This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.
The strategic leadership is mainly acknowledged as a new discipline within the wider management field. In general, such young disciplines are characterised by controversy about existing paradigms (Kuhn, 1996). As Finkelstein and Hambrick (1996) stated that the interest of many scholars in top managements has increased over the past five decades. In the strategic management study, decision makers play a dominant role in formulating organisation strategy and in determining the orientation of the organisation (Westphal & Fredrickson, 2001).
Hambrick and Pettigrew (2001) argued that one of the significant issues for strategic management in the modern organisation becomes the defraying of decision maker ambiguity and complexity. The capability to deliver simple, clear, and evocative messages that balance organisational goals with present requirements seems to be a critical simplifying routine in times of change (Hambrick & Pettigrew, 2001). Hambrick and Pettigrew (2001) suggested that one of the significant scopes of strategic management is to examine decision maker characteristics and strategic outcomes.
Strategic management focuses on the strategic decision makers who have the overall responsibility of a corporation and those characteristics have an influence on strategic outcomes. The strategic decision makers who are the subjects of strategic management research can be individuals (Chief Executive Officers) or a group of individuals (Top Management Teams and Boards of Directors) (Finkelstein & Hambrick, 1996).
Numerous studies in upper echelons literature demonstrate that strategic decision makers and mainly their experience affect organisation conduct by determining its overall strategic orientation (Walsh & Seward, 1990; Davis & Thompson, 1994; Westphal & Fredrickson, 2001). The central belief of upper echelons perspective (Hambrick & Mason, 1984; Herrmann & Datta, 2006) is that strategic decision makers create a "construed reality" of the organisation's strategic situation based on their experiences and characteristics that lead to particular strategic choices. According to Hambrick and Cannella (2001) interest in the upper echelons theory derived from the economic based perspective of strategy. Moreover, Upper echelon research on strategic decision makers' demographic characteristics such as age, educational level, functional background or experience, and also cognitive values and bases shed light on their influence on organisation strategy (Wiersema & Bantel, 1992). In this section I will show who is the decision maker, upper echelons perspective, managerial characteristics and their influences on strategic decision-making and therefore on the strategic choices, and managerial choice perspective.
184.108.40.206 Decision Makers:
Organisational decisions are made by decision-makers, who can be classified as either an individual decision-maker or many decision-makers. The literature on decision making has classified Board of Directors, Chief Executive Officer and to management as the key decision makers in organisations. The aforementioned classifications are described below:
Boards of Directors: Many scholars (e.g. Zahra & Pearce, 1989; Hill, 1995; Monks & Minow, 1995; Hung, 1998; Keenan, 2004) considered Boards of Directors as a significant mechanism-entity within the organisation that creates a link between the shareholders and other managers and therefore plays a considerable role in the corporate governance of the organisation. It primarily represents an organisation's ultimate owners (shareholders), particularly in large public organisations (Monks & Minow, 2001). According to Hill (1995) there is considerable debate in the literature about the roles and behaviours of Boards of Directors in large organisations as Boards of Directors are complex social entities despite their small size. Board of Directors has the responsibility to determine the organisation's overall strategy and to ensure the protection of different shareholders (Keenan, 2004). Board of Directors exists essentially in order to hire, fire, monitor, improve management and vote on significant strategic decisions in an effort to increase the value of different shareholder (e.g. Salmon, 1993; Fistenberg & Malkier, 1994; Keenan, 2004).Thus, it is the centre of the internal system of organisational governance and, in this scope, has the obligation to assure long-term growth and success of the organisation and to provide control of organisation management (Iskander & Chambrou, 2000). Bhojraj and Sengupta (2003) emphasised that the Board of Directors has the fiduciary responsibility of monitoring management achievement and protecting the interests of different shareholders.
Chief executive officers: The role of management has been examined by Mintzberg (1973). He concluded that the "real world" manger has to be a "jack of all trades", integrating a variation of ten managerial roles. Mintzbrg (1975) described the managers as information gatherers, but emphasised that information is only a basic input of decision making processes. Mintzberg (1975) classified the ten managerial roles into three chief roles: the figurehead, the leader, and the liaison role. Gioia and Chittipeddi (1991) defined the CEO as someone who has primary responsibility for setting strategic orientations and plans for the organisation, and also responsibility for guiding activities that will realise those strategic orientations and plans. In the strategic research, executives play a significant role in formulating organisational strategy and in determining the orientation of the organisation (Westphal & Fredrickson, 2001). Ganster (2005) argued that difficult situations produce greater decision makers and that stress situations among CEOs improve the creation of innovative alternatives in strategic decision-making processes. In addition, Pfeffer and Salancik (1978) suggested that a single leader can respond to external conditions and facilitate the strategic decision-making process. Mintzberg (1975), however, advises of the danger of centralising knowledge in a single chief executive since this would bound the organisation in its goal to grow due to strategic decision-making based on single person's perspective and also leaves it affected by loss of knowledge capital if this CEO leaves.
Top management team: According to Pfeffer and Salancik (1978), there are three essential roles of management, symbolic, responsive, and discretionary role, all of which vary in the way organisational forces and activities are related. They argued that instead of having an experienced chief executive, the organisation would have a set of executives with managers expertise in their respective field of specialisation, efficiently forming a decision making team, chaired by the all-knowing chief executive officer (CEO). Top management team deals with matters that are primarily for the viability of an organisation rather than matters, which lend themselves to routine strategic decision-making (Stahl & Grigsby, 1992).They usually play a significant role, in making the strategic decisions (Hofer & Schendel, 1978), and they usually reflect the interaction between their organisation and its external environment (Ginsberg, 1988). So, research has mainly focused on the effect of top management team on organisational strategies (e.g. Miller & Toulouse 1986), and on organisational performance (e.g. Haleblian & Finkelstein 1993).
220.127.116.11 Upper Echelons Perspective:
The belief that the characteristics of decision maker, or the top management team of an organisation, can affect the strategic decisions made and processes adopted by an organisation dates back to early upper echelon perspective (Hambrick & Mason, 1984), which has its foundation in the organisational behaviour theory (March & Simon, 1958; Cyert & March, 1963). Decision makers, according to the upper echelons theory, are often unable to make economically rational strategic decisions due to strategic decision makers are bound by rationality and must perform in a social context of various and conflicting goals. Hambrick and Mason (1984) developed these ideas in their theory. The theory associates the observable demographic characteristics of the strategic decision makers with organisational outcomes and processes (Hambrick & Mason, 1984; Finkelstein & Hambrick, 1996; Knight et. al., 1999). Hambrick and Mason (1984) argued that decision makers' characteristics (e.g., demographic characteristics) influence the strategic decisions that they make and as a result the strategies adopted by the organisations that they lead. Hambrick and Mason (1984), suggest that this occurs due to observable demographic characteristics are associated with the several cognitive bases, perceptions, and values that influence the decision-making of top managers. Moreover, the upper echelons perspective states that organisational outcomes can be partly anticipated from managerial backgrounds (Hambrick & Mason, 1984), and decision makers will make strategic decisions as a team that are compatible with their cognitive orientation and knowledge base (Hambrick & Mason, 1984; Knight et. al., 1999).
Hambrick and Mason (1984) developed the upper echelons theory for understanding the effect of decision on organisational strategies (Pansiri, 2007). Numerous studies have supported the interrelationship between decision makers' characteristics and organisational strategies. For example, there is evidence that decision makers diversity in age, tenure, and educational level have been linked to organisational innovation (Bantel & Jackson, 1989; Camelo-Ordaz, Hernandez-Lara, & Valle-Cabrera, 2005), changes in corporate strategy (Wiersema & Bantel, 1992), and information use (Dahlin, Weingart, & Hinds, 2005); decision makers job-related diversity has been associated with the internationalisation of organisations (Lee & Park, 2006); and finally, decision makers gender diversity has been linked to organisational growth orientation and organisational culture in affecting performance (Dwyer, Richard, & Chadwick, 2003). In summarising the upper echelons perspective, Carpenter, Geletkanycz, and Sanders (2004) and Pansiri (2005) explain that the upper echelons perspective is based on three central principles: Strategic choices made in organisations are reflections of the values, perceptions and cognitive bases of powerful decisionon makers (Wiersema & Bantel, 1992; Carpenter, Geletkanycz, & Sanders, 2004); Values perceptions and cognitive bases of such decision makers are a function of their observable demographic characteristics such as education, career experience and functional background (Carpenter, Geletkanycz, & Sanders, 2004); and finally, considerable organisational outcomes are associated with the observable demographic characteristics of the strategic decision makers (Carpenter, Geletkanycz, & Sanders, 2004). These three key tenets frame the upper echelons proposition that an organisation and its organisational performance will be a reflection of its strategic decision makers (Carpenter, Geletkanycz, & Sanders, 2004). Thus, the upper echelons perspective assumes that strategic decision maker characteristics (psychological and observable characteristics) are important determinants of strategic choices (Pansiri, 2007). Moreover, advocates of this perspective claim that certain situational conditions (Inside and outside the organisation) and decision maker characteristics lead to strategic choices that could not have been anticipated as strongly by knowing only one or the other (Pansiri, 2007).
18.104.22.168 Managerial Demographic Characteristics:
According to Pfeffer (1983) organisational demography is described as the classification of organisational members along any demographic characteristics or any set of demographic characteristics. Organisational demography is a significant, causal variable that influences a set of intervening variables and processes and, though them, a set of organisational events (Pfeffer, 1983). The upper echelons perspective suggests that the demographic characteristics of decision makers bring a cognitive base and values to the strategic decision-making process that limits their field of vision (Hambrick & Mason, 1984; Finkelstein & Hambrick, 1996; Knight et al., 1999; Carpenter, Geletkanycz, & Sanders,2004; Pansiri, 2007).Hambrick and Mason (1984) emphasised that a decision maker's personal experiences and values can be inferred from demographic characteristics and be associated with top management team characteristics.
Scholars (March & Simon 1958; Cyert & March 1963) have developed a model based on the work of behavioural theorists to explain the association between managerial characteristics and organisational strategy. They defined the strategic choice as a perceptual process that occurs in a set of sequential steps. According to this model managerial choices reflect the characteristics of strategic decision makers. Therefore, Entrialgo (2002, p.261-262) argued that "when faced with the same objective environment, different managers will make different decisions (including strategy decisions) based on their individual characteristics".
Decision makers' demographic characteristics and strategic choices have been unified on the upper echelons perspective suggested by Hambrick and Mason (1984). This theory draws upon organisational behaviour and strategic management literatures to assume that the strategic decision makers' observable experiences affect their orientation and that strategic choice (Hambrick & Mason, 1984; Finkelstein & Hambrick, 1996; Pansiri, 2007). Literature on the upper echelons theory has discussed issues regarding the way that demographic characteristics of strategic decision makers such as educational background, functional background, age, and tenure determine strategic choice.
22.214.171.124.1 Educational Background:
Educational background, according to Hambrick & Mason's (1984) view, is considered as an indicator of decision makers' skill and knowledge base, and cognitive orientation. Hitt and Tyler (1991), and Wally and Baum (1994) found that educated decision makers have considerable cognitive complexity and ability to accept creative ideas and to adopt new innovations. Scholars (e.g., Guthrie, Grimm, & Smith, 1991; Wiersema & Bantel, 1992) have associated between a high level of education and high ability for information processing and high receptivity to new innovations. A highly educated decision maker, according to Bantel (1993), is likely to demand more detailed information, generating more financial reporting. Moreover, educated individuals are likely to tolerate external uncertainty and to show themselves to be more able in complex conditions (Dollinger 1985). Numerous Scholars (e.g., Kimberly & Evanisko, 1981; Hitt & Tyler, 1991; Finkelstein & Hambrick, 1996) argued that highly educated decision makers are more likely to support risk taking decisions. Strategic decision makers with high educational level are expected to improve problem-solving skills and abilities when complex problems occur (Hitt & Tyler, 1991; Goll, Sambharya, & Tucci 2001). Moreover, Herrmann and Datta (2005) found that top managers with high level of education, specifically open-mindedness; high information processing skills, flexibility and considerable receptivity to change could be advantageous for organisations seeking international diversification. Finally, the level of education has been associated with change in organisational strategy (Bantel & Jackson, 1989; Wiersema & Bantel, 1992). Wiersema and Bantel (1992) found that highly educated decision makers were more likely to make strategic changes rather than were less educated decision makers.
In addition to the level of education background, the type of education also might determine the cognitive models of the decision makers (Hambrick & Mason, 1984). Holland (1973), for example, argued that educational specialisation indicates to an individual's cognitive style and personality. The kind of educational specialty affects the strategic decision-making processes and strategic changes (Hitt & Tyler, 1991). For example, technically trained decision makers are aware of suitable technologies and are able to anticipate, perceive and predict long-term changes (Heilmeier, 1993). On the other hand, according to Hambrick and Mason (1984), decision makers with only a formal business management education are more likely to pursue short-term organisational goals at the cost of innovation and long-term organisational asset building compared to decision makers with higher educational backgrounds. Tyler and Steensma (1998), however, found that decision makers with technical education background in science and engineering have a complete awareness in technology and innovation and are more likely to focus greater on opportunities rather than on threats. Thus, well-educated strategic decision makers have been conjectured to show greater knowledge and ability to perform better, so contributing to more rational approaches to strategic decision-making and more innovative solutions to complex situations (Bantel & Jackson 1989). Such decision makers may thus be efficient enough to realise an objectively better solution (Michel & Hambrick 1992).
126.96.36.199.2 Functional Background:
According to Rajagopalan and Datta (1996) functional background is an important aspect of people's experience base and thus a key indicator of the kind of skills and cognition that the decision makers bring to their job. Many scholars (Gupta, 1984; Walsh, 1988; Waller et al., 1995; Markoczy, 1997; Tyler & Steensma, 1998) suggest that a strategic decision maker's perception and conception of the environmental conditions and strategy of an organisation is shaped by the departmental experience of the person. Decision makers with different functional backgrounds differ in their approaches, knowledge and views and therefore, various strategic choices (Dearborn & Simon, 1958). Guthrie and Datta (1997) argued that functional experience is a lens through which business conditions are viewed. Functional backgrounds reflect the way in which organisational problems are defined (Dearborn & Simon, 1958), how information is efficiently processed (Walsh, 1988) and how strategic choices are created (Hitt & Ireland, 1985). Hambrick and Mason (1984) suggest that managerial experience will influence the use of environmental factors in strategic decision-making.
Empirical studies have found systematic relationships between decision makers' functional background and organisation's strategy. Thomas, Litschert, and Ramaswamy (1991) have found strong relationships between decision maker functional background and strategic orientation. In addition, Smith and White (1987) found considerable relationships between new strategic decision makers' functional experience and organisation's diversification strategies.
Functional background has been distinguished by Hambrick and Mason (1984) into two broad types the "output" functions and the "throughput" functions. Hambrick and Mason (1984) argue that decision makers make different strategic decisions based on their functional experiences in different functional areas. The "output" functions include functional areas relating to marketing, and product research and development, which focus on growth and development strategies, search for new opportunities and are responsible for monitoring and improving products. Such functional areas are more oriented to strategic change and innovation than other functional areas. On the contrary, "throughput" functions include functional areas relating to finance and production, which emphasis on efficiency strategies. Such designation provides a relationship between functional experience and organisational strategic decision-making.
According to Hitt, Ireland and Palia (1982), the organisation's strategy relatively determines the kinds of functional experience that are vital for the organisation's success. For example, decision makers with functional experiences in R&D are associated with progress, invention and improvement, and also with differentiation and low-cost strategies (Govindarajan, 1989; Wiersema & Bantel, 1992). By contrast, throughput functional experiences are significant in industrial sectors which are characterised by significant capital intensity and lower growth (Rajagopalan & Datta, 1996). In addition, Herrmann and Datta (2002) argued that decision makers with an output functional experience have greater uncertainty and less control compared to those that with throughput functional experience, whose knowledge and skills are more appropriate for foreign orientations.
Scholars (e.g. Guthrie & Datta, 1997; Wiersema & Bantel, 1992) have considered age as an indicator of experience and a signal of an individual's propensity for risk-taking and change. A person's age is expected to affect perceptions and choices of person (Wiersema & Bantel, 1992); as age increases, acceptance and flexibility to changes decrease. Hambrick and Mason (1984) argued that younger decision makers might pursue risky strategies. Age is associated with organisational growth and organisational innovation strategies (Child, 1974), functional experience, organisational tenure and industrial sector tenure (Tyler & Steensma, 1998). Child (1974) and Noburn and Birley (1988) found that younger strategic decision makers achieve superior performance. Moreover, younger strategic decision makers are expected to be more educated and to have more current technological knowledge (Bantel & Jackson, 1989).
On the contrary, older strategic decision makers consider financial and career security significant, thus they may avoid risky activity that could change the strategic orientation of the organisation (Vroom & Pahl, 1971). Hambrick and Mason (1984) argued that older decision makers tend to be more conservative and therefore they have faced difficulty in adopting new ideas. Age is related to the capacity for effective information processing and analysis, accordingly, older strategic decision makers have less information processing capacity compared to younger ones as a result of their mental and physical stamina (Child, 1974). Child (1974) found that old decision makers pursue lower growth strategies. Empirical findings have shown that older strategic decision makers tend to have less conviction in their strategic decisions and therefore they might lack the confidence necessary to provide leadership for strategic changes (Taylor, 1975). SO, older decision makers seek more information and take longer to reach strategic decisions (Taylor, 1975). In an empirical study conducted by MacCrimmon and Wehrung (1990), it was found that old strategic decision makers proved to be risk unwilling and resistant to new change. Furthermore, Guthrie, Grimm, and Smith (1991) argued that organisations that have changed their organisational strategies, they have young strategic decision makers.
Tenure has been described in different ways: industrial sector tenure (Hambrick, Geletkanycz & Fredrickson, 1993); organisational tenure (e.g. Thomas et al., 1991); and function tenure (e.g. Miller, 1991; Hambrick & Fukutomi, 1991).
188.8.131.52.4.1 Industrial Sector Tenure:
Industrial sector Tenure indicates to the number of years that the strategic decision maker has worked for the particular industrial sector. Noburn and Birley (1988) indicate that the number of organisations a strategic decision maker has worked for is positively linked with growth and financial performance of the organisation.
184.108.40.206.4.2 Organisational Tenure:
As Iaquinto and Fredrickson (1997) stated that tenure in the organisation is described as the number of years a person has employed in the organisational work. Miller (1991) suggested that those organisations with long-tenured strategic decision makers were less likely to have organisational structures and strategies in order to respond to environmental conditions. They have gained a high level of organisation-specific skills and knowledge (Forbes & Milliken, 1999). Long tenured decision makers have been associated with deeper awareness of different policies and procedures in their organisations (Kanter, 1977); considerable commitment to organisational values (Stevens, Beyer & Trice, 1978) and to status quo (Bantel & Jackson, 1989; Michael & Hambrick, 1992; Hambrick, Geletkanycz, & Fredrickson, 1993). Strategic decision makers with short tenures have fresh, varied information and are willing to take risky actions, while as tenure increases, decision makers' perceptions become more restricted and risk taking is averted (Finkelstein & Hambrick, 1990). Therefore, long tenured strategic decision makers are hesitant to adopt innovative strategies (Finkelstein & Hambrick, 1990) and to change the strategic orientation of the organisation (Wiersema & Bantel, 1992). Nevertheless, empirical findings have shown a positive relationship between strategic decision maker's tenure and organisation growth and profitability in stable industries but negative relationship in turbulent industries (Noburn & Birley, 1988). Thomas, Litschert, and Ramaswamy (1991) found that longer organisational tenure is associated with "defender" strategies rather than "prospector" strategies.
220.127.116.11.4.3 Function Tenure:
According to Hambrick and Fukutomi (1991), function tenure represents the length of time an individual has served the organisation from the current position function. Empirical findings have shown that decision makers with long position tenure are familiar with strategic decision-making process, function knowledge, expertise and experience along with increased power and authority within an organisation (Herrmann & Datta, 2002). Moreover, long position tenure is associated with considerable autonomy (Miller, 1991) and adoption of risky organisational strategies (Finkelstein & Hambrick, 1996). The average organisation tenure of a decision maker has been associated with shared experiences, socialisation, a common vocabulary (Katz, 1982), and cohesion (Korac-Kakabadse, Korac-Kakabadse, & Myers, 1998).
Hambrick and Mason (1984) argued that strategic decision makers who have spent their whole careers in one organisation can be assumed to have comparatively limited attitudes. In extreme cases where the whole management team has advanced solely through the organisation, it is very probably that it will have a more restricted cognition base from which to conduct its restricted search (Hambrick & Mason, 1984).
According to Katz (1982), tenure has been linked with obligation to established policies and practices and the increase of routines for dealing with available information. Empirical studies have attempted to explore the relationship between tenure and organisational strategies and they found that long tenured strategic decision makers increase strategic persistence (Finkelstein & Hambrick, 1990) and decrease strategic change (Wiersema & Bantel, 1992). Nevertheless, Chaganti and Sambharya (1987) claimed that long tenured decision makers are linked with internally focused more than externally focused change. Hambrick and Fukutomi (1991) found that long tenured strategic decision makers tend to be committed, use limited information sources and exhibit to some extent a low task interest. Miller (1991) argued that it is less probably for long tenured decision makers to produce organisational structures and strategies according to environmental conditions.
18.104.22.168 Managerial Strategic Choice Perspective:
Management choice perspective has built on the belief that the characteristics of strategic decision maker, or the top management team of an organisation, can affect the strategic decisions made and processes adopted by an organisation. Strategic choice perspective reflects the characteristics of strategic decision-makers (Cyert & March, 1963; Child, 1972). The literature explores the relationship between top management and various organisational strategies in different contexts (e.g. Miller & Toulouse, 1986; Finkelstein & Hambrick, 1990). Nevertheless, there is no empirical study that examines the association between strategic decision-making process and top management characteristics (Bantel, 1993, Smith et al., 1994). An empirical work has found that the strategic decision maker's demographic characteristics to have an influence on the strategic decision-making process (Hitt & Tyler, 1991). Papadakis, Lioukas and Chambers (1998) found that educational level of decision makers is positively linked with financial reporting. According to Dollinger (1984) education level reflects the degree of individual's information analysis. So, educated strategic decision makers are more likely to demand detailed information and detailed financial reporting (Bantel, 1993). Empirical findings have shown that strategic decision maker's function tenure and education level and also top management team's educational background and competitive aggressiveness are linked to the extent of hierarchical decentralisation (Papadakis & Barwise, 2002). They found that the most affecting decision maker's characteristic is its tenure, which is positively associated with hierarchical decentralisation. Moreover, in an empirical study conducted by Goll and Rasheed (2005), they found a positive association between tenure and education level and rational decision-making process. Most recently, Kauer, Waldeck , and SchaÂ¨ffer (2007) found that diversity of experience influences agenda-setting and the generating of strategic alternatives, while personality characteristics such as flexibility, achievement motivation, networking capabilities, and action orientation seem to have a clearer influence on strategic decision speed.
The interrelationship between managerial characteristics and the decision-making has generated mixed findings. It is still ambiguous the effect of strategic decision makers' characteristics on the problem-formulation process (Lyles & Mitroff, 1980). Lyles and Mitroff (1980) found that the organisational problem-formulation process is at an organisational rather than individual decision makers may not have a significant effect on the process. Scholars (e.g. Lieberson & O'Connor, 1972; Hannan & Freeman, 1977) claim that strategic decision makers' characteristics do not play a significant role in strategic decision-making.
However, the existing literature explores the association between top managers and various organisational strategies in different contexts (e.g. Miller & Toulouse, 1986; Finkelstein & Hambrick, 1990) and also organisational performance (e.g. Haleblian & Finkelstein, 1993; Peterson et al., 2003). Nevertheless, there is no empirical study that examines the association between strategic decision-making process and top management characteristics (Bantel, 1993, Smith et al., 1994). Research relating organisational elements such top management characteristics to decision-making procedures is limited (Rajagopalan, Rasheed, & Datta, 1993). Consequently, the effect of decision makers on the strategic decision-making process and strategic choice remains not clear. Additionally, Papadakis and Barwise (1997) showed the problem of identifying key impacts on the strategic decision-making. Hence, Hitt and Tyler (1991) examined rational-normative perspective, the environmental control perspective and the managerial strategic choice perspective as key influential factors of decision-making process which gained considerable empirical support. In addition, Brouthers, Brouthers, and Werner (2000) examined the environmental conditions determinism and the strategic choices as key influences of the strategic decisions. Most recently, Elbanna and Child (2007) examined three perspectives that respectively identify strategic decisions, environmental and organisation characteristics as key influences on the rationality of decision- making processes. Nevertheless, as Child, Chung, and Davies (2003) stated, it is worth referring to that very few studies have adopted multiple approaches of the strategic decision-making.
Since the belief that the characteristics of strategic decision maker, or the top management team of an organisation, can affect the strategic decisions made and processes adopted by an organisation, scholars (e.g. Hambrick & Mason, 1984; Wiersema & Bantel, 1992; Waller, Huber & Glick, 1995; Tyler & Steensma, 1998) have emphasised that managerial characteristics might exert an influence on strategic decisions- making and therefore on strategic choice. Scholars (e.g. Schwenk, 1984; Wiersema & Bantel, 1992; Eisenhardt & Zbaracki, 1992; Waller, Huber & Glick, 1995; Tyler & Steensma, 1998) have argued that strategic decision makers' characteristics might limit information search, processing, and/or retrieval in spite of decision makers' desire to make strategic decisions according to the environmental requirements and conditions. Consequently, certain managerial characteristics might increase the effect of environmental circumstances on strategic decisions-making and therefore strategic choice (Brouthers, Brouthers, & Werner, 2000).
2.2.3 Organisational Strategic Choices:
Organisational strategic choice is one of the key factors of strategic decisions process. Strategic choice refers to the way the meaning of an organisational choice change over time. Strategic choice pays attention to the strategic influences of timing, through the introduction of organisational choices and problems, the time model of available capability and the influence of organisation structure (Cohen, March & Olsen, 1972).
As stated in the strategic choice approach (Child, 1972), managers take actions in order to cope with an environmental condition as an explanation to their organisation's outcomes. Organisational choice supporters emphasise on the influence of strategic decision makers on strategic decisions. According to Child (1972) individuals make decisions in accordance with prior processes of human perception and judgment. As Child (1972) stated that strategic decision makers make strategic choices according to the organisational goals, technologies, domains, and structure of an organisation. Child (1972) investigated the issue of strategic choice as an organisational process in which decision makers evaluate their organisation situation, what expectations are suggested by resource providers, what are the orientations of events in the external environment, what is the environment existing performance, the harmony of its present internal arrangement. Scholars (e.g. Hambrick & Mason, 1984) have examined the association between strategic decision makers' characteristics and perceptions, objective strategic decision criteria and organisational strategic choice. Schwenk (1989) argued that individual traits influence the heuristic and cognitive maps that are adopted to make organisational strategic decisions and pointed out three variable types of individual variances: demographic factors, personality characteristics, and cognitive style.
The association between managerial traits and strategic behaviour of the organisation has been emphasised by some scholars. Dess, Lumpkin and Covin (1997), for example, identified three different types of organisational strategic behaviour: adaptive behaviour, conservative behaviour (simple and participative), and entrepreneurial strategic behaviour. This typology sounds very similar to Miles and Snow's (1978) typology (Dess, Lumpkin & Covin, 1997). Adaptive strategic behaviour exhibits evidence of entrepreneurial and conservative strategic behaviours. Adaptive organisations maintain a relatively stable groundwork of activities while at the same time pursuing the selective growth and development of attractive outputs and/or new business (Dess, Lumpkin & Covin, 1997). This is very similar to the Miles and Snow's (1978) analyser behaviour. With regard to conservative strategic behaviour, it focuses on penetrating existing businesses and markets and enhancing operating efficiency. Finally, entrepreneurial strategic behaviour is considered as introduction of products and application of new marketing strategies. Strategic decision makers that are in contact with outsiders are able to respond to emerging orientations that bring change to the industrial sector (Dess, Lumpkin & Covin, 1997).
In the considerable research, Miles and Snow (1978) have associated three key dimensions of the strategic choice perspective:
Strategic choice views strategic choice as the key link between organisation and external environment.
Emphasises on top management's capability to create, understand, and manage the organisation's environmental conditions.
Encompasses the multiple approaches that organisations respond to external environment circumstances.
Although there are conflicting perspectives of different scholars, the process of the strategic choice involves the following procedures: formation or pre-choice, stage of strategic activity, assessment or post-choice stage (Fredrickson, 1983). According to Bourgeois (1984) the managerial choice perspective usually emphasises nondeterministic explanations of organisation processes and outcomes.
The strategic choice perspective (Child, 1972) claims that strategic decision makers have significant control over an organisation's future orientation. In the upper echelons theory, Hambrick and Mason (1984) suggest the association between organisational strategy and managerial characteristics. Hambrick and Mason (1984) provide a framework, which examines how strategic decision makers affect organisational outcomes. These outcomes such as organisational strategies and performance are very likely to reflect the characteristics of the decision makers (Hambrick & Mason, 1984; Finkelstein & Hambrick, 1990). As early developed by the Carnegie School (e.g., Cyert & March, 1963), strategic decision makers tend to make organisational strategic choices under complex conditions. This logic served as the key base for the upper echelons theory, which investigates the association between managerial characteristics and organisational outcomes.
Hitt and Tyler (1991) argue that experiences serve to create values and cognitive patterns in ways that it may substantially influence strategic decision making process and behaviour. If so, then it is very likely to be a relationship between background or demographic factors, reflective of strategic decision makers' experiences background and strategic choices.
Scholars (e.g. Bantel & Jackson, 1989; Finkelstein & Hambrick, 1990; Smith et. 1994) have found that the managerial characteristics and experiences might predict a set of organisational outcomes more valuable than the characteristics of decision makers alone. Empirical findings have shown that managerial characteristics are considerable determinants of organisational strategies (Eisenhardt & Schoohoven, 1990). The strategic choice theory (Child, 1972) has produced a considerable body of research exploring the effect of strategic decision makers on organisational outcomes (e.g. Miller, Kets De Vries, & Toulouse, 1982; Gupta & Govindarajan, 1984). The empirical findings of numerous scholars (Hambrick & Mason, 1984; Gupta & Govindarajan, 1984; Miller & Toulouse, 1986; Day & Lord, 1992) have demonstrated strong relationships between the characteristics of the strategic decision makers and strategy. Organisation's strategy can be viewed by a set of dimensions including: low cost or product differentiation (Porter, 1980), reliability or innovation (Miles & Snow, 1978), domestic or international markets (Bartlett & Ghoshal, 1998).
The central belief of upper echelons perspective (Hambrick & Mason, 1984; Herrmann & Datta, 2006) is that strategic decision makers create a "construed reality" of the organisation's strategic situation based on their experiences and characteristics that lead to particular strategic choices. According to Hambrick and Cannella (2001) interest in the upper echelons theory derived from the economic based perspective of strategy. Moreover, Upper echelon research on strategic decision makers' demographic characteristics such as age, educational level, functional background or experience, and also cognitive values and bases shed light on their influence on organisation strategy (Wiersema & Bantel, 1992). The empirical findings of Dearborn and Simon (1958) indicate that the functional background of decision makers is related to interpretation of significant problems in a complex business situation. Gupta and Govindarajan (1984) found that functional background in marketing and sales were related to growth more than harvest strategies. Empirical studies have found that strategic decision makers' educational background was related to innovation strategies (Kimberly & Evanisko, 1981; Bantel & Jackson, 1989).