Corporate Restructuring As A Strategic Decision Management Essay
The interrelationships between organisation, strategic management and business environmental conditions have been enduring themes of organisation and management theory over the last 4 decades, and restructuring has emerged as a significant mechanism in the successful adaptation of organisations to environmental influences (Clark, 2004). The 1980s were characterised by a wave of important restructuring activities, this wave has become increasingly common during the 1990s (Lin, Lee & Peterson, 2006; Park & Kim, 2008). The concept of restructuring is still a matter of debate and controversy because of the modernity of the subject. Bowman and Singh (1993) described restructuring as change aims to improve the efficiency and effectiveness of management teams’ performance through considerable changes in organisational structure. Staniforth (1994) defined restructuring as opportunities for change, improvements in the organisation, and to achieve the benefits of cost, the benefits of strategic decision-making, the benefits of communication, and other benefits to the organisation. Restructuring is a fundamental change that significantly affects the organisation, and takes place either at the organisational level or radically reorganising activities and relationships at the business unit level (Alkhafaji, 2001). Hitt, Ireland and Hoskisson (2001) argued that restructuring is a strategy through which the organisation can change its financial or commercial position. Stevenson, Bartunek and Borgatti (2003) described restructuring as attempts to get people within the organisation to work more closely together. Restructuring is a purposeful strategic option for organisation renewal (Brauer, 2006), typically includes a set of activities such as downsizing, sale of a business line, closures or consolidation of facilities, business relocation, or changes in management structure, which often occur as part of organisational strategies intended to improve efficiency, control costs, and adapt to an ever changing business environment (Lin, Lee & Peterson, 2006). Thus, modifications of the organisation’s assets, capital structure, and organisational structure fall into the general concept of corporate restructuring (Singh, 1993; Bowman et al., 1999). Restructuring refers to the transformation of corporate structure (Bowman & Singh, 1990), organisational re-configuration (Bowman & Singh, 1993), refocusing (Markides, 1995), down scoping (Hitt et al., 1994; Johnson, 1996), and patching (Eisenhardt & Brown, 1999; Siggelkow, 2002).
The term restructuring is mainly used to denote considerable changes in the assets and structural components of organisations through conscious managerial actions. Bowman and Singh (1990) claimed that restructuring is aimed at achieving individual, financial, strategic, and/or operational goals and objectives. Bowman et al. (1999), differentiate three key forms of restructuring: portfolio restructuring, related to the changes in the “portfolios of businesses” held by diversified organisations, including acquisitions, mergers, divestitures etc. ; financial restructuring, which includes considerable changes in the capital structure of an organisation, and organisational restructuring, which includes significant changes in the organisational structure of the organisation, including divisional redesign and downsizing. Advocates of corporate restructuring argue that the result of restructuring activities is a leaner and more efficient corporate (Singh, 1993). Critics, however, contend that restructuring damages the organisation and its internal and external stakeholders (Seth & Easterwood, 1993).
18.104.22.168 Key Drivers of Restructuring:
In the 1960s and 1970s, several organisations diversified their business predominantly via the acquisition of businesses unrelated to their core activities, thus frequently realising conglomerate status (Shleifer & Vishny, 1991; Hoskisson & Hitt, 1994; Davis, Diekmann, & Tinsley, 1994; Servaes, 1996; Johnson, 1996; Bergh, 2001). During the 1980s and 1990s, many diversified organisations were reorganised as a result of organisational refocusing initiatives intended to cut down both the breath of organisation portfolios (i.e., lower levels of diversification) and overall organisation size, thus eventually translating into organisations holding more related diversified activities (Williams, Paez & Sanders, 1988; Markides, 1992; Davis, Diekmann, & Tinsley, 1994; Kose & Ofek, 1995; Comment & Jarrell, 1995; Berger & Ofek, 1995; Johnson, 1996, Cascio, 2002, Park & Kim, 2008). A related diversified business is one in which the company controls businesses that share similarities in markets, products, and/or technologies with the intent of allowing organisation management to take advantage of the interrelationships between the related businesses (Rumelt, 1974; Palepu, 1985; Hoskisson & Hitt, 1990; Hoskisson & Hitt, 1994). As already mentioned, a multitude of theoretical and empirical investigations into the antecedents of restructuring have shown that different factors precipitate corporate restructuring. Restructuring literature reveals that there are four key drivers of restructuring.
22.214.171.124.1 The Agency justification:
The premier justification as to why companies engage in restructuring is in response to less than acceptable performance (Montgomery, Thomas & Kamath, 1984; Duhaime & Grant, 1984; Hoskisson, Johnson & Moesel, 1994; Hoskisson & Hitt, 1994; Markides, 1995; Johnson, 1996; Markides & Singh, 1997, Filatotchev, Buck, & Zhukov, 2000, Love & Nohria, 2005; Perry & Shivdasani, 2005; D’Souza, Megginson, & Nash, 2007; Hsieh, 2010). In other words, a company divests organisational assets with the intent of improving organisational performance, whether it is their organisational performance in respect to competitors, the overall industry, or a predetermined objective (Greve, 1998). Research has undoubtedly demonstrated that organisations engaged in restructuring often are performing unsatisfactorily prior to the initiation of corporate restructuring (Duhaime & Grant, 1984; Montgomery, Thomas & Kamath, 1984; Sicherman & Pettway, 1987; Duhaime & Baird, 1987; Ravenscraft & Scherer, 1987; Montgomery & Thomas, 1988; Hoskisson & Johnson, 1992; Markides, 1992; Hoskisson & Hitt, 1994; Hoskisson, Johnson & Moesel, 1994; Lang, Poulson & Stulz, 1995; Markides, 1995; Johnson, 1996; Markides & Singh, 1997; Bowman et al., 1999; Bergh, 2001; Love & Nohria, 2005; Perry & Shivdasani, 2005; D’Souza, Megginson, & Nash, 2007; Hsieh, 2010). The majority of large organisations exhibit periodic corporate restructuring involving simultaneous changes in strategy, organisational structure, management systems, and corporate top management members. Such corporate restructuring usually follows declining organisational performance (Grant, 2008). Jain (1985), for example, found that organisation performance began to suffer nearly a year prior to restructuring and caused negative excess stock return of 10.8% within the period of one year prior to the restructuring.
Such evaluations of one’s own organisational performance are considerable since sound organisational performance is required to ensure the sustenance and survival of the corporate (Child, 1972), as well as offering feedback to the organisations as to the viability of their plans (Cyert & March, 1963). Thompson (1967) notes that publicly traded organisations closely monitor changes in the value of their stock since the market exhibits a visible social judgment about the organisation’s fitness for the organisational future.
The agency justification of restructuring, poor organisational performance as an antecedent of restructuring (Ravenscraft & Scherer, 1987; Hoskisson & Turk, 1990; Hoskisson & Hitt, 1994; Markides & Singh, 1997; Filatotchev, Buck, & Zhukov, 2000) has become the leading justification in the literature to account for the corporate restructuring wave of the 1980s. Mainly, this rationale claims that organisation performance needs to be improved as a direct outcome of past managerial incompetence, which includes excessive levels of diversification, inappropriate diversification, unprofitable investments, and substandard investments in R&D. For example, it is argued that decision makers frequently increased organisation size and levels of diversification without comparable increases in organisation value (Jensen, 1986; Hoskisson & Turk, 1990; Jensen, 1993; Johnson, 1996). Moreover, it is argued that strategic decision makers have the opportunity to diversify their firms even when doing so does not enhance the market value of the organisation because their personal wealth is associated more with organisation size than to organisation performance (Jensen & Meckling, 1976; Amihud & Lev, 1981; Bethel & Liebeskind, 1993). Grant, Jammine and Thomas (1988) found that increased degrees of diversification gave rise to decreased organisation’s returns, thus implying that, over time, strategic decision makers sacrificed performance for diversification and growth. Empirical studies (e.g., Rumelt, 1974; Wernerfelt & Montgomery, 1988; Lubatkin & Chatterjee, 1991; Palich, Cardinal, & Miller, 2000; Bergh, 2001; Mayer & Whittington, 2003) have substantiated such a conclusion by arguing that organisations pursuing a organisational strategy of unrelated diversification possess lower market returns than organisations pursuing related diversification and growth strategies.
Supporter of the agency justification suggest that such managerial inefficiencies occur considerably as a consequence of agency costs (i.e., enlarged managerial consumption of organisational resources resulting from poor, or ineffective governance systems). Essentially, this perspective argues that the board of directors, ownership concentration, and decision maker’s incentives were inefficient and led to the failure of organisational governance as a mechanism (Hoskisson & Turk, 1990; Jensen, 1993; Bethel & Liebeskind, 1993; Gibbs, 1993; Hoskisson, Johnson, & Moesel, 1994; Johnson, Daily, & Ellstrand, 1996; Johnson, 1996; Chatterjee & Harrison, 2001). Although never clearly clarified in the literature, poor governance is believed to be identified by diffusion of shareholdings among foreign owners, certain characteristics of strategic decision makers (e.g., insignificant equity ownership by strategic decision makers and board members or an insignificant number of outsiders sitting on the board), and decision makers and board members passivity (Johnson, Hoskisson, & Hitt, 1993; Bethel & Liebeskind, 1993; Gibbs, 1993; Johnson, 1996; Westphal & Fredrickson, 2001; Dalton et al, 2003). Thus, the agency perspective has made restructuring synonymous with poor corporate governance (Hoskisson & Turk, 1990; Bethel & Liebeskind, 1993; Markides & Singh, 1997).
126.96.36.199.2 The Mimicry Justification:
It is argued that organisations restructure as a consequence of mimicking the behaviour of other firms that are engaged in the divestiture activities (Markides & Singh, 1997). In line with mimetic isomorphism (DiMaggio & Powell, 1983; Oliver, 1991), this perspective claims that organisations, either intentionally or unintentionally, engage in mimicry of organisational patterns of other actors in their networks who are realised as more successful or legitimate. Strategic decision makers engaged in such imitation consider that their actions will be perceived as rational (Meyer & Rowan, 1977; DiMaggio & Powell, 1983). Such claims were adopt by Davis, Diekmann, and Tinsley (1994) in their justification of the decline of the conglomerate organisation in the United States of America during the period of 1980s.
188.8.131.52.3 The Environmental Justification:
Scholars (e.g., Meyer, Brooks, & Goes, 1990; Grinyer & McKiernan, 1990; Hoskisson & Hitt, 1990; Shleifer & Vishny, 1991; Kose, Lang & Netter, 1992; Chatterjee, 1992; Johnson, 1996; Bergh & Lawless, 1998; Robinson & Shimizu, 2006; Park, 2007; Park & Kim, 2008; Nag & Pathak, 2009) have suggested that environmental circumstances serve as antecedents to increased corporate restructuring. It is argued that antitrust policy shifts, tax rationales, junk bond financing, intense competition, deregulation, technology developments and changes, and takeover activities through the market for organisational control are reasons for the significant increase in corporate restructuring activity in the 1980s (Johnson, 1996).
A synthesis of studies exploring such associations suggests that changes in the environmental conditions, which increase environmental uncertainty or turbulence, result in a greater likelihood of corporate restructuring. Grinyer & McKiernan (1990), for example, suggested that corporate restructuring may result from changes in the industrial sector that create an “aspiration-induced crisis” built on the current organisational performance or market share and where strategic decision makers believe the firm ought to be. Further support of the environmental conditions argument was conducted by Meyer, Brooks and Goes (1990) who explored organisational strategic responses to discontinuous change at the industrial sector level. They explored the hospital industry in San Francisco state, which was facing considerable environmental turbulence, which led to excess capacity, regulatory changes, and resource scarcity. To deal with these environmental changes the hospital industry engaged in spin-offs of unnecessary areas, underwent divestitures of peripheral activities, and created networks among the hospitals to respond to the need for managed health care in the San Francisco state. Moreover, a third study to justify the environmental conditions perspective was offered by Bergh and Lawless (1998), who explored external uncertainty and its influence on the strategic decisions the organisation makes. Their study suggested that organisations experienced with highly uncertain circumstances engage in divestitures to cut down the expenses of managing a diverse portfolio.
Scholars (e.g., Garvin, 1983; Ito, 1995, Campa & Kedia, 2002; Rose & Ito, 2005) have contended that restructuring can be a reaction to shocks in the external environment. Dodonova and Khoroshilov (2006) found that divestiture activities tend to occur during economic booms, whereas Campa and Kedia (2002) suggested the opposite. Divestiture activities seem more likely to occur in ever-changing business environments and highly competitive markets (Ito, 1995; Eisenhardt & Brown, 1999).
Because large organisations form significant parts of the task environments of other firms, one organisation’s restructuring may tend to create environmental instability for other firms, particularly those in the same industrial sector. Such claim is explicit in Brown and Eisenhardt’s (1998) perspective of strategy as structured chaos. They argue that the best-performing organisations consistently lead change in their industrial sectors. According to Brown and Eisenhardt’s (1998) theory, such organisations dominate their markets. In fact, these organisations become the environment for others. Not only do they lead environmental change, but these organisations also set the rhythm and pace of that environmental change within their industrial sectors (Brown & Eisenhardt , 1998). The role of restructuring in creating environmental turbulence and change is also implicit in the stream of research based on the hyper-competition concept (e.g., D’Aveni, 1994; Young, Smith, & Grimm, 1998; Thomas, 1998). The primary idea of hyper-competition is that competing firms engage in a continuous series of strategic actions that undercut the key advantages acquired by their competitors (D’Aveni, 1994; Smith & Zeithaml, 1998). Such process is interchangeable, as objectives of competitive initiatives respond to those initiatives with actions of their own, their goals counter-respond, and so on. Therefore, changes in competition are among the most significant environmental factors for strategic decision makers to consider in corporate restructuring (Johnson, 1996). Competition may intensify because of the diversity of strategies by organisations in an industrial sector, a change in the power balance of organisations, and shifts in market demand (Porter, 1980). To cope with the challenges of increasing competition, strategic decision makers of organisations are usually encouraged to take further risk and often respond by corporate restructuring (Cool, Dierickx, & Jemison, 1989). According to Grinyer and McKiernan (1990), competitive changes tend to an ‘aspiration-induced crisis’. When the competitive environment changes, corporate restructuring helps organisations to realise synergies, allocate resources, and improve organisational performance (Chatterjee, 1986; Hoskisson & Hitt, 1988; Bergh, 1995; Bergh 1998).
Another significant environmental antecedent of restructuring, the degree of government regulation, is a tool to control high risk-taking at the organisation level: when an economy is greatly regulated, firms are faced with bounded discretion in their strategic decisions (Wiseman & Catanach, 1997). The reduction of governmental involvement increases the strategic decision-making discretion of organisations, improves the effectiveness of governance systems, and decreases the barriers to investments (Ramamurti, 2000). On the other hand, reduced governmental intervention increases the degree of uncertainty for organisations due to the increase in the variety of stakeholders, the rise of newly privatised organisation, and a concomitant increase in the probability of bankruptcy (Megginson & Netter, 2001). Moreover, regulatory changes are positively associated with changes in organisation risk-taking strategies and behaviour, such as acquisitions (Ginsberg & Buchholtz, 1990; Datta, Narayanan, & Pinches, 1992). Under deregulation, according to Rajagopalan and Spreitzer (1997), less-focused, defender-like organisations tend to shift to greater focused, prospector-like strategies.
184.108.40.206.4 The Strategic Justification:
Scholars suggest that organisation strategy is a driver of restructuring (Montgomery, Thomas, & Kamath, 1984; Duhaime & Grant, 1984; Baysinger & Hoskisson, 1989; Markides, 1992; Markides, 1995; Johnson, 1996). In other words, restructuring may be associated with an organisation’s corporate or business level strategy. The strategic perspective claims that organisations decide to restructure for either corrective or proactive goals. Corrective divestiture activities are intended to make up for former strategic mistakes (Porter, 1987; Hitt et al, 1996), to reduce exaggerated diversification (Markides, 1992; Hoskisson, Johnson, & Moesel, 1994), to refocus on core activities and businesses (Markides, 1992; Seth & Easterwood, 1993), to react to an increase in industrial sector competition (Aron, 1991), to realign organisation strategy with the organisation’s identity (Mitchell, 1994; Zuckerman, 2000), to eliminate negative alliances (Miles & Rosenfeld, 1983; Rosenfeld, 1984), or to deal with organisational problems such as bad organisational governance (Hoskisson, Johnson, & Moesel, 1994). On the other hand, the target of proactive divestitures is to restructure the organisational portfolio (Hitt et al., 1996; Bowman et al., 1999) by routinely redesigning, splitting, changing or exiting activities and businesses to cope with changing environment opportunities (Eisenhardt & Brown, 1999; Siggelkow, 2002). This restructuring is aimed at creating a more efficient organisational governance system ( Seward & Walsh, 1996), improving organisational profitability and performance (Woo, Willard, & Daellenbach, 1992; Mitchell, 1994; Fluck & Lynch, 1999; Haynes, Thompson, & Wright, 2002), obtaining more cash flow (Jensen, 1989; Hitt et al., 1996), decreasing high level of debit (Montgomery, Thomas, & Kamath, 1984; Hitt et al, 1996; Allen & McConnell, 1998) or tax payments (Schipper & Smith, 1986; John, 1993; Vijh, 2002), acquiring better business contracts from regulators (Schipper & Smith, 1986; Woo, Willard, & Daellenbach, 1992), or enhancing organisational entrepreneurship and innovativeness (Garvin, 1983; Cassiman & Ueda, 2006).
From a strategic view, most divesting organisations seem to be more diversified than their industrial sector counterparts (Hoskisson, Johnson, & Moesel, 1994; Haynes, Thompson, & Wright, 2003). Over-diversification pushes an organisation toward de-conglomeration and de-diversification as a correction of its strategic decisions and choices. Nevertheless, in very specific contexts, divestiture processes are also used to improve diversification (such as spin-offs processes in Japan) (Ito, 1995). Over-diversification decreases innovation and entrepreneurial spirit within organisations. Extremely diversified organisations tend to give priority to financial controls, to ignore strategic controls and therefore create less organisational innovation (Hitt et al., 1996), and to enlarge managerial risk aversion (Hoskisson, Johnson, & Moesel, 1994). Thus, according to Garvin (1983), an organisation may engage in unbundling processes to enhance its entrepreneurial spirit and its organisational innovation, or to enter technology-based and immature activities. Spin-offs processes, for example, can be used to encourage entrepreneurial spirit and organisational innovation in the divested business unit, while the parent gains some advantages from the new product, service, or technology developed in the independent organisation (Garvin, 1983).
2.2.5 Linkage Between Environmental Conditions, Decision Makers, and Restructuring as a Strategic Decision:
The antecedents of restructuring show that restructuring is a strategic phenomenon. There are several postulates underlie such a perspective. The first postulate is that strategic restructuring decision is typically an organisational response to changing internal and/or external conditions. The second postulate is that internal and external pressures and influences are largely, but not totally, clear and identifiable in initiating such strategic restructuring. The third postulate is that numerous organisations currently experience these clear pressures and influences for a strategic adaptive response, and that large numbers of these firms seek to respond by strategic restructuring. A fourth and final postulate is that corporate restructuring generally improves organisation performance. Taken together, these postulates form the basis for a strategic view on corporate restructuring; in other words, that there are forces, pressures, and influences that provide a stimulus for strategic restructuring, that these pressures affect several organisations, large numbers of whom respond by corporate restructuring, which improves organisational performance. However, two important questions should be raised: how do you decide which restructuring strategy to apply to which organisation? And what are the key factors affecting the strategic decision-making process and consequently restructuring decision as strategic choice?
Although external environment has been identified as a significant variable in explaining numerous organisational phenomena (Jones, Jacobs, & Spijker, 1992), scholars (Hitt & Tyler, 1991; Eisenhardt & Zbaracki, 1992; Dean & Sharfman, 1993; Rajagopalan, Rasheed & Datta, 1993, Papadakis & Barwise, 1997; Brouthers, Brouthers, & Werner, 2000; Hough & White, 2003) realise that an organisation’s economic environment and competitive circumstances alone cannot clearly explain the nature of strategic decisions and its performance outcomes. So, to enhance the performance of their patterns, strategists have begun to focus on the behavioural factors of organisational strategic decision-making. This growing recognition to the significance of the behavioural element has naturally a focus on the individuals’ characteristics responsible for making these organisational strategic decisions. In public sector organisations the top managers are considered to be responsible for achieving the alignment of the organisation with its environmental conditions (Andrews, 1971; Child, 1972). These decision makers must gather the significant information by which to make strategic decisions, analyse this input, deduce alternative approaches of action for the organisation, and finally choose and implement a particular strategic action for the organisation.
The relationships between strategic decision makers, strategic decision-making processes, and organisational outcomes have been the key focus of top management research. Strategic decision makers, according to this research, do make a difference in the matter of organisation outcomes such as innovation strategies (Bantel & Jackson, 1989; Camelo-Ordaz, Hernandez-Lara, & Valle-Cabrera, 2005); organisational strategic change (Wiersema & Bantel, 1992); and organisational performance (Hambrick & Mason, 1984; Murray, 1989; Michel & Hambrick, 1992; Peterson et al., 2003; Dwyer, Richard, & Chadwick, 2003; Carpenter, Geletkanycz, & Sanders, 2004). Such research suggested that certain demographic characteristics of the strategic decision makers (e.g., age, educational level, and tenure) were associated with organisational outcomes. Other scholars (Hitt, Ireland, & Palia, 1982; Gupta & Govindarajan, 1984; Walsh & Seward, 1990; Davis & Thompson, 1994; Westphal & Fredrickson, 2001) have found that decision makers’ characteristics such as experience are linked to the organisational strategic orientations.
The empirical relations found between demographic characteristics of decision makers and organisational outcomes suggest that functional backgrounds might have significant ramifications for organisational strategic decision-making. Scholars have found that functional experience tends to restrict the areas to which strategic decision makers pay attention and may lead them to neglect certain stimuli (Beyer et al., 1997). Moreover, managerial experience affects the types of changes that decision makers perceive in the effectiveness of their firm, but not its environment (Waller, Huber, & Glick, 1995)
Managerial experiences shape the cognitive perspective of strategic decision makers (Hambrick & Mason, 1984). The upper echelons theory claims that the strategic decision makers’ observable experiences affect their orientation and that strategic choice (Hambrick & Mason, 1984; Finkelstein & Hambrick, 1996; Pansiri, 2007). Therefore, according to Gupta (1984), decision makers differ in the sets of abilities, skills, and views that they bring to a company. Managerial skills, abilities, and perspectives are largely a function of previous functional backgrounds, personal backgrounds, and educational level. In other words, cognitive perspectives brought to bear on strategic decisions are a result of the various experiences that strategic decision makers acquire during their organisational careers (Schwenk, 1988).
Research on organisational strategic issue diagnosis has drew attention to how decision makers’ cognitions can affect several aspects of the organisational strategic decision-making process from environmental scanning (Daft, Sormunen, & Parks, 1988; Milliken, 1990; Abiodun, 2009), processing and analysis (Gioia, 1986; Dutton & Duncan, 1987; Herrmann & Datta, 2005), the evaluation of alternative approaches, and implementation of selected strategic decision (Dutton & Jackson, 1987; Ganster, 2005; Kauer, Waldeck, & Scha¨ffer, 2007). Strategic decision makers’ cognitive perspectives or mental maps represent experientially acquired reference frames which involve sets of different criteria, standards of evaluation, and strategic decision rules that can restrict as well as facilitate the organisational ability to change.
While strategic decision makers’ cognitive perspectives or mental frameworks provide a significant reference point for strategic decision-making, they can also extremely constrain the ability of the organisation to adapt to changing environmental demands. Weick (1979) argued that decision makers act on impoverished perspectives of the world. According to Schwenk (1988) cognitive limitations can thus provide biases into managerial schemata which can negatively influence the nature of strategic decision-making. The experientially acquired nature of strategic decision makers’ cognitive views makes them probably to be more reflective of previous organisational scenarios and strategic decisions than of present ones. By depending on past images of historical environmental conditions and competitive circumstances, strategic decision makers may not be able to realise or adequately define the need for organisational change. Thus strategic decision makers’ cognitive perspectives can determine the ability of the firm to cope with changing requirements and times and therefore decision makers can act as a stabilizing power on the organisation.
Scholars (e.g. Schwenk, 1984; Wiersema & Bantel, 1992; Eisenhardt & Zbaracki, 1992; Waller, Huber & Glick, 1995; Tyler & Steensma, 1998) have argued that strategic decision makers’ characteristics might limit information search, processing, and/or retrieval in spite of decision makers’ desire to make strategic decisions according to the environmental requirements and conditions. As stated in social motivation perspective, managers may remain committed to specific courses of action based on their need to sustain consistency (Staw, 1981; Brockner, et al., 1986; Taylor & Brown, 1988; Brockner, 1992; Keil, Mann, & Rai, 2000; Biyalogorsky, Boulding, & Staelin, 2006; Keil, Depledge, & Rai, 2007). The incentives and needs that drive managers have significant ramification for strategic decisions: First, strategic decision makers who encounter information consistent with their cognitive perspectives or sets of beliefs will support that information. Second, strategic decision makers who are heavily invested in or committed to a specific approach of action are more likely to ignore information that does not consistent with their previous strategic decisions. Finally, only strategic decision makers who are committed to performing under scenarios of change will be willing and receptive to incorporate inconsistent information. Accordingly, research on social motivation argues that strategic decision makers are best at being receptive and willing to information that only marginally deviates from their sets of beliefs, while key changes are more unlikely to be easily incorporated. Moreover, strategic decision makers will probably ignore information that considerably deviates from their cognitive perspectives or sets of beliefs.
Finally, Strategic decision makers can become embedded within the corporate routines and organisational processes that contribute to sustaining the status quo (Pfeffer & Salancik, 1978; Staw & Ross, 1980; Daft & Weick, 1984; Tushman & Romanelli, 1985). With growing organisational tenure and function experience and considerable familiarity with organisational processes and routines, strategic decision makers become susceptible to the organisational inertia’s factors. Miller (1991) argued that increasing managerial tenure results in corporate insularity. Over time, corporate exposure tends to lead to consistency to organisational norms and values (Kanter, 1977). Strategic decision makers may act as a stable governance system that determines the organisation’s ability to change. Decision makers’ experiences and perspectives reinforce prior courses of organisational strategic decision-making (Staw & Ross, 1980). Therefore, managerial turnover provides an important mechanism by which firms can realign themselves with external environmental circumstances (Thompson, 1967; Katz & Kahn, 1978; Perrow, 1986). By changing the power distribution within the firm, thus influencing the dynamics of strategic decision-making processes (Pfeffer & Salancik, 1978), managerial turnover serves as a key force to overcome organisational resistance and inertia (Tushman & Romanelli, 1985). Moreover, managerial turnover, according to Wiersema and Bantel (1993), may help the organisation to cope with radical changes in its external environment by introducing new values, beliefs, and knowledge bases into the top management team.Order Now