Since adopting decision analysis clearly involves

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Unformatted text preview: promote good decision-making”.” Since adopting decision analysis clearly involves comprehensiveness, rationality, increased formality and high levels of organisational consensus, it suffices to examine that empirical literature that has examined the relationship between these aspects of 32 the investment decision-making process and decision effectiveness. These studies are now examined. Attention is first focussed on the effect of comprehensiveness and rationality in the decision-making process. Smith et al. (1988) provided some empirical support for a positive relationship between performance and comprehensiveness/rationality in the decision-making process. They found that, for both small and larger firms, comprehensive decisionmaking processes out-performed less comprehensive. Similarly, Jones et al. (1992) reported consistently positive relationships between organisational effectiveness and comprehensiveness in decision-making. In addition, a series of publications on hospital integration strategies (for example, Blair et al., 1990), researchers found that successful ventures were associated with comprehensive strategy formulation processes (Papadakis, 1998). Janis’ (1989) case studies suggested that public policy decisions that used rational methods were more successful than those that did not. Papadakis’ (1998) study also provided evidence that the companies that exhibit the strongest organisational performance tend to be those with rational decision-making processes, a participative approach and extensive financial reporting. Furthermore, studies by Capon et al. (1994) and Pearce et al. (1987) suggest that formalisation in strategic planning is positively related to organisational performance. Such results led Papadakis (1998) to hypothesise that performance is positively related to comprehensiveness/rationality and formalisation in the investment decision-making process. Conversely, Fredrickson and his colleagues (Fredrickson and Iaquinto, 1989; Fredrickson, 1985; Fredrickson, 1984; Fredrickson and Mitchell, 1984) looked at prototypical (assessed by response to a scenario) rather than actual investment decision-making processes and related them to firm performance rather than to specific decision outcomes and concluded that: “Firms usually do not use slack generated by excellent performance to pay the costs of seeking optimal solutions; instead resources are absorbed as suboptimal decisions are made. This phenomenon may help explain why managers in historically successful firms sometimes make a series of what appear to be inadequately considered, intuitive decisions that in combination have significant negative consequences.” (Fredrickson, 1985 p824). 33 Similarly, Cyert and March (1963) argued that superior performance lowered the intensity with which organisations “searched” for and analysed information. More specifically, Bourgeois (1981) and March and Simon (1958) proposed that slack resources permit organisations the “lu...
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This document was uploaded on 03/30/2014.

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