Business Logic

Prelim Examination

Case Study

Home Specialties

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 3.1.

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.

This case is based on Cyert, Dill and March (1958).

Requirement: Case analysis

Direction: Answer in a paragraph form by following the guide questions below.

Questions:

 Write an informative summary of the case study by highlighting the main points and key
supporting points ( indicators of the problem/opportunity). Take note: Make it objective
and factual- do not include your own perspective.
 What was the decision process? Create a diagram of the decision process made.
 Was a formal search conducted to identify alternatives? Discuss the alternatives.
 What is the decision-making context for this situation? Describe this situation in terms of
its elements.

JAYSON KLINE J. DILLO BSA 2-DRUCKER

A medium-sized construction firm is looking for new work space and storage space for its Home
Specialties Department. The firm wanted to expand to expand the operations of the department
because of its high labor cost. And the top management from outside the Home Specialties
Department shares its negative feeling toward the department. So, the firms to try to take
alternatives. The head of the Home Specialties Department wanted to move to a new location,
where it could be not conflict with the operation with the other units, while some members of
general management wanted wanted to dropped it to the firm. But the President wanted to stay
the Home Specialties Department, but limiting it to the size that fit the existing site. So they set a
conference regarding the problem. And then the intensive search for sites started and lasted for
four months. They set a requirement in order the site to pass up. The first phase of search found
18 sites and none of those pass up the requirements. The second phase of search 4 sites were
given detailed consideration, but one ot it was rejected. The site number 2 is expected to get but
the bids on site number 2 and 14 were turned down by the agents. And the President refuse to
approve the bid for site number 10 and the search was over.

The decision making process is hierarchical decision-making because its in the President's
decision to approve the project despite of the ideas of others. Below is the diagram of the
decision-making process made:

Decide Identify and

Define the
problem

Decide
Follow up
Implement
assessment

The formal search is conducted to identify alternatives. The alternatives are; first phase of
searching they got 18 sites but none of those met the requirements and all were rejected.
Second phase of searching, 4 sites were given detailed consideration but one of it was rejected
and 3 sites remains. Site number 2 was the first one which a bid was prepared with a bid of
$10,000 - $15,000 for 24,000 square foot of space. While site number 14 and 10 were both
smaller than the specifications required with a bid of $12,000 for 18,500 square foot of space
and $17,000 for 15,500 square foot of space respectively.