MANAGERIAL DECISION MAKING WEEK FIRST ASSIGNMENT

MANAGERIAL DECISION MAKING WEEK FIRST ASSIGNMENT

Decision-making describes the process by which a course of action is selected to deal with a specific problem. The success of an organization depends greatly on the decisions of managers. There are two major types of models used by managers to make decisions rational model and non-rational models. In the rational model, managers engage in rational decision-making processes. Any rational decision-making process consists of six basic steps. Those steps are: define the problem, identify the criteria, weight the criteria, generate alternative solutions, rate each alternative on each criterion, and compute the optimal decision. These decision making steps which is mentioned in the text book are really practical.

The six steps problem solving steps are widely used by the different organization and individual knowingly and unknowingly. I have an example how junior student in my university apply these six steps problem solving process to solve the problem. This is real problem of a under graduate student where some student used to come late in class and leave early. Because of that whole class used were affected. Therefore, both students and teacher decided to apply the systematic problem solving approach to solve the problem. Below are the different steps they apply to solve the problem applying the six steps problem solving approach.

 Steps One In this first step they define what is their real problem is. To identify the real problem they apply brain storming by the teacher and student to define the real problem not just the symptom of the problem.

 Problem statement: Some students come late in class and leave early than other students who come on time. These have not only affected those students who come late but also those who are on time.

Steps two

Analyze the Problem: after analysis and discussion it is discovered that students who were leaving early needed to catch the bus to go home or they would have to wait an additional hour for another bus. For some students this meant that they would not be at home when their children arrived from school.

Steps three:

            Generate potential solutions: after defining the problem and analyzing it number of alternatives is discovered as a potential solution to the problems. They are:

§  The teacher should come early for students who needed to be there early.

§  Stay and catch the bus later

§  Come to school 15 minute earlier

§  Don’t take the entire break

§  Find another way to get to school

§  The teacher should have learners mark when they came and leave the school

Step 4

Select and plan the solution: Now that there are wide varieties of possible solution and it is time to select the best solution to fix the problem given the circumstances, resources and other considerations. In this step they are trying to figure out what is the best solution to the problem. They discussed number of factors which directly affect the solution like cost associated with the problems, time which is needed to implement the solution, procedures of the given solution, rules and regulation which should be considered before finalizing the particular solution. After the long discussion they come up with the following solution to the problem.

§  Students who needed to leave early come to class early

§  All students would be expected to return from the break at the correct time.

§  All students would sign in exactly when they come to class

§  All students would sign out at the exact time they left the class

§  All students would keep calendar and monitor their attendance them self

Steps five & six

Implement the solution and evaluate the solution: The selected solution is implemented and solution is evaluated. After few months, they found that those students who used to come late discover their own group and schedule their class in such a way that they can balance their class and their family affairs. Which not only solved the particular class problem but also provide a unique system to the whole university that they started letting the student choose their own preferred time where student can choose what time preference they would like to have and design different class and section accordingly. Finally, it is found that student application increased by 26% and admission gone up by 14.5% next year.

System one Vs System two thinking

System 1 thinking is absolutely the best way to go when the situations we are facing are highly similar to previous situations we’ve faced over and over. In System 1 thinking, decision makers relies heavily on a number of heuristics (cognitive maneuvers), key situational characteristics, readily associated ideas, and vivid memories to arrive quickly and confidently at a judgment. System 1 thinking is particularly helpful in familiar situations when time is short and immediate action is required.

System 2 thinking on the other hand, is useful for making judgments when we find ourselves in unfamiliar situations and have more time to figure out the things. It allows us to process abstract concepts, to deliberate, to plan ahead, to consider options carefully, to review and revise our work in the light of relevant guidelines or standards or rules of procedure. While System 2 decisions are also influenced by the correct or incorrect application of heuristic maneuvers, this is the system which relies on well articulated reasons and more fully developed evidence. It is reasoning based on what we have learned through careful analysis, evaluation, explanation, and self-correction. This is the system which values intellectual honesty, analytically anticipating what happens next, maturity of judgment, fair-mindedness, elimination of biases, and truth-seeking. This is the system which we rely on to think carefully trough complex, novel, high- stakes, and highly integrative problems.

It is true that, a complete System 2 thought process is not necessary for every managerial decision or for every small negotiation we may face. When we're negotiating with our coworkers over where to go for lunch, when we're setting deadlines for low-priority tasks, or when we're informally discussing items that we plan to revisit later in more detail, System 1 thought will be sufficient. Taking the time to logically reason through every decision can be costly, even leading to decision paralysis. However, we should engage in System 2 thought during our most important negotiations.

We apply system one thinking most of the time in our day to day life. Few days ago we went to one Mexican restaurant to celebrate our friend’s birthday party. We apply system one thinking to choose the restaurant because there was no logical reason why we choose that specific restaurant. After going to the restaurant we saw the menu and order some food again applying system two thinking because we order whatever looks familiar to us and we choose the food looking at their name rather than understanding how they cook and from what they made of. But I do apply system two thinking to buy a car few days ago. When I realized that I need a car, then I first ask myself how much I can pay for the car. After that I choose the brand of car, color, model, etc. After deciding all these sort of things I started looking for the available alternatives. Finally I bought one which maximum satisfies my criteria.

When I read text book of our managerial decision making, chapter 1^st, it was interesting to know that how often we apply system 1 thinking. Even the situation demands system two thinking we tend to apply system one thinking.  Surprisingly, I realized that I applied system 1 thinking when I decided to come to Tiffin University. I choose Tiffin just because they are first to issue my I-20 than other five different university where I had send my application.

Many times we do huge mistake by applying system one thinking instead of system two thinking. In my previous example of Tiffin University, I later realized it was my mistake to choose Tiffin University because there were other better options. Two other university where I applied were offered me attractive scholarship but I was too late to accept the opportunities. Nowadays we have tendency to rely on System 1 thinking when making decisions or passing judgment. We invariably go with our first or our gut instinct. Time limitation is one of the reasons for why we often apply system 1 thinking even though we know that the situation is demanding system two thinking. We just don’t have time to be rational and logical, to explore and analyze the alternatives. But we can make better decision if we apply system two thinking in our non routine managerial decision.

Judgment heuristic:

Another concept I like in the first two chapters is judgment heuristic. Judgmental heuristics are principles or methods by which one makes assessments or judgments of probability simpler. These heuristic are often very useful but sometimes they lead to systematic errors. Representativeness and anchoring are sometimes known as heuristics - "rules of thumb" that humans use to perform abstract reasoning in cognitively economical ways. Heuristics save time and effort, but often fail utterly when presented with data outside of their "domain of expertise". These failures tend to difficult to notice, because  the thinking processes responsible for judging the overall quality of our thinking processes are plagued by the biases as well, and  they are so widespread and natural that few people notice them, and decisions made based on heuristics feel good - they're intuitively satisfying regardless of their correctness. When I was in primary school student I used to go to school by school bus. I used to be on time every day but in the rainy day my grandmother used to generalize that the school bus will come late  prepare the my lunch and Tiffin late because of that  I used to be late school bus always came at their predefined time no matter whatever the weather. For example, here is one Heuristics my brother use to make his  business decisions slightly simpler: If he can’t think of a solution to a particular problem he encounter,  then he works  backwards to find out how he  might have got there.  And he doesn’t take new business opportunity which doesn’t align with the stated vision and purpose of the organization.

In conclusion, judgment heuristics typically focus on how heuristics can lead to poor judgments. However, most of the time heuristics are “rules of thumb” which is used to make complex decisions easier. They are particularly used to create a method that often rapidly leads to a solution that is usually reasonably close to the best possible answer, although they are a form of fuzzy logic and not always accurate in all contexts.

References:

Dunning, D., Meyerowitz, J., Holzberg, A. (2003.) "Ambiguity and Self-Evaluation: The Role of Idiosyncratic Trait Definitions in Self-Serving Assessments of Ability." In Heuristics and Biases.

Bazerman, H, Max,. Moore A. Don.(2009) “Judgement in Managerial Decision Making’’. Wiley

POSITIVE ILLUSION

 POSITIVE ILLUSION

The term positive illusion represents a multidimensional psychological dimension consisting of the following three sub-constructs: self-aggrandizement, illusion of control, and unrealistic optimism (Taylor & Brown, 1988). Unrealistic optimism is the perception that the future holds an idealistically bountiful array of opportunities and an absence of adverse events. 

Three common illusions are unrealistic optimism, an exaggerated sense of control and overly positive self-evaluation. Tiger (1979) and Taylor & Brown (1988) claim that they serve a variety of important functions. People search for ways to increase their self-esteem and pleasure, and reject thoughts and situations that will do the opposite. (Tiger,1979) They filter incoming information and distort reality so that what is negative appears less threatening (Taylor & Brown, 1988).     

Someone who has high positive illusions may possess a number of specific positive outcomes to individuals who have unrealistically positive views, including better mental health, higher academic performance, better romantic relationships, and even increased performance in sports and organizational activities. Individuals having positive illusion are able to see things from a variety of different perspectives, including future possibilities, and they are better equipped to make good choices, and do better, than individuals who are stuck in memories of past humiliation and failure. Thinking bad thoughts and being depressed decreases our ability to make good judgments, and increases sensations of bodily pain. Depressed people have less complex thought processes, and use fewer categories to make sense of information; the categories they use tend to be simple, polarized ones (good-bad, black-white), instead of complex. They are unable to see additional perspectives that would lead them out of depression. By enslaving themselves to thoughts about how stupid and disgusting they are, they keep themselves from doing their best. Positive illusions lead people out of depression, and give them a jump-start on succeeding. It may promote the capacity for creative, productive work in two ways: First, these illusions may facilitate intellectually creative functioning itself and second, they enhance motivation, persistence, and performance.

            Positive illusions are associated with greater motivation, persistence, creative work, intellectual functioning and happiness (Taylor & Brown, 1988).  It is happy, confident people who succeed in the workplace. No one listens to the doomsday prophesiers. The more confident people are the more over-confident they are and the more likely it is that they will be listened to (Klayman, Soll, Gonzalez-Vallejo and Barlas, 1999).

We can conclude that positive illusion is both good and bad for an individual depending upon the degree of illusion the concerned person carries in his mind. Let’s share some example of positive illusion. We have a family owned business. It is established by our parents and now it is manage and run by one of our brother (Sujan). He is a person with high positive attitude (positive illusion). He is so confident in whatever he does. Our business is basically related with supplying medical equipment. We import medical equipment like ultra sound, city scan, ECG machine etc and sell those to all the hospitals all over the Nepal. But today Sujan (my brother) owns number of hospitals too. He diversified the business into private hospitals. Before implementing such diversification strategy, my brother and my father has a lot of discussion about whether or not to take the risk of diversification. My father insists Sujan not to go with such risky strategies. But Sujan is so confident in his decisions. He opened two different hospitals in two different cities and today he owns more than 19 private hospitals all over the Nepal.

Sujan is the person with positive illusion. He is PhD doctor in bio-chemistry. When he was graduated from high school our parents wanted to send him in the business school. But he was so reluctant to go to business school because he was interested in science (Biochemistry). Because of parent’s huge pressure to go to business school, he run away from the house and went to join the science school. And later he is graduated from the science with distinction.

In my opinion, he is a person with extremely high positive illusion.  He always does what he likes to do no matter whatever the situation and consequences will be. He just does it.

There is another example too but this is concerned with Sujan’s personal life. One he told me that he likes a lady who is so beautiful, smart and educated, etc. after few months I was so surprised when I meet with her. I didn’t see anything in her whatever quality my brother explain to me about her. The way she talks, she behaves and her overall look nothing is as explained by my brother. After five month they get married. And in another one year they divorced. 

I think this is the perfect example of positive illusion.

There are some other examples of positive illusion. When I was working in a finance company our company’s credit manager leave the company and join the rival commercial bank. The position of credit manager remained vacant for about six month due to the conflict between the Board of Directors and the Chief Operating Officer about new credit manager hiring decision. In that finance company both of these people are equally power full to make decision to hire the credit manager due to the organizational culture. The main problem was that the CEO wanted to promote the senior credit personnel to the vacant position of credit manager but on the other hand, Board of directors wanted to hire an outsider who is fresh university graduate of a Nepalese government business school. Finally the new guy (an outsider) is selected as a new credit manager of the company because of the Board of Directors continues pressure in the human resource department to hire the new guy rather than promoting the senior credit personnel. But, later it is discover that the new guy is not the right man in the right position. During his period, credit department seriously under performed in all its areas. They have landed so many credits to those business to which nobody offer credit. When the management asks about it, credit department replied that “we have charged high interest to cover the higher risk”.  And surprisingly they even landed to the people whose name is on the black list of the government to whom no financial institution provide credit.  Looking at the scenario management committee finally decides to transfer new credit manager to the branch location and promoted the senior credit Personnel as credit manager.

Actually it was happened due to the positive illusion of the Board of Directors about the Fresh Graduate of the business schools. He believed that the fresh graduate of the business school are the great performer and later it is discovered that his decision was wrong.

Another example of positive illusion in our family own business is that we have a marketing manager who has great marketing skills. We all agreed that he is the great performer in the entire organization, basically in the sales group. But later he started thinking that he is all and all in our business and started demanding unnecessarily high salary from the management giving threat of leaving the company and opening his own. Our management team tried to convince him but he remained unaltered in his decision and ultimately management team fired him. After few months, he opened his own marketing agency and started supplying the similar kind of equipments that we do. But unfortunately, because of the high price war, he could not survive in the business and finally closed the business. Now, he again joined our business and doing well in the marketing department. It was his high positive illusion about himself. He thought that he can run own business but that was just his illusion.

In conclusion, positive illusion is both good and bad. In some situation it is extremely good but in other situation it is bad too. My brother’s decision to go to science school and implementing new business strategy was good side of his positive illusion or say positive thinking. On the other hand, his decision to marry the lady who just completely different than whatever he claimed about her was other side of the positive illusion. Beside this, our marketing manager’s decision to leave our company was bad side of the positive illusion and similarly Board of Directors decision to hire fresh graduate who know nothing about the banking and credit policies is another cons of the positive illusion.

Reference

Lightsey, O.R. & Christopher, J.C. (1997). Stress Buffers in a non-Western population. Journal of Counseling and Development. 75(6), 451-459.

Klayman, J., Soll, J.B., Gonzalez-Vallejo, C. & Barlas, S. (1999). Overconfidence: It depends on how, what, and whom you ask. Organizational Behavior and Human Decision Processes, 79(3), 216-247.

Bazerman, Max H.(2006) Judgement in managerial decision making 7^th edition. Hoboken, New Jersey; John Wiley & Sons.

Sears strategy

Sears strategy is concerned with developing long term relationship with customers by best product with value added services either by reducing cost or by improving customer service. They want to build brands identity being technologically innovative. They are trying to develop “The SHC Way” with fast, focused and effective services.

Sears want to build a winning culture, by creating a passion for performance and by changing with the needs of the customers which includes credit facilities, customer service, home delivery, mail order, internet sales, etc. To remain innovative and continually find new ways to create value Sears continues to explore acquisitions, joint ventures, strategic alliances, and electronic commerce. It possesses data mining which allows Sears to target "micro-markets," thus giving it the ability to tailor the product mix by store. It seeks out the market leader in each segment to find its best practices, then experiments to see if these practices can be instituted with similar results at Sears. In addition to this, Sears is trying to achieve consistent productivity gains focusing on constant incremental improvements within the business unit and logistics chain.   

There are several external environmental factors (macro environmental factors) that will impact Sears’s business and its strategies.  In the macro environment there are economic, political, socio-cultural and technological factors that will impact Sears.

Economic factor that affect Sears Business possibilities and its strategies are:

Income: In the United States consumers purchasing power is going down due the decreased in income level of the peoples. This affects all the business including Sears. Therefore, Sears should come up with a distinctive strategy to tackle with this critical environmental threat. The possible strategy to address this problem could be low price by reducing the cost associated with inventory and supply chain. 

Inflation: Continuous increased in general price level is another economical threat to the retailers like Sears. Sears strategy is largely affected by the inflation which not only reduces the purchasing power of money but also it will lose price competitiveness in the international market.

Economic Recession: Another economic environmental factor affecting the Sears business strategy is economic recession. Recession leads business to lower growth and which in turn  leads to lower profits, therefore dividends declines and shares become less attractive which ultimately leads to  the decline in profitability.

Unemployment:  This is one of the major problems in world economy today. Even United States economy is facing incremental unemployment which reduces the income level of the people and  which in turn reduce the disposable income therefore, people are reluctant to spend and they try to save more leading to the poor mobilization of the resources in the economy. This obviously affects the Sears strategy because they may try to stock less to reduce the cost associated with the inventory.

Technological factors affecting Sears Business

Technological factors influence the competitive position of the business. Advancements in technology can impact the transformation plan of any business like Sears in many ways. To avoid obsolescence and promote innovation within the organization, any business should understand and able to incorporate technological change that might influence firms profitability and success both in short run and in long run.  For example, in recent years, internet is becoming a way of people’s life. E-commerce is a popular means of buying and selling goods and services. Because of the growing internet and e-commerce popularity, Sears is trying to capitalize on the internet. Therefore, Internet, e-commerce and other technological change obviously affect the strategic choice of the Sears.

Political environmental factors affecting the Sears business:

Political environmental factors are more associated with the overall political situation and political scenario of a concerned country in which business is located. In my opinion, Sears’s business decisions and strategy is not very much affected by the US political atmosphere because of political and government stability in the country. But it doesn’t mean it is completely far from political change. Every business either one way or the other is affected by the political change and political decision in the country. For example, if new government changes business legislation then the business has to adopt and incorporate such change. 

Social values and lifestyle:

Social values and life style is also one of the core components of macro business environment. Peoples values, beliefs and lifestyle changes overtime so business organization has to cope with those changes accordingly addressing those changes in their corporate strategy to be successful and sustainable. Every business should understand global social and environmental trends and their implications for their business strategy and they should integrate such change into corporate as well as business strategy. For example Sears should concern with educating its employees about other societies and cultures because its market is becoming a culturally diversified and as the entire world is becoming single village in terms of doing business. Not only this but also they should be aware of international culture with ethical and religious considerations. Even the US domestic market is rich with diversified culture and religion. And it is also true that people’s value and lifestyles in the United States is changing so quickly because of presence of different cross culture in the society. All these issues affect the way business operates in the particular society. Therefore, a retailer like Sears should incorporate such social changes in their strategic choice to attract all those culturally diversified people and consumer group. In my opinion, societal values and lifestyle is the key components of Sears’s macro environment.

 Population and Demographics:

Population or consumer statistics regarding socioeconomic factors such as age, income, sex, occupation, education, family size, etc. also affect the business. For example, if Sears want to market certain product then it should first define who their target customer is by defining the age of the target customers, religion, and geographic location etc. of the customer group in order to come up with the broad marketing strategic plan. Therefore, demographic and population of the concerned target market is also the key decision making indicator for developing winning strategy of an organization.

Competitive Environmental factors affecting the Sears Business:

Every business has external peers generally called as competitors who provide similar functions and sells similar type of goods and services to its customers. These peers are considered as competitors and they are rival producers of goods or services. These competitors contribute to the overall industry by their ability to deliver goods and services of high caliber at competitive prices. Sears competitors are primarily in the Department Stores industry. Sears also competes in the Apparel & Accessories Retail, Auto Parts Retail, and Consumer Electronics & Appliances Retail sectors. Major Sears’s competitors are J. C. Penney, Target, and Wal-Mart. These competitive environments largely affect the Sears business and its strategies. For example if competitors changed its product price then Sears’s business will affected by it and it should change its strategy in order to be competitive in the market. Every decision of the competitors in    the market place affect Sears business either one way or the other.

References:

http://www.brandingstrategyinsider.com/2008/02/sunset-for-sear.html

http://74.125.113.132/search?q=cache:OpOiCDtLIgkJ:www.ndu.edu/sdcfp/reports/Sears.doc+sears+business+strategy&cd=9&hl=en&ct=clnk&gl=us

Outsourcing

Wikipedia defines Strategic Alliance as a formal relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. Members of strategic alliance may benefited from the resources of other partners like unique product, well managed supply chain, knowledge and expertise, distribution channels, and intellectual property and other capital equipment etc. one of the key advantage and goals of the strategic collaboration is that it gives synergy effect in the business.  

While talking about our firm recently we don’t do any strategic alliances or partnership of any kind.

“But world IT industry, in turn, are only part of the unstoppable trend in world business towards more and bigger alliances of all kinds. On the day that IBM and Toshiba unveiled their latest partnership, Wendy's, the fast food chain, announced a $400 million merger with a Canadian coffee and doughnuts chain, Horton. The two have been allies for four years, coming together to build 'combo' units selling both hamburgers and doughnuts. The reasons for the alliance are strikingly clear from the numbers”.

http://www.thinkingmanagers.com/management/business-alliances.php

Any company who want to grow in the global market, alliance is the one of the key strategy to enjoy expertise, to achieve and enter new market, to reduce the cost of the business and for technological advantage and to gain competitive advantage.

Outsourcing can be defined as a contract with another company or another business to do a particular function of our business. In today’s competitive business world every company either one way or the other involved in outsourcing. But outsourced functions are usually not a core business. Meaning is that if we outsource certain function of our business from the third party then that function may not be our core business. For example, “An insurance company, for example, might outsource its janitorial and landscaping operations to firms that specialize in those types of work since they are not related to insurance or strategic to the business”.

Outsourcing can also said to occur when an organization transfers the ownership of a business process or functions to a supplier. In outsourcing, the buyer does not instruct the supplier how to perform its task but, instead, focuses on communicating what results it wants to buy; it leaves the process of accomplishing those results to the supplier.

http://www.sourcingmag.com/content/what_is_outsourcing.asp

While talking about our organization we do not outsource any functions from third party. We are the service oriented organization so we do all our functions by ourselves. But we may do it in the future as we are growing in terms of size and market coverage and market share. Our hospital is planning to outsource emergency physician contracts. If we outsource the emergency department physician’s administrators shed a major time-consuming problem area, improved service, and saved money. ED physician outsourcing is almost universal now in urban, rural, and community hospitals and it is successful too. But if we want to involve in outsourcing then it requires careful teamwork between our hospital and the outsourcing company to establish a clear, shared understanding of critical policies and procedures. 

NEGOTIATION

Definition of Negotiation

Negotiation can be defined as a process of making decisions between or among two or more than two people or parties who have conflicting interest and limited resources to work with. The-cost-reduction-consultant defines negotiation as a “process by which typically two or more parties come together to try to create a mutually agreeable contractual decision. Each party will have competing interests and, thus, negotiations can be quite intricate and lengthy. Negotiations end when all parties have come to a final decision and have agreed to contractual guidelines”. They further say that “negotiation is an intricate process that entails more than just numbers, details and information collecting. Skillful negotiation deals with every aspect of negotiation one can think of from running in depth cost analyses to learning how to deal with a specific party at its level and its comfort level”. Answer.com defines “Negotiation as a dialogue intended to resolve disputes, to produce an agreement upon courses of action, to bargain for individual or collective advantage, or to craft outcomes to satisfy various interests. It is the primary method of alternative dispute resolution”.

According to Christopher W. Moore “negotiation occurs between spouses, parents and children, managers and staff, employers and employees, professionals and clients, within and between organizations and between agencies and the public. Negotiation is a problem-solving process in which two or more people voluntarily discuss their differences and attempt to reach a joint decision on their common concerns. Negotiation requires participants to identify issues about which they differ, educate each other about their needs and interests, generate possible settlement options and bargain over the terms of the final agreement. Successful negotiations generally result in some kind of exchange or promise being made by the negotiators to each other. The exchange may be tangible (such as money, a commitment of time or a particular behavior) or intangible (such as an agreement to change an attitude or expectation, or make an apology)”.

In nutshell, we can say that negotiation is process whereby two or more parties try to gain something against another party and ready to sacrifice something for them as a result they reach into a point where both party agree to do and not to do something in the future. Therefore, in negotiation, negotiating parties try to create the win-win situation in which both parties will get something considering the interest of the other parties.

Making a rational decisions

Making a rational decisions is always hard for us because we always have limited information about future events and our decisions is always based on the forecasting of future events which makes our decisions always uncertain and unpredictable in terms of the future outcome of the decision being made. According to Ohio State University management professor, Paul C. Nutt, “we only get about 50% of our decisions in the workplace right! Half the time they are wrong”.  Actually this happens because we have to play with very limited information while making decisions. Most of the time our decisions are based on the past similar events and situations where we made the particular decisions which was successful in terms of the expected decision outcome and when we face the similar kind of situation again in the future then we try to relate or compare past decision situation and copy the same decision making technique and sometime even the decision to generate the expected future outcome. In addition to this, most of the time our decisions are misleading because of our own bias and bounded rationality.

Making rational decision in negotiations

My own experience, says that we are more prone to make non rational (irrational) decision while negotiating than while making individual decision. This is because while making individual decisions we just have to think about the outcomes of the particular decisions in terms of our own benefit standpoints but on the other hand while negotiating we have to think about decisions outcome in terms of other party’s perspectives along with our own benefits and interest. Therefore, we are more prone to make irrational decisions while negotiating. In addition to this, sometime we overestimate the other party’s interest rather than our own and became emotional while negotiating leading to the inferior and misleading negotiations.

In my opinion, the most important things we need to consider is the information about what we can and cannot sacrifice in negotiation. Beside this, reservation value of the opponent party is also important while negotiating. While practicing negotiations in our sixth week class I discover that we need to have a lot of preparations as a result negotiation can be more favorable to us rather than our opponents. During the middle of the negotiation practice I realized that we are less prepared to negotiate than our opponents. They force us to reduce the price of our Gas Compressor and our team manager was going to reduce the price in such a point which was completely unacceptable to other team members. It happened because we are unprepared. Furthermore, we were also lacking about the information about our opponents. We didn’t consider about what possible proposal they may purpose us and what is our bottom line or the best possible alternative to the negotiated agreement. In our negotiations we didn’t even calculate the least possible price that we can charge for our Gas Compressor. Therefore, “each party to a negotiation should spend some time in the other party’s shoes, imagining what the other side might really want to achieve. The more one can understand the values, needs, and issues from the other side’s perspective, the better the chance of guessing at what they might want as their priority needs”(Cathy Cronin-Harris)

To make an effective and wrathful negotiations, “we should consider what we will do if we fail to reach an agreement. That is, we must determine our best alternative to a negotiated agreement, or   BATNA” (Fisher, Ury, & Patton, 1981). “BATNA is important because the value of our BATNA provides a lower bound for determining the minimum outcome we require of a negotiated agreement. We should prefer any negotiated agreement that provides more value to us than our BATNA over an impasse; likewise, we should decline any negotiated agreement that provides more value to us than our BATNA. This assessment logically determines the negotiator’s reservation point also called an indifference point. It is the point at which the negotiator is indifferent between a negotiated agreement and an impasse”. (Max H. Bazerman, Don Moore) If we are unable to understand the BATNA then our emotions will play negative role leading to wrongful negotiations. 

Negotiation made in haste might result in bringing out the adverse result sometimes. The best example can be seen in Nepal’s current situation. At present, Nepal is going under the constitution writing process. But, to come to this point, there have been a lot of negotiations amongst the mainstream political parties and the rivals Maoists. Mainstream political parties such as Congress and UML played a major role in bringing the Maoists into the mainstream politics. The reason behind such achievement was the negotiation process held amongst them.

 To bring the Maoists into the main stream politics, major political parties of Nepal and Maoist negotiated each other but that negotiation was not rational in many grounds. This happened because the mainstream political parties were failed to consider their BATNA and negotiated wrongfully which was faulty and harmful to Nepal and its citizens. For example, to bring the Maoist into the mainstream politics they negotiated that Nepal will be no more a Hindu kingdom. Rather it will be a Non – Religious Federal Republic of Nepal eliminating the King from the power and having a presidential form of government. More than 80 percent of Nepalese citizen’s belief this decisions as wrongful as more than 80 percent of Nepalese are Hindu.

            As a part of the negotiation, political parties have been successful to throw the king away from the power and have a presidential form of government. Maoists came into the mainstream and election took place in which Maoists won the election. However, they could not sustain more and huge criticisms within few months led them to move away and the turmoil is continuing. None of the politicians are seem to be trustworthy towards the nation and the peace process is under risk. Inflation and security problems are major now in the country. With the shed of such eroding problems, general people are increasing their interests towards the long history of the Kingdom. Another flaws of the negotiations is that both mainstream political parties and Maoist negotiated that Nepal will have federal states and a central governing body. The states will be divided in terms of the castes of the people. Despite the fact that there has been numerous numbers of castes in Nepal habituated in a dispersed form, politic leaders agreed to divide the country into numerous caste oriented states. As an adverse effect, there have been war amongst the citizens to declare their territory as an independent state as per their caste. This seems to be impossible as there are hundreds of such castes. People are now fighting for their castes not for their nation. This has more deteriorated the political stability of the nation. Political leaders are now not being able to figure out the exact model that would suit the nation’s federalism.

The third flaw of the negotiations was that the combatants (Maoist rebel) of rival party Maoist would be merged into Nepal’s national Army. This has been a major obstacle for the peace process. There are around 12,000 combatants who are not competent to be the national Army. Moreover, if the rival party’s militias are put into the national army, the whole structure of the institution might come into the risk as that input might create an environmental degradation as a whole. The negotiation made in past has now been an obstacle itself because it is not proper to merge the fighters of one independent political party into an army force of the whole nation.

I have another personal experience in negotiation. After coming to USA I went to see someone to buy second hand car. It was Honda civic of 1996. The owner of the car was asking 3,600 dollar for the car. I check the car, drive it for a while and find everything was ok for me. When test driving was done we went to his house to negotiate the price. I asked to him that I am ready to buy the car for 3,200. I was thinking that he will reject my first proposal and I will increase the price to 3,400. But he agrees the price. After that I felt like I paid extra for the car. Several questions aroused in my mind. Why did he agree in my first proposal? Is there something wrong with the car? Not only this but also I was started thinking about whether or not to buy that particular car. Finally I bought the same car paying 3,200 but I thought I paid more than what the car is really worth. But later I realized that the car was in great condition and after few months I get the offer from someone to sell the same car for 4,000 dollar.   The lesson learned from this incident when two parties are negotiating and their negotiation come to the final point at the first argument or proposal of the opponent party then first party may think that there must be something wrong about the goods (car in my example) on which they negotiate. Therefore, quick acceptance of the proposal by one party in negotiation may result in dissatisfaction in one or both negotiating parties for short term and may even result in failure to negotiate.

Finally in conclusion, to make an effective negotiation, negotiating parties should aware about the need and interest of their own as well as the other party with whom they are going negotiates along with the reservation value of both side. Information about the negotiations and negotiating party is the key for successful and rational negotiation.

References:

Chi, M. T. H. (2006). Two approaches to the study of experts’ characteristics. In K. A. Ericsson, N. Charness, P. J. Feltovich, &

R. R. Hoffman (Eds.), The Cambridge handbook of expertise and expert performance. New York: Cambridge Press.

http://www.jstor.org/pss/245049

http://www.the-cost-reduction-consultant.com/whatisnegotiation.html

http://wiki.answers.com/Q/What_is_negotiation_explain_the_process_of_Negotiation

http://www.au.af.mil/au/awc/awcgate/army/usace/negotiation.htm

http://www.the-happy-manager.com/rational-decision-making-model.html

http://www.nysscpa.org/cpajournal/2004/1204/essentials/p44.htm

http://74.125.113.132/search?q=cache:5g9x5af5kMgJ:peacenetwork.se/documents_general/Ramesh%2520Kumar%2520Sharma%2520%2520Changing%2520Realities%2520andRamesh_Kumar_Sharma.pdf+Moist-+nepal+government+negotiations+in+nepal&cd=5&hl=en&ct=clnk&gl=us

PANERA BREAD CASE STUDY AND KEY SUCCESS FACTORS

Panera Bread is one of the largest players in the field of fast food restaurant business offering value added service with exceptionally high quality offerings. Its strategy is to provide a premium specialty bakery and café experience to urban workers and suburban dwellers. This strategy is closely aligned with a broad differentiation strategy in a ways that a broad range of consumer finds Panera’s offerings appealing and attractive. Besides this, unique menu with high focused on fresh artisan bread products, and the outstanding Panera’s bakery-cafe operations, signature bakery-cafe design, and the great bakery-cafe locations are major factors of Panera’s success.  In addition to this, Franchising is a key component of Panera’s success. Franchising has enabled Panera to grow more rapidly because it is the strategy of the Panera that enable it to be available in such location where  customer can easily find it. Till December 30, 2008, there were 725 Panera franchised bakery-cafes operating and signed commitments to open an additional 256 Panera franchised bakery-cafes.

As mentioned in its official site “Panera Bread serves fresh baked, handcrafted artisan breads, sweet and savory baked goods, hand-tossed salads, wholesome soups, and signature sandwiches in a distinctly warm and welcoming environment. Panera Bread is committed to using high quality ingredients in the food they offer and making a lasting contribution to the neighborhoods in which their customers and employees live and work through programs like Operation Dough-Nation”. Therefore, the unique menu offerings itself is the one of the major success factors of the Panera Bread.

Other Key Success factors of Panera Bread:

Distinctive Menu, great location and unique operating system: Panera Bread’s distinctive menu, signature café design, inviting ambience, operating systems, and unit location strategy allowed it to successfully compete in the restaurant industry especially for breakfast, lunch, daytime chill out dinner, light evening fare for eat-in or take-out, and take home bread. Beside this, convenience location and the way they operate themselves is also the key to their success.

Word of mouth communication: Panera’s Location and advertising are major factors in drawing in people. The main reason to be successful is through repeat business and word-of-mouth advertising. As mentioned in the case that 57 percent of the customers who had ever tried dining at Panera had been customers in the past 30 days.

Fast-Service and healthy and quality foods: : Panera Bread is able to provide a higher quality product in a short amount of time to its customers. Their operations combine the speed and convenience of traditional fast food with the food quality and appealing décor of casual-dining restaurants. Beside this it is able to convince its customers that all the food in Panera is made with higher quality materials and ingredients including the antibiotic-free chicken. They use highest-quality ingredients, with only fresh dough and preservatives and the bread is baked fresh every day. Panera Bread has a strong presence in the bakery-cafe segment. They have high quality food, including the award winning sourdough bread which is key to the Panera Bred success.

Artisan and Specialty Bread: The distinctive blend of genuine artisan bread is one of the key factors of the Panrea Bread success which is served in warm, comfortable atmosphere.  Artisan and Specialty bread offerings which has standard combination of calories, sodium, fiber and carbohydrates. 

Product Niche:  Panera Bread has niche market segment of artisan fast food that protects the company from direct competition in the fast food industry as well as the casual dine-in industry. It targets consumers who seek meals of higher quality than those offered by traditional fast food chains, yet do not have the time to dine in or have a sit-down meal in a restaurant. Panera Bread's product niche gives it the tools to cope more effectively with the challenges facing the fast food industry as well as the challenges facing the dine in industry. Panera Bread's cheaper items make it an attractive alternative to traditional eateries.

Meeting Customer Demands and Wi-Fi: To address the customer’s busyness and make them feel comfortable in the dining hall, they have equipped their restaurants dining hall with free wireless internet. By offering this amenity they can fully meet the needs of sophisticated and diverse customer base. Panera Bread has strong customer loyalty; they have a strong appeal to customers.   They also have a wide variety of food which appeals to a large group of people.

All above mentioned factors are the key components of the Panera Bread which enabled it to be market leader in its business. But those factors may not be the same in the future because of two reasons: the first one is that the customer’s  needs and demands may not be the same in the future or whatever is appealing for customer today may not be the same in the future. The second one is that there is a huge possibility that competitor with extra strengths and product and service offerings may emerge in the market place leading Panera Bread and replacing it from its unique market segments.

Possible future challenge that may affect Panera Bread key success factors

Rising production costs: Increasing cost of raw materials and cost of production like wheat prices, fresh dough prices, labor costs, rent, and other input costs may force Panera to increase the cost of its product. On the other hand due to the inflation consumer purchasing power may go down forcing management team of Panera Bread to reduce the price of the product to counter the inflationary effect and appeal more customers. Therefore, it is one of the key challenges to the Panera Bread to manage the price that is affordable to its customers, competitive in the market and still earn profit to sustain in the market.

Growing competition: Both traditional fast food and dine in restaurants are beginning to respond to the success of fast casual restaurant like Panera Bread. Other fast food chains have started to offer similar kind of offerings to its customers as Panera Bread does. Meanwhile, dine in restaurants have instituted carryout programs, fast-lunch guarantees, and lower prices, all measures to counter the concept of fast casual. If these trends continue, Panera Bread can no longer enjoy the safety of the product niche that it has occupied, and will face greater competition in terms of pricing and food quality. Beside this, intense rivalry in the industry pressures both market share and profit margins. As a consequence, increased competitive activity requires chain operators seek opportunities for improving both unit productivity and profitability. Food safety issues: Panera Bread’s relatively nutritious menu does not make it completely immune to problems faced by other fast food regarding safety issues. Today customers are educated conscious regarding health issues and they are always looking for healthier alternatives. Furthermore, problems with the food supply, such as an avian flu outbreak, also pose a significant threat to Panera Bread’s business. Even the perceived risk of illness could detract from consumers’ willingness to eat at the company’s restaurants.

Restaurants are affected by recession:  Fast food restaurants have often done well during recessions, as they are perceived as cheaper alternatives to sit-down restaurants. Panera, as a hybrid of these two models, may still face difficulties to maintain its positioning in the mind of its target customers. To remain competitive in the market they should able to manage low price in the future without reducing the quality image of its products and services.

References:

www.panerabread.com.

Thompson, A.A., Strickland, A.J. & J.E. Gamble (2010) Crafting and Executing Strategy: The Quest for Competitive Advantage 17th edition. New York, McGraw-Hill Irwin