Decision-Making Processes in Business

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Business always involves a bunch of decision. A decision making may change the course of business. It may lead to success or failure of a business. A wrong decision may bring financial losses and a right decision may make the company to top of the corporate ladder. A business manager has to make a wise decision and should use his experiences in the decision making process. In this research essay, I have detailed, how my experience in the outsourcing, tax-planning and merger –acquisition could help my present employer and how I can use my business decision taking skills in the above areas to improve the bottom line and performance of the company in detail.

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A business may be defined as a chain of decision associated by implementation and other activities. Decision often lays down the velocity and direction of a business; the rest is follow-through. Prominence of decision making in a business is such that a business can vie and succeed only if it constantly makes better decision or good decisions as compared to competitors. For instance, Apple Computer’s decision to initiate a filer on a digital music file cum storage instrument –namely- the iPod- was really a well-informed decision. Introduction of iPod –the singe wise business decision by Apple rather resurrected the company’s bottom line and its stock are now skyrocketing. Had that business decision was not implemented or taken, Apple might have now declared bankruptcy.

However, bad decision making may make the company to bleed. For instance, if the top managers made a bad decision, it might be like running the ship with the reduced crew’s or could be an Achilles’ heel. For instance, consider the real case study of Walt Disney Company. In 1995, it employed one Michael Ovitz as its president. Within a period of twelve months, Disney realised that it made a bad business decision as it had to terminate Ovitz’s job with a severance package that cost around $140 million to the company. Thus, Disney had to a pay a huge amount to the extent of $140 million for its wrong business decision. The story did not end here and some group of Disney’s disgruntled shareholders sued the Disney board for giving charity from their heap of money to an employee whose capability the board adjudged as superior but later turned out to be an utter failure. That suit is still under progress and if once final decision emerges, Disney has to shell out more billions in legal costs and also entangled the top managers and board of directors of the company in frequent court room appearances and depositions. Thus, due to single bad business decision, Disney has got a black eye over the mess.

However , this $140 billion lost by Disney is a small peanut if one considers the losses sustained by the companies when its decision makers made a wrong business decision making like that of merger and acquisition deals. The merger between Compaq and Hewlett & Packard costed HP shareholders about thirty seven percent of the company’s total assets and about $24 billion in stock. After the lapse of twenty four months of the costly merger deal, HP shares were lagging in the S& P 500 while its competitor Dell was really thriving and the company had never accomplished any of the assured margin enhancement in its computer related business.

Since the future is full of surprises and all the information a business manager need may not be available, which may compel the business managers to take a bad decision. In cases of past choices, hindsight makes the judgment very easy but decision makers always never have the benefit of hindsight. In the absence of complete data, business managers always feel that they have been left in the dark. (Harvard Business School 2006: xii). In this essay, I will be discussing how a business decision is significant for any business and as a manager of a business, how I have utilised my personal learning from the following three experiences to initiate a decision making in my present employment.

Make or buy decision making

Make or buy decision is now being more significance within organisations because of its tactical and logical implication. Often, the make or buy decision is a major determinant of profitability making a poignant contribution to the viability of a company. In earlier days, buying decision was perused by business managers mainly on the lowest or best price while not giving much significance to number of factors like quality and delivery. Thus, in many instances, a number of determinants like technical capability, delivery reliability, cost benefits and the financial viability and stability were not at all considered. Very few businesses have initiated a strategic view of make or buy decisions, while the majority of the business have decided to buy rather than to manufacture for a short while, mainly to reap benefits like cost reduction or capacity utilisation. Further, some companies may find themselves in a strategic position that has been taken over from the past management decision making. Since their status in the supply chain is already established and the degree of horizontal and vertical integration already might have been mapped out. (Leondes 2005:84).

Likewise, many companies are now buying services, components or products from outside suppliers instead of manufacturing or producing and the same is known as outsourcing. The decision to produce a subcomponent either in-house or to buy it externally from an outside vendor is known as a make or buy or outsource decision. Some of the examples are as follows:

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  1. To send the employees outside for training or to develop a training program in –house.
  2. To process accounting in-house or to outsource the same from outside.
  3. To offer network and data processing services internally or to buy them like benefits that may be derived are to have cost savings and to access to technology.

Some companies also outsource the following services namely sales and marketing, logistics, managing fleets and custodial services. Often outsourcing decision involves both quantitative and qualitative factors. The qualitative factors include to have a long-run business association and to ensure product quality by the supplier. The quantitative factors are pertaining with cost and the quantitative impacts of the make or buy decision, which is best visualised under the relevant cost strategy. (Siegel & Shim 2006:218).

An outsourcing supplier can offer three benefits to a company in the following manner. If a company is in a poor financial status and there has an immediate need for a cash infusion, an outsourcing supplier can buy assets from the company and lease them back to the company. For instance, a computer supplier can purchase the data centre of a company and then lease the same for that data centre in the company’s payments for services rendered. This will offer a large infusion of cash at the initial stages of the agreement, which can be beneficial in terms of the company’s reported return on assets. This is also an alternate form of debt financing when a company is badly in need of cash for other objectives like acquisition of a new business. To achieve economies of scale, a company can cluster around the facilities required for a number of companies. (Greaver 1999: 4)Instead of having truck maintenance on various locations, a centralised truck maintenance facility can offer cost-effectiveness. In this type of business decision, administrative cost can be minimised while the services of on-site mechanics can be fully utilised. An outsourcing supplier can be identified from a low –wage geographical area like India, Philippines or China, which will offer economies in cost for the company. (Brag 2006:30).

Real Case Study for Business Outsourcing Process

North America based Goodyear Tire & Rubber Company has engaged ICG Commerce in its procurement initiative, which has been initiated to attain company’s cost reduction aims. In this outsource process, ICG Commerce will be associating with the Goodyear’s internal procurement division to drive cost reductions that are anticipated to have multi-million dollar effect on the Goodyear’s profitability. Thus, by driving improvements in major operational areas, Goodyear is focusing on building impetus and maintaining profitable growth. Goodyear, the globe’s leading manufacturer of tires has recognised the indirect procurement as a major factor of the company’s present cost reduction initiatives. (Trojahn 2009:34).

Business Process Outsourcing in Deutsche Bank

Accenture has been picked by the Deutsche bank for maintaining the bank’s Accounts Payable services and Corporate Purchasing worldwide through Business process outsourcing method. Accenture offers resources like tools and processes, state –of-the-art systems to manage the whole gamut of to pay- procure process of the bank. Deutsche bank will retain the duty over supplier relationships and supplier selection as well as authorisations and approvals for releasing payments and purchasing activities. This decision making is in line with Deutsche Bank’s strategy to concentrate on its core capabilities. (Trojahn 2009:34).

Cost Savings due to Outsourcing

For instance , in early 2004 , IBM announced that it would be moving out about several thousand computer programming job functions to China where on the average , a programmer with three to five years experience was paid about $12.50 per hour, which is just twenty-five percent of pay of a comparable programmer in the U.S. According to IBM, it anticipated an overall cost saving for the year 2005 around $ 40 million and for 2006 and beyond, it would be around $168 million per annum. (Jackson et al: 251).

As a business manager, I will utilise my experience in business to make a decision to outsource possible functions like accounting, purchasing, programming jobs of my present employer, mainly to improve the bottom line and to concentrate on core issues.

Investment Decisions in Tax Havens

A country where locally sourced income or residents are subject to either low or nil internal taxation is known as a tax haven. (Schmitt 2008:10). A foreign corporation incorporated in a tax haven, mainly to avoid taxation is one of the devise or decision taking made by a corporation to improve its bottom line. A decision maker plan such a way that the corporation is incorporated in a tax haven where it earns revenues that are either subject to nil or no tax. Since, the foreign company is a resident of the tax haven, the income it earns in that jurisdiction is subject to either nil or low local taxes. Tax haven nations may have regulations restricting the barter of commercial and financial information.

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Some U.S. based corporations uses a foreign subsidiary corporation in either a nil or low tax haven to either earn a portion of income of its business activities or its investment income. The structure is so designed that a foreign corporation is not consolidated with the domestic parent corporation under the U.S. tax law since the foreign corporation is not a subsidiary or unit of the U.S. based company’s associated cluster and is not itself engrossed either in any U.S. business or trade and hence, the foreign company is not subject to U.S. taxation.

Thus, without application of the Subpart F rules or the transfer pricing rules , the foreign corporation income will be not subject to taxation in U.S., unless or until the time that any foreign revenue or profits are repatriated back to U.S to the U.S. parent as a dividend or any other payment.

An income tax treaty between countries can also create a tax haven effect. For instance, under the income tax treaty between Country X and Country Y, residents of Country X are subject to a withholding tax of only five percent on interest and dividend income earned in Country Y. If U.S and country X have an analogous tax treaty and if U.S. does not have a treaty with Country Y, and suppose the withholding tax may be 30% in the Country Y for any investments made from U.S, then as a tax planning measure, the U.S corporation can create a foreign subsidiary in Country X and may use that subsidiary to make investment in Country Y. This tax planning or decision making is known as treaty shopping. If U.S Corporation directly invests in Country Y, then it may have to pay a higher percentage of withholding tax of 30 percent. By incorporating a foreign subsidiary in Country X, U.S parent corporation pays only just 10% o as foreign taxes on the income earned, i.e. five percent in Country Y and five percent in Country X thereby saving taxes.

In recent years, many nations have created ‘treaty shopping “regulations. Under these regulations, treaty advantages for withholding taxes are not available to a resident corporation, unless a some portion of its shareholding is owned either straightforwardly or circuitously by the citizens of the nation in which the corporation is incorporated.

To plug this loophole, US had introduced a most controversial article in the U.S. Model Treaty through Article 22, Limitation on Benefits, which is meant to bar or limit the treaty shopping. Article 22 negates treaty benefits to an entity, unless in excess of fifty% of the beneficial interest in the corporation is either straightforwardly or circuitously owned by one or more residents of the treaty country in which the entity is resident.

A large number of U.S oriented corporation had chosen to cast their weight on the golden shores of Bermuda by reincorporating as Bermuda based corporations to mainly enjoy the low-tax atmosphere. Some of the famous Bermuda based headquartered corporation include Cooper Industries, Fruit of the Loom, Ingersoll Rand and Wheeler. Accenture is, in fact, established itself in Bermuda. It has been argued by these companies that U.S. International tax policy is adversely impacting their ability to compete in the international marketplace. The stock market often remunerated these so-named inversion transactions. i.e. conversion from U.S. to foreign based) with a steady increase in their stock quotes. Though, an inversion transaction often demanded a current tax cost, the long-run advantages were regarded more significant. In 2002, many other American companies wanted to invert when Congress understood the mammoth effect of this and introduced anti-inversion legislation. Further, the public also started to retort negatively to these corporate repatriates. In the mid -2002, toolmaker Stanley Works called off its earlier declared and very contentious inversion strategies. In 2003, due to Congress initiation, inversion transactions have come to a virtual halt. (Hoffman et al 2009: 9-22).

As a business manager, I will utilise my experience in business to make a decision to use a foreign subsidiary corporation in either a nil or low tax haven to earn a portion of income of its business activities or its investment of my present employer, mainly to improve the bottom line and as a tax planning measure.

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Merger & Acquisition

A business can expand its operations through acquiring diversified business or merging with another business. Merger or acquisition can help a business to reap the following benefits:

  • To maintain or improve its competitive position.
  • To safeguard its market share
  • To offer an alternative delivery mechanism
  • To improve profitability
  • To attain economies of scale
  • To expand its geographical operations

Recently, Microsoft Corporation acquired online advertising company namely “aQuantive “for a consideration of $6 billion. “ Google Incorporation “ one the main competitors of the Microsoft Corporation also made its largest acquisition as on date , by buying online advertising company ‘Double-click” Click” for $ 3.1 billion. The acquisition of Double-click by Google is part of its efforts to expand to diversify into an advertising sector from its parent business of search engine. Further, Google’s acquisition also facilitates to combine the two company’s databases of information so as to tailor advertising to the tastes and preferences of individual consumers. Despite leadership in search engine business, Google’s diversification demonstrates that it wants to foray into the advertising sector to make it still stronger and brawny. (Davis 2009: 391). Yahoo! Acquired online advertising companies namely Blue Lithium for $ 300 million and Right Media for $ 680 million, which engaged in auctions for selling and buying online ad placements. Oracle, a renowned database company, which has practiced of acquiring software firms, recently bought “Hyperion Solution” at a cost of $ 3.3 billion. German software firm SAP acquired ‘Business Objects’ one another company engaged in the business-intelligence software, for $ 6.9 billion. Cisco Systems, a famous networking company acquired WebEx Communications, which engaged in offering online conference and secure instant messaging. Iron Port Systems, a privately owned security software company was also acquired by CISCO for $ 831 million. Renowned American PC maker namely ‘Gateway’ was acquired by Taiwan based Acer Company for $ 711 million. These acquisitions demonstrate that a company can grow both vertically and horizontally through acquisition or by merger. (Computers and Information Systems).

As a business manager, I will utilise my experience in business to make a decision to use merger and acquisition method of my present employer company, mainly to improve the bottom line and to demonstrate that a company can grow both vertically and horizontally through acquisition or by merger.


As a business manager, I will utilise my experience in business to take decisions like outsourcing, planning a unit in a tax heaven and to engage in merger and acquisition, mainly to improve the bottom line, as a tax planning measure and to grow both vertically and horizontally.

List of References

Bragg, Steven M. (2006). Outsourcing: A Guide to Selecting the Correct Business Unit. New York: John Wiley Publishing.

Davis ,Herald. (2009). Google Advertising Tools. New York: O’ Reilly.

Encyclopaedia Britannica. (2008). Computers and Information Systems. Encyclopaedia Britannica. Web.

Greaver, Maruice F. (1999). Strategic Outsourcing: A structural Approach to outsourcing decisions. New York: Amacom.

Harvard Business School. (2006). Harvard Business Essentials: Decision Making: 5 Steps to Better Results. Harvard: Harvard Business School.

Hoffman , William H, Rabbe , William A , Smith , James E & Maloney , David M. (2009). South –Western Federal Taxation-2010. New York: Cengage Learning.

Leondes, Cornelius. (2005). Intelligent Knowledge –based systems. New York: Birkhauser.

Schmitt Jesse. (2008). Legal Off Shore Tax Havens. New York: Atlantic Publishing.

Siegel, Joel G & Shim, Jae K. (2006). Accounting Handbook. New York: Barron’s Educational Series.

Trojahn Mathias. (2009). Development of an Assessment –Tool for Procurement Business Process Outsourcing. New York: Grin Verlag.

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