Essay on the Article How Organizations Can Overbalance

Essay on the article “How Organizations Can Overbalance”

For my essay I read the article “How Organizations Can Overbalance: Decision Overreach as a Reason for Failure” by David C. Wilson, David J Hickson, and Susan Miller. This article appeared in The American Behavioral Scientist, in August 1996. In this essay I will first objectively identify the thesis and how the authors supported it, and secondly I will give a subjective interpretation of how this article affects strategic thinking, and an evaluation of this article in terms of what value it has in strategic thinking.

Let us begin. The thesis that the authors used in this article was to identify what constitutes decision overreach. They concluded that there were two proponents that identified it, and they were disproportionality and irreversibility of the decision. Disproportionality was defined as “the scale of the move decided on relative to the size and scope of the organization”, especially when at least doubling the size of the activity or capacity (Wilson 999). Irreversibility is of course the inability to reverse or correct the situation. The authors also noted that both criteria must be met for decision overreach as even if the decision is disproportionate if it wasn’t irreversible they could still recover by cutting their losses, and also if it were irreversible but not disproportionate they may also be able to recover as they would have enough assets. The authors also based their arguments on two specific cases out of 55 cases that were revisited in 1990 to 1993, of which the 55 cases were a representative of one third of the 150 cases covered in the “Bradford Studies.” (Wilson 995) The two firms in which decision overreach happened were given the names of Thomson, which was a brewery, and Jacobite, an engineering factory. At Thomson, the management was looking at expanding their operations when the opportunity to by a significantly larger plant for less than they were going to spend on renovations to their current plant. The new plant was 8 times the size or the original brewery, which was totally disproportionate compared to Thomson’s size. At Jacobite, they made a decision to massively invest in new buildings, basically doubling their operation, which is also considered disproportionate. The irreversibility part of the criteria was met in Thomson’s case because their new plant’s previous ties with sales outlets were cut thus leaving the plant unsaleable, as they rely on individual ties with pubs and other establishments to sell the beer in Europe unlike the mass distribution here in the U.S.. Jacobite’s decision was irreversible because they had invested large amounts of money into building new buildings, however they were able to survive by selling of the older buildings and moving all the equipment into the new buildings. The authors also noted that decision overreach was not due to general poor management as both managements have good track records in their previous management decisions that were studied. They also noted that overreach was not the same as escalation as escalation is continuing in a course of action in hopes that more resources and effort will correct it, and overreach is one big move.

The authors then looked to see if any factors could contribute to the firms overreaching. They found four probable contributory factors, while admitting there may be more found when additional research is done on more firms, and these four were:

• Management size

• Decision process duration

• Lack of foresight

• Overfamiliarity

To back up the management size factor the authors cited that Thomson had 35 employees and Jacobite had close to 750 when their decision was made. Also the top management at both firms was small. Thomson had three cousins, however one did not agree with the decision and resigned before it was made, and at Jacobite the chairman and managing director who had led the way for a long time. The authors concluded that large organizations could build up “organizational slack” which allows their managers to go farther before going too far, whereas small firms don’t have reserves large enough to buffer their decisions (Wilson 1003). In the case of the decision process duration the authors noted that in the original 150 cases studied the decisions were arrived at, on average, in 12.4 months, while in the Thomson and Jacobite cases each took a total of 3 months (Wilson 1003). The authors thus concluded that it is more likely that speed in the overreach decisions caused important information to be overlooked or not sufficiently considered.