The modern oil market is facing various challenges, and oil companies are seeking new ways to address the issues occurring. The acquisition is often regarded as one of the most effective methods to improve a company’s position in the market. The focus of this study is the risk management and decision making involved in the process of acquisition. The decision-making process and uncertainty management play the central role in the successful implementation of any reorganization (including events associated with acquisitions). Eisenhardt (1989) notes that rapid decision-making is vital for the success of any business especially in fast developing industries. However, it is true for all the industries, and it is especially essential when growth strategies are considered. Zhang and Ebbers (2010) claim that the target companies, as well as acquirers, are numerous, which creates the need to make quick decisions to make the most beneficial deals. It is necessary to note that the preliminary research of the topic and the review of the literature provided new insights into the problem and allowed certain reframing and narrowing down the research questions.
The problematizing processes include identification of the problem, investigation, discussion, problem reframing and conclusion. Working for an oil company is a valuable experience that helps identify particular issues managers can face in a specific area. The recent acquisitions have been associated with certain issues, which have to be avoided in the future. Thus, it is important to focus on decision making and risk management as these areas were associated with the majority of problems.
The identification of the problem is only the beginning as it is vital to understand what is known on the matter. The research is instrumental in acquiring the necessary knowledge that will be used when developing particular strategies and recommendations. The review of the existing literature has shown that researchers and practitioners have paid certain attention to the aspects mentioned above. The analysis of these studies unveiled particular areas to focus on. The result of the review was the problem reframing and the development of the research question.
Researchers and practitioners display considerable interest in decision making and risk management related to acquisitions. Thus, Ofili (2014) mentions a number of the most common risk management strategies and reasons for failure. Savovic (2012) focuses on the post-acquisition measures and claims that they should be taken into account at the initial stages of acquisition planning. Reddy (2014) stresses that the field lacks for precision and interdisciplinary approach, which could make the process of decision-making more efficient. Chui (2011) offers a particular model for risk management involved in the acquisition process.
Decision making has attracted considerable attention, and many researchers have focused on the way effective decisions can be made. Eisenhardt (1989) states that quick decision-making is efficient when a vast pool of data is analyzed, and a lot of alternatives have been considered. Importantly, the researcher claims that these two factors are crucial for individual as well as group decisions. It is necessary to note that the efficiency of decisions made individually and collectively has been considered in detail. The central categories analyzed have been speed and efficiency. Thus, individual decisions have been regarded as fast but associated with a significant portion of uncertainty while group decisions have been seen as efficient but low-paced (Leavitt, 1974). In the late 1970s, the shift from individual to group decisions took place, and many organizations adopted the collective approach to strategic decision making.
Extensive research has played the essential role in this process. One of the central figures who promoted group decision making was Harold Leavitt. Leavitt (1974) found that group decisions were more effective and advantageous compared to individual decisions. At present, this approach is widely used and quite common. It is believed that the benefits of the use of this paradigm outweigh its downsides. Many top managers tend to invest more time to mitigate possible risks associated with uncertainty.
At the same time, Janis (1973, p. 19) emphasizes that group decision making can be inefficient and even harmful if the so-called “groupthink” is involved. However, it is essential to note that the groupthink occurs when the group is homogeneous, and its members ignore alternatives, are overwhelmed by stereotypes, and make unanimous judgments. Janis (1973) provide some recommendations to avoid the groupthink. According to these recommendations, the group should be diverse, and its members should have different perspectives, acknowledge and consider various alternatives but should be ready to compromise.
Pratkanis and Turner (2013) challenge the effectiveness of the recommendations mentioned above. The researchers focus on three types of interventions aimed at avoidance of groupthink. These categories are the recommendations given by Janis, strategies based on the use of intellectual conflict, and methods aimed at minimizing group pressures. Pratkanis and Turner (2013) note that there are benefits and downsides of each strategy, which makes them applicable in a limited number of cases. At the same time, the researchers provide an analysis of the strategies employed and describe the settings where these methods are the most appropriate.
Apart from theoretical frameworks and models, researchers analyze the experience of various companies, which can serve as a background for the decision-making process or development of particular risk management tools. Thus, Agrawal, Cooper, Lian and Wang (2013) explore the effects of addressing common advisers and state that this practice is beneficial for the acquirer. Zhang (2013) examines the way vertical integration is linked to acquisitions. The researcher states that the approach has proved to be effective in many cases. Zhang and Ebbers (2010) focus on the experience of Chinese companies and reveal major reasons for acquisition failures. Shah (2016) provides valuable insights into the factors that have an impact on the efficiency of groups when it comes to decision-making. The researcher claims that leadership styles have a significant effect on the way decisions are made in the groups, as well as the effectiveness of these decisions. These findings can be instrumental in the development of teams addressing particular goals.
The review of the literature has provided various insights into the problem. First, it unveiled the existing gaps in the knowledge base on the matter. One of these limitations is the lack of the interdisciplinary approach. This method should include the integration of the theory and practice. More so, it should also involve the development of cross-industry and cross-border strategies and models. The strategy should also be developed and implemented by cross-functional teams within organizations.
The insights stemming from the research are also related to the decision-making process. It is clear that the decision should depend on the peculiarities of the industry, availability of resources, organizational goals, and so on. The decision-making process should involve the analysis of all the stages of acquisition including the post-acquisition phase (Savovic, 2012). Organizational culture and goals play an essential role in this process. As for the risk management, it should be based on the analysis of various factors including the peculiarities of the industry, cultural differences and the disparities between the organizations’ cultures.
Problem Redefinition & Reframing
As has been mentioned above, this study focuses on the decision-making and risk managements related to acquisitions. The focus will also be made on the way advances discussed in the academic world are used by practitioners. The research, analysis and discussion of the problem reshaped the problem or rather narrowed it down. The company in question is a multinational operating in several locations across the globe. Therefore, the decision-making and risk management will be linked to the use of cross-border, cross-cultural and interdisciplinary approaches. These areas have proved to be the specifically relevant as regards acquisitions. At the same time, it is important to pay significant attention to the implementation of the cross-disciplinary approach. It is vital to examine practitioners’ views on the effectiveness of, as well as experiences associated with, the use of interdisciplinary instruments. It can be beneficial to understand whether managers working within the oil production sector employ strategies used in other industries.
Another important aspect that appeared during the research and discussion is concerned with the use of the positive or negative approach. The review of the literature shows that some researchers focus on positive experiences of companies (successful implementation of acquisitions) while some concentrate on failures. It is important to understand whether practitioners use both types of studies or choose one of them. This understanding will shed light on the way risk management and decision-making are approached through the lens of risks avoidance or goals set.
The use of the holistic approach when considering acquisitions should also be considered. The holistic approach implies the analysis of all stages of acquisition implementation when making decisions and assessing risks concerning the growth strategy. Thus, the review of the literature shows that the factors associated with the finals stages of acquisition implementation are often left aside. However, the final stage often has a tremendous effect on the success or failure of the acquisition process. Therefore, the practitioners should also share their views on the factors they take into account with specific attention paid to the stages of the entire process of acquisition.
On balance, it is possible to note that the research and discussion of the problem resulted in the development of a specific problem statement. The study will dwell upon the decision-making process and risk management as regards the acquisition process. The focus will be made on the way practitioners employ the knowledge base with specific attention to such areas as cross-disciplinary and holistic approaches, peculiarities of the implementation stages as well as the overall perspective (positive or negative). These aspects have proved to be essential as regards the success of the growth strategy. Hence, it is necessary to understand whether practitioners make use of the advances discussed in the academic world. It can be important to explore the particular reasons why managers use or decide not to use specific strategies. This knowledge may be instrumental in the alignment of the practice and research.
Agrawal, A., Cooper, T., Lian, Q., & Wang, Q. (2013). Common advisers in mergers and acquisitions: Determinants and consequences. Journal of Law and Economics, 56(1), 691-740.
Chui, B.S. (2011). A risk management model for merger and acquisition. International Journal of Engineering Business Management, 3(2), 37-44.
Eisenhardt, K. (1989). Making fast strategic decisions in high velocity environments: Toward a mid-range theory. Academy of Management Journal, 32(3), 543-576.
Janis, I. (1973). Groupthink and group dynamics: A social psychological analysis of defective policy decisions. Policy Studies Journal, 2(1), 19-25.
Leavitt, H.J. (1974). Suppose we took groups seriously. Web.
Ofili, O.U. (2014). Review of risk management techniques in mergers & acquisitions. European Journal of Business and Social Sciences, 3(6), 1-11.
Pratkanis, A., & Turner, M. (2013). Methods for counteracting the groupthink risk: A critical appraisal. International Journal of Risks and Contingency Management, 2(4), 18-38.
Reddy, K.S. (2014). Extant reviews on entry-mode/internationalization, mergers & acquisitions, and diversification: Understanding theories and establishing interdisciplinary research. Pacific Science Review, 16(4), 250-274.
Savovic, S. (2012). The importance of post-acquisition integration for value creation and success of mergers and acquisitions. Economic Horizons, 14(3), 195-207.
Shah, C. (2016). The blind leading the blind. Aslib Journal of Information Management, 68(2), 212-226.
Zhang, D. (2013). The revival of vertical integration: Strategic choice and performance influences. Journal of Management and Strategies, 4(1), 1-14.
Zhang, D., & Ebbers, H. (2010). Why half of China’s overseas acquisitions could not be completed. Journal of Current Chinese Affairs, 39(2), 101-131.