Lecture 3 Flashcards
Administrative man (Simon,1947)
a decision maker who operates under bounded rationality,meaning they make choices with limited information, time and cognitive capacity. Instead of seeking optimal solutions, the administrative man opts for a “good enough” decision, known as satisficing,which meets acceptable criteria in complex situations.
a. This concept explains how managers make decisions under uncertainty and complexity, acknowledging the human limitations, rather than assuming perfect rationality
Entrophy
the uncertainty and randomness that a firm must manage in strategic decision making. It suggest that companies need to account for the unexpected in their decision making processes
Performance dimensions
how we measure the success of strategic actions
a. Profitability
i. Net profit: actual amount left after we deduct costsfrom total revenue
ii. Profit margin: a ratio that shows what percentage of profit is revenue after expenses
b. Growth
c. Market entry/share
d. Survival
e. Patents
i. Maintenance fees
f. Sustainability
g. Sociality
What is net profit
actual amount left after we deduct costsfrom total revenue
What is profit margin
a ratio that shows what percentage of profit is revenue after expenses
Heuristics
mental shortcuts that people use to simplify decision making and problem solving. They allow us to make quick judgments without having to analyse every detail of a situation
The social individual
the unit is not an individual, but a social individual, a person who has a place in the social order
a. Individuals are deeply influenced by social networks, cultural context and interaction with others
b. Part of modern strategic management
Microfoundations
The human behaviors, biases, and decisions that underlie strategic actions and organizational outcomes.
Bounded Rationality
The idea that human beings cannot process all available information or foresee all possible outcomes, leading them to make “satisficing” decisions instead of optimal ones.
Behavioral Theory of the Firm
Suggests that organizational goals are shaped by continuous bargaining between various coalitions (e.g., owners, managers).
Satisficing (Simon,1947)
Choosing an option that is “good enough” rather than optimal due to information and cognitive limitations.
Biases and Heuristics
Mental shortcuts used by managers to make decisions, which can introduce systematic biases.
Coalitions
Groups within a firm that have different interests and goals, whose negotiations influence organizational decisions.
Strategic Management
The set of managerial actions and decisions that determine long-term performance. It’s about aligning the organization with its external environment to achieve sustained competitive advantage.
Organizational performance
The outcome of strategic actions taken by a company, measured in terms of profitability, growth, market share, etc.
