Strategic Management

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Strategic Management Journal, Vol. 13, 17-37 (1992)

STRATEGIC DECISION MAKING
KATHLEEN M. EISENHARDT and MARK J. ZBARACKI Department of Industrial Engineering and Engineering Management, Stanford University, Stanford, California, U.S.A.

This article reviews the strategic decision making literature by focusing on the dominant paradigms—i.e., rationality and bounded rationality, politics and power, and garbage can. We review the theory and key empirical support, and identify emergent debates within each paradigm. We conclude that strategic decision makers are boundedly rational, that power wins battles of choice, and that chance matters. Further, we argue that these paradigms rest on unrealistic assumptions and tired controversies which are no longer very controversial. We conclude with a research agenda that emphasizes a more realistic view of strategic decision makers and decision making, and greater attention to normative implications, especially among profit-seeking firms in global contexts.

Change swept strategic management research during the past decade. Triggered by the work of Miles and Snow (1978) and later Porter (1980, 1985), strategic content research flourished. The next decade may bring a similar revolution to strategic process. As Rumelt, Schendei, and Teece (1991: 22) write: 'Both theoretical and empirical research into the sources of advantage has begun to point to organizational capabilities, rather than product market positions or tactics, as the enduring source of advantage.' And, of course, strategic process research never really lost favor among the Japanese and Europeans, Central among strategic process issues is strategic decision making. It is crucial because it involves those fundamental decisions which shape the course of a firm. During the past 30 years, many researchers have recognized the centrality of the topic by tackling issues in strategic and more generally, organizational decision making. Overall, research has progressed from the early

Key words: Strategic decision making, rationality, politics, power, garbage can 0143-2095/92/100017-21$15,50 © 1992 by John Wiley & Sons, Ltd,

bounded

musings of Simon to a plethora of ideas by a spectrum of authors. However, a quick examination suggests that the character of the field resembles a 'crazy quilt' of perspectives. A more thorough scrutiny reveals a field based on mature paradigms and incomplete assumptions. A primary purpose of this paper is to review the literature on strategic decision making. Following Mintzberg, Raisinghani, and Theoret (1976: 246), we define a strategic decision as one which is 'important, in terms of the actions taken, the resources committed, or the precedents set,' That is, we focus on those infrequent decisions made by the top leaders of an organization that critically affect organizational health and survival. We review the major choice paradigms (i.e., rationality and bounded rationality, politics and power, and garbage can). Our contribution is a synthesis of theory, key empirical support, and emergent debates. A second purpose is to suggest an agenda for future research. Here we propose bringing strategic decision making closer to mainstream strategy by emphasizing normative implications, especially profit-making firms and international

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K. M. Eisenhardt and M. J. Zbaracki
human behavior. Later variations accepted the rational model, but rearranged the pieces to allow repetition and variety (e.g., Mintzberg et al., 1976; Nutt, 1984; Hickson et al., 1986). The most recent incarnation transformed the rational vs. boundedly rational dichotomy into a continuum, probing whether (e.g., Fredrickson, 1984; Fredrickson and Mitchell, 1984; Fredrickson and Iaquinto, 1989) and when (e.g.. Dean and Sharfman, 1992) decision making is rational (Table 1). Cognitive limitations Several empirical studies reveal cognitive limitations (e.g., Cyert and March, 1963; Carter, 1971; Anderson, 1983; Pinfield,...
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