Introduction
There are a number of actions that a manager can take to achieve certain goals and objectives. The process by which people choose the cause of action they need to take from a number of other alternatives is called decision making. This is a cognitive process that involves mental abilities of the decision maker, their knowledge, as well as skills. It should be noted that the success of any business organisation partially depends on the decisions that are made by the managers and the employees, as well the people who are involved in running the organisational activities.
Wrong decisions by such people will contribute to the failure of the organisation. It is, therefore, imperative to use the right techniques in making decisions. Most of the techniques in decision making tend to revolve around the same point, which is the identification of the problem or the decision that needs to be made and then the generation of the various alternative options. This is followed by brainstorming to come up with the best option. This report will use the relevant theories and frameworks to analyse the case of General Motors (GM) and then give a recommendation based on the evaluation.
General Motors is a multinational organisation that is based in the United States of America. It deals with the manufacture, design, marketing, as well as distribution of automobiles and automobile parts. GM has operations in a number of nations across the world and it operates under 13 brands.
Background Summary
General Motors was the second largest motor vehicle company in the United States after the World War. However, it was way behind the leading company at the time, which was Ford. General Motors underwent a number of changes in a bid to improve its performance at the time, especially because there was an economic recession that affected the performance of many companies in the motor vehicle industry, as well as other industries in the economy. Pierre S du Pont bought 2000 shares of General Motors in the year 1915.
This was the beginning of a series of decisions that were made during the recession period that followed the World War I. The shares that Pierre S du Pont bought started growing in value, although this was not reflected in the general performance of the company. It seemed to be a very promising business for Pierre S du Pont and he was easily convinced to increase the number of his shares. Increasing the shares would give Pierre S du Pont more control of the company and he would play a major role in decision making to safeguard his investment.
He became the chairman of General Motors in the year 1915, although through an unofficial manner. During this period, General Motors was faced with a lot of uncertainties due to the prevailing economic conditions. Mismanagement was also an issue that went to an extent of threatening the company into bankruptcy. The first decision that was made by Durant was to allow Pierre S du Pont take more control of the company and rely on him to help the company financially. The decision worked, as General Motors was able to survive the harsh economic period; otherwise, the company would have collapsed because it did not have enough money to finance its operations. Therefore, it was a good decision by Durant to allow Pierre S du Pont to support General Motors financially.
However, the company made some poor decisions that led to a significant collapse in its business. The most critical decision it made was when it decided to expand its operations when the economic conditions were not promising due to the post war recession. The company bought other companies, such as Fisher Body Corp, among others. It also decided to buy its major suppliers in a bid to increase production. Consequently, the company had to increase its workforce, which meant that spending increased as the company was required to pay more wages to the additional employees. Pierre S du Pont was forced to put in more money because the company was not making enough money in proportion to its spending.
He had invested up to $49 million, which represented 28.7% of the company’s stake, by the year 1919. Carrying out expansion during a recession was disastrous to the company. It contributed to the company’s failure, such that its stock price went down significantly in the year 1920. It is at this point that Pierre S du Pont had to make a decision regarding his investment in General Motors. He had the option of abandoning the company to avoid incurring losses. Alternatively, he could stand with the company and continue supporting it, until the time its fortunes were revived because there was a high potential for growth. Pierre S du Pont decided to stand with the company and continued to put in more money, until his investment was 36% of the stake. With time, the company was able to run its operations again and started making profits once more.
In the case, there are decisions that were made by the organisation in its bid to survive. There were also the decisions that were made by Pierre S du Pont in his bid to capitalize on the opportunity that General Motors presented. In its decisions, General Motors only considered the alternatives that had a positive outcome and failed to take into account the negative consequences that were likely to occur. It did this in accordance with the incremental theory of decision making, which it used in reaching its decision to expand.
When the company resolved to expand, it only considered the benefits of this move in the future; however, it did not take into account that this was a time when the economic performance was on the downturn and it could lead to financial strains as the demand for its products would definitely go down. The company only considered the incremental part of the decision. This is a theory that should not have been applied in this case. The company made the decision that seemed to be right at the time, instead of the decision that could be workable for the long term benefit and growth of the company.
On the other hand, Pierre S du Pont made a decision by assuming that he knew his objectives and he had identified the problem. The problem at the time was the economic recession that had led to low demand for products. The objective of Pierre S du Pont was to capitalize on the opportunity that the investment presented once the recession period was over. He considered the costs, as well as the benefits that were associated with the decision. First, he knew that he had to support the company financially, until the recession period was over.
On the other hand, he was aware that he would benefit from the income that General Motors would generate once the recession was over. Pierre S du Pont aimed at maximizing the attainment of his goals in the long run by deciding to support the company. However, he did not take time to properly define the problem and formulate a solution. He did not take time to analyse the probable performance of the economy in the future (Portugali, 2012).
The theory that he applied here was the rational comprehensive theory. This is a theory that considers the benefits that are to be accrued from a given decision, but it does not take time to define the problem clearly. The theory does not give a precise prediction of the future consequences of a decision (Tavana, 2012). In the instant case, Pierre S du Pont did not consider what could have happened if the recession had taken a longer time than expected.
Theoretical Analysis
In decision making, it is always important to consider several options and the underlying consequences. One has to take into consideration all the costs, as well as the benefits that are likely to accrue from each of the decisions (Fitzgerald, 2013). As mentioned earlier, decision making can contribute to the success or the failure of the organisation. The success or failure will depend on the rationality with which the decision was made.
In making his decision, Pierre S du Pont took into consideration the economic benefits that he was likely to gain by investing in General Motors. However, he was aware of the downward trend of the company at the time. He realized that he was going to spend money in the company before it was able to resume its normal operations and generate its own income. Therefore, he was rational in making his decision (Glaser, 2010). According to the rational comprehensive theory, the decision maker takes into consideration all the possible options, as well as the approaches that can be used in making a decision. The decision maker proceeds to choose the alternative that will give the maximum benefits among the available options.
The decision maker should take sufficient time gathering all the relevant information that will guide the decision. In this case, Pierre S du Pont had two options. One was to abandon the company to avoid more losses, while the other one was to stand with the company until it was able to resume normal operations after the recession period. In the first option, Pierre S du Pont would avoid the losses, which would be beneficial to him.
In regard to cost, he would lose the income that the business was likely to generate once it picked from the recession period. In the second option, the costs included supporting the company financially, until the recession period was over. The benefits, on the other hand, included the profits he would earn from the company once it resumed normal operations (Po-Lung, 2012). Unfortunately, he did not take enough time to gather information. Nevertheless, the decision he made was positive, as the company became profitable again and Pierre S du Pont benefited from the opportunity.
Conclusion and Recommendation
Decision making is very essential, as it has a significant effect on the organisation or the individual in terms of success or failure. In the General Motors’ case, Pierre S du Pont was faced with a decision regarding investing in a company that was on the downward trend, but GM was expected to perform well after the recession period. It was not an easy decision to make, considering the uncertainties that surrounded the company.
First, the company made the decision to sell its shares to a man who was going to support it financially, a strategy that worked in its favour as it could not have supported its financial needs at the time. However, the decision to expand during a recession was wrong. On the other hand, Pierre S du Pont made the right decision to stand with the company during the hard times. However, he should have taken more time to gather more data before reaching the conclusion, as he was not certain how long the recession would last.
References
Fitzgerald, M. (2013). Managing under uncertainty, a qualitative approach to decision-making (2nd ed.). Sydney, Australia: Pearson.
Glaser, C. L. (2010). Rational theory of international politics: The logic of competition and cooperation. Princeton, NJ: Princeton University Press.
Po-Lung, Y. (2012). Multiple-criteria decision making: Concepts, techniques, and extensions. New York, NY: Springer-Verlag New York Inc.
Portugali, J. (2012). Complexity theories of cities have come of age: An overview with implications to urban planning and design. Berlin, Germany: Springer.
Tavana, M. (2012). Decision making theories and practices from analysis to strategy. Hershey, PA: Business Science Reference.