ACCEPTED VERSION This is the accepted version of the following paper: Elbanna, S., & Child, J. 2007. The influence of decision, environmental and firm characteristics on the rationality of strategic decision-making. Journal of Management Studies, 44(4): 561-591. The paper, in its final form, has been published as cited above. This version may be used for non-commercial purposes in accordance with the terms and conditions of the publisher.
THE INFLUENCE OF DECISION, ENVIRONMENTAL AND FIRM CHARACTERISTICS ON THE RATIONALITY OF STRATEGIC DECISION-MAKING
Said Elbanna 1 College of Business & Economics United Arab Emirates University P.O. Box 17555 Al Ain United Arab Emirates Tel: (+971) 50 3830 489 Fax: (+971) 3 7624 384 Email:
[email protected] John Child 2 Birmingham Business School University of Birmingham Birmingham B15 2TT United Kingdom Tel: (+44) 121 414 3419 Fax: (+44) 121 414 6707 Email:
[email protected] March 2006 3
1 2
Assistant Professor, College of Business & Economics, UAE University, UAE. Address for correspondence. Chair of Commerce, Birmingham Business School, University of Birmingham, UK.
3
The authors would like to thank the three anonymous reviewers and the editor for their insightful comments. Thanks also to Iehab Yassin at Misr International University, and Kilani Ghoudi and Mohamed Madi at United Arab Emirates University for their statistical advice.
i
THE INFLUENCE OF DECISION, ENVIRONMENTAL AND FIRM CHARACTERISTICS ON THE RATIONALITY OF STRATEGIC DECISION-MAKING
ABSTRACT This paper develops an integrated model of strategic decision-making rationality. The model is informed by three perspectives that respectively identify decision, environmental and firm characteristics as influences on the rationality of decision processes. The results of a study in Egypt indicate that the rationality of strategic decision-making processes is shaped by variables identified by all three perspectives, and that such decision processes cannot adequately be modelled in terms of a single perspective only. However, the study also suggests that the three perspectives do not contribute in equal measure to explaining strategic decision making, and that the national setting is relevant for the extent to which strategic decision-makers take account of environmental characteristics. The location of the investigation in Egypt highlights some deviations from previous research that could be attributed to nation-specific factors, both cultural and institutional.
Key words: Context; decision-specific characteristics; Egypt; integrative model; rationality; strategic decision-making
ii
INTRODUCTION Research into strategic decision making has often been divided into two categories: content research and process research. Content research deals with issues of strategy content such as portfolio management, diversification, acquisitions and mergers; and the alignment of firm strategies with environmental characteristics. Process research, by contrast, deals with the process through which a strategic decision is made and implemented, and the factors which affect that process. Process research investigates a number of fundamental questions that are of interest to decision-makers, one of them being the way in which managers arrive at their firm’s strategic position through the strategic decision making process [SDMP]. These two types of research are complementary: content research can significantly influence the direction of process research and vice versa (Mintzberg & Waters, 1985). While issues of content have tended to predominate in research over the last two decades, interest in process research has been growing (Rajagopalan et al., 1997). Thus, some researchers have attempted to model the SDMP and in so doing to identify the major categories or types of strategic decision processes (e.g. Hart, 1992; Hickson et al., 1986; Mintzberg et al., 1976). Others have been interested in investigating specified characteristics of the SDMP, such as the factors affecting its constituent dimensions (e.g. Brouthers et al., 2000; Dean & Sharfman, 1993a; Papadakis et al., 1998; Wally & Baum, 1997), the effect of these dimensions on organisational outcomes (e.g. Dean & Sharfman, 1996; Fredrickson, 1984; Goll & Rasheed, 1997; Hough & White, 2003; Papadakis, 1998), or both (e.g. Eisenhardt, 1989). The study reported in this paper is concerned with factors that influence the rationality of the SDMP. The SDMP has long been seen as a central managerial activity in all types of business organisations, large and small, for profit and not for profit, private and public. In all these organisations, managers face the need to cope with difficult and complex situations in which they must make major decisions, such as entering new markets, developing new products, or
1
acquiring or divesting businesses, so that an organisation can function, adapt, progress, take advantage of opportunities and overcome threats. The ability of managers to make such decisions is an essential contribution toward organizational success. The rationality of decision-making processes occupies a central place in the literature on strategic decision-making (Miller et al., 1996). Inconsistency among the results of previous studies on strategic decision rationality, concerning for example, the relationship between organisation size and rational decision processes (cf. Dean & Sharfman, 1993a; Fredrickson & Iaquinto, 1989; Kukalls, 1991; Papadakis et al., 1998), indicates the need for further research to investigate the role of the context in strategic decision rationality. Indeed, Pettigrew (2003) argues that rationality in strategic decision processes cannot be properly understood unless we understand its context. This view postulates that the context in which strategic decision rationality takes place has a marked impact. The term ´context` refers to the characteristics of decision-makers, decision-specific characteristics, features of the external environment and those of the firm itself. Any examination of strategic decision rationality that fails to consider these contextual factors is likely to provide an incomplete and perhaps inaccurate picture (Hough & White, 2003). Papadakis & Barwise (1997b) pointed the problem of identifying key influences on the SDMP. Hitt & Tyler (1991) argued that an integration of the factors identified by the different perspectives on strategic decision making would contribute to a better understanding of what influences the SDMP. They examined the SDMP to determine which of three decision-making perspectives - the rational-normative perspective, the external control perspective, and the strategic choice perspective - received the greatest empirical support.
Schwenk (1995)
recommended more empirical research of the kind exemplified by Hitt & Tyler’s study in order to examine the predictive power of alternative perspectives. Following Schwenk’s recommendation, Brouthers et al. (2000) examined two perspectives concerning influences on
2
the SDMP - environmental determinism and strategic choice - to test which receives the greatest empirical support.
However, very few studies have adopted multiple perspectives and
examined their predictive power taking the others into account (Child et al., 2003). Previous studies by Dean & Sharfman (1993a) and Papadakis et al. (1998) adopted integrative models of strategic decision process rationality. However, they investigated the direct relationships between individual contextual variables and SDMP rationality. As recommended by Schwenk (1995), the present study aims to investigate not only the separate but more particularly the overall impact of different perspectives or contexts on SDMP rationality. This approach should more fully illuminate the relevance of three perspectives for SDMP rationality – respectively highlighting decision-specific, environmental, and firm characteristics – indicating which of these perspectives receives the greatest empirical support when considered alongside the others. With these considerations in mind, the study reported here investigated contextual influences on strategic decision making rationality in an integrated manner, in the expectation that this would help to fill a significant gap in the literature. This is not to say that single perspective analyses are of no importance; the study by Langley (1989) among many others clearly indicates that they are. Rather, it is to suggest that we need to complement models that focus on the direct effects of individual variables with integrated ones in order to portray a more complete picture of decision rationality. Our research was also informed by a further consideration. While there has been a tremendous increase in our knowledge of strategic management, only a relatively limited amount of research has been conducted on the subject outside the USA and the UK. Moreover, the growing body of research on strategy practice in some emerging economies such as China, the CIS and Latin America, has not been matched for other regions such as Africa and the Middle East (Hoskisson et al., 2000; Wright et al., 2005). This reflects ‘the overwhelming
3
geographical bias’ of synthetic reviews of the field of strategic management (Pettigrew et al., 2002, p. 8). Whittington & Mayer (2000, p. 31) argue that previous management research may have been ‘not culture free but culture blind'. They therefore recommend that ‘time and place’ should be taken into account when investigating managerial practices.
More recently, researchers have become more sensitive to the possible role of national contexts. For example, using a sample of firms from six Western European countries, Wan & Hoskisson (2003) examine the relationship between corporate diversification strategies and firm performance and propose that these relationships are related to home country environments. Wiersema & Bird (1993) argue that the effect of the demographic attributes of decision-makers may vary between countries because of the differences in population and sociocultural patterns. Cosier et al. (1992) examine how Japanese and US executives handled conflict in decision-making and the extent to which the final decision reflected the preferences of the executives in the two contexts. Carr (1997) argues that national culture can have a strong effect on the SDMP. He finds that British motor component firms had a strong financial orientation as opposed to German firms in the same industry, which were more strategically focused, proactive and thorough in their strategic debates.
Papadakis et al. (1998) argue that some of their conclusions from
investigating strategic investment decisions in 38 manufacturing firms in Greece supported the ‘culture free’ argument, whereas, some other findings were interpreted as ‘culture specific’. Many other researchers have addressed the influence of national context on the SDMP (e.g. Calori et al., 1994; Child & Lu, 1996; Child & Tsai, 2005; Haley, 1997; Hickson & Pugh, 2001; Hitt et al., 1997; Kogut, 2002; Lu & Heard, 1995; Mukherji & Hurtado, 2001; Sawyer et al., 2003; Wilson, 2003). The location of the research reported here in Egypt is expected to give rise to certain characteristics of the SDMP that are specific to that context by dint of culture or
4
other national attributes. Comparative cross-cultural investigations by Hofstede (1991) and Trompenaars (1973) suggest that Egyptian managers are likely to be relatively respectful of leadership and hierarchical distance, fatalistic, and inclined to act according to the particular relationship involved rather than in accord with general rules or standards. From their review of relevant studies, Hickson & Pugh (2001) characterize Egyptian managers as sensitive to personal relationships (especially with superiors), cautious and slow to take decisions. Egyptian commentators tend to confirm this picture (e.g. Leila et al., 1985; Youssef, 1994), though this may reflect the fact that most studies have been conducted within the state-owned or controlled, and hence highly bureaucratic, sector of the Egyptian economy. Overall, these features might be expected to reduce SDMP rationality. In the light of these considerations, the study reported in this paper aims to contribute to knowledge on the rationality of strategic decision making, primarily by integrating different perspectives through the application of a more complete model of the SDMP. It contributes to the theory of SDMP by postulating and testing a model that integrates the effects on strategic decision making rationality of decision, environmental and firm characteristics. This procedure builds upon the potential effects of categories of variables, and thus extends the scope of enquiry which has mainly focused on individual effects.
The relative contribution of potential
influences on SDMP rationality, articulated by different theoretical perspectives, is tested through hierarchical regression analysis. Moreover, the location of the investigation in Egypt is intended to highlight any deviations from previous findings that could be attributed to nationspecific factors, including both cultural and institutional specificities.
AN INTEGRATIVE MODEL OF THE SDMP Rajagopalan et al. (1993) maintain that despite the differences among the theoretical models which have attempted to depict and explain SDMPs (e.g. Chaffee, 1985; Hart, 1992; Lyles &
5
Thomas, 1988), a careful review of such work allows us to draw some general propositions about the likely influencing factors. Schneider & Meyer (1991) propose an integrative model of such factors. These include managers’ individual characteristics, the internal organisational context and environmental factors. Pettigrew (1990) suggests that, in addition to the context, researchers should be interested in investigating the effect of the nature of the problem on SDMPs. Rajagopalan et al. (1993) identify four basic perspectives to develop an integrative model of strategic decision making rationality. These focus on strategic or management choice, decision-specific characteristics, environmental determinism and firm characteristics. For the present study we developed an integrative model that combines factors associated with three of the perspectives on decision rationality: (1) decision-specific, (2) environmental and (3) firm. The fourth perspective highlighting demographic characteristics of the decision makers themselves was excluded because, unlike the case in the U.S.A (Miller et al., 1998), such data are not publicly available in Egypt and exploratory direct questioning indicated that Egyptian respondents were reluctant to provide them. Figure 1 depicts the model to be examined. ----------------------------------------Insert Figure 1 about here -----------------------------------------
RATIONALITY, KEY EXPLANATORY VARIABLES AND HYPOTHESES This section briefly describes strategic decision making rationality, identifies the explanatory variables noted in Figure 1 and advances relevant hypotheses for investigating the importance of the three perspectives just discussed.
6
Decision Rationality The degree of rationality involved in strategic decision-making has long been recognised as one of its key dimensions, and has been the subject of considerable theoretical and empirical investigation in the literature (e.g. Boyd & Reuning-Elliott, 1998; Dean & Sharfman, 1993a; Eisenhardt & Zbaracki, 1992; Fredrickson, 1984; Hart, 1992; Hough & White, 2003; Langley, 1989; Lindblom, 1959; Mintzberg, 1990, 1998; Simon, 1956, 1978; Snyman & Drew, 2003; Wilson, 2003). Rationality may be said to characterise behaviour that is logical in pursuing goals (Dean & Sharfman, 1993b). This broad conception underlies many social science models of rationality. A variety of operational definitions of rationality have been offered, depending on the goals and empirical methods of particular fields. In economics, rationality equates to utility maximisation. Although economists employ a number of views of rationality, they tend to focus on a particularly stringent conception in which individuals are assumed to seek the maximization of their expected utility. This approach contrasts with the more relativistic conceptions of rationality common in organisation theory (Carter, 1971; Cyert & March, 1963; Cyert et al., 1956). The organisational tradition investigates the SDMP within an organisational context so as to explore how strategic decisions are actually made and why they are made in such a manner (Dean & Sharfman, 1993a). The present study follows this latter tradition. Scholars have developed some constructs of rationality distinct from more global conceptions that carry overtones of decision-maker omniscience (Simon, 1978).
These
constructs represent measures of the extent to which the SDMP approximates to the rational model of decision-making. In this case, decision-makers are seen to be rational within the limits of their own capabilities (i.e. bounded rationality). As Snyman & Drew (2003) stress, bounded rationality points to ways in which the decision-making process is limited by cognitive and
7
political realities. Given these limitations, decision-makers aim to achieve objectives which are ‘good enough rather than the best’ (Eisenhardt, 1997, p. 1). Quinn (1980) indicates that, although SDs may be intentionally rational, overall the process of making the decision may be incremental. He terms this process ‘logical incrementalism’ and describes decision processes as characterised not just by analysis but also by fragmentation, constant evaluation, intuition, and political behaviour. Similarly, Gigerenzer & Todd (1999) argue that the models used by economists are not those that people actually use in decision making. They claim that we have evolved to achieve a certain level of rationality, and more rationality than this would not pay off in the environments where we actually function. For example, the cost of more complete analysis in many circumstances would not be worthwhile and shortcut decision making heuristics, such as simplification, reference to past cases, imitation, risk aversion and satisficing (Krabuanrat & Phelps, 1998), are remarkably accurate. By using heuristics, executives can simplify the decision process (Tversky & Kahneman, 1974). For example, they can make fairly accurate interpretations and evaluations without having to inspect all available information (Nisbett & Ross, 1980; Starbuck & Milliken, 1988). Since the boundedness of decision rationality is largely a function of limitations on information, we define degree of rationality as the extent to which decision-makers collect and analyse information relevant to the decision (Dean & Sharfman, 1996).
Key Explanatory Variables and Hypotheses Taken together, previous researchers have been interested in many variables potentially influencing decision-making rationality. Inevitably it was necessary to select from a very wide range of such variables. We decided to examine seven of them, grouped by their identifying theoretical perspectives, which have been subject to substantial theoretical interest and/or
8
empirical support. The fact that they have been of interest to many researchers increases the possibility of comparing the findings of our study with those of previous investigations.
The Decision-Specific Characteristics Perspective Given the range of strategic decisions that managers make, there is a need to investigate the significance of the type of decision itself for the rationality of the decision process (Rajagopalan et al., 1993). Although our understanding of the role of decision-specific characteristics in decision rationality is still limited (Papadakis & Lioukas, 1996), many authors have argued that the way in which decision-makers categorise and label strategic decisions strongly affects the subsequent processes of making those decisions (e.g. Ashmos et al., 1997; Dutton, 1986; Hickson et al., 1986; Meyer & Goes, 1988; Mintzberg et al., 1976). For example, Simon (1987) argues it is probable that the nature of the problem to be solved will be a principal determinant of the degree to which decision-makers use rational and/or intuitive processes in decisionmaking. There is some empirical support for this view. Papadakis et al. (1998), for instance, report that decision-specific characteristics appear to play a dominant role in determining decision rationality. These considerations lead to: H1: Decision-specific characteristics will account for a significant amount of variance in decision rationality, above and beyond the variance attributable to environmental and firm-specific characteristics. The main decision-specific characteristics identified by previous work are: Decision importance. Given that not all strategic decisions are equally important, executives may deal with these decisions in different ways. Many authors find that decision importance is among the strongest explanations of rationality (e.g. Papadakis et al., 1998; Stein, 1980).
9
Decision uncertainty. Butler (2002) points out that coping with decision uncertainty forms the nub of decision-making. Uncertainty here refers to a specific decision, as opposed to general environmental uncertainty. A number of investigations have found empirical support for the influence of decision uncertainty on rationality (e.g. Dean & Sharfman, 1993a; Lyles, 1981; Papadakis et al., 1998). Decision motive. The way in which decision-makers categorise and label a strategic decision, as an opportunity or a crisis, is rich in meaning (Ashmos et al., 1998) and has been found to affect strategic decision-making rationality significantly (Dutton & Jackson, 1987; Fredrickson, 1985; Mintzberg et al., 1976; Papadakis et al., 1999; Schneider & Meyer, 1991).
The Environmental Determinism Perspective Numerous authors have argued that environmental characteristics exert a significant influence on the degree of rationality (e.g. Agor, 1989; Bresser & Bishop, 1983; Cyert & March, 1963; Hart, 1992; Lindsay & Rue, 1980; Miller et al., 1988; Rajagopalan et al., 1993; Smart & Vertinsky, 1984). Fredrickson (1985), for example, hypothesized that the actions taken in making SDs that are motivated by environmental threats will be more rational than those taken in response to environmental opportunities. Dean & Sharfman (1993a) found a negative relationship between competitive threat and the level of procedural rationality. They argued that this negative relationship may be due to the lack of time and resources required to undertake thoroughly rational decision processes in a highly competitive environment. By contrast, Miller & Friesen (1983) reported that environmental hostility is significantly related to the degree of analysis in the SDMP. Using a sample of 115 large manufacturing firms, Kukalls (1991) support the assumption that the greater the environmental complexity, the greater the level of planning extensiveness.
10
This discussion does not signify a consensus in the literature on the proposition that environmental dimensions have a significant impact on decision rationality. Indeed, several authors provide clear evidence to the contrary. For example, both Papadakis et al. (1998) and Smith et al. (1988) reported a lack of any statistically significant relationship between environmental characteristics and SD rationality. Brouthers et al. (2000) concluded that because of national cultural features, Dutch financial services managers’ decisions are not influenced as much by environmental factors as by decision-makers’ characteristics. It may therefore be that the particular country in which research is conducted affects the impact of environmental factors.
Thus Schneider (1989) argued that different cultural assumptions about the
environment give rise to different approaches in formulating strategy, namely controlling versus adapting. Schneider & Meyer (1991) report that Latin European managers, in contrast to other Europeans, can be characterised by an attitude of having limited control over the external environment. They consequently appeared to direct their efforts primarily toward controlling the internal environment and to adjust their decision processes accordingly. The above discussion suggests that although it is problematic to generalize about the findings of previous research into the impact of environmental attributes on decision rationality, the overall relationship between environmental dimensions and decision rationality across the range of studies tends to be significant (e.g. Bourgeois & Eisenhardt, 1988; Fredrickson & Iaquinto, 1989; Stein, 1980). Thus, although evidence on the relationship between environmental characteristics and decision rationality is contradictory (Rajagopalan et al., 1997; Sharfman & Dean, 1991), many results point to a significant relationship between environmental characteristics and rationality. This, together with the fact that ‘the external environment has long been recognized as an important variable in explaining many organisational phenomena’.(Jones et al., 1992, p. 222), leads to the following hypothesis:
11
H2: Environmental characteristics will account for a significant amount of variance in decision rationality above and beyond the variance attributable to decision and firm-specific characteristics. The principal environmental variables identified in previous work are: Environmental uncertainty. In the area of strategic decision making rationality, most theoretical interest and empirical effort has focused on uncertainty among the environmental variables (Goll & Rasheed, 1997). Miller & Friesen (1983), for example, conclude that increases in environmental dynamism lead to greater levels of rationality in the planning process. Extending these results, Glick et al. (1993) and Priem et al. (1995) both support this view. There are two perspectives on the way in which managers perceive environmental uncertainty (Miller, 1993). The international perspective focuses primarily on the assessment of political and macroeconomic uncertainties. The strategy perspective emphasises sector rather than country uncertainties, such as technologies, inputs, demand and competitors. Following Lewis & Harvey (2001), Miller (1993) and Werner et al.(1996), the present study integrates both perspectives. Environmental hostility-munificence. Although environments can be conceptualised in many ways, environmental munificence is regarded as one of the most important attributes for explaining strategic behaviour (Castrogiovanni, 1991). While there is only limited empirical research examining the specific impact of environmental hostility or munificence on rationality, this clearly suggests its significance (Goll & Rasheed, 1997; Wan & Hoskisson, 2003).
The Firm Characteristics Perspective The limited control that decision-makers generally have over environmental variables may result in a greater impact of internal firm characteristics on the rationality of strategic decision making. It has been suggested that rationality in strategic decision processes is affected by a
12
variety of organisational factors such as structure, power distribution, past strategies, internal systems, size, corporate control and past performance (Rajagopalan et al., 1993; Romanelli & Tushman, 1986). For example, a number of studies have found a significant relationship between past performance and the use of a rational approach to decision-making (e.g. Eisenhardt, 1989; Jones et al., 1992; Smith et al., 1988). Shrivastava & Grant (1985) suggest that formal structures and the centralisation of power are related to rational decision-making processes. Miller (1987) reports a positive relationship between rationality and both formal integration and centralisation in strategic decision processes. Papadakis et al. (1998) find that internal firm characteristics (namely, planning formality, performance, firm size and type of ownership) have more significant effects on process rationality than do environmental variables. The highly consistent association of greater organizational formalization with larger organizational size highlights the likely positive impact of size on SDMP rationality (Child, 1973; Hsu et al., 1983). These arguments lead to the following hypothesis: H3: Firm characteristics will account for a significant amount of variance in decision rationality, above and beyond the variance attributable to decisionspecific and environmental characteristics. Reflecting theoretical relevance and previous work, the firm-specific variables examined in the present study are: Performance. The potential influence of firm performance in decision-making rationality has attracted particular attention (e.g. Bateman & Zeithaml, 1989; Eisenhardt, 1989; Fredrickson, 1985; Miller & Friesen, 1983). Some authors find empirical support for a positive relationship between performance and the rational processes of decision-making (e.g. Jones et al., 1992; Smith et al., 1988). This may be due to having the luxury or slack of resources needed to absorb the cost of the rational processes of decision-making (Fredrickson, 1984). There is,
13
however, an opposite line of argument. This is that lower performing organisations may have strong incentives to push decision-makers to be more rational because a wrong decision may put an organisation out of business; while superior performance reduces the desire to search for and analyse information (Bourgeois 1981; Cyert & March, 1963; Fredrickson, 1985). Performance in the present study was defined as how a firm performs in comparison to companies similar in size and industry over the period of making the strategic decision, not only on financial indicators of performance, but on non-financial indicators as well. Company Size. Many researchers have argued that company size can affect rationality (e.g. Child, 1973; Fredrickson & Iaquinto, 1989; Miller et al., 1998; Simons et al., 1999; Snyman & Drew, 2003), such that larger firms will employ more formal and rational processes (e.g. Papadakis et al., 1998). METHOD This study takes the strategic decision for its unit of analysis. This choice is due to the fact that within the same organisation, the decision process can differ from one decision to another (Hickson et al., 1986; Papadakis & Lioukas, 1996). The strategic decisions to be investigated were selected according to the following two criteria: (1) the decision had to be defined by both the respondent and the researcher as a strategic one; and (2) the decision had to be sufficiently recent to minimise memory error or those of being retrospective accounts. Given the contradictory conclusions of previous research (Papadakis et al., 1998), the likely effects of context (Whittington et al., 2002), and the paucity of reported investigations of strategic decision making in the Egyptian setting, we decided to conduct an exploratory investigation prior to hypothesis testing.
As suggested by Churchill (1995), this first
exploratory stage was used to (1) clarify concepts, (2) operationalize measures, and (3) determine the practical problems of carrying out the research.
14
Sample Qualitative and quantitative methodologies were employed in a complementary way (Jick, 1979), in the two stages of this study in order to achieve as complete and realistic a portrayal of rationality in strategic decision processes as possible. The results to be presented derive from the second stage. The data collection in the first stage lasted approximately three months from mid-October 2001 to mid-January 2002, and covered both private and state-owned firms. In this stage, 128 questionnaires were collected addressing 117 strategic decisions; two responses per company were collected from eleven cases to check inter-rater reliability. In addition, 36 semi-structured interviews were conducted. In the second stage, the target population was limited to Egyptian private manufacturing companies working in greater Cairo and employing more than 100 people. This restriction was introduced to increase comparability between the strategic decisions studied. Moreover, the interviews in the first stage revealed that top managements in state-owned manufacturing companies were not allowed in many cases to take SDs without getting approval from their holding companies. In other state-owned firms, top managements were taking some SDs merely in response to governmental policies. For example, the decision to initiate an early retirement policy, which was one of the most frequently taken decisions in the first stage sample was merely an implementation of the government's policies related to its privatisation programme. Data collection in the second stage lasted approximately two months from mid-July 2002 to mid-September 2002. Because the outcomes of strategic decisions are a function of the people who are actually involved in making them (Amason, 1996), the data for this study was collected
15
using executives who were closely involved in making the decisions regardless of their positions (e.g. Hickson et al., 1986). In the second stage, 400 revised questionnaires were dropped off in person, and 206 completed schedules were collected. Out of these 206 questionnaires, 37 were excluded because of incomplete responses or non-relevant respondents. The remaining 169 usable questionnaires (a final response rate of 42%) were included in the analysis. During the second half of December 2002, eight respondents completed the final format of the questionnaire again for purposes of test-retest reliability. As with many other studies (e.g. Sabherwal & King, 1995), the difficulty of gaining permission to conduct a multiple-informant survey generated a reliance on single respondents. We therefore normally had to collect data from a single informant for each decision. The possibility of common method bias was tested using Harman’s one-factor test (Podsakoff et al., 2003). A principal-components factor analysis on the items measured yielded seven factors with eigenvalues greater than 1.0, and these accounted for 71% of the total variance. Since several factors, rather than one single factor, were identified, and as the first factor did not account for a large percentage of the variance (only 20%), a substantial amount of common method variance does not appear to be present. We also used the eleven instances of multiple respondents to test for inter-rater reliability. Our data enjoy a modest level of inter-rater reliability (ten out of the eleven cases with two informants demonstrated significant correlations at the 1 percent level or better (Clark-Carter, 1997). All respondents were male, which may be considered a distinctive feature of this study compared with related research conducted in different contexts. For example, Khatri & Ng’s (2000) study on the role of intuition in SD-making in three USA industries reports that 20% of their respondents (senior managers) were females. Respondents were managers or directors (35%), CEOs (31%), general managers or managing directors (20%), and chairmen or presidents (14%). The firms represent a variety of industries, with no sector accounting for
16
more than 23% of the sample. The decisions sampled vary widely: capital investment (30%), introduction of new products (23%), marketing strategy (22%), restructuring (13%), production strategy (6%) and human resource strategy (6%). Employment in 77% of the companies ranged between 100 to 600 persons, while 23% of the companies had between 600 and 2,500 employees. These data suggest that the sample is biased toward small and medium size companies. This may be due to the still emerging status of Egypt’s economy and the previous dominance of state enterprises. Comprehensive and accurate data are not available on the profile of Egyptian private firms. Nevertheless, since the role of privately-owned companies in the Egyptian economy only began to increase with the economic reform programme in the 1990s, one would expect them as a whole to be smaller than those included in similar studies conducted in developed countries (e.g. Goll & Rasheed, 1997). Given that this study collected quantitative data based on a survey instrument through two stages with similar sampling procedures, it was possible to use extrapolation to assess total nonresponse bias (Churchill & Iacobucci, 2002). This study compared two samples based on the number of employees (cf. Judge & Zeithaml, 1992; Werner et al., 1996). The two-sample t-test was found to be insignificant, showing that there was no significant difference between the two samples in terms of company size (p = 0.56). This may suggest that our sample is representative of the population. Regarding the ‘sporadic’ items non-response bias, sample means were used to replace missing values with the mean for the variable (Churchill & Iacobucci, 2002; Vaus, 2001).
Operationalization The questionnaire was developed and reviewed through four processes. The investigators, together with academic colleagues and doctoral candidates in several British universities examined and discussed drafts of the instrument. Five academic staff who were bilingual in
17
Arabic and English checked the translation. Seven Egyptian executives agreed to participate in a pilot study and to provide feedback. The results derived from Stage 1 were carefully examined and subjected to tests of internal reliability and validity. We were aware that problems can arise with transferring management concepts to another country and culture (Elenkov, 1998; Newman & Nollen, 1996; Schneider, 1989). Hence, in the light of the first stage results, a number of amendments were made to the questions asked. Additional items were added to measure the concepts more adequately and several items were changed, deleted or reordered, in some cases to avoid undue sensitivity among respondents. For example, two items referring to politics were removed from the scale of environmental uncertainty (i.e. “the ability of the party in power to maintain control of the country” and “the threat of armed conflict in the Middle East”). Respondents had been reluctant to answer these two items. Other modifications included changing or removing some sensitive words and reordering the items of the scale so as to begin with the less sensitive items. The intention was to make our measures both more applicable to, and acceptable in, the Egyptian context and to take full advantage of information on the reliability and validity of the constructs. Details about the sources of the variables used in Stage 2, and their operationalization, are given in the Appendix. Given that the perceptual measures employed may not truly reflect the phenomenon of interest, we attempted to reduce this limitation through several means: (1) scale anchors were reversed in several places to reduce response bias; (2) multiple sources of data were used, i.e. triangulation of evidence; (3) assurances of complete anonymity and confidentiality. Organisational performance can be measured both through objective and subjective indicators, and the substitutability of the latter for the former remains controversial. It is quite common for companies to refuse to provide researchers with objective data on organisational performance (Sapienza et al., 1988). As Dess & Robinson (1984) note, there are few options
18
when it comes to studying privately held firms. It became clear that this was a problem at the first stage of our research. This may be due to the fact that business people in Egypt tend not to cooperate with researchers or to provide others with information (cf. Al-khatib et al., 1997), especially financial data. For instance, one interviewee declared, ‘I cannot provide you with any financial or demographic data because of considerations of confidentiality’. The problems facing the Egyptian economy at the time of data collection magnified this difficulty. ‘We should be very cautious about our organisations and data on our economy, especially, at this critical stage the Egyptian economy is facing’, another interviewee said. When such data were made available, they were often not representative of actual organisational performance because many companies, for a variety of reasons, manipulate reported figures for profits and the like (Sapienza et al., 1988). In view of these limitations, this study used subjective perceptual measures to gauge organisational performance (e.g. Khatri & Ng, 2000; Naman & Slevin, 1993). Environmental dimensions can be also measured both in objective (e.g. Dean & Sharfman, 1996; Goll & Rasheed, 1997) and perceived subjective ways (e.g. Khatri, 1994; Lewis & Harvey, 2001; Miller, 1993; Papadakis et al., 1998). Given the above discussion on the operationalization of organisational performance in addition to the unavailability of relevant published data on private held companies in Egypt (Abou Aish, 2001), we used perceived measures to gauge environmental dimensions. Test-Retest Reliability (Stability). The Pearson correlation coefficients between the answers of the eight respondents, who completed the identical questionnaire on the same decisions on two different occasions, range between 0.83 and 0.99. This result suggests a high degree of stability of the measures used in this study (Kline, 1993).
19
Internal Consistency. The results of alpha coefficients as shown in the appendix range between 0.72 and 0.92 for all scales, except decision importance (0.63), indicating a satisfactory degree of internal consistency. Construct Validity. To examine construct validity, Campbell & Fiske (1959) suggest scrutinising both convergent and discriminant validity. Factor analysis was used to do this. Because of the large number of items involved (61), which seriously violates the recommended six-to-one ratio for obtaining stable factor solutions (Bauer et al., 2001), this study ran three sets of factor analysis (e.g. Hart & Banbury, 1994). These three sets respectively included variables for each of the three perspectives concerning decision-specific, environmental, and firm characteristics. Factor analysis was run using the principal components extraction method and promax oblique rotation with Kaiser’s criterion of eigenvalue greater than one. Inspection of the correlation matrix, the Kaiser-Meyer-Olkin measure of sampling adequacy (MSA), the anti-image correlation matrix and Bartlett’s test of sphericity suggest that factor analysis was appropriate for each data set. Table I suggests that the measurement instruments of this study meet the criteria for convergent and discriminant validity.
----------------------------------------INSERT TABLE I ABOUT HERE ----------------------------------------Decision-specific characteristics. As Table I shows, three factors were derived. Factor 1 may be labelled decision motive; Factor 2 clearly can be labelled decision uncertainty; and Factor 3 represents decision importance. Each factor is defined by variables with loadings higher than 0.45 (Hair et al., 1995). However, there were two unexpected results. First, although both confidence in making the right choice (Dean & Sharfman, 1993a) and clarity of goals (Beach & Mitchell, 1978) should theoretically be loaded on decision uncertainty, they were in fact
20
significantly loaded on decision motive. Second, although time pressure should theoretically be loaded on decision motive (Billings et al., 1980; Mintzberg et al., 1976), it was actually loaded on decision importance. Further research is required to verify whether these unexpected results are replicated and if they reflect a cultural effect. Environmental Characteristics. Investigation of the measure of environmental uncertainty during Stage 1 suggested several changes to overcome operational problems, such as the ambiguity of some items, questionnaire length, and the sensitivity of managers to political issues. Factor analysis was used to inform the reduction of items to a more manageable number (Gerbing & Anderson, 1988). The original 35 environmental items were reduced to 21, still retaining 4 of the original 6 components. After conducting Stage 2, the twenty-one items of environmental uncertainty and the three items of environmental hostility were factor analysed, and five factors were derived. As Table I shows, the five factors are consistent with the hypothetical structure of constructs. Factor 1 represents the seven items referring to governmental policies. Factor 2 represents the six product-related items. Factors 3 and 4 are clearly the economy and competition items respectively.
Factor 5 denotes degree of
environmental hostility. Since the four sub-scales of environmental uncertainty corresponding to Factors 1 to 4 did not separately add to the prediction of SDMP rationality as compared to their aggregation, the aggregate of all 21 environmental uncertainty variables is used in the analysis. Firm Characteristics. Factor analysis produced two distinct dimensions of performance, which can be respectively labelled business performance and organisational effectiveness. In the preliminary analysis, we entered both indicators, but this did not make a significant contribution
21
to explained variance in the regression model. Hence, in the interests of parsimony, we used the mean score of all ten items of organisational performance in the final regression analysis. Finally, in line with many previous studies, company size is assessed by the number of fulltime employees. This statistic is more willingly made available by companies than others such as sales turnover and is less prone to erroneous or false reporting. Overall, the measures of this study enjoy a satisfactory degree of both validity and reliability compared with those of other related studies. Therefore, with respect to measurement error, our results can be offered with a reasonable degree of confidence.
RESULTS Table II presents the means, standard deviations and correlation coefficients for the entire sample (N = 169). It indicates that each of the independent variables predicts some variance in SDMP rationality, with organizational performance, decision motive and environmental hostility having the highest correlations. Table II also shows that all the coefficients for correlations between predictor variables are below 0.45, which does not suggest serious multicollinearity problems. For the regression models presented in Table III, the tolerance statistics were all well above 0.10. Therefore, we can safely conclude that there is no substantial multicollinearity within the data to be entered into regression models (Hair et al., 1995). Because none of the regression models has standardised residuals above +3.3 or less than –3.3 (Tabachnick & Fidell, 2001) or has a Cook’s distance above one (Cook & Weisberg, 1982), we can argue that outliers do not give rise to concern (Stevens, 1992). ----------------------------------------INSERT TABLE II ABOUT HERE -----------------------------------------
22
Following Hitt & Tyler (1991), hierarchical regression was used to test Hypothesis 1. Two equations were generated. First, rationality was regressed against the four variables of environmental and firm characteristics (Model 1.4 in Table III). The three decision-specific variables were then added into the equation. The addition of decision characteristics to the Model added almost 7 percent ( p 0.01) to the explained variance of rationality. Thus, Hypothesis 1 was supported. The procedure followed to test Hypothesis 1 was also used to test Hypothesis 2. Table III demonstrates that adding the environmental variables to the hierarchical regression model (the five decision and firm-specific variables) significantly increased the variance in rationality accounted for by 4 percent ( p 0.01) (Model 2.4 in Table III). This result lends support to Hypothesis 2. Following the same procedure, Table III shows that the addition of firm characteristics to the hierarchical regression model (environmental and decision-specific variables) added a further 8 percent of predicting for rationality ( R 2 = 0.08, p 0.01) (Model 3.4 in Table III). This supports Hypothesis 3. Taken together, the seven variables representing the three perspectives – highlighting decision, firm, and environmental characteristics - predict 42 percent of the variance in SDMP rationality. The unique variance in rationality explained by the decision-specific, environmental and firm perspectives are 7 percent (Model 1.4), 4 percent (Model 2.4) and 8 percent (Model 3.4) respectively. ----------------------------------------INSERT TABLE III ABOUT HERE ----------------------------------------To rule out order effects, we ran the regressions in all possible entry orders so as to see how those results compared (see Table III). The variance in rationality explained separately by the
23
SD-specific, environmental and firm perspectives is 25 percent ( p 0.01) (Model 1.1), 13 percent ( p 0.01) (Model 2.1) and 31 percent ( p 0.01) (Model 3.1) respectively. The three SD-specific variables accounted for 12 percent ( p 0.05) of the variance in rationality more than the two environmental variables; and the two firm variables accounted for 18 percent ( p 0.01) of the variance in rationality more than the environmental variables. These results
suggest that the relative importance of environmental variables in predicating decision rationality is less than decision and firm-specific variables. Consistent with the above, the inclusion of environmental variables in the hierarchical regression models, with firm and then SD-specific variables, added 4 percent ( p 0.05) (Model 2.2) and 9 percent ( p 0.01) (Model 2.3) respectively to the explained variance in SDMP rationality. By contrast, the inclusion of SD-specific variables in the hierarchical regression models, with firm and environmental variables, added 7 percent ( p 0.01) (Model 1.2) and 21 percent ( p 0.01) (Model 1.3) respectively to the explained variance. Including firm variables in the hierarchical regression models, environmental and SD-specific variables, added 22 percent ( p 0.01) (Model 3.2) and 13 percent ( p 0.01) (Model 3.3) respectively to the explained variance. These results further support the conclusion that the relative importance of environmental variables in predicating decision rationality is less than decision and firm-specific variables.
DISCUSSION The integrated model’s explanatory power is satisfactory compared to the results of similar studies (e.g. Amason & Sapienza, 1997; Dean & Sharfman, 1993a; Papadakis et al., 1998). The findings suggest that the rationality of strategic decision-making processes is shaped by variables identified by all three perspectives, and that these processes cannot be sufficiently
24
modelled using a single perspective. This supports Papadakis et al.’s (1998) finding that strategic decision-making rationality is affected by decision-specific characteristics and firm variables, though it is inconsistent with their conclusion that the environmental model is not operative. Rather, our results indicate that environmental variables add significantly to the prediction of variance in decision-making rationality, albeit that their relative importance is less than decision and firm-specific factors. This conclusion falls between the findings reported by Papadakis et al., on the one hand, and the reporting of a significant influence of environmental attributes on SD rationality reported by other investigators (e.g. Bourgeois & Eisenhardt, 1988; Bresser & Bishop, 1983; Fredrickson & Mitchell, 1984; Kreiser et al., 2002; Kukalls, 1991). Evidence from interviews we conducted is consistent with the view that in countries like Egypt where executives perceive a lack of control over the external environment, they are likely to discount it in strategic decision making. In the present case, this could reflect a cultural influence insofar as it is consistent with the tendency noted earlier among Egyptian managers to be fatalistic and to defer to higher levels of authority. However, it appears likely that any such cultural effects will be reinforced by the general context facing business in the region especially political uncertainty. The mean scores in the questionnaire sample for environmental uncertainty and hostility were above the mid-points of their scales, and the interviews revealed more clearly the nature of the executives' perceptions.
Thus one maintained that the
environment has to be discounted because, ‘The Middle East area including Egypt, which is considered the heart of the area, is completely unstable. If we were to base our policies on the surrounding environment, we would never ever develop because we are living in the hottest area in the world’. Another described the environment in which his company was working as follows. ‘There were many threats surrounded our potential external markets such as the problem of Iraq; a conflict between Yemen and Saudi Arabia; the war in south Sudan; new potential
25
sanctions on Libya; and the possibility of the relations between Egypt and these countries turning bad. Moreover, there are many threats in the internal environment such as the high interest rate; changes in the system of contracting; the problem of lack of liquidity; and declining demand’. The general agreement among the Egyptian executives interviewed was that they were working under conditions of environmental uncertainty and hostility which were beyond their control. As illustrated by the above quotation, this suggests that they may adopt a fatalistic or detached attitude towards such conditions in their strategic decision making process. In this respect, political and economic factors may be reinforcing apparently cultural attributes, factors which could potentially have a similar effect on the SDMP in other countries irrespective of their cultures. The possibility that apparently national cultural effects may mask economic and political effects less specific to particular countries has been relatively neglected and deserves further investigation with respect to the SDMP and other organizational phenomena (Child, 2000). Virtually all previous research on SDMP rationality has been conducted in developed countries, especially the U.S.A, in which environmental effects associated with characteristics such as competition are likely to reflect the presence of a relatively free market system and the cultural effects of an entrepreneurial climate associated with individualism and freedom from bureaucratic state control. As noted earlier, such conditions do not apply in the same degree to Egypt where there has been a high level of bureaucratic regulation of business and only a recent emergence of a private business sector. These environmental characteristics are expected to reduce the impact on the SDMP rationality of Egyptian firms attributable to variables included in previous 'western' studies such as competitive intensity and threat. Moreover, the political uncertainty of the Middle East region may combine with the fatalism that has been noted in
26
Egyptian culture, to encourage a discounting of environmental conditions among business people in terms of how they approach strategic decisions. Mostafa (2005) comments on the presence of a ‘decrepit bureaucracy’ in Egypt and notes the intention of its Minister of Foreign Trade and Industry, newly appointed from a multinational corporation, to encourage strategic initiatives to come from business people themselves instead of the previous process of the government ‘dictating solutions from the top’.
A context of
institutionally enforced conformity such as that which has characterized Egyptian business is highly likely to limit the effects of environmental variables on SDMP rationality. The only recent emergence of the private business sector in Egypt also means managers in that sector have had less experience in handling strategic decisions than their American and British equivalents. This limited experience may result in Egyptian managers being more focused on the distinctive nature of SDs themselves and managing them within their organizational context than by environmental dimensions. For US and British managers, their greater experience in handling SDs may make the role of external variables seem more important than that of internal ones. This possibility raises questions about the role of decisionmakers’ own characteristics in the SDMP, such as their previous experience. Such questions, which fit the strategic or management choice perspective, deserve further investigation alongside decision and firm-specific variables. These considerations lead to the following general proposition: The relative contribution of environmental characteristics in accounting for variance in strategic decision-making rationality is reduced by the specific nature of the Egyptian environment. Further research needs to test this proposition through comparative analysis, such as between cases in Egypt and the UK.
27
CONCLUSION The study reported here has demonstrated the operative nature of factors identified by broader contextual perspectives on SD-making. Nevertheless, it does not indicate that all perspectives make an equal contribution toward explaining the decision rationality. These findings go a step further in answering the question of what are the key influences on the SD making rationality. Additional research is still required to complete the answer to this question and to conclude generalizable results. As Whittington et al. (2002) argue, the findings that arise from an increasingly international research community are complex and therefore generalizations are hard to sustain across borders. One of the distinctive contributions of this study lies in the way we have been able to demonstrate the differential contribution that the three theoretical perspectives make toward explaining decision rationality. A second addition to knowledge is that it is the first study to be reported on the SDMP in the Middle East region. This is significant in permitting a test of the wider validity of findings derived from research conducted mainly in the so-called ‘Anglo Saxon’ contexts. Our results do not accord with those who argue that environmental variables, as opposed to internal organisational variables, exert the greater influence on strategic decisions (e.g. Hannan & Freeman, 1977; Jemison, 1981). The enhanced role of the decision-specific characteristics model in this study appears to concur with the findings of Hickson et al. (1986), Maritan & Schendel (1997) Meyer & Goes (1988), and Papadakis et al.(1998). This concurrence might be taken to support the argument that the SDMP is largely free of cultural effects. However, we have suggested that the environment probably remains a significant factor in Egypt albeit acting at one remove. For, paradoxically, the combination of unstable geo-political conditions combined with bureaucratic top-down restrictions that characterizes the Egyptian business
28
environment may cause Egyptian executives to discount environmental variables in the SDMP because they are perceived to be beyond their powers to influence or control. This apparent paradox suggests that the challenge is now to examine more precisely why and how national characteristics affect the SDMP, which will require an emphasis on decision makers’ sensemaking through a qualitative methodology. Although this study was carefully designed, it was subject to several important limitations. First, it relies on questionnaires completed by a single respondent in each firm. This method is in keeping with that of much previous work on the subject (Goll & Rasheed, 1997; Hart & Banbury, 1994; Jones et al., 1992; Wally & Baum, 1994). Although the use of multiple informants can help to minimise bias, the difficulty of conducting multiple-informant surveys often generates reliance on single respondents. Because of this difficulty, we generally collected data from a single informant for each decision and, as noted earlier, used the instances of multiple respondents to test for inter-rater reliability. Nevertheless, the single respondent design requires caution in interpreting the results; and it would have been preferable to have multiple respondents in order to minimise effects of systematic response bias. Second, our sample was drawn only from Egyptian private manufacturing firms. Therefore, caution should be expressed in generalizing from these findings. Third, a number of studies have argued that the role of ‘upper echelon’ or ‘top managers’ is the most central determinant of the strategy-making process (e.g. Child, 2002; Hambrick & Mason, 1984; Miller & Toulouse, 1986; Papadakis & Barwise, 1997a). Nevertheless, as mentioned earlier, practical limitations in access and data collection obliged this study to exclude the strategic or management choice perspective. This is a notable limitation to the present study. Fourth, although we carefully reviewed relevant research in selecting explanatory variables with reference to the three perspectives that inform them, we cannot claim that they are exhaustive of those three perspectives. Hence, our results could be idiosyncratic to our model
29
and another model including another set of explanatory variables, similarly well-considered, might yield different results. As suggested by Bateman & Zeithaml (1989), research should help in identifying and explaining relationships which are not obvious to managers. Because the findings showed that decisional and contextual antecedents matter in SD-making, one of the managers’ tasks is to evaluate and to be aware of the variables which they face, and to make conscious decisions taking them into account. However, this study treated company performance as a potential influence on the SDMP rather than as an outcome of the process. Therefore, a next logical step in this line of research would be to investigate the relationship between decision rationality and performance outcomes over a period of time, treating contextual variables as potential moderators. A more accurate understanding of the causal relationships between decision antecedents and process requires the adoption of a longitudinal research design.
30
REFERENCES Abou Aish E. (2001). A cross-national analysis of bank selection decision and implications for positioning. Nottingham: the University of Nottingham. Agor WH. (1989). 'Intuition and strategic planning: How organisation can make productive decisions'. The Futurist, 23(6), 20-23. Al-khatib JA, Vitell SJ, Rawwas MYA. (1997). 'Consumer ethics: A cross-cultural investigation'. European Journal of Management, 31(11/12), 750-767. Amason AC. (1996). 'Distinguishing the effects of functional and dysfunctional conflict on strategic decision making: Resolving a paradox for top management teams'. Academy of Management Journal, 39(1), 123-148. Amason AC, Sapienza HJ. (1997). 'The effects of top management team size and interaction norms on cognitive and affective conflict'. Journal of Management, 23(4), 495-516. Ashmos DP, Duchon D, Bodensteiner WD. (1997). 'Linking issues labels and managerial actions: A study of participation in crisis vs. opportunity issues'. Journal of Applied Business Research, 13(4), 31-45. Ashmos DP, Duchon D, McDaniel RR. (1998). 'Participation in strategic decision making: The role of organizational predisposition and issue interpretation'. Decision Sciences, 29(1), 25-51. Bateman TS, Zeithaml CP. (1989). 'The psychological context of strategic decisions: A model and convergent experimental findings'. Strategic Management Journal, 10(1), 59-74. Bauer TN, Truxillo DM, Sanchez RJ, Craig JM, Ferrara P, Campion MA. (2001). 'Applicant reactions to selection: Development of the selection procedural justice scale (SPJS)'. Personnel Psychology, 54, 387-419. Beach LR, Mitchell TR. (1978). 'A contingency model for the selection of decision strategies'. Academy of Management Review, 3, 439-449. Billings RS, Milburn TW, Schaalman ML. (1980). 'A model of crisis perception: A theoretical and empirical analysis'. Administrative Science Quarterly, 25, 300-316. Bourgeois LJ. (1981). 'On the measurement of organisation slack'. Academy of Management Review, 6, 29-39. Bourgeois LJ, Eisenhardt KM. (1988). 'Strategic decision processes in high velocity environments: Four cases in the microcomputer industry'. Management Science, 34(7), 816835. Boyd BK, Reuning-Elliott E. (1998). 'A measurement model of strategic planning'. Strategic Management Journal, 19, 181-192. Bresser RK, Bishop RC. (1983). 'Dysfunctional effects of formal planning: two theoretical explanations'. Academy of Management Review, 8, 588-599. Brouthers KD, Brouthers LE, Werner S. (2000). 'Influences on strategic decision-making in the Dutch financial services industry'. Journal of Management, 26(5), 863-883. Butler R. (2002). Decision making. In A Sorge (Ed.), Organisation: 224-251. London: Thomson Learning. Calori R, Johnson G, Sarnin P. (1994). 'CEOs' cognitive maps and the scope of the organisation'. Strategic Management Journal,(15), 437-457. Campbell DT, Fiske DW. (1959). 'Convergent and discriminant validation by the multitraitmultimethod matrix'. Psychological Bulletin, 56(1), 81-105. Carr C. (1997). Strategic investment decisions and short-termism: Germany versus Britain. In V Papadakis, P Barwise (Eds.), Strategic decisions: 107-125. London: Kluwer. Carter EE. (1971). 'The behavioural theory of the firm and top-level corporate decisions'. Administrative Science Quarterly, 16(4), 413-429.
31
Castrogiovanni G. (1991). 'Environmental munificence: A theoretical assessment'. Academy of Management Review, 16(3), 542-565. Chaffee EE. (1985). 'Three modes of strategy'. Academy of Management Review, 10, 89-98. Child J. (1973). 'Predicting and understanding organization structure'. Administrative Science Quarterly, 18(2), 168-185. Child J. (2000). 'Theorizing about organization cross-nationally'. Advances in Comparative International Management, 13, 27-75. Child J. (2002). Strategic choice. In A Sorge (Ed.), Organisation: 107-126. London: Thomson Learning. Child J, Chung L, Davies H. (2003). 'The performance of cross-border units in China: A test of natural selection, strategic choice and contingency theories'. Journal of International Business Studies, 34(3), 242-254. Child J, Lu Y. (1996). 'Institutional constraints on economic reform: The case of investment decisions in China'. Organisation Science, 7(1), 60-77. Child J, Tsai T. (2005). 'The dynamic between firms' environmental strategies and institutional constraints in emerging economies: Evidence from China and Taiwan'. Journal of Management Studies, 42(1), 95-125. Churchill G. (1995). Marketing research: Methodological foundations. London: Dryden Press. Churchill G, Iacobucci D. (2002). Marketing research: Methodological foundations. London: South-Western. Clark-Carter D. (1997). Doing quantitative psychological research from design to report. East Sussex: psychology Press. Cook RD, Weisberg S. (1982). Residuals and influence in regression. New York: Chapman & Hall. Cosier R, Schwenk CR, Dalton D. (1992). 'Managerial decision making in Japan, the U.S., and Hong Kong.' International Journal of Conflict Management, 3, 151-160. Cyert RM, March JG. (1963). A behavioural theory of the firm. Englewood Cliffs, NJ: Prentice-Hall. Cyert RM, Simon HA, Trow DB. (1956). 'Observation of a business decision'. The Journal of Business, 29, 237-248. Dean JW, Sharfman MP. (1993a). 'Procedural rationality in the strategic decision making process'. Journal of Management Studies, 30(4), 587-610. Dean JW, Sharfman MP. (1993b). 'The relationship between procedural rationality and political behaviour in strategic decision making'. Decision Sciences, 24(6), 1069-1083. Dean JW, Sharfman MP. (1993a). 'Procedural rationality in the strategic decision making process'. Journal of Management Studies, 30(4), 587-610. Dean JW, Sharfman MP. (1996). 'Does decision process matter? A study of strategic decision making effectiveness'. Academy of Management Journal, 39(2), 368-396. Dess GG, Robinson RB. (1984). 'Measuring organisational performance in the absence of objective measures: The case of the privately-held firm and conglomerate business unit'. Strategic Management Journal, 5, 265-273. Durand R, Vargas V. (2003). 'Ownership, organisation and private firms' efficient use of resources'. Strategic Management Journal, 24, 667-675. Dutton JE. (1986). 'The processing of crisis and non-crisis strategic issues'. Journal of Management Studies, 23(5), 501-517. Dutton JE, Jackson S. (1987). 'Categorizing strategic issues: Links to organisational action'. Academy of Management Review, 12, 76-90. Eisenhardt KM. (1989). 'Making fast strategic decision in high velocity environments'. Academy of Management Journal, 32(3), 543-576.
32
Eisenhardt KM. (1997). 'Strategic decisions and all that jazz'. Business Strategy Review, 8(3), 1-3. Eisenhardt KM, Zbaracki M. (1992). 'Strategic decision-making'. Strategic Management Journal, 13, 17-37. Elenkov DS. (1998). 'Can American management concepts work in Russia? A cross-cultural comparative study'. California Management Review, 40(4), 133-156. Fredrickson JW. (1984). 'The comprehensiveness of strategic decision processes: Extension, observation, future decisions'. Academy of Management Journal, 27(3), 445-466. Fredrickson JW. (1985). 'Effects of decision motive and organizational performance level on strategic decision processes'. Academy of Management Journal, 28(9), 821-843. Fredrickson JW, Iaquinto AL. (1989). 'Inertia and creeping rationality in strategic decision processes'. Academy of Management Journal, 32(3), 516-542. Fredrickson JW, Mitchell TR. (1984). 'Strategic decision processes: Comprehensiveness and performance in an industry with an unstable environment'. Academy of Management Journal, 27(2), 399-423. Gerbing D, W, Anderson JC. (1988). 'An updated paradigm for scale development incorporating undimensionality and its assessment.' Journal of Marketing Research, XXV, 186-192. Gigerenzer G, Todd PM. (1999). Simple heuristics that make us smart. New York: Oxford University Press. Glick WH, Miller CC, Huber GP. (1993). The impact of upper echelon diversity on organisational performance. In GP Huber, WC Glick (Eds.), Organisational change and redesign: Ideas and insights for improving performance. New York: Oxford University Press. Goll I, Rasheed AMA. (1997). 'Rational decision-making and firm performance: The moderating role of environment'. Strategic Management Journal, 18(7), 583-591. Hair JF, Anderson R, Tatham R, Black WC. (1995). Multivariate data analysis with readings (1st ed.). London: Prentice-Hall. Haley GT. (1997). 'A strategic perspective on overseas Chinese networks' decision- making'. Management Decision, 35(7), 587-584. Hambrick DC, Mason PA. (1984). 'Upper echelons: The organisation as a reflection of its top managers'. Academy of Management Review, 9, 193-206. Hannan MT, Freeman JH. (1977). 'The population ecology of organisations'. American Journal of Sociology, 82, 929-964. Hart S. (1992). 'An integrative framework for strategy-making processes'. Academy of Management Review, 17(2), 327-351. Hart S, Banbury C. (1994). 'How strategy-making processes can make a difference.' Strategic Management Journal, 15(4), 251-269. Hickson DJ, Butler RJ, Cray D, Mallory GR, Wilson DC. (1986). Top decisions: Strategic decision-making in organizations. Oxford: Basil Blackwell. Hickson DJ, Pugh DS. (2001). Management worldwide: Distinctive styles amid globalisation. London: Penguin. Hitt MA, Dacin MT, Tyler BB, Park D. (1997). 'Understanding the differences in Korean and U.S. executives' strategic orientations.' Strategic Management Journal, 18(2), 159-167. Hitt MA, Tyler BB. (1991). 'Strategic decision models: Integrating different perspectives'. Strategic Management Journal, 12, 327-352. Hofstede G. (1991). Cultures and organizations: Software of the mind. London: McGrawHill. Hoskisson RE, Eden L, Lau CM, Wright M. (2000). 'Strategy in emerging economies'. Academy of Management Journal, 43(3), 249-267.
33
Hough JR, White MA. (2003). 'Environmental dynamism and strategic decision-making rationality: An examination at the decision level'. Strategic Management Journal, 24, 481489. Hsu C-K, Marsh RM, Mannari H. (1983). 'An examination of the determinants of organization structure'. American Journal of Sociology, 88, 975-996. Jemison DB. (1981). 'Organisational vs. environmental sources of influence in strategic decision making'. Strategic Management Journal, 2, 77-89. Jick TD. (1979). 'Mixing qualitative and quantitative methods: Triangulation in action'. Administrative Science Quarterly, 24(4), 602-611. Jones RE, Jacobs LW, Spijker WV. (1992). 'Strategic decision processes in international firms'. Management International Review, 32(3), 219-237. Judge WQ, Zeithaml CP. (1992). 'Institutional and strategic choice perspectives on board involvement in the strategic decision process'. Academy of management Journal, 35(4), 766794. Khandwalla PN. (1977). The design of organisations. New York: Harcourt Brace Jovanovich. Khatri N. (1994). Strategic decision processes and organisational performance. Buffalo: The State University of New York. Khatri N, Ng HA. (2000). 'The role of intuition in strategic decision making'. Human Relations, 53(1), 57-86. Kline P. (1993). The handbook of psychological testing. London: Routledge. Kogut B. (2002). International management and strategy. In A Pettigrew, H Thomas, R Whittington (Eds.), Handbook of strategy and management. London: Sage. Krabuanrat K, Phelps R. (1998). 'Heuristics and rationality in strategic decision making: An exploratory study'. Journal of Business Research, 41(1), 83-93. Kreiser PM, Marino LD, Weaver KM. (2002). Reassessing the environment-EO link: The impact of environmental hostility on the dimensions of entrepreneurial orientation, Academy of Management Proceedings: 1-6 Kukalls S. (1991). 'Determinants of strategic planning systems in large organizations: A contingency approach'. Journal of Management Studies, 28(2), 143-160. Langley A. (1989). 'In search of rationality: The purposes behind the use of formal analysis in organizations'. Administrative Science Quarterly, 34, 598-631. Leila A, Yassin ES, Palmer M. (1985). 'Apathy, values, incentives and development: The case of the Egyptian bureaucracy'. The Middle East Journal, 39(3), 341-361. Lewis GJ, Harvey B. (2001). 'Perceived environmental uncertainty: The extension of Miller's scale to the natural environment'. Journal of Management Studies, 38(2), 201-233. Lindblom CE. (1959). 'The science of muddling-through'. Public Administration Review, 19, 79-88. Lindsay WM, Rue LW. (1980). 'Impact of the organisation environment on the long-range planning process'. Academy of Management Journal, 23(3), 385-404. Lu Y, Heard R. (1995). 'Socialized economic action: A comparison of strategic investment decisions in China and Britain'. Organisation Studies, 16(3), 395-424. Lyles MA. (1981). 'Formulating strategic problems: Empirical analysis and model development'. Strategic Management Journal, 2, 61-75. Lyles MA, Thomas H. (1988). 'Strategic problem formulation'. Journal of Management Studies, 25, 131-146. Maritan CA, Schendel DE. (1997). Strategy and decision processes: What is the linkage? In V Papadakis, P Barwise (Eds.), Strategic decisions. London: Kluwer. Meyer AD, Goes JB. (1988). 'Organisational assimilation of innovations: A multilevel contextual analysis'. Academy of Management Journal, 31(4), 897-923.
34
Miller CC, Burke LM, Glick WH. (1998). 'Cognitive diversity among upper-echelon executives: Implications for strategic decision processes'. Strategic Management Journal, 19, 39-58. Miller D. (1987). 'Strategy making and structure: Analysis and implications for performance'. Academy of Management Journal, 30, 7-32. Miller D. (1993). 'Industry and country effects on managers' perceptions of environmental uncertainties'. Journal of International Business Studies, 24(4), 693-714. Miller D, Droge C, Toulouse JM. (1988). 'Strategic process and content as mediators between organisational context and structure'. Academy of Management Journal, 31, 544-569. Miller D, Friesen PH. (1983). 'Strategy making and environment: The third link'. Strategic Management Journal, 4, 221-235. Miller D, Toulouse JM. (1986). 'Chief executive personality and corporate strategy and structure in small firms'. Management Science, 1389-1409. Miller SJ, Hickson DJ, Wilson DC. (1996). Decision-making in organisations. In SR Clegg, C Hardy, WR Nord (Eds.), Handbook of organisation studies: 293-312. London: Sage. Mintzberg H. (1990). Strategy formation: Schools of thought. In JW Fredrickson (Ed.), Perspectives on strategic Management: 105-236. New York: Harper Business. Mintzberg H. (1998). Strategy safari: A guided tour through the wilds of strategic management. London: Prentice-Hall. Mintzberg H, Raisinghani D, Theoret A. (1976). 'The structure of "unstructured" decision processes'. Administrative Science Quarterly, 21(1), 246:275. Mintzberg H, Waters JA. (1985). 'Of strategies, deliberate and emergent'. Strategic Management Journal, 6, 257-272. Mostafa H. (2005). Taking care of business, Business Today Egypt (businesstodayegypt.com), Vol. September: Mukherji A, Hurtado P. (2001). 'Interpreting, categorizing and responding to the environment: The role of culture in strategic problem definition'. Management Decision, 39(2), 105-112. Naman JL, Slevin DP. (1993). 'Entrepreneurship and the concept of fit: A model and empirical tests'. Strategic Management Journal, 14, 137-153. Newman KL, Nollen SD. (1996). 'Culture and congruence: The fit between management practises and national culture'. Journal of International Business Studies, 27(4), 753-779. Nisbett RE, Ross L. (1980). Human inference: Strategies and shortcomings of social judgement. NJ: Prentice Hall. Papadakis VM. (1998). 'Strategic investment decision processes and organizational performance: An empirical examination'. British Journal of Management, 9(2), 115-132. Papadakis VM, Barwise P. (1997a). Research on strategic decisions: Where do we go from here? In VM Papadakis, P Barwise (Eds.), Strategic decisions: 289-302. London: Kluwer. Papadakis VM, Barwise P. (1997b). What can we tell managers about making strategic decisions? In VM Papadakis, P Barwise (Eds.), Strategic decisions: 267-287. London: Kluwer. Papadakis VM, Kaloghirou Y, Itarelli M. (1999). 'Strategic decision making: From crisis to opportunity'. Business Strategy Review, 10(1), 29-37. Papadakis VM, Lioukas S. (1996). 'Do early perceptions of strategic decisions influence strategic processes? An empirical investigation'. Academy of Management Best Paper Proceedings, 46-50. Papadakis VM, Lioukas S, Chambers D. (1998). 'Strategic decision-making: The role of management and context'. Strategic Management Journal, 19, 115-147. Pettigrew A. (2003). Strategy as process, power and change. In S Cummings, D Wilson (Eds.), Images of strategy: 301-330. Oxford: Blackwell.
35
Pettigrew A, Thomas H, Whittington R. (2002). Strategic management: The strengths and limitations of a field. In A Pettigrew, H Thomas, R Whittington (Eds.), Handbook of strategy and management: 3-30. London: Sage. Pettigrew AM. (1990). 'Longitudinal field research on change: Theory and practice'. Organisation Science, 1(3), 267-292. Podsakoff PM, MacKenzie SB, Lee J-Y, Podsakoff NP. (2003). 'Common method biases in behavioral research: A critical review of the literature and recommended remedies'. Journal of Applied Psychology, 88(5), 879-903. Priem RL, Rasheed MA, Kotulic AG. (1995). 'Rationality in strategic decision processes, environmental dynamism and firm performance'. Journal of Management, 21(5), 913-929. Quinn JB. (1980). Strategies for change: Logical incrementalism. Homewood: Irwin. Rajagopalan N, Rasheed AMA, Datta DK. (1993). 'Strategic decision processes: Critical review and future directions'. Journal of Management, 19(2), 349-385. Rajagopalan N, Rasheed AMA, Datta DK, Spreitzer GM. (1997). A multi-theoretic model of strategic decision making processes. In V Papadakis, P Barwise (Eds.), Strategic decisions: 229--250. London: Kluwer. Romanelli E, Tushman L. (1986). 'Inertia, environments and strategic choice: A quasiexperimental design for comparative-longitudinal research'. Management Science, 32, 608621. Sabherwal R, King WR. (1995). 'An empirical taxonomy of the decision-making processes concerning strategic applications of information systems'. Journal of Management Information Systems, 11(4), 177-214. Sapienza HJ, Smith KG, Gannon MJ. (1988). 'Using subjective evaluations of organisational performance in small business research'. American of Small Business, 12(3), 45-53. Sawyer OO, Ebrahimi BP, Luk VWM. (2003). 'Environment, executive information search activities, and firm performance: A comparative study of Hong Kong and Nigerian decisionmakers'. International Journal of Cross Cultural Management, 3(1), 67-92. Schneider SC. (1989). 'Strategy formulation: The impact of national culture'. Organisation Studies, 10(2), 149-168. Schneider SC, Meyer AD. (1991). 'Interpreting and responding to strategic issues: The impact of national culture'. Strategic Management Journal, 12, 307-320. Schwenk CR. (1995). 'Strategic decision making'. Journal of Management, 21(3), 471-493. Sharfman MP, Dean JW. (1991). 'Conceptualizing and measuring the organisational environment: A multidimensional approach'. Journal of Management, 17(4), 681-700. Shrivastava P, Grant J. (1985). 'Empirically derived models of strategic decision-making processes'. Strategic Management Journal, 6, 97-113. Simon HA. (1956). 'Rational choice and the structure of the environment'. Psychological Review, 9(1), 1-22. Simon HA. (1978). 'Rationality as process and product of thought'. Journal of the American Economic Association, 68(1), 1-16. Simon HA. (1987). 'Making management decisions: The role of intuition and emotion'. Academy of Management Executive, 1(1), 57-64. Simons T, Pelled LH, Smith KA. (1999). 'Making use of difference: Diversity, debate, and decision comprehensiveness in top management teams'. Academy of Management Journal, 42(6), 662-673. Smart C, Vertinsky I. (1984). 'Strategy and the environment: A study of corporate responses to crises'. Strategic Management Journal, 5(3), 199-213. Smith KG, Gannon MJ, Grimm C, Mitchell TR. (1988). 'Decision making behaviour in smaller entrepreneurial and larger professionally managed firms'. Journal of Business Venturing, 3, 223-232.
36
Snyman JH, Drew DV. (2003). 'Complex strategic decision processes and firm performance in a hypercompetitive industry'. The Journal of American Academy of Business, 2(2), 293298. Starbuck WH, Milliken FJ. (1988). Executives' perceptual filters: What they notice and how they make sense. In D Hambrick (Ed.), The executive effect: Concepts and methods for studying top managers, Vol. 2: 35-65. Greenwich: JAI Press. Stein J. (1980). Contextual influences on strategic decision methods. Pennsylvania: University of Pennsylvania. Stevens JP. (1992). Applied multivariate statistics for the social sciences. Hillsdale, NJ: Erlbaum. Tabachnick BG, Fidell LS. (2001). Using multivariate statistics. Boston: Allyn & Bacon. Trompenaars F. (1973). Riding the waves of culture: Understanding cultural diversity in business. London: The Economist Books. Tuschke A, Sanders WG. (2003). 'Antecedents and consequences of corporate governance reform: The case of Germany'. Strategic Management Journal, 24, 631-649. Tversky A, Kahneman D. (1974). 'Judgement under uncertainty: Heuristics and biases'. Science, 185, 1124-1131. Vaus DD. (2001). Research design in social research. London: Sage. Wally S, Baum JR. (1994). 'Personal and structural determinants of the pace of strategic decision-making'. Academy of Management Journal, 37(4), 932-956. Wally S, Baum JR. (1997). Timing and intuition in strategic decision making. In V Papadakis, P Barwise (Eds.), Strategic decisions. London: Kluwer. Wan WP, Hoskisson RE. (2003). 'Home country environments, corporate diversification strategies, and firm performance'. Academy of Management Journal, 40(1), 27-45. Werner S, Brouthers LE, Brouthers KD. (1996). 'International risk and perceived environmental uncertainty: The dimensionality and internal consistency of Miller's measure'. Journal of International Business Studies, 27(3), 571-587. Whittington R, Mayer M. (2000). The European corporation: Strategy, structure and social science. Oxford: Oxford University Press. Whittington R, Pettigrew A, Thomas H. (2002). Conclusion: Doing more in strategy research. In A Pettigrew, H Thomas, R Whittington (Eds.), Handbook of strategy and management: 475-488. London: Sage. Wiersema M, Bird A. (1993). 'Organisational demography in Japanese firms: Group heterogeneity individual dissimilarity, and top management team turnover'. Academy of Management Journal, 36(5), 996-1025. Wilson D. (2003). Strategy as decision making. In S Cummings, D Wilson (Eds.), Images of strategy: 383-410. Oxford: Blackwell. Wright M, Filatotchev I, Hoskisson RE, Peng M. (2005). 'Strategy research in emerging economies: Challenging the conventional wisdom'. Journal of Management Studies, 42(1), 133. Youssef S. (1994). 'Egyptian state owned enterprises: A sector in transition'. International Journal of Commerce and Management, 4(4), 5-25.
37
Figure 1 Integrative Model of the Strategic Decision-Making Process
Environment characteristics Uncertainty Munificence/hostility
Decision-specific characteristics Decision importance Decision uncertainty Decision motive
Rationality of the strategic decision making process
Firm characteristics Performance Size
38
Table I Rotated Factor Patterns Variables
Factor loading Decision –Specific Performance Characteristics F1 F2 F3 F1 F2 0.52 0.74
Subsequent decisions Serious consequences if something in the decision went wrong Seriousness of delaying the decision Time pressure to make the decision Decision importance Kind of information to be collected 0.93 Uncertainty on actions to be taken 0.92 Difficulty of predicting outcomes 0.53 Freedom in addressing the decision 0.62 Initially perception of the decision 0.84 Motivation to make the decision 0.77 Clarity of goals for the participants 0.56 Confidence in making the right 0.55 choice Return on assets Operating profits Market share Growth rate of sales or revenues New product development Diversification into new business Quality of product Employee satisfaction Efficiency of operations Social responsibilities Client's preferences Product demand changes in product components Changes in Product quality New product introductions Changes in the production process Inflation rate Exchange rate with the dollar Interest rate Results of economic restructuring Changes in competitor's prices Changes in competitor's markets Changes in competitor's strategies Entry of new companies Tax policies Monetary policy Public service provision Prices controlled by the government Legal regulations National laws Tariffs on imported goods Threat to survival Richness in investment Dominance over the company Eigenvalues 3.5 2.1 Variance explained Proportional percentage 27 16 Cumulative percentage 27 43 Factor loadings less than 0.45 are not reported
Environmental Characteristics F1
F2
F3
F4
F5
0.78 0.53 0.57
0.74 0.79 0.87 0.87 0.61 0.55 0.68 0.89 0.85 0.85 0.78 0.68 0.87 0.83 0.74 0.84 0.72 0.85 0.85 0.70 0.92 0.86 0.81 0.49 0.84 0.75 0.76 0.72 0.84 0.71 0.76
1.4
4.8
1.5
8.8
2.8
2.1
1.7
0.83 0.88 0.81 1.4
11 54
48 48
15 63
37 37
12 49
9 58
7 65
6 71
39
Table II Descriptive Statistics and Correlations among Variables Variables
Mean
S.D.
1
2
3
4
5
6
7
1. Rationality
5.46
1.22
1
2. Decision importance
5.13
1.12
.19*
1
3. Decision uncertainty
2.32
1.43
-.29**
.08
1
4. Decision motive
5.71
1.14
.44**
-.03
-.42**
1
5. Environmental uncertainty
4.13
1.21
-.20**
.15
.12
-.12
1
6. Environmental hostility
3.59
1.63
-.35**
.13
.15
-.23**
.43**
1
7. Organizational performance
5.18
0.99
.54**
.15
-.28**
.47**
-.13
-.35**
1
8. Company size (Log.)
2.45
0.42
.21**
.08
-.11
.04
.15
-.09
.18*
8
1
* p < 0.05 ** p < .01 .
40
Table III Hierarchical Regression Models for Predictors of Decision Rationality Model 1.1 Predictors SD-specific variables
Model 1.2 F
R2 .25
Predictors
18** Firm variables
SD-specific variables
Model 2.1
R2 F
Environmental variables
.13
Predictors
F
.31
37**
.38
20** .07
F
6**
R 2 F
R2 F .31
37**
Environmental variables
.35
22** .04
Predictors
R 2 F
Predictors
R2
F
Environmental variables
.13
12**
SD-specific variables
.34
16** .21
Predictors
5*
17** SD-specific variables
R 2 F
F
37** Environmental variables
.13
12**
Firm variables
.35
22** .22
R 2 F
R2 F
SD-specific variables
.25
18**
Environmental variables
.34
16** .09
.35 22**
.42 17** .07 7**
10**
R 2 F
Predictors
R2 F
SD and firmspecific variables
.38 20**
Environmenta l variables
.42 17** .04 6**
Model 3.4 R 2 F
Predictors
R2 F
SD-specific variables
.25
18**
.38
20** .13
27** Firm variables
F R 2 F
Model 2.4
Model 3.3
R2
R2
Environmental and firm variables
Predictors
Model 3.2
R2 F
Model 1.4
Model 2.3
12** Firm variables
Model 3.1 Firm variables .31
R 2
R2
Model 2.2
Predictors
Predictors
Model 1.3
F R 2 F
Predictors
R2
Environmental and SDspecific variables
.34 16**
17** Firm variables
.42 17** .08 12**
* p < 0.05; ** p < .01
41
Appendix§ Variables and Measures Employed Variables
Measured items
Variables derived from
Alpha
No. of items
Rationality
1. To gather relevant information,
Dean & Sharfman (1996)
0.76
4
Beach & Mitchell (1978); Billings et al. (1980); Dean & Sharfman (1993a); Papadakis et al. (1998)
0.63
5
2. To analyse relevant information 3. To use analytic techniques 4. To focus attention on crucial information Decision importance
1. To set parameters for subsequent decisions 2. Seriousness of the consequences if something went wrong 3. Seriousness of delaying the decision 4. Decision importance 5. Time pressure
Decision uncertainty
1. Clarity of kind of information to be collected
Beach & Mitchell (1978); Dean & 2. Uncertainty about the actions Sharfman (1993a); Papadakis et al. to be taken (1998) 3. Difficulty of predicting the outcomes
0.74
3
Decision motive (high score indicates a decision related to an opportunity)
1. Adequate freedom in addressing the decision
0.72
5
2. Initial perception of the decision 3. Motivation to make the decision
Ashmos et al. (1997); Ashmos, et al. (1998); Billings et al. (1980); Fredrickson (1985); Mintzberg et al. (1976)
4. Confidence in making the right choice 5. Clarity of the goals for the participants
§
All scales are 7-point Likert type ones
42
APPENDIX (continued) Variables
Measured items
Alpha
No. of items
Environmental uncertainty
1. Product: clients’ Miller (1993) preferences; demand; changes in product components; changes in product quality; new product; and changes in the production process 2. Economy: inflation rate; exchange rate with the dollar; interest rate; and results of economic restructuring 3. Competition: changes in competitors’ prices, markets and strategies; and entry of new companies into the market 4. Governmental policies: tax policies; monetary policy; public service provision; control of prices; legal regulations; national laws; and tariffs on imported goods
The total scale = 0.92 and the subscales = 0.89, 0.87, 0.83 and 0.90 respectively
The total scale = 21 and the sub-scales = 6, 4, 4 and 7 respectively
Hostilitymunificence (high score refers to a hostile environment)
1. Threat to survival
Khandwalla (1977)
0.86
3
Company Size Number of employees
Tuschke & Sanders (2003); Fredrickson (1984)
NA
Organizational 1. Financial and business Performance performance: return on assets; operating profits; market share; growth rate of sales or revenues; new product development; and diversification into new business 2. Organisational effectiveness: quality of product; employee
Hart & Banbury (1994)
2. Richness in investment and marketing opportunities
Variables derived from
3. Dominance over the company
The total scale = 0.87 and subscales = 0.84 and 0.84
The total scale = 10 and subscales = 6 and 4 respectively
43
satisfaction; efficiency of operations; and social responsibilities
44
