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RSK4803 Topic 1 Learning Unit 2 summary notes
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Summary of 6 pages for the course RSK4803 - Risk Financing at Unisa (Exam notes-summary)
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Topic 1Learning unit 2
Discuss the weaknesses of the conventional doctrines of strategic management.
Such media accounts typify massive inconsistencies between model assumptions –
openness, competition, transparency, executive responsibility, and low risk – and the reality
of decision premises, a form of hypocrisy between mission goals and actual behaviour. Most
theories of strategic decision-making apply premises and assumptions of rational behaviour
and stable systems. In finance and the world of banking, actual strategic behaviour differs
wildly from the rational model of perfect competition, where all the variables are known,
where information is free and available, and where computation of strategic choices and
their consequences are examined in minute detail. Indeed, the real world of corporate
finance is the exact opposite. More generally, strategic approaches to complex problems are
misaligned with the problems themselves and potentially make firms ill-equipped to address
wicked problems with simplistic approaches.
Define “wicked” problems.
A class of social system problems, which are ill-formulated; where the information is
confusing; where there are many clients and decision makers with conflicting values; and
where the ramifications in the whole system are thoroughly confusing, they are
dynamically-complex, ill-structured, problems that have highly uncertain causes and
outcomes.
, Do a comparison of the characteristics between conventional and wicked
problems.
Discuss the categories of wicked problems.
Three categories of wicked problems:
puzzles (well-defined with optimal solutions),
problems (well-defined but no single
solution), and messes (hard to formulate)
When does strategic misalignment arise?
Strategic misalignments arise when organizations use a decision-making system designed
to address environmental uncertainties that assume linear models with limited complexity
and deliberation. Indeed, the seeds of simple failure, leading to catastrophic failure, rest in
organizational hierarchies where dominant coalitions – senior managers and boards –
display false reactions, such as a confirmation bias, where executives overestimate how
others accept their belief systems, and where core assumptions are not assessed.
The second is an anchor bias, where evidence is quickly accepted that supports existing
assumptions while contrary opinions are downplayed or rejected. In this way, hostility toward
critics is heightened in the hierarchy especially if decision- makers fail to produce real
solutions and, as a result, dire unintended consequences occur.
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