Satisficing — Running or Ruining your business?

Given a business problem, there are a finite number of solutions. The solutions could be:

  • Maximising
  • Optimising
  • Satisficing

The strategy of satisficing can be used given a strict understanding of the aspiration level of concerned business. In simple terms satisficing means searching for alternatives to a solution, until an acceptable threshold is met.

While the rational thought would be that — a maximizing solution at the highest aspiration level would provide maximum return ( or happiness for lack of a better term), it is often not the case. Each problem has a bounded rationality, and the solution for that particular problem needs to be either satisfying, or optimising that particular scenario.

Let us simplify this theory and understand it in terms of XYZ Inc. & ABC Inc. .

XYZ Inc. manufactures LED light bulbs. Their world domination strategy includes having a 90% market share within the first year of launching. Is it achievable?

More importantly, is it what the company needs, and if so, at what cost?

For XYZ Inc. to achieve 90% market share in the 1st year, it will have to sacrifice on pricing, cost, labor, and, as an end result, maybe quality. However, if when this cuts into other companies’ profits, either they will follow the same path as XYZ Inc. to stay in the market, or they will be wiped out, and the industry will open up for a new entrant. Maybe, over a period of time, both the firms XYZ Inc. & ABC Inc. will have optimised their market share to stay in the market.

Would Satisficing lead to collusion between and thus, maybe survival of the two companies?

Example of when satisficing can ruin a business.: A group spends hours projecting the next fiscal year’s budget. After hours of debating they eventually reach a consensus, only to have one person speak up and ask if the projections are correct. When the group becomes upset at the question, it is not because this person is wrong to ask, but rather because the group has already come up with a solution that works. The projection may not be what will actually come, but the majority agrees on one number and thus the projection is good enough to close the book on the budget.

While the group reached a solution that is satisfying and sufficient, is it the right solution?