I. STATEMENT/RECOGNITION OF DECISION REQUIREMENT/PROBLEM Facts of the Case Pinnacle is a small, publicly held Indiana-based machine tool company which is currently losing market shares due to aggressive pricing which have an impact on its profit margin. Don Anglos, Pinnacle’s CEO, heard a credible rumor that a chief competitor of Pinnacle is planning a hostile takeover of Hoilman, Inc. Don Anglos has to decide whether Pinnacle should attempt to acquire Hoilman, Inc. , a company known for its cutting-edge sensor technology and communications software developed to monitor robotics equipment.
Don Anglos knew Hoilman well due to the exploratory talks he conducted on a failed plan of a joint venture. By acquiring Hoilman, Pinnacle would be able to transform into a high-tech service company that provides top-notch service far more sophisticated than its standard maintenance and service contracts by developing software that could transmit real-time information to its customers’ equipment. Don was a problem-solver and a proven track record of successfully spotting new market opportunities. He believes that acquiring Hoilman would be a good place to start. This option will be gone if Hoilman will be sold to another firm.
Jennifer Banks, services division head, was enthusiastic about the acquisition and the new strategy describing it as “chance of a lifetime. ” Sam Lodge, CFO, disagrees on Don’s plan stating that “getting into service business is a mistake” and Pinnacle’s recent profit drop had not escaped Wall Street’s attention and further negative impact might scare investors. There’s uncertainty that going to a service business would make the company on top considering the number of competitors. II. DIAGNOSIS AND ANALYSIS OF CAUSES Key Problems/Issues Should Pinnacle acquire Hoilman Inc. by trusting Don Anglo’s instincts or onsider Sam Lodge’s factual concerns and position? Key Objectives 1) To evaluate the decision steps taken by CEO, Don Anglo and the Pinnacle team on the new strategy of acquiring Hoilman, Inc. 2) To provide alternatives and address the concerns raised by the CFO, Sam Lodge. SWOT Analysis Strengths • CEO has proven track record on new opportunities • Services Division Head is very enthusiastic about the strategy • Don Anglos has prior knowledge on the company (Hoilman, Inc. ) that he wants to acquire • Don Anglos’ instinct is strong towards this new project • Pinnacle had relatively healthy earnings and had potential for growth Anglo had managed to pushed the company’s revenue growth and increase market share Weaknesses • Support of the Pinnacle team for the acquisition is not firm (Resistance from the CFO and some senior managers • Company is not in the position to embark on new project that would risk the company’s earnings. • There is uncertainty if acquisition would yield a positive result • Aggressive pricing chipped away at the company’s healthy profit margins Opportunities • Develop a software that would make them ahead of their competitors • Acquisition will transform Pinnacle into a high-tech service company • Increase company’s profit margin Acquisition of Hoilman would protect the company from impending takeover by a chief competitor. Analysis of the Problem Don Anglo and the members of the senior management team is facing one of the crucial parts of good management which is good managerial decision making. Anglo and his managers are encountering a situation which is unique and will have critical consequences for the company thus, they have to make a non-programmed decision on whether to acquire Hoilman Inc. or not. Whether to acquire Hoilman, Inc. ill involve risk and uncertainty. Even though Anglo knew Hoilman well because he had exploratory talks with the company, the future outcomes associated with the acquisition still poses a risk and uncertainty. This is evident when Sam Lodge specifically mentioned that “getting into the service business is a mistake” and there is no guarantee that Pinnacle will come out on top and there is no evidence to prove that the market can afford to buy such services. The decision making model that suit the situation of Pinnacle Co. s the Political Model since it is useful for non-programmed decisions, such as the case of Pinnacle which involves uncertainty and managers’ disagree about what course of action to take. The decision making steps or the six steps in the managerial decision making process will help Anglo and his managers to come up with a good decision regarding the issue of acquisition. Unfortunately in the case, they have not completed the cycle. The first step is the Recognition of Decision Requirement which was taken by Anglo when he recognized the opportunity of acquiring Hoilman, Inc. nd transform Pinnacle into a high-tech service company. The second step is the Diagnosis and Analysis of Cause which unfortunately was not done by Anglo and his team. Most managers make a mistake when they often jump into generating alternatives before exploring the cause of the problem or the opportunity. Anglo and his team weren’t able to analyze the opportunity of acquiring Hoilman thoroughly. They should’ve considered the problem first by assessing how the opportunity occurs. What is the reason of the management of Hoilman for letting another company take over or the possible acquisition?
Is there urgency for a change in strategy? These are some questions that Pinnacle could answer and evaluate before coming up with the alternatives. The third step is the Development of Alternatives. This was done by Pinnacle when Anglo and his team laid down the advantages and disadvantages of the acquisition. According to Anglo, the transformation is the only way he envisioned growth and profitability. This was supported by Jennifer Banks. On the other hand, some of the senior managers and CFO Sam Lodge presented several arguments against the acquisition.
The succeeding steps on the decision making process wasn’t completed by Pinnacle. The fourth step is the Selection of Desired Alternative; managers try to select the option with the least amount of risk and uncertainty. Fifth is the Implementation of Chosen Alternative, communication motivation and leadership skills are important in this stage to ensure that the decision is put into action. The sixth step in the process is the Evaluation and Feedback, in this stage the decision makers should gather information to check how well the decision was implemented and if it is effective in achieving its goals.
Feedback is important is important because decision making is a cycle, which means it is a continuous process. The opposing view of Don Anglo and Sam Lodge about the decision on the acquisition is evident in the case and we can distinguish their personal decision styles. The decision-making style that describes Anglo’s approach is the Directive style. He prefers simple and straight to the point solutions to problems. Anglo acts based on intuition considering his proven track record of successfully spotting new market opportunities.
His intuition is based on years of practice and hands on experience. According to cognitive psychologist Gary Klein, intuition begins with recognition. “When people build a depth of experience and knowledge in a particular area, the right decision often comes quickly and effortlessly as recognition of information that has been largely forgotten by the conscious mind. ” (Daft, Richard, Management 8th Edition). On the other hand, Lodge’s personal decision making style is Analytical.
He based his decision not to acquire Hoilman on objective and rational data from management control systems and other sources. We are not saying that one is better than the other. Instead, it is important that managers should consider both rationality and intuition as a critical component of effective decision making. The new strategy that Don Anglo is proposing will have a major effect on the organization, the leader participation style of Anglo as CEO is to consult individually, which means he presents the problem to his subordinates for their suggestions and then make the decision.
The subordinates’ commitment is very important in carrying out the decision, if Pinnacle will acquire Hoilman, the support of the whole Pinnacle team is critical to make things a success and adapt to the changes that will happen, therefore managers should involve subordinates in the decision process. III. DEVELOPMENT OF ALTERNATIVES 1) Acquire Hoilman, Inc. Advantages: • Pinnacle could develop software that transmitted real-time information on its customer’s equipment • Set an advantage by providing top-notch service far more sophisticated than its current standard maintenance and service contracts. Will transform Pinnacle into a high-tech service company and increase the opportunity for more profit earnings • Prevent company from a hostile takeover from a chief competitor Disadvantages: • The further negative impact on earnings that would result from the Hoilman acquisition wasn’t likely to make already wary investors feel any better. • Competitors are already doing the strategy of breaking into the services market. • There is uncertainty that Pinnacle will come on top. • No evidence that customers could afford to buy any add-on services any time soon. Anglo may have a hard time getting the support of some managers and their subordinates in implementing the new strategy. 2) Do not acquire Hoilman, Inc. Advantages: • Prevent further negative impact on earnings. • Managers and subordinates will feel that their opinions are being considered by the management. Disadvantages: • Hostile takeover of Hoilman by one of Pinnacle’s chief competitors. (Therefore, the opportunity of Pinnacle of providing top-notch service will be forgone and be enjoyed by its competitor. 3) Develop a further study of the possible acquisition of Hoilman, Inc. and allow the subordinates to get more involve in the decision making process. Advantages: • Boost employee morale. • Prevent any tension among the senior management team. • Will encourage the members of the organization to participate in any changes that might occur in the company in effect of the decision to be made. • Will be able to get substantial information from the market on the idea of an add-on service. Disadvantages: May take time to come up with a decision and may lose the opportunity of the acquisition, if competitor will decide faster to take over Hoilman, Inc. • Pinnacle might be at the losing end if it’s not quick with its decision. IV. SELECTION OF DESIRED ALTERNATIVE Based on the alternative strategies given and the current state of Pinnacle, making a decision fast is a critical factor. Acquiring Hoilman is the best alternative considering the time constraint and the threat of a takeover by a competitor and also assuming that the company has the financial capability to do the acquisition.
Not doing this strong move would not also do any good to the company since it would give competitors more opportunity to acquire Pinnacle. Acquiring or not acquiring Hoilman both entails risk to the company. Although acquiring Hoilman post the risk of scaring investors and not getting positive result with the move but almost all business have that risk. Not acting immediately or not acquiring Hoilman may be perceived as a safe strategy at the moment considering the financial status of the company but it posts more harm to the company than advantages.
Yes it would keep investors at the bay but would it provide boost to the company’s losing profit? Would it provide opportunity to outclass its competitors? Considering the alternative of conducting further study of the possible acquisition of Hoilman may also be a good alternative because it would address a lot of things. Morale issues, concerns raised by the CFO and other senior management members. It would be a great venue for soliciting genuine feedback and come about with rational decision process.
This collaboration among employees of the organization is what we call the Learning Organization. There is team-based structure which means there is communication and cooperation across departmental and hierarchical boundaries. Also, Employee Empowerment is evident by giving them the freedom, resources, information and skills to contribute to important decisions. Last but not least there is Open Information, which means that people in the organization are aware of what’s going on.
They should understand the whole organization and they are part in it. But the question is, how long would this process last? What if during this process, competitors have already acquired the supposedly “opportunity of a lifetime”? What if the chief competitor has made his moves of acquiring Pinnacle? Trusting on Don Anglo’s intuition is not a bad idea given the current situation and threats surrounding the company, his experience and problem solving skills and determining opportunities cannot be discounted.
Yes, he needs to see the rational side of the impact of his decision but still he must make his decision or suffer the consequence. In this way we apply intuition in the right circumstance and take a balanced approach. V. IMPLEMENTATION OF CHOSEN ALTERNATIVE The chosen alternative can be implemented based on the following suggested activities: 1) Set a meeting with the BOD and top management of the company to communicate with them the final decision of acquiring Hoilman, Inc. 2) Release a memo to all employees regarding the acquisition of Hoilman, Inc. ) After the acquisition of Hoilman, prepare a business plan incorporating the acquisition of Hoilman to Pinnacle’s original business plan 4) Meet with the stakeholders of the company and let them understand the advantages of the decision of acquiring Hoilman. Let them be aware of the risks of not taking the move immediately and the risks of going into this venture which is but natural to any investment transactions. 5) Conduct brainstorming and feedback about the opinions and possible effects f the acquisition to the members of the organization, to be lead by managers of such department/group and whatever will be the result will be presented to the management team for consideration and evaluation. • Ensure that business and financial statements are in order. Key elements include: keeping the tax returns and financial statements current, understanding the impact the acquisition will have on the cash flow, and getting the money needed for the acquisition pre-approved. • Prepare the company for the possible outcome of the acquisition.
Manage the stakeholders’ expectations and solicit their commitment on the project. • Set up teams to handle the integration plans. Review infrastructure, process and system requirements. Manage people’s skills by identifying if there’s a need to let go unneeded manpower or look for capable people to handle the new setup. • Evaluate if implementation plans are in order and on schedule. VI. RECOMMENDATION / CONCLUSION In every organization, decision making is important and must be taken seriously by managers and all members of the organization.
The decision-making steps is important to be taken step by step to be able to recognize the problem at hand, evaluate information, develop strategies, come up with the desired alternative, implement it effectively and provide evaluation and feedback on the chosen alternative. It is important to do all the steps because each step will guide us on the next process and the decision making process is continuous and never-ending. It is also significant to determine what kind of decisions we are making.
The case also presented that in the work place, it’s not all the time that decisions are based on facts and rational reasoning. But there are times that managers must decide based on intuition when the circumstance calls for it; this can be done if decision maker has years of expertise and hands-on experience in a business situation such as of Pinnacle. It is important to consider both rationality and intuition to help arrive at an effective decision. The Vroom-Jago model helps managers to identify the extent of participation by subordinates in making the decision.
In the case of Pinnacle, it is important that every member of the organization to provide inputs for the decision-making. The effect of whether to acquire Hoilman or not will have certain effects to the organization and to its members but in the case of Hoilman where sense of urgency is needed it will have to take a back seat for the meantime but before implementation of the decision, management will have to secure that each member of the organization is aware of the situation and they should also listen to their opinions and suggestions on how to implement it properly.
This where the idea of Learning Organization will come in, during the implementation stage each member of the organization will be encourage to as a team, employees have the chance to make decisions and perform effectively and information will be available to everyone.