· Academy of Management Executive
Decision-making and firm
success
A. Duane. Ireland and C. Chat Miller
Managers make many decisions as part of their
daily work. They are expected to resolve a variety
of issues including those concerned with a firm's
strategies, structures. quality-improvement sys-
tems. performance-appraisal systems. and work
flow, among many others. Importantly. managerial
decisions may have significant consequences for
firm performance and success? Failure to make
the right decision or even to make any decision at
all may have costly consequences for an organiza -
tion as well as for the person tasked with selecting
value-creating choices. These issues motivated
this Special Issue of The Executive.
As an indication of decision-making's impor-
tance. consider the fact that some have argued
that management is decision-making. Within this
context, organizations are viewed as multiple
bases of knowledge that must be constructed,
maintained, and applied in order to create value.'
Extending this perspective to the level of individual
decision-makers, the view that management is
decision-making suggests that managers,
especially upper-level ones, have as their key
function deciding how to manage organizational
knowledge bases to overcome obstacles and
exploit opportunities that aro the products of
accelerating industry dynamics. increasing
technological complexity, the merging of complex
technologies, and other environmental changes? In
light of significant transitions such as these.
managers must be able to make as well as learn
from both routine and non-routine decisions."
Some have argued that management is
decision-making.
Furthermore, decision-making requires constant
refinement of knowledge gained from executing
decision-making processes. Formal analysis tech-
niques, behaviors, personal characteristics, and
power politics are all important parts of decision-
making processes that influence the making of each
decision?
To navigate important decisions, managers are
often taught to follow the simple steps of classical
decision-making. At their core, these steps call for
identifying the problem that requires attention.
generating competing decision alternatives, eval-
uating the alternatives, and then using the results
of those evaluations as the foundation for choosing
the best course of action—that is, the course of
action with the highest probability of success. Fol-
lowing up on the decision is also a key step de-
signed to verify that the outcomes expected from
implementing the decision were achieved. If vari-
ance is found to exist between actual and desired
outcomes, decision-makers are expected to gather
the information required to make another decision
to "correct" the situation at hand.
Although useful as general guidance. simplistic
renditions of the classical decision model such as
the one shown above have known problems. Two
of these are important to mention here. First, un -
certainty is associated with the future conse -
quences of alternative courses of action. The out -
comes that would occur for various courses of
action are not completely known in advance and in
many situations cannot be reduced to simple prob-
abilities. Second, there is ambiguity with respect to
future preferences for various outcomes.' Prefer -
ences held today may not be held tomorrow, mak-
ing it difficult to choose a course of action, even
when the outcomes that would be produced by
each alternative are well known.
Decision scholars have addressed these issues
over the years both theoretically and empiric-ally.
Some of their advice has filtered down to practice:
some has not. Moreover, decision scholars have
continued in the recent past to provide useful re-
search that can add value to management practice.
The need for scholars to use their research as a
foundation for continuing to add value to mana-
gerial practice brings us to this Special Issue.
 behind end Mule(
The Focus of the Special issue
Thus Special IS WU 01 Is designed to help move
recent decision advice and research From scholars
to currant managers and aspiring managers. The
goal of thin effort is to present managers with
advice through which managerial practice can be
tnesn-ingfully improved relative to outcomes at both
the organizational and personal levels.
Managers at different levels of the firm make
different types of decisions. Upper-level managers
lend to concentrate on longer-range decisions that
are concerned with establishing the firm’s direc-
tion and ratifying actions selected to pursue it.
Middle-level managers are charged with mid-
range decisions that integrate the direction set by
top level managers with the realities of the lire'
work procosses. Operating level managers make
shorter-run decisions that are focused on adjust
ing work processes to deal successfully with
rapidly changing conditions that we Taking place
bath inside and outside the firm. Regarciles.s at
their organizational positions. all managers share
the goal of making decisions that consistently
move the firm toward achievement of as mission
and a host of objectives flowing front it.
ln t his Special breve of The Academy of
Arciairge-meni Exec utive,. ow empliasie is on
upper-level managers acrd their strategic
decision making. Although we did not 01 the
outset intend lo focus Prederniectully on strategic
decision-making. the maionty of the papers that
were submitted for publication ClEgistamotian
dealt in some farm or faith-ion with top-Level
managers and strategic decision-making
processor. This aornmeat should not be
interpreted, however. as suggesting that the six
papers appearing in this Special Iseue only ad-
dress issues associated with strategic decisions and
the proceseea used to make ihem. Nonetheless,
because of the outcome we are describing, we will
discuss strategic decision making in a bit mole
detail in the next section. Closing Oaf intro-
ductory article are descriptions el the Six paperer
we are pleased to presort! to you in this Special
Issue of The Executive.
Strategic Decisions and Strategic Decision-
Making Processes
Strategic decisions and strategic decision-making
processes have long been of Interest to both aca-
demic researchers and to practicing managers.
fitthlY complex and involving a tenet of variables,
strategic decisions are vitally important to organ!,
rational SUCL7eSZ, especially long-term success. Re-
search evidence and managerial experience show
a
that strategic decisions are made with many arga.
niscrtional resources at stake. Another way of say
itrg this is that strategic deCielene fire "hig-bet"
decisions. Deciding haw lo can-sprite against a ma-
jor new competitor, evaluating another firm as a
possible acquisition, and deciding it lhe firm
should or should not crow.] a particular interna-
tional market are examples of major or big-bet
decisions. Complicating the making of strategic
decisions are the many assumptions then have to
be made about future conditions. Economic condi-
tions, political reahlion, and the availability of
skilled personnel are example" ol matters about
which assumptions must be developed when mak-
ing strategic decisions." In the end, organizations
able to create competitive advantages continuously
through their strategic decisions should be more
cited ive compared to firms unable to do 50)e'
Strategic decisions are "hig-her
decisions.
Strategic decisions are complex in nature, Portly
because of complexity and partly because of the
non-routine nature of these decisions, managers
Often have difficulty with striate-We decision pro-
cesses. To reduce the uncertainty and crmbiguily
surrounding strategic decisions, a number of
struc-twed irorneworks and tools such as options
theory" have boon developed. Increasingly,
however. managers an well as researchers are
debating the advantages and disadvantages of
"um-rational" decision,making influences such as
intuition,'" At the same lime, the discretion
available to managers 10 make influential
decisions, relative to the constraints imposed by the
external environment as a strong board of
directors or past investments. remains an area of
concern."
Despite the Wiliplexity, we do know a fair
CIMOUM about eflective stnalegic decision making
For example, evidence suggeets that the ripened
with which a decision is made and implemented in
an important factor far creoti no positive
outcomes. In this respect, beet decisions ale crucial
in alga. nizations competing in markets
experiencing rapid and significant changes." The
degree of comprehensiveness with which
alternative courses ol action ore formulated and
Investigated Ls another significant lactor.
Evidence suggests that higher levels of
comprehensiveneis are generally impor- Mal 101
affective decision -rnaking.'$ and some sm.
'dance suggests that this is particulculy true in
rapidly changing and can-pies envirosmcots. 11
Foriunaleiy, research evidence shows that speed
10 Academy of Management raCIIIIVO
and comprehensiveness can coexist and comple-
ment each other in bringing about positive deci-
sion outcomes." The type of knowledge and
information analyzed in the strategic decision-
making process is also an important factor in
making decisions with the potential to improve
firm performance.
Still other evidence from the decision-making
literature is available for practicing managers to
study. For example. we know that firms' decisions
are more effective when they are the result of de-
cision makers efforts to integrate real-time infor-
mation about competitors. market opportunities.
and environmental transitions with their own ex-
periential knowledge regarding the competitive
nature of the industry or industries in which their
firm competes." We also know that strategic deci-
sions typically involve a team of individuals work-
ing together. and that the degree to which these
individuals have divergent views. and how they
handle such views and their assumptions about
factors related to the making of decisions." are
important factors." Divergent views can prompt
decision-making teams to more fully analyze the
choices associated with the making of a given
decision but can result in negative politics if not
handled appropriately." It is important to keep
conflict focused on differences in judgment and
perspective rather than allowing conflict to shift a
set of interactions toward distrust or suspicion."
Dialectical inquiry and devil's advocacy are two
commonly recognized methods for formally struc-
turing debate over different views." and these
techniques can channel conflict in ways that avoid
distrust and suspicion. The articles included In the
Special Issue address and build on these known
ideas from decision-making research.
The Articles
Our six articles have provided very useful ideas
and tools for managers and aspiring managers.
For the purpose of organizing these ideas into co-
herent groups, we have placed the authors and
their articles into three categories. The first cate-
gory corresponds to general. foundational Issues
related to strategic decision-making. Articles by
Nutt and by Ketchen. Snow. and Street are in-
cluded here. The second category directly con-
fronts the uncertainty and ambiguity that decision-
makers (especially top-level managers) face while
engaging In decislon-making processes. Articles
by Shimizu and Hitt and by Janney and Dess are
included. The third category moves into "non-ratio-
nal" decision issues. Articles by Sadler-Smith and
Shefy and by Tsang constitute this final category.
November
In the first article. Nutt discusses the fundamen-
tal problem of limited search for alternative
courses of action. He artfully describes three key
blunders that can lead to a limited-search trap.
Three public debacles ars then used to illustrate
these blunders and the trap. More significantly,
the author provides three important tools for
avoiding the blunders and ensuring a broad
search for alternatives. These tools add new value
to the stock of knowledge available to managers.
Each tool is tied to the public debacles discussed
in the first part of the article, creating a vivid
arena for spurring managerial thought.
In the second article. Ketchen. Snow and Street
speak to the matter of making decisions within the
context of a firm's competitive environment. Their
locus Is on a set of four strategic initiatives with
which top-level managers are Involved on a con-
tinuing basis: (I) How should a firm decide whether
it will enter a new market? (2) How should a firm
decide how to respond to a competitor's action?
(3) How should a firm decide if it will try to grow In
its existing markets? and (4) How should a firm
make a choice between direct competition and
forming cooperative relationships such as strate-
gic alliances and joint ventures? Arguing that ac-
tions firms take to outperform competitors are the
products of managerial decisions, Ketchen, et al.
believe that the processes used to deal with the
four decision situations vary by participation (the
extent to which multiple opinions are a part of a
decision process) and comprehensiveness (how
exhaustive the analyses are when involved with a
decision process). Flowing from the descriptions
of types of decisions and attributes of decision
processes are the authors' recommendations for
how managers should match strategic decision-
making processes to the realities of competition.
Shimizu and Hitt. In the third article, locus on
the important problem of strategic flexibility. The
key question is this: Can decision makers and
firms maintain the flexibility to reverse strategic
decisions that have already been made and imple-
mented? The authors discuss three aspects of
strategic flexibility. including managerial
attention, situation assessment. and action. For
each aspect. bathers to flexibility exist. with a
number of contingency factors making these
barriers more or loss troublesome, Further. failure
to cope effectively with one aspect makes it more
likely that the next aspect will not be handled
effectively, creating a vicious cycle. In the
authors' words, 'We clarify that managers may
become unconsciously trapped in a vicious cycle
of insensitivity. self-serving interpretation. and
inaction.- They con-
2001 Ireland and Miller
chide by discussing steps that can be taken to
reduce the risk of inflexibility.
In the next article. Janney and Dess explore
the downside of real options. Thinking in terms of
real options has become very popular. and the
authors offer a meaningful and much needed
critique. Alter establishing a framework
containing four different types of options, they
discuss potential pitfalls when using options in
strategic decision-making. Key problems include
the NW trap, the back-solver dilemma, managerial
adventurism. portfolio pitfalls, and missed
opportunities. A strong sot of prescriptive
guidelines forms the conclusion to the article.
Moving to the fifth contribution to the Special
Issue, Sadler-Smith and Shefy explore "non-ratio-
nal- decision-making. Based on the results of their
scholarly work and extensive interactions with
practicing managers, those authors discuss intu-
ition as a viable and valuable method of making
managerial decisions. In part. their argument is
based on the conviction that 'rational- decisions
are often imperfect. Bather than substituting intu-
ition as the foundation for managerial decisions.
Sadler-Smith and Shefy suggest that rational and
intuitive decisions are parallel systems of 'know-
ing- that managers can use to their benefit. To
bring their work to life (or practicing managers,
the authors include seven recommendations
designed to help managers derive maximum
benefit from their use of intuition while
understanding these types of decisions well
enough to be aware of their limitations.
In the final article. Tsang deals with superstition
as another non-rational decision tool or process.
The author sprinkles in a fascinating array of
practical examples of how superstition is
sometimes a part of managers' decision-making
processes in Chinese business communities
Noting the widespread use of superstitious beliefs
and behaviors in virtually all societies. Tsang
challenges managers to be aware of superstition
as a possibly pervasive influence on decisions
being made by what could be a fairly large group
of decision-makers. Bather than supporting or
challenging the use of superstition, the author
presents us with a compelling treatment of the
advantages and disadvantages associated with
integrating superstition into our understanding of
affective decision-making processes. By studying
Tsang's insights, managers will have a better
understanding of superstition as a phenomenon
that may influence a fairly significant number of
managerial decisions, especially those reached in
non-Western business environments.
11
A Closing Personal Note
We have enjoyed the process of helping to craft
this Special Issue. The authors. reviewers. and
Bob Ford have contributed greatly to the process,
making our jobs much easier than they might
otherwise have been. These contributions have
yielded an issue that we feel will contribute to
managerial practice in significant ways. And this
is all that we could have asked for.
Endnotes
' Increasingly. firm success is seen as being quite multidimen -
sional. To read an intriguing description of the relationship
between the idea of sustainability of the global environment
and the creation of shareholder value. see Hart. S L. It
Milstein. M. R. 2000. Creating sustainable value. The Academy
of Management Es five. 170L 56-67.
2
A number of echelon describe organisations as collections
of knowledge sett. Works to read to learn more about this
perspective include: Grant. R 14.1996. Knowledge. strategy. and
the them of the lam Strategic Management Journal. It 109-
liosontlaik R. K.. Detain. R.. a Glynn. M. A. 2E02. Implement-
ing strategies for corporate entrepreneurship: A knowledge.
based perspective. In Hill. M. A.. Ireland. R. EL Camp. S. M. &
Sexton. D. L. Strategic enatipmneurship: Creating a new mind•
set 173-199. London Blackwell Publishers. Kogut. & Zander. U.
1982. Knowledge of Ike firm. combinative capabilities. and the
replication at technology. Organization &tenet a 393-397
°
Soo Fiegenet. M. K. IW. The control of strategy in dynamic
wrimestableerivaccomnis Journal of Managerial Swum 9:72-85
°For an analysis of o different approach that mrecutives con
use to help thou firms learn how 7o respond to today's rapidly
clanging business environment. bee Cummings. S. & Angela D.
2031. The future shape of strategy. Lemmings or chimeras? The
Academy or Management Executive. 18(21: 21-36
°
For a well-known and widely cited analysis ol these Issue. see
Hubs.. G. P. 1991. Otganixational learning: The contributing
mccesms and the literatures. Organization Science. 2: 613-115.
°
See March. I. G 1996 A preface to understanding how decision
happen In organizations_ In Shapira. A. Orgcmaa. Ilona,
decision making. New Yak: Cambridge University Press.
Additional information about the loci of managers in terms of
deastorensalting issues can be examined by reading Floyd. S.
W.. & Lane. P. 1.2000. Social/Ulna throughout the mourns,-
titan Managing role conflict in miciteglo renewal. Academy of
Management Review. 2$: 151 177.
° The specific nature or middle-level managonal work is de-
scribed in Kumar.. D. F. Ireland. R. a. Conn. L G. & Hornsby. I.
S. 2005. A model of middle.level managers' entrepreneurial
behavior. Entrepreneurship Theory and Practice. in moos
°
Sas Mitten. 1.1. & Mason. R O. 1990. Structuring dl-struc-
tured policy issues Further explorations in a methodology Its
messy problems. Strategic Management Journal. 1: 331-342.
10
Eurenhardr. K. M 1999 Strategy as strategk decision mak-
ing. Sloan Management Renew. 40 65 72.
" A widely read analysis of real options as a decision-mak-
ing tool appears la McGrath, R. M. 1997. A real options logic for
initiating technology positioning investments. Academy of
Management Review. 22: 974-236.
'230tilOns evaluating intuition from different perspectives
appeal in Yawn. N., & Ng. H. A. 2003. The role of intuition in
strategic decision making. Human Relations. 53: 57. Kr Miller. C
C., 8r Ireland. R. D 2005 Intuition in strategic decision mak-
12 Academy of Management Lacuna. November

ing: Friend or be in the fast-noted 21" century? The "Bourgeon. L 1.. & Eisenhardt. K M 191313 Strategic decision
Academy of Management Executive (in pees% Mancha-9.Kpromisee in high velocity environments: Four cases In the
INK The rise and fall ol strategic planning. New YOT ICminks:imposer industry. Management Science, 31: 816-935.
Free Prete.
"For mare information about this subject. see Hambrkk. 1e Eisenhardt. 1988
D. C.. & Finkelstein. S. 1987. Managerial disaetten: A See Thompson. L. Improving the creativity of organisational
bridge between polar views on organisations In Cummings. work gaups. The Academy of Management Executive. 17111: 96-
L L, 111 Saw. B. M Research in organisational behavior.102
Greenwich. CT.: IA1 Pew 2°
Sometimes, manager find themsence intervening with parties
"See Eisennudt. IC. M 1989. Making last strategicwhen conflict surfaces. Fm® interesting explanation of how this
decisions in agh.velacity envlionmorna Academy of is done. see P. S. Nugent. 2002 Managing conflict Third-party
Management lout-not 32: 543-576. Irderventloos for managers. The Academy of Man ago:pent
"See Flynn. D.. & Forman. A. M. MI. Ule cycles of new Executive. I611? 133-151.
venture on2anisallons: Different actors affecting performance.
journal of Developmental Enttoptenmuship. 6: 41-58:Nutt. P. C.
See Miller. C. C_ Burke L M.! Glick. W. H.ma Cognitive
diversity among upper-echelon executhee Implications for
1998 Evaluating alternatives to make choke. Omega. 26: 333-
351; Simons. T.. Polled. L H.. & Smith. IC. A. 1999. Making OtrabKIIC decision process. Strategic Management Journal. 19 39-
use of dine:once: Diversity. debate. and decision58
comprehensiveness in top management name. Academy of "See Amnion-C.C.. & Sapienza. al. IMO. The infects of top
Management journal, 42: 662-637. management else and interaction name on cognitive and affective
"Additional Information about these points appears Inconflict faunal of Management, 23: 495-51e ICaragoard. N. A,
Glick. W. H. Millet C. C.. & HUSK. G. P. 1333. The impact of Schweiger, D. K, & Sapienza. H. 3. 1995 Building commit-men?
uppetectudon diversity on organisational porter-forma In His.attachment and tat in strategic denstowmaktrig teams: The role of
her. G. P.. & Glick. W. H. Orgcrn dal:anal change and procedural lance. Academy of Management lour. net 3e 60-BI.
redesign: Ideas and Insights for Improving performance. New 13 See Schwager. D. IL Sandberg. W. R.. Lit Recliner. P. I19111
Tort Os-lord University Pew Prem. It L. Rashest A. M. A. & !Exponential effects of dialecaal inquisy, devil* advo-COM and
Condit. A G. 1905. Rationality In strategic decision yercatose. consensus °mooches to strategic decision making. Academy ol
environmental dynamism mid firm performance. Journal ofManagement lownat 32: 745-772.
Manage-meat. 21: 913-923.

R. Dare Ireland holds the

eh
Farman R. and Ruby S. BennettC. Cat Miller is a member ad the faculty at the Babcock Graduate
Chair In Business AdmiairactSchool of Karma mat. Wake Feast University. He currently eaves
as Associate Dean for Faculty Affairs at On school and as an
flan I. the Mays Businessassociate editor for AM!. Ms research in-
School. Texas A&14 University.
He Is a lama associate editor for
AMC aid Is a current associate
editor far AMjand a member of
the Acoarayli Board of terests Include executives and
GOVIPM0411 Ms resemin
Inter- strategic prccesseo. organise-
e ets Include the active banal design and change. and
manage and a argcmisational research methods. Coat d;
tee aces, Chee.Milleremba.wfuedu.
W eir
deltinenawatinhip. and
andegic alliances. Contact: