1. B301B: MAKING SENSE OF STRATEGY Block 3: UNITS Unit 6: Pages (256-271) and (276-278) Note: These slides will cover most of the main ideas discussed in the above mentioned sections, but it is the student’s responsibility to do the following activities (6.1, 6.2, 6.3, 6.4 & 6.7).

2. Introduction Decision making is a common feature of organizational life. Level of importance : trivial and significant Trivial : Programmed or operating or generic Significant : Strategic Vary from company to company Strategic Decision making : Those decisions that concern ‘the goals of an organization as well as the means to reach these goals (Noorderhaven,1995,p.15)

3. 6.1: Models of strategic decision making  Before we approach the issue of strategic decision making, it is necessary to consider the status of the theories we shall discuss here.  A distinction is often made between two types of theory:  ‘Prescriptive’ or ‘normative’ theories concern how to make strategic decisions, offering a model or recommendation for how strategic decisions ought to be made. The implication is that if we follow the theory we make better, more successful, strategic decisions.

4.  ‘Descriptive’ theories offer accounts of how strategic decision making occurs in practice, asking questions such as:  How do strategic decisions get made in a particular management team?  What psychological factors influence particular strategic decisions?  How does information affect strategic decisions?  A simple way to think about the distinction is that prescriptive/normative theory tells us about what ‘ought’ to be, while descriptive theory is about what ‘is’.  In reading 16 of Block 3 “Decision processes” you were introduced to the rational model and its shortcomings, because of such shortcomings theorists have added a series of more realistic assumptions which might be considered a more realistic approximation of how humans do behave.

5.  The two most important concepts involved in this model, both attributed to Simon’s pioneering work, are the two concepts of ‘bounded rationality’ and ‘satisficing’.  Bounded rationality refers to the idea that agents are only partly rational. In essence, people make decisions on information which is incomplete or even erroneous; consequences cannot be anticipated, assessed and valued with absolute accuracy. (Block 3,Page 262)  Satisficing refers to the decision-making process. Rather than finding all alternatives, weighing them up against each other and making a decision which would give the best outcome, individuals seek out the best alternative from those that are available to them and evaluate each alternative in turn according to their aspirations, until reaching one which satisfies these aspirations. (Block 3,Page 262)

6.  Armed with these somewhat more realistic assumptions of human behaviour, Simon has developed a model of decision making which has three stages  Case study 6.1 is a good application to Simon’s model.  Problem recognition. Google wanted a significant market share of the videosharing business; its product, GoogleVideo, failed to deliver this.  Develop alternatives. Possible alternatives open to Google were to: market Google Video aggressively to increase market share, close down Google Video,accept its current position and simply maintain its current market share, acquire another internet video company.  Choice. Google decided to acquire YouTube, at a cost of $1.65 billion..

7.  In refining the rational approach, a variety of theorists have added and subtracted various stages and sub-stages to this framework.  For example, a number of theorists have suggested that the impulse towards a decision does not necessarily come from problems but may be derived from setting objectives.  Gore et al. (1992) provide a composite diagram (Figure 6.2).  It should be remembered that no theory of strategic decision making includes all of these phases; Figure 6.2 is designed to illustrate core features of the rational approach to strategic decision making. In this respect there are two key points worth emphasising:  The rational decision-making process is sequential, with each stage following on from its predecessor.

8.  Although this model recognises the existence of bounded rationality and satisficing, it proposes that we should seek to reduce their impacts on the process. For example, we should try to generate as many alternatives as possible.

9.  What are the practical implications of the rational approach? And its advantages and disadvantages?  The rational approach provides a structure and a sequence for strategic decision making, it provides explicit guidance for the decision-making process and, if followed, it is claimed, lead to better decisions.  Second, the framework enables us to integrate the analytic tools you have studied into a broader decision- making process, i.e., analysis, choice and implementation become a structured whole.  However, we might wonder whether other features of organisational and human life fit in; e.g., where is the explicit role of creativity, instinct, power, intuition, chance?

10.  There is the additional question of whether these models are realistic: is it true that organisations, some of which are highly successful, always follow these paths?  Although the development of the rational model has resolved some of the problems associated with the somewhat unrealistic model of economic rationality – e.g., it does not assume the existence of perfect information or the ability to calculate perfectly the outcomes of every alternative  we cannot seem to make the claim that the rational approach automatically leads to success.

11. Sense-making:  Recently the more sociologically inclined or ‘strategy-as-practice’ perspective has cast its gaze over strategic decision making.  From the strategy-as-practice perspective, an adequate account of strategic decision making needs to include the variety of social processes ongoing within an organisation:  the way in which meaning is produced and reproduced;  the manner in which social identities are performed, constructed and altered;  the manner in which decisions and alternatives operate within broader power relations and the like

12.  This sociologically orientated approach counters the idea that information is somehow neutral, apart from social relations.  The authors suggest that information is constructed and transmitted within a social setting.  It is within this process that the meaning of information is generated and transformed through social interactions, e.g., conversations, presentations, reports.  This process of sense-giving is contested as various individuals attempt to apply or re-fashion information according to their beliefs and preferences.  The lessons for practice seem to be that not only are effective information gathering and processing insufficient, but we need to be skilled practitioners in the arts of meaning-making.

13.  The process also displays unintended consequences; it is not simply the domination of one sense over another; there is both sense- writing and sense-reading.  Conflict is not simply about choices, but over the very sense applied to the alternatives and their accompanying evidence.  Evidently skilled practitioners in these arts can use this opportunity (in certain cases) to lend information a specific meaning, framing this information in the minds of participants and perhaps leading them to a particular conclusion