Bauger Group - decision making

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Bonus was once a discount grocery and was established by Johannes Jonsson after he lost his job in 1988 and recruited his son, Johannesson. In 1998, Bonus merged with Hangkaup to become Baugur. Johannesson faced legal charges of accounting irregularities in 2001 and was cleared five years later. During the same year, Baugur bought up Bill's Dollar Stores but unfortunately the project was discontinued. They did more due diligence and was interested in Saks due to its good management and international potential. Managers are given plenty of leeway and Johannesson uses 'traffic light' system to keep track of his portfolio.

Question 1

Are most decisions Jon Johannesson makes as CEO of Baugur Group programmed decisions or non-programmed decisions?

Programmed decision is a routine, virtually automatic decision making that follows established rules or guidelines. Non-programmed, on the other hand, means non-routine decision making that occurs in response to unusual, unpredictable opportunities and threats.

The decisions made by Johannesson were mostly non-programmed because the decisions were made based on his intuition and prediction. One of the examples of non-programmed decisions that he made in the past includes a full-scale takeover of Arcadia Group by Baugur. He was planning to dominate Arcadia since it was Britain's largest clothing retailer. However, it was a plan gone bad since he was legally charged for accounting irregularities according to a disgruntled former business partner. On another related note, he made one wise and prompt non-programmed decision to sell off his Arcadia shares and he managed to obtain a profit of $200 million, a tenfold return on its initial investment.

In 2001, Baugur took over Bill's Dollar Stores because Johannesson foresaw it as a very good bargain at that time but it did not work out the way he thought it would be when Bill's went belly-up and the project had to stop. It was another illustration of a bad non-programmed decision because Johannesson jumped into the opportunity of getting a Mississippi budget chain emerging from bankruptcy without putting enough thought and rule out the possibility of failing the project since Bill's Dollar Stores was already listed in Chapter 11.

Another judgemental decision made by Johannesson for Baugur was to break into the U.S market because he finds the U.S market attractive due to the fact that the American consumers are still spending a lot during recession. After the Bill's Dollar Stores case, Johannesson set his eyes on Saks, which seems like a better deal to him because Saks fits his game plan of buying into retailers with good management and international potential. It was again another golden opportunity for Johannesson to be on top of his game and he is definitely on the right track.

Question 2

What are some of the ways in which he recognizes the need for a decision?

Decision making is a cognitive process of reaching a decision by which is often practiced by managers when encountering situations which requires the managers to make up their mind. The decisions made may be good or bad. If it's good, the organizational performance will increase and if not, the performance may not be up on par with the vision and mission of the company.

Johannesson recognized the need for a decision when he was facing a relatively intense situation which requires immediate action to be taken such as the Arcadia case. He just knew what to do and it was to sell out his Arcadia shares so that he did not have to bear too much losses and instead of losing, he gained a tenfold return on his initial investment.

Another way of recognizing the need to make decisions was the 'traffic light' system. By giving each brand a colour code ; green for smooth running , yellow for potential threats and red to indicate the need for special care. With so many businesses in his portfolio, it is understandable that Johannesson uses this method to keep track of every single little thing. When the indicator shows yellow or red, it is very alarming and shows that it is time for Johannesson to take action to solve the problem. It is a brilliant way to handle situations like this when you can't be there in person to keep an eye on the operation of each business.

Question 3

To what extent are the decisions he makes characterized by risk or uncertainty ?

Risk is the degree of probability that the possible outcomes of a particular course of action will occur. Uncertainty, on the other hand, is probability that cannot be given for outcomes and the future is normally unknown.

The first decision that was made out of uncertainty was his stepping stone as he decided to take the broken-down amusement ride and fixed it. Then it turned from one amusement ride to 20 and finally became his first business. He was uncertain of the outcome or what it may be for his future too. The decision to fix the broken-down ride could have been just a spare-time activity at the moment.

One risky decision that he made was the full-scale takeover of Arcadia Group. He did not rule out the possibility or risk of facing human threat like what his disgruntled former business partner did to him when he was realizing his dream of taking over Arcadia. In the end, he did not get what he wanted but instead had to sell off his shares as a result of the incident.

Furthermore, decision to buy up Bill's Dollar Stores was yet again another decision made out of risk. Bill's Dollar Stores was facing bankruptcy and so Johannesson thought that by buying this company, he would be able to help Bill's emerge from bankruptcy and bring in more profit for Baugur. However, the project failed and Johannesson regretted his decision and wished that Bill's did not come out from Chapter 11, which is a chapter of the United States Bankruptcy Code, which permits reorganization under the bankruptcy laws of the United States. In that case, he would not be interested in this company in the first place, thus avoiding making the initial plan.

Another risky decision made was his intention to cross the Atlantic and break into the U.S market. He is aware that the Americans are facing recession but he is being positive about being a part of the U.S market as he finds out that the Americans still spend a lot despite the recession fear. Still, it is a risky step as the recession may take a toll on Johannesson in the future when the U.S market succumbs to the economy breakdown. In order to make his dream come true, he set his eyes on Saks because of its good management and international potential.

Question 4

How has he learned from feedback ?

Feedback in terms of business means information gained by an individual or business in response to sales or services provided. Positive feedback indicates satisfaction while negative feedback signifies dissatisfaction and indicates the need for improvement. Be it good or bad, a manager should take the feedback into consideration and learn from it, so that mistakes made would not be repeated and so future decisions will be easier to make after he studies what went wrong with his first decision.

By observing his father's every business approach, Johannesson has definitely learnt enough to be who he is today. After losing his job in 1988, his father did not give up but instead was determined to launch his own discount grocery in a rented warehouse. Although in the first few years, life was not like a bed of roses and they had to work around the clock, all the hard work paid off when Bonus brought even more pride to Johannesson and his father after merging with Hagkaup. That taught Johannesson not to give up so easily and buckle under pressure of a failing career. Instead, he should have the desire to do better and turn over a new leaf.

Another lesson learnt by Johannesson from the Arcadia Group incident is building a good rapport with another organization, particularly the founder of that company. Even if the project does not work out smoothly or trade was not successful , the relationship between the two should remain close. He discovered that if the relationship is tarnished and the other party is not satisfied with him, he may face human threat if the other party is keen in pushing him into hot water. Not only did he learnt about association, he also learnt that one must be able to endure whatever hardship that may come his way and take immediate action to save himself from falling into the hot water. He knew that very instance that he had to sell off his Arcadia shares to save Baugur from bearing losses.

The moment Johannesson decided to cross the Atlantic, he knew that he was in for a lot more in the world of business. He learnt that if he had more courage to initiate an action, he may be able to be on top of his game although there is also a possibility of tumbling down. However, if he does not take the first move, how will he know if the outcome would be of his benefit or not ? Lucky for him, the intention of stepping out of his comfort zone and break into the U.S market was a risk worth taking. It was then that he came across Saks and totally fell for it. While his initial move to take over Bill's Dollar Stores was a mistake, it became his motivation to do more due diligence which is interpreted as the amount of reasonable investigation that must be made to determine whether an investment or business arrangement is worth investing in and to determine whether it is likely that the information he or she has contains omissions. Due diligence involves looking through public documents related to a company and talking with people in the industry who knows the company inside out before making the "attack".