Confronted with several likely strategies, managers must next select the one(s) they believe optimal. The definition of what is optimal varies from decision maker to decision maker and even for particular decision makers (as they vary the decision approach or model they follow to make the selection). In the second part of this chapter, several strategy selection approaches are explained. Our purpose in doing so is to make students more aware of the decision processes they follow while analyzing cases.

The chapter closes with a description of the criteria the selected strategies should meet. This set of factors would apply regardless of the strategy selection approach followed.

SYSTEMS FOR STRATEGY COMPARISON
Although there are doubtlessly may rule-of-thumb approaches used by managers to compare strategy choices, probably the most often discussed techniques over recent years are growth-share matrix, General Electric's stoplight grid, life cycle theory and the related product/market evolution portfolio matrix, gap analysis, and directional policy matrix.

Some of these models, especially those that attempt to portray the complex strategy comparison or selection decisions as a simple matrix model, have received increasing criticism. Most notably, a 1984 Business Week article entitled "The New Breed of Corporate Planner" referred to their use as "formula planning." This brand implied that they are superficial shortcuts to management decision making. Pioneered in the 1960s by the Boston Consulting Group (BCG), they gained a wide following when stability of market structures and growth trends prevailed. Now, however, they seem to be oversimplifications for several reasons.

First, they caused an overemphasis on market share growth. Strategic planning degenerated into portfolio management problems instead of trying to figure out how to run successful businesses. High-growth businesses are not necessarily high-profit businesses and many managements found themselves overburdened with imbalanced portfolios of SBUs.

Second, a competitor who knows you are using a certain formula can anticipate your strategic moves accurately. Dependence on formulas may even dull management's thinking about its competitive position and moves.

Finally, use of matrices and formulas can cause managers to circumvent much of the environmental, internal, and industry analysis necessary for formulating and effectively implementing strategy. It is too easy to draw incorrect conclusions from incomplete or faulty data with some of these models.

The relationships addressed in the models that follow are important parts, but only parts, of understanding strategy formulation. However, they by no means should be used to replace or shortcut gaining a thorough understanding of where a firm is today or where it should be in the future.

The models are also excellent expository structures. That is, they are handy for explaining a point about portfolio issues or about strategy elements simply because they are oversimplifications. Their strength is in reducing complex variables to easy-to-understand dimensions and portraying them in readily interpretable terms.

Growth-Share Matrix (GSM)
The Boston Consulting Group developed the growth-share matrix to analyze the problem of resource deployment among the business units or products of multibusiness firms¹. The business units or products are analyzed by placing each one in the matrix shown in Exhibit 4-2 according to their (1) expected growth rate (vertical axis), measured by anticipated growth rate in sales, and (2) relative market share (horizontal axis), measured as the unit's share divided by that of its largest competitor. Thus businesses or products in quadrant I with low expected growth rates and low relative market standing are labeled "dogs" or "cash traps." They should be managed to minimize cash flow by retrenchment, divestiture, or even liquidation. These units or products are likely to be characterized by high costs, low quality, less effective marketing procedures, and so on, which would collectively contribute to weak competitive position and low potential for profits.²

Those in quadrant II, with high projected growth rates and low market standing, are interpretive problems. The reason is that although they are operating in markets with expected growth potential, they currently are experiencing competitive disadvantage. Management can invest cash to correct the market weakness so as to take advantage of expected market growth or, if not convinced of their ability to improve market share, it can retrench, divest, or liquidate to minimize the cash drain.

Cash cows have a strong market position in industries that have matured. These products or businesses can thus be "milked" by investing just enough cash to maintain market standing and applying excess cash inflows to the firm's other activities that are growth industries or products.³

In addition to the above implications of the GSM for cash management, the matrix also suggests how competitors might be expected to behave in each quadrant. To illustrate, a star performer (market leader with high market share in a rapidly growing industry) usually can expect a serious threat only from cash-rich competitors. Only they can afford to embark upon an expensive program to challenge the probable market leader's cost supremacy and market differentiation.⁴

In comparison with the position of the star performers, cash cows can expect little serious competition because of their relatively low expected industry growth rates. Competitors would likely be reluctant to mount a major offensive in the absence of significant industry potential. Thus a cash cow can enjoy a relatively secure market position, but only as long as sufficient investment in maintaining market share continues.

Quadrant II firms, "question marks," are highly vulnerable by virtue of their low share in high potential growth rate industries. They can expect diverse competitive challenges. Indeed, as small fish in a big sea, question marks can look forward to heavy cash needs to establish themselves as major competitive forces (stars).

Business units that fall in quadrant I are probably only marginally profitable and can anticipate little improvement in present markets. They have two major competitive options: (1) get out of the market by the means suggested or (2) develop a major innovation to redefine the market and their participation in it.⁵

Although the growth-share matrix analysis can help in making strategic decisions about managing a portfolio of businesses or products, it has some shortcomings.⁶ First, not all businesses or products fit neatly into one of the four quadrants. Many businesses occupy middle positions between high and low market share and industry growth rate.

Second, other factors besides market share and industry growth rate affect strategy selection. These factors include "stage of product/market evolution, strategic fit among the different businesses, the presence of competitive advantages and distinctive competencies, emerging threats and opportunities, vulnerability to recession, market structure, capital requirements, and size of market. The BCG matrix does not give explicit consideration to these factors."⁷

Third, a business's profitability, cash flow, and

industry attractiveness may not always be closely related to market share and growth rate. Some firms with low market share outperform their larger counterparts, and not all high-share businesses in low-growth industries generate surplus cash.

Finally, the GSM does not offer guidance for interunit comparisons. For example, in a firm with several cash cows, strict adherence to the matrix implies treating each one in the same way when some might be drained of cash ("harvested") and others managed for cash flow. Also, all stars are not necessarily "better" than cash cows.⁸

General Electric's Stoplight Grid
General Electric's stoplight grid is a nine-element matrix used by GE to relate (1) its SBUs' environmental opportunities and other factors determining industry attractiveness to (2) various measures of the SBUs' relative business strengths.⁹ A business unit is located in the matrix (Exhibit 4-3) by first determining whether its relative business strengths are high, medium, or low (vertical axis) through assessment of such factors as sales growth rate, market share, market image, and management capabilities. Its high, medium, or low ranking on the horizontal axis (industry attractiveness) is a function of the size and potential of its market; technological status, financial health, competitive structure, and social and political characteristics of its industry; and economic circumstances. Rankings on both axes for each of GE's forty-three businesses are decided upon during planning review discussions and determine which of the nine cells in the grid it occupies. Business units with high or medium industry attractiveness in which GE has either medium or high strengths call for an "invest and grow" decision--a green-light strategy, as shown in the upper left-hand cells of Exhibit 4-3.

Medium or low industry promise coupled with medium or low strength of a GE business unit operating in that industry would indicate a red-light strategy--minimal additional investment by GE with expected continued earnings generation. The company may resort to retrenchment or limited technological support of red units.

Combinations of industry attractiveness and business strength scores that place a GE business in one of the yellow-light cells could be either a borderline case or composed of both red and green elements.

Hofer and schendel explain that the major shortcoming of GE's scheme is its ineffectiveness in portraying the circumstances of new businesses whose growth in new industries is just beginning.¹⁰ Commenting on GE's use of the grid, Business Week notes, "After three or four critiques at various levels, the final grids--and decisions--are made by the corporate policy committee--the chairman, three vice-chairmen, five senior vice-presidents, and the vice-president for finance."¹¹ Thus planning discussions, focused on the variables involved in the grid, may prevent costly mistakes and avoid reliance on gut reactions.¹²

Life Cycle Analysis
Life cycle analysis relies on the belief that there are predictable relationships among the stages in product or business unit life cycles on one hand, and certain elements of strategy on the other.¹³

The typical product life cycle curve is analogous to the life cycle of biological organisms as shown in Exhibit 4-4. Note the relationship between unit profit margin and sales revenues at the different stages. During preintroduction and introduction, the firm is investing heavily to build sales growth through product awareness and refinement, with emphasis on the latter. Thus profit margin is negative until growth begins to occur. If sales growth proceeds at a high enough rate, then unit profit margin will swing positive during the growth phase. Typically the firm's emphasis is shifted from product refinement to building market share, thus increasing the length and slope of the curve during this phase.

As more and more competitors enter the market, however, share is whittled away. Consequently the product's growth rate begins to level off and the product enters the maturity stage. During growth ever-increasing sales volume can drive unit profit margin higher and higher. As competitive pressures mount, though, profit margin is eaten away. Emphasis shifts to production efficiency as management attempts to maintain profit margin during the maturity phase.

Finally, as sales decline sets in, attention is concentrated on maintaining cash flow. Often a policy is in place that makes

In multiproduct firms attention is focused on the net effect on sales, profit margins, and cash generation of the performance of the firm's stable of products.¹⁴ As indicated in Exhibit 4-5, overall sales performance is a function of the balance of separate products' performance.

Multibusiness firms, that is, conglomerates or holding companies, can be viewed as a collection of multiproduct firms as shown in Exhibit 4-6. Of course, the life cycle curves of the separate SBUs would not line up as neatly as they do in the diagram, but rather would be superimposed on each other in a complex network of curves. As noted in Chapter 1, however, corporate-level management is concerned with balancing the performance of a collection of SBUs. Overall conglomerate sales can be influenced by the addition or deletion of SBUs or by altering the performance of them.

Strategic Implications of Life Cycle Curves
Life cycle curves can be useful devices for explaining the relationships among sales and profit attributes of separate products, collections of products in a business, and collections of businesses in a conglomerate or holding company. Life cycle analysis has been suggested by some of its advocates as a basis for selecting appropriate strategy characteristics at all levels. It also may be viewed as a guide for business-level strategy implementation since it helps in selection of functional-level strategies, as discussed next.

Preintroduction and Introduction Strategic Implications
During the early stages of the life cycle, marketing strategy should focus on correcting product problems in design, features, and positioning so as to establish a competitive advantage and develop product awareness through advertising, promotion, and personal sales techniques.¹⁵ At the same time, personnel strategy could focus on planning¹⁶ and recruiting for new product human resource needs and dealing with union requirements.¹⁷ Also, one would expect the nature of research and development strategy to

Financial strategy would be likely to address primarily sources of funds needed to fuel R&D and marketing efforts as well as the capital requirements of later production facilities.²⁰ Capital budgeting decisions would be outlined during these early stages so that capacity would be adequate to serve growth needs when sales volume began to accelerate.

Growth Stage Strategy Implications
During the growth stage, strategic emphases change relative to introduction. Marketing strategy is concerned with quickly carving out a niche for the product or firm and for its distribution capabilities,²¹ even when doing so might involve taking risks with overcapacity.²² Too often, firms have unadvisedly accepted quality shortfalls as a necessary cost of rapid growth. Widening profit margins during growth may even permit certain functional inefficiencies and risk taking.²³ Communication strategy is directed toward establishing brand preference through heavy media use, sampling programs, and promotion programs, and strategy should emphasize (1) resource acquisition to maintain strength and (2) development of ways to continue growth when it begins to slow.²⁴

Personnel strategy may focus on developing loyalty, commitment, and expertise. Training and development programs and various communication systems are established to build management and employee teams that can deal successfully with the demands of impending tight competition among firms during the maturity phase.²⁵ General Electric tries to staff growth-stage product management positions with "growers" who have an entrepreneurial flair.²⁶

Maturity-Stage Strategy Implications
Efficiency and profit-generating ability become major concerns as products enter the maturity stage.²⁷ Competition grows as more firms enter the market and the implication is that only the most productive firms with established niches and competent people will survive.

Marketing efforts concentrate on maintaining customer loyalty and in strengthening this with distributors personally selling to dealers, sales promotions, and publicity.²⁸

Production strategy concentrates on efficiency and, at the same time, sharpens the ability to meet delivery schedules and minimize defective products. Cost control systems are often put in place.

Personnel strategy may focus on various incentive systems to produce manufacturing efficiency. Advancements and transfers are used and some firms try to fit management positions to managers who have personalities more attuned to the belt-tightening needs of products and SBUs at the maturity stage. Chase Manhattan Bank, for example, shifted a manager with recognized cost-cutting abilities so that he could streamline its European operations.²⁹ At Corning Glass Company, when its television-tube business seemed to have reached maturity, a manager with cost-cutting skills was appointed as its manager.³⁰

Decline-Stage Strategy Implications
When a product reaches the point where its markets are saturated, an effort is often made to modify it so that its life cycle is either started anew or its maturity stage extended.³¹ When falling sales of a product cannot be reversed and it enters the decline stage, management's emphasis may switch to milking it dry of all profit.³² Advertising and promotion expenditures are reduced to a minimum. People are transferred to new positions where their experience can be brought to bear on products in earlier growth stages (if management was skillful enough to have created such products).

Various strategies have been suggested for products that have entered the decline stage. Hofer and Schendel suggest four choices when sales are less than 5 percent of those of the industry leaders: (1) concentration on a small market segment and reduction of the firm's asset base to the minimum levels needed for survival (2) acquisition of several similar firms so as to raise sales to 15 percent of the leaders' sales; (3) selling out to a buyer with sufficient cash resources and the willingness to use them to effect a turnaround; and (4) liquidation.³³ Other variations of these are described by various authors at both the product and business levels.³⁴

Product/Market Evolution Portfolio Matrix
The product/market evolution matrix was formulated to allow the analyst to focus corporate- and business-level strategy decisions on the stage of product/market evolution and its relationship with market position (Exhibit 4-7).³⁵ Business units are represented by circles that vary in size according to their respective industry size; each circle contains a pie wedge that corresponds in size to its market share.

By locating a firm's SBUs on the matrix, the strategist can analyze the distribution of business units that make up its portfolio against the life cycle curve stage.³⁶

Life Cycle Analysis Limitations
Although life cycle analysis has been widely advocated, its critics suggest that it should be used with caution. Kotler explains that as a planning tool and a control tool, it is useful in outlining choices and monitoring progress, respectively. But its usefulness as a forecasting tool is limited.³⁷

The principal difficulties with life cycle theory are that (1) its patterns vary too widely, (2) identifying the stage a product is actually in is difficult, (3) it may be readily biased by marketing strategy decisions, and as such, the curve itself is a dependent, not an independent variable.³⁸

Environmental Gap Analysis
For purposes of environmental analysis, gap analysis is a way of focusing on differences between the firm's strategy set and resources and the threats and opportunities that make up its environment.³⁹ More specifically it is used to identify gaps between where a firm would be if it continued with its present strategy and was subjected to expected environmental developments, and where the strategist would like the firm to be in terms of strategic goals.⁴⁰ Thus this "planning gap" can be filled by implementing new action plans, or strategic goals can be altered.⁴¹

Gap Analysis at the Function Level
A popular use for gap analysis is to compare actual and potential market variables for marketing strategy purposes. Webber proposes a form of gap analysis for analyzing the differences between industry market potential and the firm's own sales by product line.⁴² This overall gap is made up of four segments as follows:

1. Product-line gap: the portion due to each product in the full product line.
2. Distribution gap: the portion caused by an inadequate distribution system.
3. Usage gap: the part caused by less than full usage.
4. Competitive gap: the segment caused by sales that are lost to direct competitors.⁴³

Accurately determining the type and magnitude of each kind of gap is the difficult part of market gap analysis.⁴⁴ However, this technique focuses attention on defining the various elements of a firm's sales shortfall.

Gap Analysis at the Business Level⁴⁵
There are profound similarities between gap analysis at the business level and gap analysis for environmental audit and functional-level analysis purposes. At the business level, however, the gaps of interest are those related to the performance

Gap Analysis at the Corporate Level
When applied to the corporate level, gap analysis focuses on the consolidated performance of the portfolio of business units.⁴⁶ Differences between desired values of performance variables (gross, operating, or net profit on total assets or equity; growth rate of sales; geographical coverage; and so on) and actual values can trigger portfolio modification decisions (corporate-level strategic decisions) as explained in Chapter 1.

DIRECTIONAL POLICY MATRIX (DPM)
The DPM is a method of business portfolio analysis formulated by Shell International Chemical Company; it is reproduced in Exhibit 4-9. It has nine cells in which businesses are located depending upon their scores on each of the two axes: Expected market profitability and competitive positions. The horizontal axis, labeled "business sector prospects"⁴⁷ or "prospects for market sector profitability,"⁴⁸ is a measure similar to industry attractiveness⁴⁹ used in the GE planning grid. A firm is rated on a scale from "unattractive," through "average," to "attractive" depending upon an evaluation of its industry's market growth, market quality, and environmental aspects.⁵⁰ Similarly, its location on a scale that runs from a "weak," through "average," to "strong" competitive position is determined by answering questions about its market share position, production capabilities, and R&D strengths.⁵¹

The cell labels in Exhibit 4-9 represent possible strategic choices or types of resource deployments most appropriate for the firm, given its score on each of the two axes. More specifically these cell labels have the following implications:⁵²

• Disinvest (1,1): Likely already losing money; net cash flow negative over time. Losses may be minimized by divestiture or even liquidation.
• Phased Withdrawal (1,2) and (2,1): Probably not generating sufficient cash to justify continuation; assets can be redeployed.
• Cash Generator (3,1): Equivalent to a "cash cow" in the GE planning grid. This cell would be occupied by a firm or product in later stages of the life cycle that does not warrant heavy investment, but can be "milked" of cash due to its strong competitive position.
• Proceed with Care (2,2): Similar to a "question mark;" firms falling in this sector may require some investment support but heavy investment would be extremely risky.
• Growth (upper - 3.2) and (lower - 2.2): Similar to a GE planning grid "green-light" strategy. A firm, product, or SBU in these sectors would call for investment support to allow growth with the market. It should generate sufficient cash on its own.
• Double or Quit (1,3): Units in this sector should become "high fliers" in the not too distant future. Consequently those in the upper rightmost corner of cell (1,3) should be singled out for full support. Others should be abandoned.
• Try Harder (2,3): External financing may be justified to push a unit in this sector to a leadership position. However, such a move will require judicious application of funds.
• Leader (3,3) (lower - 3,2): The strategy for this segment is to protect this position by external investment (funds beyond those generated by the unit itself - occasionally); earnings should be quite strong and a major focus may be maintaining sufficient capacity to capitalize on strong demand.

positioning of a firm or product on the two axes, and thus DPM location should be interpreted with an open mind and not in isolation.⁵³

The New Business Familiarity Matrix
Roberts and Berry devised a technique for selecting optimum diversification action plans for firms wishing to enter new product-markets.⁵⁴ Called the familiarity matrix (Exhibit 4-10), it helps strategists decide which product-markets to enter and how. Its two axes, familiarity with market factors and technology or service, are both divided into three values: Base, new familiar, and new unfamiliar. The market dimension refers to the amount of knowledge possessed by the diversifying company of various characteristics of the market and the competitors within it. The authors distinguish between the newness of, and the familiarity with, the market for a product-service. Newness of a market is the extent to which the company has previously targeted it. Markets with which the company has prior experience, conceivably by selling old or existing products in it, are called base markets. Markets with which no such prior exposure exists are called new.

Whether a new product is base or new to the diversifying company, it may or may not be familiar with it. Familiarity is the measure of the degree of understanding the company has of the characteristics and business patterns of the market, even though it may not have participated in it. Thus, a company's new product choice could represent new but also familiar, new and unfamiliar, or base market factors.

The other dimension of the matrix, technologies or services embodied in the product, may similarly be base or new. A new technology or service is one which has not been employed in the company's old or existing products whereas base technologies have been. Familiarity with the technology embodied in the diversification product/service represents the company's degree of knowledge in it. As with market factors, a diversification product/service can represent a new and familiar, new and unfamiliar, or base technology to the diversifying company.

Referring again to Exhibit 4-10, new business proposals can be placed on the familiarity matrix by locating their position on both the market and technology axes. For both, the possibilities are base, new familiar, or new unfamiliar. Following this procedure a new business product/service would be positioned in one of the nine cells. The three subsets of cells (blank, dotted, and crosshatched) represent three levels of familiarity the company has with the markets and technology of the proposed new business entry with amount of familiarity indicated by the key shown in Exhibit 4-10.

for the partners. In this cell, the company would have had no experience with the market factors in question but would have had vast experience with the technology involved since it would be the base technology of its present business. Thus a joint venture would be a feasible action plan for entering the Cell #1 business as long as the other partner could provide the needed market expertise.

Cells #2, 3, and 6: Venture capital or nurturing or educational acquisition--new unfamiliar or familiar market or technology. Businesses that fall in any of these three cells would involve both markets and technologies with which the company had either no previous involvement and no knowledge, or some understanding of knowledge with one or the other. Venture capital and nurturing provided by the company to other usually smaller ventures would allow development of experience with a low level of commitment by the company. Venture capital funding alone by the company would be a less involved level of commitment than venture capital with nurturing, the provision of management assistance and support of various kinds along with infusion of funds. The latter would tend to represent a higher level of interest on the part of the company in the new venture than providing venture capital alone.

Educational acquisitions are those in which the company acquires the new venture outright and thereby would obtain a faster rate of familiarization with the new venture than would normally be possible with venture capital or nurturing.

Cell #4: Internal market development, acquisitions, or even joint ventures--new familiar markets; base technology. That the new business involves the company's base technology in this cell along with familiarization with the markets involved, means that the company may benefit from the internal development of market expertise and of the entire venture. Alternatively, although there would be little technological advantage to relationships with others, the need for market expertise may necessitate acquisition of a venture which had developed a grasp of the market, or even a joint venture with a partner that had this expertise.

Cell #5: Internal ventures, acquisitions, or licensing--new familiar markets and technology. Businesses which are located in this cell represent markets and technologies with which the company has had no prior experience but with which it has some knowledge and understanding. Therefore with a high level of confidence in this understanding, the company might successfully choose to develop the business internally. With somewhat less confidence, managing an acquisition might be more appropriate. Licensing, as an alternative to outright ownership of a technology, would avoid the risks of developing it internally and could enable the company to acquire market knowledge from the licenser as well.

Cell #7: Internal base developments--base market factors and technology. Business ventures involving the markets and technologies of a company's present base businesses would likely be successfully developed internally. Similarly, its experience with both sets of factors could enable it to successfully manage acquisitions involving the new business idea, a more expeditious way of entering the new activity.

Cell #8: Internal product development, acquisitions, or licensing--base market factors, new familiar technology. When the proposed new venture employs a new technology with which the company has some knowledge, and markets within which it currently competes, internal development of the technology would probably be appropriate. Such a choice would be advisable if the company's confidence in its understanding of the technology was high. Internal development would allow it to exclusively take advantage of its experience and understanding of market factors.

Alternatively, technological expertise could quickly be obtained by acquisition and would be appropriate were time a critical factor. Licensing, too, would be a moderately expeditious action plan but would necessitate sharing of benefits through licensing fees and royalties.

Cell #9: "New style" joint ventures--base market factors, new unfamiliar technology. The company could bring its base market knowledge and experience to bear on a new venture involving an unfamiliar technology by participating with a small venture that has the appropriate technical expertise. This type of relationship is called a "new style" joint venture and has become an increasingly popular action plan for large, market wise companies wishing to participate in new technologies.

THE PROCESS OF STRATEGY SELECTION:STRATEGIC DECISION MAKING
After comparing possible strategies, the manager must decide which will be the future strategies of the organization.* Many different decision models have been proposed to explain how these decisions can be made. Exhibit 4-12 and the sections that follow discuss strategic decision making within several contexts. These decision-making contexts constitute different frames of reference a decision maker might take. It is important to note which frame of reference--context--surrounds a particular decision model and then to compare it only with other decision models within that context.

*The manager may actually select more than one. In contingency planning systems, an action plan could be selected for the environmental scenario that is most likely to occur and/or the set of goals appropriate to that scenario. Another strategy would be selected for an optimistic scenario - a reasonable but very favorable set of environmental circumstances with a somewhat low probability of occurrence. Then a third strategy would be chosen for the pessimistic scenario, which also has a low probability of occurrence but carries unfavorable implications.

Cross-context comparisons may be faulty because of the different contexts. For example, arguing about the superiority of, say, Allison's organization process approach to decision analysis or Lindblom's incrememtalism model is fruitless without first agreeing on the appropriateness of either the organization or the individual context. This is so because the context of decisions can change with each decision, and the applicability of a decision approach depends on the context.

Five contexts for decisions are described in this section-- individual, group, organization, societal institution, and worldwide societal. Then several decision approaches within each context are discussed.

Context of the Individual
Many decision models focus on factors peculiar to the individual decision maker. The major ones are the rationality, bounded rationality, incrementalism, intuitive, and adaptive approaches.

Rational Decision Model. According to Steiner et al., "(A) decision is rational when it effectively and efficiently assures the achievement of aims for which the means are selected."⁵⁵ A more general description is that rational decisions maximize net value achievement, where the sacrifice in one value necessitated by a decision is more than offset by an increase in the achievement of another value.⁵⁶ Although many interpretations of rational decision making have been proposed⁵⁷ that differ in their details, they tend to have the following common framework of basic steps:⁵⁸

1. Establish a complete set of operational goals with weights.
2. Prepare a complete inventory of values and resources with weights.
3. Generate a complete set of strategy choices or solutions.
4. Prepare a complete set of predicted benefits and costs of each strategy or solution choice.
5. Compute the expected value of each choice.
6. Select the choice that has the highest expected value.

If the decision maker could perform each of these steps completely, then a decision that maximizes net value achievement would result. For an economist, a rational, optimal decision might be the one that maximizes the value preferences of society as a whole. Behavioral scientists might measure rational decisions in terms of personal need satisfaction. Indeed the definition of rational decision outcomes can change from manager to manager, or even from situation to situation. For business decisions some of the goals that have been used to define rational decisions are return on capital investment, realized positive profits, and profit growth, in addition to maximum profits.⁵⁹

How does rational, maximizing decision making work? Classical economic theory defines an economic (person) as follows:⁶⁰

Arguments in favor of striving to make rational, maximizing decisions include the following:⁶⁴

1. Harrison notes that "despite the obvious divergence between theory and practice, ...(it) has some distinct advantages from the standpoint of understanding, prediction, and control."
2. When the model is employed, failure to maximize the selected variable usually indicates economic inefficiency.
3. Acceptance of the model by managers will undoubtedly cause them to select strategic options that will facilitate greater efficiency.
4. When there is goal congruence between the decision maker and the organization, following the model should lead to maximum utility satisfaction as well as efficiency.

Second, critics of rational, maximizing behavior argue that because there is a wide divergence of interests, loyalties, and goals in organizations, "it is unlikely that the firm will achieve its objectives with anything resembling maximizing behavior."⁶⁶ Thus the tendency is for managers to stop analyzing strategic alternatives when a suitable, but not maximum, choice is found.

Third, objectively weighting organizational goals, even if they can be agreed upon, usually requires more information than most managers have. The most that can be expected is for the implications of alternative strategies to be imperfectly known. The cost of attempting to generate perfect information is usually prohibitive so that maximizing itself becomes nonrational.⁶⁷

Finally, critics argue that the cognitive ability of managers is sufficiently limited so as to prevent rational, maximizing decisions. Managers simply cannot grasp all the information pertinent to complex decisions.⁶⁸

Bounded Rationality. Realization of the practical limitations of the rational model has led to the development of other explanations of how business decisions are made. Miller and Starr quip, "(P)eople simply don't have such an irrational passion for dispassionate rationality."⁶⁹ One alternative, "satisficing," is proposed by March and Simon⁷⁰ and rests upon certain assumptions about human behavior described by Simon.⁷¹

Satisficing is a modification of the strictly rational model that recognizes people's tendency toward settling for satisfactory rather than optimum means for achieving goals. March and Simon distinguish between optimal and satisfactory decision alternatives as follows:⁷²

• An alternative is optimal if (1) there exists a set of criteria that permits all alternatives to be compared, and (2) the alternative in question is preferred, by these criteria, to all other alternatives.
• An alterative is satisfactory if (1) there exists a set of criteria that describes minimally satisfactory alternatives, and (2) the alternative in question meets or exceeds all these criteria.

Simon's principle of bounded rationality can be viewed as an explanation of the conditions that lead to satisficing, rather than maximizing, decisions. Accordingly the strategist's quest for information with which to analyze strategy choices rationally is constrained (bounded) by (1) his/her intellectual limitations in gathering all information, (2) limited amounts of time and money available for information gathering and analysis activities, and (3) "the virtual impossibility of obtaining anything close to perfect information even if one had limitless time and money.⁷⁴

In keeping with the principles of bounded rationality, and recognizing the tendency toward satisficing behavior, we can postulate the following bounded rationality decision model for strategy choice:

1. Establish a reasonably comprehensive set of operational goals.
2. Identify the important values and available resources.
3. Generate a set of action plan choices that fall within the organization's capabilities and interests.
4. Compute the critical costs and benefits of each choice.
5. Select the choice with the greatest net benefit.

Disjointed incrementalism is explained by Lindblom as follows:⁷⁶

Disjointed incrementalism has generated much interest for about the same reason that Simon proposed the bounded rationality model: Recognition of the practical shortcomings of the rational model. Dye summarized the supporting arguments for disjointed incrementalism, as opposed to rationality, as follows:⁷⁸

1. Decision makers do not have enough time, money or intelligence to behave strictly rationally.
2. They tend to trust established strategies more than untried new ones.
3. Heavy sunk costs in existing strategies make it difficult to accept radical strategy changes.
4. Minor incremental changes in existing strategies are more politically expedient than the "all or nothing" commitment often necessary for new strategy.
5. People naturally tend to "satisfice," not "maximize."

In summary, when existing strategy appears reasonable or strategy choices are close to the present strategy, then the incremental approach is probably appropriate. However, when the present strategy is not working or strategy proposals are radically different, then the rational and bounded rationality methods might be superior.

Logical incrementalism shares with disjointed incrementalism the sense of marginal analysis of strategy alternatives. Quinn explains:⁷⁹

1. Define problems and (incremental) goals.
2. Appraise the current situation and estimate incremental adjustments to be made to cope with problems.
3. Quantify the consequences of incremental adjustments and determine whether the consequences are satisfactory.
4. If the consequences of incremental adjustments are not satisfactory to the decision maker, return to (2). Otherwise take action to implement incremental adjustments and return to (1).⁸¹

Intuitive Approach. Another individual-based decision model is the intuitive approach. Called the intuitive-anticipatory approach by Steiner,⁸² this decision concept has no explicit set of steps to follow. Instead it recognizes that many managers make "gut-level" decisions about which strategy choice is the right one. Intuitive decisions generally apply within the short-term future and tend to entail little distant forecasting and planning.⁸³ But this does not imply that managers make intuitive strategy selections in a void. Indeed such decisions typically come out of many years of management experience and a high level of confidence on the part of the decision maker.

Unfortunately good instincts cannot be readily acquired without experience. After stating that "the really effective and experienced people in both management and science typically operate in a largely intuitive manner and view with impatience attempts to make their methods explicit,"⁸⁴ Morris notes:

The Adaptive Approach.⁸⁵ Ansoff proposes this approach as a way to apply probability estimates to the process of selecting strategy. A form of "bounded rationality by elimination," it includes the following steps:

1. Determine minimum threshold values for each goal. These are the minimum acceptable values of variables pertinent to goals. For example, for a firm with a return-on-investment goal, the minimum value of acceptable ROI would be its threshold value.
2. Apply threshold minimums to strategy choices and reject those strategies that are not expected to reach the minimums.
3. Rank strategy choices in terms of their ability to reach specified goal values.
4. Assign probability of reaching each goal to remaining strategies assessed according to the extent to which they can be affected by expected environmental occurrences. The analyst would have already developed a data set. This step involves linking the data set to the strategy choices by use of either subjective (judgmental) or objective (if possible) probabilities.
5. Compute the expected value of each strategy choice that remains in the analysis by finding the products of its feasibility estimate (for each goal) and its payoff.
6. Select the strategy with the greatest expected value. When several strategies produce similar expected values, they can all be referred for subsequent analysis or selection according to other criteria.

Group Context
Although business decisions ultimately are made by individuals, decision models within the group context focus on collections of people as the major influence in decisions. These approaches are the group and elite models.

Group Model. This model views strategy selection as a process of balancing the interests of groups. Thus the strategy selected from the various strategy choices represents a compromise among the proponents of those strategy choices.

Although group theory, as explained by Truman, applies to public policy,⁸⁷ a CEO intent on balancing internal group influences in strategy selection also would utilize such an approach. Balancing the interests of external groups in strategy selection can also be viewed as a group equilibrium problem. When the relative power of groups changes, strategy will change to establish a new equilibrium. Strategy "will move in the direction desired by the groups gaining in influence, and away from the desires of groups losing influence."⁸⁸

That power is frequently the basis of business decisions is well documented.⁸⁹ Cyert and March identified the tendency for groups of people both within and outside organizations to band together into coalitions on the basis of their mutual interests.⁹⁰ The strategy selection process then becomes one of balancing the interests of coalitions. Mintzberg et al. report that managers often prefer the group/coalition process of decision making over rational analysis, even though it is slower and they do not like to admit using it.⁹¹

Elite Theory.⁹² Dye states that in public policy making the assertion that policy reflects the demands of "the people" is often a myth.⁹³

Of course, the elite model can apply more neatly to public organizations than to private. A public university can be dominated by a state legislature, a board of trustees, a union or an administrative group, which allows faculty members to think that they are making strategic decisions when in fact they are not.

Organization Context
Within this context attention is focused on the organization itself. Easton explains the systems model as a descriptive model of public policy making.⁹⁶ It has been used repeatedly as a conceptualization for business decisions of all sorts as well.⁹⁷

Two models applied by Allison also fit this context.

Systems Model. The systems model portrays decision making as primarily a function of a set of inputs, both organizational and external in origin, which, when processed by the organization, lead to a particular set of outputs. It addresses the organizational context of decisions and can be used to analyze them by comparing inputs and outputs across organizations. Outputs (selected strategy, for example) can be analyzed as a function of organizational inputs. Stated differently, strategy can be viewed as the dependent variable in analysis with organizational inputs treated as independent variables. Thus, in a somewhat oversimplified example, a systems-oriented strategist might look at past environmental scenarios and company circumstances and identify ones similar to the present. Then, the strategy that worked best during past situations that are similar to the present would be selected for implementation. As such, the systems model pays little attention to the internal machinations of the decision process itself, focusing instead on the relationships between inputs and outputs. Like the intuitive model, the systems approach relies on the strategist's experience and pattern recognition skills.

Some of the benefits of the systems model for strategy selection lie in the questions that it raises:⁹⁸

1. What are the important elements of the environment that place demands on the organization?
2. What characteristics of the organization allow it to transform demands into strategy?
3. How do environmental inputs affect the content of strategy?
4. How does selected strategy affect key actors in the environment through feedback?

Organizational Process Model. Another organizational context model of decision making is Allison's organizational process model (Model II).⁹⁹ It is actually a modification of Cyert and March's organizational choice model.¹⁰⁰ Fundamentally strategy would be selected according to this model by (1) interorganizational bargaining, (2) agreement on goals, (3) informal formulation of expectations, and (4) selection of the first strategy choice that is seen as an acceptable means toward fulfilling expectations.¹⁰¹

Allison's Model III is also an organizational context model in that it views decision making as the result of the political maneuvers of the organization's coalitions.¹⁰² Strategy would be selected according to the political interplay among the various internal and external coalitions of the organization.

Institutional Context
Within this context institutions are seen as the primary factors influencing strategy selection. In the public policy area:

Most institutional studies in government have described the organization structure, duties, and functions of institutions. The point of studying public policy within the institutional model is to analyze the relationships between these institutional variables and the content of public policy.¹⁰⁴

Can the institutional model be applied to business strategy selection? Certainly Chandler's landmark analysis of the relationship between business structure and strategy can be labeled an institutional study. For example, the Hasbro (B) case describes how concerns and characteristics of the firm's board of directors were ultimately manifested in drastic changes in the company's overall strategy.

With reference to such institutional strategy analyses, patterns of past relationships can shed light on the problem of strategy selection choices.

Global Context
More and more attention is now being given to the question: "How can strategy be selected and implemented to optimize the firm's international competitive position?" Conceivably a strategy selection model will emerge in the near future that casts the selection decision within a global context. At present no such model exists. However, work has been done that describes how to take global factors into consideration in the process of strategy formulation.

Porter explains that global influences enter strategy formulation through the structured analysis of competition in global industries.¹⁰⁵ Global industries are those "in which the strategic positions of competitors in major geographical or national markets are fundamentally affected by their overall global positions."¹⁰⁶ Stated differently, companies that have multinational subsidiaries can be nonglobal if their subsidiaries compete only within, instead of between, countries. Thus IBM is a global firm and Nestle is not.¹⁰⁷

What distinguishes effective global strategy is that it establishes competitive advantage in terms of four factors:

1. Differences among countries in the cost of production factors.
2. Demographic differences among foreign markets.
3. Different roles of foreign governments in the competitive system.
4. Cross-country "differences in goals, resources and ability to monitor foreign competitors."¹⁰⁸

Decision Model Summary
Decision models were discussed for several decision contexts: the individual (five decision models serve to structure or explain the thought processes of the decision maker); the groups of which the decision maker is a member (two models characterize decisions as a function of group interactions); the organization (the systems model takes the organization's decision process as a converter strategy decision inputs into decision outputs, and Allison's models rely on political processes); the institution (views strategy decisions as functions of business institutional variables); and the global (although no global strategy selection model has been widely acknowledged, criteria for the selection of global strategies were discussed). The context of strategy selection models defines the conceptual level of variables addressed by the decision process; decision models identify the particular decision variables.

Decision Models in Perspective
Around these many different decision models swirls a controversy about how managers actually do make decisions and how they should make them.¹¹⁰ Understanding of the process of strategy selection ultimately rests upon development of a consensus on the larger issue of how decisions in general are made.

Discussions seem to center first on whether decisions are made rationally or nonrationally. Those who choose the latter then ask, "How are nonrational decisions made?" Attempts to answer this question have generated many of the decision model choices currently available in the literature. What, then, can be said about the selection of decision models?

First of all, when the strategy selection situation is cast primarily in the context of groups, the organization, or institutional variables, then the group, system, or institutional decision approach, respectively, might be applied directly. Within the international context, strategy can be selected by the extent to which it addresses Porter's global strategy factors.

The hardest choices among decision models occur when the strategy selection decision lies securely within the individual context. Here there are no overriding group, organizational, institutional, or global influences on which to rely. Pertinent strategy selection criteria tend, in this case, to be more subtle and more personalized. Steiner advocates using the rational model whenever possible:¹¹¹

1. The selected strategy should be consistent with the
1. organization's environment,
2. internal capabilities and characteristics,
3. available resources, and
4. risk preferences
2. The action plan choices should be aimed at clearly identified goals (objectives and targets) and should have a high chance of successfully reaching or guiding behavior toward them.
3. The selected strategy should have appropriate timing.
4. The strategy choice should allow sufficient flexibility for adjustment to deal with competitors' responses and environmental changes.
5. The organization's leadership should be committed to support of the chosen strategy.

Consistency Tests
Four consistency tests should be performed on the selected strategy.

Environmental Factors. The selected strategy should be consistent with the environmental factors identified during the environmental analysis. The selected strategy should address the major threats and opportunities, both present and future. After all, one of the major purposes of the strategy is to integrate the organization and the environment. By taking advantage of opportunities and either avoiding or overcoming threats, that integration can take place.

Internal Characteristics. The chosen strategy should be consistent with major internal characteristics of the organization, whose competencies and skills should be incorporated into the strategy so that they become emphasized; weaknesses should be addressed so that they can be corrected within an appropriate amount of time. Another internal characteristic is management capability. Selected strategy must be implementable by either present management or new management people. Also, the ways in which the new strategy relates to past strategy should be clear. There is a strong relationship between past strategy and new strategy in most firms.¹¹³ The ways in which the new one is expected to improve on the old should be understood.

Resource Availability. New strategy should be consistent with physical facilities and financial resource availability in the present and future. Future resource needs should be within the organization's capability and understood in detail. Pro forma financial statements constructed to show the financial impact on the organization of the new strategy will help to demonstrate the ability of the firm to produce the necessary resources.

Risk/Return Preference. The final consistency test involves making sure that the selected strategy meshes well with the risk/return preference of management and owners. Risk-takers will be inclined toward strategies that involve relatively high levels of risk with commensurate high possible payoffs. They tend to stress organizational strengths and environmental opportunities, operate with confidence and aggressiveness, and tackle challenges head on; innovation is typically preferred over imitation.¹¹⁴

Alternatively risk-averters prefer more defensive, conservative strategies.¹¹⁵ They will try to stay within present capabilities without entering into projects requiring new strengths or skills, will balk at uncertainty, and will tend to be followers rather than leaders in their markets. When Friendly Ice Cream Corporation, a family-style restaurant chain with several hundred retail outlets in the Northeast, went public in 1969, the Wall Street Journal described Curtis and Preston Blake, the company's cofounders, as using both belts and suspenders to hold up their pants. Their risk-averting orientation included such features as the discounting of every payable since the company's inception, refusal to use long-term debt, and reliance on extensive test marketing of minor product additions.

Clarity of Goals
The selected action plans should be linked with clearly understood objectives and targets, especially those related to profit performance. It will be difficult to monitor performance when action plans are not tied to goals that are widely adopted and understood.

In addition to relating clearly to goals, the selected action plans should have a high chance of reaching them by minimizing the effectiveness of competitors' counterattacks. There are two considerations here. First, strategy should avoid direct confrontation with rivals in areas where they are strongest.¹¹⁶ Rivals will often respond with less conviction when they do not perceive a direct attack on one of their strengths. The large amount of investment necessary to mount a successful challenge to competitors' strengths may actually prohibit such a move. If it is done with too little investment, it can carry a higher chance of failure than would typically be true if the competitor were weaker on this attribute.

Second, attacking a competitor's weaknesses, a less risky alternative, may carry insufficient return to justify the offensive.¹¹⁷ For example, a primary weakness of major automobile manufacturers is their inability to produce truly "one-of-a-kind" cars. Many attempts have been made world-wide to capitalize on this "weakness," but only a handful have realized any success.

Timing
The timing of the selected strategy should be appropriate in two important ways.¹¹⁸ First, the length of time that will be necessary to implement the strategy should be appropriate given the company's present resources or the time it will take to get them. For a simple example, a firm's cash flow position can be deteriorating faster than its management's ability to retrench by collecting receivables, arranging a loan, or cutting expenses.

Second, the strategy must be timely in terms of environmental circumstances. When Chrysler decided during the early 1970s to try to strengthen its position in the large-car market, the oil embargo of 1974-1975 left it with a huge inventory of suddenly unpopular autos.

Flexibility
The selected strategy should allow sufficient maneuverability so that management can respond to competitors' reactions and minor environmental changes while still maintaining the integrity of the strategy.

One way to build in flexibility is to develop several contingency strategies, each of which applies to a somewhat different set of likely environmental assumptions. Then if the environmental assumptions begin to come true, the appropriate modifications can be made, having already been analyzed and pondered for their effects and requirements.

The same sort of contingency strategy set can be developed around likely competitor reactions.

Management Commitment
The selected strategy should have the commitment of all levels of management. In some organizations top management's advocacy of a strategy will soon lead to its support. In others, however, factions for and against a strategy will develop.¹¹⁹ With such division present, successful implementation of the strategy becomes difficult. "Successful strategies require commitment, not just acceptance.¹²⁰

How can the commitment of individuals be developed? Staw explains that commitment to a course of action is a function of the extent to which the action (strategy) is perceived as satisfying three needs: the need to justify past decisions (retrospective rationality), the need for consistency, and the need for positive subjective expected utility (prospective rationality).¹²¹ To generate maximum commitment, the selected strategy in some way should confirm the correctness of decisions already made. Presumably managers at each level of the organization will react or proact to overall strategy with their own respective strategies. The more their responses can be seen as justifications of their past decisions, the greater will be the chances that they will sense commitment to, rather than merely acceptance of, the selected overall strategy, as well as their role in it.

Then, there are both cultural and organizational norms for consistency that apply to strategy selection as well as other decisions.¹²² According to Staw,¹²³

Finally, the higher the prospective rationality of the selection, the more commitment is facilitated. Prospective rationality is the product of the perceived probability of future outcomes and the perceived value of those outcomes.¹²⁴ It is roughly equivalent to the expected value of the strategy. A manager who feels that the selected strategy has a high expected value will be more committed to it than one who feels the expected value is low. Thus for commitment to develop, all participants should be convinced that the organization has the resources, skills, time, and other attributes necessary to reach goals successfully with the new action plans, which together constitute a new strategy.

SUMMARY
Characteristics of the Boston Consulting Group's growth-share matrix, General Electric's planning grid, life cycle theory, the product/market evolution matrix, four variations of gap analysis, and the directional policy matrix were explained in the first section of this chapter. Each of these techniques is a way of capturing the major determinants of strategy for the purpose of selecting the appropriate one. However, all of them leave room for the strategist to interject his/her own interpretation of the relationships among dependent and independent variables.

Strategy selection is a key management decision and its complexity is reflected in the many attempts that have been made to explain it. The second part of this chapter explains, first, the various contexts within which selected decision models have been derived - individual, group, organization, institutional, and global. Attempts to explain decision-making behavior have tended to focus on one or another of these contexts.

Borrowing from the fields of economics and political science, as well as business administration theory, eleven decision models are explained within the contextual framework. In the individual context, five models are discussed: the rational, bounded rationality, incremental, intuitive, and adaptive approaches. Next the group and elite structures are described as characteristic of decisions made within the group context. Then the organization context's system model and organizational process approaches are explained. Finally, within the last two decision contexts, the institutional and global, the relevant strategic factors are presented.

References

1. For more on the growth-share matrix, see Seymour Tilles, "How to Evaluate Corporate Strategy," Harvard Business Review, july-August 1963; Gerald Allan, "A Note on the Boston Consulting Group Concept of Comparative Analysis and Corporate Strategy," ICCH No. 9-175-175, 1976; Barry Hedley, "Strategy and the 'Business Portfolio,'" Long Range Planning, February 1977.
2. Thompson and Strickland, Strategy, p. 115.
3. For similar discussions see Harvey, Business Policy, pp. 188-198; Steiner et al., Management Policy, p. 214; Thompson and Strickland, Strategy and Policy, pp. 114-115.
4. John H. Grant and William R. King, The Logic of Strategic Planning (Boston: Little Brown, 1982), pp. 63-64.
5. Ibid., p. 63.
6. Derek F. Abell and John S. Hammond, Strategic Market Planning (Englewood Cliffs, N.J.: Prentice-Hall, 1979), p. 212.
7. Ibid., p. 116.
8. Ibid.
9. "General Electric's 'Stoplight Strategy' for Planning," Business Week, April 28, 1975, p. 49; "Piercing Future Fix in the Executive Suite," Business Week, April 28, 1975, p. 46ff.; William K. Hall, "SBU's Hot, New Topic in the Management of Diversification," Business Horizons, vol. 21, no. 1, p. 20, February 1978; D. E. Hussey, "Portfolio Analysis: Practical Experiences with the Directional Policy Matrix," Long-Range Planning, vol. 11, no. 4, pp. 4-5, August 1978; and Charles W. Hofer and Dan Schendel, Strategy Formulation: Analytical Concepts (St. Paul, Minn.: West, 1978), pp. 32-33.
10. Hofer and Schendel, Strategy, p. 33.
11. "Piercing Future Fog," Business Week, p. 49.
12. Ibid.
13. Grant and King, The Logic, pp. 66-72; Steiner et al., Management Policy, pp. 217-219; Hofer and Schendel, Strategy, pp. 33-34; Hofer, "Conceptual Constructs," pp. 304; and John A. Weber, Growth Opportunity Analysis (Reston, VA.: Reston Publishing, 1982), pp. 5-9 and 226-232.
14. See, for example, Weber, Growth Opportunity Analysis, pp. 226-229.
15. G.R. Wasson, Dynamic Competitive Strategy and Product Life Cycles (Austin, Texas: Austin Press, 1978), pp. 256-257, cited in Grant and King, The Logic, pp. 66-68 and Steiner et al., Management Policy, p. 219. Kotler discusses four pricing policy choices for introduction: Rapid skimming is suggested for new products with high price and a high level of promotion; slow skimming for high price, low promotion level; rapid promotion for low price, heavy promotion; and slow promotion for slow price, low promotion level. See Philip Kotler, Marketing Management, 4th ed. (Englewood Cliffs, N.J.: Prentice-Hall, 1980), pp. 294-295. See also Hofer and Schendel, Strategy Formulation, pp. 163-164.
16. "Wanted: A Manager to Fit Each Strategy," Business Week, February 25, 1980, pp. 166ff.
17. H. Fox, "A Framework for Functional Consideration," Atlanta Economic Review, November-December 1973, pp. 10-11, cited in Grant and King, The Logic, p. 68 and Steiner et al., Management Policy, p. 219.
18. Witness J. Fred Bucy's success in Texas Instrument's semiconductor operations in the late 1960s after staffing with technically oriented people, as explained in "Wanted," Business Week, p. 166.
19. For a related discussion, see Steiner et al., Management Policy, pp. 217-218.
20. "Wanted," Business Week, p. 166ff.
21. Grant and King, The Logic, p. 67, citing Wasson, Dynamic, pp. 256-257.
22. See Newman and Logan, Strategy, Policy, pp. 46-48, for a discussion of the relationships between capacity and life cycle position.
23. Ibid., p. 46.
24. Grant and King, The Logic, pp. 67-68, and Hofer and Schendel, Strategy Formulation, pp. 164-166.
25. Relates to discussion of Grant and King, The Logic, p. 68, citing Fox, "A Framework," pp. 10-11.
26. "Wanted," Business Week, p. 173.
27. Hofer and Schendel, Strategy Formulation, pp. 166-169.
28. Grant and King, The Logic, pp. 67-68.
29. "Wanted," Business Week, p. 166.
30. Ibid.
31. This point is discussed from a strategic viewpoint by Steiner et al., Management Policy, pp. 217-218.
32. Grant and King, The Logic, p. 67.
33. Hofer and Schendel, Strategy Formulation, pp. 170-171, and Thompson and Strickland, Strategy, p. 100.
34. Philip Kotler, "Harvesting Strategies for Weak Products," Business Horizons, August 1978, pp. 17-18; Kotler, Marketing Management, pp.299-302; R.S. Alexander, "The Death and Burial of 'Sick ' Products," Journal of Marketing, April 1964; and G. Michael, "Product Petrification: A New Stage in the Product Life Cycle," California Management Review, Fall 1971.
35. Hofer and Schendel, Strategy Formulation, pp. 33-34 and 182-184; C.W. Hofer, "Conceptual Constructs for Formulating Corporate and Business Strategies," ICCH #9-378-754, 1977; also discussed by Thompson and Strickland, Strategy, p. 118-119.
36. Thompson and Strickland, Strategy, p. 119. This application is demonstrated in Hofer and Schendel, Strategy Formulation, p. 182-184.
37. Kotler, Marketing Management, p. 302.
38. Kotler, Marketing Management, p. 302, citing Nariman K. Dhalla and Sonio Yupseh, "Forget the Product Life Cycle Concept!" Harvard Business Review; January-February 1976, pp. 102-112.
39. Hofer and Schendel, Strategy Formulation, p. 47.
40. See, for example, Robert E. Linneman, Shirt-Sleeve Approach to Long-Range Planning (Englewood Cliffs, N.J.: Prentice-Hall, 1980), pp. 196-199.
41. Steiner et al., Management Policy, p. 208.
42. Webber, Growth Opportunity Analysis.
43. Ibid., p. 58.
44. S.J.Q. Robinson, R.E. Hickens, and D. Wade, "The Directional Policy Matrix - Tool for Strategic Planning," Long Range Planning, June, 1978, pp. 8-16.
45. Hofer and Schendel, Strategic Formulation, pp. 156-157.
46. Ibid., pp. 185-187.
47. Robinson et al., "The Directional Policy Matrix," pp. 8-16.
48. D.E. Hussey, "Portfolio Analysis: Practical Experience with the Directional Policy Matrix," Long Range Planning, vol 11, pp. 2-8, June 1978.
49. Grant and King, The Logic, p. 161.
50. For more on this assessment see Hussey, "Portfolio Analysis," and Robinson et al., "The Directional."
51. Ibid.
52. See Hussey, "Portfolio Analysis," pp. 9-10; and Harvey, Business Policy, pp. 192-193.
53. The Hussey article is an excellent evaluation of the DPM. See Hussey, "Portfolio Analysis."
54. Edward B. Roberts and Charles A. Berry, "Entering New Businesses: Selecting Strategies for Success," Sloan Management Review, vol. 26, no. 3 (Spring 1985), pp. 3-17.
55. Steiner et al., Management Policy, p. 233.
56. Thomas R. Dye, Understanding Public Policy (Englewood Cliffs, N.J.: Prentice-Hall, 1972)., p. 26.
57. For discussions of many of these models, see James R. Lang, John E. Dittrich, and Sam E. White, "Managerial Problem Solving Models: A Review and Proposal," Academy of Management Review, October 1978; L.L. Wade and R.L. Curry, Jr., A Logic of Public Policy: Aspects of Political Economy (Boston: Wadsworth, 1970); and Graham T. Allison, Essence of Decision: Explaining the Cuban Missile Crisis (Boston: Little Brown, 1971), pp. 26-66.
58. Paraphrased from Dye, Understanding Public Policy, p. 76.
59. See Steiner et al., Management Policy, p. 26
60. Herbert A. Simon, "A Behavioral Model of Rational Choice," Quarterly Journal of Economics, February 1955, p. 99.
61. E. Frank Harrison
62. Harrison, The Managerial, p. 64.
63. Ibid.
64. Ibid., pp. 64-65.
65. Ibid., p. 66, citing Robert Aaron Gordon, Business Leadership in the Large Corporation (Berkeley, Calif.: University of California Press, 1961), pp. 312-313, and R. Joseph Monsen, Jr. and Anthony Downs, "A Theory of Large Managerial Firms," in Comparative Administrative Theory, Preston P. LeBreton, Ed. (Seattle: University of Washington Press, 1968), pp. 56-57.
66. Harrison, The Managerial, p. 67, citing Sidney G. Winter, Jr., "Economic 'Natural Selection' and the Theory of the Firm," Yale Economic Essays, vol. 4, no. 1, p. 226, 1964.
67. Harrison, The Managerial, p. 67.
68. Ibid., pp. 67-68. For more on the shortcomings of the rational model, see Charles E. Lindblom, "The Science of Muddling Through." Public Administration Review, vol. 19, 1959, and David Braybrooke and Charles E. Lindblom, A Strategy of Decisions (New York: Free Press, 1965).
69. David W. Miller and Martin R. Starr, The Structure of Human Decisions (Englewood Cliffs, N.J.: Prentice-Hall, 1967), p. 49, paraphrasing John Maurice Clark.
70. James G. March and Herbert A. Simon, Organizations (New York: Wiley, 1958), p. 140.
71. Herbert A. Simon, Models of Man (New York: Wiley, 1957).
72. Harrison, The Managerial, pp. 70-71, citing March and Simon, Organizations, p. 140.
73. Harrison, The Managerial, p. 71.
74. Ibid., pp. 75-76.
75. Lindblom, "The Science of Muddling Through." Variations on the incremental model have been proposed by Quinn, Strategies for Change, and Frederic H. Wu, "Incrementalism in Financial Strategic Planning, Academy of Management Review, vol. 6, no. 1, pp. 133-143, January 1981.
76. Lindblom, "The Science," p. 81.
77. This paraphrases Dye, Understanding Public Policy, p. 30.
78. Ibid., pp. 31-32.
79. Quinn, Strategies for Change, p. 56.
80. Wu, "Incrementalism," pp. 135-136 (quotation used with permission).
81. Ibid.
82. George A. Steiner, Strategic Planning: What Every Manager Must Know (New York: Free Press, 1979), and Steiner et al., Management Policy, pp. 284-285.
83. Steiner et al., Management Policy, p. 286-287.
84. William T. Morris, The Analysis of Management Decisions, rev. ed. (Homewood, Ill.: Irwin, 1964), pp. 187-188.
85. H. Igor Ansoff, Corporate Strategy: An Analytic Approach to Business Policy for Growth and Expansion (New York: McGraw-Hill, 1965), pp. 172-206.
86. Steiner et al., Management Policy, p. 286.
87. Explained in detail by David B. Truman, The Governmental Process, (New York: Knopf, 1951), and summarized by Dye, Understanding Public Policy, pp. 23-25.
88. Dye, Understanding Public Policy, p. 23.
89. Examples of this work include Richard M. Cyert and James G. March, A Behavioral Theory of the Firm (Englewood Cliffs, N.J.: Prentice-Hall, 1963); Ross Stagner. "Corporate Decision Making," Journal of Applied Psychology, February 1969; and Henry Mintzberg, "Organizational Power and Goals: A Selected Theory," in Dan E. Schendel and Charles W. Hofer, Eds., Strategic Management: A New View of Business Policy and Planning (Boston: Little, Brown, 1979), pp. 64-80.
90. Cyert and March, Behavioral Theory.
91. Mintzberg et al., "The Structure."
92. See Thomas R. Dye and Harmon Ziegler, The Irony of Democracy (Boston: Wadsworth, 1970), for a detailed discussion.
93. Dye, Understanding Public Policy, p. 20.
94. Mintzberg, "Organizational Power," p. 69.
95. Ibid.
96. David Easton," An Approach to the Analysis of Political Systems," World Politics, vol. 9, 1957, and David Easton, A Framework for Political Analysis (New York: Prentice-Hall, 1965), both cited in Dye Understanding Public Policy, pp. 18-20.
97. Van Court Hare, Jr., Systems Analysis: A Diagnostic Approach (New York: Harcourt, Brace & World, 1967).
98. This list paraphrases Dye Understanding Public Policy, p. 19.
99. Allison, Essence of Decision, Ch. 3 and 4.
100. Cyert and March, A Behavioral.
101. Allison, Essence, pp. 76-76.
102. Ibid., Ch. 5 and 6. The reader may wish to see the comments of Robert H. Waterman, Jr. on Allison's model in "The Seven Elements of Strategic Fit," The Journal of Business Strategy, vol. 2, no. 3 (Winter 1982), p. 73.
103. Dye, Understanding Public Policy, p. 20.
104. Ibid., p. 21.
105. Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors, (New York: Free Press, 1980), p. 276.
106. Ibid., p. 275.
107. Ibid., pp. 275-276.
108. Ibid., p. 276.
109. Ibid.
110. For an excellent discussion of the controversy see Steiner et al., Management Policy, pp. 287-291.
111. Steiner et al., Management Policy, p. 297.
112. John A. Pearce, II, and Richard B. Robinson, Jr., Strategic Management: Strategy Formulation and Implementation, (Homewood, Ill.: Irwin, 1982), p. 24; Steiner et al., Management Policy, pp. 240-244; Thompson and Strickland, Strategy and Policy, p. 144; William F. Glueck, Business Policy and Strategic Management, 3rd ed. (New York: McGraw-Hill, 1980), p. 281; Frank Paine and William Naumes citing Peter Drucker, "Learning from Foreign Management," Wall Street Journal, vol. 4, June 1980; Quinn, Strategies for Change, pp. 165-168; Richard Rumelt, "Evaluation of Strategy: Theory and Practice," in Schendel and Hofer, Strategic Management; and Tiles, "How to Evaluate," pp. 111-121.
113. This has been addressed by Henry Mintzberg, "Research and Strategy Making," Academy of Management proceedings, 1972; Denny Miller and Peter Friesen, "Archetypes of Strategy Formulation," Management Science, May 1978, pp. 921-933; Denny Miller and Peter Friesen, "Strategy-Making in Context: Ten Empirical Archetypes," Journal of Management Studies, October 1974.
114. Thompson and Strickland, Strategy and Policy, p. 145.
115. Ibid.
116. Ibid., pp. 146-147.
117. Ibid., p. 147.
118. See Pearce and Robinson, Strategic Management, pp. 243-244 for a similar discussion.
119. See Glueck, Business Policy, pp. 283-284.
120. Quinn, Strategies for Change, p. 167.
121. Barry M. Staw, "The Escalation of Commitment to a Course of Action," Academy of Management Review, vol. 6, no. 4, pp. 577-587, October 1981.
122. See Glueck, Business Policy, 3rd ed., p. 283, for a discussion of escalating commitment to previous strategies based on Barry M. Staw, "Knee-Deep in the Big Muddy: A Study of Escalating Commitment to a Chosen Course of Action," Organizational Behavior and Human Performance, vol. 16, no. 1, pp. 27-44, June 1976.
123. Staw, "The Escalation," p. 581.
124. Ibid., pp. 582-584.