STRATEGIC DECISION

MAKING
BERNARDO AMEZCUA
 PAPER

Literature Review, Special Issue

 Cites
Google Scholar 688
Scopus Not found
 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

Scopus SNIP 2010: 5.60

• 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)
 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
Simon
Consistent, value
maximizing Later variations
Bounded
calculation rationality 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
Cyert and • Goals can be inconsistent across people and time
• Search behavior is often local
March, 1963: • Standard operating procedures guide much of organizational
behavior
• In a review of six top-level planning decisions, found 2 types of search
process
Carter, 1971 • Personnel-induced: strong executives with definite objectives in mind
• Opportunity-induced: search occurs when unexpected opportunities
arise.

• How standard operating procedures applies to strategic decision in

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

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

• Consider simultaneously few alternatives courses of action, then
1983 participants raise objections to a current alternative (discovery of goals
and choices trough social process)
 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

Identification:
Mintzberg et al., 1976, studied 25 decision decision
recognition and
processes and generated a model where diagnosis routines
these 3 phases have no sequential
relationship.

Phases and their

routines come in any
Selection:
order and repeat (shift, Development:
Evaluation-choice
branch, cycle and Search and and authorization
design routines routines
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 AND BOUNDED
RATIONALITY (BR)
¿Where is the optimal point?
Rationality Bounded Rationality

Mintzberg and Dean and Sharfman (1992): Cosier, Janis, Nutt,

Waters (1982): Threatening environments, Schweiger, Sandberg,
Organizations size high uncertainty and Rechner, Cosier and
affects the external control decrease Schwenk: Moves with
rationality of SDM rationality increasing conflict

Most prevalent
argument: MORE
COMPLEX OR Schweiger, Sandberg and Janis (1982) uncovered
TURBULENT Ragan (1986): Tested that the “groupthink” an
ENVIRONMENTS Dialectical inquiry and excessive tendency for
REQUIRES LESS devil´s advocacy concurrence.
RATIONALITY (e.g. produced better
Fredrickson and recommendations that
Mitchell, 1984) consensus groups
 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?

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.

 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.
 POLITICS AND POWER

What is politics?
Authors refers by politics, “those observable, but often covert, actions
by which people enhance their power to influence a decision”

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.
 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 Choice-

opportunities-
occasions

Problems-
concerns
Solutions-
answer
 Decisions depends
strongly on timing and luck
 Decisions are fuzzy and Participants-
people
are not the result of
analysis
 Individuals are not sure
about what they want
and change their mind
often
Decision making
(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

Cognition
 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.
 NEW RESEARCH AGENDA

Normative implications
 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?
 NEW RESEARCH AGENDA

Conflict
Garbage Can Rational Political

• Ignores • A mean to improve • Glorifies

Conflict problem solving conflict
• No real insight on
how is resolved
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 CONS
• Defined posture • Overloaded tables,
• Use of tables, specifying including authors who
author(s), method,
sample, description and barely are mentioned
conclusion • Publishing date
• Good structure: By model
and then by dates • Lack of studies on
• Summary on every model profit-seeking firms
and final conclusion
• Refers to author´s original
work
• Future agenda
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.