Samenvatting Strategic Decision Making (441058-B-6)
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Course
Strategic Decision Making (441058B6)
Institution
Tilburg University (UVT)
All the important things of the lectures are complemented by the papers you need to read for this course. Especially in English, but supplemented by Dutch text.
Key challenge to any decision: reduction of uncertainty
Four characteristics decisions:
1. Complexity: large number of aspects
2. Uncertainty: unknown number of alternatives/solutions
3. Rationality: try to reach a goal
4. Control: intentionality
Strategic decisions are defined as decisions committing substantial resources, setting
precedents, and creating waves of lesser decisions; as ill-structured, non-routine and complex;
and as substantial, unusual and all-pervading
Dimensions of interdependence:
- Inter-decisional decisions that we take for a certain problem, they connect to other
decisions
- Inter-actor strategic decisions are interdependent with decisions facing other related
economic actors, shaping and reflecting the decisions of these other actors, chiefly
competitors, but also suppliers, buyers and other complementors. Maw: decisions are not only
taken for YOUR organization in isolation, but rather related to decisions of other
organizations in the same industry
- Inter-temporal if you take a decision in time 1, it has an impact on time 2. Connected
process, not an isolated. (decisions now are related/shaping to future decisions in time)
Positief effect/lijn tussen performance en degree of rationality
SDM Process – Effectiveness Relationship
Variation in SDM processes Different strategic choices Variations in effectiveness
Look forward (practioners + procedures, tools) + look backward (researchers + evidene
generated by research) staat niet gelijk aan briljant decision making!
- The process-effectiveness link is where practioners look forward (future) and make
estimated about intended and unintended consequences
Framework:
Context top management team, strategic decision specific characteristics, the external
environment and firm characteristics those things provide the input for the formulation
process (starting point for the process-effectiveness link) consists of environmental-,
organizational-, decision specific-, top management characteristics
SDM process process by which a strategic decision is made and implemented and the
factors which affect it, i.e. the process that leads to the choice of goals and means and the way
in which means are effectively deployed (ingezet) consists of formulation, implementation,
execution
Content consists of corporate + business
Outcomes refer to the intended and unintended consequences of a strategic decision
consists of supra-organizational-, organizational-, decision outcomes
Lecture 2 – SDM
Organizational context
1
,Organizational characteristics
Fredrickson (1986) How does organizational structure (centralization, formalization,
complexity) affect strategic decision making processes (6 SDM process dimensions)?
Organizational structure: (hoort bij de context)
Centralization decision making door een persoon of department
Formalization rules and procedures (dit matchen met professionalism)
Complexity
- Horizontal (how many units are at the same level/span of control) and vertical
differentiation (how many layers in the structure), spatial dispersion (activities in
multiple locations or a single location)
Strategic decision process characteristics
● Process initiation
○ How and where is the process initiated?
● Role of goals
○ Ind. vs. org. -level? Remedial or future-oriented? Precise vs. general?
● Means/ends relationship
○ Will means (alternatives) displace (verplaatsen) ends (goals)?
● Explanation of strategic action
○ Intendedly rational or political bargaining? Incremental vs. major?
● Comprehensiveness in decision-making
○ Primary constraints limiting the comprehensiveness of the SDM process?
● Comprehensiveness in integrating decisions
○ What is the level of integration achieved to form an overall strategy?
Strategic decision process characteristics ⇐ CENTRALIZATION (high)
● Process initiation
○ Initiated by the dominant few; proactive opportunity-seeking process
● Role of goals
○ Decisions are oriented towards “intended future domains” of dominant few
● Means/ends relationship
○ Goals (ends) persist, even when means change significantly (dus de doelen
blijven bestaan, zelfs wanneer de middelen aanzienlijk veranderen)
● Explanation of strategic action
○ Intendedly rational “strategic choice”; major moves from existing strategy
● Comprehensiveness in decision-making
○ Constrained by cognitive limits of few dominant decision-makers
● Comprehensiveness in integrating decisions
○ Relatively high integration (doordat maar een paar mensen de beslissingen
maken, hierdoor is dit dus dan weer wel hoog)
Strategic decision process characteristics ⇐ FORMALIZATION
● Process initiation
○ In response to ‘problems’ detected through monitoring by the formal system
● Role of goals
○ Precise rather than general; remedial rather than positive, future intended
● Means/ends relationship
○ Means outweigh ends; prescribed behaviors become ends in themselves
2
, ● Explanation of strategic action
○ Standardized organizational processes; incremental moves
● Comprehensiveness in decision-making
○ Constrained by spectrum of behaviors accounted for in rules and procedures
● Comprehensiveness in integrating decisions
○ Intermediate integration; level of detail in rules and procedures
Strategic decision process characteristics ⇐ COMPLEXITY
● Process initiation
○ Parochial views can lead to ignoring or failure to recognize strategic issues
● Role of goals
○ Individual goals hinder influence of organizational goals in decision-making
● Means/ends relationship
○ Difficult to agree on ends (goals); hence, agreement on means (procedures)
● Explanation of strategic action
○ Internal political bargaining process; incremental moves
● Comprehensiveness in decision-making
○ Constrained by parochial perspectives and behaviors
● Comprehensiveness in integrating decisions
○ Low integration; actions taken in units not consistent
Environmental context
context beyond the boundaries of the organizational system which takes the strategic
decision
DESTEP demografic, economic, social, technological, ecological, political
Eisenhardt (1989)
About making fast strategic decisions in high-velocity environments (outcome: performance)
Over de microcomputer industie continiuously firms entering and leaving the market, there
is a high rate of change and a discontinuous change
Speeds the decision making process limited participation and centralized power + limited
conflict
But high level of comprehensiveness slows the decision making process (rational
comprehensive approach)
THIS IS NOT TRUE IN THE END
Results:
1. Use real time information (zo kun je sneller dingen identificeren, problemen spotten,
kansen zien + exposure to actual situations + constant attention to information)
2. Simultaneous consideration of several alternatives (kan snel veranderen, minder
committed aan een optie, breadth not depth is effective when time pressure is high)
3. Use of experienced counselors (can reduce ambiguity)
4. Use of active conflict resolution (actief aan het dealen met conflict, populair bij
leidinggevenden)
5. Integration among decisions (helpt bij het analyseren van de levensvatbaarheid van
een alternatief + reduces ambiguity en vergroot het vertrouwen dankzij de bekendheid
met andere beslissingen)
3
, Decision making is fast when it is: more centralized, less comprehensive, less conflictional
NO!
Rather: In contrast to conventional wisdom at the time:
- No distinction between planning vs. real-time information
- No distinction between depth vs. breath of alternatives
- Prior research neglected to procrastination and isolation of CEO
- Slow DM teams make non-comprehensive and snap choices
- This case did not involve formal planning systems, and was not linear.
Congruence between environment and the DM process is important, fueling research
on:
- Shifting focus to teams of managers/executives
- Complex perspective on cognition
- Attention towards emotions (e.g. conference and anxiety).
Prestaties lijken baat te hebben bij snelle besluitvorming in omgevingen met hoge snelheid, en
het lijkt te lijden onder langzame besluitvorming in dergelijke omgevingen.
Lecture 3 – SDM
Top management context
Context here refers to the characterisitcs of the decision-makers on an individual or collective
basis and the dynamics between them
- Top management teams are more knowledge driven and there is more judgement
- The level of responsibility and autonomy of TMT is different from WT (work team)
Hambrick & Mason (1984)
The organization as a reflection of its top managers – how the top management team’s
characteristics affect strategic choices and organizational outcomes
The TMT is the dominant coalition of (van) the most senior executives (hoogste
leidinggevenden) who have responsibility for setting the overall direction of the organization
Deze paper focust op een specifieke groep decision makers: CEO along with CFO, COO (top
managers)
Key assumptions:
1. Top executives matter for organizational behavior and outcomes
- Deterministic view variatie wordt niet opzettelijk tot stand gebracht door de decision
makers van de organisatie, maar is grotendeels willekeurig, bepaald door contextuele
omstandigheden of geworteld in de geschiedenis van de organisatie
- Strategic choice perspective benadrukt het belang van opzettelijk handelen en van de
macht die door de decision makers van de organisatie wordt uitgeoefend
strategic decisions made by top executives have real IMPACT on the organization’s fate
2. Top executives ‘givens’ affect strategic choices
Decision makers bring their set of ‘givens’ to decision making situations (cognitive base,
values) these givens filter and distort (vervormen) de percepties en interpretaties van
decision makers (bounded rationality)
Strategic decisions are complex situations die uit veel meer fenomenen bestaan dan dat
decision makers kunnen bevatten. De cognitive base and values act as a screen
4
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