BMW Annual Report: Decision Making
Introduction
Decisions form the basis on which organisations implement different actions Johnson, Scholes and Whittington (2008) affirm that decision involves defining organisational purposes, authorising and allocating resources (Bier & Lin 2013). Decision-making is a fundamental organisational process that impacts different facets of an organisation. According to Bier and Lin (2013), decision-making within organisations is usually associated with group process and problem-solving Decision-making is also essential in an organisation’s strategic planning process. According to Thomas and Maurice (2017), ‘organisations can be seen as networks of decisions and decision-makers while an organisations’ management team can be regarded as the decision-making agent’ (p. 8). The effectiveness with which organisations’ management teams make decisions positively impacts their success. Considering the changing nature of the business environment, ddecision-makinghas become a critical internal organisational function. Thomas and Maurice (2017) affirm that decision-making is critical in an organisation’s innovation process. Thus, it is critical for organisation’s managers to develop adequate skills with reference to decision-making.
As one of the firms established in the global automobile industry, BMW has managed to achieve a global market position. One of the markets in which the firm operates entails the United States. By the end of 2015, BMW was ranked as the best firm with regard to the evelopment of cars and motorcycles (BMW Group 2015). In spite of its strong market position, BMW is increasingly facing challenges emanating from the global business environment. Therefore, BMW operates in a global business environment that is characterised by a high degree of uncertainty. For example, BMW is experiencing intense competition due to growth in the level of innovation by other global automobile companies such as Tesla, General Motors, Hyundai, and Toyota Motors (BMW Group 2015). To maintain its competitiveness, BMW’s management group must entrench effective decision-making processes, approaches, and models. This paper examines the application of the concept of decision-making within organisation. The evaluation is undertaken in relation to the case of BMW Group.
Definition of decision making
Thomas and Maurice (2017) define decision-making as ‘the process of making choices by identifying decisions gathering information and assessing alternative resolutions’ (p.74). Decision-making entails a complex process and involves the participation of different internal organisational stakeholders at different levels of the decision-making process. The decision-making process is comprised of different phases or steps that include identification of the need to make a decision, gathering the relevant information, identifying alternatives, evaluating the evidence gathered, choosing the most appropriate alternative, taking the relevant action, and reviewing the decision (Johnson, Scholes & Whittington 2008).
The complexity associated with decision-making arises from the fast-paced nature of the decision-making process (Thomas & Maurice 2017). Thus, business managers are required to make decisions under situations characterised by risk and uncertainty. Uncertainty in the decision-making process arises from the fact that the party charged with the responsibility of making a decision may lack the requisite information in order to make relevant and functional decisions (Esther 2013). Mahoney and McGahan (2007) argue that ‘people make decisions by following well-known paths and following well-established and built norms’ (p.1). In spite of this view, Thomas and Maurice (2017) affirm that uncertainty is a real fact in the business environment.
Businesses that specialise in the production of different products do so in anticipation of unknown market demand (Bier & Lin 2013). Thus, decisions relating to production are in some cases based on speculation. This means that business managers are forced to make business decisions regarding situations in which the manager does know the outcome with certainty. Thus, the manager takes risks in making decisions. Under such situations, the manager is forced to employ probabilistic approaches in determining the most likely outcome. Decision-making in situations of risk is founded on the expected utility theory, which stipulates that managers make decisions with the intention of maximising an organisation’s level of profitability (Thomas & Maurice 2017). Uncertainty in the decision-making process arises if the manager cannot determine all the possible outcomes in relation to a particular decision (Thomas & Maurice 2017).
Decision-making process at BMW
In the course of its operation, BMW Group specialises in manufacturing different cars and motorcycles. The firm must ensure that decisions relating to the production of automobiles are optimally formulated in order to achieve operational efficiency. To ensure that the decisions made are effective the parties charged with the responsibility of making decisions have to be equipped with the relevant skills and knowledge. BMW’s success has arisen from the integration of effective managerial practices amongst them the decision-making. The firm’s decision-making process progresses through different phases. The first step in the firm’s decision-making process entails identifying the need to formulate decisions that will contribute to improvement in the firm’s performance. BMW Group’s decision-making is founded on the value-based approach, which means that the firm recognises the contribution of employees at different levels of management (BMW Group 2015). Therefore, BMW has entrenched a positive feedback process in an effort to ensure that the decisions made are valuable to the firm’s operation. In employing the feedback approach, BMW gathers the opinion of internal stakeholders at different levels of management. In gathering the information required to make a decision, BMW has entrenched different mechanisms such as providing employees to openly write and submit their opinion regarding the firm’s operations to the top management. Thus, the firm is able to gather relevant information from the firm’s employees. The feedback mechanism has enabled BMW to overcome the challenges associated with hierarchical management structures such as bureaucracy. The firm’s efficiency in making a decision is enhanced by the fact that flexibility and responsiveness that characterise BMW’s organisational structure.
After gathering the relevant information, BMW identifies alternatives or courses of action that can contribute to the attainment of the intended outcome. In this stage, the firm identifies the desirable and possible alternatives. BMW’s success in generating alternatives is enhanced by the fact that the firm has nurtured a strong personal and personality relationship network with its employees. This aspect is essential in strengthening the level of innovation amongst employees. BMW is characterised by minimal barriers to innovation. Similarly, BMW Annual Report (2016) accentuates that employees at BMW have the freedom to cultivate unorthodox opinions so long as they can contribute to improvement in the performance of the firm’s products. The firm achieves this goal by encouraging employees to participate in making decisions with reference to product design, production, and marketing. As a result of the bottom-up approach that BMW has adopted in generating innovative ideas, the firm is able to continuously improve its products year-on-year. Thus, the bottom-top approach that BMW has adopted in the decision-making process has enabled the firm to remain competitive with reference to research and development. Additionally, the participative decision-making approach that BMW has adopted has enabled the firm to find solutions (BMW Annual Report 2016).
After generating the alternatives, BMW undertakes a cost-benefit analysis in order to weigh the alternatives. Through the cost-benefit analysis, BMW is able to determine the most viable alternative that will contribute to improvement in the firm’s competitiveness. On the basis of the cost-benefit analysis, BMW is able to select the most viable option to implement. However, prior to implementing the selected option, BMW undertakes an extensive review in order to determine whether it will contribute to the attainment of the intended outcome (BMW Annual Report 2016).
Analysis of the automotive industry
In the decision-making process, BMW must take into account the dynamics that originate from the global automobile industry. One of the aspects that BMW’s management team should take into account entails the prevailing industry structure in the US automobile industry. Meek and Meek (2012) assert that understanding the industry structure is critical because it provides a firm’s management team insight into the firm’s competitive position in the industry. By gaining knowledge of the prevailing industry structure, a firm’s management team is able to formulate decision that contributes to competitiveness.
Porter’s five forces are one of the models that businesses can employ in evaluating the industry dynamics likely to affect a business’s operation. Porter’s five forces are comprised of five main dimensions that include the degree of rivalry, buyer power, supplier power, the threat of new entrants, and the threat of substitute. By evaluating the different dimensions of Porter’s five forces, BMW Group’s management team will gain market knowledge that will inform its strategic decision-making with reference to marketing, production, and operations.
The US automobile industry is characterised by an oligopolistic market structure, which means that it is dominated by a few firms. Despite the oligopolistic market structure, the industry players are facing a challenge arising from an increase in buyer bargaining power. Thus, as one of the industry players, BMW’s management team must take into account the changes in the consumers’ preferences. Additionally, consumers are increasingly becoming price sensitive and concerned about fuel efficiency. On the basis of this aspect, it is imperative for BMW to adjust its production decision by developing new car models that are more fuel-efficient (Uzwyshyn 2012). In spite of the increase in buyer power, suppliers in the US automobile industry are characterised by moderate bargaining power. BMW should consider exploiting the moderate supplier bargaining power by compelling the suppliers to supply high-quality raw materials in order to develop automobiles that are of high quality hence aligning with the consumers’ demand.
Despite BMW’s dominance in the global automobile industry, the firm is facing an increase in the degree of competitive rivalry. The rivalry originates from increased innovation by global automobile firms such as Hyundai, General Motors, Toyota, Chrysler, and Tesla incorporation (Dumaine 2016). These multinational firms are increasing their investment in research and development in an effort to design new and competitive automobiles. For example, firms are increasingly investing in developing hybrid and electric vehicles in the quest to align with the growth in demand for energy-efficient vehicles. Dumaine (2016) emphasises that ‘BMW’s new competitor has audacious ambitions, for example, Uber is partnering with robotics experts and spending heavily to design a self-driving vehicle’ (p. 126). This indicates that BMW faces a challenge arising from the entry of new players into the automobile industry. The new entrants are increasingly focusing on developing electric and hybrid cars. Therefore, BMW is likely to experience an increase in the number of substitutes within the luxury automobile market segment. To overcome this challenge, it is imperative for the firm’s management team to consider formulating strategic decisions that will enable the firm to enhance its market position.
Forecasting model
In making marketing decisions, BMW can apply the two-year moving average. For example, BMW can employ the 5-year moving average in an effort to forecast sales. On the basis of the 5-year moving average in relation to sales, BMW will be able to make decisions relating to production. The firm will be able to make production decisions that are aligned with the prevailing market demand. The table below illustrates BMW Group 5-year moving average with regard to sales in the automotive market segment.
