Strategic Decision Analysis
Student’s Name
Institutional Affiliation
Table of contents
5.0 Improvement of the Decision Process
1.0 Executive Summary
Strategic decision-making is essential when a decision has long-term implications (Mullins et al., 2016). In many cases, the financial commitments associated with a car purchase limit the choices available to potential buyers. For this case, the student interviewed another Australian student who had purchased a car in the previous 12 months. The researcher developed an interview protocol based on Mintzberg’s et al. (1976) MRT model to understand the decision-making process and the impact of various factors on the final decision. Finally, the researcher provides recommendations on how the student could have improved their decision.
2.0 Introduction
The case study evaluated an Australian student’s decision to purchase a car. For most individuals, buying a car is a significant financial decision and requires a strategic evaluation of triggers and desired outcomes. Students have stricter budgetary constraints compared to those in full-time employment as they have to make time for classes, part-time work [if any], social activities, and rest. Therefore, purchasing a car requires deferring some expenditure for a while, whether through saving to buy the vehicle in cash or to repay loans used in financing the acquisition. Other factors influencing the car purchase decision include demographics, trends, income, personal preferences, utility desired, price, insurance, among others (Sirgy & M, 2018). Therefore, buying a car can be considered as a strategic decision requiring an analysis of multiple influential factors to optimize the decision outcomes.
Nevertheless, research shows that when faced with complex unprogrammed situations, decision-makers reduce the major decision into sub decisions applied as general-purpose routines. That is, the decision-maker simplifies a complicated problem into familiar, structural elements. Furthermore, the decision-maker may involve one or more problem-solving shortcuts that work to reduce complex scenarios into a series of simplified conceptual models.
3.0 MRT Decision Process
3.1Recognition
Recognizing the need for a decision is driven by the variance between information on some actual situation and the expected standards. The expectations may be organizational or from other people. From the interview, the student’s decision to purchase a car was driven by multiple variables in their life and environment. At the time, John was a third-year student in Melbourne going into his fourth year. As a pre-emptive measure to avoid large student loans, John worked a part-time job for $30 hours every week at a wage of $13/hour. However, as the school schedule intensified, the number of late appearances to school began increasing as the commute from his apartment to school was approximately 10 miles. John’s workplace was a further two miles from the school, a distance he usually walked to avoid delays in traffic jams. Due to the conditions of the work and the school curriculum, missing either was NOT an option. However, a reliance on Melbourne’s public transport infrastructure was proving unsustainable.
3.2 Diagnosis
After recognizing a problem from internal and external stimuli, the decision-maker moves to the diagnosis stage. At this point, they are faced with a multitude of partially ordered data and a new situation. The novelty means that the decision-maker does not encounter preformulated strategic decision situations. Therefore, the decision-maker utilizes its existing information channels and creates new ones to clarify the situation.
In John’s case, the delays in class and work attendance were driven by an unreliable and overburdened public transport infrastructure. Although a map of Melbourne’s public transport network suggests a comprehensive service covering most of the City, it remains deficient in some respects. End to end travel time is a critical metric in comparing public transport with personal driving. However, Melbourne’s suburban buses only run every 30 to 60 minutes, with even passenger wait times for traits and trams exceeding 40 minutes during peak hours. Consequently, people spend more time waiting for a service rather than using it. Moreover, due to a lack of on-road priority, trams and buses experience frequent traffic delays. The delays are compounded by the indirect, slow, and confusing routes that increase the travel time, which made public transport unviable for my time-sensitive obligations.
John’s course curriculum required approximately 12 hours of in-person classes per week, with some of the lectures delivered online. The part-time job provided roughly $1,560 every month, which could not be increased due to the risk of interfering with studies. John also had roughly $3,500 in savings so that a new car would have generated significant financial strain. However, a used car with average mileage would serve John’s computing needs without the added hassle of insurance and maintenance. Nevertheless, John had to decide on the allotted budget for the car before commencing a search. He also had to decide whether to purchase cash, lease, or use financing. Other financial considerations of car ownership included the sales tax on the purchase, a registration fee, ongoing maintenance costs, and insurance premiums. As a student with limited driving experience and credit history, interest repayments, and insurance premiums on a new car would have been prohibitively expensive. John’s fixed income also meant that he could not afford monthly payments, which automatically necessitated a cash purchase. Therefore, he opted to purchase a used vehicle that served his commuting needs.
Having had a passing interest in cars during his teens, John’s choice of a used car would allow him to practice his maintenance skills while minimizing expenses. Older vehicles have fewer electronic components that make personalized maintenance a viable option. Moreover, purchasing a used car would minimize depreciation expenses as new vehicles depreciate more rapidly than their older iterations. Besides, choosing a used car meant that John had a wide selection from which to choose, thereby giving him more opportunities to find an available vehicle at a bargain.
3.3 Search
Mintzberg (1976) identifies the development phase of strategic decision making as the most resource-intensive. Development proceeds as either a search or design. The investigation involves seeking ready-made solutions for the identified problem while method requires developing custom solutions or modifying off-the-shelf ones. The decision-maker then employs one or more search routines to collect the required information. Search routines used by John in his car purchase decision include memory, trap, and active searches.
A memory search is where the organization scans its existing memory. John began the search process by reviewing any of his friends who were selling a used car or knew someone who was. He also began sourcing recommendations on the metrics to evaluate when comparing different alternatives such as mileage, fuel economy, space, color, warranty, durability, maintainability, driving history, among others. John sourced the recommendations from his father, an avid car enthusiast, his university friends, and experts on internet forums to ensure he made informed decisions.
Trap searches involve the generation of search generators to produce alternatives (Soelberg, 1967). For John, this involved searching for “used cars in Melbourne,” “second-hand cars in Melbourne,” among other phrases on major search engines such as Google and Bing. Moreover, reviewing local auction listings for used cars on social media platforms highlighted John’s interest in the topic of advertising trackers. With multi-device tracking and attribution, using specific keywords in my searches provided recommendations for similar searches or products other in which users have expressed interest. This helped to trim the number of results returned for used car searches.
An active investigation is a straightforward process of seeking alternatives, either through scanning a wide area or by focusing on a narrow one. John conducted this process by visiting the local dealerships to determine the available options. He also reviewed local online postings for used cars. Nevertheless, it is critical to note that the search process is not hierarchical. i.e., it does not proceed from a memory search → trap search → active search. Instead, it commences as a combination of memory and local intermingled with trap searches.
3.4 Screen
The selection phase is conventionally considered as the last stage in the decision process where the decision-maker has to choose between multiple competing alternatives. Nevertheless, since development requires dividing decisions into multiple sub-decisions, each with at least one selection step, a determination can involve numerous selection steps. Mintzberg (1976) identifies the selection phase as proceeding in three sequential routines: screen, evaluation-choice, and authorization. John’s selection moved through a multi-stage process as he refined the selection criteria.
Based on the identified need and desired outcomes, John screened the used cars available for sale in Melbourne and its environs. From thousands of listing from different platforms, he managed to filter his car choices to 2002 – 2006 Toyota Camry, 2004 Honda Civic, and Mazda, all of which had to have a decent body and right drivetrain. Other parameters include approximately 110-150K miles, safety considerations, comfort, conveniences, and color. He also visited Youtube channels dedicated to car servicing and maintenance to understand the long-term maintenance expectations for each of the required vehicles. Furthermore, he engaged one of his local friends with deep knowledge of cars to meet each of the selected car owners and taking the cars for test drives.
3.5 Analysis
In purchasing a 2004 – 2009 Toyota Camry, John would have a relatively cheap car at 3 – 4k AUD. As a student, the capacity is enough for his carrier needs, while fuel efficiency is appropriate for budget-constrained students. Additionally, John would have the requisite knowledge to make repairs himself, thereby reducing long-term maintenance expenses. Mintzberg (1976) also found that most people make choices based on past experiences. With a car enthusiast father, John had extensive exposure to do it yourself car maintenance, especially on the 15-year-old Toyota family car. Moreover, Toyotas have a reputation for reliability and low maintenance. However, at that price range, it would require finding a sold by owner listing rather than visiting a dealership. Additionally, being older models, John may encounter challenges in sourcing some spare parts.
Similar to the Toyota, a Honda Civic would provide reliable transport to and from school. However, considering that it was primarily an American car, John had no prior experience in their maintenance. Therefore, ownership would require learning proper maintenance techniques for a new drivetrain or spending additional funds in long term maintenance. Moreover, the spacious Honda Civic was less suited for John’s needs as fuel economy was a concern with the traffic delays in the City in addition to finding large enough parking spaces.
Purchasing a Mustang would provide John with a means of transport in addition to gaining status among his peer group due to the popular perception of the vehicle as a muscle car. However, its long-term ownership costs would accumulate as the older model would require constant repairs and service. Having had no exposure to the brand, John would have to pay third parties for the servicing, thereby affecting his budget negatively.
After evaluating the choices, John decided to purchase a 2007 Toyota Camry with $97,800 miles for AUD 3700. It was a black car in a relatively pristine condition with regular service records from the owner. While the final purchase price stretched John’s budget and required sourcing a loan from his parents, the car did not require any repairs to make it serviceable for immediate use. Moreover, the availability of service and driving records helped to keep John’s insurance premiums low based on the previous owner’s positive driving record.
4.0 Cognitive Biases
The most significant bias in John’s decision was confirmation bias. Confirmation bias is where an individual interprets information in a way that confirms their existing beliefs (Mercier, 2016). Virtually, the decision-maker ignores all information that contradicts their views and instead seeks factors that reaffirm their expectations. In John’s case, his automatic preference for a Toyota Camry may have been due to his previous exposure to car maintenance and the reliability associated with Toyotas. Mechanics often recommend Toyotas for first-time car owners due to the ease of maintenance and low servicing frequency required. Furthermore, John may have had brand loyalty to Toyota as it had been the family car for most of his life. Therefore, even if the vehicle did not fit the specific criteria identified in earlier stages, John would have still chosen it as he was already positively biased towards the choice.
Another significant cognitive bias is anchoring bias, where the decision-maker bases future judgments on the initial information (Lieder et al., 2016). In this case, anchoring was based on price, where expectations of higher values result in higher sale prices, while expectations of low prices reduce sale prices. Consequently, there are considerable variances in car prices for almost identical offerings from different sellers (Liu et al., 2017). This was also true in John’s case as prices ranged from $2.7k on the low end to $5k on the high end. Having conducted extensive online research on average sale prices and maintenance costs for the chosen cars, John expected the final purchase price to range from $3 – 4.2k, at which point the vehicle would exceed his willingness to pay. Furthermore, Toyota Camry appears as a recommended purchase in the used car market due to the availability of parts and ease of self-maintenance. Therefore, John’s initial expectations of a $3 – 4 k price point for the car influenced his final decision in selecting a seller. Since the price range also coincided with John’s allotted budget for the purchase, it also affected his flexibility in negotiations as he could not exceed the upper limit of $4k.
The third cognitive bias involved in John’s decision is the bandwagon effect. The effect states that people are more likely to like something if they believe it is popular with others (Winkler & Moser, 2016). This is evident in John’s choices during the screening stage. Toyota Camry is recommended due to its reliability and fuel economy. At the same time, a Mustang would make him popular among his peers, and a Mazda has the racing connotations and sporty image. For cars, models that are perceived as famous hold their value in the long run than their less famous alternatives. Ultimately, John chose the Toyota as it served his needs as a student while maximizing its long-term utility and resale value. Moreover, as American-made cars, Mustangs and Honda Civics were liable to have their steering wheel configuration to the left, which contradicted Australia’s driving practices. According to John, if he purchased any of the other options, he would have had problems selling it after completing his studies, since few people were willing to change their driving habits.
Another less significant bias was the mere exposure effect, which states that people have a high likelihood of purchasing from brands they already know (Bornstein & Craver-Lemley, 2016). Consequently, it was likely that John would have eventually chosen a Toyota based on his past experiences with the brand. Having had a Toyota as a family car may have signaled its reliability and affordability to John, thereby affecting his future car purchase decisions. Finally, John purchased due to a fear of missing out. The fear of missing out is where individuals are afraid more of losing something than they would gain something of comparable value (Clay et al., 2017). The owner had listed the vehicle on a public auction site with the bid deadline set to seven days. Viewing rising bids from potential buyers, John decided to visit the owner and make the purchase in person within two days. As an owner-sold car with detailed service records, the Toyota Camry was a bargain for a student in John’s position and would have low long-term ownership expenses. Consequently, John was afraid of missing out on the deal as it represented a culmination of multiple cognitive biases.
5.0 Improvement of the Decision Process
John could have improved his decision-making process by asking for expert opinions on his car selections. When visiting the dealerships or car owners, John could have requested the company of a more knowledgeable friend to help him in comparing opinions and analyses. Having multiple perspectives helps to minimize the influence of cognitive biases on decisions as people have different inclinations and can recognize fallacies in others’ reasoning.
6.0 Conclusion
The strategic decision-making process requires consideration of all internal and external stimuli to reach a decision that meets an identified need. After problem identification, the decision-maker proceeds through multiple stages before making the final decision. In John’s case, the strategic decision was a car purchase. As a student with a part-time job that provided approximately $1,500 per month, a car purchase was a significant financial commitment and required an evaluation of the problem, the purchase solved, and long-term considerations. He began by collecting information from both local and online sources, which triggered targeted advertisements. John proceeded to screen the alternative listings by developing criteria that had a Toyota, Mustang, and Honda Civic as the choices under consideration. While he eventually settled for a 2007 Toyota Camry, cognitive biases were affecting his decision, including familiarity, the bandwagon effect, and anchoring bias.
References
Bornstein, R. F., & Craver-Lemley, C. (2016). Mere exposure effect. Cognitive illusions: Intriguing phenomena in judgment, thinking, and memory, 256.
Clay, S. N., Clithero, J. A., Harris, A. M., & Reed, C. L. (2017). Loss aversion reflects information accumulation, not bias: a drift-diffusion model study—frontiers in psychology, 8, 1708.
Lieder, F., Griffiths, T. L., Huys, Q. J., & Goodman, N. D. (2018). The anchoring bias reflects the rational use of cognitive resources. Psychonomic bulletin & review, 25(1), 322-349.
Mercier, H. (2016). Confirmation bias–myside bias. In Cognitive illusions (pp. 109-124). Psychology Press.
Mintzberg, H., Raisinghani, D., & Theoret, A. (1976). The structure of “unstructured” decision processes. Administrative Science Quarterly, 21 (6), 246-275.
Winkler, J., & Moser, R. (2016). Biases in future-oriented Delphi studies: a cognitive perspective. Technological forecasting and social change, 105, 63-76.
Mullins, F., Brandes, P., & Dharwadkar, R. (2016). To Thine Shareholders Be True? Linking Large Corporate Ownership to Firms’ Use of Commitment Human Resource Practices. Human Resource Management, 55(4), 567-589.
Sirgy, M. (2018). The Psychology of Material Well-Being. Applied Research in Quality of Life, 13(2), 273-301.
Liu, C., Rouse, William Bill, Belanger, David, Mansouri, Mo, & Pennock, Michael. (2017). Enterprise Transformation in the Automobile Ecosystem: How Brands and Technologies Interact with Markets and the Environment, ProQuest Dissertations, and Theses.
Appendix
Appendix A: Interview protocol
(The questionnaire will allow the researcher to understand the decision-making process that guided you while selecting your graduate degree. Kindly feel free, to be honest as possible while responding to the questions.)
- What is your name?
- What is your gender?
- What is your age?
- What did you pursue your undergraduate?
- What was your area of specialization in graduate school?
- Why did you decide to do a graduate degree?
- What motivated you to choose the area of specialization?
- What factors did you consider when selecting a graduate degree?
- Who did you consult when selecting the degree?
- How did you select the institution for the graduate degree?
Appendix B: The MRT Model of Decision-Making