Chapter 2 - Strategic decision-making

Question 1

What types of information are needed to make decisions? Explain them.

Answer 1

Hard & soft information.

Hard information → comes from information systems, e.g. sales data or accounting data; usually information about the past

Soft information → based on gossip, impressions or information from conversations; less accurate and less reliable

Question 2

Which kind of information is more important for strategic decision-making? Why?

Answer 2

Rationally hard information is preferred, however, soft information is the key if we want to learn about the future. Past data (mostly hard information) as a source of knowledge to make better choices for the future.

Most of the bosses spend a lot of their time by talking to people, go on meetings and just promote the interpersonal contact.

Question 3

What is the difference between a causal thinker and an effectual thinker?

Answer 3

Causal thinker → manager
Start with an End in mind and try to find the best Means to achieve it

Effectual thinker → Entrepreneurs
Start with a given set of Means and find new and different Ends

Question 4

What are the five effectuation principles? Describe them!

Answer 4

1) The Bird in Hand Principle - Start with your means
2) The Affordable Loss Principle - Set affordable loss
3) The Lemonade Principle - Leverage contingencies
4) The Patchwork Quilt Principle - Form partnerships
5) The Pilot-in-the-plane Principle - Control vs prediction
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1) Entrepreneurs start with what they have
- Who am I e.g. my personality, my tastes
- What I know e.g. education, training
- Who I know e.g. social and professional network

2) Entrepreneurs should rather think of affordable loss than of expected returns

3) Entrepreneurs must be flexible or open to change (→ If life gives you lemons, make lemonade)

4) Better build partnerships than beat the competitors
New partnerships can fuel a given business model design and provide inspiration

5) Importance of personal control

Question 5

What are the benefits and downsides of having a strategy?

Answer 5

Benefits:

• having a clear focus and alignment
• faster decisions
• coherent decisions
• better and coordinated decisions
• confidence
• self-awareness

Downsides/Risks:

• becoming too strict and not be open towards new opportunities; occurs if the management team is the same for a long time (Institutional blindness)
• limited choices
• inflexibility
• block to learning
• Delusion of grandeur: companies think they have become too big to fail → getting lost and loosing touch with reality

Question 6

What is meant by alignment? Describe vertical and horizontal alignment

Answer 6

Alignment = people at different levels and in different departments make decisions that support each other

Vertical alignment = decisions made at different hierarchical levels in an organization that support each other, e.g. the decisions made by a product manager and marketing director

Horizontal alignment = decisions made in different departments that support each other