STRATEGIC DECISION-MAKING PROCESSES:

1
THE ROLE OF MANAGEMENT AND CONTEXT

Vassilis M. Papadakis * Spyros Lioukas ┼ David Chambers !

* Post Doctoral Fellow,

London Business School, Sussex Place, Regent's Park, London, NW1 4SA, UK
Tel. (+44) (0) 171 2625-050. Direct Fax (+44) (0) 171 4028-979.
┼
Professor of Business Strategy and Systems,
Athens University of Economics and Business, 76 Patission St., 104-34 Athens, Greece.
Tel. (00301) 8656-459. Direct Fax (00301) 8676-265.
!
Professor of Comparative Management,
London Business School, Sussex Place, Regent's Park, London, NW1 4SA, UK
Tel. (+44) (0) 171 2625-050. Direct Fax (+44) (0) 171 4028-979.

Key Words: Strategic Decision-Making, Rationality, Politics, Strategic Decisions, Strategy

Process, Top Management

1 The authors gratefully acknowledge that this paper has benefited from an EC Post Doctoral
fellowship. They would like to thank three anonymous reviewers of SMJ for their comments and
suggestions which helped improve this paper substantially

1
Paper published in Strategic Management Journal, 1998, 19, 115-147.
Please note that format of this paper, as well as other minor details may be
different from the final published paper.
 STRATEGIC DECISION-MAKING PROCESSES:

THE ROLE OF MANAGEMENT AND CONTEXT

A B S T R A C T

This paper investigates the relationship between the process of Strategic Decision (SD)

making and management and contextual factors.

First, drawing on a sample of SDs, it analyzes the process through which they are taken, into

seven dimensions: comprehensiveness/rationality, financial reporting, rule formalization,

hierarchical decentralization, lateral communication, politicization, problem-solving dissension.

Second, these process dimensions are related to (i) decision-specific characteristics, both

perceived characteristics and objective typologies of strategic decisions, (ii) top management

characteristics and (iii) contextual factors referring to external corporate environment and internal

firm characteristics.

Overall, the results support the view that SD processes are shaped by a multiplicity of factors,

in all these categories. But the most striking finding is that decision-specific characteristics appear

to have the most important influence on the strategic decision-making process, as decisions with

different decision-specific characteristics are handled through different processes. The evident

dominance of decision-specific characteristics over management and contextual factors enriches

the traditional “external control” vs “strategic choice” debate in the area of strategic management.

An interpretation of results is attempted and policy implications are derived.

2
 STRATEGIC DECISION-MAKING PROCESSES: THE ROLE
OF MANAGEMENT AND CONTEXT
INTRODUCTION of management factors, contextual factors
Strategic decision-making has emerged as and decision-specific characteristics on the
one of the most active areas of current actual strategic decision-making processes.
management research. The area has greatly The present paper attempts to contribute
benefited from such research traditions as to this area drawing upon an in-depth
behavioral decision theory and transaction empirical investigation of a number strategic
cost economics and has recently gained its decisions. Specifically, it focuses on
own momentum (Schwenk, 1995). However, strategic decisions of an investment nature.
despite a substantial body of literature, it is These are decisions leading to significant
still widely recognized that our knowledge commitment of resources, with significant
of strategic decision-making processes is impact on the firm as a whole and on its
limited and is mostly based on normative or long-term performance (Marsh et al. 1988).
descriptive studies and on assumptions most First, the paper analyzes the process
of which remain untested (e.g. Bateman and through which organizations arrive at a SD.
Zeithaml, 1989; Langley 1990; Pettigrew, Using prior research and empirical evidence
1990; Rajagopalan et al. 1993; 1997; it identifies and measures significant generic
Schneider and DeMeyer, 1991). As dimensions of the process. The dimensions
Eisenhardt and Zbaracki put it, despite the extracted refer to
crucial role of strategic decisions, the comprehensiveness/rationality,
strategy process research has not departed formalization, configuration of the process
significantly from a stage of being based on and politicization. Second, these dimensions
"mature paradigms and incomplete are related to a number of factors belonging
assumptions" (Eisenhardt and Zbaracki, to the following categories: decision-specific
1992, pp. 17). characteristics, top management
In particular, the need has been characteristics, contextual factors i.e.
recognized for integrative research which external corporate environment, and internal
explicitly considers the impact of context on firm characteristics (such as systems,
strategic processes (Bateman and Zeithaml, performance, size, ownership).
1989; Bryson and Bromiley, 1993; The structure of the paper is as follows.
Rajagopalan et al. 1993; 1997; Schneider First, we review the theoretical background
and DeMeyer 1991; Schwenk, 1995). For and propose an integrated research
instance, Pettigrew (1990) asked whether framework for studying the effect of
the nature of the decision problem shapes management and context on SD processes.
the process more than does the Then, comes our research methodology, the
organizational context through which the consideration of the dimensions of the
process proceeds. In the same vein, process of arriving at SDs and the
Rajagopalan et al. (1997) suggest as one of explanation of the selection and
the priorities of future research in strategic operationalization of management and other
decision making the examination of the contextual variables. Next, we present the
extent to which variations in strategic analysis of the data as well as the main
decision-making processes (DMPs) are results of the study. Finally, we discuss our
explained by variations in organizational, results, summarize the main conclusions and
environmental, decision-specific and derive theory and policy implications.
managerial factors.
The wider literature on environmental THEORETICAL FRAMEWORK
determinism and the role of management Dimensions of SD Processes
choice is relevant here. Strategic Decisions Various dimensions/aspects of SD
(SDs) are among the main means through making processes have been emphasized in
which management choice is actually the literature. Many studies in the field of
effected. But empirical research has not been strategic decision-making describe the
extended to rigorous investigation of the role process as a sequence of steps, phases or
1
routes (e.g. Fredrickson, 1984; Mintzberg et internal organizational context and (iii)
al. 1976). Others focus on process environmental factors. Pettigrew, (1990),
dimensions instead (e.g. Bourgeois and suggests that in addition to context, research
Eisenhardt 1988; Hickson et al. 1986; Lyles, should consider the role and significance of
1987; Miller, 1987; Stein, 1980). Several the nature of the decision problem in
dimensions of SD-processes can be derived shaping the process.
from the literature. These include the An integration of these contextual
following: domains into a wider framework looks a
• Comprehensiveness/rationality promising avenue for research. Such a
dimension (Dean & Sharfman, 1993a;b; framework must combine at least the
Lyles & Mitroff, 1980; Miller, 1987). following basic perspectives: an "individual
Elements of rationality can also be traced decision perspective", "strategic or
in studies addressing such dimensions as management choice", "environmental
complexity of methodology (Langley, determinism", and a "firm characteristics
1990), degree of inquiry (Lyles, 1987), and resource availability perspective". The
and scrutiny (Cray et al. 1988). following paragraphs briefly discuss the
• Centralization (Cray et al. 1988; Lyles, theoretical underpinnings of each
1987; Miller 1987), perspective, as well as the most important
• Formalization/standardization of the relevant research efforts under each
process (e.g. Stein, 1980), perspective.
• Political/problem solving dissension
dimension. This includes among others i. The Decision Perspective
politicality (Lyles 1987; Hickson et al. The nature of the decision itself, or the
1986; Dean and Sharfman, 1993b; Pfeffer SD project, may be important. Research into
and Salancik, 1974), and decision-making cognition and labeling
negotiation/bargaining (Cray et al. 1988; suggests that the same internal or external
Hickson et al. 1986; Pettigrew, 1973), stimulus may be interpreted quite differently
• Other factors have also been suggested by managers in different organizations or
such as dynamic factors (Cray et al. 1988; even within the same organization (e.g. Dean
Mintzberg et al. 1976), forcing (Bryson and Sharfman, 1993a; Dutton, 1993; Haley
and Bromiley, 1993), and duration and Stumph, 1989). It has been argued that
(Hickson et al. 1986; Wally and Baum, the way managers categorize and label a
1994). decision in the early stages of the decision-
Characterization of the decision making making process (DMP), strongly influences
process (DMP) on these dimensions allows the organization’s subsequent responses
the researcher to examine possible (Dutton, 1993; Fredrickson, 1985; Mintzberg
interrelationships with contextual and other et al. 1976). For example, there is evidence
factors. that if a decision is perceived as a crisis
different actions will be taken than if the
The Role of Broader Context in Strategic decision is perceived as an opportunity
Decision-making (Jackson and Dutton 1988; Milburn et al.
Many researchers have referred to aspects 1983). Fredrickson (1985) found that when
of contextual influence on strategic decision- decisions were interpreted as threats as
making processes (e.g. Beach and Mitchell, opposed to opportunities, the DMP followed
1978; Billings et al. 1980; Bryson and was characterized by greater
Bromiley, 1993; Dutton et al. 1983; Hitt and comprehensiveness.
Tyler 1991; Rajagopalan et al. 1993). Our understanding, however, of the
Schneider and DeMeyer (1991), in an impact of decision-specific characteristics on
attempt to provide an integrative model, organizational decision-making processes is
proposed the following categorization of still quite limited (Papadakis and Lioukas,
factors which are expected to influence 1996; Rajagopalan et al. 1993). Most of the
strategic processes: (i) managers' individual empirical work focuses on: (i) single
characteristics and group dynamics, (ii) decision-specific characteristics (e.g.

2
opportunity or crisis) and their influence on the demographic characteristics of CEOs
aspects of the DMP, or (ii) the early stages of (i.e. type of academic education) influenced
issue identification and diagnosis (e.g. the modes of strategic decision-making
Billings et al. 1980; Dutton 1986; Jackson followed. It is interesting to note that
and Dutton, 1988). The authors are not counter-arguments have also been advanced.
aware of any empirical work that empirically Stein, in studying the strategic DMP, went so
examines a range of decision specific far as to conclude that "leadership does not
characteristics in relationship to a range of constitute a meaningful contextual domain
process dimensions. With few exceptions influencing strategic procedures" (Stein
(e.g. Dean and Sharfman, 1993a; Dutton, 1980: 332). The same view has also been
1986; Dutton et al. 1989; Dutton et al. 1983; supported by Lieberson and O'Connor
Fredrickson, 1985), existing research has not (1972), and Hannan and Freeman (1977).
yet shown in any detail how decision- From another perspective, Lyles and Mitroff
specific characteristics shape the DMP as a (1980, pp. 117), note that management
whole. characteristics may not influence the
organizational problem-formulation process.
ii. The Strategic or Management Choice This is a significant issue that needs to be
Perspective resolved empirically. The influence of top
This perspective emphasizes the role of management on SDs remains unclear. To
decision makers. It stresses that strategic advance our knowledge of the role of the
choices have an endogenous behavioral CEO and the TMT we need a better
component, and partly reflect the understanding of their impact (if any) on
idiosyncrasies of decision makers (Child, strategic DMPs and/or the underlying
1972; Cyert and March, 1963). A number of characteristics which are important
studies extend this argument further, (Rajagopalan et al. 1997; Smith et al. 1994).
contending that the role of "upper echelons"
or "top managers" or "strategic leadership" is iii. The Environmental Determinism
important enough to determine strategy Perspective
content and process (Child, 1972; Hambrick According to environmental
and Mason, 1984; Miller and Toulouse, determinism, strategic decisions and
1986). processes are expressing adaptation to
Research has mainly focused on the opportunities, threats, constraints and other
influence of top management (i.e. CEO characteristics of the environment. The role
and/or top management team) on corporate of top managers is minimized to a
strategies (Miller and Toulouse 1986; facilitation of this adaptation. Hannan and
Finkelstein and Hambrick 1990), on Freeman (1977), and Aldrich (1979) go even
performance (Haleblian and Finkelstein further to propose a process of natural
1993; Smith et al. 1994) and on planning selection of species for organizations: the
formality (Bantel 1993). There has been environment determines who will survive,
little empirical work on the link between top while top managers are passive agents with
management and the process of making SDs minimal impact on corporate development.
(Bantel 1993; Huff and Reger 1987; Lewin This view is in line with economic theories
and Stephens 1994; Smith et al. 1994). As in which decision outputs rather than
Rajagopalan et al. (1993, pp 364) stress in a internal Decision-Making Processes (DMPs)
recent review: "research relating are relevant for the explanation of a firm's
organizational factors such as .... top behavior in a competitive environment.
management team (TMT) characteristics to In the context of SDs the environmental
strategic decision processes is limited". determinism perspective mainly addresses
Moreover, the few studies which have the question of how environmental factors
been done on the links between top (e.g. dynamism, hostility) influence strategic
management characteristics and strategic DMPs. Few empirical studies can be found
DMPs have produced mixed results. here (e.g. Fredrickson, 1984; Eisenhardt,
Recently Hitt and Tyler (1991) found that 1989; Judge and Miller, 1991) and those

3
available seem to have produced specifically:
contradictory results (Rajagopalan et al. I n t e r n a l S y s t e m s : The systems of
1997). For example, Fredrickson and an organization (especially formal planning
Iaquinto (1989) contend that companies systems-FPSs), might be expected not only
operating in stable environments follow to exert significant influence on the flow of
rational-comprehensive strategic DMPs. In information between the layers of hierarchy,
the same vein, Stein (1980) argues that but also to determine the nature and context
companies operating in highly dynamic of human interactions, and to influence SD
environments may tend to employ both less processes (Armstrong, 1982; Miller, 1987).
extensive search and less explicit analysis of The literature is replete with studies arguing
alternatives. Yet, Bourgeois and Eisenhardt that FPSs are essential tools for managers,
(1988) concluded that in high velocity since they are designed to improve
environments effective firms follow more managerial decision making (e.g. Duncan,
rational decision making processes. 1990; Langley, 1988). But there is an
Sharfman and Dean (1991) argued for a link opposite line of argument, which discounts
between environmental heterogeneity and their contribution to SDs. It has been
standardization in the making of SDs. In a convincingly argued that much of the actual
similar vein, Priem et al. (1995) have found decision making may take place outside
that comprehensive processes led to better FPSs (e.g. King 1983; Sinha, 1990). It seems
performance in rapidly changing therefore a fruitful research question, to
environments. explore empirically this link between formal
In sum, the results of this body do not planning systems and strategic DMPs.
help us in making any meaningful Performance: Since virtually all strategic
generalizations (Sharfman and Dean, 1991). initiatives require resources, a "resource
Rajagopalan et al. (1993 pp. 354) and Dess perspective" may be added to the
and Rasheed (1991) note that the small determinants of strategic decision processes
number of studies adds to the uncertainty as (Bourgeois, 1981; Pfeffer and Salancik,
to the effects of each environmental aspect 1978). Research relating past performance to
on the process of making SDs. Another strategic DMPs is limited (Rajagopalan et al.
criticism is that most research seems to focus 1993). Much research investigates
mainly on one important environmental performance in relation to the content of
characteristic (i.e. environmental strategy, planning and strategy formulation
uncertainty). Other important characteristics processes, rather than SDs. An exception is
such us environmental munificence-hostility the study conducted by Fredrickson (1985)
seem to have received somewhat less who found that past performance had a
attention (Rajagopalan et al. 1993). negative effect on the comprehensiveness of
strategic DMPs.
iv. The Firm Characteristics and Resource More than three decades ago, Cyert and
Availability Perspective March (1963) reached the same conclusion,
This perspective emphasizes internal i.e. that superior performance is expected to
factors such as: internal systems, company lower the intensity with which organizations
performance, size, corporate control (i.e. will 'search' for and analyze information. In
ownership). At the level of theory, it can be the same vein Bourgeois (1981), March and
linked to the "inertial" perspective Simon (1958), suggested that slack resources
proposed by Romanelli and Tushman offer organizations the 'luxury' of
(1986), according to which existing 'satisficing', and suboptimal decision-
organizational arrangements, structures, making. The above arguments lead us to
systems, processes and resources, though hypothesize that performance may be
initially determined by management and negatively related to rational decision-
environmental forces, in turn constrain making.
future strategic decision-making. It is also Against this, others have found empirical
related to resource availability such as support for a positive relationship. For
profitability and slack resources. More example Smith et al. (1988) found that, for

4
both small and larger firms, comprehensive Towards an Integrated Research
out-performed less comprehensive decision- Framework
making, and Jones et al. (1992) reported It is evident from the above brief review
consistently positive relationships between that: (i) there has been little research on the
organizational effectiveness and influence of broader context on SDs, (ii)
comprehensiveness in decision-making. most of the studies focus on a limited
Taken together, empirical results in this area number of antecedents while ignoring other
are conflicting. This may be due to the important sources of influence on strategic
moderating effect of other omitted variables decision making processes (model
(e.g. environment) or to model underspecification), (iii) most of the studies
underspecification which characterizes much focus on just one characteristic of the
of the research (Rajagopalan et al. 1993). process (i.e. comphrehensiveness, politics,
F i r m S i z e : Company size is usually decentralization), despite the fact that
considered to be of importance in the context strategic DMPs are multidimensional in
of SDs. Again, the evidence is far from clear nature, (iv) in addition, much of the evidence
or generalizable. Fredrickson and Iaquinto produced is contradictory and far from
(1989) reported that larger size is associated establishing a coherent theory.
with comprehensiveness in strategic Therefore, we are not able to answer the
decision-making. Child (1972) also question “what are the key influences on
suggested that size affects the framework of the process of making SDs?”. Is it the
organizational decision-making. However, it external environment as the population
is worth mentioning that Dean and Sharfman ecologists would argue, or is it the top
(1993a) as well as the Bradford studies (e.g. management (CEO and TMT) as the
Hickson et al. 1986) found no differences in proponents of management choice theories
strategic DMPs which could be attributed to would contend? Do internal enterprise
size. characteristics affect the process? Do
Corporate Control: Several studies different decision-specific characteristics, as
have provided evidence on the important perceived by management, lead to different
implications of corporate control in strategic treatment of the decision? Does past
DMPs (e.g. Lioukas et al. 1993; Mintzberg, performance play any role in influencing the
1973). The type of ownership or control type making of SDs? What is the role and
is a variable which has attracted much significance of formal planning systems?
attention, especially lately in the literature on Since these questions remain largely
markets for corporate control and unanswered (Bateman and Zeithaml, 1989;
privatization. If it is hypothesized that Bryson and Bromiley, 1993; Pettigrew,
nationally-owned enterprises display a 1990; Rajagopalan et al. 1993; 1997;
national style of management and national Schneider and DeMeyer, 1991), it seems that
'culture' in decision-making, while what is needed is an exploratory approach
subsidiaries of multinationals may represent which views the process of making SDs as
an implanted (probably more 'sophisticated') subject to multiple influences, and examines
decision-making style, then it will be of the effects of factors in three contextual
interest to test whether important differences domains: decision-specific characteristics,
can be detected. The Bradford group of top management, and context.
researchers have provided evidence of the The present paper addresses these issues
existence of different decision-making by formulating an integrative model of
patterns between British and multinational contextual influence on strategic DMPs. The
companies operating in Britain (Mallory et dimensions of the strategic DMP are shown
al. 1983). Moreover, as suggested by several on the right-hand-side of figure 1. The
authors, public vs. private ownership may decision-specific characteristics are depicted
decisively affect decision-making practices on the left-hand-side. The top block of the
and processes (e.g. Lioukas et al. 1993). diagram indicates management factors while
the lowest block indicates broader contextual
factors (corporate environment and internal

5
firm characteristics). research and the fact that top management
This study operationalizes these was asked to devote several hours of its time.
dimensions/factors, and tests their effect on Comparison between respondent and non-
the DMP. The components of the model respondent firms on the basis of three
together with operationalization and objective measures (number of employees,
measurement issues, follow the discussion of total assets, and return on assets), verified
our methodology. The exploratory nature of the representativeness of the final sample.
the paper should again be stressed. Given the
previous studies have reached widely Reliability and Validity Considerations
conflicting conclusions the paper aims to A study based on participant recall,
provide evidence as to which domains though the dominant method of studying
pertaining to SD process are more important, decision-making processes, may have
and which factors within each domain inherent limitations (Bouchard, 1976; Huber
actually influence various dimensions of the and Power, 1985; Kumar et al. 1993). A
process. Further research will be needed to number of procedures have been suggested
advance and test particular hypotheses. to help reduce their impact, including the use
of multiple informants (Kumar et al. 1993).
Insert Figure 1 about here Even these methodologies do not guarantee
objectivity. The nature of the present
RESEARCH METHODOLOGY research (in-depth study of one or two SDs
Data Collection and sampling issues in each company, a separate CEO interview,
To achieve these objectives an ambitious use of archival data), the specific features of
study was designed and executed, which the sample (i.e. medium-sized enterprises,
took more than 14 months of intensive existence of few key-informants in each SD),
fieldwork. This can be characterized as a as well as the effort required to find
multi-method, in-depth field research study informants to discuss in depth often delicate
(Snow and Thomas, 1994). The data sources matters, relating to a SD, made it difficult to
include: (i) initial CEO interview, (ii) semi- use multiple informants per SD and to
structured interviews with key participants, aggregate their responses.
(iii) completion of two different Several tactics were followed in an
questionnaires: one general for the CEO and attempt to alleviate possible biases
one decision-specific for the key (Bourgeois and Eisenhardt, 1988; Huber and
participant(s), (iv) supplementary data from Power, 1985; Kumar et al. 1993), First,
archival sources (e.g. internal documents, archival records documenting the process
reports, minutes of meetings). and its characteristics were collected prior to
The research covers 70 SDs in 38 each main interview. Second, all the
manufacturing firms in Greece. A sequence discussions were recorded. This tactic
of steps was followed in order to secure the enabled the researcher to have direct access
reliability of data based on participant recall. to the original discussion and pay attention
The process is described in Appendix 1. The to any part of it, at later stages. Interview
sampling frame comprised all manufacturing notes, impressions, noteworthy points were
enterprises in Greece with more than 300 written down during the first 24 hours after
employees, drawn from three industrial the completion of the interview (Bourgeois
sectors (food, chemicals and textiles), a total and Eisenhardt, 1988). These improved
population of 89 companies of which 38 knowledge of the process.
participated in the research. The average size Third, particular caution was exercised to
of the companies in the sample is 730 full minimize distortion and memory failure
time employees. In most cases two SDs were problems notably by selecting recently taken
studied in each firm, resulting in a sample of decisions (Mintzberg et al. 1976), by
70 SDs. interviewing only major participants having
The response rate achieved an intimate knowledge of the process
(approximately 43%) is very high (Kumar et al. 1993), by adopting a "funnel
considering the intrusive nature of the sequence" method in conducting interviews

6
(Bouchard, 1976), by cross-checking formalized rules guiding the process,
interview-derived information against other hierarchical decentralization, lateral
managers’ recollections (e.g. CEOs), by communication, politicization, and problem-
using additional informants in cases of solving dissension.These are indicated in
incomplete information, and by cross- appendix 2 along with their measurement
checking interview data with other company details, reliability levels and the sources
sources available (e.g. documents, reports, from which they were derived.
minutes of meetings). As outlined in the theoretical framework,
In addition, a small number of key process ample theoretical support can be found for
variables were measured independently (e.g. the above dimensions. For example, the
planning formality, internal reporting framework adopted is similar to that of Cray
activities) based on archival data. Statistical et al. (1988). Indeed, the scrutiny dimension
tests showed that managers’ recollections is captured by the comprehensiveness and
were significantly correlated with the financial reporting dimensions, the
selected archival data. In addition, both interaction dimension is captured by the
subjective and objective data on corporate politicization and problem-solving
performance were obtained. The two dissension dimensions, the centrality
methods provided similar results, reinforcing dimension is similar to our hierarchical
belief in the validity of the data. However, decentralization and lateral communication
managers’ recollections were used in dimensions.
measuring most of the variables in this Moreover, their reliability levels are very
study. satisfactory. Especially for the
Another major consideration was the comprehensiveness/ rationality construct,
minimization of common method bias. To they are higher than those reported by other
correct for such effects the following researchers (e.g. Dean and Sharfman, 1993b;
precautions were taken: First, a number of Fredrickson, 1984; Smith et al. 1988). It is
variables (e.g. size, performance) are noteworthy that despite the fact that the
archival, obviating any danger of common resulting variables tap dimensions of the
method bias with them. Second, two same phenomenon (i.e. the strategic DMP)
different questionnaires (general and they do not have very high intercorrelation
decision-specific) were used and they were coefficients (see table 1). All however, are in
answered by different managers (i.e. the expected direction. For example the
dependent and independent variables were formalization construct is positively and
answered by different persons). Third, the significantly related to the notion of
items used in the analysis were distributed rationality, an association argued by several
throughout a lengthy interview. Fourth, scale researchers (e.g. Langley, 1989).
anchors were reversed in several places to
reduce and compensate for the development Insert Table 1 about here
of response patterns. These precautions
afford some confidence that common SELECTION AND
method bias was not a problem. Finally, the OPERATIONALIZATION OF
willingness and sincerity with which top EXPLANATORY VARIABLES
managers participated in the research and the Measuring Decision-specific
interest they showed during the interviewing Characteristics
process, provide a further reason to believe To derive generic dimensions, the present
in the face validity of their responses. research specified and measured sixteen
decision-specific characteristics, which
OPERATIONALIZATION AND would apply across the diverse SDs in our
MEASUREMENT OF SD PROCESSES sample, and which were based on the
The dimensions along which SD literature review. These issue characteristics
processes were measured in this study are: are shown in table 2.
comprehensiveness/rationality, extent of These initial variables were factor
financial reporting, existence of a set of analyzed, using varimax rotation method and
7
six factors were derived. Table 2 presents the Characteristics:
results of the factor analysis investigation. It Two CEO personality characteristics are
is worth noting that all factors reflect incorporated in the present work: need for
distinct, internally consistent patterns achievement, and risk attitude. Need for
suggesting generic characterizations of SDs. achievement is, according to several writers,
A specific name is assigned to each factor one of the basic characteristics positively
based on the variables loading. The names of associated with entrepreneurial success
these factors are: SD's magnitude of impact, (Gough, 1976). In the present study Steers
uncertainty, amount of pressure anticipated and Braunstein's (1976) scale is used (see
by the participants, frequency/familiarity, appendix 3). Attitude towards risk (risk
extent to which the SD was perceived as a propensity) is a psychological disposition of
crisis situation, and finally extent to which individuals to show varying degrees of risk
the SD emerged through the formal planning taking or risk avoidance behavior. It is
system (planned vs. ad hoc). Appendix 3 among the major personality dimensions
presents details on variable measurement, which was found to be associated with
sources in the literature from which these various strategic configurations. The
were drawn, and their reliability levels. particular construct used is derived from
Jackson (1976), and Eysenck and Wilson
Insert Table 2 about here (1975). Appendix 3 describes how these
dimensions were operationalized and
But these generic characteristics may not measured. The resulting reliability
cover the true nature of a project. So further coefficients are satisfactory, providing
objective decision-specific constants were reliability levels similar to those reported in
added describing any idiosyncratic aspects of other studies (e.g. Budner, 1962; Steers and
SDs not accounted by the characteristics Braunstein, 1976).
included (see Hickson et al. 1986; Shirley, As regards CEO’s demographic
1982). For the purposes of the present paper, characteristics several variables have been
a fourfold classification of SDs is identified: used for describing characteristics of
new business investment decisions (e.g. 'managerial elites'. The present research uses
acquisitions, mergers, joint ventures, new two variables (i) CEO's length of service in
company establishment), investments in the company (number of years with the
capital equipment (e.g. expansion of company), and (ii) CEO's level of
production equipment, storing facilities, education. Both variables have been
modernization of production equipment), reported to have a profound influence on
investment in the marketing domain (e.g. organizational processes and outcomes (e.g.
new product introduction, marketing Finkelstein and Hambrick, 1990; Hitt and
channels), and finally internal Tyler, 1991).
reorganization investments (e.g. ii. TMT Characteristics
investments in information systems, internal Two measures were used. The first,
reorganization etc.). All these are measured measures the degree of aggressiveness of
using dummy (0/1) variables. what Hage and Dewar (1973) call the
'behavioral elite group' (i.e. the CEO and all
Measuring Top Management those participating in major decisions). It
Characteristics draws from Khandwalla (1977) and Stein
Both personality and demographic (1980), and is measured by three items
variables are used to measure characteristics expressing dimensions of the TMT’s attitude
of the CEO and the top management team towards risk and achievement. The first item
(TMT). This would help find out whether it measures the degree of 'beat-the-
is the CEO, or the top management team, or competition’ attitude, the second TMT’s risk
both, that play an important role in the propensity (i.e. attitude towards risky
making of strategic decisions. projects), and the third the top team's attitude
to innovation. The combination of these
i. CEO's Personality and Demographic three items is explained as TMT’s
8
aggressiveness towards competitors, performance as an independent variable
innovation, and risky projects. influencing the strategic DMP. To assure
The second variable attempts to capture this, performance measures were calculated
the level of education of what Hage and going five years prior to the decision studied.
Dewar (1973) name as formal elite. It is an This adds confidence in testing whether past
objective variable measuring the percentage performance was serious consideration when
of managers, down to the level of making the SD.
departmental heads, who are university Firm Size: To measure size this paper
graduates. uses the log of full time employees (e.g.
Fredrickson, 1984).
Broader Context Corporate Control: Finally, to capture the
i. Environmental Context effect of type of ownership-control on
Three environmental dimensions are decision-making practices two dummy (0/1)
measured using perceptions of top managers: variables are used, distinguishing State
(i) environmental heterogeneity, (ii) Owned Enterprises (SOEs) and private
environmental dynamism, and (iii) Greek companies from subsidiaries of
environmental hostility (opposite to multinationals.
munificence). Appendix 3 describes how
these dimensions were operationalized and DATA ANALYSIS CONSIDERATIONS
measured. Cronbach Alpha reliability Given the number of variables involved,
coefficients are satisfactory, providing both dependent and independent, separate
reliability levels similar to those reported in regression models were applied for each SD
other studies which used the same measures. dimension. The results reported here present
the "best" regression equation, i.e. the
ii. Internal Context equation which provides the maximum
Internal Systems: For the purposes of the number of significant variables. These would
present work, planning systems are used as give a first indication of the relative
potentially very relevant to SDs (e.g. Sinha, influence of the explanatory variables on
1990). In particular the variable each independent variable.
formalization of the planning effort is A consideration in presenting the models
used. It has been suggested by various was whether a full equation model should be
researchers (e.g. Grinyer et al. 1986) that presented along with the best equation
formalization is one of the most prominent model, for each of the dependent variables.
characteristics of planning systems. The The size of the sample (i.e. 70 SDs)
specific construct used is adapted from the theoretically would impose limits on the
work of Wood and Laforge (1981). Only number of variables to be introduced
seven of the initial eighteen dimensions simultaneously. The degrees of freedom
proposed by Wood and Laforge (1981) have would not be adequate to assure reliable and
been selected. These dimensions were valid results in a full variables version.
preferred because they refer to the long-term Moreover, the research is exploratory and in
planning conducted rather than to short term most cases there are not prior strong reasons
budgeting practices (see appendix 3). When to expect relationships with all variables.
factor analyzed the seven dimensions Versions with full equations can be obtained
produce only one factor, further verifying the by the first author upon request. These do
appropriateness of the modified scale used. not change the pattern emerging.
Corporate Performance: Two objective Each model was derived by both
measures of performance are used. First, backward elimination and stepwise
return on assets (ROA), which is viewed as regression methods in corroboration. In most
an operational measure of the efficiency of a cases the results were identical. In the very
firm with regard to the profitable use of its few cases where the two methods provided
total asset base (Bourgeois, 1980). Second, different equations, further tests were
growth in profits, indicating the trend in attempted by entering and removing
profitability improvement. This paper treats variables from the equation, and finally the

9
model with the best explanatory power was is seen as very satisfactory (e.g. Dean and
selected. Sharfman, 1993a; Stein, 1980).

Insert Table 3 about here Comprehensiveness/Rationality

Overall, results show that
A second consideration refers to possible comprehensiveness/rationality is affected by
multicollinearity effects. Table 3 presents the decision-specific characteristics and
intercorrelations between the independent internal context. Environment and
variables. Only 2 out of over 300 single management factors are insignificant. The
correlation coefficients are above 0.50, and specific coefficients of model 1, table 4
then only slightly, indicating that suggest that SD's magnitude of impact and
intercorrelations are not unduly high. To type of SD are the most important
safeguard for multicollinearity effects, the decision-specific characteristics while
procedures outlined by Belsley et al. (1980) planning formality, corporate
were followed. According to this, condition performance, firm size, and
indexes were calculated for each of the ownership/control type are the dimensions
regression models of table 4. These of the internal context which significantly
condition indices were far below the influence comprehensiveness in the SD-
suggested warning level of 10.0 for mild making process.
collinearity. Thus, no serious problems are Results are in line with Dean and
expected (Belsley et al. 1980). Sharfman (1993a) and Stein (1980) who
Several other warning signals were also suggest that the perceived magnitude of
inspected, in order to detect possible impact of a decision is among the strongest
multicollinearity problems. In none of the explanatory variables of decision-making
equations is there a substantial R2 behavior, as decision makers act more
accompanied by statistically insignificant comprehensively/ rationally when decisions
coefficients, to raise suspicion about possible imply important consequences. It is also
multicollinearity problems. The stability of noteworthy that SDs for new business
regression coefficients was also tested. Here, investment and marketing type seem to be
several runs were conducted by dropping or subject to less comprehensive/rational
adding independent variables in the analysis than SDs on capital investment and
equation. None of these trial runs has internal reorganization. This follows from
indicated any extraordinary change in the negative coefficients of the respective
regression coefficients. Most of the dummies.
regression coefficients appear to produce As regards internal context, all
algebraic signs according to theoretical dimensions appear to be significant. Results
expectations and the coefficients for each support the normative view that FPSs
regression show a high consistency with contribute to more rational decision making
single correlations. (Armstrong, 1982; Duncan, 1990; Langley,
1988). Contrary to the line of reasoning
Insert Table 4 about here which understates the contribution of formal
planning systems (FPSs) to decision-making
RESULTS (e.g. King 1983; Sinha, 1990), here planning
Table 4 summarizes the results of the formality appears to be an important
paper. All models afford good to satisfactory contributor to comprehensiveness in SD
predictions of the extent to which each SD- making.
process dimension is determined by the A positive relationship between corporate
decision-specific, management and performance and comprehensiveness/
contextual characteristics. The explanatory rationality, is obtained with return on
power of the models ranges from .39 to .63 assets. It appears that high levels of
and on average exceeds .50. Considering the performance may produce enough resources
cross-sectional nature of the research, and to help in making better, more rational
comparing the results to similar efforts this decisions; that may mean that high
10
performers are 'offered the luxury' to invest significantly in model 1. Only TMT’s
in more analysis while poor performers may aggressive philosophy is marginally
lack these slack resources. The opposite may significant (at a 10% level). This seems at
also obtain, high rationality may lead to odds with current theory, which stresses the
better performance thus reinforcing a vital role of the CEO and/or the TMT on
positive relationship. In the same vein, comprehensive/rational decision-making
others have argued that more rational (Hambrick and Mason, 1984).
decisions may themselves lead to better A similar observation can be made as
performance (Grinyer and Norburn 1977/78; regards environmental variables in
Smith et al. 1988). In our case this determining comprehensiveness, which runs
explanation is less likely, given that ROA against propositions of environmental
figures used concern previous years. The determinism. We would expect
results seem to contradict the opposite environmental variables to influence
school of thought, which suggests that rationality/comprehensiveness. Indeed,
superior performance may lower the extent several researchers have argued for the
with which organizations engage in rational significance of environmental heterogeneity
decision-making (Bourgeois, 1981; Cyert in determining strategic processes (Lindsay
and March, 1963; Fredrickson, 1985). and Rue, 1980; Smart and Vertinsky, 1984).
Size constitutes a significant explanator of These authors argued that managers who
comprehensiveness. This is in line with the perceive their corporate environment as
suggestions of previous work (e.g. complex tend to employ more
Fredrickson, 1984; Fredrickson and Iaquinto comprehensive strategies. Bourgeois and
1989; Mintzberg, 1973), which state that size Eisenhardt (1988), in their study of strategic
entails more comprehensive/rational decision processes in high velocity
decision behavior. environments concluded that effective firms
Finally, both dummy variables measuring follow the rational model in decision
control/ownership appear to be significantly making.
related to decision Others have argued that companies
comprehensiveness/rationality. More operating in stable environments follow
specifically, using subsidiaries of rational-comprehensive processes in making
multinationals as benchmarks, state and integrating strategic decisions (e.g. Cyert
controlled enterprises seem to follow more and March, 1963; Fredrickson, 1984;
rational processes, while enterprises of Fredrickson and Iaquinto, 1989; Hart, 1992).
private Greek ownership appear to be less The argument behind this contention is that
rational. This is an interesting result since it strategists usually find it difficult to rely on
verifies the popular view that Greek private formal financial analysis, in-depth study, and
enterprises follow less rational processes when having to deal with
comprehensive/rational DMPs when making unstable, high velocity environments
decisions of a strategic nature, in comparison characterized by information scarcity and
to subsidiaries of multinationals. That state rapid change. Instead, they are obliged to
owned enterprises are closer to take quick, bold decisions in many instances,
multinationals in this respect is unexpected. relying on the available amount of
Maybe they have qualified staff and engage information. In the same vein, companies
in more analysis, taking all the necessary operating in stable environments rarely face
time and effort to collect all necessary significant opportunities and thus when
information and explore alternatives, in having to deal with such a situation they
order to justify their final choices in their employ more rational processes.
strong stakeholders, both inside and outside Our results do not support either line of
the organization. thought. On the contrary they are in line with
The insignificant coefficients also provide Smith et al. (1988) who reported a lack of
useful suggestions. A striking result is the any statistical significant relationship
lack of significance of top management between environmental dimensions and
characteristics, since no variable loads rationality of strategic decision-making.

11
However, one should consider the results of As regards top management, only
the other dependent variables, before rushing CEO’s level of education is positively
to conclusions. associated with financial reporting.
Education level has been found to be related
Financial Reporting to the extent of people’s information search
Financial reporting, a dimension of and analysis (Dollinger, 1984). A highly
rationality typically applied in SD especially educated CEO is thus likely to demand more
of an investment nature, is significantly detailed information, leading to more
affected by decision-specific characteristics, financial reporting (Bantel, 1993). All other
and some characteristics of the internal top management characteristics (e.g. CEO’s
context. need for achievement, risk propensity or
More specifically, from a quick tenure) appear to be insignificant.
inspection of model 2 in table 4 it appears From internal firm characteristics, again
that two decision specific characteristics performance in terms of ROA is positively
notably magnitude of impact and associated with financial reporting. An
emergence of the SD through planning, important finding, is also the negative
CEO’s level of education and return on association between private Greek
assets are to be positively associated with ownership and financial reporting. It implies
financial reporting, while private Greek that Greek private firms may rely less on
ownership has a negative association. Of formal financial reporting activities when
note are the marginally significant making strategic decisions than
associations (10% level of significance) multinationals. This strengthens our
provided by two other generic decision- argumentation when discussing the results of
specific characteristics. the comprehensiveness/rationality model.
First, results indicate that situations SOEs are not different from multinationals.
perceived as crises are actually associated Of note is the general lack of significance
with more financial reporting activities. This of external corporate environment. This is in
is in line with previous theoretical line with the results obtained using the
argumentation (Dutton, 1986). In general, rationality/comprehensiveness construct.
one might argue that when adversity looms Interestingly, size does not seem to be
everyone might want to interpret and explain significantly associated with financial
the situation in terms of financial analysis reporting. These findings will be further
and reporting. Or, taking another view, the discussed in later sections of the paper.
company may seek to exercise control and
support the meaningfulness of its actions in Rule formalization
the eyes of both internal and external Rule formalization in the SD process
stakeholders by relying on deeper financial (model 3 table 4) is influenced by decision-
reporting and analysis, since crises usually specific characteristics (decision uncertainty
involve risks of a significant financial loss. and emergence through formal planning),
Second, financial reporting is negatively top management characteristics (CEO risk
related to frequency. This result supports the propensity) and corporate control type
view that frequent/familiar issues are dealt (Greek-ownership).
with by standard rules and analogies from From decision-specific characteristics,
memories. They therefore are associated decision uncertainty and emergence are
with less analysis and comprehensive negatively associated with rule formalization
reporting of data (Marmaras et al. 1992). of SD process. Uncertainty, as used here
Also the coefficients of the dummies refers to specific decisions, as opposed to the
“investment in capital equipment” and uncertainty caused by the organizational
“investment in marketing” are marginally environment. Results are in line with
significant showing a higher level of Thompson (1967 pp. 134) who contends that
financial reporting for these types of in cases of high uncertainty, managers act in
decisions, as against investments in internal an 'inspirational' manner, by making
reorganization. obsolete any formal procedures and rules
12
usually followed. One can contend that high characteristics, particularly strong is the
uncertainty about the decision may, contrary effect of magnitude of impact, followed by
to the received (common) expectations, perceived pressure and threat/crisis. Results
result in more intuitive processes (Daft and imply that SDs with important impact attract
Lengel, 1986; Dean and Sharfman, 1993a) the collective attention of more layers in the
together with use of less formalized rules. hierarchy and more departments as revealed
Again, as expected, SDs emerging from the in models 4 and 5. This corroborates Dutton
discipline of a formal planning system are et al. (1989) who argues that issues with
found to follow more formalized paths. great magnitude of impact imply high
As regards management we observe a interconnectedness with other relevant
negative association between CEO's risk issues. Therefore, such issues attract more
propensity and rule formalization in taking collective attention and thus result in higher
SDs. Again, such a result is intuitively hierarchical decentralization and lateral
expected, since risk takers usually break the communication.
bounds of organizational systems and Pressure has a negative coefficient,
formalities and influence the SD process suggesting that when SDs are taken under
towards more informal paths. TMT’s pressure there may not be enough time to
aggressive philosophy is also related to more involve more levels and departments.
formalized rules. An interesting effect obtains for
Finally, private Greek companies seem to threat/crisis. This suggests that threatening
be lagging in rule formalization as the situations result in more hierarchical
negative coefficient suggests. SOEs do not decentralization. At first this is
differ from multinationals. counterintuitive. A number of authors (e.g.
Overall, however, we cannot argue that Dutton, 1986; Herman, 1963) argue that
there exists a 'balanced contribution' of all centralization of authority is the expected
domains (SD itself, management and outcome of crises, since two opposite forces
context) in explaining SD formalization. Of clash. First, managerial elites undertake the
interest is the lack of significant impact of responsibility of the whole effort to divert
decision frequency, corporate environment, the crisis. Second, middle managers feeling
planning formality, past performance and that the issue might be 'too heavy' for them
size. This suggests that SD process formality to deal with, pass it to top management.
is independent from the formal planning Milburn et al. (1983), provide an
machinery of the firm and external corporate explanation for this counterintuitive result:
environment and the other internal company their findings suggest that although
characteristics. It is more a matter of centralization was the immediate outcome of
decision-specific characteristics and top crises, the actual intermediate response was
management choice. decentralization of authority. This may be
explained by the distributed character of
Hierarchical decentralization and lateral information and expertise; if we admit that
communication the source of vital information is middle
The extent to which SD process is management, centralization deprives top
decentralized and allows participation of management of extremely useful data.
lower level managers depends on the Herman (1963) offered another explanation.
decision-specific characteristics, on CEO He argued that the relationship between
tenure and corporate profitability. Moreover, crisis and decentralization of authority is
the extent of lateral communication is curvilinear. Thus, under situations which are
determined by decision-specific characterized as "mild crises" one may
characteristics, top management team’s observe decentralization. By contrast, when
aggressiveness, and internal firm planning crises become acute, authority centralization
formality. is found. Further investigating the
More specifically, several conclusions descriptive statistics of the variable
can be drawn from the results of models 4 measuring the extent of perceived crisis, we
and 5, table 4. From the decision-specific may see that the variable is measured on a

13
five-point scale and has a mean of 2.51 Friesen (1983), also suggested that an
which implies rather 'mild crises', on the increase in perceived environmental
average. This suggests that our sample of heterogeneity is expected to complicate the
SDs may not include intense crises which administrative task, thus resulting in
are assumed to lead to hierarchical subsequent changes in structure (e.g. more
centralization and less lateral lateral communication). In the same vein,
communication. Grinyer et al. (1986) contend, that
As regards the effect of type of environmental stability favors the delegation
investments on hierarchical decentralization, of authority to lower levels in the hierarchy,
all dummy coefficients are significant during the planning process. Interestingly,
showing that only internal reorganization none of these relationships are supported by
investments are relatively more centralized. our data.
On the contrary none of the dummy Performance, expressed by ROA, is
variables is significantly associated with positively related to hierarchical
lateral communication. decentralization. This is in line with the
Top management has two significant results presented by Bourgeois and
coefficients. In model 4 the variable Eisenhardt (1988) and others. They have
measuring CEO's tenure is positively reported that the more the power to make
related to hierarchical decentralization strategic decisions is delegated to the
patterns. This may be explained by the fact functional and divisional executives, the
that CEO's tenure may influence higher the performance of the firm. This line
participation patterns by developing greater of thought assumes that greater participation
levels of social integration, and possibly by (especially by middle managers) will have a
including in the dominant coalition more positive impact on organizational
managers from various layers (Wiersema performance by triggering two parallel,
and Bantel, 1992). positive phenomena. On one hand, the
Similarly, TMT's aggressive philosophy involvement of more people in strategic
appears significantly positively associated DMPs increases the level of consensus
with lateral communication during SD among managers, produces a common
making. This is in line with the view that in understanding of the joint task, creates a
order to follow an aggressive strategy top climate of shared effort, and facilitates
management may need more information smooth implementation of strategic
and cross-departmental involvement. If we decisions. Smooth implementation
consider that individual departments possess contributes in turn to higher performance
specialized information and their alliance is (Wooldridge and Floyd, 1990). On the other
crucial to implementation of an aggressive hand, lack of involvement of employees
philosophy, it is plausible that the level of other than 'strategic elites' in the process has
lateral communication may increase. been found to create implementation
It is somewhat surprising, however, to problems, including sabotage (Guth and
find again that corporate environment has MacMillan, 1986).
insignificant coefficients. None of the Secondly, middle managers act as
environmental variables seems to have any information monitors and are usually the
effect on hierarchical decentralization and first to sense potential threats and
lateral communication patterns during the opportunities in their own particular domains
making of SDs. This is more intriguing if we (Pascale, 1984). Increasingly, top
consider the results of various studies which management's ability to sense the emergence
have argued for close links between and meaning of various challenges
environmental characteristics and encountered, is seen as a critical strategic
decentralization and communication. For capability. Due to information overload, top
example, Lindsay and Rue (1980) argue that managers may be less and less able to fully
environmental heterogeneity is associated understand the world around them.
with more hierarchical decentralization, and According to this view, strategic DMPs in
more lower-levels involvement. Miller and successful firms are, more a product of a

14
shared effort, than deliberation by one the problem. It is also interesting to note that
person. all dummies for type of decision have
Two other results seem also important. negative coefficients. This suggests that all
First, planning formality as expected, has a investments cause less dissension than
positive coefficient in model 5, indicating internal organizational SDs.
that it is associated with higher lateral Environmental factors also seem to
communication. Second, corporate control have no significant effect on politicization,
does not appear to influence decentralization while environmental heterogeneity appears
and communication patterns. So there may to negatively influence problem-solving
be no significant differences between the dissension. This latter result is contrary to
various types of enterprises -state, private, expectations. For example, Dess and Origer
foreign- in decentralization and (1987) argue for an inverse relationship
communication, when taking SDs. between environmental heterogeneity and
consensus on goals, since complexity gives
Politicization and Problem-solving rise to more possible points of conflict among
Dissension managers and makes consensus more difficult
Politicization and problem solving to achieve. Others, (e.g. Lyles and Mitroff
dissension (models 6 and 7, table 4) are 1980) argued along similar lines.
mainly influenced by decision specific A positive relationship obtains between
characteristics (uncertainty, and pressure), politicization and planning systems
one external environmental characteristic formality. This suggests that planning
(heterogeneity) and certain internal context formality has a positive influence on
characteristics (e.g. planning formality, politicization. Results corroborate the
performance and corporate control). prevailing view that FPSs encourage
Both politicization and problem solving political behavior (Langley, 1988; Rhyne,
dissension seem to be influenced more by 1986) since managers may perceive planning
SD uncertainty and less by other systems as a means through which personal
characteristics such as impact, threat/crisis views are communicated, political
or pressure. This is in line with Lyles (1981), aspirations take effect, and political activity
who based on case evidence, argued that may develop.
uncertainty about certain aspects of an issue Of note is also that both politicization and
(i.e. definition) may raise politicality in the problem solving dissension are found to be
problem formulation process. Indeed, when positively related to growth in profits. We
uncertainty exists (for example about the will draw attention to this finding in our
actions to be taken and/or the information to discussion section.
be collected), one may expect to find both a The positive statistical significant
divergence of opinions during the initial association between politicization and SOEs
stages of problem formulation, and a surge may be attributed to the multiplicity of
of political activities during the issue internal and external interests in the context
resolution process. of SOEs. The fact that numerous parties may
Interestingly pressure situations are found intervene and try to skew the output of the
to have positive effect on problem solving decision process in their preferred direction
dissension among participants. It seems that may raise politicization levels in SOEs
pressure situations may intensify dissension relative to other categories of enterprises.
as many times they call into question the Of note is the general absence of top
efficacy with which the dominant coalition management characteristics in influencing
has acted in the past to preserve both political activities and problem solving
organizational interests, and threatens the dissension. Results support the view that the
power-base of managerial elites (Dutton, emergence of internal politics and dissension
1986). It is not at all unexpected to witness depends more on the decision-specific
what Herman (1963) has called 'factionalism' characteristics and certain characteristics of
i.e. various units or departments favor the external and internal context
opposite views about the proper reaction to (environmental heterogeneity, planning

15
formality, performance), rather than the may not be exhaustive. This is obvious from
characteristics of the decision makers the statistically significant dummies
themselves. This appears to be at odds with expressing types of decisions. This means
Dean and Sharfman (1993b), who have that the objective type of SD variables
reported that political behavior (among introduced offer a unique additional
others) stems from the characteristics of the explanatory power, not captured by the
decision making group (interpersonal trust). generic decision-specific characteristics
included. It also calls for a search for
DISCUSSION additional ‘generic’ SD characteristics which
Overall, the results of the paper support may, when included, minimize any remnant
the view that for understanding strategic effect of dummies. This however would
DMPs in depth, an integrative model which require further research.
includes decision-specific, management, New business investments and
environmental and organizational factors is investments in marketing exhibit less
needed. Results suggest that strategic DMPs association with rationality in comparison to
are shaped by the interplay of these factors. capital equipment investments and internal
Neither the external control model reorganizations. Investments in capital
(environment), nor the strategic choice equipment and marketing exhibit more
model (decision makers), nor the corporate financial reporting in comparison to other
inertial model (size), or the resource investments. Investments in internal
availability (performance), adequately reorganization seem to be hierarchically
explain actual strategic decision-making more centralized in comparison to other
behavior. investments. Also internal reorganization is
The most striking finding was the accompanied by more problem-solving
dominant role of decision-specific dissension in comparison to all other types of
characteristics in determining decision SDs.
processes. To the best of the authors’ The study has also established the relative
knowledge this is the first time that the importance of top management
dominant role of decision-specific characteristics. Certain CEO characteristics
characteristics (generic attributes and entered significantly into the regression
objective categorization) is verified in the models and influenced financial reporting,
context of SDs. The specific results show formalization and hierarchical
that the generic characteristics of a SD such decentralization. This implies that the
as its perceived magnitude of impact, contribution of CEO characteristics have
frequency/familiarity, its uncertainty, its also their own effect when controlling for
threat/crisis component and whether it other contextual factors. These results are in
emerges through discipline of the planning line with research reporting that CEO
system of the firm, significantly influence personality and demographic characteristics
dimensions of the DMP, more than other are related to aspects of strategic DMPs (e.g.
environmental, organizational and Miller and Toulouse, 1986).
managerial factors. In addition to CEO characteristics, TMT
Somewhat similar results were obtained aggressive philosophy appear to influence
by Meyer and Goes (1988), in their study of rule formalization and lateral
innovation assimilation. In assessing the communication and only weakly
comparative influence of various contextual comprehensiveness/rationality. It is also
domains on innovation assimilation they worth noting that both the CEO and the
found that environment, organization and TMT appear to be insignificant in
leadership, taken together, were relatively influencing such dimensions as political
poor predictors of innovation. In contrast activities and problem solving dissension.
very good predictors proved to be the innate This may be explained by the fact that
attributes of innovations. executives do not always have complete
The generic decision-specific latitude of action (Hannan and Freeman,
characteristics tested in the present study 1977). There exist conditions of restricted

16
discretion where TM becomes less important advanced regarding the particular country
and other factors as corporate control, and from which results are drawn. Schneider and
firm characteristics or decision-specific DeMeyer (1991), reported that Latin
characteristics become more significant in European managers in contrast to other
influencing politicality in SD making. Europeans, may be characterized by an
Overall, regression results support the attitude of having limited control over the
view that both CEO's and TMT's external environment. Thus, they may direct
characteristics have their effects in SD their efforts towards controlling the
processes and are in line with Kets De Vries immediate, internal environment, and adjust
and Miller (1986) and Nahavandi and decision making processes accordingly.
Malekzadeh (1993). This may lead us to lend Although speculative this conjecture
credence to the “upper echelons view” of provides a fruitful avenue for research in
organizations, and put into dispute the comparative decision-making practices.
allegations of population ecologists (e.g. Internal firm characteristics show more
Hannan and Freeman, 1977) who consider significant effects on DMPs. Firstly, formal
TMT to be but a passive agent. planning systems appear to have a positive
As regards external corporate influence on three aspects of the DMP:
environment, we found only one significant comprehensiveness, lateral communication,
coefficient: namely, that environmental and politicization. This is in line with
dynamism has a negative effect on problem theoretical and normative speculations
solving dissension. All other environmental arguing that planning systems lead to more
variables we found to be largely rational decision-making (Armstrong, 1982;
insignificant. Overall, our results contradict Duncan, 1990; Langley, 1988). Again,
researchers who argued that environmental results corroborate the prevailing view that
factors as opposed to internal organizational formal planning systems encourage both
factors are the primary sources of influence lateral communication (Langley,1988;
on SDs (e.g. Hannan and Freeman 1977; Tregoe and Tobia, 1991) and political
Jemison, 1981). behavior (Langley, 1988; Rhyne, 1986).
No support was found for the role of Concerning formal planning systems we
environmental heterogeneity/complexity on should note the difference with another
strategic DMP. Rajagopalan et al. (1993) dimension which in the course of this
argued that the degree of environmental research was treated as a project
complexity in a firm’s operating characteristic rather than as an internal firm
environment directly impacts the amount characteristic, i.e. the emergence of a SD
and nature of information that has to be through the formal planning system. This
processed by decision makers. Research on refers to the decision whether to handle a SD
cognitive processes also suggests that in the formal planning machinery or treat it
environmental heterogeneity affects strategic ad hoc outside the planning system, and is
decision process characteristics such as related to the initial stages of project
comprehensiveness, and leads to greater use formulation. These two variables are
of cognitive simplification processes conceptually distinct and their inter-
(Schwenk, 1988). None of these are correlation is not unduly high (r=0.47). The
supported by our results. Again, results suggest that both have a significant
environmental hostility was found to influence on strategic decision-making
influence none of the characteristics of SD processes.
process. The argument that organizations in Another set of interesting relationships
hostile environments follow more rational revolves around the significance of corporate
decision processes (Dess and Beard, 1984; performance in determining decision
Rajagopalan et al. 1993) receives no processes. Return on assets, provides
empirical support. significant positive associations with
In an attempt to explain this lack of rationality, financial reporting and
dominance of the external control model, hierarchical decentralization. Profit growth
several speculative assumptions may be in turn are highly related to politicization

17
and dissension. So different performance the fact that numerous parties, not only from
aspects appear to influence different inside but also from the outside of the
dimensions of the process. Past profitability company, may intervene and try to skew the
may lead to more rationality and output of the decision process in their
decentralization of DM processes. Growth in preferred direction. Such an activity may
profits may lead to internal politics and raise politicization.
dissension. The latter is an interesting By contrast in private Greek companies
finding which deserves attention. It may be less rational processes, less financial
that high growth of profits over time raises reporting, and less rule formalization appear
internal conflicts as to where these resources to prevail. Results seem to comply with the
should be invested. Particularly telling was particular view, that private Greek
the example of a fast-growing company in companies lag in analytical resources and
the food sector which considering investing internal systems to support
a sizable part of its retained earnings. The comprehensive/rational decision-making,
marketing department wanted major extensive financial reporting and formalized
investments in new products and channels of procedures, or may be less interested in
distribution, while the production analysis.
department supported a single investment in In a study of decision-making practices
state of the art computerized storing between British and American-owned firms
facilities. The process of deciding where to in Britain Mallory et al. (1983) reported that
invest these surplus resources was a highly in general American ownership had little or
political one. no influence on the way decisions were
Size is found to be largely insignificant in made. Among the few alleged differences
almost all regression models except for they found more reliance in British
comprehensiveness/rationality which companies on certain aspects of
appears to increase with size. A similar formalization. The results of this study seem
pattern of associations was reported by Dean to reveal an important gap between private
and Sharfman (1993a). This result seems to Greek enterprises and subsidiaries of
be at odds with the conventional wisdom multinationals which tend to have
that as companies grow they tend to move international characteristics. This implies
towards more procedural and formalized that Greek private management may be
decision-making (e.g. Mintzberg, 1973). associated with less comprehensive/rational
Finally, it appears that control type has a processes, less financial reporting and less
significant impact on several aspects of rule formalization. This opens up interesting
strategic DMPs. Indeed, enterprises under questions on comparative decision making
state ownership (SOEs) seem to apply more practices across countries or types of firms,
comprehensiveness/rationality, and more which may be a useful avenue for future
politicization, when making decisions of a research.
strategic nature. This is in line with the view
that in the context of SOEs political and IMPLICATIONS AND POSSIBLE
economic considerations coexist (e.g. EXTENSIONS
Lioukas et al. 1993). As strategic decisions Some interesting practical implications
in SOEs are usually subject to scrutiny or follow from the significance of decision-
influence by strong stakeholders the specific characteristics, identified in this
decision-takers may take pains to research, in comparison to management,
demonstrate that they act rationally and to corporate environment and internal firm
justify their major decisions both inside and characteristics. As certain of these decision-
outside the company (Dean and Sharfman, specific characteristics are amenable to
1993a; Romanelli and Tushman, 1986). This managerial interpretation and perception it
explains the positive relationship between may be in the interest of management to
comprehensiveness and SOEs. The positive actively manipulate the meaning or
statistical significant association between categorization of strategic issues, and
politicization and SOEs may be attributed to through them to influence organizational

18
responses. This is in line with much of the The present research effort has touched
thinking in the area. For example, top on only a few of the research questions in the
management deliberately make certain field of strategic decision-making. Several
decision-specific characteristics salient. E.g. extensions, both methodological and
it may choose to ‘manipulate’ the substantive need to be made, and a number
information provided from external or of points concerning overall research
internal systems, such as ‘Environmental recommendations in the area be highlighted.
Scanning’ or 'Strategic Issue Management ' First, the research has established the
or 'Boundary Spanning' systems, to serve its dominance of decision-specific
own goals. What may be communicated as a characteristics over other management and
threat by a specific system may be context factors in making strategic decisions.
characterized as an opportunity by another. More work needs to be done to test the
Filtering information and manipulating generalizability of the present results in other
decision-specific characterizations, may settings and sample designs. Another useful
enable management to subsequently control line of research would be to examine the
rationality, formalization, lateral same hypotheses in more narrowly defined
communication, hierarchical samples, e.g. controlling for types of
decentralization and even the extent of enterprises or SDs and for other context
internal political activity. variables, so that consistent research findings
The specific results indicate that certain be accumulated and a more focused
management and internal firm characteristics contingency theory on the impact of context
bear on the strategic DMP, while others such on strategic DMPs be developed.
as the environment variables appear to be Second, despite the fact that the
insignificant. So contrary to allegations on regression models tested here appear to have
the significance of environmental a very good explanatory power over the
determinants, management seems to play an adopted process dimensions, there still
important role. More specifically, CEO’s remains an unexplained percentage of
risk propensity, education and tenure as well variance. Further research can incorporate
as the TMT’s aggressiveness seem to be additional variables not considered in the
important determinants of certain process course of this study (e.g. contextual elements
dimensions (e.g. rule formalization, financial such as reward systems, organizational
reporting, hierarchical decentralization, and structure or further SD attributes), and may
lateral communication). These results adopt different and possibly more
directly question the findings of a number of appropriate operationalizations of the
research works arguing for the secondary constructs already used.
role of managers. Third, theory is needed that more
Another implication of the results is that accurately reflects the strategic DMP in its
they verify the important role of the context and the relative weight of its
formality of planning systems in influencing determinants. Progress in this area could
the making of SDs. Results indicate that significantly improve both our understanding
formal planning influences the way in which and eventually the quality of strategic DMPs.
strategic decisions are taken, and thus to an A refinement of the formulation may be
extent, strategy itself. Indeed, by influencing necessary before a more substantial
comprehensiveness, lateral communication, explanation or prediction capability can be
and political activities, formal planning achieved.
systems seem to act as a powerful input to Fourth, it may be useful to include
the process of strategy making. intermediate outcome variables of SDs (e.g.
Corporate control is also important, innovation, learning, decision quality,
suggesting, an important lagging of private satisfaction, commitment, and overall
Greek firms in rationality. SOEs instead company performance/ effectiveness). Future
seem to be closer to international standards, research may seriously consider these
as benchmark against the subsidiaries of aspects, which were outside the scope of the
multinationals included in the sample. present work.

19
 Fifth, the present work has established the argues in a recent literature review, “it may
multidimensional aspects of SD processes be that many of the conclusions about
and the multiple relationships with the main strategic decision making developed in the
variables of the study. This enhances the U.S. context will have to be modified in
need for producing a more integrated image order to be applicable across cultures”
of decision-making reality through the (Schwenk, 1995 pp. 484).
simultaneous study of a large number of
qualities, and use of more sophisticated
multivariate analysis of contextual influence
on strategic DMPs (Rajagopalan et al. 1993).
Simultaneous equation techniques would be
useful to further examine determinants of the
actual sets of relationships in practice.
It will also be interesting to investigate
how closely these results, obtained in one
southern E.U. country, apply to SDs in the
countries where the vast majority of research
in this field has taken place (USA, UK,
Canada).
Some of the empirical results from this
study concur with the body of research
evidence in the area. This would support the
'culture free” argument which maintains that
cultural differences may not affect
relationships among structural characteristics
(e.g. Negandhi, 1975). There are however,
certain findings which may be interpreted as
‘culture specific’. For instance, the enhanced
role of decision-specific characteristics as
against corporate environment and top
management may be specific to the
particular context. It is possible that because
Greek private firms have less formal rules
and less comprehensive decision processes
than their U.S. or British counterparts, they
would be more likely to treat each strategic
decision as unique and thus react in a more
“emotional” manner. In U.S. or British firms
with more formal rules and procedures for
SDs, decision-specific characteristics may be
less important and all or most SDs may be
handled using similar processes. This does
not mean decision-specific characteristics
are of no significance in such a context: the
work of Dutton et al. (1989) as well as many
others provide clear evidence to the contrary.
It rather implies that the role of these
characteristics may be not as dominant as
they appear to be in the Greek context. This
opens up a very promising avenue for future
research on comparative decision-making
practices, across different country and/or
cultural domains. As Charles Schwenk

20
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25
Table 1 : Correlations Among SD Process Dimensions

MEAN STD 1 2 3 4 5 6 7

1. Comprehensiveness / 3.26 .73 1.00

Rationality

2. Extent of Financial .00 1 1.00 .46 *** 1.00

Reporting Activities

3. Rule Formalization .00 1 1.00 .28 ** .19 1.00

4. Hierarchical 2.77 .54 .42 *** .35 ** .01 1.00

Decentralization

5. Lateral Communication 2.23 .56 .62 *** .35 *** .27 * .54 *** 1.00

6. Politicization 2.97 1.34 .31 ** .10 -.11 .14 .07 1.00

7. Problem-Solving Dissension 2.50 1.27 -.01 -.12 -.14 .01 -.08 .27 * 1.00

* SIGNIFICANT AT .05 ** SIGNIFICANT AT .01 *** SIGNIFICANT AT .001

1
Variables marked with an asterisk are factors (principal components) incorporated in the analysis

26
Table 2 : Factor Analysis Results of Decision specific characteristics

FACTOR LOADINGS*
DECISION SPECIFIC FACTOR 1: FACTOR 2: FACTOR 3: FACTOR 4: FACTOR 5: FACTOR 6:
CHARACTERISTICS MAGNITUDE UNCERTAINTY THREAT / PRESSURE FREQUENCY / ‘PLANNED’
OF IMPACT CRISIS FAMILIARITY VS ‘AD HOC’

- SDs Impact on Strategy .805

- Radicallity of Changes .782
- SDs Magnitude of Impact .760 .446
- Precursiveness Of The SD .743 .352
- Seriousness of Consequences .608

- Action Uncertainty .731

- Overall Uncertain Nature of SD .726
- Information Uncertainty .647 -.266

- Extent of Crisis Perception .847

- Perceived Threat of Loss .819 .262

- Time Pressure to Make the SD .903

- Pressure on the Organization .313 .771

- SD as Part of Another Decision .793

- Frequency of Occurrence -.401 -.282 .572 -.470
- Familiarity with the SD -.437 .389 .489

- ‘Planned’ vs ‘Ad Hoc’ -.263 .847

Eigenvalue 3.59 2.42 1.87 1.38 1.10 1.04

Percentage of Variance Explained 22.4 15.1 11.7 8.6 6.9 6.6

Cumulative Percentage 22.4 37.6 49.3 57.9 64.8 71.4

* Alpha factoring method was used, together with Varimax Rotation and Kaiser Normalization.
Factor loadings less than .25 are not reported.

27
Table 3 : Intercorrelations Among Independent Variables

VARIABLES MEAN STD 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

1. Magnitude of Impact 3.29 .75 1
2. Thread/Crisis 3.04 1.26 09 1
3. Decision Uncertainty 2.44 .98 -16 01 1
4. Frequency 2.97 .80 03 13 -26 1
5. Pressure 4.44 1.53 33 30 03 05 1
6. ‘Planned vs Ad Hoc’ 3.81 1.08 42 10 -30 20 13 1
7. Heterogeneity 2.71 .93 13 -13 -04 -19 19 35 1
8. Dynamism 3.17 .87 23 -25 -26 09 16 21 44 1
9. Hostility 2.94 .74 -19 05 38 -09 -04 -19 -17 -32 1
10. Planning Formality 3.04 1.13 26 19 -04 17 17 47 31 21 -28 1
11. CEOs Need for Achievement 2.15 .63 -01 -26 00 -18 -13 03 47 36 02 -05 1
12. CEOs Risk Propensity 3.14 .56 24 15 -16 -01 39 14 24 36 -09 21 -01 1
13. CEOs No. of Years with Company 18.14 10.3 -01 -18 00 25 -17 -02 -13 -25 -12 17 -07 -26 1
14. CEO's Level of Education 3.36 .89 00 -01 -01 10 02 01 -12 30 07 11 05 17 -39 1
15. TMT's Level of Education 85.0 16.6 08 25 -31 18 29 27 07 10 -46 44 -43 19 00 17 1
16. TMT's Aggressive Philosophy 3.35 1.18 37 -13 -13 13 26 34 42 55 -42 53 12 44 01 16 21 1
17. Return on Assets .997 3.39 03 -04 11 18 13 10 13 16 01 28 -14 08 23 10 08 45 1
18. Growth in Profits 1.29 5.38 03 03 -33 -07 22 17 14 17 -33 16 10 10 -06 01 28 21 12 1
19. Size 2.76 .27 -22 16 10 -06 -04 -07 -05 -19 00 00 11 -21 06 -04 05 -34 -13 17 1
20. State Controlled Enterprises .19 .39 -17 25 12 -26 8 -19 -05 -12 09 -18 -08 -02 -23 -03 21 -43 -37 -07 37 1
21. Private Greek Companies .47 .50 -01 -14 07 08 -27 -21 -30 -28 -33 -10 -04 06 -03 -34 -06 27 26 -04 -08 -45 1
22. Subsidiaries of Multinationals .34 .48 15 -06 -17 13 22 38 35 39 -42 47 16 05 -03 05 18 41 03 11 -23 -35 -68

Note : Decimals of Correlation Coefficients were omitted For Coefficients greater than r > 0.20 p < 0.05
For Coefficients greater than r > 0.275 p < 0.01 For Coefficients greater than r > 0.35 p < 0.001

28
 Table 4 : Summary Table of Best Models of Regression Analysesa
VARIABLES MODEL 1: MODEL 2: MODEL 3: MODEL 4: MODEL 5: MODEL 6: MODEL 7:
COMPREHENSI_ FINANCIAL FORMALIZED HIERARCHICAL LATERAL POLITICIZA- PROBLEM
VENESS/ REPORTING RULES DECENTRALI- COMMUNICA- TION SOLVING
RATIONALITY ZATION TION DISSENSION
DECISION-SPECIFIC CHARACTERISTICS
A. GENERIC CHARACTERISTICS
1. Magnitude of Impact .35 *** .19 * -.20 + .41 *** .48 ***

2. Threat/Crisis .15 + .20 *

3. Decision Uncertainty -.16 + -.19 * .41 *** .60 ***
4. Frequency .13 +
5. Pressure -.25 * -.19 * .20 *
6. ‘Planned vs Ad Hoc’ .25 * .25 *

B. TYPE OF SD
7. New Business Investment Type -.27 ** .42 * -.38 *
8. Investment in Capital Equipment .20 + .64 *** -.39 *
9. Investment in Marketing -.19 * .19 + .37 * -.40 *
10.Investment in Internal Reorganization ------ ------ ------ ------ ------ ------ ------

TOP MANAGEMENT CHARACTERISTICS

1. CEO's Need for Achievement
2. CEO's Risk Propensity -.34 **
4. CEO's number of years with the Company .29 **
5. CEO's Level of Education .23 **
6. TMT's Level of Education
7. TMT's Aggressive Philosophy .21 + .35 ** .34 ***

BROADER CONTEXT

A.. EXTERNAL CORPORATE ENVIRONMENT

1. Heterogeneity -.25 **
2. Dynamism
3. Hostility

B. INTERNAL CONTEXT
Internal Firm Characteristics
1. Planning Formality .29 ** .25 ** .26 *

Corporate Performance
1. Return on Assets .20 * .29 ** .33 ***
2. Growth in Profits .27 * .27 **
Firm Size (No of Employees) .19 *

Corporate Control
1. State Controlled Enterprises (SOEs) .18 + .39 ***
2. Private Greek Companies -.25 * -.36 *** -.40 ***
3. Subsidiaries of Multinationals ------ ------ ------ ------ ------ ------ ------

R2 .63 .60 .48 .54 .66 .39 .51

2
Adjusted R .58 .54 .43 .48 .63 .35 .45

F 11.6 *** 10 *** 10 *** 9 *** 24.4 *** 10.4 *** 9.2 ***
┼
p < .10 * p < .05 ** p < .01 *** p < .001
a
Values Shown in the Regression Models are the Standardized Regression Coefficients.

29
 T O P M A N A G E M E N T
C E O T O P M A N A G E M E N T T E A M
• Risk Propensity • Level of Education
• Education • Aggressive Philosophy
• Need for Achievement
• Aggressiveness

DECISION PROCESS CHARACTERISTICS

NATURE OF SD

" GENERIC " Rationality/comprehensiveness

CHARACTERISTICS (e.q.)
⇒ Magnitude of Impact " Financial Reporting

⇒ Threat/Crisis " Formalization

⇒ Frequency
" Hierarchical Decentralization
" TYPE OF SD (e.q.)
" Lateral Communication
⇒ New Business Investment
⇒ Investment in Capital • Politicization
Equipment
⇒ Investment in Marketing • Problem solving Dissension

B R O A D E R C O N T E X T
EXTERNAL ENVIRONMENT INTERNAL CONTEXT
• Heterogeneity • Internal Firm Characteristics (e.g. planning formality)
• Dynamism • Performance (return on assets, growth)
• Hostility • Corporate Control/Ownership Type (e.g. SOE, private Greek Company, subsidiary of Multinational)
• Size (nr of employees)

Figure 1: Factors Influencing Strategic Decision Making Processes

30
 APPENDIX 1:

METHODOLOGY OF DATA COLLECTION

The SDs were identified at the initial CEO interview. The CEO was asked to complete the
first, general, questionnaire providing information about the company, its environment, and its
organization. Then the CEO was asked to name the two most important investment decisions
which had taken place in the last 2-3 years. In an attempt to minimize distortion and memory
failure problems, he (all the CEOs were men) was asked for recent decisions. The vast majority of
the decisions were taken less than 6 months prior to interview.
The CEO was asked to give a brief description of each decision and the process followed in
making it, and to name all the key participants as well as the manager with the most intimate
knowledge of the process, e.g. the project champion (this methodology follows that of Hickson et
al., 1986). In most cases we had access the paper trail documenting the decision and its process,
before interviewing the designated manager: investment decisions tend to be better documented
than other strategic decisions (Marsh et al. 1988). This aided understanding, helped to form a
clearer picture of the process, and also helped in checking managers for possible memory failure
and ex-post rationalization (Huber and Power, 1985).
Semi-structured interviews were conducted with the most knowledgeable manager (Huber and
Power, 1985). We followed a "funnel sequence" whereby the interview started with a semi-
structured discussion using open-ended questions (Bouchard, 1976). This approach was preferred
for the following reasons:
(i) it helped the manager to conceptually reconstruct the whole process and its major stages,
before answering the more specific (closed-ended) questions which followed.
(ii) it provided detailed qualitative data on the level of respondent's understanding, his/her
conceptual language, personal views etc.
(iii) by answering spontaneously the initial open-ended questions, the respondent has committed
himself to a certain "reality" concerning the making of the decision and thus it was easier for
the researcher to check the validity of responses in the closed-ended questions that followed.
When this informal discussion was completed interviewees were handed the second decision-
specific questionnaire designed to measure the dimensions of the process. Their responses were
always checked against the initial CEO interview and the paper trail. If the answers differed from
what these sources suggested, we were able to question the manager’s recollections. A thorough
discussion followed and the manager usually justified his/her point of view.
Where interviewees felt they had insufficient information (e.g. a production manager could not
reliably recall aspects of the financial evaluation or the marketing issues), we conducted further
interviews with the relevant informants (e.g. finance or marketing director) to clarify these
specific points. Their responses in these specific points were used as better approximating reality.
These incidents were rare because people selected had actively participated in the process and
thus, had a thorough understanding of what actually happened. Six decisions out of 70 used this
hybrid multiple-informant approach.

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 APPENDIX 2
OPERATIONALIZATION OF SD PROCESS DIMENSIONS
SD MAKING PROCESS OPERATIONALIZATION VARIABLES ITEMS ALPHA
DIMENSIONS IN
DERIVED FROM: SCALE
1. RATIONALITY / This construct is based on Fredrickson’s (1984) Rationality/comprehensiveness Fredrickson, 1984; 5 .94
COMPREHENSIVENESS dimension. Five stages in the SD process are measured (i.e. the situation diagnosis,
alternative generation, alternative evaluation, making of the final decision and decision
integration). For each of these stages Fredrickson’s eight rationality elements are
measured on five-point Likert-type scales (i.e. extend of scheduled meetings,
assignment of primary responsibility, information seeking activities, systematic use of
external sources, employees involved, use of specialized consultants, years of
historical data review, and functional expertise of people involved). The rationality
elements for each stage are summed to create five additive variables, each representing
the rationality/ comprehensiveness dimension of the respective stage. Summation of
these five variables results in an overall measure of rationality-comprehensiveness of
the process.
2. FINANCIAL This is one of the two factors extracted from a factor analysis investigation involving Ideas expressed by: 6 .90
REPORTING sixteen items measuring the degree of reporting activities in support of the SD. This
specific factor variable measures the degree of financial reporting activities and is
consisted or six items. Sample items include: (1) use of NPV-IRR methods, (2) King, 1975
inclusion of proforma financial statements, (3) detailed cost studies, (4) incorporation Marsh et al. 1988;
of the SD into company-wide financial plans. The measurement scale ranges from ‘1’ Stein, 1980
absolutely false to ‘7’ absolutely true.
3. RULE This construct is one oft the three factors extracted from a factor analysis investigation Ideas expressed by: 7 .89
FORMALIZATION involving seventeen items measuring the degree of formalization/standardization of
the process. This specific factor variable incorporates seven items and measures the
degree of rule formalization during the making of the SD. Sample items include: The King, 1975
degree to which there exists a written procedure guiding the process, (2) existence of a Stein, 1980;
formal procedure to identify alternative ways of action, (3) formal screening
procedures, (4) formal documents guiding the final decision, (5) predetermined criteria
for SD evaluation. The measurement scale ranges from ‘1’ absolutely false to ‘7’
absolutely true.
4. HIERARCHICAL This additive variable measures the extent of vertical decentralization of the decision Ideas expressed by: 5 .93
DECENTRALIZATION making during all the phases of the process. It is based on the total amount of Tannenbaum, 1968;
participation of various hierarchical levels and departments in each of the previously
mentioned five phases of the process. The five hierarchical levels include owner-main Grinyer et al. 1986;
shareholder, CEO, first level directors, middle management and lower management.
Responses are taken on a five-point Likert-type scale, anchored with ‘1’ no
involvement at this stage to ‘5’ active involvement and influence. By adding all
hierarchical layers for every stage in the process, five additive variables were obtained,
each measuring the hierarchical decentralization in the respective stage. Summing all
five variables resulted in an overall measure of hierarchical decentralization.
5. LATERAL Lateral communication was measured in a similar way to hierarchical decentralization, Ideas expressed by: 5 .87
COMMUNICATION except from that it measures the degree of balanced participation of all major Tannenbaum, 1968;
departments in the adopted five stages of the process. The major departments include:
finance-accounting, production, marketing-sales, personnel, and purchasing
department.
6. POLITICIZATION This variable results from the addition of four seven-point Likert-type scales Pettigrew, 1973; 4 .77
measuring the extent of coalition formation, the degree of negotiation taken place Mintzberg et al.
among major participants, the degree of external resistance encountered and finally 1976;
the degree of process interruptions experienced. Scales range from ‘1’ absolutely false
Hickson et al. 1986;
to ‘7’ absolutely true.
7. PROBLEM SOLVING Three items comprise this variable measuring the degree of problem solving Eisenhardt and 3 .71
DISSENSION dissension during the initial stages of the process: the degree of disagreement on ‘1’ Bourgeois 1988;
Butler et al. 1991;
the objectives sought by the decision, ‘2’ the proper methodology to follow and ‘3’
the proper solution to the problem.

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 APPENDIX 3

OPERATIONALIZATION OF DECISION SPECIFIC, MANAGEMENT

AND CONTEXTUAL VARIABLES

GENERIC DECISION- OPERATIONALIZATION VARIABLES No. OF ALPHA

SPECIFIC ITEMS
DERIVED FROM: IN
CHARACTERISTICS SCALE
1. MAGNITUDE OF Composite variable consisting of eight five-point Likert-type scales Ideas drawn from: 8 .81
IMPACT measuring the impact of SD on the following organizational areas: (i)
profit, (ii) quality of products/services, (iii) total production, (iv) cost, Beach and Mitchell, 1978;
(v)sales, (vi) market share, (vii) call for changes in existing programs and Schneider and DeMeyer, 1991;
(viii) organizational adjustment required to serve the decision.
2. THREAT / CRISIS Composite variable consisted of two scales measuring the extent to which Billings et al. 1980; 2 .68
the SD is perceived as a crisis situation and the second the threat of
financial loss.
3. DECISION Composite variable consisting of three seven-point Likert-type scales Beach and Mitchell, 1978; 3 .56
UNCERTAINTY measuring the uncertainty about actions to be taken, general uncertainty
surrounding the decision and uncertainty concerning the information to be
collected.
4. FREQUENCY / Composite variable consisted of two scales measuring the frequency of Dutton et al. 1989; 3 .54
FAMILIARITY occurrence, the familiarity of the SD to the company, and the extent to
which the SD was part of another major decision. Beach and Mitchell, 1978;

5 PRESSURE Extent of pressure exerted either on the organization or the time pressure Beach and Mitchell, 1978; 2 .70
felt by the participants in the SD.
Schneider and DeMeyer, 1991;
Billings et al. 1980;
6. PLANNED vs AD HOC A five-point Likert-type variable measuring the extent to which the SD Sinha, 1990; 1 -
emerged through some type of formal planning effort.

TOP MANAGEMENT VARIABLES No. OF ALPHA

CHARACTERISTICS: ITEMS
DERIVED FROM: IN
SCALE
1. CEO’s NEED FOR Composite variable consisted of six, seven-point Likert-type scales Steers and Braunstein, 1976; 6 .70
ACHIEVEMENT measuring an active attitude towards decision making and personal goal
setting. and Eysenck and Wilson, 1975

2. CEO’s RISK Composite variable consisted of fifteen, five-point Likert-type scales From Jackson’s Personality 15 .73
PROPENSITY measuring the psychological disposition of the CEO towards risk. Inventory (3 out of 8 items)
Particular care was exercised to select items approximating the reality of
business situations and represent ‘monetary risk’. and Eysenck & Wilson’s Risk
Propensity scale (1975)
3. CEO’s NUMBER OF Continuous variable measuring the number of years the CEO is with the Ideas drawn from: 1 -
YEARS WITH THE company.
COMPANY Hambrick and Mason, 1984;
Fredrickson and Iaquinto, 1989;
4. CEO’s LEVEL OF One five-point scale measuring CEO’s level of education. Ideas drawn from: 1 -
EDUCATION
Hambrick and Mason, 1984;
Haley and Stumpf, 1989;
5. TOP MANAGEMENT’s Here the CEO was asked to rate the aggressive philosophy of his TMT on Adapted from 3 .70
AGGRESSIVE three dimensions (attitude of the whole top management team towards
PHILOSOPHY innovations, risky projects and competitors). Khandwalla 1977;

6. TOP MANAGEMENT Percentage of managers, down to the level of departmental heads who are 1 -
TEAM’s LEVEL OF university graduates.
EDUCATION

33
 EXTERNAL OPERATIONALIZATION VARIABLES No. OF ALPHA
CORPORATE ITEMS
DERIVED FROM: IN
ENVIRONMENT
SCALE
1. ENVIRONMENTAL Composite variable consisting of four five-point Likert-type scales Miller and Friesen, 1983; 4 .86
measuring significant differences between the products/services offered in
HETEROGENEITY relation to: (i) customer’s buying habits, (ii) the nature of competition,
(iii) market dynamism, (iv) market uncertainty.

2. ENVIRONMENTAL Composite variable consisting of eight distinct scales referring to three Achrol and Stern 1988; 8 .81
DYNAMISM derived subconstructs: (1) dynamism in marketing practices, (2) competitor
dynamism and (3) customer dynamism. Each scale was measured in a
seven-point Likert-type scale ranging from 1´ (no change) to 7´ (very
frequent changes).
3. ENVIRONMENTAL Composite variable consisting of three five-point Likert-type scales Khandwalla, 1977; 3 .69
MUNIFICENCE- measuring the degree of environmental (1) riskiness, (2) stressfulness, (3)
HOSTILITY dominance over the company.

INTERNAL FIRM VARIABLES No. OF ALPHA

CHARACTERISTICS ITEMS
DERIVED FROM: IN
SCALE
1. PLANNING Composite variable consisting of seven five-point scales ranging from Adapted from 7 .89
FORMALITY
‘1’ strongly disagree to ‘5’ strongly agree. The scales measure the extent of: Wood and Laforge, 1981;
(1) formal functional area planning, (2) active departmental participation,
(3) formulation of quantified goals, (4) formalization of company
objectives, (5) existence of planning group or department, (6) development
of a favorable planning climate, and (7) existence of detailed action plans.

CORPORATE OPERATIONALIZATION VARIABLES No. OF ALPHA

ITEMS
PERFORMANCE DERIVED FROM: IN
SCALE
1. RETURN ON ASSETS Return on Assets (ROA) averaged for five years, to decrease to chance of a Bourgeois, 1980; - -
one--year aberration influencing results. Another consideration was to
control for industry effects on performance. Since three different
industrial sectors are represented in the sample each of the resulting ROA
measures was divided by the mean ROA of the respective sector, in an
attempt to control for sectoral influences.
2. ‘GROWTH’ IN Percentage change in ‘growth’ in profits over a five-year period. Fredrickson, 1984; - -
PROFITS

* All composite variables were averaged by the number of scale-items in the construct

34