Strategy and organization week 4: strategic decision making (process of strategy)
General information from lectures
Today: the more soft behavioral factors (process school)
Keywords
Power, political, opportunistic behavior
Logical incrementalism, stepwise approach
Rational, cognition, group-thinking, limitations
Strategy as a mental process
CEO, TMT diversity, outcome, performance
Culture, national, organizational
Norms and values
Leadership and decision-making
Information availability:
Rational decision-making works
well when the goals are
straightforward, a lot of
information is available, and all
options are knowable (e.g. lotteries, roulette, card games). But this is NOT the
case for MOST business situations.
Information processing: Rational decision-making assumes that decision-makers
can process all relevant information and arrive at an optimal decision. But there
are several cognitive limits to decision-makers.
An example: the sunk cost bias: individuals continue a behavior as a
result of previously invested resources (time, money, effort)
The firm as a unitary agent: In the Standard Model, the firm is treated as a
unitary agent; its decisions are supposed to be made in a similar way as those of
a single individual. But corporate decisions involve several individuals or groups
which may have different interests.
In conclusion → basic assumptions of the Standard Model (a sequential decision
process with full information availability, full information processing capability,
and the firm as a unitary agent) are unrealistic for most business situations.
Planning school: rational approach to decision making (how the homo
economicus thinks)
Process school: a behavioral approach to decision making (how people think
and interact)
Learning, logical incrementalism
Bounded rationality, politics, randomness
Cognition, values, culture
Power-behavioral approach: applied strategy
, Corporate political activities
Activities taken by organizations to acquire, develop and use power to
obtain an advantage
Types of CPA:
o Information strategy: businesses seek to provide government
policymakers with information to influence their actions
o Financial incentives strategy: businesses provide incentives to
influence government policymakers to act in a certain way
o Constituency-building strategy: businesses seek to gain from other
affected organizations to better influence government policymakers
to act in way that helps them
Most research focuses on the US, due to strict disclosure rules
Information strategy
Lobbying
o Lobbyists communicate with and try to persuade others to support
an organization’s interest or stake as they consider a particular law,
policy or regulation
Direct communications
o Businesses invite officials to participate in activities that will improve
government officials’ understanding of management and employee
concerns
Expert witness testimony
o Businesses provide facts, anecdotes or data to educate or influence
government leaders at public forums like congressional hearings
Financial incentive strategy
Political action committees
o Independently incorporated organization that can solicit
contributions and then channel those funds to candidates seeking
political office
Economic leverage
o Occus when a business uses its economic power to threaten to leave
a city, state or country unless a desired political action is taken
General information from lectures
Today: the more soft behavioral factors (process school)
Keywords
Power, political, opportunistic behavior
Logical incrementalism, stepwise approach
Rational, cognition, group-thinking, limitations
Strategy as a mental process
CEO, TMT diversity, outcome, performance
Culture, national, organizational
Norms and values
Leadership and decision-making
Information availability:
Rational decision-making works
well when the goals are
straightforward, a lot of
information is available, and all
options are knowable (e.g. lotteries, roulette, card games). But this is NOT the
case for MOST business situations.
Information processing: Rational decision-making assumes that decision-makers
can process all relevant information and arrive at an optimal decision. But there
are several cognitive limits to decision-makers.
An example: the sunk cost bias: individuals continue a behavior as a
result of previously invested resources (time, money, effort)
The firm as a unitary agent: In the Standard Model, the firm is treated as a
unitary agent; its decisions are supposed to be made in a similar way as those of
a single individual. But corporate decisions involve several individuals or groups
which may have different interests.
In conclusion → basic assumptions of the Standard Model (a sequential decision
process with full information availability, full information processing capability,
and the firm as a unitary agent) are unrealistic for most business situations.
Planning school: rational approach to decision making (how the homo
economicus thinks)
Process school: a behavioral approach to decision making (how people think
and interact)
Learning, logical incrementalism
Bounded rationality, politics, randomness
Cognition, values, culture
Power-behavioral approach: applied strategy
, Corporate political activities
Activities taken by organizations to acquire, develop and use power to
obtain an advantage
Types of CPA:
o Information strategy: businesses seek to provide government
policymakers with information to influence their actions
o Financial incentives strategy: businesses provide incentives to
influence government policymakers to act in a certain way
o Constituency-building strategy: businesses seek to gain from other
affected organizations to better influence government policymakers
to act in way that helps them
Most research focuses on the US, due to strict disclosure rules
Information strategy
Lobbying
o Lobbyists communicate with and try to persuade others to support
an organization’s interest or stake as they consider a particular law,
policy or regulation
Direct communications
o Businesses invite officials to participate in activities that will improve
government officials’ understanding of management and employee
concerns
Expert witness testimony
o Businesses provide facts, anecdotes or data to educate or influence
government leaders at public forums like congressional hearings
Financial incentive strategy
Political action committees
o Independently incorporated organization that can solicit
contributions and then channel those funds to candidates seeking
political office
Economic leverage
o Occus when a business uses its economic power to threaten to leave
a city, state or country unless a desired political action is taken
