Strategic Decision-Making

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“Rational decision-making is an impossible ideal in strategy formulation and implementation due to incomplete information and organisational politics.”

Strategy is formulated and implemented by organisations as a means of gaining competitive advantage and achieving organisational success. Frequent fast, widely supported, and high quality strategic decisions are the cornerstone of effective strategy (Eisenhardt, 1999 in Clegg et. Al, 2012). In today's world of borderless business, ever-evolving technology and rapid change, can these decisions be made rationally? Currently there are three main decision-making paradigms in the literature – rational decision-making, political decision-making and the garbage can model. Each paradigm frames the decision-making process differently and each will be discussed in turn in this essay. It will then be concluded that while rational decision-making is possible, it is only boundedly so due to incomplete information confounded by the limitations of human cognition, particularly in the fast-paced business world of today. Furthermore, while people can be individually rational, collectively this is not the case (Eisenhardt & Zbaracki, 1992) - as organisations are political systems, politics and power are often central to decision-making in the formulation and implementation of strategy.

Rational decision-making Model
According to the rational decision making model, clear goals and objectives are first identified and listed in order of importance. All the alternative courses of action associated with each objective are then identified and the consequences of each action are established. Consequences are assessed against the values and objectives pursued, with the course of action that best maximises these values being the one that is chosen. This logical step-by-step approach suggests that the outcome will be maximised. It also assumes the decision maker has complete knowledge of not only all possible alternatives, but also their consequences. For strategists who subscribe to this model of decision making, the organisation is seen as a rational bureaucracy where strategic planning is conducted by top management and organisational structure follows. This prescriptive view of decision-making has scientific principles at its core as decision makers are thought to be accurate and objective. Research, however, has shown that the decision-making process used by managers is not as straightforward or linear in nature. In fact, the assumptions underpinning the theory of omniscient rationality, while 'strikingly simple and beautiful' (Simon, 1978), are fundamentally flawed. Although such an approach to strategy formulation may appear ideal in theory, it cannot be practised except for with relatively simple problems (Linblom, 1959). Limits of the cognitive capacity of humans, and on available information set definite limits on a manager's ability to be fully rational. In addition to this, other members of the organisation may disagree with the decision makers choice leading to power plays and politics. Whilst strategic decisions then, fall short of omniscience, they are not necessarily irrational. Rather, they are, and can only ever be, a bounded rationality. Cognitive biases of managers limit the applicability of the rational decision-making approach (Santos & Garcia, 2006). The organisational situation is framed by the decision makers who perceive an approximate model of the circumstances, choosing from a limited list of subjective alternatives. Some choices are given weight and others are relegated to the background, thus large segments of reality are out of focus (Feehan, 2013). Simon (1956) recognising the limits of comprehensive rationality, posited the concept of 'satisficing', that members will choose the first alternative that is deemed to adequately meet the organisation's objectives rather than taking the time to survey all possible alternatives and finding the optimal...
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