vary from an analytical one to an intuitive one (Hamm, 1988, p.770) (Hammond, 1988).
The description of the case testifies to the fact that both Herbert and Simmons use combinations of several decision-making styles. Both of them tend to use behavioural style, because neither of them seems to be ready to take the responsibility regarding the final decision and they look forward to hearing suggestions and criticism of one another. Herbert uses conceptual style, when considering wide range of possible opportunities. However, the way partners decided to approach the situation (choice of criteria and considering different alternatives in the light of these criteria) proves that both of them would like to get rid of ambiguity and make a decision, using rational decision-making style. It is interesting to note that partners have different attitudes towards risk. Herbert’s dedication to expansion testifies to the fact that he is more inclined to tolerate risk, than his partner. In addition, he seems quite irrational when using the fact that the company had survived 10 years at Indianapolis market as the only argument to substantiate the company’s prospective growth. Bradley Simmons is less likely to appreciate risks, than his partner. Human factor is crucial to risk management, and the differences in attitudes towards risk among partners need to be taken into account, when deciding on the future of the company (Hilson & Murray-Webster, 2012, p.17)
- Biases that can affect the decision
Biases that are likely to exert highly negative impact upon the successful implementation of the decision are strongly interrelated with implied constraints that were described above. The first bias concerns Herbert, who thinks that the company, which had survived 10 years at the Indianapolis’ market of investigative services, can survive wherever, forgetting about the experience of closing the company’s newly opened office at the same city due to the lack of profit. This confidence stems from the lack of awareness of financial state of the company and the peculiarities of the markets the company can be expanded to. Another bias concerns Mr.Simmons, the partner at the company. Being aware of financial state of the company and afraid of the threat of bankruptcy, but not knowing the peculiarities of the area of business and the requirements, imposed by markets, other than Indianapolis, Mr.Simmons can hardly be able to elaborate on the viable expansion strategy that will take into account current state of investigative services markets. However, the above-mentioned difficulty can be avoided with the help of effective synergy.
- Uncertainties for decision-making situation
The decision-making situation under study is concerned with significant number of uncertainties that are likely to have long-term consequences for the situation under study. The first uncertainty is that the cost of living in the city that has been selected by the management of the company can increase. The increase in the cost of living can have negative impact upon the profitability of the venture. In this regard it is worth mentioning two factors, mitigating the situation. Firstly, if it is decided to choose Chicago, savings that are possible thanks to short driving distance, can even out the threat, caused by further increase of cost of living in this city. Secondly, there likelihood of the rapid rise in the cost of living is not significant, and, in case it appears, the company can always consider opportunities for raising prices, so that the influence of the factor under study is not sharply felt.
Second uncertainty lies in the fact that the Fortune 500 companies, functioning in cities, being considered by the company for expansion, can move to other cities. As a consequence, the company will lose its clients’ base at new locations. As in the case of the rise of costs of living, the clients’ decisions to leave their usual locations cannot be considered very likely.
Third uncertainty lies in the fact that nowadays it is hard to predict, whether the services, offered by the company will be of interest for law firms. Furthermore, the text of the case study contains no information concerning the state and current trends of investigative services’ markets’ development in the cities that are considered as potential alternatives for the company’s new location. Large number of investigative companies, specializing in providing support for the activities of law firms that function at company’s new locations is associated with high degree of competition, the need for extra investments and possible profitability-related issues.
Fourthly, management of the company is unaware of trends, associated with the peculiarities of law firms’ activities in each of the cities under study. As a result, the company can experience practical difficulties and lack profitability.
-Evaluation of the situation with the help of tradeoffs
The most evident tradeoff to this situation is to relocate the company to a city that has large number of functioning Fortune 500 companies instead of adding the new office to the one that already functions. Hoosier Services can consider relocating the company to Chicago, because it has the largest number of Fortune 500 law firms at shortest distance from Indianapolis. As Chicago is located relative close to Indianapolis, gas savings will help the company compensate the difference in cost of living between Chicago and other cities. The linked decisions will be concerned with choosing the new location for the company and hiring employees.
Before the relocation-related decision is made, it is important to learn as much as possible about the specialization and activities of most probable corporate clients in Chicago, as well as current trends, peculiar to the markets of investigative services at the new location. Furthermore, the preparatory phase of the project may include consultations with professionals, who have the experience of running investigative services business within Chicago jurisdiction and launching negotiations on long-term contractual relationships with leading law firms in Chicago. If it is decided to relocate the company, partners can also elaborate on the opportunity to broaden the scope of services they offer to their clients or try to consider other target groups for their services, apart from law firms. For instance, the company can create unique expertise by including legal services. Furthermore, it is worth launching partnerships with independent solicitors/barristers, not engaged with law firms. Thus, the company will be able to survive competition in the area of investigative services at the city with significant number of Fortune 500 law firms and independent barristers/solicitors.
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