Meyersohn, Nathaniel
CNN.com
Posted 07/26/2024
Key words and Definitions
Evidence-based management – the practice of using the best available data to improve management practices.
Intuitive decision making – the practice of making decisions based on experience, overall feelings, and accumulated knowledge.
Bounded rationality – rational decision making that is constrained or bounded by the decision maker's ability to process information.
Summary: Key Points of the Article
Budget air carrier Southwest Airlines announced it would abandon its 50-year-old open-seat boarding policy. The boarding practice has been dubbed a "free-for-all" seating arrangement by some critics but is loved by Southwest loyalists. However, Southwest discovered that 80% of its customers prefer assigned seats. Passengers will no longer be able to sit in the first available seat they choose after boarding the plane.
The decision will allow Southwest to charge for premium seats that will now be added to the firm's aircraft. The new seats will have more legroom and also will have no bag fees for some passengers. Southwest has now joined the ranks of its competitors and abandoned the primary factor that made it unique. Whether the decision pays off may take some time to determine.
The change is driven by the failure of the old business model to restore the airline to profitability. Loyal Southwest customers do not like the change and have expressed their feelings on social media. However, if the airline does not return to profitability soon it may become a takeover target by activist investors pushing for change leading to higher profits.
News Topic
#06 Decision Making
Exercise 1 Multiple Choice Questions
- _______ problems are those that are straightforward and clearly defined.
a. Structured
b. Unstructured
c. Programmed
d. none of these
Answer: Structured problems are those that are straightforward and clearly defined. Unstructured problems are new and unusual problems that require decisions to be made with limited or ambiguous information. Programmed decisions are repetitive decisions that can be managed with a routine approach. - Which of the following decision-making conditions refers to a situation where the decision maker can estimate the probability of a specific outcome?
a. Certainty
b. Risk
c. Uncertainty
d. none of these
Answer: Risk is a decision-making condition that refers to a situation where the decision maker can estimate the probability of a specific outcome. Certainty refers to a situation where a manager can make accurate decisions because all possible outcomes are known. Uncertainty is a situation where the decision maker does not have certainty nor are reasonable probability estimates available that can be used. - Southwest Airlines announced it would return to first come, first served boarding techniques.
True
False
Answer: Southwest is changing its boarding policy and eliminating its open seat boarding policy and moving to assigned seating.
Exercise 2 Critical Thinking Questions
- What factors are driving the decision to change the seating policy at Southwest Airlines?
Answer: Southwest has been losing money and needs to make some changes to generate additional revenue. The company discovered that 80 percent of passengers prefer assigned seats, and many customers are willing to pay more for it. The change should increase overall revenues. - What is the expected outcome of the assigned seat policy?
Answer: The policy will allow Southwest to charge a premium for some seats and hopefully increase profits. Almost any increase in revenue is largely profit since most costs are fixed costs and will be incurred whether the flight is full, flying at 25% capacity, or regardless of how much customers pay for the flight. - Why is Southwest management concerned about activist investors?
Answer: Southwest is under pressure from activist investors that could vote in new board members that are receptive to the investors' demands. If the air carrier does not take steps to restore profitability the current management team could be ousted.
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