Eisenhardt and Zbaracki (1992: 17) described strategic decisions as
fundamental decisions ‘which shape the course of a firm’ and ‘…infrequent decisions made by the top leaders of an organization that critically affect organizational health and survival’. According to Nutt (1998: 198), ‘a strategic decision was defined as a choice with important consequences and resource demands for the organization’. In an empirical study, Eisenhardt (1989: 546) used the following categories to identify strategic decisions: ‘(1) involve
strategic positioning, (2) have high stakes, (3) involve as many of the functions of the firm as possible, and (4) be considered representative of the process by which major decisions are made at the firm.’
The definitions of TMT and strategic leadership discussed earlier in the literature review so far have linked with strategic decisions, company
performance and survival in a cause and effect relationship, confirming with Menz (2012) research about TMT research done to date, putting leaders at the top in the link to decisions which are strategic in nature and effecting
context and people in the current dynamic environment needs to be continuous. Otherwise, companies run the risk of creating a performance lag/gap. Although it is believed that executives shape their decisions and strategies according to the requirements of the environment, in reality, it is their personal interpretation of the environment that shapes their decisions (Hambrick and Mason, 1984 and Miles and Snow, 1978).
A study, described as exciting on different levels, by Eisenhardt, Pitcher and Smith (2001) looked at the following three strategic outcomes: diversification because it is agreed on as an organisational strategic importance, innovation for its important link to performance and, finally, performance because of its clear link to organisations. Pitcher and Smith (2001) investigated the three strategic outcomes above in relation to TMT personality, power and
demographic heterogeneity, namely, age, team tenure, industry experience and functional background. The sample was three TMTs from three different strategic eras of a multidivisional and multi billion global financial firm and compared the result with a large sample TMT of previous research. Capturing changes in the TMT over three strategic eras yielded interesting insights , For example, a Chairman and CEO who was labelled as an artist i.e. dreamer, entrepreneurial and visionary, had the highest number of team members, nine, with a higher degree of demographic heterogeneity and decentralisation of decision-making, and lower levels of power and politics amongst the team. Changing the Chairman and CEO, brought a change of strategy. The new Chairman and CEO was labelled as a technocrat, described by his team members as stiff and distant, seeing the need to reduce the level of the
diversification strategy that had been adopted by his predecessor and bringing in more hierarchy to the organisation with the formalisation of the decision making process and planning. The team members eventually dropped to seven members with a lower level of demographic heterogeneity and a higher level of power centralised in the head office, with the divisional CEOs receiving
instructions and executing them without having any real impact on strategic decisions.
The level of tension and disagreement increased and the organisation eventually disappeared in a takeover, after failing to find a means to raise capital. The research by Pitcher and Smith, (2001) enabled a qualitative
understanding of TMT strategic decisions over time, reporting changes in teams and linking the changes to teams’ strategic choices and firm
performance.
Other research looked at strategic decision making in terms of its speed and its effect on organisational performance, such as Bourgeois and Eisenhardt (1988) Eisenhardt (1989), Baum and Wally (2003), Judge and Miller (1991), and Forbes (2001).
Eisenhardt (1989) research was a three-dimensional study, which included (i) executive teams making (ii) rapid decisions in (iii) a high-velocity
microcomputer industry. Eisenhardt (1989) employed an inductive approach and used eight case studies. Eisenhardt (1989) research primarily addressed the gap in research on the speed of strategic decision making in high-velocity environments and its impact on firm performance. Eisenhardt (1989) found that fast decision makers use more information, a two-tiered advice process, treat conflict resolution as a critical matter and integrate strategic decisions and tactical plans, linking all these behaviours to superior performance. Moreover, politics delay decision making and, as a result, firms may lose their technical and market advantage. Another finding of Eisenhardt (1989) research was that centralised processes do not necessarily speed up the process of decision making, although, a layered advice process from experienced counsellors does. Also, the study confirmed Hambrick and Mason (1984) notion that ‘Uncertainty is typical of strategic decision, especially in high velocity environment’ (Eisenhardt, 1989: 545).
Different researchers, informed by Eisenhardt (1989), looked at the speed effect of strategic decision making on firm performance but did not necessarily come to the same conclusion. This can be attributed to the different
methodologies, samples and or contexts applied. For example, Judge and Miller (1991), looking at 32 firms in 3 different industries, found strategic decision making speed positively related to performance in the high velocity industry in their sample, which was biotechnology, but negatively related to the low velocity industries, which were hospitals and textiles. However, Forbes (2001) did not find a relationship between strategic decision making speed and firm performance when looking at 83 internet companies. Baum and Wally
(2003), looking at the data of 318 CEOs surveyed in heterogeneous firms over a period of four years (1996-2000), tested and confirmed that the speed of strategic decision making can predict firms’ growth and profitability, and mediates firm performance through centralisation of strategy, decentralisation of operational management, dynamism, formalisation of routines and
informalisation of non-routines. Making a fast decision can give a firm a competitive advantage for an early adaptation to a new system or an
environmental change and in producing new products (Baum and Wally, 2003). Nevertheless, making a fast decision does not necessarily mean that strategic decision makers are overlooking information and/or alternatives (Eisenhardt, 1989 and Baum and Wally, 2003).
It can be concluded from the studies discussed above that, strategic decisions, taken by strategic leaders, enable firms to identify opportunities, solve
problems and shape firms futures. However, the strategic decision formulation process, aiming to solve problems, is ‘prone to failure’ and could be successful if it is ‘reframed’ to be a solution-oriented process instead (Nutt, 1993: 1083). Looking at how strategic leaders scan and filter different strategic decisions and what the rate of success of that particular decision is compared to other possible alternatives, Nutt (1998) identified four assessment approaches that leaders of a study of 168 decisions used to evaluate and select strategic decisions. These approaches are as follows:
I. The analytical approach, in which a selective approach is used through (a) a quantitative-data tactic, by drawing inference from archival data sourced from the organisation’s own files or other external files of vendors, competitors or publications, (b) a quantitative-pilot tactic, by analysing data outcomes from possible alternatives based on a pilot study conducted in the field and (c) a quantitative-simulation tactic, which uses a simulated scenario of possible alternative outcomes through feasibility studies, sensitivity analysis or any other mock-up method, without having to retrieve facts or real performance from actual events. In the sample, Nutt (1998) found this approach to be applied the most, producing the best outcome.
II. The bargaining approach, in which additional members are involved for finalising the approval of the decision, after reaching a general
consensus amongst the concerned stakeholders. Generally, after collecting the data regarding the alternatives, a decision is reached on the basis of the best performing option. In the sample Nutt (1998) found this approach infrequently used, despite its high adaptation rate, fast implantation and better strategic decision quality.
III. The subjective approach, in which decision makers select alternatives by drawing subjective inferences from data using (a) a subjective-data tactic, where archival data is used with subjective assessment to build an argument for manipulating the meaning of the data, (b) a subjective- sponsor opinion tactic, where decision makers use their own system of experiences and values to select an alternative and attempt to sell it to others by emphasising its merits, (c) a subjective-expert opinion tactic, using internal or external consultants and experts to justify a pre-agreed alternative between the decision makers and the experts and (d) a
subjective-user opinion tactic, where decision makers directly ask the receivers of the service or product for their opinion, and subsequently study the feedback and build the argument around the alternative that was supported the most by users. In the sample Nutt (1998: 1165) found this approach to produce the least successful rate, with decisions described as ‘tainted by self-interest’.
IV. The judgmental approach, in which decision makers use their own judgment to select an alternative without giving any justifications to other stakeholders. In this case, decision makers rely on their
experience and perceived values, drawn from their knowledge. In the sample Nutt (1998) found this approach to be used the least and
produced the poorest success rate. Nevertheless, decision makers found it easier to use judgemental tactics when the context was perceived as difficult and held sensitive information that they did not want to reveal to others. However, extant literature provides that if resistance and objections start to rise in an organisation, decision makers usually involve other stakeholders to form alliances within the organisation to
enforce the implementation of their decisions (Eisenhardt and Zbaracki, 1992; Golden and Zajac, 2001; and Pitcher and Smith, 2001).
Each organisation has its own set of regulations. Therefore, when a strategic leader is asked to present possible solutions or decisions, the context of the organisation influences the alternatives. The more complex the organisational context, the more difficult it is to generate alternatives. Both political and procedural challenges within an organisation can influence the course of assessing alternatives and selecting one of them (Nutt, 1998). The success of decisions can be measured by calculating the time taken to select and
implement an alternative and the percentage of adaptation obtained. The following section will discuss decision making processes.