DECISION-MAKING PROCESSES AND ...

DECISION-MAKING PROCESSES AND EXPLORATION/EXPLOITATION-ORIENTED STRATEGIC DECISIONS: AN ACTOR-CENTERED PERSPECTIVE Stavros Vourloumis ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS - Athens, Greece Vassilis Papadakis ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS - Athens, Greece Category: 13 STRATEGIC MANAGEMENT >> 13_03 STRATEGIC PROCESSES AND PRACTICES

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Decision-making processes and exploration/exploitation-oriented strategic decisions: An actorcentered perspective ABSTRACT

In this paper we are looking into how firms make strategic decisions that either conform to established strategies or introduce novelty and alter them. Building on the strategy process and strategic decision-making literatures, we propose that strategic decisions, oriented towards exploration or exploitation with respect to the established strategies of the firm, are the results of decisions processes with specific characteristics. The way these processes unfold (more rational-comprehensive or more political) is not pre-specified. Instead, actors (individuals or coalitions) within the firm initiate decision processes, introducing information they gather through search activities and directing the attention of other decision makers towards particular issues. Furthermore, these actors use different methods and tactics to elaborate on the issues they have introduced, and in favor of particular proposals. Through their actions and interactions (with other decision makers), they shape both the processes of decision-making and the decision outcomes (exploration or exploitation-oriented strategic decisions). Keywords:

An actor-centered perspective

Decision-making processes and exploration/exploitation-oriented strategic decisions: An actor-centered perspective

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ABSTRACT

In this paper we are looking into how firms make strategic decisions that either conform to established strategies or introduce novelty and alter them. Building on the strategy process and strategic decision-making literatures, we propose that strategic decisions that either conform (exploitation-oriented) or alter established strategies (exploration-oriented) are the results of decisions processes with specific characteristics. The way these processes unfold (more rationalcomprehensive or more political) is not pre-specified. Instead, actors (individuals or coalitions) within the firm initiate decision processes, introducing information they gather through search activities and directing the attention of other decision makers towards particular issues. Furthermore, these actors use different methods and tactics to elaborate on the issues they have introduced, and in favor of particular proposals. Through their actions and interactions (with other decision makers), they shape both the processes of decision-making and the decision outcomes (exploration or exploitation-oriented strategic decisions).

Keywords: strategy process; decision-making process; strategic decisions; exploration-exploitation; search; environmental dynamism

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INTRODUCTION Achieving ‘strategic fit’ with the environment, both at the present (O’Reilly & Tushman, 2008; Volberda, Baden-Fuller, & Van den Bosch, 2001) and at the future (‘dynamic fit’; Porter & Siggelkow, 2008; Zajac, Kraatz, & Bresser, 2000), has been a central preoccupation for firms. It should be of no novelty to state that having a strategy is essential for a firm. To do so, firms have to make the most out of their existing resources, competences, capabilities and competitive advantages, but also to actively look for new ones and to access or build them. And the strategies firms pursue have in important role in the achievement of fit, at the present and at the future. Research on strategy has explored to a significant extent how the strategies firms pursue are critical for their adaptation in changing and complex environments (Chakravarthy & Doz, 1992; Chakravarthy, Müller-Stewens, Lorange, & Lechner, 2003). However, the – dominant and enduring within strategy research – distinction between process and content has constrained a more complete understanding of how the processes through which strategies are shaped influence the content of strategies pursued, which on their own turn influence adaptation of firms to their respective environments (Mintzberg, Ahlstrand, & Lampel, 2009). Introduced in some of the earlier and foundational works on strategic management (Andrews, 1971; Chandler, 1962) and widely used for analytical purposes (Huff & Reger, 1987; Ketchen, Thomas, & McDaniel, 1996), the process-content distinction has contributed to the development of strategy as a research area. At the same time, several authors have questioned the dichotomy (Chakravarthy & White, 2002; Clegg, Carter, & Kornberger, 2004; Maritan & Schendel, 1998; Papadakis, Thanos, & Barwise, 2010; Paroutis, Heracleous, & Angwin, 2013), and have instead called for research integrating the two elements of strategy. However, apart from some exceptions (indicatively see Regner, 2005; Rogers, Miller, & Judge, 1999), such efforts have up to now been rare. 3


To address this shortcoming, in this paper we adopt a strategic decision-making perspective and attempt to explain how the processes through which strategic decisions are made influence their content; whether they are exploitation-oriented, conforming to existing strategies and reinforcing them, or exploration-oriented, introducing novelty in existing strategies and altering them (Gibson and Birkinshaw, 2004; O’Reilly and Tushman, 2004). Conceptualizing exploration and exploitation (March, 1991; Miller & Friesen, 1980, 1984) as possible orientations of strategic decisions, we link the decision process with an important strategy-related aspect of decision content (Lechner, 2006). Furthermore, we propose that decision processes do not occur in a pre-defined way. Instead, decision makers within firms (individuals or coalitions) engage in search activities in order to gather information, stimulated by an observed problem or proactively seeking for opportunities. Formulating the information they gathered in concrete proposals, they initiate decision processes and use different methods and tactics of elaboration, persuasion and influence. Through their actions and interactions (with other decision makers), they shape both decision processes (more comprehensive or more political or both) and decision outcomes (strategic decisions). Thus, bringing together process and content and proposing a different understanding of how the decision process unfolds and produces outcomes, we advance existing knowledge on strategy processes (Hutzschenreuter & Kleindienst, 2006; Pettigrew, Thomas, & Whittington, 2002) and strategic decision-making processes (Elbanna, 2006, 2011; Papadakis et al., 2010). The rest of the paper proceeds as follows. In the next section we set the background, briefly discussing aspects of the strategy process and strategic decision-making literatures and the concepts of exploration and exploitation. We continue by discussing how the decision process unfolds and leads to exploration-oriented or exploitation-oriented strategic decisions, and we 4


formulate a set of propositions regarding the ‘nature’ of the decision process (whether more comprehensive or more political or combining rational and socio-political elements) and the influence of process on decision outcomes. We conclude by discussing how this paper is positioned within the broader literatures on strategy processes and strategic decision-making and how it contributes to the advancement of our understanding.

THEORETICAL BACKGROUND Strategy process research: Conceptualizations and underlying theories In a seminal article, Van de Ven (1992) suggested that any study in the area of strategy process research, in order to contribute in a coherent and meaningful way, has to clearly state which definition of process it adopts. The three basic definitions of process discussed by Van de Ven (1992) and widely used by scholars are: process as a causal logic linking independent with dependent variables in a variance theory, process as a category of process-related concepts, and process as a sequence of events that unfolds over time and describes how particular phenomena occur (Langley et al., 2013; Sminia, 2009; Van de Ven & Poole, 1995, 2005). Furthermore, Van de Ven (1992) suggested that every effort in strategy process research has to clearly describe the underlying process theory on which it is based, discussing four theory types: the life-cycle type, the teleological type, the dialectical type and the evolutionary type. The four theoretical types have different inherent logics, draw from different intellectual origins and from the works of different pioneering scholars and suggest that different generative mechanisms (or ‘motors’) are in motion, defining how the process unfolds and why it leads to particular outcomes (Sminia, 2009; Van de Ven, 1992; Van de Ven & Poole, 1995, 2005). Focusing on underlying theories, Van de Ven (1992; Van de Ven & Poole, 1995, 2005) has 5


noted that most studies of organizational processes (e.g. decision making processes, change processes) draw from life-cycle theories, which assume a linear progression of events, and from teleological theories, which assume deliberate incremental processes towards a specified goal or a desired outcome. We argue that a constructive combination of insights from more than one process theory type can offer a more complete understanding of how strategy processes unfold and how they influence outcomes (Langley et al., 2013; Van de Ven & Poole, 1995), and propose such integration can take place between teleological and dialectical theories. Earlier efforts in that direction were introduced through the behavioral theory of the firm (Cyert & March, 1963) and in an important number of studies that had considered strategy processes as unfolding either through a sequentially rational or through a socio-political and conflictual way (Allison, 1971; Eisenhardt & Zbaracki, 1992; Elbanna, 2006; Elbanna & Child, 2007a, 2007b; Lechner & Floyd, 2012). In this paper, we bring together arguments from both the teleological and the dialectical types of process theory. Our proposal of decision makers deliberately introducing issues in the decision processes, either as a response to observed problems or as proactive behavior, and choosing methods of persuasion and influence (more rational or more political), bear significant commonalities with teleological arguments about processes unfolding in a goal-oriented manner. At the same time, our argument that the interactions (struggles and accommodations) between decision makers shape decision outcomes, draws from dialectical theories of process.

Strategic Decision-Making Processes: Rational and political perspectives The two most widely known, discussed and examined dimensions or aspects of strategy processes are rationality and politics. As two different core assumptions about the ‘nature’ of the 6


processes, these two have their origins in two different broader perspectives on strategy processes; the ‘synoptic-formal’ or ‘synoptic’ and the ‘incremental’. The synoptic-formal perspective assumes strategy as the outcome of a linear and sequentially rational process, decomposable in steps following a logical progression (Mintzberg, 1979; Simon, 1947, 1960). Decision makers are assumed to have clearly defined goals and complete information and to choose the optimal among a range of alternatives developed for a particular decision problem (Gibbons, Matouschek, & Roberts, 2013). The incremental approach emerged through criticism developed towards the synoptic approach, on several grounds. Firstly, due to limits on information-processing and analytical capacities of individuals (Simon, 1947, 1955, 1957), decision makers are ‘bounded’ rational, instead of perfectly rational, and their bounded rationality is reflected on the choices they make. Secondly, multiple stakeholders (individuals, groups and coalitions) co-exist within organizations, with multiple interests, goals and agendas. These stakeholders act and interact, attempting to influence decision processes, thus increasing conflict and the socio-political ‘nature’ of processes (Cyert & March, 1963; March, 1962; March & Simon, 1958). Thirdly, as a result of bounded rationality and competing interests, decision processes do not unfold in a linear way, but rather in an incremental way, based on small steps, successive limited comparisons and gradual adjustments through ‘trial-and-error’ (Braybrooke & Lindblom, 1963; Dahl & Lindblom, 1953; Lindblom, 1955, 1959; Quinn, 1980, 1981). Both the synoptic and the incremental approach have been widely feature in the strategic decision-making literature (Elbanna, 2006, 2011), with rationality and political behavior being the main representative constructs of each approach, respectively. The construct of rationality is the most widely examined and discussed among the two, conceptualized and operationalized in 7


different ways; as rationality (Bourgeois & Eisenhardt, 1988; Goll & Rasheed, 1997, 1998, 2005; Langley, 1989; Miller, 1987), as procedural rationality (Dean & Sharfman, 1993a, 1993b, 1996; Elbanna & Child, 2007a, 2007b), and as comprehensiveness (Atuahene-Gima & Li, 2004; Fredrickson, 1984, 1985; Fredrickson & Mitchell, 1984; Garbuio, Lovallo, & Sibony, 1985; Miller, 2008; Papadakis, 1995, 1998; Papadakis, Lioukas & Chambers, 1998). Empirical studies have identified several antecedents of decision-making rationality, including characteristics of the firm (size, formal planning, corporate ownership), of decisions (type, uncertainty, magnitude of impact), of the environment (uncertainty, dynamism, competitive threat) and of decision makers (education, need for achievement). Research has also indicated consequences of rationality at the decision level (decision speed, quality, effectiveness) and the firm-level (performance, new product quality). Political behavior was introduced in the strategy process and strategic decision-making literatures, as recognition of the important role of power and politics within organizations and for shaping organizational outcomes (Child, Elbanna & Rodriguez, 2010; Eisenhardt & Zbaracki, 1992; Ferris & Hotchwarter, 2011; Ferris & Treadway, 2011; Vigoda-Gadot & Drory, 2006). Empirical studies of strategy processes and of decision processes have looked into the extent to which decision makers engage in political behaviors (Allison, 1969; Bourgeois & Eisenhardt, 1988; Dean & Sharfman, 1996; Elbanna & Child, 2007a; Pettigrew, 1973; Pfeffer & Salancik, 1974), and into the political tactics employed by decision makers (Child & Tsai, 2005; Lechner & Floyd, 2012; Nutt, 1998; Papadakis, 1998). Of interest has been the debate on whether political behavior, and more generally politics, exerts negative or positive influence within firms. A large number of scholars have argued that politics are divisive and conflictual, distort the information gathered from the environment, slow the pace of strategic decision-making and 8


adaptation, and thus have negative consequences for the firm (Dean & Sharfman, 1996; Elbanna, 2006). However, several authors have adopted a view of ‘constructive’ or ‘positive’ politics, suggesting that politics may be necessary for introducing change and overcoming resistance (Eisenhardt & Zbaracki, 1992; Zahra, 1987), for facilitating adaptation in complex and dynamic environments (Eisenhardt, Kahwajy & Bourgeois, 1997), and for enhancing commitment among decision makers (Olson, Parayitam, & Bao, 2007; Parayitam & Dooley, 2009).

Exploration-oriented and exploitation-oriented strategic decisions The need to secure short-term efficiency and profitability and, at the time, sow the seeds for long-term competitive advantages, growth and superior performance is a well-known and widely discussed issue in organization, management and strategy studies. To attain these two purposes, firms are challenged to combine exploiting existing opportunities with exploring the environment for new ones (Levinthal & March, 1993). March (1991) described exploration and exploitation as two qualitatively different activities, with each employed as a response to a different need of the firm: ensuring current viability and building future viability (Levinthal & March, 1993: 105). Positioning the concepts of exploration and exploitation within the knowledge management and organizational learning literatures, March (1991:71) defined exploration as “search, variation, risk taking, experimentation, play, flexibility, discovery, innovation” and exploitation as “refinement, choice, production, efficiency, selection, implementation, execution”. They represent, therefore, two distinct behaviors with different implications for firm-level performance. Exploration and exploitation have been examined and discussed through the ‘lenses’ of several areas of study (O’ Reilly & Tushman, 2013). March (1991) argued that firms have to 9


make explicit and implicit choices between the two activities, as they compete for scarce resources and yield different returns in different time horizons and different degrees of uncertainty1. Following that argument, scholars have reformulated the choice as between refining existing products and technologies or developing new ones (Abernathy & Clarke, 1985; Benner & Tushman, 2003), preserving existing strategic orientations or introducing new ones (Miller & Friesen, 1980, 1984; Tushman & Romanelli, 1985), matching existing resources and opportunities or ‘stretching’ resources and identifying new opportunities (Hamel & Prahalad, 1993), and leveraging existing competences or building new (Sanchez & Heene, 1997). In this paper, we conceptualize exploration and exploitation as potential types of content of strategic decisions. Using a functional definition of strategy offered by Van den Steen (2013:2; “the smallest set of core choices to optimally guide the other choices”), we can understand strategy as a logic placed at the core of a firm’s actions, conditioning choices of decision makers and ensuring consistency across decisions. A decision maker (the ‘strategist’, whether individual or collective – in the case of top-management teams) collects information from the environment (internal and external), assesses it and makes an informed choice on which use to allocate resources to. The decision can conform to the logic of the established strategy and to the ‘set of core choices’, and further reinforce it (exploitation-oriented strategic decision), or it can deviate from the logic of the established strategy and introduce novelty in the ‘set of core choices’ (exploration-oriented decision), and even renew or alter the strategies pursued by the firm (Agarwal & Helfat, 2009; March, 1991). 1

However, a large number of scholars have followed the argument that exploration and exploitation are not

contradictory activities, and can be combined. See more about that perspective on Gibson & Birkinshaw,2004; O’Reilly and Tushman, 2013; Raisch & Birkinshaw, 2008; Simsek 2009.

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To better grasp how exploration and exploitation can be conceptualized as types of content of strategic decisions, we draw from the literature on strategic renewal (Agarwal & Helfat, 2009; Capron & Mitchell, 2009; Volberda et al., 2001), where strategic actions have been examined on the basis of their content (exploratory or exploitative). We can understand exploration-oriented strategic decisions as decisions that introduce novelty in the ‘repertoire’ of the firm (the existing of products, markets and capabilities), expand the geographical scope of the firm’s operation and introduce new activities that explore new competences (Flier, Van den Bosch, & Volberda, 2003; Volberda et al., 2001; Volberda, Van den Bosch, Flier, & Gedajlovic, 2001). Similarly, we can understand exploitation-oriented strategic decisions as decisions that fall within the existing ‘repertoire’ of the firm, further profit from existing competences and capabilities, maintain the current geographical scope, and rationalize existing operations and projects (e.g. cost-cutting, portfolio restructuring, dissolution of products, activities to increase scale of operations etc.) (Flier et al., 2003; Volberda et al., 2001).

TH PROCESS OF MAKING EXPLORATION-ORIENTED AND EXPLOITATIONORIENTED STRATEGIC DECISIONS In this section of the paper, we build on the literatures on strategy processes, strategic decision-making (henceforth, SDM) and strategic decision-making processes (henceforth, SDMP) to illustrate how exploration-oriented and exploitation-oriented strategic decisions are made. Following the suggestions on good strategy process research made by Lechner (2003, 2006), we do not examine the decisions themselves, but rather how they are made, the ‘becoming’ instead of the ‘being’. We adopt a micro-focus, looking into the actions and interactions of individuals as important determinants of both the decision process and the 11


decision outcomes. And, as we focus on strategic processes instead of other organizational processes, we look into how the decision process related into an important strategy-related outcome: the exploratory or exploitative content of the strategic decisions made.

A basic decision process model: search-selection-decision outcome. A central assumption of the behavioral theory of the firm and the intellectual tradition it created (Cyert & March, 1963; March & Simon, 1958) is that firms are information-processing and decision-rendering entities, where behaviors and conducts of firms are the results of decisions made at their interior. A second assumption, with its origins both at the behavioral theory of the firm and the organizational politics literature, is that firms are not coherent wholes, but rather landscapes where multiple actors and stakeholders (individuals and coalitions) coexist, act and interact, interfering in the formulation of goals and means to achieve them (strategies) (Mintzberg, 1985; Pettigrew, 1973). Different stakeholders have different priorities and interests, often competing, and their behaviors and actions reflect these differences (Bourgeois & Eisenhardt, 1988; Elbanna, 2006). Furthermore, as a result of limited managerial attention (Geanakoplos & Milgrom, 1991; Ocasio, 1997, 2011) and of opportunistic behaviors in the acquisition and communication of information (Aghion & Tirole, 1997; Eisenhardt, 1989; Williamson, 1985), organizational decision makers do not always possess complete information on the issues they have to decide about. As a result, actors with particular interests for advancing specific decisions and with the capacities for gathering information from the firm’s respective environments can strategically use information. They can direct the attention of other decision makers towards a particular issue (problem or opportunity) through the initiation of the decision process and use methods of 12


communication, persuasion and influence in order to achieve acceptance of their proposal (Dutton et al., 2001; Gibbons et al., 2013; Kaplan, 2008; Sobel, 2013). Taking the above into account, we propose that the decision-making process consists of two distinct sub-processes; the first is the sub-process of search, where a particular actor (individual or coalition) scrutinizes the environment of the firm (internal and external) and either observes a problem related to the firm’s operations or performance or identifies an opportunity that, if undertaken, would advance the position of the firm, and his position within the firm. The second is the sub-process of selection, the most central part of the decision process where the decision is made. The selection sub-process consists of two phases, formal analysis and elaboration. The two sub-processes and the two phases of selection were all termed after existing and well-known concepts and constructs in the strategy process research (Chakravarthy & White, 2002; Papadakis & Barwise, 1998c). In Figure 1 we present a basic model of making explorationoriented and exploitation-oriented strategic decision, unfolding as follows. A particular actor (individual or coalition) engages in search activities and identifies information that he introduces in the decision process. Information is analyzed and reformulated in a concrete proposal. The proposal is discussed and assessed by decision makers, and the actor supporting the proposal elaborates, in an attempt to persuade the other decision makers and secure the acceptance of the proposal. When decision makers are persuaded a strategic decision is made, either explorationoriented or exploitation-oriented.

Place Figure 1 approximately here

A brief discussion of the sub-processes and constructs used in the model we propose is 13


necessary here. Search is a well-known concept in organization, management and strategy research, defined as scrutinizing of the firm’s internal and external environments and gathering information about the current status and potential threats or opportunities (Cyert & March, 1963; Daft & Weick, 1984; Ghoshal, 1988). The behavioral theory of the firm (Cyert & March, 1963) has conceptualized search as an adaptive problem-solving behavior, driven by observed discrepancies between aspiration and reality (Ahuja & Katila, 2004; Rosenkopf & Nerkar, 2001). When such discrepancies are observed, decision makers look into their ‘local’ environment (‘in the neighborhood of what is already known’; Katila & Ahuja, 2002) for solutions. If their efforts fail in providing a satisfactory solution, search becomes more complex and expands to also cover the ‘non-local’ environment of the firm (‘outside the neighborhood of what is already known’; Katila & Ahuja, 2002). Here, we conceptualize search as having both a problem-driven and a proactive component, suggesting that decision makers engage in search activities not only in the presence of a problem (or discrepancy), but also proactively to identify opportunities (or threats) in their environment. Several strategy process models and theories (Bower, 1970; Burgelman, 1983a, 1983b; Floyd & Wooldridge, 2000) have proposed that managers at the middle and the operational levels are, due to their position, more likely to identify problems and introduce issues in the decision process. In this paper, as we adopt a strategic decision-making perspective, we focus on the search activities of actors at the upper managerial levels. These actors may be individuals (managers, members of the top-management team) or coalitions (possibly including managers at the upper, middle and lower levels). Actors have their own preferences, priorities and interests, and engage in search either as a response to an observed problem or proactively. Through searching both the ‘local’ and the ‘non-local’ environments of the firm, they gather information and initiate the decision 14


process in order for a particular decision to be made at the upper-managerial level of the firm. The sub-process of selection is central in most strategy process models (Bower, 1970; Fredrickson, 1984; Mintzberg et al., 1976; Nutt, 1984, 1987) and it is where the actual decision making takes places. Its first phase is formal analysis, where the information gathered through the search activities of particular actors is analyzed and assessed, and is reformulated in a concrete proposal with specified technical and economic characteristics. The phase of formal analysis is highly rational and comprehensive, and usually involves several analytical and quantitative techniques for specifying the costs and benefits of the proposal. At the same time, formal analysis has a central role in communicating a proposal towards other decision makers (Denis, Langley & Rouleau, 2005; Feldman & March, 1981; Langley, 1988, 1989; March, 2006), and it can be used for purposes of persuasion and legitimization of the issues particular actors have introduced (Jarratt & Stiles, 2010; Power, 2003, 2004). Furthermore, formal analysis aids in reducing uncertainty regarding the decision process, creating strong symbolisms of rationality (Cabantous & Gond, 2011; Jarzabkwoski & Kaplan, 2015). The phase of elaboration follows that of formal analysis, and it is where decision makers (in our case, at the upper-levels of the firm) discuss and assess the proposal and make the decision on whether to accept it or not. In that phase, the actors that advocate a particular proposal engage in communication, persuasion and influence activities in order to secure the acceptance of the proposal. The phase of elaboration is a dynamic one, with a strong element of interactions between decision makers, and whether it unfolds on a more rational-comprehensive or in a more political way depends on the methods decision makers use for persuasion and influence (Elbanna & Child, 2007a; Lechner & Floyd, 2012; Mintzberg et al., 2009). Actors that advocate a particular proposal can choose more comprehensive methods to communicate the need for 15


acceptance of the proposal and to persuade the other decision makers (Cabantous & Gond, 2011; Meyer et al., 2013). Such methods can be rational justification, using facts and evidence (Dean & Sharfman, 1996; Pfeffer & Sutton, 2006) to make a stronger case for the proposal, and the use of ‘outside’ experts, which possess specialized knowledge and would advocate in support of the proposal (Arendt, Priem, & Ndofor, 2005; Jarzabkowski & Spee, 2015; Menon & Pfeffer, 2003). On the other hand, actors may choose more politically-charged tactics for influencing other decision makers, such as building a coalition that would support the proposal (Cyert & March, 1963; Porter, Allen, & Angle, 1980; Stevenson, Pearce, & Porter, 1985) and cooptation for securing the support or the silence of potential resistors (Selznick, 1949; Yukl & Tracey, 1992; Zanzi & O’Neill, 2001). Therefore, we suggest that whether the decision process unfolds in a more comprehensive-rational or in a more political way is not pre-defined, but rather depends on: a) the elaboration methods and tactics actors use, and b) the resistance or accommodation of the other decision makers. Whether the actors advocate a proposal would choose more rational or more political elaboration methods, and whether the other decision makers would accommodate or resist, are on their own turn dependent on context-specific factors. Following the phase of elaboration, decision makers make the choice on whether to accept or not the proposal, making therefore a strategic decision. When the strategic decision is made, another process starts, including the implementation of the decisions (Nutt, 1986, 1992) and the deployment of required resources (Noda & Bower, 1996). These issues, although of importance, are beyond the scope of the present paper and we are not going to discuss them.

Introducing contingencies: information familiarity and environmental dynamism As we suggested already, how the decision process unfolds depends on contextual factors. 16


The same holds for the relationship between the decision process and decision outcomes (Dean & Sharfman, 1993b, 1996; Elbanna & Child, 2007a; Papadakis et al., 2010). To enable further conceptual development of the basic decision process model we presented (see Figure 1), we introduce two factors as important contingencies for the ‘nature’ of the decision process and the process-outcome relationship. The first factor is directly related to the search activities decision makers engage into; it relates to the familiarity (or, conversely, unfamiliarity) of the information an actor has gathered through search and introduces in the decision process. Unfamiliar information, usually gathered from the non-local environment of the firm, challenges existing beliefs, views and preferences of decision makers (Katila & Ahuja, 2002). Thus, it is highly likely to induce internal debate and conflict (Bower, 1970; Cyert & March, 1963) and cleavage and contention among decision makers (Hickson et al., 1986; Miller, 2010). When an issue introduced in the decision process is based on unfamiliar information, the actors (individuals or coalitions) advocating for it are more likely to engage in political activities of persuasion and influence, and thus the decision process is more likely to unfold in a more political way. And as the actions and interactions among decision makers shape not only the decision process, but also its outcomes, one could understand why the familiarity or unfamiliarity of information is critical for explaining these relationships. Thus, we propose: Proposition 1: Decision makers (individuals or coalitions) engage in search activities. A more local (non-local) focus of their search efforts is more likely to lead to familiar (unfamiliar) information introduced in the decision process. The second contingency we introduce is a factor of the environmental context, environmental dynamism. Defined as the rate of market and industry change and the extent of unpredictability (Baum & Wally, 2004; Dess & Beard, 1984; Miller, 1992; Rajagopalan et al., 1993), 17


environmental dynamism is a construct occasionally used in organization, management and strategy studies. A more dynamic environment creates conditions of higher uncertainty, under which decision making takes place. With decision makers attempting to minimize uncertainty when they are making important decisions (Cyert & March, 1963), dynamism in the environment is likely to make techniques of formal analysis more or less useful for assessing information and rational or political methods of elaboration more or less suitable for reaching a decision. As a result, we suggest that the degree of environmental dynamism influences both the ‘nature’ of the decision process and the relationship between process and decision outcomes.

Probing into the decision process-decision outcome relationship. After presenting a basic model of a decision process for making exploration-oriented and exploitation-oriented strategic decisions and introducing information familiarity and environmental dynamism as important contingencies, we can link all these elements together in order to better grasp how decision processes unfold and how they relate to decision outcomes. Figure 2 presents a framework for examining these relationships. Place Figure 2 approximately here

Hereby, we propose that different degrees of information familiarity and environmental dynamism influence both the ‘nature’ of the decision process (more rational or more political), through the elaboration methods and tactics decision makers employ, and the relationship between the process and the strategic decisions made. In the rest of this section, we develop and discuss propositions that address how variation in the two contingencies influence decision processes and, through processes, the strategic decisions made. 18


The first proposition represents a problem-solving decision process, under conditions of low dynamism in the environment. An actor (individual or coalition) within a firm observes a problem (e.g. in operation, sales performance, financial performance etc.) and engages in search in order to identify a viable solution. In his search effort, he usually focuses (at least in the beginning) in the local environment of the firm. The information he gathers is familiar to the rest of the firm (following Proposition 1) and it is introduced in the decision process (Dean & Sharfman, 1993a, 1993b, 1996; Elbanna & Child, 2007a, 2007b). Through the phase formal analysis, the information is formulated as a proposal on how to address the observed problem. The assessment of costs and benefits, through the use of analytical and quantitative techniques, is going to be considered by decision makers, and if they find the proposal satisfactory a strategic decision will be made. The strategic decision made will be oriented in exploitation, refining the existing strategies and reinforcing them. Proposition 2: With familiar information and under conditions of low environmental dynamism, a decision is more likely to be made through a process based on formal analysis. Under such conditions and with such a process, the more likely outcome is an exploitation-oriented strategic decision. In more dynamic environments, formal analysis may not suffice for a proposal to turn into a strategic decision. With decision makers avoiding uncertainty (Bromiley & Rau, 2015; Heavey et al., 2009), the acceptance of a proposal with not clearly specified returns (as a result of uncertainty in the environment) becomes more difficult, even if based on familiar information. Therefore, actors who advocate the proposal have to provide argumentation in support of the proposal, using facts and evidence (Nahapiet, 1988; Pfeffer & Sutton, 2006) and engaging in dialogue with other decision makers in order to persuade them (Garbuio et al., 2015). The combination of formal 19


analysis (Cabantous & Gond, 2011; Langley, 1989) and rational justification (Garbuio et al., 2015; Lechner & Floyd, 2012), leads to a decision process with strong elements of comprehensiveness and rationality, while interaction among decision makers takes place in a comprehensive way as well (argumentation and dialogue). Such a process aids in reducing the uncertainty and enabling the work of decision makers. Proposition 3: With familiar information and under conditions of high environmental dynamism, a decision is more likely to be made through a rational-comprehensive process, based on formal analysis and rational justification. Under such conditions and with such a process, the more likely outcome is an exploitation-oriented strategic decision. When unfamiliar information is considered, under conditions of low environmental dynamism, formal analysis may as well not suffice for making a decision. Unfamiliar information, as we already discussed, increases contention and cleavage among decision makers (Miller, 2010). As a result, a proposal based on unfamiliar information is likely to meet resistance from other decision makers, and, as a result, actors advocating the proposal have to resolve tensions and conflicts in order to achieve acceptance. Various elaboration methods for the particular conditions are possible. One such method is the use of ‘outside’ experts, which through their possession of specialized knowledge and their positioning beyond the firm’s boundaries, can make a compelling case in support of a proposal and reduce the contention and potential resistance of other decision makers (Menon & Pfeffer, 2003; Meyer et al., 2013). A second method is coalition-building, enlisting supporters for the particular proposal (Lechner & Floyd, 2012). Both methods, despite the former being more comprehensive and the latter more political, share a common underlying logic: the strategic use of information in order to build 20


support and achieve agreement among decision makers (Jacobides & Croson, 2001; Kaplan 2008). In the case of ‘outside’ experts, expertise and external specialized knowledge is used as a mechanism for resolving controversy and legitimizing unfamiliar information, while in the case of coalition-building, the size of the coalition acts as a signal on the support base of the proposal, also legitimizing unfamiliar information. Under such conditions and through the proper use of elaboration methods, an exploration-oriented strategic decision is a likely outcome. Proposition 4: With unfamiliar information and under conditions of low environmental dynamism, a decision is more likely to be made through a process that combines formal analysis with either more rational (use of ‘outside’ experts) or more political (coalitionbuilding) methods of elaboration. Under such conditions and with such a process, the more likely outcome is an exploration-oriented strategic decision. As more unfamiliar information is considered and the degree of environmental dynamism increases, rational and comprehensive methods are faced with their limitations. Uncertainty in the environment does not allow for a thorough assessment of the costs and benefits of a proposal, while contention and cleavage among decision makers increase and make the task of decision making more difficult. Actors (individuals or coalitions) advocating a proposal have to engage in political activities in order to build support and achieve acceptance of the proposal. Beyond formal analysis, rational methods of persuasion would have diminishing returns in terms of proposal acceptance as uncertainty in the environment becomes higher (Dean & Sharfman, 1996; Maritan, 2001; Lechner & Floyd, 2012). Of course that does not mean that decisions makers should abandon rational methods altogether. Instead, they should gather information and assess them as comprehensively as possible, to inform subsequent states at the decision process (Cabantous & Gond, 2011; March, 2006). On the other hand, the resort to political tactics and 21


methods of elaboration is necessary for making a decision, especially an exploration-oriented one. Information asymmetry, competing interests and different agendas, opportunistic behaviors and resistance to change (Aghion & Tirole, 1997; Bower, 1970; Garicano & Rayo, 2014; Jacobides & Croson, 2001; Li, Matouschek, & Powell, 2015; Williamson, 1985) are all potential reasons for contention and conflict among the decision makers. Thus, actors (individuals or coalition) advocating a proposal have to employ political tactics, such as coalition-building for enhancing support for the proposal (Lechner & Floyd, 2012) or cooptation for securing the support of the silence of potential resistors, removing potential ‘obstacles’ (Capron & Mitchell, 2009; Mintzberg et al., 2009; Zahra, 1987). In such a case, the ‘positive’ or ‘constructive’ effects of politics are in play, aiding in making a strategic decision that introduces novelty into the established strategies of the firm, or even alters them (Butcher & Clarke, 2002; Pfeffer, 1992). At this point, we should note that, even under such conditions and a proper selection of political tactics for elaboration, persuasion and influence, other decision makers within the firm may resist the proposal and block the making of decision, or alter its content to the extent that it becomes an exploitation-oriented strategic decision. Intense conflict and highly political decision processes may lead to the ‘negative’ effects of politics materializing (Elbanna & Child, 2007a). Proposition 5a: With unfamiliar information and under conditions of high environmental dynamism, a decision is more likely to be made through a highly political process, with use of elaboration methods such as coalition-building and/or cooptation. Under such conditions and with such a process, the more likely outcome is an exploration-oriented strategic decision. Proposition 5b: In cases of very high degrees of information unfamiliarity and environmental dynamism, a highly political decision process may not successfully lead to 22


an exploration-oriented strategic decision. Instead, conflict and resistance may increase, leading to a blockage of the decision or to significant alternation of its content. Under such conditions, the more likely outcome is an exploitation-oriented strategic decision.

CONCLUSION AND DISCUSSION In this paper we attempted to advance the knowledge on strategic decision-making and strategic decision-making processes in three distinct ways. First, we linked the decision-making process with an important strategy-related outcome (Lechner, 2003, 2006): the content of strategic decisions, with an orientation either towards exploration or towards exploitation. Second, we proposed that actors in firms (individuals or coalitions) engage in search activities, gather information and introduce it in the decision process. In that way, these actors direct the attention of other decision makers towards particular issues, and through their actions and interactions shape both the decision processes and the decisions made. Third, we proposed that whether the decision process unfolds in a rational-comprehensive or a political way is not pre-specified. Instead, actors advocating a particular proposal can engage in elaboration methods and tactics, which can be more rational or more political. Hence, strategic decision process can be more rational or more political (Eisenhardt & Zbaracki, 1992; Elbanna, 2006), but they can also combine both rational-comprehensive and political elements (Allison, 1971; Royer & Langley, 2008), under different conditions in the internal and external environments of the firm. Beyond a basic decision process model for making exploration-oriented and exploitationoriented strategic decisions, which incorporates search activities and interactions among decisions makers (see Figure 1), we introduced two factors as important contingencies: decision familiarity (or unfamiliarity) and environmental dynamism. We formulated a set of propositions addressing 23


how varying degrees of information familiarity and environmental dynamism influence how the decision process unfolds (through the choices actors make on elaboration methods) and how the process influences the strategic decisions made (see Figure 2). To further advance understanding on strategic decision-making and decisions processes and on how they relate to decision outcomes that reinforce or alter existing strategies, the model and the propositions we presented should be empirically investigated. As strategic decision processes and the outcomes they produce are highly context-specific, investigation of the propositions using quantitative studies and multicountry and multi-industry samples would be an important step towards advancing knowledge. For example, collecting information about search activities and elaboration tactics of executives and managers through survey studies (a methodological approach widely used in strategic decision making literature; Papadakis & Barwise, 1998c; Papadakis et al., 2010; Shepherd & Rudd, 2014), coupled with content analysis of publicly available information for identifying exploration-oriented and exploitation-oriented strategic decisions (a methodological approach widely used in competitive strategy research; Cinici & Dunbar, 2010; Volberda et al., 2001) would bring together the advantages of both, contributing both theoretically and methodologically to existing literatures and knowledge. While this paper is clearly positioned in and builds on the literatures on strategy processes, strategic decision-making and strategic decision-making processes, they could be further developed, theoretically and conceptually, through a constructive ‘dialogue’ with two additional literatures: the one on strategic renewal and the one on the micro-foundations of strategy. The literature on strategic renewal has for long considered the integration between the process and the content of strategy (Agarwal & Helfat, 2009; Capron & Mitchell, 2009), usually looking into how renewal becomes practice through evolutionary sequences of variation, selection and 24


retention (Floyd & Wooldridge, 2000; Lovas & Ghoshal, 2000). For conceptualizing exploration and exploitation as types of content of strategic decisions, we built on the strategic renewal literature (Lechner & Floyd, 2012; Volberda et al., 2001). A better understanding of strategic decision making as a mechanism for introducing and managing strategic renewal (Agarwal & Helfat, 2009; Bryson & Bromiley, 1993; Chakravarthy & Doz, 1992; Chakravarthy et al., 2003) can be provided through establishing causal links between strategic decisions and observed strategic actions. Furthermore, further advancing the integration of arguments from the teleological and dialectical types of process theory bringing together teleological and dialectical process theories we proposed (Floyd & Wooldridge, 2000; Van de Ven & Poole, 2005), we can develop more concrete proposals on how teleological generative mechanisms (deliberate and discretionary actions of individuals and coalitions) initiate strategy making, and how dialectical mechanisms (conflict, struggles and accommodations) intervene, co-shaping both processes and outcomes at the decision-level and the firm-level. The literature on the micro-foundations of strategy has recently started growing, receiving increasing amounts of interest from scholars (Felin, Foss, & Ployhart, 2015; Molina-Azorin, 2014). The main idea is that individual-level factors (characteristics, behaviors, actions) can be used to understand how collective-level phenomena (usually at the firm-level) are shaped. In this paper, we examined a particular aspect of individual behavior, search activities, as an antecedent of the ‘nature’ of decision processes and of the decision outcomes. Emphasizing a cognitive type of activity (search) and micro-level activities of elaboration(such as rational argumentation and coalition-building), we established a potential link for bringing closer the SDM literature with the micro-foundations of strategy. Paying closer attention to the individual characteristics of decision makers (demographic, cognitive, behavioral) and the social

characteristics of collectivities 25


(groups, coalitions, managerial teams) (Bromiley & Rau, 2015) as antecedents of search behaviors and choices regarding elaboration methods, can further advance the linkages and aid in establishing a micro-foundational perspective within the SDM and SDMP literatures. Cognitive characteristics of individuals, such as attention (Ocasio, 1997, 2001), and psychological, such as regulatory focus (Tuncdogan, Van den Bosch, & Volberda, 2015), bring important potential as micro-foundations of strategic decision processes and, consequently, of outcomes (Ployhart & Hale, 2014). Research on the upper-echelons, on top-management teams and on middle managers has identified an important number of personal, cognitive, behavioral and social characteristics that define behaviors, actions and choices and can be featured in studies adopting a microfoundational approach on strategy and strategic decision-making (for two recent reviews see Bromiley & Rau, 2015; Narayanan et al., 2011). Research efforts towards that or another direction are of course developed under the overarching target of expanding knowledge on strategy-related and organizational phenomena and of offering managerially relevant presciptions (Bromiley & Rau, 2014; Papadakis & Barwise, 1998b).

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FIGURE 1 A basic decision process model for making exploration/exploitation-oriented strategic decisions: search-selection-decision outcome.

Note: Bolded boxes in the figure (formal analysis, elaboration) indicate interactions between actors introducing an issue and other decision makers.

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FIGURE 2 A framework for understanding decision process-decision outcome relationships.

Note: Solid lines indicate direct effects, dotted lines indicate moderating effects. Bolded boxes in the figure (selection/decision process, formal analysis, elaboration) indicate interactions between actors introducing an issue and other decision makers.

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