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Several approaches have been used to explore environmental dynamism as a contingent predictor
of the relationship between rational-comprehensive strategic decision-making and firm-level
performance. At the decision level of analysis, however, small sample sizes, low statistical
power, and statistical dependence have plagued the research. Through the use of a simulated
decision-making environment and multilevel analysis, this study examined 400 decisions from 54
executive teams. Consistent with much of the existing firm-level research, the results indicated
that environmental dynamism may moderate the relationship between rational-comprehensive
decision making and decision quality. Surprisingly, the form of the relationship differed from
much of the firm-level research. Copyright 2003 John Wiley & Sons, Ltd.
Using the firm as the unit of analysis, researchers 1997; Priem et al., 1995), thereby ignoring the
have explored environmental dynamism as a possibility that decision-makers may vary their use
contingent predictor of the relationship between of processes among specific decisions (Hickson
rational-comprehensive strategic decision-making et al., 1986).
(SDM) processes and firm performance (see Examination at the decision level of analysis
review by Priem, Rasheed and Kotulic, 1995; diminishes these concerns. First, causal ambigu-
Goll and Rasheed, 1997). However, relating ity is not an issue since the decision-making pro-
decision processes directly to firm performance cess clearly precedes any evaluation of decision
is problematic since the causal ordering is outcomes. Second, the relationship between pro-
ambiguous, the relationship is likely to be cess and outcome is more direct and therefore
confounded, and firm-level analyses often ask less likely to be confounded by exogenous fac-
questions concerning the extent to which an tors. Third, decision-level analysis allows differ-
organization uses rational decision processes (e.g., ent processes for each decision, thereby elimi-
Glick, Miller and Huber, 1993; Goll and Rasheed, nating assumptions that decision-makers consis-
tently use specific processes across decisions or
Key words: strategic decision-making; environmental time. Therefore, this paper explores the contingent
dynamism; rationality; multilevel analysis relationship between rationality and performance
*Correspondence to: Jill R. Hough, College of Business Admin-
istration, University of Tulsa, 600 S. College Avenue, Business through examination of SDM at the decision level
Administration Hall 301, Tulsa, Ok 74104, U.S.A. of analysis.
Copyright 2003 John Wiley & Sons, Ltd. Received 24 September 2001
Final revision received 23 August 2002
482 J. R. Hough and M. A. White
Copyright 2003 John Wiley & Sons, Ltd. Strat. Mgmt. J., 24: 481–489 (2003)
484 J. R. Hough and M. A. White
conditions: (1) no knowledge is held by any team fixed effects. MLwiN software was used to fit the
member, and (2) the same knowledge is held by cross-classified, multilevel model.
all team members. Condition one can not occur
in the context of the simulated environment and
condition two is unlikely. RESULTS
Copyright 2003 John Wiley & Sons, Ltd. Strat. Mgmt. J., 24: 481–489 (2003)
486 J. R. Hough and M. A. White
Table 1. Multilevel analysis of decision quality To avoid criticisms of accepting the null, Frick
(1995) suggested that researchers demonstrate that
Fixed effects Coefficient S.E. t-ratio p-value
(a) the hypothesized predictor explains the hypoth-
Intercept 25.29 4.55 5.56 <0.0001∗∗ esized outcome in a related situation, or (b) the
Availabilitya 0.06 0.27 0.21 0.834 hypothesized predictor explains a different out-
Pervasivenessa 0.58 0.30 1.90 0.058† come. In this study, the observed null effect
Dynamic 3.81 6.42 0.59 0.556 in the dynamic and moderate environments is
environmentb
Moderate 14.07 6.23 2.26 0.031∗ strengthened by significance in the stable environ-
environmentb ment, which is consistent with the original the-
Availability × −0.09 0.38 0.25 0.803 ory proposed by Fredrickson (1984). Furthermore,
Dynamic
Availability × 0.13 0.37 0.35 0.727 the increased power of this study improved the
Moderate chances of detecting moderating effects. The null
Pervasiveness × −0.77 0.41 1.87 0.062† effects find further support through examination
Dynamic
Pervasiveness × −0.31 0.40 0.78 0.436 of rationality’s effect on a different, but related
Moderate outcome: whether a decision is actually made.
Random effects Variance S.E. Z-value p-value Decision-makers were presented with a number
component of issues, many of which had to be ignored due
Team 21.42 23.71 0.90 0.184
Issue 152.45 52.49 2.90 0.002∗∗ to time constraints. Since quality could be mea-
Error 689.81 sured only for those issues that were acted upon,
only those observations could be included in the
† p ≤ 0.10; ∗ p ≤ 0.05; ∗∗ p ≤ 0.01. main study. However, measures of rationality were
a
Variables were group mean centered by team. available for the ‘nondecisions.’ Therefore, a logis-
b
Dummy variables were used to denote environments. When tic regression model using rationality to predict
both the dynamic and moderate environment dummies were zero,
the environment was stable. decision vs. nondecision was tested, resulting in
63 percent of the issues being correctly classified
0.06), suggesting that the slope for pervasive- (χ 2 = 68.7, d.f. = 8, p < 0.0001). Thus, using the
ness given availability does differ between the suggestions of Frick (1995), the conclusion of no
dynamic and stable environments. The simple effects in the dynamic and moderate environments
slope for pervasiveness in the stable environ- seems plausible.
ment is positive (b = 0.58, p = 0.06), indicating
that decision quality increases as pervasiveness
increases. In both the dynamic (b = −0.19, p = DISCUSSION AND CONCLUSIONS
0.49) and moderate environments (b = 0.26, p =
0.31), however, decision quality is not significantly Although these results are inconsistent with recent
related to pervasiveness. studies of firm-level effects, they are consistent
Thus, controlling for the pervasiveness of infor- with the theoretical development and empirical
mation, the relationship between availability and evidence of Fredrickson (1984) and Fredrick-
decision quality is not contingent on the environ- son and Iaquinto (1989), who argued that ratio-
ment (Figure 1a). However, controlling for avail- nal processes cannot change the uncertainty of
ability, the relationship between pervasiveness and the dynamic environment. By definition, factors
decision quality is moderated by the environ- within the dynamic environment are in a state
ment (Figure 1b). In particular, controlling for the of change, relationships are ambiguous, and the
amount of unique knowledge held by decision- future is unpredictable (Duncan, 1972). Because
makers in stable environments, higher-quality deci- of this inherent uncertainty, rational processes pro-
sions result from ensuring that all decision-makers vide little assistance to decision-makers. Indeed,
are well informed. In moderate and dynamic envi- new but contradictory information may actually
ronments, however, pervasiveness is not related to slow the decision-making process and negatively
decision quality when controlling for availability. impact performance (Eisenhardt, 1989). Further-
This pattern of results differs from the predicted more, the frequent opportunities provided by the
positive relationship in the dynamic environment rapid pace of the dynamic environment may dimin-
and nonsignificant relationship in moderate and ish the need to ensure that each decision is fully
stable environments. rational. In more stable environments, however,
Copyright 2003 John Wiley & Sons, Ltd. Strat. Mgmt. J., 24: 481–489 (2003)
Research Notes and Commentaries 487
100
80
Decision Quality
60
40
20
0
0 100
(a) Availability
100
80
Decision Quality
60
40
20
0
0 Pervasiveness 100
Figure 1. Moderating effects of environment at average levels of (a) pervasiveness and (b) availability
decision-makers can identify the critical variables. analysis, thereby (a) diminishing firm-level con-
As a result, rational processes are used to gather cerns of causal ambiguity between process and out-
information, facilitate cognitive conflict within the come, (b) controlling potentially confounding vari-
team, update cognitive schemas, and ultimately to ables such as environment, organization, and deci-
increase decision quality (Schweiger and Sand- sion contexts, (c) allowing decision processes to
berg, 1989). The slower pace of change causes vary from decision to decision, and (d) providing
each decision to be critical in maintaining strate- an opportunity to gather larger sample sizes and
gic position. increase the power of detecting moderating effects.
In addition to these findings, this study high- By using multilevel techniques to accurately
lights the benefit of using an alternative research account for the statistical dependence of different
context and analyzing the data using a method- decisions made by the same team, this research
ology that acknowledges the multilevel nature of suggests that 19 percent of the variation in decision
SDM data structures. The use of a behavioral sim- quality is explained by the differences between
ulation offered a unique opportunity to examine decisions. Thus, conflicting results in the exist-
strategic decision-making at the decision level of ing literature may be the result of assuming that
Copyright 2003 John Wiley & Sons, Ltd. Strat. Mgmt. J., 24: 481–489 (2003)
488 J. R. Hough and M. A. White
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Copyright 2003 John Wiley & Sons, Ltd. Strat. Mgmt. J., 24: 481–489 (2003)