What causes top management teams to make poor strategic decisions

Abstract

This study investigates why top management teams consistently make poor strategic decisions even though executives typically have access to the data and tools required to make optimal business decisions in abundance. Research shows that high-performing organisations successfully make and implement good decisions (Rogers & Blenko 2006, p. 133). This indicates that good strategic decisions and their effective implementation provide a competitive advantage that directly leads to superior organisational performance. Indeed, when top management teams (TMTs) make strategic decisions, they are potentially conducting the highest leveraged activity they can for an organisation (Harrison & Pelletier 2000, p. 462). Considering that strong strategic decision making and execution capabilities are an organisational competitive advantage and represent activities of the highest value to which TMTs can contribute, it seems counter-intuitive that only around fifteen per cent of organisations have the ability to make and implement important decisions effectively (Harrison & Pelletier 2000; Rogers & Blenko 2006).\nUsing a grounded theory methodological approach with semi-structured interviews of executives from large Australia-based organisations, data and indications as to the root causes of poor strategic decisions were obtained. The collected data were categorised, analysed and abstracted into higher-level concepts. Analysis of the interrelationships led to an understanding of the reciprocal effects of key concepts.\nA grounded theory of strategic decision making was ultimately developed to address the research problem. The model is based on three key positive concepts—decision ecosystem, governance and leadership—and one negative concept—politics. For good decision making, the positive concepts should be present and robust. However, this study finds that this is an unlikely situation and that this represents a root cause for poor decision making. Additionally, Executives engaging in decision politics while making decisions is another significant root cause of poor strategic decision making. Decision politics are a manifestation of executive self-interest played out using tactics to avoid losses, blame or risks. The negative decision politics concept can be suppressed when the positive concepts are strong and act collectively and interdependently. The leader, typically the chief executive officer, is the main factor in constructing a strong interdependent decision framework comprising the positive concepts known as ‘decision equilibrium’, that yeilds the optimum decision-making environment and suppresses decision politics, thereby improving organisational strategic decision making.

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