B E R N A R D O A M E Z C U A

STRATEGIC DECISION MAKING

PAPER

Cites

Google Scholar 688

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Literature Review, Special Issue

AUTHORS

• Eisenhardt Katleen M. • Professor; Stanford

Warren Ascherman Professorship in the School Engineering

• Her research focus is on strategy and organization in uncertain, high-velocity markets with emphasis on complexity and power theories

• Had received numerous awards

• kme@stanford.edu

• Zbaracki, Mark J. • Associate Professor in

General Management at the Richard Ivey School of Business. (Western Ontario)

• His research addresses how organizations implement management practices, including Total Quality Management, supply chain management, and strategic pricing initiatives.

• mzbaracki@ivey.uwo.ca

JOURNAL

• SMJ is devoted to the improvement and further development of theory and practice of strategic management and it is designed to appeal to both practicing managers and academics.

• The journal also publishes communications in the form of research notes or comments from readers on published papers or current issues. (Forum)

Scopus SNIP 2010: 5.60

ABSTRACT

The article reviews the strategic decision making (SDM)

literature by focusing on the dominant paradigms:

Rationality and bounded rationality

Politics and power

Garbage can

They review the theory and key empirical support, and

identify emerging debates within each paradigm.

Finally they propose a research agenda that

emphasizes a more realistic view of strategic decision

making.

WHAT IS SD?

• Strategic Decision is one which is “important” in

terms of the (Mintzberg, Raisinghani and Theoret,

1976: 246):

• Actions taken

• Resources committed, or

• Precedents set

• Infrequent decisions made by the top leaders of an

organization that critically affect its health and

survival

RATIONALITY AND BOUNDED RATIONALITY (BR)

Rational action also called

Synoptic or Comprehensive Model of Decision

1. Actors enter decision situations with known

objectives

2. These objectives determines the value of the

possible consequences of the action

3. Actors gather appropriate information and

develop a set of alternative actions

4. Select the optimal alternative

RATIONALITY AND BOUNDED RATIONALITY (BR)

Model Evolution

Hobbes

Consistent, value maximizing calculation

Simon

Bounded rationality

Later variations

Accept rational model but allow repetition and variety

Recent approach

Rationality Bounded Rationality

(Optimize) (Satisfice)

RATIONALITY AND BOUNDED RATIONALITY (BR)

Cognitive limitations • Theory and case studies demonstrated

• Goals can be inconsistent across people and time

• Search behavior is often local

• Standard operating procedures guide much of organizational behavior

Cyert and March, 1963:

• In a review of six top-level planning decisions, found 2 types of search process

• Personnel-induced: strong executives with definite objectives in mind

• Opportunity-induced: search occurs when unexpected opportunities arise.

Carter, 1971

• How standard operating procedures applies to strategic decision in Government?

• “Actions arising from a org. yesterday best predict the actions today” Allison, 1971

• Goals and alternatives by objection model (at ExCom):

• Consider simultaneously few alternatives courses of action, then participants raise objections to a current alternative (discovery of goals and choices trough social process)

Anderson, 1983

RATIONALITY AND BOUNDED RATIONALITY (BR)

Rearrangement and repetition In the classic rational model of choice the identification, development

and selection phases of decision making occur sequentially

Mintzberg et al., 1976, studied 25 decision

processes and generated a model where

these 3 phases have no sequential

relationship.

Identification: decision

recognition and diagnosis routines

Selection: Evaluation-choice and authorization

routines

Development:

Search and design routines

Phases and their

routines come in any

order and repeat (shift,

branch, cycle and

recycle)

RATIONALITY AND BOUNDED RATIONALITY (BR)

Rearrangement and repetition Nutt (1984), studying health-related organizations, found that the

pieces of the rational model are valid, but that they not necessarily

follow a simple, casual sequence. He found 5 types of decision

process, which vary primarily in their approach to search:

Off-the-shelf: Uses aggressive search to find the best available

technique.

Appraisal: Manager use the scientific method to evaluate the

effectiveness of ideas with unknown value.

Hickson, Butler, Cray, Mallory and Wilson (1986) studying 150 firms

found that decision process vary upon decision characteristics

(complexity and political):

With simple matters: smooth and constricted decision process

With complex and contentious matters: More complicated

process with delays and recycling

Rationality Bounded Rationality

RATIONALITY AND BOUNDED RATIONALITY (BR)

¿Where is the optimal point?

Mintzberg and

Waters (1982):

Organizations size affects the

rationality of SDM

Dean and Sharfman (1992):

Threatening environments, high uncertainty and

external control decrease

rationality

Cosier, Janis, Nutt,

Schweiger, Sandberg,

Rechner, Cosier and

Schwenk: Moves with

increasing conflict

Most prevalent

argument: MORE

COMPLEX OR

TURBULENT

ENVIRONMENTS

REQUIRES LESS

RATIONALITY (e.g.

Fredrickson and

Mitchell, 1984)

Schweiger, Sandberg and

Ragan (1986): Tested that

Dialectical inquiry and

devil´s advocacy

produced better

recommendations that

consensus groups

Janis (1982) uncovered

the “groupthink” an

excessive tendency for

concurrence.

RATIONALITY AND BOUNDED RATIONALITY (BR)

An alternative view

Authors don´t agree completely with R-BR continuum. They argue

that rationality is multidimensional, and strategic decision makers are

rational in some ways but not others.

Suggest “heuristics” decision making tactics are effective in fast-

paced, uncertain settings.

There are many variations of bounded rationality

POLITICS AND POWER

Politics inside the organization?

How conflict is resolved? Preferences and choices of the most

powerful people are followed

Decision makers attempt to change the power structure trough

coalition, cooptation, strategic use of information and the use of

outside experts.

Legislative process (1950’s): Decision makers have different goals,

they come together trough coalitions and the most powerful triumph.

Organizations are coalitions of people with competing interests.

May share some goals but also have conflicts.

POLITICS AND POWER

What is politics?

According to Quinn (1980) politics emphasize TIMING

and OPPORTUNISM.

This allows executives to build a power base for their

ideas, accelerating, delaying or being flexible as the

need to change arises.

Authors refers by politics, “those observable, but often covert, actions

by which people enhance their power to influence a decision”

POLITICS AND POWER

An alternative view

Traditional view is that politics are “fluid” and is essential to organizations

for creating effective change and adaptation.

A contradictory view is emerging:

Politics are trigged by power imbalances

Frustrated executives turn to politics in autocratic situations.

Politics are static, as decision makers rely on the same allies and the

same politics time after time.

Politics is ineffective. Many people dislike it.

Authors conclude that politics create animosity, wastes times, disrupts

information channels and leads to poor performance.

GARBAGE CAN (GC)

What is?

The GC model describes decision making in highly ambiguous settings

(organized anarchies)

Ambiguity surfaces in 3 principal ways:

1. Problematic preferences: among decision makers

2. Unclear technology: people have a loose understanding of means and

ends.

3. Fluid participation: involvement of participants depends upon their

energy, interest and other demands on their time.

The GC model calls attention to the importance of chance

GARBAGE CAN (GC)

GB model streams

Decision making

Participants-people

Solutions-answer

Problems-concerns

Choice-opportunities-

occasions

Decisions depends

strongly on timing and luck

Decisions are fuzzy and

are not the result of

analysis

Individuals are not sure

about what they want

and change their mind

often

(Random confluence)

GARBAGE CAN (GC)

Amplifying the GC model

Several case studies and empirical results show:

As deadlines are imposed decision making process tend to

become less like a GC because

Force the ejection of extraneous and focus on the remaining issues

The number of participants decreased, but the remaining

participants are more knowledgeable and participation more

frequent

Longer time perspective improves the fit with the GC model. Short

time perspective is better captured by rational and political models

of choice

GARBAGE CAN (GC)

An alternative view Although problematic preferences have empirical support, there are

common themes throughout the choice process

Participation is not always so random, but rather is a consequence of

institutional roles, politics and the phase of the decision process. That is

participation is somewhat predictable.

Also, according to Magjuka (1988) the GC model is supported at the

individual level, but overall patterns of participation were clearly

predictable from psychological and demographic variables. The

patterns are purposive, rational and predictable

The BC model must be accurate since small variations in circumstances

could change the outcome of choices

Streams of problems, people, choice opportunities and solutions are

linked by the issue at hand. They are not independent

GC model is more robust as time frames become longer, deadlines are

removed, and institutional forces are diminished

NEW RESEARCH AGENDA

Most scholars believe that people are boundedly

rational, that decision making is essentially political,

and that chance matters

New agenda seek that empirical findings could transcend traditional

perspectives to new, more realistic views.

Future research areas:

Cognition

Normative implications

Conflict

NEW RESEARCH AGENDA

GC model ignores the cognitive capability of decision makers

At the other extreme political model assumes that people are

cognitive superheroes

Both models are unrealistic. Authors propose to achieve a more realistic

view of cognition studying heuristics of strategic choice. Which, how,

why and when they are most appropriate.

Also suggest to incorporate Insight, an instance of apprehending the

true nature of a thing, especially trough intuitive understanding.

A third suggestion is to study Intuition, which is related to continuous

engagement in the details of business. It refers to incremental

adaptations based on deep, intimate knowledge of the situation.

Cognition

NEW RESEARCH AGENDA

Is required to do more normative studies:

To find how effective strategic decision making vary with the size

of the firm, degree of government regulation, pace of technical

change, different cultures

In profit-seeking firms

To deep in the meaning of “successful outcome”

Rational: Best quality

Political: Getting their own way in battles

Garbage Can: No relation with success

To examine decision outcomes at different levels of organizations

Is decision quality and speed simultaneously achievable?

Normative implications

Garbage Can

• Ignores Conflict

Rational

• A mean to improve problem solving

• No real insight on how is resolved

Political

• Glorifies conflict

NEW RESEARCH AGENDA

Conflict

To improve realism of conflict, explore:

Benefits Vs. Costs

To answer questions like: Some sources of conflict are more beneficial

than others? Is there an optimal level of conflict? How relates to

emotion (anger, frustration, animosity) and decision speed?

Incorporate new approaches like resolving conflict trough

cooperative decisions, building trust, maintaining equity and evoking

humor

Combine with negotiation literature

PROS AND CONS

PROS

• Defined posture

• Use of tables, specifying author(s), method, sample, description and conclusion

• Good structure: By model and then by dates

• Summary on every model and final conclusion

• Refers to author´s original work

• Future agenda

CONS

• Overloaded tables,

including authors who

barely are mentioned

• Publishing date

• Lack of studies on

profit-seeking firms

THANKS

HEURISTICS

• http://www.merriam-

webster.com/dictionary/heuristic

• Involving or serving as an aid to learning, discovery,

or problem-solving by experimental and

especially trial-and-error methods

• also : of or relating to exploratory problem-solving

techniques that utilize self-educating techniques (as

the evaluation of feedback) to improve

performance

Examples of this method include using a "rule of thumb", an

educated guess, an intuitive judgment, or common sense.