Case Study - Home Specialties- based onCyert, Dill and March (1958)

A medium-sized construction firm wanted to find new work space and storage space for its Home Specialties Department. Home Specialties had a unique and somewhat insecure position in the firm. Other departments rarely shared its customers. It used union labor like other departments of the firm, but unlike most of its competitors; therefore, its labor costs were too high to enable it to bid successfully on many projects. High labor costs and changes in style and technology in the construction industry were causing the department's market to shrink. Top management expected sales of the department to decline. Top managers outside the Home Specialties Department had negative feelings toward the department for two reasons: 1) the head of the department was a senior manager in the firm and his earnings under a profit-sharing contract were higher than the earnings of almost all other department heads; and 2) other departments were also expanding, and some of them were anxious to take over space that was being used by Home Specialties.

For at least two years, managers had faced the problem of deciding the long-run importance of Home Specialties operations and of providing plant facilities to accommodate expanded operations had been an issue for at least two years. Management had long been aware of the need for some kind of action. However, there was no consensus about what the critical problem was or about what alternative would be satisfactory. The President, who believed centralized operations was most efficient, initially viewed the problem as one of finding a way to expand facilities at or near the current site. The Head of the Home Specialties Department wanted to move the department to a new location, where it would not be in conflict with the operations of the other units. Some members of general management thought that the department should be dropped from the firm in order to release working capital for units that had a brighter future. The President and the Branch Manager had talked of maintaining the department, but of limiting it to the size that fit the existing site. Managers had talked about reducing the share of profits going to the department personal, and forcing the Head of the department to take a cut in salary. Some years earlier, a few managers had almost forced the department manager out of the firm.

The President's show of interest when a local plot of land became available, coupled with continuing pressure from department management to investigate possible new sites, resulted in a decision to concentrate on a search for a new site. A study of the feasibility of moving the department may have seemed timely, too, because of the President's independent decision to renegotiate profit-sharing contracts with department management. Since the department manager and his assistant wanted to move, a decision to support their search for a new location might have been regarded as an inducement to them to accept a cut in earnings. In addition, the move might make it easier to curtail department operations or to ease the department out of the firm.

Requirements for the new site were set forth in a conference attended by the branch manager, the Department Head for Home Specialties, his assistant, and a specialist in estimating costs of building alterations. The pressures on current facilities, at least, were not expected to increase over the next year or two. In defining the requirements for a new site, the executives in the department were trying to find something that would be equivalent to what they already had. The assistant head of the Home Specialties Department initiated most suggestions for the site requirements. He worked from a memorandum he had prepared earlier. The Branch Manager drafted the final set of requirements after the meeting. The essential specifications are included in Table 1.

The conference was notable for the absence of real debates about or explicit consideration of the relative importance of different kinds of requirements. The discussion was oriented toward making sure that the new site would offer the same facilities as the old one. The most intensive discussion for several requirements centered on reaching an agreement as to what facilities the department had at its current location. The question of flexibility of various requirements was hardly raised, although it was unreasonable to expect to find a site that corresponded to all of the committee's specifications.

An intensive search for sites followed the conference and lasted for four months. The evaluation of each site about which information was received was a three-phase process. First, the branch manager or another member of the central management group looked at the initial information that was available from the advertisements, phone calls, or cursory visits to the site to decide whether the site was worth further inspection. At least 18 sites were rejected at this stage because they all failed to meet one of a small set of requirements. The most important considerations at this stage were: (1) whether the site could be rented (the company did not want to purchase), (2) whether the site was located near the company's existing facilities (something within 10 minutes' driving distance was preferred), and (3) whether the site was approximately the right size (sites with 15,000 to 25,000 square feet were preferred). One or more of these three factors caused the rejection of eleven of the eighteen sites in this early phase. Of the remaining seven, one was rejected because of problems of access, one because of an unsatisfactory layout, and five for unknown reasons.

The second phase consisted of a more detailed evaluation of the site potential. Four sites were given detailed consideration. Members of the Home Specialties Department staff estimated the expenditures required to make the necessary heating, lighting, and ventilation installations. One of the four sites was rejected after the detailed inspection because the branch manager found it liable to frequent flood damage and because the company would have had to buy other leases on the property.

There were, then, three sites that management thought good enough to prepare bids on. Site number 2, the first one for which a bid was prepared, had an area about the same as the specifications called for; but site number 14 and site number 10 were both smaller than the specifications required. Site number 10 was at the distance limits set by management and site number 14 was beyond the distance limits set by management. Management expected to get by on site number 2 with a bid of $10,000 to $15,000 for 24,000 square feet of space; the bid on site number 14 was $12,000 for 18,500 square feet. On site number 10, the third one for which a bid was prepared, management considered offering $17,500 for 15,500 square feet of space, excluding yard space which had to be obtained separately.

The bids on sites number 2 and number 14 were turned down by the agents for the properties, but the bid on site number 10 was never submitted. The President refused to approve the bid because he thought it offered too much money for too little space. The search for a new site for the Home Specialties Department apparently ended with the President's refusal to approve the bid for site number 10.

Questions for Discussion

This is an open book assessment. You are free to access any lecture slides or material available on the internet.

Get into groups of FOUR, discuss and write answers for the following questions.

Each question carries 20 marks, where the total marks for this assignment is 100. This assignment will contribute to 20% of your final grade.

1.Would a Model-Driven or Data-Driven DSS have helped in making this decision?

2.Would this company have benefited from a Group DSS?

3.What type of decision situation is described? Routine? Structured? Unique? Political? Strategic?

4.What was the decision process? Illustrate the decision making process described in the above scenario.

What is the decision-making context for this situation? Describe this situation in terms of its elements