Operational foundation of strategic investment decision making: contextual influence on process characteristics

Papadakis, Vassilis (1993) Operational foundation of strategic investment decision making: contextual influence on process characteristics. Doctoral thesis, University of London: London Business School.

Abstract

The aim of this thesis is to examine the way Strategic Investment Decisions (SIDs) are made and the factors influencing the characteristics/aspects of the decision making process. The nature and substance of strategic decisions, and particularly those of an investment nature, makes them of considerable importance to an organization, since they usually imply a significant commitment of resources, have a profound impact on the organization as a whole and on its long-term performance and viability. The thesis draws together and integrates aspects of what decision making theory, organizational theory, strategic management and modern financial theory say about strategic decisions and determinants thereof. At a general level particular attention is devoted to the following research question: DO THE CHARACTERISTICS OF STRATEGIC DECISION MAKING PROCESSES VARY IN DIFFERENT CONTEXTUAL CIRCUMSTANCES? AND IF SO, WHAT IS THE ROLE AND SIGNIFICANCE OF CONTEXT IN SHAPING DECISION PROCESSES? More specifically, the study attempts to: 1.Identify and measure the major characteristics of strategic decision-making processes, as perceived by key participants, 2.Explore the linkages between the process of strategic decision making and the context in which these decisions are taken. In defining context the research framework draws heavily and integrates three basic perspectives which have been developed in the field of strategic management; the "environmental determinism-population ecology" perspective, the "free will-strategic choice" perspective and the "inertial" perspective. Thus, in examining context the thesis focuses on corporate environment, internal systems, top management characteristics and characteristics of the SID itself. 3.Incorporate characteristics of the strategic decision making process and contextual elements in integrated models, 4.Identify managerial and theoretical implications of these interactions. The empirical testing was based on a sample of 70 SIDs drawn from 38 industrial enterprises operating in Greece. The research approach focused on several key participants in the decision making process, using a combination of semi-structured interviews and questionnaire completion. The empirical analysis yields several findings. Each contextual domain alone appears to experience a unique association with specific characteristics of the decision making process. This may imply that by correctly sensing and interpreting context, managers may directly influence subsequent decision processes. In trying to integrate the contextual influence into models which simultaneously consider the effects of various domains, several patterns worth noting emerged. First, all the models afford reasonably good to excellent predictions of the extent to which the process characteristics are determined by various contextual domains. Second, the findings suggest that the SID process may be viewed as the interplay of various contextual factors. It is reported that neither the external control model (environment), nor the strategic choice model (decision makers), nor the corporate inertial model (e.g. size), nor the resource availability (performance) alone, adequately explain actual SlD making behaviour. On the contrary decision makers should be seen to be partially constrained in their attempt to manage contingencies posed by various contextual domains. Implications for theory and practice are advanced and discussed.