Perspectives on Strategic Management

Introduction

Strategizing is one of the key activities which an organization undertakes, mainly to achieve and sustain above average returns or rent. Strategy by itself is a vehicle to introduce change to achieve organizational objectives. It provides a map and sense of direction to an organization to implement the changes, create new possibilities and realties. It challenges taken-for granted assumptions and ideas about the world

Management Theorist and academician Whittington, R., proposes 4 distinct approaches to strategy 1) Classical 2) Evolutionary 3) Processual and 4) Systemic. Each approach offers different concept and view of strategy and how managers actually do it keeping in view the human capacity to think rationally and act effectively. Better understanding of different epistemological views of management theory brings to light the fact that a completely rational decision-making is a fallacy.

This essay views the aspects of strategy development through the lenses of Processual and Systemic approaches to strategy development. It highlights the fact that strategy is influenced by factors both internal and external to the organization. Power, Politics, Culture, Bounded rationality are some of the internal factors which influence strategy development and deem it imperfect. External factors such as changes to environment in which the business operates regulatory changes within that industry, political and policy changes within the geography where the business is established, shareholder expectations and levels of internationalism all influence the strategy development process.

This essay focuses on how the internal factors influence the strategy decision making process in organizations and there by impacting strategy development and implementation and supporting the classical view that long term planning is essential for organizations to achieve their goals within the fuzzy and hazy process of strategy development and implementation.

Argument

One of the essential core elements of strategy-making or strategy development is making strategic decisions. A strategic decision is typically the one which has long term organizational impact for future success and on organization's ability to generate rents. Decision making has been seen as synonymous with strategy making: as Kathleen Eisenhardt (1999:1) has noted, 'the ability to make fast and widely supported, and high-quality strategic decisions on a frequent basis is the cornerstone of effective strategy'

Strategic decisions set an organization on a particular path dependency where-in some outcomes are more likely than others. In retrospect, some strategic decisions appear visionary while some are disastrous. But at the time of making them, strategic decisions are supported with a strong justification and made by people who vest legitimacy of the decision by the virtue of rank they hold in the organization and resources they controlled (Clegg, et al., 2011). The strategic decisions are pruned rational via support of complex cost-benefit models and approach which follows perfect logic based on perfect information, a sagacious understanding of the consequences different alternatives would offer. But seldom have organizations and their decision makers have complete information to make a perfectly rational decision.

Bounded Rationality

Development and Implementation of business strategy is imperfect through strategic decisions taken which are rationally bounded. Rationality is bounded rationality when it falls short of omniscience where the features of omniscience are largely failures of knowing all the alternatives, uncertainty about relevant exogenous events and inability to calculate consequences (Herbert Simon, 1978:14 )

Rational decision making is constrained as factors in real life are more complicated than what decision-making models are based upon. Also the information on alternatives may not be complete or could be unclear. Rationality is bounded due to limits on information availability and ability of the managers and advocates of strategic decision makers to process complex, large and difficult information.

Managers then based their strategic decisions derived within the limits of information available to them and their ability to make sense out of it. In lieu of these constraints, strategic decision making in organizations is 'satisficing' (March, 1978:590) rather than optimal. It is more of a make-do solution with what is seen to be available and relevant. Processual approach to strategy is taken whereby organizations opt for 'adaptive rationality' rather than adopting perfect rational strategies.

Distortion and Deception

An article by Dan Lavallo and Oliver Sibony in the 2006 Mckinsey Quarterly (Distortions and deceptions in strategic decisions), highlights how strategic decisions sometimes go wrong because of human shortcomings. Any risky decisions are subject to human biases such as overoptimisim and loss aversion. The decisions are also vulnerable to what economists call the "principal-agent problem" when the incentives or benefits of certain employees are misaligned with the interests of their companies and they tend to look out for themselves in deceptive ways. The principle-agent problems compound cognitive imperfections to form intertwined and harmful patterns of distortion and deception throughout the organization whereby affecting decision making and hence their strategy development and implementation.

Distortion is primarily caused due to Overoptimisim which affects judgments of probability and tends to produce over-commitment and due to Loss aversion which influences outcome preferences and leads to in-action and under-commitment and there by distorting the decision making outcome.

Deception on the other hand is caused due to conflict of interest that often arises between an "agent" (the manager) and the "principal" (the corporation) on whose behalf the agent acts. Such "agency problems," occur when the agent's incentives aren't perfectly aligned with the principal's interests, can lead to intentional deceptions--misleading information provided to others--that compound the problem of the agent's unintentional distortions.

Power and Politics

Most strategic decision processes are ultimately political in that they involve decisions with uncertain outcomes and resolution through the exercise of power (Allison, 1971). Politics is exercised covertly by agents or executives who leverage their power to influence a decision. Their actions could include any or all of these like controlling agendas (Pettigrew,1973: Peffer, 1981) ,