Strategic Decision-Making in Business
Summary and Keywords
Scholarly interest in how managers make strategic decisions dates from the inception of the strategic management field and continues in the present. Although such decision-making was originally conceived as a completely rational, top-management process, contemporary thinking recognizes that strategies from across multiple organizational levels change within social and political contexts. Within this broad domain, multiple research streams address a wide variety of topics and issues. Prominent among these are, (1) the extent to which strategic decisions are formed through comprehensive analysis versus piecemeal decision-making, (2) how characteristics of top managers and the composition of top management teams affect strategic decision-making, (3) the role of politics, conflict, and consensus in strategy making, (4) how cognitive biases and heuristics influence the process, (5) when and how intuitive judgments can form the basis for effective decision-making, and (6) how managers at various organizational levels participate in the process. Research across these streams is both descriptive and normative, with a focus on contextual contingencies and relationships to firm performance. Taken as a whole this literature has significantly enhanced understanding of how strategies form within organizations. Contemporary work continues to provide new insights and demonstrates the continued value of this productive area of study.
Keywords: strategic decision-making, strategy process, comprehensiveness, decision speed, incrementalism, intended versus emergent strategy, induced and autonomous strategic behavior, consensus and conflict, cognitive biases, heuristics, top- and middle-level roles
This article reviews theory and research on strategic decision-making, a subset of a broader decision-making literature with roots in economics, psychology, and management. Our focus is on how individual and teams of managers make complex decisions affecting the competitive trajectory of the overall firm. These are non-routine, high-impact decisions, which Mintzberg, Raisinghani, and Theoret (1976) describe as “unstructured,” “unprogrammed,” and “messy.”
Initially the “bedrock” of strategy process theory and research, the strategic decision-making literature has received somewhat less attention in recent decades as the strategy process has increasingly come to be seen as a social learning process, as opposed to a purely decision-making one. Given this, we begin with a brief historical treatment of how thinking on strategy making has evolved over the last several decades. Then, recognizing that the development of strategy is no longer viewed as a hyper-rational, analytic activity, we begin our formal review of the strategic decision-making literature. We begin at the organizational level, reviewing literature on the appropriateness and the effectiveness of synoptic versus incremental decision processes. From there we review studies examining how characteristics of the CEO and top management team impact strategic decision-making. Remaining at the team or group level, we then review the extant literature on power and politics, and the influence of consensus versus conflict in strategic decision-making. Returning to the individual level, we then introduce literature on cognitive biases in strategic decision-making and examine theory regarding analytic versus intuitive decision processes, and conditions under which each is effective. We then briefly discuss strategic decision-makers’ need to iterate and integrate paradoxical agendas. Finally, we review the impact of middle-manager decisions on strategy and strategic decision-making as a multilevel discourse. We then close with a set of conclusions about what we believe to be high impact opportunities for strategic decision-making research.
Strategic Decision-Making Within an Evolving Social and Competitive Context
Emerging from practice, early treatments of strategy making prescribed a rational decision- making approach intended to provide “working managers” with “a practical method for decision making” (Andrews, 1971; Ansoff, 1965). Throughout the 1970s, strategy making was most often conceived of as occurring through formal “corporate planning” systems. From a largely normative perspective, writers described a rational approach that they believed represented best practice (Gilbert & Lorange, 1974; Vancil, 1976). In general, these descriptions elaborated a stepwise, sequential process that included goal formulation, SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis, strategy formulation, evaluation, implementation, and control (Schendel & Hofer, 1979). Building on this foundation, Porter (1980) introduced concepts from industrial organization economics to develop a theoretically robust approach to strategy formulation.
While early writers such as Ansoff (1965) focused on articulating and prescribing hyper-rational approaches to strategic decision-making, others with more academic orientations became interested in describing how strategic decisions were actually made. Within the broader decision-making field, luminaries such as Simon (1955) and Cyert and March (1963) had long recognized the more nuanced notion of “bounded rationality,” whereby decision-makers facing informational and cognitive limitations, “satisfice” in order to make “acceptable” rather than “optimal” decisions. Relative to strategic decision-making, writers such as Lindblom (1959), Allison (1971), Pettigrew (1973), and Quinn (1980) began to highlight the social and political aspects of strategy making. From this perspective, aspects of rational decision-making, such as goal setting and planning, play a role but are tempered by the social and environmental context. Quinn (1980), for example, suggests that incrementalism (piecemeal decisions at the margin) is a more rational approach when considering “sunk” economic investments, internal political realities, and external uncertainties. Moving even further from a purely rational approach, Cohen, March, and Olsen (1972) argue that inconsistent priorities, unclear technologies, and mercurial participation within organizations create so much ambiguity that strategy occurs as a haphazard confluence of people, problems, solutions, and opportunities. From this “garbage can” perspective, strategic decision-making is not so much rational as it is chaotic.
Recognition of the informational, social, and competitive contexts within which strategic decisions are made has, over time, created a paradigm shift in our understanding of how firm strategies come about. During the 1970s, Mintzberg (1972, 1978) and Mintzberg and Waters (1990, 1982, 1985) published research and theory redefining strategy as, rather than the product of a grand overarching decision, a “pattern in a stream of decisions” made over time to solve many different problems in many different parts of the organization. While not negating the role of intentional strategic decision-making, this definition allows for what has become known as “emergent” strategy.
Emergent strategy is, as its name suggests, a strategy or “pattern” that emerges without (or before) being planned by top management. In implementing a firm’s intended strategy, for example, managers may make decisions or take actions that create new opportunities or firm capabilities. Over time, these “unintended consequences” may impact the strategy the firm actually pursues. Understanding strategy in this way holds several implications for strategic decision-making. First, this way of thinking of strategy highlights the reciprocal relationship between strategic decision-making and implementation. Rather than planning first and implementing second, strategy results from an iteration between thinking and action (Mintzberg & Waters, 1985). Thus, strategic decision-making is less a periodic activity undertaken to formulate a grand strategy and more an ongoing endeavor comprised of multiple “smaller” decisions that benefit from real-time learning. From a top-management perspective, therefore, strategic decision-making may be as much about ratifying what has already been implemented as it is about setting a course of action.
Synoptic Versus Incremental Decision-Making and Decision Speed
Recognition that strategies come about through a combination of formal planning and real-time decision-making led researchers to develop contingency frameworks regarding the appropriateness and effectiveness of alternative decision-making modes. Beginning in the early 1980s, Fredrickson and colleagues conducted a series of studies examining how firms’ decision-making ranged along a continuum from purely synoptic (rational) to purely incremental. Overall, these studies suggested that while most firms use a combination of both modes, the appropriate mix is contingent on the level of uncertainty and change in the environment. Specifically, for firms in stable environments, comprehensiveness (the extent to which firms attempt to be exhaustive in making and integrating strategic decisions) seems well matched. Conversely, in unstable environments, incrementalism seems more suitable (Fredrickson, 1984; Fredrickson & Mitchell, 1984). Follow-up studies examined the effects of decision motive and organization performance level (Fredrickson, 1985), and showed that firms tend to become increasingly rational (comprehensive) in their decision-making over time, as the firm’s strategic direction becomes more established (Fredrickson & Iaquinto, 1989).
From the results of these early descriptive studies, researchers began to conclude that, given enough time, comprehensive decision processes produced better-quality decisions. The advantage of incremental processes was the speed with which decisions could be made and implemented. Thus, a productive stream of research examining the relationship between decision speed and firm performance developed (Eisenhardt & Sull, 2001). A seminal study (Eisenhardt & Bourgeois III, 1988) examined strategic decision-making in four microcomputer firms. These firms were characterized as competing in “high-velocity environments” in which strategic opportunities opened and closed very quickly. The study’s results identified a set of paradoxes. In these environments, decisions need to be made comprehensively, but also very quickly. Top managers need to be innovative and decisive, but also sensitive to political and technical realities during a strategy’s incremental implementation. In a follow-up study, Eisenhardt (1989) showed that fast decision-makers used more, not less, information and considered more, not fewer, alternatives. Subsequent studies have examined how antecedent conditions (e.g., organizational characteristics) impact decision speed and have confirmed a positive relationship between decision speed and firm performance in high-velocity environments (Baum & Wally, 2003; Judge & Miller, 1991). Given trade-offs between analytical comprehensiveness and decision speed, research investigating links between decision speed and decision quality continues to be an important area of inquiry (Baum & Wally, 2003; Gary, Wood, & Pillinger, 2012).
Strategic Decision-Making and Top Management
The responsibility for strategy making ultimately falls on top management, and the characteristics of top managers and the composition of top management teams have been central and productive areas of study in strategic management research (Hambrick & Mason, 1984). Because “top executives probably are quite reluctant to participate” in psychological studies (Hambrick & Mason, 1984, p. 196), most research on CEO decision- making has relied on surrogate, demographic, measures (tenure in the organization, education, functional background, etc.). Early findings in this area showed that executives with long tenure within an industry are less likely to change course and tend to remain committed to status quo strategies (Finkelstein & Hambrick, 1990; Hambrick, Geletkanycz, & Fredrickson, 1993; Miller, 1991). Conversely, newly appointed CEOs are more likely to consider new strategic directions (Pettigrew, 1992). Overall, while this stream of research has provided valuable insights into top-management decision-making, there are inherent limitations regarding what can be learned from demographic measures (Priem, Lyon, & Dess, 1999).
In addition to investigating relationships between CEO characteristics and decision-making, research has also focused on the composition of the top-management team. Using similar demographic measures, work in this area has developed theory and conducted research into how TMT (Top Management Team) homogeneity and heterogeneity affect strategic outcomes under various conditions (Hurst, Rush, & White, 1989). Existing contingency theory holds that the collective knowledge base of decision-makers should reflect the complexity of the problem being considered, and numerous studies confirm and extend this thinking. Hurst, Rush, and White (1989), for example, draw connections between the need for TMT heterogeneity and strategic renewal, while Wiersema and Bantel (1993) study the effect of decision context and TMT heterogeneity on TMT turnover. Priem’s (1990) findings of a curvilinear relationship between TMT heterogeneity and firm performance reveal the complexity and significance of this dynamic.
Numerous studies have also explored relationships between the characteristics and composition of top management and firms’ strategic decision-making mode. Motivated by presumed benefits of cognitive diversity among top-management team members, Miller, Burke, and Glick (1998) examined the relationship between TMT diversity and decision comprehensiveness. Surprisingly, their results suggested that cognitive diversity among TMT members reduces comprehensiveness within the strategic decision-making process. This finding motivated research examining the relative effect of top-management characteristics and environmental factors on strategic decision-making. Toward this end, Brouthers, Brouthers, and Werner (2000) studied strategic decision-making in the Dutch financial services industry and found decision-makers’ characteristics to be more influential in decision-making than environmental factors. Consistent with this, Goli and Rasheed (2005) found top managers’ demographic characteristics (age, tenure, education level) to be related to rational decision-making, while environmental factors moderate the relationship between decision-making mode and organizational performance.
Furthering this stream of research, Papadakis and Barwise (2002) separated CEO characteristics from characteristics of the TMT as a whole and found that, while both influenced how decisions were made, the characteristics of the CEO mattered more. In addition, in contrast to those of others, their results showed the environmental context to have more of an influence on decision-making than either CEO or TMT characteristics. Papadakis (2006) confirmed the greater relative influence of environmental context and further showed that while top-management demographics did influence the decision process, personality characteristics such as need for achievement and locus of control had no significant effect. Given earlier findings these results were surprising, and highlight the need for ongoing research in this area.
Politics, Consensus, and Conflict in Strategic Decision-Making
Politics, defined as “observable, but often covert, actions by which executives enhance their power to influence a decision” (Eisenhardt & Bourgeois III, 1988, p. 737), presents another challenge to a purely rational approach to strategic decision-making. Cyert and March (1963) were among the first to recognize political aspects of decision-making, and while their decision-process model was initially applied in the context of operating decisions, scholars such as Allison (1971) and Narayanan and Fahey (1982) soon began to consider how organizational politics impact strategic decisions. In particular, these authors examined how organizational coalitions form in relation to strategic issues, and developed frameworks detailing how political behaviors shape the awareness, understanding, and resolution of certain issues over others. On the whole, existing research suggests that substantive involvement in strategy decreases political behavior while centralization increases it (Eisenhardt & Zbaracki, 1992).
Strategic decision-making’s political perspective holds several key implications. First, and foremost, it explicitly recognizes limitations to the centralized control of organizations. Within a political context, multiple actors weigh in on and influence strategic decisions. How alternatives are presented, accepted, modified, or rejected is in part a function of the power and political behavior of relevant coalitions. Thus, while the rational view of strategy formulation takes some level of consensus among relevant parties as a given, the political perspective recognizes that “consensus among political actors is not a given; it must be nurtured and developed” (Narayanan & Fahey, 1982, p. 31).
Thus, as the political aspects of strategic decision-making became increasingly apparent, strategic consensus, or agreement on strategy among the firm’s dominant coalition, became a focal point in strategic process research (Child, Elbanna, & Rodrigues, 2010). As the idea was intuitively appealing, scholars postulated positive associations between firm performance and the extent to which members of the firm’s top management agreed on key aspects of strategy. In a series of studies, Bourgeois III (1980) and Bourgeois I (1985) examined relationships between firm performance and agreement on strategic goals versus means and how these relationships were impacted by perceived uncertainty and industry volatility. Similarly, Dess (1987) hypothesized that, within a fragmented, intensely competitive industry, consensus on both objectives and means was needed.
Unexpectedly, these and other studies (reviewed by Dess & Origer, 1987) failed to find a consistent relationship between organizational performance and strategic consensus. A partial explanation came from Priem (1990) who suggested a curvilinear consensus–performance relationship.
In retrospect, the lack of consistent findings regarding strategic consensus and firm performance is not all that surprising. The firms included in these cross-sectional studies were very likely at different stages of the strategic decision-making process, and as initially pointed out by Allison (1971), early or premature consensus can cut off useful debate, diverse perspectives, and reduce the quality of strategic decisions. Stated differently, consensus may be a desirable final outcome of a group decision process, but it may not, in itself, be a useful approach for fully considering complex issues. Rather, free and open debate among cognitively diverse actors, and involving some level of conflict, may better surface relevant considerations and contingencies. Diversity provides a variety of perspectives that can be drawn on for making complex decisions (Amason, 1996) and repeated studies have shown a consistent relationship between the cognitive diversity of decision teams and decision quality (Bantel & Jackson, 1989; Murray, 1989).
In addition to an appropriate degree of cognitive diversity, how teams interact to make strategic decisions is of at least equal importance (Amason, 1996). Evidence has long supported the idea that disagreement, or conflict, expressed in constructive ways during strategic decision-making, improves the quality of strategic decisions (Schwenk & Cosier, 1993). Techniques for purposely introducing conflict into strategic decision-making (e.g. devil’s advocacy and dialectical inquiry) to improve decision quality have been the focus of a series of studies (Schweiger, Sandberg, & Ragan, 1986; Schwenk, 1982, 1984a, 1984b). Meta-analysis of this research shows a positive relationship between the purposeful introduction of conflict-based approaches in strategic decision-making and decision quality (Schwenk, 1990).
Extending this line of research, Amason (1996) examines the apparent paradox between conflict and consensus within strategic decision-making. Arguing that both are necessary for high performance, he separates cognitive from affective conflict. His results show a positive relationship between cognitive conflict and decision quality, and a negative association between affective conflict and decision quality. These results are consistent with those of studies by Schwenk and others and demonstrate that if firms can introduce cognitive conflict without also introducing affective conflict, they can reap the decision-quality benefits of conflict without incurring its interpersonal costs. The Amason study also shows, however, that this is easier said than done and that more work is needed regarding how to manage the conflict/consensus paradox within the strategic decision-making process.
Cognitive Biases in Strategic Decision-Making
At the individual level, the rational view of decision-making assumes managers face strategic issues with a “blank slate.” That is, that they begin with no preconceived ideas or positions on issues being faced. As a practical matter this is never the case, and Schwenk (1995) reviews extant literature regarding a number of cognitive biases affecting strategic decisions. Causal attribution theory holds that decision-makers tend to attribute positive outcomes to their own actions while attributing negative outcomes to external, non-controllable, events. Overall, research has consistently supported this line of thinking (Clapham & Schwenk, 1991; Huff & Schwenk, 1990; Lant, Milliken, & Batra, 1992) and although some researchers have argued that such attributions are deliberate attempts to manage stakeholder perceptions (Salancik & Meindl, 1984), the dominant view is that biased attributions are part of managers’ sense-making and represent decision-makers’ true beliefs (Clapham & Schwenk, 1991). Closely related to biased attributions are biases in recollection. Research by Golden (1992) found that managers recall and justify past strategies as being more aligned with current strategies than they actually are. Similarly, research on escalating commitment (Bateman & Zeithaml, 1989; Duhaime & Schwenk, 1985), or a tendency to “double down” on a failing course of action, supports the idea that managers’ sense-making of the past may bias their decisions about the future.
As revealed in the seminal work of Amos Tversky and Daniel Kahneman (1973), cognitive biases generally occur as a result of simplifying mechanisms that allow decision-makers to make adequate, if imperfect, decisions concerning difficult and complex phenomena.
These mechanisms, or “heuristics,” take various forms and have been consistently shown to be important sources of bias within many decision contexts. Using an affect heuristic, for example, decision-makers choose alternatives associated with their emotional attitudes. Within the context of strategic decision-making, alternatives may be chosen or rejected based on top management’s liking or disliking of a key sponsor, vendor, and so on.
While biasing decision-makers toward certain alternatives over others, cognitive biases do not necessarily lead to ineffective decisions. To the contrary, they can be pathways that allow for both effective and efficient decision-making. Through their experiences, executives develop cognitive schemas, or frames, that specify presumed cause-and-effect relationships, and that often allow for quick, effective decision-making (Huff, 1990; Porac & Thomas, 1990; Voyer, 1993). Maitland and Sammartino (2014), for example, show that heuristics, especially those based on experiential learning, may act as powerful cognitive tools enabling, rather than limiting, decision-making in dynamic and uncertain environments. At the organizational level, an analogous concept is the notion of a “dominant management logic” (Prahalad & Bettis, 1986) that guides decision-making within firms. From this perspective, shared “schema” among members of the firm’s dominant coalition provide “shorthand” guidance regarding the technologies, markets, and options firms consider. Research in this area has investigated the extent to which organizations do indeed develop and have shared logics (Bettis & Prahalad, 1995; Grant, 1988), how these logics change over time (Narayanan & Fahey, 1990), and how individual schema develop and combine into organizational-level schemata (Lyles & Schwenk, 1992). Similarly, at the individual level a key issue has been examining the extent to which managers’ schemas persist (or adapt) in the light of new information and/or changing conditions (Barr, Stimpert, & Huff, 1992; Lyles & Schwenk, 1992).
Heuristics, Schema, Intuition, and Effective Strategic Decision-Making
Sources of bias such as affectively based heuristics allow decision-makers to simplify complex phenomena and make fast, if not always effective, decisions. Indeed, decision speed and decision effectiveness are generally seen as inversely related and significant scholarly effort has been focused on conditions that allow decision-makers to make effective decisions quickly. Within this domain, intuition has emerged as a productive focus of study (Dane & Pratt, 2007). As described in common vernacular, intuition equates to decision-making by “hunch” or “gut feelings.” More scholarly treatment, however, defines intuition as a nonconscious, automatic form of information processing that is distinct from rational, analytic thinking (Epstein, 2002). Intuitive processes allow individuals to learn from experience, to recognize patterns in data without conscious attention, and to form quick judgments (Kahneman, 2011). As summarized by Dane and Pratt (2007), “intuitions are affectively charged judgments that arise through rapid, nonconscious, and holistic associations” (40).
In many ways, therefore, intuitive judgments are simply decisions made using heuristically based schemas, and while most research over the last several decades has focused on how this form of decision-making leads to systematic judgment errors (Tversky & Kahneman, 1974), more recent research holds that “experts” often make very high-quality intuitive decisions (Klein, 2003; Klein, 2017; Prietula & Simon, 1989; Simon, 1992, 1996). Dane and Pratt (2007) review this literature and identify factors associated with intuitive judgments and effective managerial decision-making. Overall, this literature suggests that to be effective, intuitive judgments need to be based on complex “expert schemas” developed through in-depth experience within a particular domain. Decision-makers without domain-specific, experientially based schema or who are focused on decisions outside a given domain are less likely to form effective intuitive judgments.
As intuitive decision-making is best suited to complex judgmental tasks, versus intellective (computational) tasks (Laughlin & Ellis, 1986), it is highly relevant to strategic decision-makers facing complex, uncertain futures. Recent theory, therefore, recognizes that both rationality and intuition are important in strategic decision-making. How the two interact, however is not well understood and Calabretta, Gemser, and Wijnberg (2017) use case data to show how decision-making outcomes are developed through the integration of intuitive and rational practices. Thus, while it is useful to know that intuition can be the basis for highly effective, quick decision-making, much more needs to be known about how relevant expertise is learned and assimilated into the complex cognitive schema and how these are integrated with rational processes in effective strategic decision-making.
Ambidexterity and Strategic Decision-Making
While it is intuitively appealing that cognitive schema, at either the individual or organizational level, can serve as “guideposts” to effective strategic decision-making, recent theory suggests that to remain competitive, strategic decision-makers must consider both existing domains and new ventures simultaneously (Eisenhardt, Furr, & Bingham, 2010; March, 1991). In other words, rather than remaining firmly committed to a single cognitive scheme, strategic decision-makers need to become ambidextrous (March, 1991); that is, have the ability to iterate between paradoxical “thought worlds” (Kostova & Zaheer, 1999). As this line of thinking has become more prevalent (Jarzabkowski & Sillince, 2007; Kraatz & Block, 2008; Smith, Binns, & Tushman, 2010), a rich body of research focused on the management of paradoxes in strategic decision-making has emerged. Existing research, for example, suggests accepting paradoxes as vital and advocates learning to work through them (Lüscher & Lewis, 2008), accommodating contradictions through novel synergies (Eisenhardt & Westcott, 1988), and through structural (Benner & Tushman, 2003) or temporal (Siggelkow & Levinthal, 2003; Smith, 2014) separation.
While these studies have advanced understanding of how top managers engage paradoxes within the firm’s overall strategic decision-making process, less work has been focused on understanding individual decision-makers’ cognitive abilities to manage multiple, diverse mental processes. An impressive exception is Laureiro-Martínez, Brusoni, Canessa, and Zollo’s (2015) study, which uses magnetic resonance imaging (MRI) technology to identify brain regions associated with exploitation and exploration decisions. Laureiro-Martínez et al.’s findings demonstrate that exploration and exploitation activate distinct areas of the brain, and that “superior decision-making performance relies on the ability to sequence exploitation and exploration appropriately and to recognize when to switch to exploration” (Laureiro-Martínez et al., 2015, p. 332).
Strategic Decision-Making as Multilevel Discourse
While the majority of research in the strategic decision-making area is focused at the CEO and TMT level, as the field has progressed there has also been a growing appreciation for the role of middle managers in strategy making (Wooldridge, Schmid, & Floyd, 2008). Burgelman (1983a, 1983b, 1991, 1994) was among the first to recognize how middle managers shape strategies through autonomous actions and decisions. In a series of inductive case studies, he shows how strategies evolve through middle managers’ ability to conceptualize, articulate, and negotiate the strategic implications of autonomous operational-level initiatives with senior management (Burgelman, 1983a, 1994). Nonaka (1988), as well, describes how strategies develop through a “middle-up-down” process of information exchange and knowledge creation across managerial levels. Building on this, Wooldridge and Floyd (1990) argue that the quality of strategic decisions is improved through the substantive involvement of middle managers, and identify four ways in which middle managers influence the formation of strategy (Floyd & Wooldridge, 1992). Floyd and Lane (2000) integrate these behaviors into a broader process model that identifies distinct strategy process roles for operational, middle, and top managers.
Adding nuance and specificity, research from the strategy-as-practice (SAP) perspective focuses on the micro-practices (context and individual specific activities as well as shared routines, norms, and procedures) of strategic actors. Research in this area has done much to increase understanding how specific managerial activities contribute to the creation of organizational strategy (Vaara & Whittington, 2012). As a relatively young research stream (Whittington, 1996, 2006) this perspective purposefully does not limit its view of strategy practitioners to top managers, explicitly recognizing strategic actors at all levels of the organization.
From a somewhat different perspective, Raes, Heijltjes, Glunk, and Roe (2011) develop a process model depicting the strategic decision process as a set of interactions between middle managers and the top management team. Raes and van Vlijmen (2018) provide empirical support for this interface model and suggest that middle-management engagement in strategic decision-making is not a “goal in itself” but a method for achieving higher-quality strategic decisions. Importantly, two constructs, cognitive diversity and integrative bargaining, factor prominently in their model. Through this lens, strategic decision-making is seen as a bargaining process taking place between and across levels of management, and which benefits from the involvement of actors who remain open-minded, or cognitively flexible, as the process ensues.
Over the last several decades, researchers and theorists in strategic management have developed a sophisticated and nuanced understanding of how firm strategies come about. Initially seen as a rational decision-making activity, contemporary conceptualizations view strategy making as a social learning process that includes, but is not defined by, strategic decision-making. As the field’s understanding of strategy process has evolved, research on strategic decision-making has become increasingly contextualized—embedded within defined competitive and organizational settings. This research has enhanced understanding of the decision processes firms use to become and remain competitive in continually changing environments. We now know, for example, that both synoptic and incremental processes play crucial roles in strategy making, and within rapidly changing contexts decision-makers must be both comprehensive and quick. Further, we now understand that these two requirements are not necessarily at odds, and we have a better understanding of the processes used by decision teams and individual decision-makers to achieve both.
For senior management the challenge of strategic decision-making is twofold. First, as the “architects” of firms’ strategic decision process, top managers must determine who to involve in the strategic decision process and how to involve them. On this front existing research provides useful guidance. Decision teams need to be populated by individuals with backgrounds and expertise that mirror salient facets of the strategic decision issue. Further, the process should be managed in a way that allows for useful debate while avoiding affective, interpersonal, conflict.
While these normative conclusions from past research are instructive, they leave many questions unanswered. What, for example, are the appropriate bounds of decision-making participation and when and how does the process move from open dialogue to an established decision? These questions are not fully addressed by the existing theory and research that envisions decision teams comprised of a relative few senior executives (Hambrick & Mason, 1984). As noted by Sharma (2018), average firm size continues to increase. By 2010 average employee count for firms in the S&P 500 was around 47,000 and there were over 60 firms with 100,000 or more employees. Clearly firms of this size face different leadership challenges and today organizations such as Walmart (2.1 million employees) directly engage several hundred senior executives in strategic decision-making. Thus, research examining how firms orchestrate decision processes involving hundreds of geographically dispersed “mezzanine”-level executives is warranted (Sharma, 2018).
Future work can also be integrated within the strategic human-capital and strategic human-resource-management literature (Boon, Eckardt, Lepak, & Boselie, 2018) in order to explore the micro-processes of how strategic decision-making comes about. More work can be done to understand the strategic decision-making process at the individual or unit level so as to better understand how individual knowledge, skills, abilities, and other characteristics impact decision-making (Ployhart & Moliterno, 2011; Ployhart, Nyberg, Reilly, & Maltarich, 2014). With the perspective that humans are the key resources for a sustainable competitive advantage, how is that human capital mobilized to make and enact decisions (Nyberg, Moliterno, Hale Jr, & Lepak, 2014)? From this, how are decisions made and ensured within HR systems and processes? How does the HR system and architecture motivate employees to make superior strategic decisions? All of these open questions point to the importance of middle and lower management in the strategic decision-making process.
In addition to designing and managing organizational-level strategic decision processes, senior managers are the final arbiters, ultimately responsible for making those decisions. Past research has gone a long way in advancing understanding of factors associated with effective decision-making. We now know, for example, that intuition, informed through experience, is associated with both quick and effective decision-making. Much more needs to be learned, however, about relevant types of experience, the content and temporal boundaries of expert-based intuition, and the integration of intuitive judgments and rational analysis. There is also much more to be learned about how executives cognitively process and integrate paradoxical elements when making strategic choices. In sum, strategic decision-making remains an exciting and important area of scholarship within strategic management.
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