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Ch. 3
Analyzing Business Decision Processes

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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.

Table 3.1. Site Characteristics Spreadsheet Analysis.

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.

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