Rational Model of Decision Making

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Table of Contents

Introduction
Six steps rational model
Reference

Introduction

The rational model of decision making, since its introduction, has been used to make calculated decisions from business firms and companies. It is through this pure rational, calculated-numerical, process that the companies tend to make business plans for their future (Taylor, 2006, p. 4). As a manager of a financial service offering company I had to make several decisions based on this model. But the latest financial and economic crisis has shown the limitations of this methodology. This is the situation I found myself in at the beginning of this year and that we will discuss below.

Six steps rational model

At the beginning of this year I had to find ways out of the financial crisis for my company or we would face failure. Thus I turned to Bazerman and Moore’s six steps model for help. The problem was that customers were turning away from our financial service offerings and revenues were going down. Our criteria were that we had to find new ways of re-building back customer confidence and increase our revenues. How to do that? In order to build positive customer confidence you have to make your company customer-friendly and take into consideration customers’ needs before your own needs. In order to improve the revenues you have to offer them high-quality services with the lowest cost possible. One alternative would be to launch a new marketing campaign explaining in the friendliest way possible our services. Another would be to make several staff training sessions to improve customer relations and company’s image in the public.

Yet a third alternative would be to launch new low-cost financial services along with a survey to get to know better customer needs. Since in the present situation customer confidence in the industry is low the first alternative would not generate the desired effects. The second would improve customer relations but the services offered would still be costly and the end result would not be an increase in revenues. And the third alternative could still not be effective without proper marketing support. If the newly launched low-cost services could not reach the customers the effort would become pointless.

Thus the ideal solution was to merge the three alternatives in a combined strategy. The launch of a survey to know customer needs would precede the launch of new low-cost services. Then a marketing campaign would advertise to the public these services, meanwhile the staff would be trained to a more customer-focused attitude.

The difference between the three alternatives taken alone and the ultimate decision of a combined strategy rest in the fact that the previous would not reach the effect of ‘involving’ the public. Customer involvement in a business strategy is essential for the success of that strategy (Gomez-Mejia et al., 2008, p. 56). The problem with the final decision was that it was based purely on logical evaluation. Unfortunately, many empirical studies have shown that logical, rational, decision-making has a high rate of failure (). This is because many consumers do base their decisions not only on purely logical premises. Many do make their decisions based on emotional or ideological premises (Miller, 2006, p. 4). This is the case in nowadays financial industry. Customers can be well informed regarding the low-cost services you may offer but they lack confidence in the future of the industry. They fear that another crisis, like the one we are passing, could damage them again. And the problem of the rational decision-making in our case is this: how to ‘calculate’ human fear logically? This is why you have to take other non-rational steps, like becoming more customer-friendly or seeing more environmental caring, etc.

Reference

Taylor, W. (2006). Introduction to Management. Ninth Edition. Prentice Hall: New Jersey.

Gomez-Mejia, Luis R.; David B. Balkin and Robert L. Cardy (2008). Management: People, Performance, Change. 3rd edition. New York: McGraw-Hill.

Miller, K. (2006). Organizational Communication: Approaches and Processes. 4th edition. McGraw-Hill Company: London & New York.

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Rational Model of Decision Making

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