Behavioral Strategy for Competitive
26
Transcript of Behavioral Strategy for Competitive
Behavioral Strategy for Competitive
Advantage
A volume inResearch in Behavioral Strategy
T. K. Das, Series Editor
RESEARCH IN BEHAVIORAL STRATEGY
T. K. Das, Series Editor
Published
Behavioral Strategy: Emerging Perspectives (2014)Edited by T. K. Das
The Practice of Behavioral Strategy (2015)Edited by T. K. Das
Decision Making in Behavioral Strategy (2016)Edited by T. K. Das
Culture and Behavioral Strategy (2017)Edited by T. K. Das
Behavioral Strategy for Competitive Advantage (2018)Edited by T. K. Das
In Development
Entrepreneurship and Behavioral Strategy
Behavioral Strategy for Competitive
Advantage
edited by
T. K. DasCity University of New York
INFORMATION AGE PUBLISHING, INC.Charlotte, NC • www.infoagepub.com
Copyright © 2018 Information Age Publishing Inc.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, microfilming, recording or otherwise, without written permission from the publisher.
Printed in the United States of America
Library of Congress Cataloging-in-Publication Data
A CIP record for this book is available from the Library of Congress http://www.loc.gov
ISBN: 978-1-64113-435-4 (Paperback) 978-1-64113-436-1 (Hardcover) 978-1-64113-437-8 (ebook)
v
CONTENTS
About the Book Series ......................................................................... vii
1 In Search of a Last Straw: An Exploratory Study of Decision Change Timing and Triggers ............................................................... 1Katsuhiko Shimizu
2 How CEO and CFO Regulatory Focus Interact to Shape the Firm’s Corporate Strategy ................................................................... 37Guoli Chen, Philipp Meyer-Doyle, and Wei Shi
3 Cognitive Foundations of Competitive Advantage Through Pricing .................................................................................................. 75Burak Cem Konduk
4 Incumbent Behavior and Competitive Strategy Paradigm Shift ..... 99Tomomi Hamada and Tsutomu Kobashi
5 Explaining Short-Termism in Human Resource Management Decision Making ................................................................................ 121Juil Lee and Sang-Joon Kim
6 The Effect of Alliance Managers’ Role Enactments on Alliance Performance Under Conditions of Misalignment .......................... 145Jeffrey L. Cummings and Dave Luvison
vi Contents
7 Civil Engineers’ Motivators and National Culture ......................... 171Atilla Damci, David Arditi, and Gul Polat
8 A Behavioral View of Business Modeling ......................................... 195Arash Najmaei
About the Contributors ..................................................................... 223
Index .................................................................................................. 229
Behavioral Strategy for Competitive Advantage, pages vii–viiiCopyright © 2018 by Information Age PublishingAll rights of reproduction in any form reserved. vii
ABOUT THE BOOK SERIES
Behavioral strategy continues to attract increasing research interest within the broader field of strategic management. Research in behavioral strategy has clear scope for development in tandem with such traditional streams of strategy research that involve economics, markets, resources, and technol-ogy. The key roles of psychology, organizational behavior, and behavioral decision making in the theory and practice of strategy have yet to be com-prehensively grasped. Given that strategic thinking and strategic decision making are importantly concerned with human cognition, human deci-sions, and human behavior, it makes eminent sense to bring some balance in the strategy field by complementing the extant emphasis on the “objec-tive’ economics-based view with substantive attention to the “subjective” individual-oriented perspective. This calls for more focused inquiries into the role and nature of the individual strategy actors, and their cognitions and behaviors, in the strategy research enterprise. For the purposes of this book series, behavioral strategy would be broadly construed as covering all aspects of the role of the strategy maker in the entire strategy field. The scholarship relating to behavioral strategy is widely believed to be dispersed in diverse literatures. These existing contributions that relate to behavioral strategy within the overall field of strategy have been known and perhaps valued by most scholars all along, but were not adequately appreciated or brought together as a coherent sub-field or as a distinct perspective of strat-egy. This book series on Research in Behavioral Strategy will cover the essential progress made thus far in this admittedly fragmented literature and elabo-rate upon fruitful streams of scholarship. More importantly, the book series
viii About the Book Series
will focus on providing a robust and comprehensive forum for the growing scholarship in behavioral strategy. In particular, the volumes in the series will cover new views of interdisciplinary theoretical frameworks and mod-els (dealing with all behavioral aspects), significant practical problems of strategy formulation, implementation, and evaluation, and emerging areas of inquiry. The series will also include comprehensive empirical studies of selected segments of business, economic, industrial, government, and non-profit activities with potential for wider application of behavioral strategy. Through the ongoing release of focused topical titles, this book series will seek to disseminate theoretical insights and practical management infor-mation that will enable interested professionals to gain a rigorous and com-prehensive understanding of the subject of behavioral strategy.
—T. K. Das City University of New York
Series Editor Research in Behavioral Strategy
Behavioral Strategy for Competitive Advantage, pages 1–35Copyright © 2018 by Information Age PublishingAll rights of reproduction in any form reserved. 1
CHAPTER 1
IN SEARCH OF A LAST STRAWAn Exploratory Study of Decision
Change Timing and Triggers
Katsuhiko Shimizu
ABSTRACT
This study examines the timing and mechanisms of the initiation of change in important strategic decisions from the perspective of behavioral strategy. The results of 10 cases from U.S. firms and five cases from Japanese firms confirm the previous findings that poor outcomes of an initial decision are an important but not necessarily sufficient condition to initiate a change, and they provide new insights for understanding decision change processes. It was found that the cognitive inertia and uncertainty associated with change often delayed a new action. The inertia and uncertainty were punctuated by triggered events, which were often unrelated to the focal decision stream but stimulated change by influencing the mindset of top managers and organi-zational resources and contexts. Three general patterns of decision change emerged from the case analyses. This study shows that the seemingly satisfic-ing and opportunistic behaviors of managers in initiating a decision change reflect the complex dilemma between commission and omission under un-certainty, norms of rationality, and behavioral failures. Additionally, it was
2 K. SHIMIZU
observed that change might be ignored when an initial decision is regarded as an end and its outcomes are not measured. The study suggests the impor-tance of mindfulness in pursuing competitive advantage under uncertainty. Although the optimal timing of change is hard to achieve, behavioral strategy with organizational systems that enhance the receiving of various new stimuli will contribute to the mindfulness and preparedness of top managers.
To the extent that changes in technology and customer behaviors are hard to predict and competition has become global and increasingly tense, firms need to be flexible to be competitive (Gaba & Terlaak, 2013; Shimizu & Hitt, 2004). It is not easy for many firms to reverse or abandon strategic initiatives to which they have once committed (Adner & Levinthal, 2004a). For example, Juergen Schrempp, former CEO and chairman of Daim-lerChrysler, once commented in an interview with the Wall Street Journal (Simison & Miller, 1999): “My principle always was . . . move as fast as you can and [if] you indeed make mistakes, you have to correct them. . . . It’s much better to move fast, and make mistakes occasionally, than move too slowly.” Nevertheless, it took Daimler 9 years to dissolve the problematic merger with Chrysler.
Although research on decision making is voluminous, relatively little at-tention has been paid to the triggers that determine the timing of a deci-sion change (Drummond, 2014). While the behavioral theory of the firm (BTOF) suggests that firms change their decisions and directions in re-sponse to feedback that is lower than their aspiration level (Cyert & March, 1963; Greve, 2013), we observe a number of firms and projects that main-tain the same direction despite negative performance (Staw, 1997). In oth-er words, while negative feedback may be a necessary condition for change, it has not been very clear when poor performance results in change and what triggers a change (i.e., a sufficient condition; Lant, Milliken, & Batra, 1992; Shimizu & Hitt, 2005; Staudenmayer, Tyre, & Perlow, 2002).
The timing of change is strategically important since a delay of action of-ten exacerbates a situation (Staw, 1997), whereas premature change leads to a loss of a future strategic opportunity (Drummond, 2014). Yet, “the dis-covery of a valuable strategic opportunity is often a matter of ‘serendipity’ in the strict sense—not just luck, but effort and luck joined by lateness and flexibility” (Denrell, Fang, & Winter, 2003, p. 978). Thus, while traditional strategy texts and recent studies on ambidexterity often rationally stress the importance of both commitment and flexibility (e.g., Gibson & Birkin-shaw, 2004), balancing these conflicting requirements by managing “ser-endipity” is a daunting task for real managers who are bounded-rational and often biased, particularly in uncertain environments (Adner & Levin-thal, 2004a; Drummond, 2014; Smith, 2014). When facing poor decision
In Search of a Last Straw 3
outcomes, managers tend to struggle with “a dilemma of omission and commission” (Ghemawat, 1991; Smith, 2014). In other words, firms that manage such dilemma can obtain competitive advantages (Gavetti, 2012) and identifying the triggers and mechanisms of a change in important strategic decisions will greatly enhance our understanding of behavioral strategy that reflects human and organizational realities (Gavetti, 2012; Powell, Lovallo, & Fox, 2011).
This study examines when an important strategic decision is changed and how that change is initiated from the perspective of behavioral strat-egy. A decision is defined as a specific commitment to action (Mintzberg, Raisinghani, & Theoret, 1976). Thus, an initial decision refers to a decision that sets a pattern in motion, and decision change refers to a decision that changes an existing pattern. Thus, the change in this study does not in-clude minor alterations or adjustments. The merger (1998) and dissolution (2007) of Daimler-Chrysler is a good example of decision change.
Using past findings of the behavioral strategy research as a guide, I ex-plore the triggers and mechanisms of a change in decision in real cases (Strauss & Corbin, 1998). Multiple case studies provide insights to aid our understanding in underdeveloped areas such as decision change timing (Eisenhardt, 1989). Thus, a primary contribution of this study is articu-lating managers’ struggle with change when decision outcomes are unfa-vorable but future upside potential is not completely deniable (Adner & Levinthal, 2004a, 2004b; Drummond, 2014; Shimizu & Hitt, 2004). By first intensively analyzing 10 cases of U.S. firms in the 1990s and then comparing the results with those of five cases of Japanese firms in the 2010s, this study shows that the seemingly satisficing or opportunistic behaviors of bounded-rational managers in initiating a decision change reflect the dilemma be-tween commission and omission (Ghemawat, 1991) under uncertainty (Ad-ner & Levinthal, 2004a, 2004b), norms of rationality (Abrahamson, 1996), and behavioral failures (Gavetti, 2012). To this end, the results suggest that managers and firms that mindfully manage the dilemma are more likely to perform well in the long run (Gavetti, 2012; Levinthal & Rerup, 2006; Smith, 2014; Weick, Sutcliffe, & Obstfeld, 1999).
In the following sections, the relevant literature associated with behav-ioral strategy is reviewed as a point of departure, and the methodological approach is explained. After a preliminary examination, the case analyses are mainly devoted to two emerging questions: (a) “Why did a change need a trigger (besides poor outcomes)?” and (b) “Why did unrelated events often trigger a change?” This chapter ends with a discussion of the results, managerial implications, and limitations of the study.
4 K. SHIMIZU
BACKGROUND
Problemistic Search and Behavioral Strategy
Cyert and March (1963) note that firms search for new alternatives in re-sponse to problems, which are recognized when a firm “either fails to satisfy one or more of its goals or when such a failure can be anticipated in the imme-diate future” (p. 121). The goals are developed as an aspirational level derived from a firm’s past performance and competitors’ performance (Cyert & March, 1963; Greve, 2013). This idea of “problemistic search” (Cyert & March, 1963, p. 121) derived from BTOF has provided a foundation for the decision making and strategic change literature (e.g., Greve, 2013; Mintzberg et al., 1976).
Although rationality is important in decision making, assessing the out-comes of the initial decisions and recognizing “problems” are often equivo-cal (Drummond, 2014; Staw, 1997). It is possible that poor outcomes are merely temporary setbacks (Staw, 1997). Moreover, causality is often am-biguous, and there will frequently be a number of plausible explanations for any “failure.” Thus, the initial decision can remain justified, particularly when a clear alternative is unavailable (Gavetti, 2012; Levitt & March, 1988). This uncertainty is often exacerbated by the organizational and cognitive inertias that maintain current routines and the status quo (Powell et al., 2011), which Gavetti (2012, p. 270) calls “behavioral failures.” The extent to which the initial decisions involve future upside potential and actual cau-sality is ambiguous relates directly to the level of difficulty in changing the decisions and searching for different alternatives (Drummond, 2014). For example, Lant et al. (1992) studied organizational reorientation and were puzzled by the fact that “although a history of poor performance increased the likelihood of changes in an organization’s strategic orientation, the ma-jority of poorly performing companies in our sample persisted with their past strategic orientations despite negative performance feedback” (p. 301). Staudenmayer et al. (2002) also observe, “The theory that problems pro-voke adaptation and change is elegant, intuitive, and widely accepted in the organizational literature. However, it is obvious that, in organizations and everyday life, problems do not always induce change” (p. 584). It has been argued that we need to develop more understanding of behavioral strategy that incorporates “realistic assumptions about human cognition, emotions, and social behavior” (Powell et al., 2011, p. 1371).
Commitment, Reversal, and Behavioral Strategy
The issues associated with keeping or changing an initial decision under uncertainties have also been discussed in the literature on escalation of
In Search of a Last Straw 5
commitment. Escalation of commitment is regarded as the persistence of decision makers in supporting a losing project (Sleesman, Conlon, McNa-mara, & Miles, 2012; Staw, 1997). Drawing on the past voluminous work, Staw (1997) classified escalation determinants into four categories of fac-tors: (a) project-related factors such as asset specificity and closing costs; (b) psychology-related factors such as optimism, self-justification, and fail-ure to ignore sunk costs; (c) organization-related factors such as inertia and political appropriateness; and (d) social factors such as social norms. Because of these factors, decision makers either fail to recognize the need to stop committing to the project or fail to withdraw from the project even if they recognize the loss associated with the commitment. Accordingly, it has been argued that the removal of these factors plays a key role in stop-ping the escalation (Staw, Barsade, & Koput, 1997; Powell et al., 2011; also discuss tactics for de-biasing). For example, Staw et al. (1997) found that the turnover of responsible managers aided de-escalation of commitment by reducing the need for self-justification (also Hayward & Shimizu, 2006).
It is important to note that the reluctance to change decisions may re-sult not only from psychological, organizational, or political biases but also from rational choices. Managers may continue their commitment to a los-ing project due to an inherent “impossibility of proving failure” under un-certainty (Adner & Levinthal, 2004a, p. 77). Researchers note the impor-tance of commitment, in particular when implementing a new initiative in an adversarial environment (Brunsson, 1982; Drummond, 2014). Various anecdotal stories provide evidence of managers who achieved success by conquering many difficulties (McGrath, 1997). Accordingly, Staw (1997) defines escalation situations “where losses have been suffered, where there is an opportunity to persist or withdraw, and where the consequences of these actions are uncertain” (p. 192).
In relation to this issue, Drummond (2014) raised an important question: Do organizations erroneously abandon a potentially successful venture? Corroborating the argument made by Staw (1997), Drummond (2014) critically argues that most research has paid limited attention to erroneous abandonment and provides various examples, such as the tablet comput-ers Microsoft developed and abandoned long before Apple launched the iPad and the natural-ingredient Pepsi Raw that was sold only in the United Kingdom and abandoned in 2 years. Drummond (2014) further discusses antecedents of abandonments including aversion of loss, opportunity costs, perceived risk of persistence, intolerance of failure, publicly stated limits, reluctance to renew budgets, and the shifting tides of the organization. She particularly emphasizes that loss of benefits is often perceived as less critical than budget overruns.
The literature review suggests that there is no rational panacea in ratio-nally finding the right timing to withdraw, if needed, a decision that results
6 K. SHIMIZU
in unfavorable outcomes under uncertainty (Adner & Levinthal, 2004a; Staw, 1997). At the same time, identifying and taking advantage of strategic opportunities, either by initiating a new project or by stopping a losing project, play an important part in obtaining competitive advantages (Den-rell et al., 2003). To the extent that decision makers are subject to various cognitive biases at an individual level, political issues and inertia at an orga-nizational level, and various types of uncertainties, focusing too much on a rational and analytical decision is not very realistic or productive (Powell et al., 2011). In fact, Simon (1987) distinguished logical decisions from judgments, which cannot be explained by logic and analysis and, thus, may be subjective. Instead, it is important to understand behavioral strategy in terms of how managers obtain satisfactory decisions, if not optimal deci-sions, to obtain competitive advantage in practical contexts by incorporat-ing cognitive and social psychological factors (Gavetti, 2012; Powell et al., 2011). In unpacking the opportunity identification mechanisms in behav-ioral strategy (Denrell et al., 2003), we must understand when and how an important strategic decision is actually changed (Mintzberg, 1979), which has been examined by very limited research.
METHODS
The main focus of this research is on extending our understanding of how and when a change in a stream of decisions is initiated. I adopted a case study approach to capture the real obstacles that managers face. A case study is “a research strategy which focuses on understanding the dynamics present within single settings” (Eisenhardt, 1989, p. 534). This approach is particu-larly suitable for this study as the cases can provide “a story” that narrates not only if but also how a change occurred (Van de Ven, 1992, p. 170) by incorpo-rating cognitive and social psychological factors critical in behavioral strategy (Powell et al., 2011). A multiple case design was adopted in which each case serves as an independent experiment to allow iterative refinement of emer-gent conceptual insights with a replication logic (Eisenhardt, 1989). The re-sults are intensively compared with reference to cumulative research in the decision making and change literature to develop a deeper understanding of the mechanisms (Eisenhardt, 1989; Strauss & Corbin, 1998).
Sample
Participation in the initial research was solicited through advisory board members of a large Midwestern university in the United States in the late 1990s. Through 30 members who served in senior-level positions in various
In Search of a Last Straw 7
types of organizations, 12 members agreed to participate. Four additional members were contacted and agreed to participate. Multiple informants were vigorously pursued for this study to control potentially high retrospec-tive biases associated with decision change. The final sample consists of 10 decision change cases in six firms. Information on sample firms, interview-ees, and types of decision topics is summarized in Table 1.1. The variety of the firms and decision change topics provides broad coverage of situations and factors, which would not be captured in a single case study. This varia-tion is also important in exploring theoretical understandings (Strauss & Corbin, 1998). I welcomed interviews with those who were not necessarily decision makers for a focal decision change case, since those who make an initial decision and/or change the decision may be more vulnerable to retrospective biases (Miller, Cardinal, & Glick, 1997). Instead, those who participated in the decision processes but were not the final decision maker can provide more objective information and are more appropriate for tri-angulation (Jick, 1979).
The 10 decision change cases covered various strategic topics and issues. The topics were selected by interviewees as being representative of an im-portant decision change for their organizations (Mintzberg et al., 1976). The topics included new products (one case), marketing issues (three cas-es), alliances (one case), human resource policy (two cases), and organiza-tional structure (three cases). They are summarized in Table 1.1.
TABLE 1.1 Initial Sample Firms and Decision Change Topics
Firma Industry
Foundation Year of the
FirmFirm Size
(employee) Decision Change Topics
1 Noon Telecom equipment
1992 400 1. Organization structure 2. New products
2 Oxygen Chemical 1969 8,000 1. Organizational structure
2. Sales/Distribution system
3. HR policy
3 ARK International
Electrical test equipment
1921 700 1. Target segment 2. Marketing strategy in
Europe
4 Precision Chemical analysis
1970 180 1. Alliance with a major supplier
5 Connect Software 1988 2,500 1. Organization structure
6 EDI Electronics/computer
1930 20,000 1. HR policy
a disguised name
8 K. SHIMIZU
To further examine the generalizability across time and culture, I com-pared the findings from the initial case studies with those from the five cases from Japanese firms in the 2010s. The interviews and data collection were conducted as part of an MBA class project. The topics included start-ing a new business (two cases), alliances (two cases), and change of an ex-ternally hired top manager (one case).
Data Collection and Analysis
Several methods of collecting data were used in this study. These includ-ed face-to-face, semi-structured interviews (see the Appendix for the inter-view template), follow-up interviews and emails, and secondary sources. Before formally starting this study, pilot interviews with nine managers in two different organizations were conducted (not included in this study) to clarify the interview focus, determine potential issues in the research, and understand effective interview processes. Each interview typically lasted 2 hours and was tape-recorded for transcription. Following the recommenda-tions of several researchers (e.g., Eisenhardt, 1989; Miller et al., 1997), spe-cific tactics were applied to this study to minimize potential biases. These tactics included (a) utilizing multiple knowledgeable informants per case, (b) focusing on recent cases (nine changes occurred within 2 years prior to the interview), (c) interviewing for chronological occurrences rather than personal opinions, (d) asking follow-up questions and seeking clarifications from interviewees, and (e) supplementing interviews with other objective data such as descriptions in annual reports and performance data.
Each case was analyzed individually and compared with all others to verify emerging constructs and theoretical frameworks (Strauss & Corbin, 1998). The transcribed manuscripts were content analyzed with help from an experienced senior faculty member. The transcripts of interviews were divided into units, each of which contained independent content, and cat-egorized according to the content. The categories of each interview were compared and contrasted to infer relationships across categories and to explore latent constructs behind the categories (Strauss & Corbin, 1998). This gradual and iterative process provided the means for a rigorous analy-sis of a large amount of qualitative data. The findings were also constantly compared with the literature to clarify the new contributions and to inte-grate them with past research findings (Eisenhardt, 1989; Strauss & Corbin, 1998). To further minimize biased coding or interpretation, the initial findings and emergent theoretical schemes were summarized (four single-spaced pages) and presented to and examined by study participants.
In Search of a Last Straw 9
RESULTS
Overview
Consistent with the idea of the problemistic search of BTOF (Cyert & March, 1963), this study found that poor outcomes comprise an important driver for decision change. In the initial study, poor decision outcomes were clearly seen in six of the 10 cases. Informants generally assess outcomes in comparison with initial expectations within an organization. Interestingly, the other four decision changes occurred without unambiguously poor out-comes. Sometimes decisions were formally announced and changed before they could be fully implemented. At other times, changes were made even though the earlier decisions had positive outcomes.
In the six cases in which poor decision outcomes played an important role, large time lags were found between the time when poor outcomes were initially recognized and the time when decision change was initiated. The time lag varied from 2 to 6 years. Specific questions were asked of informants regarding the time lag, and informants identified various bar-riers. The identified barriers were exit barriers (Noon #1), routines (ARK International #1), and politics and resistance (EDI). Decision makers also encountered uncertainty, even after recognizing poor decision outcomes (ARK #2, Noon #1, 2, Oxygen #1, EDI). This finding is consistent with the Hickson, Butler, Cray, Mallory, and Wilson (1986) observation that instanc-es of strategic decision making are often preceded by relatively long “gesta-tion” times. “Gestation periods, therefore, reveal the power to set decision making in motion, or not to do so, a reason for not doing so being the hope that procrastination will allow feared obstacles to fade away” (Hickson et al., 1986, p. 107). These six cases are summarized in Table 1.2.
Additionally, four decision changes were initiated when outcomes were unknown or positive. Initial decisions were changed after they were for-mally announced, committed, and in the preparation stage (Oxygen #3) or in the process of implementation (Oxygen #2), and when they were in the final stage of negotiating and sealing a contract with partners (Precision). In the case of Connect, although the outcomes from an initial decision were not poor, a new alternative was imported by salespeople to replace the initial decision. These four cases are summarized in Table 1.3.
The initial analysis of the 10 cases suggests that factors other than direct outcomes of the decisions play an important role in initiating a change, both when outcomes are negative and not negative. These preliminary findings are further elaborated in the next sections.
10 K. SHIMIZU
TAB
LE 1
.2
Barr
iers
an
d T
rig
gers
(D
eci
sio
n C
han
ge w
ith
Po
or
Ou
tco
mes)
Firm
Init
ial
dec
isio
nPe
rcep
tio
n o
f p
oo
r o
utc
om
es
Tim
e si
nce
po
or
ou
tco
me
was
re
cog
niz
edB
arri
ers
Ch
ang
e Tr
igg
er
(Exc
ept
for
po
or
dec
isio
n o
utc
om
es)
Noo
n(#
1)O
rgan
izat
ion
st
ruct
ure
(199
6–98
)
Th
ree
year
s of
co
nse
cuti
ve lo
sses
3 ye
ars
Un
cert
ain
ty:
“ I
t is
har
d to
say
[w
het
her
] 3
year
s ar
e lo
ng
enou
gh to
eva
luat
e th
e n
ew
stra
tegy
an
d st
ruct
ure.
Fre
quen
t ch
ange
cr
eate
s co
nfu
sion
an
d an
xiet
y w
ith
in th
e or
gan
izat
ion”
Los
s in
an
oth
er
proj
ect t
rigg
ered
a
dras
tic
oper
atio
n
chan
ge.
Noo
n(#
2)N
ew p
rodu
cts
(199
6–98
)Fa
r be
low
init
ial s
ales
ex
pect
atio
n2~
3 ye
ars
Exi
t bar
rier
/ Ps
ych
olog
ical
com
mit
men
t:
“We
inve
sted
in th
e pr
oduc
t.”U
nce
rtai
nty
:
“ It i
s di
fficu
lt to
kn
ow w
hen
to p
ull t
he
plug
af
ter
a la
rge
inve
stm
ent.
Alt
hou
gh th
e pr
oduc
ts w
ere
not
sel
ling
wel
l, th
ey m
ay
sell
wel
l lat
er.”
Los
s in
an
oth
er p
roj-
ect t
rigg
ered
a d
rast
ic
oper
atio
n c
han
ge a
nd
re-e
valu
atio
n o
f pro
fit-
abili
ty o
f pro
duct
s.
Oxy
gen
(#1)
Org
aniz
atio
n
stru
ctur
e(1
995–
98)
On
e th
ird
of th
e m
anag
ers
did
wel
l, an
d th
e re
st d
idn’
t (c
usto
mer
sur
vey)
2 ye
ars
Un
cert
ain
ty
“ Cus
tom
er s
atis
fact
ion
was
sup
pose
d to
go
up, b
ut it
wen
t dow
n. S
o w
e sa
id, w
hat
are
w
e go
ing
to d
o, w
hat
are
we
goin
g to
do.
”
A s
enio
r vi
ce p
resi
-de
nt w
as h
ired
for
a di
ffer
ent r
easo
n a
nd
reve
rsed
the
deci
sion
fo
llow
ing
a co
nsu
lt-
ing
firm
’s id
ea.
(con
tinue
d)
In Search of a Last Straw 11
TAB
LE 1
.2
Barr
iers
an
d T
rig
gers
(D
eci
sio
n C
han
ge w
ith
Po
or
Ou
tco
mes)
(co
nti
nu
ed
)
Firm
Init
ial
dec
isio
nPe
rcep
tio
n o
f p
oo
r o
utc
om
es
Tim
e si
nce
po
or
ou
tco
me
was
re
cog
niz
edB
arri
ers
Ch
ang
e Tr
igg
er
(Exc
ept
for
po
or
dec
isio
n o
utc
om
es)
AR
K
Inte
rnat
ion
al(#
1)
Targ
et
segm
ent
(199
8–99
)
Far
belo
w in
itia
l sal
es
expe
ctat
ion
2 ye
ars
Rou
tin
e:
Mar
keti
ng
plan
is r
evis
ed o
nce
a y
ear
at a
n
ann
ual m
eeti
ng.
Un
cert
ain
ty:
“ I
dis
agre
e w
ith
the
chan
ge d
ecis
ion
. I s
till
thin
k th
at w
e ca
n m
ake
it.”
Th
e ch
ange
was
m
ade
by th
e C
EO
at
an a
nn
ual m
eeti
ng.
AR
K
Inte
rnat
ion
al(#
2)
Mar
keti
ng
stra
tegy
in
Eur
ope
(199
2–99
)
Con
tin
uous
failu
re
to a
chie
ve s
ales
pr
ojec
tion
s
6 ye
ars
Lac
k of
att
enti
on:
“ M
anag
emen
t att
ribu
ted
poor
per
form
ance
to
the
imm
atur
ity o
f th
e E
urop
ean
mar
ket.”
“ T
he
US
mar
ket w
as v
ery
good
an
d m
anag
ers
wer
e n
ot c
once
rned
wit
h th
e E
urop
ean
mar
ket.”
A p
rese
nta
tion
by
a n
ew p
rodu
ct
man
ager
bec
ame
a w
ake-
up c
all.
ED
IH
R p
olic
y(1
997–
99)
Old
sys
tem
bec
ame
obso
lete
an
d h
urt
com
peti
tive
nes
s
3 ye
ars
Polit
ics/
Un
cert
ain
ty:
“ T
wo
tim
es w
e tr
ied
[bef
ore]
but
we
wer
e ba
ck w
ith
a s
ign
ifica
nt r
esis
tan
ce.”
“ T
her
e w
as a
lot o
f res
ista
nce
an
d fe
ar to
ou
r su
gges
tion
from
top
man
agem
ent.”
A n
ew C
EO
was
pro
-m
oted
aft
er th
e su
d-de
n d
eath
of t
he
for-
mer
CE
O a
nd
init
i-at
ed s
trat
egy
chan
ge,
wh
ich
res
ulte
d in
HR
ch
ange
.
12 K. SHIMIZU
TAB
LE 1
.3
Sta
ges
an
d T
rig
gers
(D
eci
sio
n C
han
ge w
ith
ou
t Po
or
Ou
tco
mes)
Firm
(dis
gu
ised
)C
han
ged
dec
isio
n
Tim
e b
etw
een
an
init
ial d
ecis
ion
an
d c
han
ge
Stag
e W
hen
Dec
isio
n
Was
Ch
ang
edR
easo
ns
for
Ch
ang
e
Oxy
gen
(#2)
Sale
s/D
istr
ibut
ion
sy
stem
(19
97–9
9)1
year
Init
ial d
ecis
ion
(st
rate
gy)
was
impl
emen
ted
but
outc
omes
wer
e n
ot p
oor.
New
ly a
rriv
ed to
p m
anag
emen
t (m
ore
than
on
e pe
rson
) ch
ange
d af
ter
arri
val.
“ E
very
tim
e a
new
pre
side
nt c
omes
in th
ey c
han
ge th
e st
rate
gy b
ecau
se th
ey h
ave
a di
ffer
ent p
ersp
ecti
ve.
Em
ploy
ees
ther
efor
e of
ten
cal
led
a n
ew s
trat
egic
init
iati
ve
the
‘flav
or o
f th
e m
onth
.’”
Oxy
gen
(#3)
HR
pol
icy
(199
4)C
lose
to 2
yea
rsA
t th
e fi
nal
exe
cuti
ve
mee
tin
g to
form
aliz
e a
new
HR
pol
icy.
A fo
rmer
HR
dir
ecto
r, w
ho
was
exp
ecte
d to
mov
e to
Eur
ope,
br
ough
t up
an is
sue
and
pers
uade
d al
l oth
er e
xecu
tive
s.
“ He
as s
ort o
f bet
wee
n jo
bs, i
f you
will
. He
had
som
e ti
me
to v
isit
the
fiel
d be
caus
e h
e w
as o
n a
tran
siti
on. H
e sa
id,
talk
ing
wit
h fi
eld
peop
le, h
e re
aliz
ed th
at w
e h
ad is
sues
.”
Prec
isio
nA
llian
ce w
ith
a
maj
or s
uppl
ier
(199
8)
9 m
onth
sA
t th
e fi
nal
mee
tin
g w
ith
a
supp
lier
to fi
nal
ize
form
al c
ontr
act a
fter
in
ten
sive
pre
para
tion
.
CE
O e
mot
ion
ally
rev
erse
s h
is d
ecis
ion
at t
he
mee
tin
g w
ith
the
supp
lier
pers
onn
el.
“ I
thin
k th
e la
st s
traw
is w
hen
we
sat i
n th
e ro
om a
nd
we
wer
e sa
yin
g th
ey w
ante
d to
look
at o
ur in
form
atio
n. W
ell,
the
way
this
per
son
des
crib
ed w
as y
ou c
ome
and
look
at
our
info
rmat
ion
. . .
. I s
aid,
‘No,
that
wou
ld n
ever
hap
pen
.’ T
hat
des
troy
ed th
e ca
mel
.”
Con
nec
tO
rgan
izat
ion
st
ruct
ure
(199
9)15
mon
ths
Init
ial d
ecis
ion
was
im
plem
ente
d bu
t ou
tcom
es w
ere
not
poo
r.
Sale
s pe
ople
foun
d a
bett
er a
lter
nat
ive.
“ S
o, w
hile
we
wer
e st
ruct
ured
as
a m
ater
ial g
roup
cov
erin
g m
any
indu
stri
es, w
e in
pra
ctic
e ta
rget
ed o
n h
igh
tech
cu
stom
ers.
It w
as n
ot b
ecau
se o
f th
e in
stru
ctio
ns
or
plan
nin
g fr
om th
e to
p. I
t was
just
wh
at w
e di
d.”
In Search of a Last Straw 13
When and How is the Decision Change Initiated?
Change and Poor OutcomesResearchers argue that the cognitions of top management team mem-
bers play a moderating role between external environments (including re-sulting poor performance) and organizational reactions (e.g., Shimizu & Hitt, 2004). In other words, change will not occur unless problems are well recognized (Cyert & March, 1963; Ocasio, 1997).
The case of ARK International (#2) is consistent with this idea. The com-pany entered the European market in 1992. The decision was made partly because they wanted to be a global player and partly because they had very successful products in the United States. However, the outcomes of the en-try were not favorable. In fact, the sales of the products had been disap-pointing for several years, but no new actions were made. Top management simply attributed the poor performance to the immaturity of the European market. They did not pay much attention to the European market because they were still very successful in the United States. In 1996, two new compet-itors showed up and their products outsold ARK International’s products in a short period. Still no new action was taken. In 1999, a new manager was promoted to a position overseeing the European market. To understand his job well, he reviewed the entire European market, examining all the competitors in Europe and comparing them to his own company. He pre-sented the summary in a meeting:
Our products weren’t selling well. We just tried to sell because we had prod-ucts and channels there. . . . We should have identified [the market poten-tial] a long time ago. We knew about it. When I came in, when I took the position in January, I started adding things. Added up numbers. Showed it to management. It was big. . . . It was a wake-up call. The number was big. Do we go after it? That’s what started . . . I think there was a talk about the market before I came in, but market data was never really put together. I guess the only thing I did was I put it together, and that was big. That was what shook top management.
Another manager simply characterized the situation as “surprising,” given the lengths of time top management did nothing.
After his presentation to top management, the company decided to change the marketing strategy in Europe. Interestingly, after his presen-tation, a somewhat unrelated issue arose in the discussion. Although the old products had been very successful in the U.S. market, several people recognized that those products were getting older and that second gen-eration products (with a new platform) should be developed. While the discussion had started in 1995, no decision had been made because the products still sold well. However, once top management started thinking
14 K. SHIMIZU
about developing new products for the European market, the issue of the new platform was also brought in and accelerated the decision change. Top management decided to terminate the old products from the European market and launch new products with a new platform. The new platform was also used in the new products that would succeed the current products in the U.S. market later.
Other case examples also indicated that a change was not necessarily ex-ecuted even if the problem was recognized (cf. Cyert & March, 1963). Noon changed its organizational structure after 3 consecutive years of losses (#1). The change came after 3 years, rather than 2 years or 4 years, because it was initiated by the failure of a new and important project in the company. This failure to enter into a new business forced top management to reevaluate the company’s current operation and core competencies. The CEO also left the firm and was replaced by the founder, who had actually initiated the new project and handpicked the former CEO. The founder decided to change its organizational structure, which had been an agenda for a while. The organizational structure became flatter by consolidating divisions and reducing the number of employees. A director commented:
Why it took 3 years [to restructure operations]? Yes, we should have done it ear-lier, but it was hard to evaluate the decision [i.e., operating structure] in a short period, and eventually a big swing of the pendulum led to a massive change.
Three years ago, we entered a new area and the whole company was excited about it. Exit from the project last year cost us a lot—more than our tolerance level as a public company . . . The reaction of the CEO was that we had to de-fend our core business by any means. The CEO literally imposed on us a very drastic change, which even I resisted in the first place.
The COO agreed and stressed the strong impact of the project failure:
At first glance, the change looked so drastic and I said it was not possible. Given the tight labor market, I also felt the risks of losing key people. How-ever, the shock of the project failure was so large and we had no option but to pursue the change.
Probably, Noon’s (#2) seeming ignorance of poorly selling products started with the hope of future success and difficulty to deny the possibility of these products.
In the case of ARK (#1), it launched a new version of a product to meet a new regulation. According to a market survey, a large sales volume was ex-pected as customers need to comply with the regulation. However, the sales were disappointing. ARK surprisingly found that many customers contin-ued to use an old version of the product even though they also recognized the necessity to comply with the regulation. After 2 consecutive years of
In Search of a Last Straw 15
disappointing results and with need to allocate resources to another proj-ect, the CEO decided to terminate the project despite the strong resistance from its sales manager:
I disagreed with the change decision. Given the regulation is there, it was obvious for the sales to come sooner or later.
Another manager added:
The CEO is a finance person. He loves concrete numbers and used 2-year as a heuristic to make a decision. If he were a marketing or sales person, the deci-sion would have been very different.
This difference between the top level perspective and middle level perspec-tive represents the significance of uncertainty that cannot resolve analyti-cally but still needs to be dealt with.
Oxygen’s change of organizational structure (#1) was initiated by a newly hired senior vice president (SVP) and a consulting firm he hired. In 1995, Oxygen initiated a new organizational structure that assigned 35 geographic areas to salespeople to enable more customer intimate sales activities. However, customer satisfaction declined unexpectedly. It was un-derstood that the number of “qualified” sales managers would be less than the number of areas and thus the organizational structure was modified with the addition of six regional supervisors. While the results were not completely satisfactory, Oxygen continued to grow and in 1998 a new SVP was hired from a competitor to lessen the workload of the CEO. The SVP happened to oversee the sales. He brought in a consulting firm he used in a former company. The consulting firm proposed a different organization-al structure and the SVP adopted it. In fact, the new structure was similar to what Oxygen had before 1995 and many people ridiculed the move as “back to the future.”
Finally, the case of EDI can also be explained from the risks associated with the change. When a new alternative was initially proposed by the HR department to change its obsolescing system, there was a large amount of resistance as many top management members were concerned about the risks of the change. When a new CEO was appointed after the sudden death of the former CEO, he initiated his idea of divesting a major business unit. The divestiture provided a clearer focus on the high-tech area of the com-pany and made the disadvantage of the existing human resource policy relative to competitors more apparent. This clearer comparison made it easier for EDI’s top managers to withdraw their concerns with the change.
As examples that well explain decision change processes, the cases of ARK International and Noon are chronologically summarized in Figures 1.1a and 1.1b. These figures indicate that the focal decision streams were
16 K. SHIMIZU
influenced by other streams of decisions and their outcomes within an organization.
Change and No Poor OutcomesThere were cases where initial decisions were changed relatively quickly
in contrast to the first six cases where managers needed to deal with poor outcomes from the initial decisions. Elements common to those cases were:
(poor outcomes/no action)
(no new action)
EntryEurope
w/extantproducts
1992
Newplatform
1995
Newprooduct
Success inUnited States
Newcompetitors
1996
Newmanager
1999
Figure 1.1a Example (ARK International) of interactions among multiple deci-sion streams.
(poor outcomes/no action)
(doubtful outcomes/no action)
(poor outcomes/no action)
1996 1997 1998 1999
Newplatform
Neworganization
structure
NewStructure
Decisionchange(Exit)
Decisionchange(Exit)
New salesmanager
CEO replacedby founder
Large loss
New CEO
Newproject(1996)
Figure 1.1b Example (Noon) of interactions among multiple decision streams.
In Search of a Last Straw 17
(a) initial decision outcomes were not poor and/or (b) change of decision makers or emergence of a new alternative played an important role.
The association between change of top management and change of strategy has been well examined (e.g., Hayward & Shimizu, 2006). The theoretical rationale includes new top managers’ new perspectives, stake-holders’ expectations for change, and reduction of cognitive inertia and responsibility (Shimizu & Hitt, 2004). The behaviors of Oxygen’s top man-agement seem to be consistent with these ideas (Oxygen #2). Although new managers were not brought in with respect to the focal decisions, they changed the distribution system back and forth in terms of in-housing or outsourcing. A manager described:
Strategic change occurs when a new top comes in. Between 1995 and 1999, we had 3 or 4 new presidents. Some were from corporate and some were hired from inside or from a competitor. Every time a new president comes in they change the strategy because they have a different perspective. Employees therefore often called a new strategic initiative as a “flavor of the month,” because even though it sounds new and effective, we knew that it would be gone soon.
In another example in Oxygen (#3), after the human resource group spent almost 2 years on a new HR policy (i.e., competency-based pay), its full im-plementation was suspended at the final executive meeting. A former HR director, who was expected to move to Europe, raised issues that persuaded all the other executives toward the decision to suspend the policy. Because he already had his successor and had time, he spent his free time visiting field managers and employees. He had new insights from the front level managers, questioned the ongoing project despite its final approval stage, and reversed the momentum. A director’s comment was typical:
He was a very forceful communicator. Very forceful, very convincing. He had a good example to justify his position. Besides, he had a lot of credibility. He is the person who led a major merger before. He is the person who found the new headquarters location. . . . He quickly took control even if he was not the person in charge.
In Connect, the sales structure was changed because of the emergence of a better structure. The idea was brought by several sales people, whose lack of skills with the existing structure forced them to explore their own way of making sales. When top management recognized that their success-ful sales results arose from a different market segmentation, the sales struc-ture was immediately changed.
The case of Precision was a little different. Its CEO initially accepted an offer from its major supplier to be its OEM supplier (Precision was a
