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Think Rationally Before You Decide

By: Mike Teng

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Many companies often let their success and euphoria gloat over their heads and forget to do their homework. Expansion is done without proper evaluation or support from adequate market research and survey.

Decisions are often overridden by the desire to accomplish business expansion as part of the company's objectives and the risk factors are ignored. If the companies have done rational thinking, simple homework and some reflection, they would have been spared massive headaches and avoided some of these projects. Rational thinking is going back to the basic and not allowing emotions, egos and euphoria to get the better of you when making decisions.

There are many instances of poor rational thinking in business failures. For instance, many pioneering investors in China have lost money because their investments were based upon 'China statistics'. This is based on the assumption that China has a population of 1.0 billion people then. If we are able to capture one percent of the market, which though minuscule, translates into 10 million of captured customers. This is indeed an impressive captive market. Unfortunately, these investors learned to their dismay that China was still a third world country. The bulk of the population was unable to pay for their products and services. The immutable law in marketing that "You cannot make money from people who do not have money" is applicable here.

History reminds us that there are many companies that embarked upon major mergers and acquisitions but failed miserably. Sometimes, proper homework, reflection as well as rational thinking will reveal that it is better to buy over the key people and grow the business than buy another company lock, stock and barrel. Apart from the strategic synergies of a merger and acquisition (M&A), one also has to be mindful of the cultural fit. An example was the teething problems encountered by both the Chinese and Singaporean partners in the Singapore-China Suzhou Industrial Park project in China in the mid 1990s.

Though the project had the support and endorsement of both the Chinese and Singaporean governments, there were many events of misunderstanding and conflict. These arise because of cultural differences even though both parties involved were of ethnic Chinese origin. The Singapore government eventually ceded the management of the industrial park in September 1999.

If both the parties could have tried on a smaller scale project to understand each other first, many headaches might have been averted. Instead, the whole project went full scale without testing the waters first.

In Singapore, many contractors in the construction industry landed up with projects' cost overrun because they did not estimate the projects' costs properly before the tendering stage. It is very critical to estimate the contract price correctly as during the project execution stage there is very little margin for error. Some contractors did not cater for contingencies in raw material price escalation such as the stainless steel, foreign exchange fluctuations, country risks and interest rates etc.

The Sydney Opera House may be one the landmark buildings in Australia. However, it was apparent that the project cost was over run by 15 times to over 100 million Australian dollars in the 1950s when it was built.. The building was designed by an Danish architect, Joern Utzon, beating 200 other international competitors. Its design was not backed by realism and practicality in the actual construction. If the judges had thought rationally and logically that it would be an uphill task translating the dreamed design into reality, it would have saved them millions of dollars.

Another project that blew the budget was the Euro tunnel. It was constructed amidst much fanfare. It expected to capture a third of the commuters' market. However, when the tunnel was completed after much delays and cost overrun. It ran into the snag of its other competitors - the ferry and air transportation services lower their prices. By then, billions of dollars were already sunk into the project.

The rational thinking should be coupled with detailed planning, market feasibility studies and survey as well studying the mistakes made by competitors. All these efforts expended up front will pay great dividends in the long run. You avoid making many mistakes and tons of headaches and nightmares. It will help you to sleep well

Article Source: http://depositarticles.com/

Dr Mike Teng (DBA, MBA, BEng) is the author of best-selling book, "Corporate Turnaround: Nursing a Sick Company back to Health." He is known as the "Turnaround CEO in Asia" by the media. corporateturnaroundexpert.com corporateturnaroundcentre.com

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