Decision Making of Chief Executives in Relation to Strategic Issues: An Empirical Study of the Impact of Industry Stability and Industry Complexity Upon the Complexity of Decision Making Behavior of Chief Executives of Manufacturing Firms in the Southeastern United States

Recent studies on the organizational level of strategy have concluded that environmental factors have a significant impact on the strategic decision processes of organizations, and that the contingent nature of this relationship has implications for the performance of firms operating under various industry conditions. In addition, studies on individual decision making have shown that characteristics of the decision task affect the type of decision making behavior utilized by the individual. This study integrates these two bodies of literature in examining the decision making behavior of chief executives in relation to the strategic issues which face their organizations.

The sample used in the study consisted of thirty-two interviews with chief executives of publicly-held manufacturing firms in the southeastern United States. In conjunction, secondary data were gathered on the firms and the industries in which they operated. Two sets of hypotheses were formulated. The first set dealt with the impact of complexity of the industry, stability of the industry, and number of alternatives generated upon the complexity of decision making behavior of the chief executive. The second set of hypotheses focused on the relationship between complexity of decision making and economic performance of the firm, and incorporated, as contingent variables, industry complexity and industry stability. The data analysis consisted of Pearson product-moment correlation, multiple regression, hierarchical analysis, and partial correlation.

The results suggest that there is a relationship between the complexity of decision making behavior of chief executives and the number of alternatives generated to address a given strategic issue. Subsequent analysis indicated that the size of the organization may affect the chief executive’s perception of the stability of the industry and also, some degree of “conservatism” may have been operating in the search for additional alternative solutions.

In conclusion, this study implies that: (a) there is a tendency for chief executives to use some type of simplifying process when addressing a complex strategic issue; (b) it is possible that, in some cases, the chief executive may not be selecting the best solution for the organization; and (c) potential alternative solutions are not always actively searched out.