The application of the PrOACT method to Joan’s dilemma
Name:
� The PrOACT model has provided us a systematic approach to:
o Address the right decision problem (Pr).
o Clarify the objectives (O) – considering needs of key stakeholders .
o Develop a range of creative alternatives (A) – both creative and routine
o Understand the consequences of each alternative.(C)
o Make appropriate trade-offs among conflicting objectives (T) as we:
? Create unweighted / weighted decision matrices or use even swap as decision aids
? Deal sensibly with uncertainty.
? Take account of your risk-taking attitude /preferences
? Plan ahead for future linked decisions
o FYI: As many of you noted in LA 7-2, luck favors the prepared mind.
o I’ve truly enjoyed our learning experience together!
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Introduction
The PrOACT method is a decision making model that assists decision makers to make
better decisions and PrOACT is an acronym for Problem definition, Objectives, Alternatives,
Consequences and Tradeoffs. Defining the problem involve identifying the decision the
decision maker is trying to make. For instance if a company is faced with increased demand, the
problem could be whether to install additional capacity or outsource some of the functions.
Framing the decision problem is the most important single step. A decision problem framed well
will a drive the entire process of decision making (Akridge & Foltz, 2005). A good decision
problem assists in determining alternative courses of action in solving the problem. The next
step in the model involves specifying the objectives of the decision being made. For instance
what is the objective of installing additional capacity or outsourcing some of the functions? What
the decision maker intends to accomplish has an impact on the decision to be made (Akridge &
Foltz, 2005).
The next step involves creating alternative courses of action. This step is not difficult if
the first two steps have been made properly that is defining the problem and outlining the
objectives to be achieved by the decision to be made. Identifying a set of possible alternatives
that offer possible solutions to the problem is what is required in this step. The alternatives
selected should be the ones that will enable the decision made to achieve the objectives of the
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decision problem (Akridge & Foltz, 2005). The next step in the PrOACT decision making model
is to understand the consequences of every alternative identified. The decision maker at this step
maps the alternatives selected with the objectives of the decision problem. This step in some
cases makes use of a decision matrix to identify the best alternative that best achieves the
objectives of the decision problem (Akridge & Foltz, 2005). The last step in the PrOACT
decision making model is grappling with trade-offs. Many complex decisions in business
involves making trade-offs. This step involves identifying what will be given up by choosing one
alternative relative to what will be given up by choosing another alternative a decision is being
made. These steps of the PrOACT model briefly define what Joan Salmon should do to arrive at
a smart decision on the way forward for Invitations Inc. (Akridge & Foltz, 2005).
The application of the PrOACT method to Joan’s dilemma
In applying the PrOACT model, it is critical to design the decision problem. An analysis
of the company shows that it made sales of $1.5 million over the last two years with no growth
rate and costs have increased by 3 percent in the period. The company’s business model has
never undergone any major shift since the company was started over forty years ago. There is
therefore a lot of resistance to change. The organizational structure is hierarchical with the CEO
practicing an authoritarian leadership style (Akridge & Foltz, 2005). This can be attested to the
fact that the middle level managers feel that Mr. Garret Salmon, the CEO, is too controlling
whereas the CFO and Vice President just go with the flow. Decisions are made from the top and
cascaded downwards for implementation. Jane is also seeing opportunities that the company can
exploit to grow the company but which either no one is seeing or they are too scared to mention.
These opportunities include developing new products to grow the product line, selling to
customers directly etc. Jane’s decision problem is therefore what is the best strategy to grow
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sales which have flattened, manage costs which are growing and increase employee productivity
to get competitive advantage? (Ram, Montibeller & Morton, 2011)
The objectives of the decision problem are that Jane would like to increase the company’s
market share and increase sales revenues. The fact that the company made $1.5 million over the
two year period with no growth is one of her major concerns. She would like to identify the best
organizational structure, grow sales, and manage costs, increase employee morale and
productivity as some of the objectives of the decision problem. She wants also to improve
customer satisfaction by increasing engagement with the end users of the company’s products.
The other objective is that she wants the company to be adaptable to the changing environment.
The last objective is that she wants to design an organizational structure that improves the
productivity of all employees and especially assigns an appropriate role for his father that fits his
skills and competences. Other objectives includes coming up with an ideal organizational
structure that will accommodate Jane’s father (Tompkins & Rhodes, 2012).
The next step in the PrOACT decision model is developing a range of creative
alternatives to solve the decision problem facing Jane Salmon. The first alternative is vertical
integration. This strategy will enable the company to produce its raw materials and be engaged in
transportation, marketing and retailing. The next strategic option is divestiture. The other
strategic option is divestiture. In this strategic option, Jane will need to carry out a value chain
analysis to identify which activities or divisions in the company to divest from to cut costs. The
other strategic option that Jane could choose is market development (Woiceshyn, 2011). Market
development is the expansion of the total market for products. The strategy could involve
developing new products for the existing market, increasing sales of existing products to new
customers or developing new products for new markets. The next alternative is adopting market
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strategic option. Market penetration is a strategy that identifies ways to eliminate internal barriers
to sales and increases promotional efforts to sell more to current or new customers (Ram,
Montibeller & Morton, 2011). The next alternative solution to the decision problem is
restructuring the company. This strategy will involve modifying the structure and operations of
the company to eliminate significant problems in the company that are preventing it from
optimizing sales and minimizing costs. The last alternative solution to the decision problem is
retrenchment. This is a strategy aimed at reducing the overall size of the company. This strategy
is aimed at cutting expenses to enhance the financial stability of the company (Ram, Montibeller
& Morton, 2011).
The next step in the PrOACT decision making model is that Jane needs to understand the
consequences of each alternative strategic options. The first alternative solution to the decision
problem is vertical integration. The first consequence of this strategic option is that it could be
very costly to implement. The company will require funds to make its raw materials and it will
also require substantial amounts of money to set up card stores and stationeries in the location it
chooses to locate them (Oliveira, 2010). The firm will also incur costs in hiring and training
additional employees to undertake the new activities. The next alternative is divestiture. This
strategy will require that a consultant firm that is competent in divestiture strategy is hired. The
strategy may involve laying-off some staff which would cost the company in terms of severance
pay to those affected. The strategy could also lead to poor morale among the survivors. The
strategy could also lead to a lot of resistance to change especially when it will be substantial.
This will be costly as well. The next strategic option alternative is market development (Ram,
Montibeller & Morton, 2011). This strategic option is also expensive especially when it involves
developing new products or moving into new markets. These activities will require an increase in
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promotional activities and investment in new infrastructure such as new delivery vans, new sales
staff etc. The next strategic option is market penetration which involves identifying and
eliminating barriers to sales and increasing promotional activities to increase sales. This strategy
is also expensive since requires that the company increases its expenses in promotional activities
(Ram, Montibeller & Morton, 2011; Malakooti, 2012).
The next strategic option is restructuring. This strategy is less expensive than the ones
previously discussed. However, if it requires that Jane outsources the function to a consultant
then it will be costly to undertake. The other consequence is that it is likely to be resisted by staff
since the company has never implemented any change since inception. Any proposal to introduce
a new way of doing things will most likely meet strong resistance. This strategy might involve
laying-off staff which might be costly and lead to low morale to the surviving staff. The last
strategic option alternative is retrenchment (Ram, Montibeller & Morton, 2011). Retrenchment is
costly especially when it involves reducing the number of employees to cut the size of the
payroll. In this case the staffs who survive the retrenchment are normally demoralized as they
become uncertain about the level of job security in the company. It will also be quite expensive
to retrench staff since it involves paying them their retirement benefits and a generous severance
package (Baer & Liabotis, 2009).
The next stage in the PrOACT decision making model is for Jane to make appropriate
trade-offs among objectives. The best way to do this is by using a decision matrix. The
alternatives are ranked as from 1 to 5 ; 1 being the most ineffective, 2 as being ineffective, 3 as
being unsure, 4 being effective to achieve the objective and 5 being the most effective to achieve
the objective. The matrix is as follows. The matrix uses the flowing acronyms; Vertical
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Integration –VI, Diversification-D, Market Development-MD, Market penetration-MP,
Restructuring-Res and Retrenchment-Ret
Objectives VI D MD MP RES RET
Increase market share 1 1 5 5 3 1
Achieve sales growth 1 1 5 5 3 1
Cut costs 3 5 1 1 5 5
Increase motivation levels 4 1 5 4 2 1
Improve customer satisfaction 1 1 5 5 2 1
An ideal organizational structure 1 1 1 1 5 1
The main trade-off areas is to achieve sales growth and market share versus coming up
with an ideal organization structure that will ensure the father is gainfully engaged. The other
trade- off is cutting costs versus increasing market shares and achieving high sales growth.
The most ideal alternative is market development (MP) which will assist the company to achieve
most objectives identified. The next step involves identifying uncertainties and coming up with
mitigating strategies. The risks that are involved in market development strategy include market
risk, operational risk and financial risk. Market risk relates to the inability to get an adequate
market to enable the company meet its sales growth projections (Malakooti, 2012). Operational
risk relates to the inability or lack of capacity by the company internal operational set up to
service a large market. Financial risk relates to the inability by the company to obtain adequate
funds to finance the new strategy activities. Jane needs to prepare a budget to implement the
activities involved in market development strategy. It is important for Jane then to identify
decisions that will be linked to the market development strategy decisions. A decision to enter
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new markets will require new capital expenditure decisions. It is important for Jane to identify
uncertainties involved in the decisions he will make and if possible try to forecast future linked
decisions (Malakooti, 2012).
References
Akridge, J., & Foltz, J. (2005, Oct). Making better decisions. Feed & Grain, 44, 29-30,32-34.
