Part A: Individual Evaluation
Individuals face situations that require decisions on a daily basis. Making right decision is a skill that can be learned. Decision-making refers to the process of making choices that involve the identification of a decision, collating information, and assessing alternative determinations (Tzeng & Huang, 2011). The process typically follows a sequential path that enables individuals to organize critical information into reasonable choices before making a rational decision. Using the decision-making theory, I reflect on a past financial investment decision to improve future investments plans
In 2017, I faced a hard choice of how to invest a sum of $10,000 that I received as a family inheritance. The amount had come as a surprise hence I had no prior plans for it. Additionally, I had not engaged myself in any business or investments activities before, so my financial prudence was in question. However, I had a passion for financial investments stemming from academic and hobby reading. In making the investment decision, I followed rational decision model and the expected utility theory.
There are diverse theories developed to guide the process of making decisions. According to (Oliveira, 2007) rational or normative decision-making theories are methods of how decisions ought to be prepared for them to be rational. Edwards (2013) says rational decision-making approaches enable the decision makers to examine a variety of possible options in settling for a preferred choice. In such a case, the choice represents the best scenario and the maximum possibility of an outcome. In making my decision, I applied "rationality" by checking how compatible my choice was with my desired value for money. Various scholars propose a sequential process that breaks decision making into consecutive steps. In making my decision, I followed the Brim model that has five stages identifying the problem, researching relevant information, postulating solutions, evaluating the solutions and selecting best strategy (Hansson, 2005). First, I listed all the possible alternatives I had. They included buying securities in the stock exchange or investing in a mutual fund. I then identified the states of natures as outcomes over which I had some or no control over. The mutual fund market was more favorable due to stability, but market fluctuation made securities less desirable. I then listed all possible rewards in a year. In a favorable market, the profits for the mutual fund were fixed at $1,500 while projected security profits were $2,000. In an unfavorable market, mutual fund losses were zero compared to $2,000 in securities.
The decision-making environment was a mix of certainty and uncertainty. The fixed interest in the mutual fund brought assurance. However, the stocks market had many possibilities. To review the viability of the two choices, I applied the maximin criterion. This process involved choosing the best of the worst of the two options (Hwang & Masud, 2012). The stock market had a maximum reward of $2,000 and a loss possibility at $2,000. Having measured risks involved in the choices, I considered the alternative that minimized the maximum regret (Hwang & Masud, 2012). The mutual fund had zero risks while securities had a $2,000 potential loss. External statistics further compounded my fear for securities. A survey targeting 1,000 investors in the U.S revealed that the equity market might drop by one-third in any given year (Zweig, 2010). According to Hastie and Dawes (2010) when decision-making follows a rational methodology, it is possible to arrive at a choice that expresses personal values or utilities. This means that in expected utility theory, selection of alternatives should be according to the significance of their value. Based on the methodology, I settled for a mutual fund investment.
After evaluating the outcome of the investment decision a year later, I have realized that I would have made more profit had I chosen to invest in the share market. This difference provides a technical and behavioral lesson in my decision-making. First, I realize that I should have applied the maximin criterion. This approach employs an optimistic perspective by selecting the alternative with the potential of giving the maximum reward (Kikuti, Cozma & Shirota, 2011). In this case, I would have chosen securities with a profit potential of $2,000 compared to the mutual fund's $1,500. Secondly, I overlooked the equal likelihood criterion. I would have assumed that most favorable and least favorable states of nature were equally likely to happen. With such an assumption, I would have calculated the average reward for each option and chosen the one with the maximum number. Behavior wise I take note that my ability to make risks is low yet in business high risks may increase the magnitude of profitability. I have also noted I have a strong preference for sequential methods. In actual sense, the decision-making process should be cyclic rather than sequential. Theoretically, I recognize that through reflective self-awareness it is possible to improve individual decisions. In future decision-making, I will strike a balance between optimism and pessimism using the criterion of realism. I will also explore cyclic models that would allow for continuous adjustment of decisions.
Part B: Strategic Orientation in Companies
The success and failure of an organization may lie in its strategic orientation. The ability of an organization to think and operate more broadly with the aim of becoming sustainable and to further the interests of its stakeholders defines its strategic orientation. In simple terms, an organization should have a link between its mission and vision. The linkage is created through a process of collaborative design and implementation of steps to address past performance and future goals. Strategic decision-making process may require integrated approaches to managing goals, relationships, and change (Hill, Jones & Schilling, 2014). In setting strategic orientation, organizations can adopt different strategy approaches with different impacts and limitations.
In the formulation of strategy, an organization can choose from a variety of approaches. The organization context and strategy dimensions influence the choice. In strategic planning, context refers to the factors that affect the organization beyond its boundaries. The issues occur either in the micro or micro organization environment. The macro-environmental factors include socio-economic, political, technological, and legal issues that affect the company. Microenvironment factors include organization finances, access to supplies, communication, and consumer's behaviors. Context is an essential consideration since changes may occur slowly or rapidly in a specific and uncertain manner (Thompson, Strickland & Gamble, 2007). The strategy has three scopes namely the process, context, and content. Process refers to the way of developing a plan is called process while content is the product of the strategy process. The strategy process and content occurs within a context (De Wit & Meyer, 2004). Analyzing, developing, and implanting a strategy forms the central parts of the strategic planning process.
Organizations can choose between two perspectives of strategic planning, prescriptive or descriptive approaches. The prescriptive method follows a deliberate, intended, and logical, sequential process. This approach suggests a subsequent process connects the three core areas of strategic management. Organizations define its procedure of formulating strategy in advance using this approach (Lynch, 2009). The prescriptive approach of strategic orientation proposes that there is the one best way of developing and implementing strategies that can apply to any organization.
The prescriptive approach includes eight components. First, an organization establishes its organizational mission and then sets specific objectives (Nutt & Wilson, 2010). Next, micro and macro environmental scan follow using the SWOT model. Afterward, the organization identifies its internal strengths and weaknesses (Nutt & Wilson, 2010). Then alternative strategies are formulated before settling for the best approach. The organization then embarks on implementing the plan in a process that recommends continuous evaluation and control. Amtrak, the national railroad Passenger Corporation in America provides an excellent example using perspective approaches in strategic orientation.
The prescriptive approach has certain advantages. The emphasis on deliberateness improves the quality of strategic management. The method brings intention in planning processes as it ensures that organization managers think before they take actions. Quality is enhanced by analyzing the organization options rationally and selecting the best option (Edwards, 2013). For example, Amtrak developed an electrification plan in 2000 on its Northwest corridor that allowed it to launch the Acela Express eventually raising its profitability (Reference for Business, 2018). Organizations can evaluate the consistency of an option with its mission, objectives, and financial muscle. Besides, prescriptive approaches enlist commitment to implementation since it is a bottom-up approach. Top managers do the planning, and the staffs in the organization accept and implement the resultant strategy without question (Nutt & Wilson, 2010). In Amtrak, the Congress influences the financial direction while the Transport Department develops the network routes plan (Reference for Business, 2018).
The prescriptive strategy has attracted criticism. Many scholars reject this approach because is pre-assumes and prescribes the "best" strategy for all companies. However, organizations operate in different environments, hence requiring a unique plan. Secondly, a prescriptive approach oversimplifies the strategic planning process. The formulation of organization strategies is ordinarily complex since it occurs in a dynamic, unpredictable, environment with limited cognitive abilities of the manager (Hill et al., 2014). The top-down approach may create a conflict since it lacks inclusivity. For example, in Interflora, a UK flower delivery network members resisted the strategic plan imposed on them by management and succeeded in ousting the CEO and Board Chairman.
The descriptive or emergent approach focuses on the reality of how organizations formulate and implement strategies in real life. This approach holds that the main parts of strategy process are interrelated, but analysis precedes the other two. More radically, the descriptive approach suggests that the strategic planning is an experimental process and there is no clear division between development and implementation stages (Lynch, 2009). The method emerged as a response to the complexity of planning in an unpredictable future (Bovaird, 2008). In this approach, the outcome of the strategy is unclear, and components are developed as the plan proceeds.
Emergent approaches present some benefits to organizations. First, the method makes organizations resilient to unpredictable change and maximizes emerging opportunities. Companies using the environmental school of thought that includes survival and uncertainty-based theories acknowledge that plans are not fixed. Lynch (2009) notes that management can always be on a lookout for opportunities and create strategies appropriately. As such, an organization transforms from being static to become dynamic. Moreover, its organizational learning model encourages continuous individual and group learning. Organizational learning provides a competitive edge since companies can convert an emerging problem into a future business plan (Oliver,...
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