Strategic

Decision
Processes
Abubakar Ahmad (2306188153)
Anggatirta (23066188222)
Fania Naomi Hutauruk (2306188361)

Ⓒ Slidesgo
 Decision Making…

Strategic decision-making refers to the process of

making choices related to an organization’s overall,
long-term direction.

This includes deciding on objectives, resources, and

capabilities to be developed and the key actions
needed to achieve these objectives in the context of
all the relevant internal and external circumstances.
 Mintzberg’s Modes of Strategic Decision-making

Mintzberg, II. (1973).

Quinn (1980)
 1 2
ENTREPRENEURIAL ADAPTIVE
Mode Mode

● Single individual formulates the ● Managers wait for issues to

strategy happen
● Opportunities are focused ● Reactive solutions for existing
● Vision of direction guides the problems
strategy ● Lacks clarity on direction and
consensus
 3 4
PLANNING LOGICAL
Mode INCREMENTALISM
Mode

● Systematic information gathering ● Interactive strategy development

● Feasible alternative strategy process
generation ● Incremental commitments to
● Rational selection of sustainable main strategy
strategy ● Debates and discussions for
● Proactive search and reactive consensus
solution ● Resource commitment in rapid
changes
Decision-making approaches
(Mintzberg & Westley, 2001)
The term “strategy” is derived
indirectly from the Classic and
Byzantine (330 A.D.)
Greek “strategos,” which means
“general.”
One of the most famous Latin
works in the area of military
strategy is written by Frontius and
has the Greek title of Strategemata.
Strategemata describes a
compilation of strategema, or
“strategems,” which are literally
“tricks of war.”
The Roman historians also
introduced the term “strategia” to
refer to territories under control
of a strategus, a military
commander in ancient Athens and
a member of the Council of War.
The word retained this narrow,
geographic meaning until Count
Guibert, a French military thinker,
introduced the term “La
Strategique” in 1799, in the sense
that is understood today.
Consequently, neither the military
community before Count Guibert
nor the business community before
H. Igor Ansoff (Corporate Strategy,
1965), could see the strategic
element in their domains clearly
enough to give it a name.
USA 1960s. 575,000→ 1,382,000 motorcycles in 1965
Harley Davidson, BSA, Triumph, Norton, Moto Guzzi.
You Meet the Nicest People on a Honda
 American Honda Motor Company 1959

Policy of Selling: not primarily to confirmed

motorcyclist but rather to member of the general
public who had never before given a 2nd thought to
a motorcycle

Smallest, Lightweight Motorcycles, 3 speed

transmission, automatic clutch, electric starter,
easier to handle.

$250 vs $1,000-1500 → $55 million sales for Honda

(the largest, biggest in the world)
Case A shows that Case B they did
there was an entry not really do an
strategy which environmental
was to ensure analysis into the
selling and market because if
promoting the they did → Larger
motorcycles not motorcycle and
only to the more research.
motorcyclists but
to the general
public - The
Environmental Analysis
Pascale Report
Mintzberg now The 2030 Vision
claims to use the Honda “Serve
term 'the Honda people worldwide
effect' to describe with the 'joy of
“western expanding their
consultants, life's
academics, and potential'—Lead
executives the advancement
preference for of mobility &
over-simplification enable people
s of reality and everywhere in the
cognitively linear world to improve
explanations of their daily lives—.”
events”
 Strategic
Decision-Making
Processes
Dimensions of Strategic Decision Processes

Comprehensiveness/ Formalization/
Centralization
rationality
(Dean and Sharfman,
(Cray et al., 1988; Lyles, standardization
1987; Miller, 1987)
1993a, 1993b; Lyles (e.g., Stein, 1980)
and Mitroff, 1980;
Miller, 1987)

Political/
Problem-solving Dynamic Factors,
dissension dimension Forcing, and Duration
(Cray et al., 1988; Mintzberg
(Lyles, 1987; Hickson et al., et al., 1976, Bryson and
1986; Dean and Sharfman, Bromiley, 1993, Hickson et
1993b; Pfeffer and Salancik, al., 1986; Wally and Baum,
1974) 1994)
Schneider and De Meyer (1991) proposed
categorization of factors which are expected
to influence strategic processes
1. Managers’ individual characteristics and group dynamics
2. Internal organizational context
3. Environmental factors

The Decision Perspective
There’s a possibility that the same internal and
external stimulus may be interpreted quite
differently by managers in different
organization or even within the same
organization n (e.g., Dean and Sharfman,
1993a; Dutton, 1993; Haley and Stumph, 1989)
The Strategic or
Management Choice
Perspective
It stresses that strategic choices have an
endogenous behavioral component, and partly
reflect the idiosyncrasies of decision-makers
(Child, 1972; Cyert and March, 1963)

The environmental
determinism perspective
Natural selection of species for organizations:
the environment determines who will survive,
while top managers are passive agents with
minimal impact on corporate development
(Hannan and Freeman (1977) and Aldrich (1979)).
This view is in line with economic theories in
which decision outputs rather than internal
DMPs are relevant for the explanation of a
firm's behavior in a competitive environment
The firm characteristics
and resource availability
perspective
Inertial perspective (Romanelli and Tushman
(1986) : existing organizational arrangements,
structures, systems, processes, and
resources, though initially determined by
management and environmental forces, in turn
constrain future strategic decision making).
It is also related to resource availability
including internal systems, performance, firm
size, and corporate control.
 Other Dependent Variables

Hierarchical Politicization and

Financial Rule
Decentralization problem-solving
reporting Formalization dissension
and lateral
Magnitude of impact communication
and emergence of the
Rule formalization in SD Mainly influenced by
SD through planning,
process is influenced by The extent to which decision-specific
CEO's level of
decision-specific the SD process is characteristics (uncertainty
education and return
characteristics, top decentralized and and pressure),
on assets are to be
management allows participation of heterogeneity and certain
positively associated
characteristics, and lower-level managers internal con- text
with financial reporting,
corporate control type. characteristics (planning
while private Greek
formality, per- formance,
ownership has a
and corporate control).
negative association
 RATIONALITY MODEL
In its most basic form, the rational model of choice follows the everyday
assumption that human behavior has some purpose. In research on decision
making, this translates into a common model of rational action (March and
Simon, 1958; Allison, 1971), sometimes referred to as the synoptic or
comprehensive model of decision (e.g., Anderson, 1983; Nutt, 1976, 1984).
According to this model, actors enter decision situations with known objectives.
These objectives determine the value of the possible consequences of an
action. The actors gather appropriate information, and develop a set of
alternative actions. They then select the optimal alternative. For example,
Simon's identification, development, and selection model (Simon, 1965) is a
simplified version of this rational model.
 Bounded Rationality
Bounded rationality is a concept proposed by Herbert A. Simon, an
American political scientist, in his 1957 book “Models of Man.” It states
that humans base their decisions on their limited knowledge and
cognitive capacity. It goes against the common belief in economic
models that people are fully rational and capable of making logical
decisions. Bounded rationality differs from the actual concept of
rationality, which assumes humans have complete knowledge of their
alternatives and consequences. The bounded rationality
decision-making model states that individuals choose satisfactory
results instead of the best.
Bounded Rationality

J. Bendor,2015
 Rationality Vs Bounded Rationality
Overall, the original debate, which shaped the paradigm, over whether decision
makers are rational or boundedly rational is no longer very controversial.
Empirical research clearly supports:
(1) The existence of cognitive limits to the rational model. Decision makers
satisfice instead of optimize, rarely engage in comprehensive search, and
discover their goals in the process of searching. The empirical research also
suggests that
(2) Many decisions follow the basic phases of problem identification,
development and selec- tion, but that they cycle through the various stages,
frequently repeating, often going deeper, and always following different paths in
fits and starts.
(3) The complexity of the problem and the conflict among the decision makers
often influence the shape of the decision path.
 Political Model
Similar to the boundedly rational model, the application of the political model to
strategic decision making was a reaction to the prevailing economic
assumptions that organizations possess a single, superordinate goal. As March
wrote (1962: 663), 'I will argue that the business organization is properly viewed as
a political system and that viewing the firm as such a system both clarifies
conventional economic theories of the firm and (in conjunction with recent
developments in theoretical languages) suggests some ways of dealing with the
classical problems in the theory of political systems generally.' While the
boundedly rational model was a reaction to cognitive assumptions about individ-
uals, the political model was a reaction to social assumptions about groups. In
the political model, people are individually rational, but not collec- tively so.
Political Model
 Organizations as political systems
The view that organizations are political systems (i.e., collectives of people
with at least partially conflicting goals) has been supported by several
colorful case studies (e.g., Allison, 1971; Bald- ridge, 1971; Pettigrew, 1973;
Quinn, 1980; Pettigrew, 1985; Eisenhardt and Bourgeois, 1989). Perhaps the
best example is Baldridge's (1971) book, Power and Conflict in the University.
The research chronicles several key decisions taken at New York University
(NYU) in the 1960s that occurred as NYU shifted from an open enrollment,
part-time school to a demanding, research-oriented university. The complex
structure within NYU was clearly consistent with the political view of the
firm. On the one hand, the participants-faculty, administrators, students,
trustees, alumni- shared a common interest in the welfare of the university.
Decision as the preferences of the powerful
A second feature of the political model is the assertion that choice reflects
the preferences of powerful people. Here too the empirical evidence
supports the political perspective. For example the NYU research (Baldridge,
1971) describes how the choices among competing options were ultimately a
reflection of the inequalities within the power structure of the university.
The weak Commerce and Education Schools lost to the powerful central
administration in a series of decisions that changed the NYU student body
from a less-qualified, part-time group into a full- time, high quality,
residential student body.
 Politics
A third feature of the political model is the assertion that people at least
sometimes engage in politics. By politics, we mean those observable, but
often covert, actions by which people enhance their power to influence a
decision. Examples of politics include coalition formation, lobbying,
cooptation, withholding agendas, and control of agendas (Pettigrew, 1973;
Pfeffer, 1981, 1992). Sometimes politics involve tactics of information-i.e.,
manipulation and control of critical information channels. Pettigrew's (1973)
study of a British retailer demonstrated how one manager, Kenny, restricted
information flow to the board and vendors
 Politics and Power
In summary, most scholars accept the central ideas of
the political perspective:
(1) organizations are comprised of people with partially
conflicting preferences,
(2) strategic decision making is ultimately political in the
sense that powerful people get what they want
(3) people engage in political tactics such as cooptation,
coalition formation, and use of information to enhance
their power
 GARBAGE CAN
First articulated by Cohen, March and Olsen (1972), the garbage can model describes decision
making in highly ambiguous settings called organized anarchies. Central to the garbage can
perspective are organizations termed 'organized anarchies,' organizations beset by extreme
ambiguity (Cohen et al. 1972). The ambiguity surfaces in three principal ways:
● One is problematic preferences: the inconsistent and ill-defined preferences that decision
makers often possess. As the authors noted, decision makers are as likely to discover their
goals through action as they are to understand them prior to choice.
● Second, organized anarchies have unclear technology. People have only a loose
understanding of means and ends. Organizational participants gain knowledge by
trial-and-error learning, but without clear understanding of underlying causes.
● Third, organized anarchies are characterized by fluid participation. Decision making
participants come and go from the decision process, with their involvement depending
upon their energy, interest and other demands on their time (Cohen et al., 1972). Therefore,
anticipating who will actually be involved in a decision is difficult.
 Garbage Can (Summary)
To summarize, empirical research only modestly supports:
(1) the central idea of the garbage can perspective that organization
anarchies exist. Similarly, the empirical research modestly confirms
that
(2) decisions occur as a result of chance intersection among changing
problems, choice opportunities, solutions, and people (i.e., garbage
can model).
(3) the model is more robust as time frames become longer, deadlines
are removed, and institutional forces are diminished.
Does the garbage can model describe actual decision making or is it simply a
labeling of the unexplained variance of other, more powerful, descriptions of
strategic decision making? If the latter, it may more accurately be described as an
extreme form of bounded rationality.
 SUMMARY
Finally, a synthesis of the empirical support for the three
traditional paradigms suggests that strategic decision
making is best described as a combination of boundedly
rational and political insights. Bounded rationality shapes
the cognitive limits and the looping of strategic decision
processes, and the political perspective shapes the social
context
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