Document Type
Article
Publication Date
12-1-2006
Abstract
The purpose of this research study was to investigate how practitioners' of the durable consumer goods industry make resource allocation decisions in technical innovation, in an industry shaped by high uncertainty and low barriers to entry. Few studies have been conducted that generated qualitative data that allowed for comparisons between prescriptive models and the actual lived-world experiences of practitioners. During the investigation we conducted interviews with executives of the industry that allowed us to better understand how practitioners derived at decisions and why certain organizations were able to innovate more successfully than others. This analysis leveraged the theories of the cumulative prospect theory and the notion of sensemaking to explain how decision makers in the durable consumer goods industry derive at resource allocation decisions that depart from the principles of expected utility theory. The researchers will posit that decision makers do not necessarily rely on objective criteria advanced in management theory, but rely on criteria that are influenced by specific contextual and situational factors and enacted rules and schemas. We argue that economic actors rely on sensemaking during both the framing & editing phase and the evaluation phase of the decision making process for various reasons. First, individuals make decisions based on factors that are context and situation specific. Second, decision makers enact decision making schemas that are created upon specific experiences. Third, enacted decision-making guidelines and schemas reconcile conflicts caused by inconsistent interpretation and meaning of decision variables within the organization. The researchers posit that those entities that have better alignment in the interpretation of enacted decision-variables amongst decision makers make better resource allocation decisions. This alignment is less an issue of technical complexity of the innovation but more of organizational hypocrisy and politics. Therefore, we describe this alignment as irrational legitimacy. Finally, whether the evaluation process included estimating the financial impact of resource-allocation decisions or not, there was little evidence that decision makers recognized or applied the theories of transaction cost economics nor did the research provide evidence that such financial analysis improves the outcome of the decision-making process.
Keywords
durable goods, consumer
Rights
© The Author(s). Kelvin Smith Library provides access for non-commercial, personal, or research use only. All other use, including but not limited to commercial or scholarly reproductions, redistribution, publication or transmission, whether by electronic means or otherwise, without prior written permission is strictly prohibited.
Department/Center
Design & Innovation
Recommended Citation
Zummersch, Martin, ""I Think We Never Looked At A Financial Analysis" : Making Sense of Resource Allocation Decisions in Technical Innovation in the Durable Consumer Goods Industry" (2006). Student Scholarship. 45.
https://commons.case.edu/studentworks/45