The Strategic Decision-Making Process - Essay Example

Issues in strategic management The aim of the present research is to discuss the process of strategic decision making from the theoretical point of view; to look closer at the different opinions and theoretical schools of strategic management thoughts and to systematize the knowledge through creation of taxonomy. Introduction Strategic management as a system of thought has appeared as a result of the necessity to systematize the already existing knowledge in the field of creating business strategies, and many scholars were able to create whole theories about the instruments of decision making in the strategic management. However, it is essential to distinguish the two basic differences in the strategic management research - while one focuses on the research of the content of the strategic management ideas, the other makes the process of strategic management its object, and also examines the factors, which influence this process. It is interesting to note the expression, which can give and explain the principal roots of the strategic management decision making: 'Because of the limits of human intellective capacities in comparison with the complexities of the problems that individuals and organizations face, rational behavior calls for simplified models that capture the main features of a problem without capturing all its complexities'. (Porac & Thomas, 1990) Thus, the aim of the research is not only to make the taxonomy of the decision making knowledge in strategic management, but to make it simple, understandable and practical for the use in the further similar researches. Taxonomy as a notion and its application to the strategic management Taxonomy is the science of classification of any knowledge, and can be applied to any theoretical or practical field of science. (Porac & Thomas, 1990) Applying taxonomy to the area of strategic decision making has become popular in the recent years, though attempts to systematize the schools of the strategic decision making has been attempted earlier. It was a difficult task to accomplish, as strategic decisions have been described, as being unclear, complex, unpredictable and messy. (Schwenk & Dalton, 1991) The first attempt to create at least approximate taxonomy of the strategic decision making was performed in 1976 by Mintzberg and Theoret, who were able to define the three major phases in this process, and described them as the identification phase, the development phase and the selection phase. (Goodstein et al, 1994) Hart (1992) has also created his own system of strategic decision making processes, and has divided them into five different types - the command mode, the symbolic mode, the rational mode, the transactive mode and the generative mode. The systematization of the knowledge in the area of strategic management decision making is a difficult process, but we will here attempt to create a table on the basis of the existing theoretical schools and to describe them in more detail, which will assist in further application of the knowledge found in literature in future researches and the solution of the practical issues. Taxonomy of the strategic management decision making Name of the theoretical school The author The basic knowledge used The design school model Learned, Christensen, Andrews and Guth SWOT analysis; defines strategy as simple and informative process The planning school Ansoff Makes little emphasis on the concept of strategy as it is; is more concentrated on the detailed plans elaboration The entrepreneurial school Schumpeter Focuses on the CEO role in strategic decision making process The extended design school model Prescribes the CEO's vision to the building of consensus and commitment in the decision making The detailed discussion of the theoretical schools In the light of the abovementioned information and in the view of the table created on the basis of the already existing schools of strategic management thinking and decision making, it is interesting to note, that some strategies use the role of the CEO as the central one in decision making for any organization. In relation to this, it should be appropriate to say that in creating taxonomy of strategic management thinking there has also been performed an attempt to systematize the way of CEO thinking, and this attempt was performed by Huff in 1990. Huff was able to suggest that there were at least five different approaches to the way managers think, or it would be more precise to suggest that he has designed the five models of 'mapping' the minds of CEOs. The first model of mapping accounts and evaluates attention, association and the concepts. According to Huff, this type of thinking in strategic decision making is usually used during the analysis of the written documents and includes the analysis of the words which they read in documents. The second model of mapping shows cognitive taxonomies and dimensions of categories; this mapping is used for the description of the existing categories in the minds of the CEOs and the subcategories. The third type of mapping uses causality and system dynamics as the basis for analysis. Here the beliefs of the decision-makers as for how the cognitive knowledge affects the process of decision-making, and how its separate categories impact each other, are used. The fourth type of mapping accounts the structure of arguments through the knowledge from philosophy, speech communication and rhetoric, while the fifth one is based on perceptual codes and cognitive frames. 'Regarding the question of whether organizations have cognitive maps, Huber and Power suggest that companies' strategic decisions are guided by a dominant management logic which is a shared understanding of the factors relevant to the business's strategy and the relationship between these factors. They suggest that the dominant logic is a shared schema (a term generally used to describe individual-level cognitive structures) among the dominant coalition of a firm (Huber and Power, 1985). They suggest that the breadth of the dominant logic sets upper limits on the diversity of technologies or markets that a firm can participate in. They do not, however, elaborate on the process by which individual-level cognitions are combined into organizational schemata.' (Huber, 1990) In relation to the role of the CEO in strategic decision making the two issues are also of high importance and should be mentioned in this work. On the one hand, the causality issue shows that the connection between the CEO (or top management team) and the strategic decision making is significant, and it is suggested that it creates impact on the general company performance; simultaneously, in any knowledge relating to strategic decision making, strategic management and the role of CEO in, such variables as environmental turbulence, competition and managerial discretion should be accounted. (Keck & Tushman, 1993) The entrepreneurial school In the light of the knowledge given for the role of the CEO, it would be appropriate to start the discussion of the principal decision making theories with the description of the entrepreneurial school. How strange this may seem, but this school of knowledge does not concentrate on the environmental analysis, though its importance as a variable has just been mentioned, but it just accounts the role of the CEO. According to this theory, the role of the CEO is 'one of strong leadership, responsible for the setting of the entreprise's direction, providing the dominant perspective and above all, articulating a vision.' (Forster & Browne, 1996) Thus, the role of the CEO is to gather the followers who will be the supporters of his strategic vision, and will thus create the strategic decision-making core of the organization. However, this school is more used in the popular modern approaches and is less popular when serious theoretical approaches are described. This theory is, no doubt, useful for the present research and taxonomy of the strategic decision making as a whole, but even empirical researches of the related type this theory rarely finds is application. It is not argumentative, that the notions of 'vision' and leadership have become the central in any strategic management discussion or conference at present, and the entrepreuneurial theory attributes these two notions to the role of the CEO in the organization; this is why it is more useful to devote more attention to the other related theories, which represent deeper knowledge on the subject and thus give more solid basis for the development of the strategic management decisions. The design school model It has already been noted that the core of the design school model is the SWOT analysis. However, though SWOT appears to be one of the most objective means of evaluation the decisions in strategic management, accounting all possible strengths, weaknesses, opportunities and threats which may be supported or denied by a certain decision taken, it is still not enough to make the design school theory complete. Forster & Browne (1996) write, that 'one of the characteristics of the design school model is that it emphasizes the conception of the strategy as a relatively simple, even informal process'. Thus, Mintzberg was sure that the strategy creation is the core essence of any strategic management process. Here should also be noted the work of Eisenhardt and Bourgeois (1988), who made the decision to be the combination of the two essential factors - politics and maneuvering, and thus the process of decision making, though not as simple as described by the design school model, has also received certain taxonomy. On the one hand, it seems to contradict the design school theory in the aspect of its being simple; on the other hand, it only suppors the idea of the decision-making process being informal and the most essential in relation to strategic management in general. Eisenhardt and Bourgeois (1988) state the following: 'Politics are the observable, but often covert, actions by which executives enhance their power to influence a decision. These actions include behind-the-scenes coalition formation, offline lobbying and cooptation attempts, withholding information, and controlling agendas. Politics contrast with the straightforward influence tactics of open and forthright discussion, with full sharing of information, in settings open to all decision makers'. The notion of the conflict, on the other hand, has become the subject of discussion among many authors (Keck & Tushman, 1993; Porac & Thomas, 1990; Schoemaker, 1993) and for making the design school model clearer and more complete, it would probably be correct to understand that conflict itself it not simply the disagreement as for the goals of the company, but it can also touch the means of achieving these goals. The notion of the conflict in strategic decision making is applicable to all models described here and make the taxonomy of the decision-making process clearer and more correct from the scientific viewpoint. The planning school The author of the planned school approach was mostly relying on the concept of strategy as it is. Forster & Browne (1996) speak about the common features between the planned and the design school approach. 'To the design school's simple informal process, the planning school adds a much more elaborate procedure, extending, in greater detail, the procedural rationality of the model. Strategies, in the planning school version, were to be programmed in great detail providing operational plans to govern implementation; budgets to marshal and allocate resources; specific goals and detailed action plans to govern and monitor implementation; systems of performance evaluation and feedback mechanisms'. (Forster & Browne, 1996) The planning school model became popular in 1970s as an integral of any strategic management decision making. Planning school has become a solid ground for the formation of the certain practical approach to the strategic management, but as theory it ultimately failed. Strategic planning as the notion appeared at the beginning of 1960s, and by the middle of 1970s it was already a popular scientific subject. This approach, as well as the entrepreneurial approach failed because they didn't take into account environmental factors; while the entrepreneurial approach didn't speak about environment at all, the planning school supposed environmental factors to be relatively stable. In the modern environment, it is essential to account the influence of not only traditional variables on the strategic making process, but information technologies should not be neglected as their role in impacting the process of strategic decision making should not be underestimated. In the taxonomy of the strategic decision-making information systems should acquire their essential place, and according to Huber (1990), 'information technologies should reduce centralization in decision making in centralized organizations and increase centralization in decentralized organizations; they should also lead to more rapid and accurate identification of problems and opportunities'. In general, the strategic decision making schools may be analyzed as follows, through the article written by Mintzberg and Lampel (1999), who have created their own taxonomy of the theories in this field. They have briefly described each of the strategies of decision making and have stated the following: 1. The design school model was called the school of conception, and it was stated that it had not developed into anything more serious than just a concept, and has rather combined its main components with other theories. 2. Entrepreneurial school mostly criticized for lacking vision, which it was protecting, and for having changed the clear concepts into vague understandings of missions. 3. Planning process was stated to be similar to the design one, except for the concept of it being formal, through the fact that staff planners had replaced the senior managers as the key players in the decision making process. Conclusion Much has been said about the taxonomy of the strategic decision making process. More has even been said as for the critics of various approaches in the strategic decision making. It is important to understand, that it is of course possible, to develop certain taxonomy in the system of the modern strategic managerial knowledge, but it often difficult or problematic to find the exact borders between various theories, as they often combine common features and share common grounds. Taxonomy of any knowledge in the scientific field presupposes the deep review of the literary sources and its analysis. This work has used 15 literary sources, and has chosen four various approaches as the basis for taxonomy of the necessary information; it has also made certain suggestions which should be accounted in the further attempts to systematize the notions of the strategic decision-making. References Eisenhardt, K. and Bourgeois, L, 1988. Politics of strategic decision making in high velocity environments: Toward a midrange theory. Academy of Management Journal, 31, pp. 737-770. Forster, J.H. and Browne, M, 1996. Principles of Strategic Management. Melbourne: MacMillan Education Australia LTD. Goodstein, J., Gautam, K. and Boeker, W, 1994. The effects of board size and diversity on strategic change. Strategic Management Journal, 15, pp. 241-250. Hart, S, 1992. An integrative framework for strategy-making processes. Academy of Management Review, 2, 327-351 Huber, G, 1990. A theory of the effects of advanced information technologies on organizational design, intelligence, and decision making. Academy of Management Review 15, pp. 47-71. Huber, G. and Power, D, 1985. Retrospective reports of strategic-level managers: Guidelines for increasing accuracy. Strategic Management Journal, 6, pp. 171-180. Huff, A. & Schwenk, C, 1990. Bias and sensemaking in good times and bad. Pp. 89-108 in A. Huff (Ed.), Mapping strategic thought. Chichester, England: Wiley. Keck, S. and Tushman, M, 1993. Environmental and organizational context and executive team structure. Academy of Management Journal, 36, pp. 1314-1344. Mintzberg, H., Raisinghani, D. and Theoret, A., 1976. The structure of "unstructured" decision processes. Administrative Science Quarterly, 2, pp. 246-275. Mintzberg, H., Lampel J. 1999. Reflecting on the strategy process. Sloan Management Review, 40, pp.21 Porac, J. and Thomas, H, 1990. Taxonomic mental models in competitor analysis. Academy of Management Review, 15, pp. 224-243. Porter, M.E., 1996. What is strategy Harvard Business Review, 74, pp. 61-78 Schoemaker, P, 1993. Strategic decisions in organizations: Rational and behavioral views. Journal of Management Studies, 30, pp. 107-130. Schwenk, C. & Dalton, D, 1991. The changing shape of strategic management research. Pp. 277-300 in P. Shrivastava, A. Huff & J. 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