Basics of Decision Making
Most of us will recall from our school and college days – the most complex mathematical equations to solve are the ones where a minor error in an input value will lead to a solution that is away from the right answer by an order of magnitude. Do we continue to struggle with such challenges while making business decisions? Many decisions in the business world are like complex mathematical or optimization problems. There are a large number of factors that determine the eventual outcome of a business decision. So how do we arrive at the right business decision when faced with a strategic, operational, or human resource problem? Let’s split the problem into 2 parts:
- Methodology or framework
- Information or input data points
The Abundance of Frameworks
We all live in a digitally connected world with an abundance of frameworks to solve such business problems. There is a special thing with frameworks – they continue to evolve, and are often the result of collective experience and intuition of experts in the field. It is not rare for companies to have subject matter experts who contribute to the body of knowledge and strengthen the problem-solving capabilities within the organisation.
Importance of Right Data Inputs
Can we say the same for the data points that feed into the problem-solving frameworks? Perhaps no! In today’s world, when information flows freely it is easy to get swayed by the plethora of data available around us. While some data is commonplace and easily available from credible sources, there is some knowledge that might not be readily available in secondary sources or simply cannot be trusted. Often, decision-makers struggle to obtain these accurate and relevant data points or intelligence that can feed into their problem-solving frameworks. Single inaccurate data input can lead to costly mistakes given the high stakes while making such critical decisions.
Let’s understand this with the help of a New Manufacturing Facility Problem
You are the Head of Manufacturing Operations for an automotive company. Given the need to diversify and de-risk supply chains in the current world, you are looking to shift some part of your operations to business-friendly geography that will fortify your current supply chain. Often the selection of the nation will be driven by broader issues such as geopolitical issues, ease of doing business, tax regimes, labor reforms, and supply chain ecosystem. You have concluded on India as it ranks highly on the world map as an attractive destination for global companies to set up their new base. You are now faced with a location selection problem within India to set up the new manufacturing facility. There has been extensive research to arrive at the right framework to do so. One such widely used framework is the PERC model. This model involves multicriteria evaluation across a range of criteria and subcriteria.
The four fundamental criteria of the PERC model
- Product/Process Value Chain
- Economic & Political Integration
- Resources and management
- Connecting Technologies
The PERC model can be applied to many global investment use cases such as selecting manufacturing locations, R&D centers, warehouses, and even call centers. Using this model correctly will require access to relevant and accurate information regarding different criteria and sub-criteria.
The accuracy and depth of data can make or break a framework
In computer science parlance, “garbage in, garbage out” means inaccurate input data produces an inaccurate output or “garbage”. Any model can be as good as the information that feeds into it. So you will need access to information such as workforce availability, employee preferences, co-located industries, developmental indicators of the locations under consideration, etc. Some nuanced data points such as digital proficiency of the workforce are hard to ascertain without engaging in primary research. Primary research, unlikely secondary research is hard to execute and takes a significant amount of time and resources. Today, businesses want to focus on the most critical business activities and hence harnessing this information takes a backseat.
To conclude, magic happens when information and framework come together. Remember both are important, and in the absence of either one, the other would be useless. If you are a decision-maker or problem solver who is looking to set up a new manufacturing facility, or make a strategic, operational, or human capital decision, the report by Catenon India titled Manufacturing in India could be of help to you. If you are looking to engage further or need bespoke research, you can reach us at firstname.lastname@example.org.
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