STRATEGIC DECISION-MAKING
1.1 LECTURE 1 READING
Making fast strategic decisions in high-velocity environments – Kathleen M.
Eisenhardt
How do executive teams make rapid decisions in the high-velocity microcomputer industry? This
inductive study of eight microcomputer firms led lo propositions exploring that question. Fast
decision makers use more, not less, information than do slow decision makers. The former also
develop more, not fewer, alternatives, and use a two-tiered advice process. Conflict resolution and
integration among strategic decisions and tactical plans are also critical to the pace of decision
making. Finally, fast decisions based on this pattern of behaviors lead to superior performance.
This article is organized around two research questions: (1) How are fast strategic decisions made?
and (2) How does decision speed link to performance? The setting is the high-velocity microcomputer
industry. The evidence suggests that fast decision makers use more, not less, information, than do
slow decision makers. They also develop more, not fewer, alternatives. In a high- velocity
environment, changes in demand, competition, and technology are so rapid and discontinuous that
information is often inaccurate, unavailable, or obsolete.
There are several perspectives on how rapid strategic decisions are achieved. One research stream
emphasizes the idea that a high level of comprehensiveness slows the strategic decision process. A
second view has emphasized that limited participation and centralized power speed decision making.
A third view is that limited conflict speeds decisions. Although these views vary in detail, none deals
with two key realities. First, how do decision makers overcome anxiety and gain the confidence to
decide? ? Second, how do decision makers maintain decision quality while moving quick?
Executives making fast decisions routinely paid close attention to quantitative indica- tors such as
daily and weekly tracking of bookings, scrap, inventory, cash flow, engineering milestones, and
competitors' moves. They preferred these operational indicators to more refined accounting data
such as profit. The evidence on real-time information use for the other teams making slow decisions
is consistent with that at Omicron. For example, Alpha had no weekly operations meetings until
several VPs insisted that they were necessary. Presidential had neither weekly operations meetings
nor a VP of finance. Firm members described the CEO of Presidential as a "visionary" and as "a little
detached from day-to-day operations," and described his key VP as "unfocused." t. Although the data
are limited, the CEOs who relied most heavily on real-time information were also most frequently de-
scribed as being intuitive. For example, the CEO at Zap was known as a "numbers" person and
claimed to "over-M.B.A. it," yet he was also the CEO most strongly described as "intuitive," as "a
lateral thinker," and as having "the best sense of everything in business" despite his being the least
experienced CEO in the study. Thus, it appears that real-time information, which gives executives
intimate knowledge of their business, may speed decision making, but planning in- formation, which
attempts to predict the future, does not.
Proposition 1: The greater the use of real-time information, the greater the speed of the strategic
decision process.
,Several Promise executives claimed that team members usually generated multiple alternatives. One
VP described the tactics as follows: (1) pro- posing a sincere alternative, (2) supporting someone
else's alternative even when actually opposing it, and (3) proposing an insincere alternative, one that
the proposer did not actually support. The purpose of these tactics was to "aerate" different options.
Why do the results fail to support the view that consideration of multiple alternatives is time-
consuming (Fredrickson & Mitchell, 1984; Lind- blom, 1959)? One reason is that alternatives are
difficult to assess in isolation. For example, it is difficult to buy a car without looking at several cars.
Second, having simultaneous alternatives reduces the escalation of commitment to any one option.
Third, simultaneous alternatives provide a fallback position. If one alternative fails, executives can
quickly shift to a new one.
Proposition 2: The greater the number of alternatives considered simultaneously, the greater the
speed of the strategic decision process.
An executive was desig- nated a counselor when (1) team executives explicitly identified the indi-
vidual as a counselor, adviser, or confidante to the CEO, (2) the description of the interaction
between the CEO and the focal executive indicated a com- pany-wide, rather than a functional, range
of topics, and (3) there was story evidence of the CEO's seeking the counsel of the focal executive in
the strategic decision studied. In contrast, the slow teams either did not have counselors (Alpha,
Neu- tron, and Presidential) or had less experienced executives filling the role (Omicron). Why does
an experienced counselor speed decision making? One reason is that the counselor hastens the
development of alternatives, providing a quick sounding board for ideas. Also, since counselors are
often long-time associates of a CEO and are people whose career aspirations have been met, they
are likely to be particularly trustworthy, enabling executives to be v. ery open. Finally, experienced
counselors are likely to provide very useful ad- vice. Second, an experienced counselor can help a
team deal with the ambi- guity of high-stakes decision making in fast-paced environments.
Proposition 3: The greater the use of experienced counsellors, the greater the speed of the strategic
decision process.
Every team making fast decisions took an active approach to conflict. In fact, all the fast teams used
the same process, termed "consensus with qualification" by a Promise VP. Consensus with
qualification is a two-step process. First, a team attempts to reach consensus by involving everyone.
If agreement occurs, the choice is made. However, if consensus is not forth- coming, the CEO and,
often, the relevant VP make the choice, guided by input from the entire team. Zap's VP for
engineering described the process as follows: "Most of the time we reach consensus, but if not,
Randy [the CEO] makes the choice." In contrast, conflict resolution was problematic in the slow
teams. Sometimes, the teams waited for consensus.
Proposition 4: The greater the use of active conflict resolution, the greater the speed of the strategic
decision process.
The decision began with the arrival of a new CEO. According to firm executives, the CEO spent about
two weeks conferring with people through- out the firm. Gradually, he shifted the team's attention
to articulation of alternative paths for the firm, including the sale of technology, liquidation, a new
strategic direction, and tactical changes to the existing strategy. In the process of developing and
choosing among these alternatives, the executives also decided the specifications for a new product,
scheduled the timing of three new product releases, and rebudgeted the entire firm for the coming
year. At the end of six weeks, a new strategic direction was set, a new product choice was made, and
tactical plans in the form of detailed budgets and engineering schedules were complete. Why is
,greater decision integration associated with faster decision mak- ing? One reason is that decision
integration helps executives to analyze the viability of an alternative more quickly. Second, it helps
them to cope with the ambiguity of high-stakes decision making.
Proposition 5: The greater the integration among decisions, the greater the speed of the strategic
decision process.
Why is slow decision making problematic? One reason may be learning. Executives learn by making
decisions, but if they make few decisions, as slow decision makers do, they learn very little. So they
are likely to make mistakes. A second reason is that, in fast-paced environments, opportunities move
quickly, and once a firm is behind, it is difficult to catch up. The qualitative data were particularly
supportive of this point.
Proposition 6: The greater the speed of the strategic decision process, the greater the performance in
high-velocity environments.
The strategic decision process and organizational structure – James W.
Fredrickson
Contributions from the strategic decision process literature are synthesized and integrated with
literature on organizational structure. Propositions emerge that describe how the characteristics of
an organization's strategic decision process are affected by its structure. Also discussed are the
patterns of strategic process characteristics that are likely to be associated with different types of
structures. Conclusions are reached on issues such as the accuracy of alternative models of the
strategic decision process, and the appropriate unit of analysis for studying that process.
, Only recently has there been widespread agreement that structure can have a profound impact on
strategy through its direct effect on the strategic decision-making process. A variety of strategic
process and structural variables have been used in describing isolated aspects of this relationship,
and completing explanations have been provided. However, most of this work remains fragmented
and major theoretical gaps persist. This paper addresses the above problems by synthesizing and
integrating previous work; it also offers new explanations to fill critical gaps.
Centralization refers to the degree to which the right to make decisions and evaluate activi- ties is
concentrated (Fry & Slocum, 1984; Hall, 1977). A high level of centralization is the most obvious way
to coordinate organization decision making, but it places significant cognitive de- mands on those
managers who retain authority. The degree of formalization specifies the extent to which an
organization uses rules and proce- dures to prescribe behavior (Hage & Aiken, 1969; Hall, 1977).
Therefore, formalization has signifi- cant consequences for organizational members because it
specifies how, where, and by whom tasks are to be performed. A high level of formal- ization has the
benefit of eliminating role ambi- guity, but it also limits members' decision-making discretion.
Therefore, it is generally argued that the level of formalization must be matched with the level of
professionalism because formaliza- tion threatens professional autonomy. Complexity refers to the
condition of being composed of many, usually interrelated, parts. Regarding organizational structure,
Hall suggests that there are three potential sources of complexity-horizontal and vertical differentia-
tion, and spatial dispersion. Therefore, an orga- nization that simultaneously has numerous levels,
broad spans of control, and multiple geo- graphic locations would be considered highly complex.
This paper is concerned with the structure that best describes the whole organization, a concept that
will be referred to as its "dominant" structure. Therefore, it is argued that the characteristics of a
firm's strategic decision-making process are affected by its overall, dominant structure. As a result, it
is important to illustrate that in many instances it is these beliefs that are ill-founded.
- Regarding the first issue, it should be recognized that "choice" is only one of many activities
that are involved in the decision-making process.
- The second issue that warrants clarification concerns the strategic impact of a firm's
dominant structure.
- Moreover, it is suggested that the likelihood of a firm's using such mechanisms can be
predicted by the characteristics of its dominant structure.
1.1 LECTURE 1 READING
Making fast strategic decisions in high-velocity environments – Kathleen M.
Eisenhardt
How do executive teams make rapid decisions in the high-velocity microcomputer industry? This
inductive study of eight microcomputer firms led lo propositions exploring that question. Fast
decision makers use more, not less, information than do slow decision makers. The former also
develop more, not fewer, alternatives, and use a two-tiered advice process. Conflict resolution and
integration among strategic decisions and tactical plans are also critical to the pace of decision
making. Finally, fast decisions based on this pattern of behaviors lead to superior performance.
This article is organized around two research questions: (1) How are fast strategic decisions made?
and (2) How does decision speed link to performance? The setting is the high-velocity microcomputer
industry. The evidence suggests that fast decision makers use more, not less, information, than do
slow decision makers. They also develop more, not fewer, alternatives. In a high- velocity
environment, changes in demand, competition, and technology are so rapid and discontinuous that
information is often inaccurate, unavailable, or obsolete.
There are several perspectives on how rapid strategic decisions are achieved. One research stream
emphasizes the idea that a high level of comprehensiveness slows the strategic decision process. A
second view has emphasized that limited participation and centralized power speed decision making.
A third view is that limited conflict speeds decisions. Although these views vary in detail, none deals
with two key realities. First, how do decision makers overcome anxiety and gain the confidence to
decide? ? Second, how do decision makers maintain decision quality while moving quick?
Executives making fast decisions routinely paid close attention to quantitative indica- tors such as
daily and weekly tracking of bookings, scrap, inventory, cash flow, engineering milestones, and
competitors' moves. They preferred these operational indicators to more refined accounting data
such as profit. The evidence on real-time information use for the other teams making slow decisions
is consistent with that at Omicron. For example, Alpha had no weekly operations meetings until
several VPs insisted that they were necessary. Presidential had neither weekly operations meetings
nor a VP of finance. Firm members described the CEO of Presidential as a "visionary" and as "a little
detached from day-to-day operations," and described his key VP as "unfocused." t. Although the data
are limited, the CEOs who relied most heavily on real-time information were also most frequently de-
scribed as being intuitive. For example, the CEO at Zap was known as a "numbers" person and
claimed to "over-M.B.A. it," yet he was also the CEO most strongly described as "intuitive," as "a
lateral thinker," and as having "the best sense of everything in business" despite his being the least
experienced CEO in the study. Thus, it appears that real-time information, which gives executives
intimate knowledge of their business, may speed decision making, but planning in- formation, which
attempts to predict the future, does not.
Proposition 1: The greater the use of real-time information, the greater the speed of the strategic
decision process.
,Several Promise executives claimed that team members usually generated multiple alternatives. One
VP described the tactics as follows: (1) pro- posing a sincere alternative, (2) supporting someone
else's alternative even when actually opposing it, and (3) proposing an insincere alternative, one that
the proposer did not actually support. The purpose of these tactics was to "aerate" different options.
Why do the results fail to support the view that consideration of multiple alternatives is time-
consuming (Fredrickson & Mitchell, 1984; Lind- blom, 1959)? One reason is that alternatives are
difficult to assess in isolation. For example, it is difficult to buy a car without looking at several cars.
Second, having simultaneous alternatives reduces the escalation of commitment to any one option.
Third, simultaneous alternatives provide a fallback position. If one alternative fails, executives can
quickly shift to a new one.
Proposition 2: The greater the number of alternatives considered simultaneously, the greater the
speed of the strategic decision process.
An executive was desig- nated a counselor when (1) team executives explicitly identified the indi-
vidual as a counselor, adviser, or confidante to the CEO, (2) the description of the interaction
between the CEO and the focal executive indicated a com- pany-wide, rather than a functional, range
of topics, and (3) there was story evidence of the CEO's seeking the counsel of the focal executive in
the strategic decision studied. In contrast, the slow teams either did not have counselors (Alpha,
Neu- tron, and Presidential) or had less experienced executives filling the role (Omicron). Why does
an experienced counselor speed decision making? One reason is that the counselor hastens the
development of alternatives, providing a quick sounding board for ideas. Also, since counselors are
often long-time associates of a CEO and are people whose career aspirations have been met, they
are likely to be particularly trustworthy, enabling executives to be v. ery open. Finally, experienced
counselors are likely to provide very useful ad- vice. Second, an experienced counselor can help a
team deal with the ambi- guity of high-stakes decision making in fast-paced environments.
Proposition 3: The greater the use of experienced counsellors, the greater the speed of the strategic
decision process.
Every team making fast decisions took an active approach to conflict. In fact, all the fast teams used
the same process, termed "consensus with qualification" by a Promise VP. Consensus with
qualification is a two-step process. First, a team attempts to reach consensus by involving everyone.
If agreement occurs, the choice is made. However, if consensus is not forth- coming, the CEO and,
often, the relevant VP make the choice, guided by input from the entire team. Zap's VP for
engineering described the process as follows: "Most of the time we reach consensus, but if not,
Randy [the CEO] makes the choice." In contrast, conflict resolution was problematic in the slow
teams. Sometimes, the teams waited for consensus.
Proposition 4: The greater the use of active conflict resolution, the greater the speed of the strategic
decision process.
The decision began with the arrival of a new CEO. According to firm executives, the CEO spent about
two weeks conferring with people through- out the firm. Gradually, he shifted the team's attention
to articulation of alternative paths for the firm, including the sale of technology, liquidation, a new
strategic direction, and tactical changes to the existing strategy. In the process of developing and
choosing among these alternatives, the executives also decided the specifications for a new product,
scheduled the timing of three new product releases, and rebudgeted the entire firm for the coming
year. At the end of six weeks, a new strategic direction was set, a new product choice was made, and
tactical plans in the form of detailed budgets and engineering schedules were complete. Why is
,greater decision integration associated with faster decision mak- ing? One reason is that decision
integration helps executives to analyze the viability of an alternative more quickly. Second, it helps
them to cope with the ambiguity of high-stakes decision making.
Proposition 5: The greater the integration among decisions, the greater the speed of the strategic
decision process.
Why is slow decision making problematic? One reason may be learning. Executives learn by making
decisions, but if they make few decisions, as slow decision makers do, they learn very little. So they
are likely to make mistakes. A second reason is that, in fast-paced environments, opportunities move
quickly, and once a firm is behind, it is difficult to catch up. The qualitative data were particularly
supportive of this point.
Proposition 6: The greater the speed of the strategic decision process, the greater the performance in
high-velocity environments.
The strategic decision process and organizational structure – James W.
Fredrickson
Contributions from the strategic decision process literature are synthesized and integrated with
literature on organizational structure. Propositions emerge that describe how the characteristics of
an organization's strategic decision process are affected by its structure. Also discussed are the
patterns of strategic process characteristics that are likely to be associated with different types of
structures. Conclusions are reached on issues such as the accuracy of alternative models of the
strategic decision process, and the appropriate unit of analysis for studying that process.
, Only recently has there been widespread agreement that structure can have a profound impact on
strategy through its direct effect on the strategic decision-making process. A variety of strategic
process and structural variables have been used in describing isolated aspects of this relationship,
and completing explanations have been provided. However, most of this work remains fragmented
and major theoretical gaps persist. This paper addresses the above problems by synthesizing and
integrating previous work; it also offers new explanations to fill critical gaps.
Centralization refers to the degree to which the right to make decisions and evaluate activi- ties is
concentrated (Fry & Slocum, 1984; Hall, 1977). A high level of centralization is the most obvious way
to coordinate organization decision making, but it places significant cognitive de- mands on those
managers who retain authority. The degree of formalization specifies the extent to which an
organization uses rules and proce- dures to prescribe behavior (Hage & Aiken, 1969; Hall, 1977).
Therefore, formalization has signifi- cant consequences for organizational members because it
specifies how, where, and by whom tasks are to be performed. A high level of formal- ization has the
benefit of eliminating role ambi- guity, but it also limits members' decision-making discretion.
Therefore, it is generally argued that the level of formalization must be matched with the level of
professionalism because formaliza- tion threatens professional autonomy. Complexity refers to the
condition of being composed of many, usually interrelated, parts. Regarding organizational structure,
Hall suggests that there are three potential sources of complexity-horizontal and vertical differentia-
tion, and spatial dispersion. Therefore, an orga- nization that simultaneously has numerous levels,
broad spans of control, and multiple geo- graphic locations would be considered highly complex.
This paper is concerned with the structure that best describes the whole organization, a concept that
will be referred to as its "dominant" structure. Therefore, it is argued that the characteristics of a
firm's strategic decision-making process are affected by its overall, dominant structure. As a result, it
is important to illustrate that in many instances it is these beliefs that are ill-founded.
- Regarding the first issue, it should be recognized that "choice" is only one of many activities
that are involved in the decision-making process.
- The second issue that warrants clarification concerns the strategic impact of a firm's
dominant structure.
- Moreover, it is suggested that the likelihood of a firm's using such mechanisms can be
predicted by the characteristics of its dominant structure.
