Psychological and political influences on strategic decision making

Abstract

This thesis is composed of two essays. It aims to advance our understanding of the impact of psychology and politics on the strategies and performance of firms. The first essay, entitled "The Architecture of Behavioral Strategy," addresses the need for a unifying framework for the behavioral foundations of strategic management. This framework builds on and integrates the heuristics and biases literature, the upper-echelon perspective of the firm, the dynamic capabilities framework and, to some extent, the political view of organizational decision making. It describes the impact of strategic decision-maker characteristics and organizational capabilities on strategic initiatives and outcomes. I start the core of the essay by addressing the relationships that exist between the strategic situation, strategic choices and outcomes. I then elaborate on the cognitive aspects of strategic decisions and their implications. I distinguish between managerial preferences (how alternatives are ranked according to risk and timing) and beliefs (how expectations about the future are formed from the analysis of the internal and external situations), my aim being to explain the psychological foundations of behavioral strategy constructs. This distinction indicates how we can systematically examine the value of the psychological mechanisms that influence the relationship between the strategic situation and strategic outcomes. I conclude by discussing promising avenues for future research. The second essay, entitled "The Political Landscape in Resource Allocation Decisions," aims to illustrate how executives' political behaviors are a relevant part of behavioral strategy despite the fact that they have been relatively understudied in strategy scholarship. In order to address political behaviors influencing resource allocation decisions – in particular, the manipulation of information, formation of alliances/lobbying and the importance of avoiding contradicting more senior figures in the organization – I have organized this essay into two parts. I begin by examining three sources of political behavior in resource allocation decisions – the influence of the CEO in divisional decisions, the number of decision-making layers and the presence of conflict – and the impact of politics on the performance of divisions. Results of an empirical study of 405 executives indicate that both a greater number of decision-making layers and the presence of conflict lead to increased use of politics. The number of decision-making layers, the presence of conflict and the presence of politics all have a direct negative impact on a firm's speed in reaching the point of first sale. In turn, politics has a negative effect on a division's revenue growth, which is partially mediated by speed. The essay concludes with an investigation into how the corporate headquarters can mitigate the use of politics in resource allocation decisions by choosing the resource allocation process and performance assessment policies. To this end, the corporate headquarters should implement flexible or balanced control that combines short- and long-term targets, rather than tight financial control, in the assessment of the performance of divisions and divisional management teams. In contrast, the resource allocation process appears to have no substantial impact on the use of politics in organizations.

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