Uncertainty and Strategic Decision Making

This book on uncertainty comprises the initial volume in a series titled “New Horizons in Managerial and Organizational Cognition”. We asked Frances Milliken and Gerard P. Hodgkinson, two well-known scholars who have made important contributions to our understanding of uncertainty to join us in this opening chapter to introduce this project. The brief bios found at the end of this volume cannot do justice to the broad range of their contributions, but our conversation gives a flavor of the kind of insights they have brought to managerial and organizational cognition (MOC). The editors thank them for helping launch the series with a decisive exploration of what defining uncertainty involves, how that might be done, why it is important, and how the task is changing. We were interested to discover that all five of us are currently involved in research that considers the nature and impact of uncertainty, and we hope that readers similarly find that paying attention to uncertainty contributes to their current projects. Working together, we can advance understanding of organizational settings and effective action, both for researchers and practitioners.

This study investigates the role of functional area-specific managerial schemas on the attempt of strategic renewal at a large medical devices developer and manufacturer during a period of high environmental dynamism. Using data from a 16-month field study on managerial work related to the strategy process, I examine how functional area managers attempted to (re)configure organizational capabilities in response to various environmental challenges. While I did not find any disagreement between functional area managers related to what those challenges were, I did find fundamental disagreements related to what capabilities the organization can muster as a response. More specifically, disagreements surfaced in relation to how these capabilities should be assembled, and ultimately acted as triggers for the contestation of existing shared frames between functional area managers. These findings add to a growing body of evidence suggesting that there exist large differences between how managers within an organization interpret what the organization is capable of, and more specifically link these differences to the organization’s ability to adapt to environmental changes by showing how they impact the assembly of new capabilities deemed necessary for a successful response.

This chapter draws from Structuration theory (Giddens, 1979, 1984) and Schema theory (Niesser, U. (1967). Cognitive psychology. New York, NY: Appleton-Crofts.) to examine how words reflect changing frames of reference (Orlikowski & Gash, 1994) that affect adaptation to strategic technological change. The method of recursive dialogue analysis we use provides evidence of how expectations about a new technology introduced to a sales force changed over time. Individuals had expectations based on past experiences, made initial decisions about using the new technology, juxtaposed new concepts against previous ones, interacted with team-mates, and built further concepts around previously expressed phrases. The results we exhibit here allow us to visualize complex interactions under conditions of uncertainty, contributing a detailed view of the recursive and cognitive process of developing a frame of reference about technology in an organization.

For organizational leaders, managing strategic change is a primary management activity (By, 2005). Reflecting its significance as a management function, there is now a substantial body of literature and many dynamic models and “recipes” advising managers how to lead and implement strategic change. These models present an ordered macro approach to what, in reality, is a highly complex, recursive, and messy process. In this chapter we eschew these neatly packaged change management processes and explore the micro level arguments of leaders as they grapple with the uncertainty of strategic change and seek to give primacy to their sense of the change and related issues. Based on the findings of our extensive micro level study, we present a theoretical model which explains the mechanisms that underpin this important activity.

There is growing evidence that managers perceive the general environment inaccurately, but very few studies have looked at the accuracy of specific strategic issue probability estimates, and at whether or not managers are aware of the accuracy or inaccuracy of their perceptions, something referred to as knowledge miscalibration. I explore perceptual inaccuracy and knowledge miscalibration in the form of overconfidence, in the context of demographic ageing, an issue currently affecting the tourism and hospitality industry. Using data from a survey of hotel managers, I find a high prevalence of perceptual error and evidence of a relatively large minority of respondents displaying knowledge overconfidence. Furthermore, I find a link between accurate environmental perceptions and strategic issue importance, suggesting that managers are better at accurately perceiving an issue when it is strategically important for their business. The same link does not exist with overconfidence, lending support to scholars arguing that overconfidence may be a trait, rather than being question-specific.

The way organizations cope with uncertainty in strategic decision making is prominently discussed. Concepts such as heuristics and simple rules are gaining increasing attention in strategic management research. However, despite their importance, little is known how heuristics and simple rules operate. Our qualitative study reveals that, first, strategic decisions consist of three basic elements: single rules, rule patterns, and emotional handling. Second, we find that firms develop generalizable rule patterns which follow a sequential order of inter-linked rules. Based on the findings we introduce the concept of organizational heuristics as inter-linked rule patterns drawing on organizational experience.

An ongoing debate in the field of organizational decision-making concerns the use of intuition versus analytical rationality in decision-making. For the purpose of contributing to this debate we use a rich empirical dataset built from a longitudinal study of information technology project prioritization in a large financial institution to investigate how managers make space for the use of intuition in decision-making. Our findings show that during project prioritization meetings, senior decision makers apply three different techniques: bringing-in project intangibles, co-promoting intuitive judgments, and associating intuitive judgments with shared group context, when they make space for intuition in decision processes.

In this chapter, we present a theory on how organizational performance feedback influences individual decision-maker cognitions and thereby changes a team’s attention focus in terms of strategy. We argue that when performance compares unfavorably to aspiration levels, decision-makers reconsider current strategies in favor of unfamiliar, uncertain ones and become more risk tolerant. Furthermore, as decision-makers devote additional cognitive resources to do so, changes in attention focus in a decision-making team will be observed. Using data from a business simulation and repeated questionnaires, we capture the teams’ attention focus and the organizational performance feedback evaluation process of the individuals and teams.

This study investigates the complex interaction between properties of some emergent crises and the expertise of particular public sector leaders, who themselves are embedded in particular institutional processes that further constrain identification of these emergent crises. It is suggested that discrepancy in the ability of leaders to detect crises is due not only to their own proficiency in some cognitive skills, but also to their interaction with, and differences in, particular properties of some emergent crises, which render some emergent crises more detectable than others in some institutional environments.