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What is Decision Making in Business?

Question:

Discuss about the Analysis of Al Dunlap Business Decision Making.

Decision making in business refers to the act of choosing a certain course of action from different alternatives to achieve certain goals or objectives (Ford & Richardson, 2013). Good decision making is an integral part in the management and success of a business’s operation as seen in the case study of Al Dunlap, former CEO of Sunbeam Corporation, whose bad decision making led to a significant financial tragedy and a subsequent loss of his job. This paper seeks to analyze the strategic management decisions made by Al Dunlap using business decision making theories, identify the personality traits and values influencing his decisions and highlight the sequence of events leading to the destruction of Al Dunlap and the financial failure of Sunbeam Corporation

Prospect theory can be described as the process of making decisions with high risk to get a chance at a great gain. Decision makers in this theory would rather risk gaining small outcomes than missing out on the chance to end up with great gains (Liu, Fan & Zhang, 2014). Albert Dunlap expressed this theory by using the ruthless methods he had used at former companies to improve their financial status. The success of massive layoffs, unethical accounting practices and ruthless leadership he was famous for and that had worked to improve Scott Paper Company among others made him risk losses at Sunbeam Corporation by applying the same methods even though they were not suited for the company. Recommendations to this would be the planning decision-making theory that ensures a specific appropriate return. This would have led to a decision that addresses the specific issues Sunbeam Corp. was having and making real accounting reports even when they reflect small growth.

This is the theory where strategic management decisions are made by choosing the best alternative even in the presence of risk (Edwards, 2013). The assumption made in this theory is that the decision maker has the intention of gaining pleasure and the prevention of pain. Al Dunlap took the decision to effect the bill and hold at Sunbeam Corporation where sales of a large number of items were made at highly discounted prices and stored in third party warehouses before delivery. Al Dunlap chose the bill and held as his best alternative to create good financial results and gain the pleasure of maintaining his reputation, making money for shareholders and avoid the pain of reports of poor results while risking the company for losses. An alternative decision would have been to employ the decision-making theory that avoids risk at all costs. This would have led to alternative incentives to improve and attain realistic sales increase that comply with accounting laws.

In this theory, the decision maker makes the best decision from a set of alternatives with the limitation of information, time and intellectual resources. It is the direct opposite of optimization in decision making (Misuraca, Faraci, Gangemi, Carmeci & Miceli 2015). Al Dunlap made the decision to give the board of executives at Sunbeam Corp. an ultimatum of leaving the company if he did not get the right support and also made insensible allegations against partner Ronald O. Perelman who owns 14% of the company. These decisions were made without prior consideration of how the board would react to this information or taking the time to cool off after the poor results and negative news reports about the company. This decision eventually led the board to make the hard decision of firing him. A rational decision-making approach, where all facts were present, could have given Al Dunlap time to properly make investigations giving him viable solutions that he would have presented to the board.

Prospect Theory and Al Dunlap's Decisions

Attribution theory refers to making a decision based on the observation of other people’s behaviors and how they perceive them. The theory is useful in an organizational setting because it helps managers to understand the reasons for certain behavior in their employees. Al Dunlap made his decision to ask the board to either give him assistance or he would quit based on his attribution to Ronald Perelman. Al had observed Ronald Perelman and come to the conclusion that the billionaire was conspiring to bring down the stock to buy the company at a low price. Al made his decisions with an understanding that Ronald had a vendetta against him and was out to get him. Dunlap made the wrong attribution on Ronald Perelman because his emotions made him biased. The theory of rational ignorance would have helped him realize that the cost of acting on this information would have been greater than ignoring his speculation.

This is the theory where the interests of the stakeholders are considered when making a decision. Al Dunlap made the detrimental decisions to engage in the bill and hold and accounting misdemeanors to ensure he made profits for the stakeholders and kept the stock at a high valuation. Choosing to address the interest of the stakeholders even when it was not favorable for the company led to financial problems for Sunbeam Corp. It also eventually led to his work termination and investigation into his suspicious financial results. The approach of planning decision theory could have kept him focused on prioritizing the company before stakeholders even when decisions do not lead to an increase in shares.

Self-aggrandizement made Al Dunlap execute the destructive bill and hold the decision to gain praise by raising the company’s financial status while also maintaining his reputation for good reports (Friedman & Friedman, 2014). Self-aggrandizement was also an indication of his narcissistic personality. This led to significant financial losses that were avoidable had Al Dunlap made decisions addressing the real problems of Sunbeam Corp. without the motive of unrealistically high financial growth.  Al Dunlap lacked self-control and made hasty decisions that were not well thought out when he approached the board with allegations about Perelman and threatened to quit. This trait was also visible when he threatened analyst Andrew Shore. The negative consequences of these actions had he taken the time to evaluate the situations and make the optimal decision.

An explicit portrayal of a callous and ruthless indifference to employees is seen in the massive layoffs carried out by Al Dunlap in most of the companies he leads as a way of financial recovery. This earned him the nickname Chainsaw Al and depicted his evil overlord personality. Layoffs do not seem to be a permanent solution as witnessed in the Sunbeam Corp. case and better results would be attained with layoffs based on performance. Psychology theories attribute a lot of his character traits to those of a psychopath. Pride is a trait that Al Dunlap shows through his reactions whenever the pride of his reputation is attacked through negative news reports or financial analysis (Birkinshaw, 2013). Security from doing the right thing and being less motivated by fame would have helped Al Dunlop as it would have avoided the threats made to analyst Andrew Shore and the incriminating reports made every time a news report made an allegation against him.

Al Dunlap joined Sunbeam Corp in mid-1996 as the CEO after a successful financial recovery and sale of Scott Paper Co. His reputation of guiding companies into making money by ruthless layoffs among other unethical grew the company’s stock. This made the sale of the company impossible which he had planned to along with the already accomplished layoffs and plant shutdowns. Under Al’s directive, the company instead acquired three more companies and continued to show great results until the third quarter which started to show suspicious results in unit prices and accounts payable. Suspicious results continued to show in the next quarter leading to the investigation into the company which revealed the bill and hold and the accounting practices associated with it (Hatfield & Webb, 2011). This decision was made in accordance the prospect theory where the bill and hold decision was made because it seemed to have the most attractive outcome despite the risk of losses afterward.

These revelations led to bad press, a drop in the stock market and massive losses to the company which all seemed to make Al Dunlap infuriated as seen through the meetings he later called to explain the situation and his threatening of analyst Andrew Shore. The final blow to Al Dunlap came when he called a board meeting of the company’s executives and threatened to quit if he was not given enough support to buy out stakeholder Ronald Perelman who he alleged was after the enterprise. This decision led to his departure from the company after the partners voted to have him fired (Byrne, 1998). The satisficing theory of decision making which Al Dunlap uses to relay info at the board meeting led to the loss of his job because he did not make time to gather information that would assist him in the optimal solution of the company’s financial problems.

References

Birkinshaw, J. (2013). Voices: Not?So?Secret: Deadly Sins of Management. Business Strategy Review, 24(1), 82-83.

Byrne, J. A. (1998). How al dunlap self-destructed. Business Week, 6, 58-65.

Edwards, W. (Ed.). (2013). Utility theories: Measurements and applications (Vol. 3). Springer Science & Business Media.

Ford, R. C., & Richardson, W. D. (2013). Ethical decision making: A review of the empirical literature. In Citation classics from the Journal of Business Ethics (pp. 19-44). Springer Netherlands.

Friedman, H. H., & Friedman, L. W. (2014). Springtime for Hitler: Lessons in leadership. Psychosociological Issues in Human Resource Management, 2(2), 27-42.

Hatfield, P., & Webb, S. (2011). Sunbeam Corporation: A Forensic Analysis. Journal of Business Case Studies (JBCS), 6(1).

Liu, Y., Fan, Z. P., & Zhang, Y. (2014). Risk decision analysis in emergency response: A method based on cumulative prospect theory. Computers & Operations Research, 42, 75-82.

Misuraca, R., Faraci, P., Gangemi, A., Carmeci, F. A., & Miceli, S. (2015). The Decision Making Tendency Inventory: A new measure to assess maximizing, satisficing, and minimizing. Personality and Individual Differences, 85, 111-116.

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