How to Tell which

Decisions are Strategic

Ram Shivakumar

How can one tell which decisions are strategic? This article proposes a framework that helps distinguish strategic
decisions from non-strategic ones. Whether a decision is strategic or non-strategic depends on how a decision ranks
along two dimensions: its influence on the degree of commitment and its influence on the scope of the firm. Four
distinct types of decisions emerge: strategic, neo-strategic, tactical, and operational. This categorization of decisions
can help the firm prioritize decisions, allocate resources, and develop capabilities. (Keywords: Decision Making,
Strategic Management, Competitive Strategy)

O
ne of the most widely used words in the lexicon of business is the
word strategic. A perusal of newspapers, magazines, and corporate
news releases reveals that almost every type of business decision
is classified as strategic. For instance, Kraft Foods sees its decision
to split the firm as strategic, Microsoft says that its spurned offer to purchase
Yahoo! was never strategic, Research in Motion says that it is undertaking a stra-
tegic review, Ariba is allegedly a leader in strategic sourcing, and the Royal Bank
of Scotland professes to provide its clients with strategic financing solutions.1
What is not evident is why decisions are deemed strategic. Surprisingly,
even the experts do not seem to agree on its meaning. For instance, Cummings
and Daellenbach conclude from the meta-analysis of 2366 papers that were pub-
lished in the journal Long Range Planning (between 1966 and 2006) that “there
appears a great deal of uncertainty—or at least wide-ranging variance of opinion—
as to what makes a decision strategic.”2
Mistaking strategic decisions for non-strategic decisions and vice-versa can be
calamitous. Military scholars tell us that many of history’s great generals—including

The author would like to thank George Andrews, Andrew Brod, David Besanko, Pradeep Chintagunta,
Harry Davis, Waverley Deutsch, Jason McDannold, Raghuram Rajan, Jim Schrager, and Jai Shekhawat
for their comments and suggestions.

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 How to Tell which Decisions are Strategic

Napoleon Bonaparte, Robert E. Lee, and Heinz

Ram Shivakumar is a Clinical Professor of
Guderian—committed the fatal error of conflating
Economics and Strategy at the Booth School
tactical victories for strategic success.3 In contrast,
of Business at the University of Chicago.
<ram.shivakumar@chicagobooth.edu> other generals who were widely perceived as
less-gifted—such as George Washington, Ulysses
S. Grant, and Vo Nguyen Giap—achieved strategic success despite muddling through
many tactical stalemates and failures. The U.S. experience in the Vietnam War is
especially instructive. By objective measures, the U.S. was winning most of the
battles in the Vietnam War. Even the Tet Offensive in 1968—when the Viet Cong
surprised the U.S. by attacking Saigon—was a tactical victory for the U.S. forces as
the Vietcong lost upwards of 40,000 soldiers. Yet these tactical victories did not shift
the balance of power in favor of the United States. Long before the end in 1975,
it was widely recognized that the war was lost.4
In the business world, many iconic firms—including Kodak, Blockbuster,5
RIM, and Sears7—have faltered because they did not anticipate (or respond appro-
6

priately to) important technological, social, and economic changes. The tragic saga of
Kodak’s decline is worth recounting. A 132-year-old firm, Kodak was once viewed as
the Apple of its day. As recently as 1976, Kodak had an 85% share of all cameras and
a 90% share of all film sold in the United States. It built the first digital camera but
was reticent to shift resources away from print photography (where the margins
were estimated to be as high as 70%) and towards digital photography (where
the margins were expected to equal at most 5%). The advent of smart phones fitted
with digital cameras accelerated Kodak’s decline: it posted nine quarters of losses
between 2009 and 2011 and sought bankruptcy protection in January 2012.8
A survey of strategic decision making in global firms by the international
consulting group McKinsey and Co. finds that organizations that are dissatisfied with
the outcomes of their strategic decisions did not believe that they had established “a
robust fact base,” that they had not explored “contrary evidence,” and that they had
paid insufficient attention to “dissenting viewpoints.”9 These responses are acknowl-
edgements of the weaknesses of strategic planning processes but also suggest that
strategic decision making is difficult because the problems that firms confront are
nebulous. Perhaps this is why the writer H.L. Mencken concludes that “there is always
a well-known solution to every human problem—neat, plausible, and wrong.”10
This article presents a conceptual framework that clarifies how strategic
decisions ought to be distinguished from non-strategic decisions. This framework
is derived from a static model in which every decision that the firm makes can be
ranked on two dimensions11 that have had a long association with the economic
theory of the firm: the degree of commitment12 and the scope of the firm.13
The degree of commitment is measured by the extent to which a decision is
reversible. Some decisions are very expensive to undo (e.g., Intel building a next-
generation chip factory) while others are much less costly to undo (e.g., Intel procur-
ing office supplies). The framework assesses the influence of each decision on the
degree of commitment. The management literature has closely linked the concept
of commitment to strategy because commitment has a persistent influence on perfor-
mance. For instance, Ghemawat asserts that the acquisition of sustainable competi-
tive advantage requires firms to make “investments” that are costly to reverse.

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 How to Tell which Decisions are Strategic

In this view, the intensity of the firm’s commitments can be gauged by the extent to
which the “investments” entail sunk costs, opportunity costs, and inertia.
The scope of the firm is often taken to mean the firm’s choice of products,
services, activities, and markets.14 In fact, as Spulber notes, the scope of the firm also
includes the firm’s organizational activities, i.e., the decisions that influence the
organization’s people, architecture, routines, and culture. Collectively, the firm’s
market-making and organizational activities determine the where and the how of
economic value creation and capture. Some decisions have a significant influence
on the firm’s scope (e.g., GM entering the Chinese market, Apple entering the smart
phone market, or GE reconfiguring its organizational structure) while other decisions
have much less significance on the firm’s scope (e.g., GM altering the shape of tail
lights on its vehicles, Apple including additional color choices for the iPhone, or GE
transferring personnel from one division to another). The framework assesses the
influence of each decision on the scope of the firm.
Ranking decisions along these two dimensions leads to four distinct types of
decisions: strategic, neo-strategic, tactical, and operational. Strategic decisions exert a
significant influence on the degree of commitment (the concept that Ghemawat closely
links to strategy) and exert a significant influence on the scope of the firm (the concept
that Rotemberg and Saloner link to strategy).15 Strategic decisions are of significance
because they influence the (many) subsequent decisions—tactical and operational—
that the firm must make. They are difficult to make because the problems that motivate
them are often “wicked”—hard to comprehend, often without precedent, having few
obviously right or wrong answers, and carrying potentially grave consequences
if wrong.16 It is tempting for firms to delay making strategic decisions until the critical
uncertainties have been resolved. However, waiting can be costly because other firms’
strategic decisions may pay off and windows of opportunity may close.
Decisions that have a significant influence on the scope of the firm without
altering the degree of commitment are classified as neo-strategic. This classification
is novel and necessary because it captures a class of decisions that have been
become more common in recent years. It is also in sync with a stream of recent
research that has favored flexibility over commitment.17 For an example of a
neo-strategic decision, consider Local Motors’ entry into the U.S. automobile mar-
ket in 2007. Local Motors was able to “co-produce” a car—the Rally Fighter—in
partnership with more than 5000 volunteers despite having less than 20 employees
and not producing a single component or part.18 Neo-strategic decisions were
uncommon until two decades ago because it was very difficult for firms to signifi-
cantly alter the scope of their markets and organizations without making irrevers-
ible commitments to specific markets, assets, and capabilities. However, they have
become more common because of the emergence of markets for specialized prod-
ucts and services and because of the dramatic decline in the cost of search. As the
many examples of start-ups profiled by Inc., Wired, and Entrepreneur show, today’s
start-up firms do not need to build their own factories, supply chains, and retail
units because they can rely on specialized intermediaries.
Decisions that significantly alter the degree of commitment without signifi-
cantly altering the scope of the firm are best viewed as tactical. An example of a tac-
tical decision is a firm’s investment in an enterprise resource planning (ERP) system.

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 How to Tell which Decisions are Strategic

While this investment entails a high degree of commitment, and is of consequence

for the firm’s productivity and performance, it is not a strategic decision because it
does not fundamentally change the scope of the firm. Consequently, its influence
on the subsequent decisions that the firm makes is not as consequential (as a strategic
decision). Tactical decisions are the follow-on decisions that arise after strategic and
(quasi-strategic) decisions are made. For instance, Zara’s decision to enter the Indian
market as an independent retailer requires a range of other decisions having to do
with location choices (within a city), the style and range of clothing, pricing, recruit-
ment, and training. The breadth, depth, and potency of tactical possibilities are influ-
enced by strategic (and neo-strategic) decisions. In comparison with the problems
that motivate strategic decisions, the problems that motivate tactical decisions are
best viewed as “hard”—i.e., while the questions are clear, the solutions are not obvi-
ous. The critical challenge for the tactical decision maker is innovation and agility
because tactical decisions are often made in real-time, fast-paced, and stressful
settings.
Decisions that do not significantly alter the degree of commitment as well
as the scope of the firm are best classified as operational. These are the routine
decisions that firms make each day. Some examples of operational decisions
include the procurement and management of inventory, the maintenance of
equipment, the administration of payroll, and the review of bottlenecks in pro-
duction and product quality. Operational decisions have clearly specified objec-
tives and the methods for implementing them are well established. Hence, the
critical challenge for the operational decision maker is effectiveness. Though the
art and science of operational decision making has been extensively studied for
more than a century, empirical and anecdotal evidence show that a surprisingly
large percentage of firms in the U.S., UK, Germany, Japan, China, and India make
them poorly.19
To better understand the distinction between strategic/neo-strategic decisions
and tactical/operational decisions, consider one decision that Southwest Airlines
made at its founding: choosing a business model. The choice of a business model—
the products and services to sell, the markets to operate in, the target customers to
serve, the product attributes to emphasize, and the technologies to employ—qualifies
as a strategic decision because they are expensive to undo and because they influence
the scope of the firm in significant ways. Among the policy decisions that Southwest
Airlines made was to: eschew the hub-and spoke model in favor of a short-haul
point-to-point model; fly to and from mid-size cities and second-tier airports in the
U.S.; forsake full-service in favor of limited service; avoid interlining (linking with
other airlines); target price-sensitive consumers; sell directly to the consumer; and
emphasize high aircraft utilization and lean ground-crews.20
The tactical and operational decisions are the residual decisions left open by
Southwest’s strategic decisions. For instance, the pricing of airline tickets, the adver-
tising themes emphasized, the recruiting and training of ground crews, the boarding
process, and the design, development, and maintenance of the website are some
examples of the tactical and operational decisions that follow from Southwest
Airlines’ choice of a business model. These decisions were not pre-determined at
the outset because the strategic decision makers at Southwest Airlines could not

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 How to Tell which Decisions are Strategic

have foreseen the specificity of the problems. Consequently, they delegated tactical
and operational decisions to those who were better positioned to make them.
The categorization of decisions is important for two reasons. First, it helps
firms prioritize their decisions by separating the decisions that have an influence
on the direction and long-term performance of the firm from those decisions that
do not. The prioritization of decisions is especially important for resource alloca-
tion. Because strategic and neo-strategic decisions are deliberate decisions, they
require analysis, consultation (with others inside and outside the firm), and reflec-
tion. In contrast, tactical and operational decisions must often be made rapidly.
Second, since strategic and neo-strategic decisions have persistent effects,
they determine the range and potency of the tactical and operational decisions
that follow. This, in turn, means that the strategic and neo-strategic decision mak-
ers must think through the non-strategic choices implied by each strategic and
neo-strategic decision. A deep understanding of the context within which tactical
and operational decisions are made is invaluable because it helps those making
strategic and neo-strategic decisions develop a better understanding of the firm’s
capabilities as well as refine the firm’s objectives.

Strategy and Strategic Decision making

Among the first to study strategy as a formal discipline were game theorists.
Von Neumann and Morgenstern as well as Shubik describe strategy as a contingency
plan21—that is, as a general policy (or method) for dealing with changing circum-
stances. What an outsider (looking in) observes is the firm’s realized strategy—its
choice for dealing with a specific contingency—and not the firm’s strategy. A strategic
decision, for a game-theorist, affects all other players in the game; in contrast, a tac-
tical decision affects only some players in the game.
The task for management, Drucker argued, is to “make what is desirable
first possible and then actual.”22 For this to happen, management has to translate
long-term vision into a set of proximate goals and plans. Though he did not view
senior management as having an exclusive hold on strategy and strategic decision
making, Drucker did see management as having the principal responsibility for its
articulation and execution.
Ansoff defines strategy as “rules for decisions under partial ignorance” and
strategic decisions as “primarily concerned with external, rather than internal,
problems of the firm and specifically with selection of the product-mix which the
firm will produce and the markets to which it will sell.”23 Ansoff conceived the
tactical decision maker’s fundamental task as coping with crises and the strategic
decision maker’s fundamental task as avoiding crises. What is noteworthy is that
the management of the organization—its people, structure, and culture—does
not figure prominently in the analysis.
Chandler defines business strategy as “the determination of the basic long-
term goals of the enterprise, and the adoption of courses of action, and the alloca-
tion of resources necessary for carrying out these goals.”24 Notice that strategy is
viewed as a goal-oriented activity closely aligned with long-term outcomes and

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 How to Tell which Decisions are Strategic

deliberate planning; and unlike von Neumann and Morgenstern’s view, strategy is
not represented as a game-theoretic problem, but as one of how management
addresses the fundamental questions of business scope and organizational struc-
ture. Chandler argues that the chief advantage of the multi-divisional structure
(the M-form) is that it separates strategic planning (the formulation of business
policy and resource allocation) from tactical planning (the administration of the
more routine decisions).
Porter describes business strategy as an endeavor to carve out a distinct and
valuable position and that each firm’s strategy is reflected by the character of the
unique collection of activities that it performs.25 The greater the “fit” among the
activities the firm performs, the greater the potential to carve out a distinct and
valuable position. Referring to the activity maps of Southwest Airlines, Ikea, and
Vanguard Funds, Porter explains how the “fit” among the activities contributes
to a coherent and distinct strategy. Porter attributes the successes of the leading
Japanese firms in the 1970s and 1980s to operational excellence rather than stra-
tegic excellence. Japanese firms of this era were, in his view, all alike: while they
had excelled in squeezing every ounce of productivity from their factories and
workers, they were not successful in differentiating themselves.
A recent book by Rumelt contends that business strategy remains poorly
understood.25 Rumelt concludes that a good strategy has three elements—an accu-
rate diagnosis of the challenges that the firm confronts, a guiding policy, and a coher-
ent set of actions. He notes that the principal reason why many firms struggle is
organizational—a failure of structure and routines. Using numerous examples, he
shows that strategy is often mistaken for mission, vision, and goals and that many
managers and leaders substitute slogans and buzzwords for strategy.
Which decisions are strategic and which decisions are not strategic? And
how is one to tell?26 Quinn defines strategic decisions27 as “those decisions that
determine the overall direction of an enterprise and its ultimate viability in light
of the unpredictable and the unknowable changes that may occur in its most impor-
tant surrounding environments.”28 The emphasis on overall direction suggests that
strategic decisions must have long-term consequences. Mintzberg, Raisinghani, and
Theoret define a strategic decision as “one which is important in terms of the actions
taken, the resources committed, or the precedents set.”29 The reference to precedents
suggests strategic decisions commit firms to some paths and make it difficult to pur-
sue others. Eisenhardt and Zbaracki describe strategic decisions as “those infrequent
decisions made by the top leaders of an organization that centrally affect organiza-
tional health and survival.”30
A vast literature has examined the strategic decision-making process within
organizations.31 This literature views strategic decision making as a dynamic process
in which many players inside the firm, acting cooperatively or independently, con-
tribute in expected and unexpected ways to the formulation and implementation
of strategy.
The “Rational Comprehensive” model envisions decision makers as machine-
like in efficiency, setting clear, unambiguous goals and searching comprehensively
for the “optimal” solution. Implicit here is the belief that each problem has a “right”

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 How to Tell which Decisions are Strategic

solution and that decision makers are capable of discovering it. The model envisions a
top-down analytical process in which senior managers formulate the strategic plans
and others implement them. Thus, effective strategic decision making is the product
of careful analysis, planning, and implementation. Alternatively, the “Political Incre-
mentalism” model assumes that the firm’s goals are amorphous and that decision
making is constrained by the bounded rationality of decision makers.32 This model
rejects the view that the world is linear and that an “optimal” strategic decision exists.
Implicit here is the belief that strategic decision making is a complex social process in
which many players inside and outside the firm contribute to the analysis and imple-
mentation of the firm’s decisions.
A stream of research has examined the role of middle managers in the strate-
gic decision making process.33 This research disputes the view that strategic planning
and decision making are the domain of the senior managers of the firm alone and
that middle managers are merely involved in the implementation of strategy. Middle
managers are shown to have an influence on strategic decision making in three
important ways. First, by serving as intermediaries between the senior managers
and the various operating and functional groups, they help improve the quality of
the strategic decisions. This is possible because middle managers are often the only
ones with both the explicit and the tacit knowledge of the firm (its markets and orga-
nization) that are critical in the planning and implementation phases. Second,
because geographically dispersed firms as well as knowledge-intensive firms often
require distributed and interactive decision making, middle managers are indispens-
able. Third, because middle managers are found to have a better sense (than others
within the firm) of the link between the firm’s capabilities and its performance, they
play a prominent role in the development and refinement of the firm’s capabilities.
A very large body of research that has come to be known as “Naturalistic
Decision Making” (NDM) studies decision making by experts in real-world settings
that are characterized by uncertainty, time pressure, ill-defined objectives, and high
stakes.34 Among the experts whose decision-making processes have been studied
are chess players, firefighters, air traffic controllers, jurors, nurses, tank platoon
leaders, and soccer players. The objective is to investigate the cognitive processes
of decision makers and to demystify the intuitive processes by identifying the cues
used to make judgments.35
NDM is distinct from other approaches to decision making in two important
ways.36 First, NDM draws its lessons from descriptive models of decision making by
experts and not from normative models. It concludes that expert decision makers
do not engage in optimization. Instead, experts engage in various forms of pattern
matching. They rapidly screen potential choices by comparing them against a stan-
dard and accept or reject choices based on their perceived compatibility with the
problem at hand. They do so by relying on story building to understand the prob-
lem and mental simulation to assess the consequences of various courses of action.
Second, proficiency in decision making is domain- and context-specific. NDM
research insists that solutions cannot be prescribed unless one accounts for the deci-
sion maker’s ability to implement them. Importantly, NDM research shows that
training, simulation, and decision-support systems can help improve tactical deci-
sion making.37

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 How to Tell which Decisions are Strategic

Assessing the evolution of the study and practice of strategy and strategic
decision making over the last two millennia, Freedman concludes that:
“a strategy could never really be considered a settled product, a fixed reference point
for all decision making, but rather a continuing activity, with important moments of
decision. Such moments could not settle matters once and for all but provided the
basis for moving on until the next decision. In this respect, strategy was the basis
for getting from one state of affairs to another, hopefully better state of affairs.”38

A Framework
The conceptual framework combines two concepts: the degree of commit-
ment and the scope of the firm.

Degree of Commitment
A decision can be said to entail a significant influence on the degree of
commitment if it is costly for a firm to reverse its decision.39 For example, Intel
recently invested $15 billion to construct next-generation semi-conductor plants
in Arizona and Oregon. What is noteworthy is that the plants are designed to pro-
duce chips for products that have yet to be designed and for markets that are yet
to emerge.40 This means that Intel is taking the risk that its plants may have to be
refurbished or even written off should markets for end-products not emerge. Con-
versely, a decision can be said to have an insignificant influence on the degree of
commitment if it is inexpensive to reverse the decision. The most common exam-
ples of such decisions include those pertaining to clerical support, cash manage-
ment, and the procurement of standardized parts and services. Figure 1 lists the
most common business decisions that entail a high degree of commitment.
Three features of the concept of commitment are worth emphasizing. First,
it is important to contrast decisions that entail firm-specific commitments from
those that entail usage-specific commitments.41 Firm-specific commitments involve
assets that cannot be copied or productively used by other firms—such as adver-
tising expenditures used to promote the brand. Firm-specific commitments are also
hard to reverse. Usage-specific commitments, in contrast, constrain the way that
resources are deployed but are easy to reverse.

FIGURE 1. How Firms Make Commitments

Category Generic Examples

Investments and Disinvestments
Relationships
Public Proclamations
Business Policies and Procedures
Building a Factory, R&D, Exit
Joint Ventures, Franchises, Licensing
Earnings Guidance, Advertising
Business Models, Information Systems,
Organizational Architecture, Personnel

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 How to Tell which Decisions are Strategic

Second, decisions that entail a high-degree of firm-specific commitments

are risky. If future events play out fortuitously, the firm’s commitments to specific
markets, assets, and capabilities can pay off. However, if events play out unfavor-
ably, the firm may have to absorb the cost of reversing its commitments.
Third, as Porter, Ghemawat, and others have noted, a firm’s strategy must
be difficult for others to imitate if the firm is to obtain and sustain a competitive
advantage. For this to be true, the firm must have made a high degree of commit-
ment to particular assets and capabilities. Were this not so, other firms could easily
duplicate a successful firm by replicating its resources and capabilities. So while
firm-specific commitments make it very difficult for the firm to exit a market, they
can also deter entry.

The Scope of the Firm

The term “scope of the firm” is generally assumed to refer to the firm’s
choice of products, services, activities, and markets. Spulber argues that this defini-
tion is incomplete and that the scope of the firm is determined by the combination
of the firm’s market-creation and organizational activities. It is of vital importance
because it addresses the where and the how of economic value creation.
The firm’s market transactions are those that the firm has with outsiders,
including consumers, firms, regulators, and governments. In its role as a creator
of markets, the firm operates retail outlets, websites, telephone networks, and
auction sites. In its role as a manager of markets, the firm chooses a business
model; selects products, services, and processes; and develops formal and informal
relationships with outsiders (see Figure 2).
As Figure 2 shows, the firm’s organizational transactions influence insiders,
such as employees and business units, in four important ways. First, it recruits,
trains, and manages its people. Second, it creates and manages the structure of
the organization, which entails the creation of hierarchies and the allocation of
decision rights. Third, it creates and manages routines by establishing policies
and procedures on work practices. Fourth, it influences organizational culture
by encouraging the adoption of particular norms and beliefs.
The firm expands or contracts its scope by altering the mix of its market
and organizational transactions. Whether a decision leads to a significant change
in the scope of the firm depends on the nature and the context of the transaction.

FIGURE 2. How Firms Manage their Scope

Manage Markets Manage Organizations

Business Models People
Products and Services Hierarchies: Authority and Responsibility
Relationships Routines: Policies and Processes
Culture: Values and Beliefs

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 How to Tell which Decisions are Strategic

As an example of scope changes that result from changes in market-making

activities, a restaurant that adds (or deletes) some items on its menu is likely not
changing its scope significantly because it is not altering the markets and customers
it serves. In contrast, a restaurant that replaces all the items on its menu is likely
changing its scope significantly because it is attempting to serve a new market
segment.42 As another example, a firm that selectively offers a discount on the
prices of items in its stores is not changing its scope in significant ways, whereas a
firm that adopts an everyday low price policy is doing so because it is trying
to attract and retain distinct groups of customers. This is what Ron Johnson, the
former CEO of JCPenney, tried to do while attempting to transform JCPenney.43
As an example of scope changes that emanate from changes in organiza-
tional activities, a firm that that transitions from a divisional structure to a matrix
structure is likely altering the scope of the firm in significant ways whereas a firm
that re-assigns personnel from one division to another in an opportunistic fashion
is likely not doing so.

Categorizing Decisions
Using the two variables—the degree of commitment and the scope of the
firm—it is possible to construct a 2x2 matrix to help categorize decisions (see
Figure 3). On the horizontal axis, decisions are classified by whether they have
a significant or insignificant influence on the degree of commitment. On the ver-
tical axis, decisions are classified by whether they have a significant or insignifi-
cant influence on the scope of the firm. (Admittedly, categorizing decisions

FIGURE 3. Categorizing Decisions

Commitment
Significant Insignificant
Changes Changes

Strategic Neo-Strategic
Significant
Changes

Scope of the
Firm

Insignificant Tactical Operational

Changes

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 How to Tell which Decisions are Strategic

requires judgment and there is the possibility of legitimate disagreements over

which side of the line a decision belongs on.)

Strategic Decisions
Strategic decisions significantly alter the scope of the firm and significantly
alter the degree of commitment. This definition combines the ideas in Ghemawat
as well as in Rotemberg and Saloner. Ghemawat argues that a high degree of
commitment is a sine qua non for strategic decision making but is silent on the
decision’s implications for the firm’s scope. Rotemberg and Saloner demonstrate
the influence of strategic decisions on the scope of the firm but do not offer an
opinion on their influence on the degree of commitment. Combining these two
perspectives provides a definition of strategic decisions that shows that signifi-
cantly altering the degree of commitment is, by itself, insufficient to categorize a
decision as strategic. For instance, firms frequently make large and risky invest-
ments in capital equipment, financial programs, IT systems, and advertising cam-
paigns. While these investments are often irreversible and have important
consequences for the bottom line, they are not strategic decisions because they
do not alter the firm’s scope.
Strategic decision making is a difficult endeavor because the problems that
motivate them are often “wicked.”44 As Rittel and Webber observe, “wicked”
problems often emerge in a social context with multiple stakeholders. Conse-
quently, there are substantial disagreements among decision makers on what
must be done. Because such problems are without precedent, the prior experien-
ces of decision makers are generally not helpful. Furthermore, the methods, sys-
tems, and tools that are valuable in solving “tame” problems do not work when
they are applied to “wicked” problems. Rittel and Webber as well as Freedman
conclude that it is more prudent to view the solving of “wicked” problems as a
process of moving from one “good” (or acceptable) solution to another although
it may not be possible to tell whether a solution is a “good” one or a “bad” one
until sufficient time has elapsed.
This may explain why even successful firms struggle in making strategic
decisions. As Sirkin notes, neither Bear Stearns nor Lehman Brothers seemed to
recognize that the increase in interest rates and the rapid rise in home foreclosures
in 2005-2006 called for a re-appraisal of their policy of highly leveraged trading of
mortgage-related securities.45 Borders Inc. never seemed to recognize that the
internet would alter the economics of bricks-and-mortar book-stores until it was
too late.46
It is useful to imagine competition among firms as occurring through a
multi-stage game in which a firm first make strategic decisions and then make tac-
tical decisions.47 The payoffs (profits, market share) are determined once the firms
have made their strategic and tactical decisions. Multi-stage games are solved by
backward induction: in this case, tactical games first and the strategic games second.
The tactical games between firms—say in prices, advertising, or production—can
(in general) be stated explicitly so that the optimal tactical solutions can be derived.
That is, a model can be developed that predicts the consequences of alternative tac-
tical decisions taken by the players. However, the strategic games between firms are

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 How to Tell which Decisions are Strategic

much harder to pin down because there are very few constraints on the dimensions
of strategic decisions.48
Returning to the Southwest Airlines example, suppose that a new player is
contemplating entry into the U.S. airline market. One of the first strategic decisions
that this new player must make is choosing a business model. Because there are so
many distinct choices that the new entrant can make, it is very difficult to predict
how the interactions among the distinct business models will play out. The new
entrant could choose a proven business model—the one chosen by Southwest
Airlines—or choose a business model with distinct elements. The disadvantage of
the proven business model is that the entrant that adopts it does not differentiate itself
sufficiently from Southwest Airlines. An alternative business model could achieve
differentiation but there is no guarantee that it will work. Moreover, Southwest
Airlines can respond by replicating aspects of the new entrant’s business model,
negating any advantages that the new entrant may obtain.
Strategic decisions can be powerful because they have an influence on the
range, depth, and potency of the ensuing tactical decisions. One example of a stra-
tegic decision is Southwest’s acquisition of Air Tran Airways (ATA) in 2010 for
$1.4 billion. Although ATA was also a low-cost airline—in fact, its costs were
reputed to be lower than Southwest’s costs—its business model was very distinct
from Southwest’s business model: it flew outside the U.S. (to Mexico and the
Caribbean), it offered first-class and business-class seats and service, and it flew
Boeing 717s (as opposed to the Boeing 737s that Southwest flew). Furthermore,
it employed 8000 employees and had a distinctive organizational culture.49 Not
withstanding the challenge of integrating two distinct business models and organ-
izations, the acquisition of ATA has enabled the new Southwest to operate with a
greater arsenal of tools in its tactical games with other airlines. This expanded
arsenal includes the ability to serve its domestic (overseas) customers in some
overseas (domestic) markets as well as greater flexibility in pricing and service.
Second, through their influence on the recurring tactical and operational
decisions, strategic decisions generate feedback effects that can enhance the firm’s
advantage over time. Consider, for instance, the impact of strategic decisions on
the pricing decisions that Southwest Airlines makes. Since Southwest’s business
model is designed to keep its costs low, its ticket prices are generally lower than
comparable ticket prices quoted by other airlines. For example, when Southwest
first entered the Chicago-Cleveland market in the mid-1980s, its unrestricted
one-way fares on this route was $59 whereas other airlines were charging $310.
By the mid-1990s, Southwest Airlines had become the most profitable U.S. airline.
As Freiberg and Freiberg observe, the higher profits enabled Southwest Airlines to
make other decisions—such as in route and fleet expansion, hiring, and training—
that reinforced its position as the dominant low-cost airline in the United States.50

Neo-Strategic Decisions
As Figure 3 shows, neo-strategic decisions significantly alter the scope of
the firm without altering the degree of commitment. Neo-strategic decisions are
a novel classification and were not feasible until more recently because it was very
difficult to expand the scope of the firm without committing to specific assets and

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 How to Tell which Decisions are Strategic

capabilities. However, the dramatic reduction in transactions costs—search,

bargaining, and monitoring—over the last 15 years has made it possible for
start-ups and small firms to bring new products to market, share resources, bid
for projects, and service new customers.
This class of decisions has also been in vogue among academic scholars in
recent years.51 In his book, The Strategy Paradox, Raynor argues that the senior
managers of firms should not restrict their attention to decisions that entail strate-
gic commitments. He proposes a tool called Strategic Flexibility, which, he asserts,
can help firms “manage strategic uncertainty through the creation of strategic
options.”52 His solution to breaking the tradeoff between commitment and flexi-
bility is to divide responsibilities within the firm, giving some managers the task
of exploiting the commitments that the firm has made and giving other managers
the task of mitigating corporate risk as well as providing exposure to potentially
lucrative opportunities. In their book, Fast Strategy, Doz and Kosonen contend that
the capacity to develop new and valuable capabilities is the only source of long-
term advantage. Developing this capacity requires three distinct competencies:
strategic sensitivity, collective commitment, and resource fluidity. Contrasting
the experiences of Nokia—their exemplar of an agile firm—with the experiences
of Motorola and Ericsson during the 1990s, they identify (and assess) the deci-
sions that Nokia got right and the ones that Motorola and Ericsson got wrong.
That neo-strategic decisions were not possible decades ago is one of the les-
sons to emerge from the story of Robert Kearns and his ill-fated attempt to commer-
cialize his innovation—the intermittent windshield wiper.53 Kearns, a mechanical
engineer and aspiring inventor, had suffered an eye injury on his wedding day from
a champagne cork. His moment of inspiration is said to have come on a rainy evening
in 1962 as he struggled to navigate his car through Detroit’s streets. At that time, the
standard windshield wiper worked at two speeds: a fast speed for heavy rain and a
slow speed for steady rain. Neither speed, however, was appropriate for drizzle.
Kearns’ inspiration was to imagine a windshield wiper that worked like an eyelid
and blinked.
By the summer of 1964, Kearns had created a prototype of an intermittent
windshield wiper whose speed could be varied with the amount of water on the
windshield. The first patents on his windshield wiper were filed in 1964 and
granted in 1967. In late 1967, after a series of demonstrations and product tests,
Ford Motors contracted with Kearns to purchase the windshield wiper for use
in the 1969 Ford Mustang. To produce mass quantities of the windshield wiper,
Kearns raised capital, leased a warehouse, acquired equipment, hired workers
and began planning the operations of the factory. But just 5 months later, Ford
Motors informed Kearns that it would not be using his windshield wiper. Unable
to procure other customers, Kearns was forced to close his factory. In 1969, Ford
Motors released the first intermittent windshield wiper: it had the same configu-
ration as the one designed by Kearns. The wiper was sold as an option for $37.
By 1988, Ford Motors had sold 2.6 million windshield wipers for a profit of
approximately $557 million.
In 1978, Kearns sued Ford Motors for willfully infringing his patents. He
asked for $1.6 billion in compensation for lost profits: $350 million trebled plus

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 How to Tell which Decisions are Strategic

interest and costs. The case went to trial in 1990. The jury ruled that Kearns’s pat-
ents were valid and that Ford had willfully infringed them. Ford was willing to
settle for $30 million but Kearns refused to settle. In the end, the jury award
Kearns $10.2 million.
What is the noteworthy aspect of this story is that entrepreneurs in the
1960s had limited access to the resources and capabilities that they did not for-
mally own. If Kearns were to produce a windshield wiper today, he would not
build a factory. He would not have to because specialized intermediaries would
do most of the work for him. They would produce the transistors, resistors, capaci-
tors, and wiper blades as well as create a custom factory to assemble the final
product. The windshield wiper would be shipped directly to the customer and
Kearns’s business would be up and running in months.
The power of markets is revealed in the business models of this era’s entrepre-
neurs. Consider, for instance, Local Motors—a new entrant to the automobile indus-
try. While Local Motors develops the prototype, designs and selects the chassis,
engine, and transmission for its cars, the design of the car as well as most components
are crowd-sourced. The “production” of the car—begun only after customers have
made a down payment—is completed in a micro-factory in Phoenix. In 2011, Local
Motors had just 10 full-time employees but worked with almost 5000 volunteers
who contributed to design and manufacturing.54
Start-ups like Local Motors have been able to enter large, mature markets
without making a high degree of commitment for three main reasons. First, many
of the tools of production, distribution, computing, and sales—hitherto the preserve
of large firms—are now accessible to small firms. Second, intermediaries—such as
Alibaba.com and others—have reduced search costs by making it possible for startups
and small firms to contract with the right suppliers, distributors, and buyers in a
timely fashion. Third, many manufacturers are flexible and willing to do custom-
work. One has to only browse through the pages of Inc. and Wired magazines to
observe the dramatic implications these changes are having for how many startups
and small firms operate today: they are often virtual, loosely organized, have few
employees, rely on informal networks of relationships, and change their goals and
strategies quickly.

Tactical Decisions
Figure 3 shows that tactical decisions significantly alter the degree of commit-
ment but do not significantly alter the scope of the firm, and it shows how tactical
decisions differ from strategic decisions. A high degree of commitment is, by itself,
not enough for a decision to be deemed strategic. Context matters: seemingly similar
decisions may have very different repercussions. In a business setting, the context is
best assessed by examining the influence of the decision on the scope of the firm.
Consequently, a long-term contract that requires a vendor to maintain and manage
a firm’s IT systems is likely a tactical decision but outsourcing a firm’s ecommerce
operations is more likely a strategic decision.
Tactical decisions are of importance because they are the most proximate
determinants of value creation and capture.55 Consider, once again, the signifi-
cance of the many tactical decisions that Southwest Airlines makes. Three variables

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 How to Tell which Decisions are Strategic

that influence the consumer’s purchase decision—the user-friendliness of its

website, the convenience of flight schedules, and the pricing of tickets—require
Southwest to make many tactical decisions. The variables that enable Southwest
to keep its costs low—such as input costs and the organization of work—require
numerous tactical decisions as well.
Tactical decision making is a challenge because it is often motivated by
“hard” problems. A “hard” problem is one in which the problem itself is generally
clear though the solutions are not self-evident. Furthermore, tactical decision
makers must often make their decisions rapidly and under stress. The events that
can force firms to make tactical decisions include changes in consumers preferen-
ces, the emergence of substitutes, policy changes by regulators, shifts in costs con-
ditions, and strategic and tactical decisions by competitors and other players.
One example of tactical decision making is the first Apple iPhone. In 2007,
a month before the scheduled release of the first iPhone in the U.S., Steve Jobs
convened an emergency meeting.56 Holding up a prototype of an iPhone that
he had been using for a few weeks, he pointed to the small, but visible, scratches
on the plastic screen. Noting that plastic screens would scratch often because peo-
ple would carry objects like keys in their pockets, Jobs demanded that the
iPhone’s plastic screen be replaced by a scratch-resistant glass screen and that
the first version be ready for sale in 6 weeks. Apple’s decision makers determined
that the production of glass screens had to take place in China for two reasons.
First, because glass is fragile and costly to transport, glass production had to occur
close to the Shenzhen-based factory where the iPhone was to be assembled.
Second, only a Chinese firm could complete a project of this scale, speed, and
quality at an acceptable cost. Within days, one Chinese factory was selected to
produce the scratch-resistant glass. After a few weeks of testing, Apple’s engineers
were satisfied with the quality and gave their go-ahead to the glass factory to
commence production. A few days later, the Shenzhen factory was assembling
as many as 10,000 iPhones per day; and less than four months later, Apple had
sold 1 million iPhones.
The creativity and agility that are essential ingredients of proficient tactical
decision making necessitate substantial investments in knowledge-building, training,
simulation and decision-support systems. While decision-support systems can help
improve tactical decision making, they also increase the emphasis on specialized
human capital and better communication and coordination. One of the important
technologies to have influenced decision making is ERP, which makes it possible
for a middle-level manager to acquire information and make decisions faster and
more effectively without having to consult with his/her superiors. However, using
the ERP system proficiently requires the firm to make substantial investment in
knowledge building and training.57

Operational Decisions
As Figure 3 shows, operational decisions do not significantly alter the degree
of commitment or the firm’s scope. They are directed at the routine problems that
all firms frequently encounter such as the setting of targets, the monitoring of per-
formance, and the creation and management of incentives. The most important

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 How to Tell which Decisions are Strategic

operational decisions are those related to the administration of meetings, the mea-
surement of plant, unit, and firm performance (including quality defects, machine
downtime) and the assessment of worker performance (including productivity,
absenteeism).
It is unlikely that operational decisions will be confused with strategic or neo-
strategic decisions because the problems that require such decisions are well specified
and the methods/systems for making operational decisions have been extensively
studied and documented. It is usually possible to tell fairly quickly whether the oper-
ational decisions that were chosen were the right ones. A poorly chosen operational
decision is unlikely to sink a firm, though a series of poor decisions is a sign that the
firm may be less-than proficient in making the other decisions as well. Because the
problems that motivate operational decisions are recurring, it is possible to codify
the solutions so that operational decision makers can follow a set of rules.
Since Fredrick Taylor first articulated the fundamental principles of scientific
management, it has been widely recognized that operations-related management
practices are good for all firms. Yet recent evidence shows that many firms make
operational decisions poorly. Using survey data, Bloom et al. assess the quality of
38 operations management-related practices in 9000+ firms in 20 countries.58 The
38 practices—covering core operations-related management functions such as per-
formance management, planning, and people management—were chosen because
they are highly correlated with productivity and profitability. The authors find that
U.S., Japanese, and German firms (as a group) received the highest scores and that
Brazilian, Chinese, and Indian firms (as a group) received the lowest scores. Interest-
ingly, the variance in the quality of management among U.S., Japanese, and German
firms is small (relative to firms from other countries) whereas the variance among
Brazilian, Chinese, and Indian firms is large (in comparison with firms from other
countries). One reason why there is much greater bunching among U.S., Japanese,
and German firms in management scores is that competition weeds out the weaker
firms in these countries efficiently. That appears to not be the case in Brazil, China,
and India. Bloom et al. also find that firms that receive high scores for operations-
related practices are also more productive and profitable, experience higher growth,
and survive longer.
To obtain a deeper understanding of the operation-related management
practices of firms in developing countries, Bloom et al. examine the management
practices in 38 large textile manufacturing plants in India.59 Despite being mature,
well-capitalized firms, many of these firms were found to engage in shoddy manage-
ment practices. Photographic evidence shows that factory floors were often dirty and
disorganized, group meetings were infrequent, inventory was poorly categorized,
and recordkeeping was shambolic. One consequence of these shoddy practices was
frequent performance failures such as machine breakdowns and quality defects.
Amazingly, 20% of the workforce (as a group) was devoted to correcting such fail-
ures. Many of the most inefficient firms insisted that their quality was comparable
to the best Indian firms, confirming an observation by Gibbons and Henderson, that
firms that are laggards often suffer from problems of perception—they do not know
that they are behind.60 Equally surprisingly, many firms were not aware of modern
management practices such as lean manufacturing, inventory management, human

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 How to Tell which Decisions are Strategic

resource management, confirming another observation by Gibbons and Henderson

that laggard firms also suffer from problems of inspiration—they know that they are
behind but they do not know what to do about it.61

Conclusion
There is a wide divergence between and among academics and practi-
tioners in their understanding and interpretation of the term “strategic.” The con-
ceptual framework present here offers a normative guide to decision making. This
framework, implicitly based on a static model, combines two concepts that have
been closely associated with the theory of the firm: the degree of commitment
and the scope of the firm. The framework provides a lucid guide to the semantics
of decision making in the world of business. It makes clear that the use of terms,
such as strategic and tactical, ought to be reserved for certain contexts, and are
inappropriate in other contexts.
This article also provides practical guidance on how strategic decisions are dis-
tinct from other decisions. Tactical decisions are often confused for strategic decisions
because both types of decisions significantly alter the degree of commitment. How-
ever, tactical decisions do not significantly alter the scope of the firm. Consequently,
they do not exert an influence on all the other decisions that the firm must make. In
addition, there is a subtle, yet important, distinction between the conventional defi-
nition of a strategic decision and the modern definition of a strategic decision. The
conventional definition—classified as strategic in this article—requires that decisions
significantly alter the degree of commitment as well as the scope of the firm. The
modern definition of a strategic decision—labeled neo-strategic in this article—only
requires that decisions significantly alter the scope of the firm.
Both types of strategic decisions have their place. Neo-strategic decisions,
a novel class of decisions, have become more common in the last two decades
because transaction costs have fallen and the markets for intermediate goods, serv-
ices, and ideas have blossomed. They are likely to be more relevant in the years to
come because product and industry life cycles are compressing, new product failure
rates are growing, and the competencies required to succeed are continually chang-
ing. They are attractive because they enable firms to experiment with new business
models and explore new business opportunities without having to make irreversible
commitments. As the experience of Local Motors illustrates, even small firms may be
able to overcome seemingly prohibitive entry barriers and enter large, attractive
markets. However, fully exploiting the economic opportunities that neo-strategic
decisions create will likely require firms to make costly commitments to assets,
resources, and markets. Commitment requires scale, repetition, and consistency
and these attributes often call for uniquely configured systems that are thought to
be at odds with the systems that emphasize flexibility and agility.62
Despite the plethora of research on decision making, one area that has
remained relatively unexplored is the identification of the meta-capabilities neces-
sary for effective decision making.63 An important objective for future research
should be to develop a deeper understanding of the meta-capabilities that enable
firms to make all four types of decisions. Why, for instance, have Japanese firms

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 How to Tell which Decisions are Strategic

historically excelled in tactical and operational decision making but have been
far less distinctive in their strategic and neo-strategic decision making? Why
are U.S. firms seemingly better in crafting strategic (and neo-strategic) decisions
than in carrying out tactical and operational decisions? Conceptual models that
identify these meta-capabilities (and their inter-relationships)as well as empirical/
anecdotal evidence that documents how firms identify, mold, and shape their
meta-capabilities will greatly advance the academic’s understanding of, and the
practitioner’s skills at, decision making.

Notes
1. C. Cummins, “Kraft Foods, in Split, Is Keeping Oreos but Not Velveeta,” New York Times, June 28,
2012; N. Gohring, “Ballmer Distances Microsoft from Yahoo Deal,” PC World, July 24, 2011;
M. De la Merced, “RIM’s Quarterly Reckoning Nears: Here’s What to Look For,” Wall Street
Journal, August 4, 2011; “Ariba Positioned as a Leader in Gartner Magic Quadrant for Strategic
Sourcing,” Wall Street Journal, July 10, 2013.
2. S. Cummings and U. Daellenbach, “A Guide to the Future of Strategy? The History of Long
Range Planning,” Long Range Planning, 42/2 (April 2009): 234-263.
3. D. Moran, “Strategy,” in R. Holmes, ed., The Oxford Companion to Military History (New York,
NY: Oxford University Press, 1999).
4. S. Karnow, Vietnam: A History (New York, NY: Penguin, 1991).
5. C. Christensen, J. Allworth, and K. Dillon, How Will You Measure Your Life (New York, NY:
HarperCollins Business, 2012).
6. J. Castaldo, “How Management Has Failed at RIM,” Canadian Business, January 19, 2012.
7. B. Sweeney, “Sears: Where America Shopped,” Crains Chicago Business, April 23, 2012.
8. “The Last Kodak Moment,” The Economist, January 14, 2012.
9. R. Dye, O. Sibony, and V. Truong, “Flaws in Strategic Decision Making,” McKinsey Quarterly,
November 2008.
10. <http://en.wikiquote.org/wiki/H._L._Mencken>.
11. Because this conceptual framework is implicitly based on a static model with complete and per-
fect information, it does not endeavor to explain and predict dynamic strategic decision-making
processes. To be sure, uncertainty, learning, and agency problems are likely to exert an influence
on decision making. As Van den Steen notes, a static model in which the object of interest is a
single decision, is justifiable because, as Herbert Simon observed, action is the consequence of
prior decisions. E. Van den Steen, “A Theory of Explicitly Formulated Strategy,” Harvard
Business School, unpublished manuscript, 2012.
12. P. Ghemawat, Commitment: The Dynamic of Strategy (New York, NY: Free Press, 1991); D. Sull,
“Managing by Commitments,” Harvard Business Review, 81/6 (June 2003): 82-91.
13. D. Spulber, The Theory of the Firm: Microeconomics with Endogenous Entrepreneurs, Firms, Markets,
and Organizations (Cambridge: Cambridge University Press, 2009).
14. R. Grant, Contemporary Strategy Analysis (Hoboken, NJ: Wiley, 2013).
15. See J. Rotemberg and G. Saloner, “Benefits of Narrow Business Strategies,” American Economic
Review, 84/5 (December 1994): 1330-1349.
16. H. Rittel and M. Webber, “Dilemmas in a General Theory of Planning,” Policy Sciences, 4/2
(June 1973): 155-169.
17. M. Raynor, The Strategy Paradox: Why Committing to Success Leads to Failure (And What to do About It)
(New York, NY: Crown Business, 2007); H. Bahrami and S. Evans, “Super-Flexibility for Real-Time
Adaptation: Perspectives from Silicon Valley,” California Management Review, 53/3 (Spring 2011):
21-39; Y. Doz and M. Kosonen, Fast Strategy: How Strategic Agility Will Help You Stay Ahead of the Game
(New York, NY; Pearson, 2008).
18. C. Andersen, “In The Next Industrial Revolution, Atoms Are The New Bits,” Wired, February
2011.
19. N. Bloom and J. Van Reenen, “Measuring and Explaining Management Practices Across Firms
and Countries,” Quarterly Journal of Economics, 122/4 (November 2007): 1351-1408.
20. J. Heskett and E. Sasser, Jr., “Southwest Airlines: In a Different World,” Harvard Business
School Case, 2013.

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 How to Tell which Decisions are Strategic

21. J. Von Neumann and O. Morgenstern, Theory of Games and Economic Behavior (Princeton, NJ:
Princeton University Press, 1944); M. Shubik, Strategy and Market Structure (New York, NY:
John Wiley & Sons, 1959).
22. P. Drucker, The Practice of Management (New York, NY: Harper & Row, 1954), p. 245.
23. H. Ansoff, Corporate Strategy (London: McGraw Hill, 1965), pp. 5-6.
24. A. Chandler, Strategy and Structure: Chapters in the History of the American Industrial Enterprise
(Cambridge, MA: MIT Press, 1969).
25. M. Porter, “What is Strategy?” Harvard Business Review, 74/6 (November/December 1996): 61-78.
26. R. Rumelt, Good Strategy, Bad Strategy (New York, NY: Crown Business, 2011).
27. Van den Steen defines strategy as “the minimum set of decisions sufficient to guide all other
decisions” and shows that a strategy emerges as an equilibrium in a multi-stage game in which
the firm’s leaders makes decisions before other players make theirs. Strategy is shown to be
most valuable when there is a complementarity among the decisions, when decisions are irre-
versible and when uncertainty makes it hard to determine which decisions and actions are
appropriate. When there is no need for coordination among the players’ decisions and when
decisions can be altered without cost, there is no need for a strategy. Van den Steen, op. cit.
28. H. Mintzberg and J. Quinn, The Strategy Process: Concepts, Context and Cases, 1st edition (Upper
Saddle River, NJ: Prentice-Hall, 1987).
29. H. Mintzberg, D. Raisinghani, and A. Theoret, “The Structure of ‘Unstructured’ Decision Pro-
cesses,” Administrative Science Quarterly, 21/2 (June 1976): 245-275.
30. K. Eisenhardt and M. Zbaracki, “Strategic Decision Making,” Strategic Management Journal, 13
(Winter 1992): 17-37.
31. D. Brodwin and L.J. Bourgeois, “Five Steps to Strategic Action,” California Management Review,
26/3 (Spring 1984): 176-190; L.J. Bourgeois and K. Eisenhardt, “Strategic Decision Processes
in Silicon Valley: The Anatomy of the “Living Dead,”” California Management Review, 30/1 (Fall
1987): 143-159.
32. H. Mintzberg, “Strategy-Making in 3 Modes,” California Management Review, 16/2 (Winter
1973): 44-53.
33. B. Wooldridge, T. Schmid, and S. Floyd, “The Middle Management Perspective on Strategy Pro-
cess: Contributions, Synthesis, and Future Research,” Journal of Management, 34/6 (December
2008): 1190-1221; W. Shi, L. Markoczy, and G. Dess, “The Role of Middle Management in the
Strategy Process: Group Affiliations, Structural Holes, and Tertius Lungens,” Journal of Manage-
ment, 35/6 (December 2009): 1453-1480.
34. See G. Klein, “Naturalistic Decision Making,” Human Factors: The Journal of the Human Factors
and Ergonomics Society, 50/3 (June 2008): 456-446; G. Klein, Sources of Power: How People Make
Decisions (Cambridge, MA: MIT Press, 1999); D. Kahneman, Thinking Fast and Slow (New York,
NY: Farrar, Strauss and Giroux, 2011).
35. Of course, the cues generally rely on tacit knowledge that the expert is not always consciously
aware of and cannot always articulate. NDM researchers use cognitive task analysis (CTA)
methods, such as semi-structured interviews and recorded communications, to elicit the cues.
36. See D. Kahneman and G. Klein, “Conditions for Intuitive Expertise: A Failure to Disagree,”
American Psychologist, 64/6 (September 2009): 515-526.
37. NDM research is credited with having improved the tactical decision-making skills of person-
nel in the U.S. Navy by 30% to 40%. See S. Collyor and G. Malecki, “Tactical Decision Making
Under Stress: History and Overview,” in J. Canon-Bowers and E. Salas, eds., Making Decisions
Under Stress: Implications for Individual and Team Training (Washington, D.C.: American Psycho-
logical Society, 1998).
38. L. Freedman, Strategy (New York, NY: Oxford University Press, 2013), p. 541.
39. A. Dixit and B. Nalebuff, The Art of Strategy: A Game Theorist’s Guide to Success in Business and Life
(New York, NY: W.W. Norton, 2008); D. Sull, op. cit.
40. J. Swartz, “Intel’s New $5 Billion Plant in Arizona Has Obama’s Blessing,” USA Today, March 29,
2011.
41. P. Ghemawat and P. de Sol, “Commitment Versus Flexibility,” California Management Review,
40/4 (Summer 1998): 26-42.
42. Viewers of Seinfeld may recall an episode in which Jerry Seinfeld advices Babu Bhatt—the
owner of The Dream Café—to turn his restaurant into the only authentic Pakistani restaurant
in the neighborhood. Unfortunately, the new restaurant is unable to attract customers and has
to shut down.
43. S. Clifford and C. Rampell, “Sometimes, We Want Prices to Fool Us,” New York Times, April 13,
2013.

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44. H. Rittel and M. Webber, “Dilemmas in a General Theory of Planning,” Policy Sciences, 4/2
(June 1973): 155-169.
45. A. Sirkin, Too Big To Fail: The Inside Story of How Wall Street and Washington Fought to Save the
Financial System and Themselves (New York, NY: Viking, 2009).
46. Y. Noguchi, “Why Borders Failed While Barnes & Noble Survived,” <www.npr.org/2011/07/19/
138514209/why-borders-failed-while-barnes-and-noble-survived>.
47. R. Cassadesus-Masanell and F. Zhu, “Business Model Innovation and Competitive Imitation:
The Case of Sponsor-Based Business Models,” Strategic Management Journal, 34/4 (April
2013): 464-482.
48. R. Cassadesus-Masanell and J. Ricart, “From Strategy to Business Models and onto Tactics,”
Long Range Planning, 43/2-3 (April 2010): 195-215.
49. A. Inkpen, “Southwest Airlines,” Harvard Business School Publishing Case TBO333, 2013.
50. K. Freiberg and J. Freiberg, Nuts: Southwest Airlines’ Crazy Recipes for Business and Personal Success
(Austin, TX: Bard Press, 1996).
51. H. Volberda, Building the Flexible Firm: How to Remain Competitive (New York, NY: Oxford
University, 1998); E. Lawler III and C. Worley, Built-To-Change: How to Achieve Sustained Orga-
nizational Effectiveness (San Francisco, CA: Jossey-Bass, 2006).
52. Raynor, op. cit., p. 14.
53. J. Seabrook, “The Flash of Genius,” The New Yorker, January 11, 1993.
54. C. Anderson, “In the Next Industrial Revolution, Atoms Are the New Bits,” Wired, February
2011.
55. That the quality of a firm’s tactical decisions is of paramount importance is revealed in a quote
attributed to General George S. Patton: “Good tactics can save even the worst strategy, bad
tactics will destroy even the best strategy.”
56. C. Duhigg and K. Bradsher, “How the U.S. Lost Out on iPhone Work,” The New York Times,
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57. L. Garicano and P. Heaton, “Information Technology, Organization and Productivity in the
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58. N. Bloom, C. Genakos, R. Sadun, and J. Van Reenen, “Management Practices Across Firms
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(as a group) employed 270 workers, possessed assets valued at $13 million, and earned reve-
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60. R. Gibbons and R. Henderson, “What do Managers Do?” in R. Gibbons and J. Roberts, eds., Hand-
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63. G. Steptoe-Warren, D. Howat, and I. Hume, “Strategic Thinking and Decision Making: Litera-
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California Management Review, Vol. 56, No. 3, pp. 78–97. ISSN 0008-1256, eISSN 2162-8564. © 2014 by
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