Crucial Trends and Issues in

Strategic Decision Making

PAUL C. NUTT AND DAVID C. WILSON

INTRODUCTIONI

Studies of strategic decision making are central to organization theorv. March and
Simon (1958) suggested that managing organizations and decision Inaking are vir-
tually synonvlnous. 'I'he dynamics of organizing require a deep understanding of
dccision making.
organizations grow and becomc niorc complcx, dccision mak-
ing bcc.omcs a central activity. Managers arc cxpcc.tcd to makc choiccs among al-
tcrnativcs that arc oftcn unccrtain and to choosc V.iscly in ordcr to bcncfit both the
orgallization and its key stakeholders. T Ilis has prornpted researchers to stu(lY'
(lecision processes to find ways in which decisions can be irnproved.
The study of decision nvaking has spanned a number of levels of analysis, wllic.h
range f•ronl individual cognition to the cultural charact.erist.ics of nat.ion states. Manv
disciplines infôrrn our knowledge from Inat.heanatic.s t.o behavioural theories of so-
cial sc.ience. The t.erm st.rat.egic decision making is oft.en 1.1sed to indicate
ilnport.ant. or key decisions Inade in organizations of all types. 'l'he term organization
inclucles anv collective social, economic or political activitv involving a pluralitv of
human effort. Strategic decisions eniphasize the social practice of decision making as
it is carricd out among and bctwccn individuals in thc organization. \Vhcn studying dc-
cision making, both thc organizing of dccision activity as a collcc.tivc phcnomcna and
thc cognitivc proccsscs of individual dccision makcrs take c.cntrc stagc.
Strategic decision rnaking is Inore than cornputati01'1 carrie(l out to nrake judge-
rnents arid choices. Valious branc.hes of rnathernatics can inforrn us about risk,
options, garne theory arl(l c.l')0ic.e. All l•rave their utility in un(lerstandilng c.hoice
processes, bua. are less useful when considering how people in organizations
nrake decisions. As an
consider the rno,st. well known variant. of gaine theorv
(decisions bet.ween two players), t.he prisoners' (lilelnnra. Two criniinals in separate
cells Irave to decide whether to betray each other, having agreed not to betray one

Handl,ook Making. Edited by Paul C. and David C Wilson

C 2010 John Wiley & Sons, Lid
4 PAUL C. AXI) DAVID C. WILSON

another in advance of the game. The greatest pay-off results when both prisoners
stick to their agreement, but most betray each other and experience a significantly
reduced pay-off. Computational mathematics help the players maximize their
returns, but this isjust part of the strategic decision-making story.
consider strate.gic decisions? As wc Will discuss later in this chaptcr, the term
stratcgic has bccomc more confusing than cnlightcning. Popularizcd bv Mintzbcrg et al.
(1976), stratcgic dccisions arc sc.cn as largc, cxpcnsivc, and preccdcnt sctting
producing arnbiguity about how t.o find a solution and unc.ertaint.y in the solution 's
outc.ornes. Once implernented, a strategic decision stipulates premises that guide
operational decisions that follow. A strategic decision is often diffic.ult to reverse once
human and financial resources have been cominitted to their cause. Further-Inore,
strategic decisions have the fôllowing characteristics:

'l'hey are elusive problems that are difficult to define precisely.

'l'hey require an understanding of the problem to find a viable solution.
'l'hey rarely have one best solution, but often a series of possible solutions.
Questions about tradeoffs and prioritics appcar in the solutions.
Solution bcncfits arc difficult to assess as to thcir cffcctivcncss, in part
bccausc thcy lack a clear final cnd point against 'Ahich cffcctivcncss can bc
judgcd. Other problerns in t.he organization are c.onnec.te(l to solutions for a
focal problem.
High levels of anil)iguity and uncertaint.v are associat.ed with soli.ltions.
Realizing hoped for benefits has considerable risk.
Strategic decisions have competing interests tlrat prompt key players to use
political pressure to ensure that a choice aligns with their preferences.

Stratcgic dccision making is oftcn trcatcd as an instan tancous choicc bctwccn

two or morc known altcrnativcs. Howcvcr, this 'point of dcc.ision' approach is
unablc to capture thc richncss and complcxity of thc proccsscs that unfoldcd to thc
point of (lecision inclu(ling
problerns were uncovered, the way in whic.h search was
conduc.ted, 'What was (Ione to ensure (lecision adoption and the steps taken to
assess benefits. Decision nraking frorn a
of decision perspect.ive also assurnes
tl•rat nranaoer.s have complet.e control over decisions. It is Inore likelv l.hat. t.he
decision nraker has linfited discretion in selecting
courses of ac.t.ion. T his occ.urs, fôr
when st.rat.egic decisions are constrained by int.erventionist. govermnent
policies, such as privatization or deregulation, requiring all strategic actions to be
framed and shaped by this wicler context. Nevertheless, Inanagers still have some
degree of strategic choice even if the wider context (e.g. privatization) is firnlly set
in placc. T his includcs stratcgic dccisions involving topics such as organizational
dcsign, choicc of supplicrs, choicc and sophistication of information systcms and
gcncral product or scrs•'icc portfolios.
Theorists such as Druc.ker (1974) and Weick (1995) show
decision-lnaking
processes in organizations are as rnuch about defining the question as they are
about providing an answer. To understand a strategic decision one Inust decide
whether there is a need fôr a decision and, if so, What that. decision is about.. Weick
likens t.his process to those of boar(ls of inquilY fôllowing a disast.r01.ts event. Such
 TREN'DS AND ISSCES IN STRATEGIC DECISION MAKIN'G

a board has a number of roles. The board acts like a historian — reconstructing the
past to make sense of What happened and to prevent future disasters happening
again should similar events occur. The 'historian' takes an outcome and interprets it
as the result of a series of decisions, which are seldom seen bv those involved as
discrctc choiccs madc to resolve a problematic situation. Much of stratcgic
decision-making research rcquircs this kind of social reconstruc.tion.
T herc are many othcr vicws of stratcgic decision making. Mintzberg (1987) pro-vided a
useful way to categorize decisions with his five Ps classification. We sumrn•a-rize it here
because it raises some key questions about the nature and definition of a strategic
decision. Strategic decisions can be viewed as a Plan: the decision is an intended course
of action carried out in advance with a clear purpose. Alternatively, strategic decisions
can be seen as a PIO. Here, decisions take shape as a set of ac-tions designed to outwit
the competition, which mav not be the 'obvious' content of the decision. For example, a
decision to build a new building in order to expand Inav not be the overt strategy, but is
more concerned with increasing barriers to en-try for potential competitors. 'l'here are
connections here vvith the militar)' roots of stratcgic dccision making. Thc plans of
campaigns may have similar charactcristics to thosc Ofa ploy to outwit thc 'cncmy'.
Thirdly, stratcgic dccisions can be sccn as a Pattern: dccisions arc not ncccssarily takcn
with a clear planncd purposc and dcci-sion makers do not always have access t.o the
range of knowledge required to create a plan of action. However, decisions taken over
time form a pattern. It is this pat.tern of resulting (enlergent) behaviour that we call the
strategy of the finn. Strategy is therefôre characterized as a patt.ern t.hat ernerges froln a
strean) of decisions and Inav not be an attribute or descriptor of a single decision.

Strategic decision Inaking can be seen as achieving a Position. A decision is less

about the dynamics of planning or gamesmanship and more about tlYing to realize
a match between the organization and its environment. 'l'his position can be one of
alignmcnt, so that thc organization matches its cnvironmcnt, such as dcsigning
highlv dcccntralizcd struc.turcs to c.opc with a turbulcnt and unprcdictablc cnvi-
ronmcnt, or onc of trying to sccurc compctitivc advantagc, q,'hcrc the organization
soli(lifies a unique position in the Inarket.
Finally, strategic
rnakil'lg can be view•ed as a Perspective. Here (lecisions
are charac.terized as a reflection of how strategists in an orgarlization perceive t.he
'World and t.heir organization. To illustrate, the strat.egic perspective of Nokia is one
of continuous and soniet.irnes radical change (Nokia began as a paper and pulp com-
pany) ; IBM favours a dotninant Inarketing pelspect.ive; and Hewlett.-Packard favours
an engineering excellence perspective. Such a perspective, if pervasive enough, can
influence the kinds of decisions taken, in respect of their content and their pro-
cesses. We can see the effects of this embedded view ofdecision making by
obse1Ning that organizations in similar industries oftcn choosc similar stratcgic
dccisions and bccomc sccond movcrs. From this pcrspcctivc univcrsitics tcnd to
follow broadly similar stratcgics, as do largc rctailcrs and scrvicc organizations.
These decision types divide into strategic and organizational. Organizational
decisions tend to result in plans or ploys. However illiportant or costlY' such indi-

ber of decisions are examined toget.her and the patt.erns and t.hernes in thelll are
6 PAUL C. AXI) DAVID C. WILSON

uncovered. Using the term strategic for individual (or single) decisions that are
plans or ploys seems poor practice. Strategic decisions are more apt to be a
pattern, a position, or a perspective. Interestingly, researchers often examine plans
and ploys using a process perspective whereas patterns, positions, and
perspective receive very littlc attcntion by rcscarchcrs to uncovcr thcir generativc
naturc. Wc return to this debate surrounding the application of the tcrm stratcgic to
decision making later in this chaptcr.
Over the last 50 years, there have bee.n radical changes in how strategic decision
making is researched. For example, in the 1950s and 1960s research emphasize.d a
planning approach to decision Inaking. Such tools included industry st.ruct.ure
analyses and portfólio matrices, fôr exmnple, the matrices offered bv Ansoff and the
Boston Consulting Group. In this era, strategic decision making was mostly about
planning. The 197()s onwards saw a (liffêrent emphasis. Decisions began to
emphasize the pay-offs to organizations should different strategic directions (OIY
tions) be pursued. 'Ijpical options were diversification decisions, but this 't',ras also
the era of innovation (R&D), acquisition, joint venture, and internationalization
dccisions.
Thc 1980s saw a movc away from examining thc content of stratcgic dccisions —
What thcy wcrc about — to cxamining thcm morc as processes. Thc question
bccamc whether we coul(l Inap the progress of a strategic (lec.ision and nrake
inferenc.es about '„à.rhy such processes Tilight occ.ur. David Hickson and his
colleagues (1986) characterized such processes as sporadic (discontinuous), fluid
(continuous and s,lnooth), or constrict.ed (restricted to a srnall group of
stakeholders and highly po-litical). T his work also underscored the importance of
such processes since they underpinned the recognition among managers of the
need for strategic change. 'l'he 1990s onwards have seen a continuing interest in
unfolding the characteris-tics of decision processes, but the emphasis has changed
to focus on whether or not thcrc arc any links bctwccn dcc.ision making and results.
For cxamplc, did thc dccision succccd or fail (c.g. Nutt, 1999, 2002; Hickson et al. ,
2003)? Do a num-bcr of failcd stratcgic dccisions Icad to organizational failurc as
Landis Gabcl and Sinclair-Des•ag1'1e (2008), for exarnple, suggest?
Finally, sorne recerlt approaches to strategic decisi01'1 nvaking have
coricentrated upon tlne Inore Illicro aspects of 110w Ilianagers think, ac.t, an(l
interpret strategic decisions. Such an approach has been terlned t.he stra.teo as
Pract.ice perspective OVhit.t.ington, 1996) or as activity-based (Heracleous, 2()()3;
Jarzabkowski, 2()().5). Here, the thrust. is t.o dig in tao What nranagers actually 'do'
when t.hey 'strategize', a term that seems to have emerged alongside the emerging
popularity of this per-spective. As Jarzabkowski and Wilson (2006) note, Inuch of
'traditional' strategic decision-making theony has been criticized because it is not
actionable in prac-ticc, so rcscarchcrs should conc.cntratc on What managcrs do
whcn thcy cngagc in stratcgic activitics. Howcvcr, it is by no mcans casy to tcll
whcn stratcgic ac-tivity is taking placc and whcn it is not; nor is it casy to idcntify an
appropri-ate level (or levels) of analysis to exarnine such activities. For exarnple,
should we exarnine the cognitive and psychological aspects of individuals when
they en-gage in strategic activities, or should we look at their physical ac.ti'.,ities and
trv to describe the processes in which t.hey engage (such as decision making), or all
 CRI ICIA[. TRF.XD.S AND KSUF.S IN STRATF.GIC DECISION MAKIN'G 7

three? T here are no concrete answers to the above questions. All would be legit-
imate ways of drilling deep into What managers do when they engage in decision
making.
Jarzabkowski (2005) provides a useftll perspective to the practice approach by
concentrating on What she tcrms an activity-bascd' vicw. BV this, she mcans that
managers thcmsclvcs dcfinc What is, and is not, stratcgic bv thcir actions. Thcsc
discussions and dccisions constitutc an important part of undcrstanding decision
liraking. One of t.he key contributions made by Jarzabkowski's (2005) study is that
decision making is a 'situated' ac.t.ivity. Although there are Inany argurnents about
What is meant by the term 'sit.uated', it identifies the relational nature of Inanagers
as actors with situations being the contexts in which they operate. Any particular
action by managers must be seen and understood in the context of the situation in
which that action occurs. Managers are both recipients and creators of the situa-
tional context in which they carry out the activities that go into decision making.
Why is such a micro focus useful? 'l'he main answer is that the strategy as practice
perspective highlights differences in strategic decision making that might otherwise bc
misscd. From a morc macro perspective, organizations can look fundamcntally similar.
Thcy facc similar social, political, and economic contcxts in which thcy arc cmbcddcd.
Howcvcr, this similarity can be dcccptivc. Jarzabkowski (2005) shows how th ree
Universities, all facing the sarne oftel'l Inutually contradic.tory tensions of increasing
revenue fron) research and frotn cornmercial activities, c.raft and imple-Inenc verv
(liffêrent decisions t.o t.rv and resolve these tensions and increase revem.le strealns. ()nly
a Inicro fócus can reveal these kev diflêrences between organizations in the ways in
which their nvanagers handle decision making.
'l'he practice perspective shows how face-to-face interactions between managers
are imbued '.'.,ith the context of administrative and organizational procedures, all of
which can influence decision Inaking over time. 'l'here is no Sharp distinction
bctwccn dccision formulation and implcmcntation from this perspcctivc. Decision
making is a blcnd of individual intcractions and thc organizational context ovcr timc
and is not ncc.cssarily a step by step or a logical scqucncc.
Heracleous (2003) also argues for a situated and Inic.ro perspective 01') (lecision
rnaking. He views decision Inaking as a perforrnative art, represented bot.h
What
rnarlagers (lo (practice) and What and
they cornrnunic.ate ((liscourse)
. Decision
nraking can be best understood by looking at t.he language nvanagers' use and lhe
activities in whic.h t.hey engage.
As a field of Sl.udy, strategic decision nraking has experienced many attac.ks on
its theoretical and empirical foundations. It has not only survived these attacks, but
has prospered in recent
Many established authors are returning to some of the
original key ideas in decision making and applying them to other areas of organi-
zation thcory. Two rcccnt cxamplcs providc illustrations. Onc rcccnt thcmc can bc
sccn With March 's cmplvasis on thc importancc of knowlcdgc and What hc tcrms
'or-ganizational intclligcncc' in dccision making (March, 1999) . Anothcr can bc
found in Karl \Veick and others who focus on specific decisions needed to prepare
orga-nizations for extrelne or highly uncertain events, such as a disaster or a
terrorist attack (Weick and Sutcliffe, 2007; Starbuck and Farjoun, 2005; Sullivan-
Taylor and Wilson, 2009).
8
PAUL C. AXI) DAVID C. WILSON

Following the organizational intelligence theme, March examines the character-istics

of decisions that allow decision makers to fôllow courses of action to ensure that the
organization continues to benefit in the face ofscarce resources and height-ened
competition. .March categorizes these as intelligent decisions that merge de-sires,
actions, and outcomcs in a positive way (i.e. outcomcs fulfil dcsircs as far
as possiblc). March shows how intclligcncc (infUrmation, cxpcricncc, and aspira-
tions) can lead to poor decision making. Accclcrating errors fbund in dccisions
initially t.hought to be clever can lead to poor perforln•anc.e. The trick according to
March is to assem ble intelligenc.e in decision nraking in ways that facilitate
successful performance.
Following an 'extreme event' theme, authors such as Weick and Sutcliffê fôcus
on decision making in which levels of uncertainty and ambiguity are very high.
They suggest that decision making needs to create and sustain What they term
'high relia-bility organizations' that are not only capable ofwithstanding extreme
events better than other organizations, but are also highly resilient — they can
recover quickly after disasters strike.
In thc abovc two broad thcmcs wc can sec how rclativcly modern conccrns of or-
ganization, compcting on knowlcdgc and bcing prcparcd for extrcmcs, arc bcing
addrcsscd bv rcfcrcnc.c to decision-making thcorics. Such cxtcnsions of decision-
rnaking research to other aspects of organization theouy have a considerable his-tory.
For exalnple, the notion of in.crement.alism. or the piec.erneal attention to srnall steps
in any process came from Lindblom's (1959) research into how decisions are rnade.
The notion of Problem.istic sea.rch (nvanagers seek only infôrlnat.ion when they have
to or when there is a pressing probleln) carne out. of work by Cyert and March (1963).
'l'he concept of enacted environments (managers only see and interpret the bit of the
operating environment that they focus upon) came out of research by Weick (1979). All
of these concepts were developed within the field of strategic de-cision making and to
bccomc morc gcncrically applicd to organizational proccsscs. Stratcgic dccision
making Ivas provcd a rich ground for thc cmcrgcncc of such conccpts.

The work ofJatnes G. March identifies trvany of the key features and (lebates in
strategic (lecision nraking. His approacl'l can be illustrated iri Figure l. l. The Inajor
contribut.i01'1 of this sirnple flow diagrarn is twofold. The processes it identifies un-
derpin Inost key organizational processes, revealing the centralit.v of decision Inak-ing
in organization theory generallv. Secondly, its verv sirnplic.ity can be Inisleading.
The cycle shown in the figure can be broken or can nvalfunc.t.ion at. eac.h stage of
the process and between stages. March taught us to beware assumptions of ratio-
nality both in individuals and in organizations. Actions can be taken for a variety of
reasons that correspond to the ways in which organizations are structured (each
spccializcd function dcvcloping its OI,VTI 'vricw on M,'hat should happcn)
. T his cntcrcd
thc vocabulr,uy of organizational dccision making in thc form of 'local rationality
(Cycrt and March, 1963).
March (1994) was later to refine this concept by emphasizing local preferences, rather
than rationality. He argued that the rnain thing in organizational decision rnaking was
forrning interpretati.ons, not Inaking choices. Interpretations cover a F.•'ide