Strategic Decisions




Theoretical and empirical studies of decision making pervade organization theory. They have done so for over six decades. James March and Herbert Simon suggested in 1958 that managing organizations and decision making were virtually synonymous. From this broad perspective, decision making has maintained its centrality to the field of organization theory and is one of the most active areas of current management research, particularly in the field of strategic management. The dynamics of organizing brought with them the need for understanding decision making. As organizations grew and became more complex, decision making became a central activity. Managers, in particular, were expected to make choices amongst often uncertain alternatives and to choose wisely – benefiting the organization and its many stakeholders. Scholars were expected to uncover the characteristics of decision processes and to explain ways in which we might, ultimately, improve the ways in which decisions were made in organizations.




The scholarly study of decision making covers many levels of analysis (from individual cognition to the cultural characteristics of nation states), and many disciplines inform our knowledge (from mathematics to behavioral theories of social science). The term strategic decision making is usually used to indicate decisions made in organizations, as opposed to individual choice activity (such as choosing where to go on holiday). Organization includes any collective social, economic, or political activity involving a plurality of human effort. Strategic decisions emphasize the social practice of decision making as it is carried out amongst and between a group of such individuals. It is the organizing of decision activity as a collective phenomenon which takes center stage, rather than the cognitive processes of individual choice makers.

Equally, strategic decision making is not primarily concerned with computation in the field of judgment and choice. Various branches of mathematics can inform us about risk, options, game theory, and choice. All have their utility in understanding choice processes, but are less useful when considering how organizations full of people make decisions. For example, the most well known variant of game theory (decisions between two players) is the prisoner’s dilemma, where two criminals are in separate cells and have to decide whether or not to betray each other (having agreed not to betray in advance of the game). The greatest payoffs come from both prisoners sticking to their agreement, but most betray each other and the payoffs are significantly reduced. The lesson is that computational mathematics could help the players maximize their returns. This is choice theory (rather than strategic decision making).

Why strategic decisions? These decisions are usually large, expensive, and characterized by high levels of uncertainty (no one has done this before). Once implemented, they set the course of many operational (everyday) decisions that follow in their wake. A further characteristic of strategic decisions is that they are difficult to reverse once resources (human and financial) have been committed to their cause. A more robust list of the characteristics of strategic decisions would include the following:

  • They are difficult to define precisely (the nature of the problem is elusive).
  • Understanding the problem is also part of understanding the solution.
  • There is rarely one best solution, but a series of possible solutions.
  • Each solution is associated with different tradeoffs and priorities.
  • They are difficult to assess in terms of performance, since they tend to continue through the organization without a clear final end point against which performance can be judged.
  • They are highly interconnected with other problems in the organization.
  • They have high levels of uncertainty associated with them.
  • They require strategists to accept fairly high degrees of risk in making decisions.
  • Once made, they are difficult to reverse.
  • They are likely to be discontinuous and political, with different competing interests trying to influence the outcome in line with their preferences.

At its simplest, strategic decision making may be considered an instantaneous action, a choice between two or more known alternatives. However, this ”point of decision” approach is unable to capture the richness and complexity of:

  • the processes that lead up to the point of decision;
  • the influences that impact upon putting the decision into action;
  • assessing the ultimate performance of that decision.

Decision making from this choice perspective also assumes that managers have full agency and control over decisions. Sometimes they may have very limited discretion to make decisions or choose amongst alternatives. This could be the case, for example, where strategic decisions in organizations are heavily constrained by interventionist government policies (such as privatization or deregulation), where all strategic decisions are framed and shaped by this wider context. Nevertheless, managers still have some degree of strategic choice even if the wider con text (e.g., privatization) is firmly set in place. Managers can still make strategic decisions, for example, concerning such key topics as organizational design, choice of suppliers, choice and sophistication of information systems, and general product or service portfolios.

Theorists such as Drucker (1974) and Weick (1995) showed how decision making processes in organizations were as much about defining the question as they were about providing an answer. The important aspects of understanding strategic decisions are deciding whether there is a need for a decision and, if so, what that decision should be about. Weick likens this process to those of boards of inquiry following a disastrous event. Such boards have a number of roles. They are historians – reconstructing the past to allocate responsibility and to prevent future disasters happening through the same processes. Essentially, they take an outcome and interpret it to be the result of a series of decisions (which were often not seen as discrete decisions at the time by those involved). Much of strategic decision making is about this kind of social reconstruction.

There are many other views of strategic decision making. You could view strategic decisions as a plan: the decision is a consciously intended course of action. In the same way that you might intend to catch an airplane to a specific destination at a particular time, decision making is a process which is carried out in advance of the action that follows and is developed with a clear purpose. Or you could view strategic decisions as a ploy: a decision from this perspective is a set of actions designed to outwit the competition and may not necessarily be the “obvious” content of the decision. For example, a decision to build a new building in order to expand may not be the overt strategy, but is more concerned with increasing barriers to entry for potential competitors. Here, there are connections with strategic decision making as conceived in its military roots, where the plans of campaigns may have similar characteristics to those of a ploy to outwit the “enemy.” You could view strategic decisions as a pattern: decisions are not necessarily taken with a planned purpose and decision makers do not always have access to the range of knowledge required to plan wholly in advance. What happens is that multiple decisions taken over time form a pat tern. It is this pattern of resulting (emergent) behavior that we call the strategy of the firm. Strategy is therefore characterized as a pattern that emerges from a stream of decisions.

Strategic decision making can also be seen as achieving a position: decisions are less about the dynamics of planning or gamesmanship and more about trying to achieve a match between the organization and its environment. This position can be one of alignment, so that the organization matches its environment (e.g., highly decentralized structures to match a turbulent and unpredictable environment), or one of trying to secure competitive advantage (where the organization achieves a unique position in the market for some time). Positions, of course, can be planned, emerge, or be a combination of both emergent and planned processes.

Finally, strategic decision making can be viewed as a perspective: decisions are characterized as being a reflection of how strategists in an organization see and perceive the world and their organization. For example, the strategic perspective of Nokia is one of continuous and sometimes radical change (Nokia began as a paper and pulp company); IBM favors a dominant marketing perspective, whilst Hewlett Packard favors an engineering excellence perspective. This perspective, if pervasive enough, can influence the kinds of decisions taken, in respect of their content and their processes. We can see the effects of this embedded view of decision making by observing that organizations in similar industries often choose similar strategic decisions. They become institutionalized. Universities tend to follow broadly similar strategies, as do large retailers or service organizations.

Over the last 50 years there have been radical changes in the ways in which strategic decision making has been researched. For example, the 1950s and 1960s saw an emphasis on the planning approach to decision making. The focus was on tools and techniques to help managers make informed decisions about future business directions. Such tools included industry structure analyses and portfolio matrices (e.g., the Ansoff matrix or the Boston Consulting Group’s Box). Strategic decision making was mostly about planning. The 1970s onwards saw a different emphasis. Decisions were now supposed to emphasize the payoffs to organizations that may accrue if they pursued different strategic directions. Typical options were diversification decisions, but this was also the era of innovation (R&D), acquisition, joint venture, and internationalization decisions.

The 1980s saw a move away from examining the content of strategic decisions (that is, what they were about) to examining them more as processes. The question now became whether we could map the progress of a strategic decision and make any inferences about why such processes might occur. David Hickson and his colleagues characterized such processes as sporadic (discontinuous), fluid (continuous and smooth), or constricted (restricted to a small group of stakeholders and highly political). This work also underscored the importance of such processes since they underpinned the recognition amongst managers for strategic change. The 1990s onwards have seen a continuing interest in unfolding the characteristics of decision processes, but the emphasis has changed to focus on whether or not there are any links between decision making activity and performance (did the decision succeed or fail – and do a number of failed strategic decisions lead to failed organizations)? Finally, very recent approaches to strategic decision making have started to concentrate upon the more micro aspects of how managers think, act, and interpret strategic decisions. This approach has been termed the strategy and practice perspective (Whittington 1996).

Strategic decision making has encountered many attacks on its theoretical and empirical claims to be a discrete field of study. It has not only survived these attacks, but has also prospered in recent years with many established authors returning to some of the original ideas in decision making (we can see this, for example, in the more recent works of Karl Weick and James March), and there are many newer researchers joining the field. The major criticisms of the field were:

  • The decision itself is an inappropriate level of analysis.
  • A lack of large scale empirical studies (too many assumptions based on too few cases).

The first critique argues that studying decisions as the primary unit of analysis ”gets in the way” of what is really important. That is, actions occur in organizations where decisions may not have been taken and to isolate and study ”the decision” is to miss that process. The counter argument says that deciding and implementing are matters of degree in quite diffuse processes. Since then, the decision as a unit of analysis has become the firm focus of many theoreticians, with general agreement that in order to understand ”strategy” in organizations one has to understand the processes of the handful of decisions which make up that strategy. Key authors in the field (including Henry Mintzberg, James March, Karl Weick, Paul Nutt, David Hickson and colleagues) are today focusing on the decision as the appropriate unit of analysis.

The second critique was more robust until the large data sets of Paul Nutt and Dean and Sharfman in the US and David Hickson and colleagues in the UK began to emerge from the late 1980s onwards. After this empirical work, it was no longer necessary to base the interpretation of decision making on a few key in depth cases, but the comparative empirical study of decisions was possible using multivariate tools for analysis. It became recognized in the social science community that strategic decision making could be argued to be a robust field of study and that it remained theoretically (and empirically) distinct from other related cognate areas such as corporate strategy or individual choice theories such as consumer behavior.

Overall, strategic decision making research has informed the general field of organization theory in distinct ways. For example, the notion of incrementalism (piecemeal attention to small steps in any process) arose from Charles Lindblom’s research into how decisions were made. The notion of problemistic search (managers only seek information when they have to, or when there is a pressing problem) came out of work by Richard Cyert and James March. The concept of enacted environments (managers only see and interpret the bit of the operating environment they focus upon) came out of research by Karl Weick. All of these concepts were developed in the field of strategic decision making and have become more generically applied to organizational processes in recent years. Strategic decision making has proved a rich ground for the emergence of such concepts.

The processes of making strategic decisions can appear deceptively simple. Actions are formulated toward the solution of a particular problem. The problem with this approach is that there may be discernible actions and there may be observable outcomes, but they need not necessarily be wholly related to one another. Problems may be solved by factors other than strategic decisions and, sometimes, taking a strategic decision can create a whole new set of problems (without solving the initial problem the decision was supposed to address).

These polar views can be represented as the planning versus the chaotic processes of strategic decision making. They are extremes and, although most decisions lie somewhere between the planned and the chaotic, both perspectives are useful for understanding the processes of strategic decision making. Viewing processes as basically a set of planning tools allows actions, procedures, and measurement to be explicitly addressed. Planning facilitates decision makers in analyzing and codifying what appear initially as complex problems. Planning simplifies complexity and helps reduce uncertainty. Because of this, planning can also help decision makers examine current planning practices in their organization and assess their utility in light of current problems. From a behavioral perspective, planning can ensure that others in the organization are involved and are communicated with as fully as possible. Note that although involvement and communication can be explicit parts of the plan, this may not endow those participants with any influence over the process or its eventual outcome. Finally, planning processes help decision makers identify key performance indicators by which progress of the decision can be monitored and judged.

Chaotic processes mean that organizations can be viewed as an “anarchy” or as a system with chaotic tendencies. Hence decision makers can neither understand fully nor control decision processes. Means and ends are unlikely to be coupled, which implies that actions do not lead to expected outcomes and are swayed one way or another by other decisions, other actions, and unforeseen circumstances. The main components of a strategic decision making process (problems, solutions, participants, and choice situations) interact in an apparently haphazard way, a stream of demands for the fluid attention and energies of managers. Participants move in and out of the decision making process (every entrance is an exit elsewhere), and this can create discontinuity. At other times, participants fight for the right to become involved and then never exercise any influence they may have.

Viewing decision making processes as chaotic also has some advantages for decision makers. Unlike the planning approach, the chaos perspective does not seek to simplify and to reduce uncertainty. It avoids any oversimplification of the process and allows decision makers to appreciate and expect the role of politics and influence to be a natural part of the decision making process. In theory, the chaos perspective should encourage decision makers to think creatively around complex problems and help them to avoid thinking solely in linear sequences.

Creativity and innovation may be enhanced by decision makers being encouraged to take actions that seem unrelated to the decision under consideration. On the other hand, we should bear in mind that the distinction between creativity and madness is a rather fine line. From a decision making perspective, this means that no one will know whether the tangential explorations were useful or folly until a long way down the track of the decision process.

The work of James G. March characterizes and summarizes many of the basic features and debates in strategic decision making. The basic decision process can be illustrated as in Figure 1.

The major contribution of this simple flow diagram was that its very simplicity could be misleading. The cycle can be broken or can malfunction at each stage of the process and between stages. James March taught us to beware of assumptions of rationality both in individuals and in organizations. Actions can be taken for a variety of reasons which correspond to the ways in which organizations are structured (each specialized function developing its own view on what should happen). This was added irrevocably to the vocabulary of organizational decision making in the form of “local rationality” (Cyert & March 1963).

March was later to refine this concept by emphasizing local preferences (rather than rationality). His argument was that in organizational decision making, the main thing was in forming interpretations rather than in making choices. Here, interpretations cover a wide arena of examining organizational decision making. In particular, March was keen to show the differences between decisions that were choice based or rule based. The main distinction was whether decision makers pursue a logic of con sequences, making choices amongst alternatives and evaluating their consequences in terms of prior preferences, or do they pursue a logic of appropriateness, fulfilling identities or roles by recognizing situations and following rules which match appropriate behaviors to the situations they encounter? In this respect, organizations provide the context in which such interpretations are formed, sustained, and sometimes changed.

Decision Action

(Individual and groups)

  Knowledge, Interests, Preferences, and Worldviews
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Organizational Action

(Choices and outcomes)

  Interpretations and Responses to the Environment
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Figure 1 Strategic decision-making processes (James March).

March also alerted our attention to the fact that organizations could engender two very different types of decision behavior. One may be characterized by clarity and consistency and the other by ambiguity, inconsistency, and chaos. In the former case, organization is all about coherence and reducing uncertainty to avoid equivocality. In the latter case, organization is anarchic and acts as a background for decisions which may not be linear in process, may not be logical in a consistent sense, and where solutions may precede outcomes (in the sense that organizations by their very nature are collections of solutions already made – waiting for new decision opportunities to which they can become attached).

Finally, March argued that decision out comes can be seen as primarily attributable to the actions of autonomous actors in organizations, or can be the result of the systemic properties of organizations as an interacting ecology. Here, the links between organization and decision are made explicit. Is it possible to describe decisions as emanating from the intentions, identities, and interests of independent actors? Or is it necessary to emphasize the ways in which individual actors, organizations, and societies fit together?

There is unlikely to be any resolution of the above theoretical disjunctures. Future work in strategic decision making may have to try and seek a synthesis – not to force choices amongst epistemologies – so that one can weave together both approaches in ways that allow one to high light or illuminate the other. Whatever the outcome of this process, it is certain that strategic decision making will remain at center stage of the sociology of management and organization for many years to come.

References:

  1. Cyert, R. & March, J. G. (1963)A Behavioral Theory of the Firm. Prentice-Hall, Englewood Cliffs, NJ.
  2. Dean, J. & Sharfman, M. (1996) Does Decision Process Matter? A Study of Strategic Decision Making Effectiveness. Academy of Management Journal 39(2): 368-96.
  3. Drucker, (1974)Management: Tasks, Responsibilities, and Practices. Harper & Row, New York.
  4. Hickson, D., Butler, R., & Wilson, D. (2001)The Bradford Studies of Decision Making: Classic Research in Management. Ashgate, London.
  5. Lindblom, C. (1959) The Science of Muddling Through. Public Administration Review 19(2): 79-88.
  6. March, J. (1999) The Pursuit of Organizational Intelligence. Blackwell, Oxford. March, J. & Simon, H. (1958) Wiley, New York.
  7. Mintzberg, H. & Waters, J. (1990) Studying Decid­ing: An Exchange Between Mintzberg and Waters, Pettigrew and Butler. Organization Studies 11(1): 1-16.
  8. Nutt, P. (1984) Types of Organizational Decision Processes. Administrative Science Quarterly 29(3): 414-50.
  9. Weick, K. (1995) Sensemaking in Organizations. Sage, London.
  10. Whittington, R. (1996) Strategy as Practice. Long Range Planning 29(5): 731-5.

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