Choosing from Five Strategies in Manufacturing: The Role of Value-Based Decision Making in Business Simulations

There has always been great interest in reducing cost while enhancing value and thereby increasing productivity. Although some feel innovation, quality, and firm value may suffer when productivity gains and cost reduction are emphasized, many feel value-based decision-making techniques may help the process.

In this study, the discretionary investment decisions made by the management teams using value-based decision making are examined. The results show that pursuit of cost-reduction strategies and incremental improvement strategies did not inhibit the pursuit of function-increase and innovative strategies. The results also showed that varying the performance criterion used as the principal measure of goal achievement appeared to alter management decisions. The effect seemed to be more evident in the priority assigned to innovative alternatives and in the timing of their implementation than in the investment in incremental improvement. Importantly, this business-simulation research indicates that higher-value results can be achieved without necessarily incurring higher costs (more resources, more time, more cash, etc.).