strategic decision making case study

Strategic Decision Making – A Case Study

Michael w. jones.

Dr. Michael W. Jones is a Professor of Strategy and Policy with the United States Naval War College in Monterey, California.  His specialty is the French Revolution and the Napoleonic Wars; however, for the past twenty years he has researched and written on a wide array of conflicts; examining them through the political, grand strategic, strategic, and operational levels of warfare.

Throughout history, professional military officers have studied the past to learn strategic planning and decision making. While history remains the best means to study strategy, it is problematic due to imperfect knowledge of actual events and personal biases infecting hindsight. If these are some of the problems, what are solutions to using history in a more effective manner as a tool to sharpen strategic thinking? This paper examines how practitioners can develop strategy by demonstrating a methodology for constructing alternate courses of action in a historical case study. Studying options, using information known at the time and that could have been gleaned with a greater investment in intelligence, is one of the building blocks to developing a strategically analytical mind. Gaming-out options starts with identifying the enemy’s most likely and most dangerous strategic course of action. From this point one can develop a theory of victory (TOV), meaning a concept of what conditions are necessary to defeat the enemy’s strategy, such as gaining command of the sea or winning a decisive land battle. With a theory of victory, one can then develop an overall strategy, effectively a blueprint, to accomplish it. The strategy is then honed by comparison to the enemy’s most likely response. This analysis results in alternate courses of action that are in turn honed until the most efficient and effective strategy to achieve the policy objective has been determined. The goal is to implement a history-driven process that can be carried forward to developing future strategic contingencies.

The 1904-05 Russo-Japanese War serves as our model because its historical record provides clear data of the belligerents’ policy objectives, orders of battle, their internal political structure, the geostrategic landscape, the theater’s infrastructure, and clear geographical features that dictated Japan’s lines of attack. Simplifying the exercise is that this war was a limited conventional struggle between two great powers with little to no interference by allied or third-party nations. Furthermore, the belligerents foresaw a military confrontation well before the first shots and had time to develop and resource a chosen strategy. Due to limitations of space this paper will be confined to an overview of five Russian strategic options.

Nine months prior to the outbreak of the Russo-Japanese War, General Alexiev Kuropatkin, Russia’s Minister of War, toured the Far East and predicted a Japanese attack. The Russian Imperial Navy had also anticipated war with Japan and gone so far as conducting war games to assess the likelihood of victory.[i] Their foresight provides the temporal starting point to examining Russian strategic options to counter a possible Japanese offensive.

The question is: how does one build strategic options? Following Sun Tzu’s prescription to “know thyself and thy enemy” and Carl von Clausewitz’s admonition that policy is the primary determinate of the nature of war, the Russians first needed to discern Japan’s policy objective. By knowing what they sought to gain from the war, Russian leaders could then determine Japan’s optimal TOV and thereafter their strategy. Russian planners could have further dissected this strategy’s operational components, discerning Japan’s course of action by determining the strategic end state and logically discerning how the Japanese military would arrive at it. From this point, Kuropatkin could then develop Russia’s optimal strategic counter. The methodology worked in the following manner. Prior to Japan’s surprise attack on the Russian fleet based at Port Arthur (now Lushan, China), the Japanese government had publicly opposed Russian encroachment into the Korean peninsula and Manchuria. In the case of war the obvious Japanese policy would be to drive the Russian government and military permanently out of these regions and supplant their authority. Defeating Russian forces in Manchuria was their only means to accomplish the policy. This strategic end state required control of the sea to project the army ashore and then secure a land victory to break Russia’s will. Owing to Russia’s drastically larger manpower and financial resources, the Japanese recognized the need for a relatively short war that only decisive battles could deliver. Japan’s most likely strategic course of action informs analysis of Russia’s options to counter it and achieve its policy objective of retaining control of Manchuria and increasing influence in the Far East.

Strategic Naval Option 1: Decisive Naval Battle

The United States’ legendary naval theorist, Alfred Thayer Mahan, argued that Russia’s best option was to prepare for and execute a decisive naval battle using the seven battleships of its Pacific Squadron. Arguably the Russians had critical advantages over the Japanese at sea. Overall, Russia possessed a much larger fleet and if properly concentrated, as Mahan advocated, it could have traded ships with Japan and still won the war. If Russia was victorious at sea, Japan could not have landed on the Asian mainland, hence Russia would have retained Manchuria and achieved a quick, decisive victory! Because Japan could only win the war on land, Russia had the advantage of being able to risk its fleet and if defeated, fall back on the army to deny the Japanese their objective.

The key to adopting Mahan’s strategy was immediate action the moment Kuropatkin realized war was to occur in the near future. First, the Russians should have appointed their best admiral, the dynamic, charismatic and already internationally renowned Vice-Admiral Ossipovitch Makarov, to command the Russian Pacific Squadron at Port Arthur. The history of the war revealed what Russian leaders already knew of Makarov’s capabilities. In one month of command, before his ship, the Petropavlosk , struck a mine and carried him down with it, he drastically improved the sailors’ seamanship, gunnery, and morale to an extent that the Russian Pacific Squadron could challenge the Japanese navy on an equal footing. Second, Kuropatkin should have ordered and resourced a naval “intelligence preparation of the battlefield” (IPB) of the Japanese navy’s order of battle and capabilities to identify his own navy’s requirements. To win control of the sea, Russia needed overwhelming superiority of battleships, a problem Russia could have been rectified with ships idling in European waters. A reinforced fleet, with Makarov at the helm, would have been fully capable of winning decisively at sea. Seeking out the Japanese fleet for a decisive battle would have been relatively easy, because it was bound to protecting the army coming ashore. Makarov could have struck immediately after Japan fired the first shots or waited until a substantial force had come ashore and then destroyed the Japanese warships, leaving a significant portion of the army stranded in Korea. Kuropatkin’s strategic, operational, and tactical naval options would have abounded with proper preparation, which Russia was wholly capable of doing because they foresaw the coming war, possessed the world’s third largest navy, and were blessed with an excellent fighting admiral.

Strategic Naval Option 2: Commerce Raiding

If the Russians had deemed decisive naval battle too risky, a secondary naval option would have been a commerce war. Japan was particularly vulnerable to this strategic option due to its relatively small merchant marine, the refusal of neutral vessels to carry Japanese war materials, and the reality of its navy having to guard against the possibility of a Russian fleet sortie from Port Arthur. Mahan rightly assessed that Russia’s flawed disposition of its commerce raiding cruisers, deployed alongside the battleships based at Port Arthur, rather than dispersed to unguarded Vladivostok, meant it was unprepared to seize opportunity after Japan attacked. Implementing this strategy, though, would have required forethought beyond what Mahan discusses. As with the prior strategy, European based cruisers should have been shifted to Vladivostok in the ten months prior to war to have made this a viable option. Makarov could have conducted exercises, identified his ablest commanders, and used the naval IPB to discern the best operational approaches to this strategic option. Russia did none of these preparations and found itself with ad hoc commerce raiding operations which proved a dedicated strategy of this nature had much potential to change the course of the war, if it had been properly planned for and resourced. For example, three Russian cruisers sank Japanese transports carrying critical war materials such as siege guns for Port Arthur and American made locomotives Japan needed to project its army into Manchuria. Some analysts concluded that loss of the siege guns alone delayed Port Arthur’s fall by months and drastically increased casualties. With proper coordination, the Russian battleships of the Russian Pacific Squadron could have threatened the Japanese army’s sea lines of communication on the western flank of the Korean peninsula to pin Japan’s limited naval forces. If the Japanese navy hunted the commerce raiders they would have exposed the army to a sortie from the main Russian fleet. To leave the raiders unmolested could have crippled the lifeline to Japan, rendering the Japanese forces already ashore vulnerable to a Russian army riposte. Once again, Russia’s failure to explore strategic options before the war left it unprepared in another strategic dimension. Japan was able overcome Russia’s deadly commerce raiders because they were so few and the lethargy of the Russian Pacific Squadron after Makarov’s death allowed them to eventually dispatch naval forces to find and sink the Russian cruisers.

Strategic Land Option 1: Trade Space for Time + Eventual Decisive Battle

Irrespective of the naval options, Russia could have analyzed three land strategies. Kuropatkin’s chosen strategy was a limited withdrawal along the Russian line of communication – the South Manchurian Railway – to await reinforcements before shifting to the strategic offensive. Kuropatkin assessed that in the initial months of the war, Japanese forces outnumbered his men in theater; therefore, he would gain time and preserve his army’s strength by the classic method of trading space. Time would allow Russian engineers and laborers to improve the Trans-Siberian railway, Asiatic Russia’s lifeline to its European counterpart. This strategy necessitated withdrawal of all Russian forces in southern Manchuria to the city of Liaoyang, roughly 120 miles from the Yalu River. The merit of Kuropatkin’s strategy was that it accomplished his goal of buying time to increase Russian numbers over the Japanese. At the Battle of Liaoyang, the Russians possessed 158,000 soldiers and 609 guns against 125,000 Japanese and 170 guns.[ii] Yet the Russian army was defeated at this potentially decisive battle and the subsequent larger engagement at Mukden because it was an untested and poorly trained force, led by a commander who conceded every strategic, operational, and tactical initiative to his opponent!

What Kuropatkin had gained in time and men in his wholesale retreat, he lost in infrastructure (ports and railroads), key terrain (landing sites, mountain passes, and choke points), and opportunities to hone the army’s operational and tactical skill. Retreating into southern Manchuria left all amphibious landing zones throughout Korea and the Liaotung Peninsula undefended. After the Japanese came ashore they found almost every avenue of approach to Dalny, a commercial port and the most significant logistical hub of the entire war, open, with the limited exception of one regiment at Nanshan, where the Liaotung Peninsula narrows to its most defendable point. While the small Russian force fought a heroic defense, it was outnumbered 10:1. Kuropatkin had left Port Arthur’s garrison to defend itself and simply abandoned Dalny, potentially dooming the Russian Pacific Squadron. Perhaps the worst effect of Kuropatkin’s strategy was that the token resistance he did offer was fodder for Japanese victories. Russian battlefield defeats boosted Japan’s international standing, allowing it to float critical loans, unify its people, and devastate Russian morale on the home front, eventually culminating in revolution.

Strategic Land Option 2: Scorched Earth + Trade Space for Time + Eventual Decisive Battle

Assessing his army as initially too weak to fight a decisive battle, Kuropatkin could have moved his forces deeper into Manchuria, beyond Japan’s logistical reach, while destroying all infrastructure in southern Manchuria. Planning for this strategic option would have included sending the Pacific Squadron back to Europe to preserve this valuable asset and avoiding the disastrous effects on Russian morale stemming from its loss. With no fear of abandoning the fleet, Kuropatkin would have possessed a free hand to withdraw the army and destroy war resources without immense political pressure to hold ground. A scorched earth methodology would have destroyed infrastructure Japan required to project its army into southern Manchuria. For example, after capturing Dalny, Japanese General Yasukata Oku reported, “Over 100 warehouses, barracks…were found uninjured. Over 290 railway cars still usable…. Docks and piers uninjured.”[iii] Ashmead-Bartlett Ellis, a British reporter, confirmed Dalny’s value to the Japanese war effort, reporting “Every day numerous trains steam out of the station laden with troops and stores for Oyama (Field-Marshall Iwao Oyama) and his half-a-million of men.” Ellis went on to describe the docks, harbor, and breakwaters as “splendid.”[iv] Furthermore, Dalny’s rail line connected it to Port Arthur and to the South Manchurian Railroad which ran through the towns of Liaoyang and Mukden, sites of the war’s two largest battles. In his memoirs, Kuropatkin would inadvertently incriminate himself regarding leaving the infrastructure intact referencing, “the delivery of heavy howitzers [that destroyed Russian defenses] and the landing of other siege material was greatly facilitated by the existence of Dalny.”[v] Japan’s use of Dalny as a logistical hub illustrates that a scorched-earth methodology would have increased Japan’s war costs and drawn-out the war in Russia’s favor.

If the Russian army had been safely beyond Japan’s reach, Kuropatkin could have improved the Trans-Siberian Railroad while training and equipping his force for a counteroffensive. A primary factor in Japan’s preemptive strike was the recognition that steady improvements in the Trans-Siberian railroad would eventually permit Russia to deploy a force that could overwhelm their manpower and resources. At the outset of the war, the Trans-Siberian Railroad lacked 600 of the necessary 900 locomotives deemed sufficient to sustain a massive force. It had a large gap at Lake Baikal and was single tracked. Through prodigious effort, the Russian supply situation had drastically improved by March of 1905; however, by this stage Kuropatkin’s many defeats had helped spark revolt in European Russia and the army was a demoralized force.[vi] Avoiding costly human losses and husbanding material and manpower until the railroad was prepared to sustain a large army, would have allowed the Russians a transition to the offensive with overwhelming force against a foe attempting to sustain hundreds of thousands of men across too much desolated space, with its manpower and finances exhausted by a long war.

Strategic Land Option 3: Active Forward Defense + Eventual Decisive Battle

Perhaps the most daring, yet rewarding, land option would have been for Russia to conduct an active defense based on defending against Japanese amphibious landings, and waging a fighting withdrawal until reinforcements arrived from Europe to tip the military balance toward a strategic offensive. Preventing the Japanese from coming ashore in sizeable numbers would have preserved Manchuria’s infrastructure, saved the battleship fleet at Port Arthur, and provided Kuropatkin’s forces with all the advantages of the central position. Denying the Japanese easy and early victories would have bolstered the army’s morale and skill, dried up Japanese war loans, and perhaps forestalled the Russian Revolution of 1905, which denied it the option of extending the war.

In the first two months of the war, the Japanese offensive was most vulnerable because it had to conduct a risky series of complimentary amphibious operations. The Japanese First Army initially landed in central Korea, distant from Russian counterattacks, then marched north along dirt tracks, with only Korean coolies providing logistical support. These initial troops seized inlets that allowed the navy to keep advancing the army’s logistical base closer to the Yalu River, at the base of the Liaotung Peninsula. Victory at the Yalu would protect the eastern flank of the Second and Fourth Armies as they came ashore at beaches near Dalny and Port Arthur. If the Russians had contested northern Korea and defended the Yalu River, rather than Kuropatkin’s pitting of a mere 19,000 men against 42,000 Japanese, the Russians could have stalled the entire Japanese offensive, making time a weapon in their favor.

This Russian strategic option would have rested on a combination of prepared forward defenses supported by quick reaction forces (QRF). First, Russian intelligence needed to conduct an IPB of the Korean and Liaotung Peninsula’s topography to determine landing sites, lines of communications, and advantageous defensive terrain. Defending the beaches with a combination of garrison forces and QRFs would have drastically increased Japanese casualties and potentially slowed their advance along the Korean Peninsula to a crawl. On almost every beach the Japanese army was exposed coming ashore. For example, the Japanese Second Army landed in chest high water and had to wade ashore, across a long and vulnerable stretch. Their equipment continued to be offloaded on sandy beaches until the Japanese captured Dalny. If the Russians had opted to defend against amphibious landings, they may have been able to inflict a disaster similar to the British army’s debacle in World War I at Gallipoli. If driven back, the Russians could have fought from a belt of defensive positions to bleed the Japanese army and extend the war, thereby draining Japanese financial resources and exhausting their nation. The Russian army was fully capable of such a defense as it proved at the Battle of Nanshan and the siege of Port Arthur. Drastically outnumbered in both operations, the Russian defenders inflicted massive casualties on the Japanese. What would have been the strategic ramifications of such battles being fought before the Japanese had time to offload their entire army onto the continent and were bottled up on beachheads and narrow lines of communication, all the while Russian reinforcements poured in from Europe to seek the final decisive blow?

For military leaders, prognosticating a future war and predetermining strategy is extremely difficult, but if correctly anticipated, such insights provide opportunity to analyze, plan, resource, and even war game scenarios. In the 1930s, the United States Navy anticipated a naval battle similar to Midway, allowing its students, in particular Chester Nimitz, to study options to defeat the Japanese. This exercise bore fruit in perhaps America’s greatest naval victory. The Navy could not be certain of the future, but the evidence they observed allowed them to visualize realistic scenarios which were the basis of planning. Similar to Nimitz, Kuropatkin also foresaw war but unlike America’s great admiral he failed to subject his strategy to productive counter-thesis. While some may decry analyzing alternative historical strategies as smoke and mirrors, mentally exercising options not taken in the past helps develop critical skills applicable to future wars. A great challenge in the historical method is that historians tend to write on the paths taken, not hypothetical alternatives. And since historical information is the intellectual fuel for analyzing war, one must cobble together evidence and use logic to develop plausible alternatives. This methodology is hard for many analysts to internalize. How can one use strategies that did not take place? Fortunately, the Russo-Japanese War provides ample information to study a range of strategic options. Starting with the belligerents’ policy objectives and working through net assessments, strategic options begin to coalesce. In the Russo-Japanese War Kuropatkin possessed the resources to defeat Japan’s military, but he lacked a means to analyze the best strategic course of action.

[i] John W. Steinberg, Bruce W. Menning, David Schimmelpenninck van der Oye, David Wolff, and Shinji Yokote, eds., The Russo-Japanese War in Global Perspective (Boston: Brill Academic Publishers, 2005), 59. [ii] Warner, Denis and Peggy, The Tide at Sunrise, A History of the Russo-Japanese War 1904-05, (London: Frank Cass, 1974), 354. [iii] Ashmead-Bartlett Ellis, “The Times” 04 Jun 1904, Issue Number 37412, 7. https://bit.ly/2Qgjdhk [iv] Ibid, 9-11. [v] Kuropatkin, Alexiev. 1909. The Russian Army and The Japanese War, Being Historical and Critical comments on the Military Policy and Power of Russia and on the Campaign in the Far East. Translated by Captain A.B. Lindsay. Edited by Major E.D. Swinton, vol 1. New York: E.P. Dutton and Company, 1909, 127. Kuropatkin blamed other ministers for building Dalny’s infrastructure which he neglected to defend and/or destroy!

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Effective Decision-Making: A Case Study

Effective decision-making:, leading an organization through timely and impactful action.

Senior leaders at a top New England insurance provider need to develop the skills and behaviors for better, faster decision-making. This virtually delivered program spans four half-day sessions and includes individual assignments, facilitator-led presentations, and simulation decision-making. Over the past two months, this program touched over 100 leaders, providing them with actionable models and frameworks to use back on the job.

For one of New England’s most iconic insurers, senior leaders are challenged to make timely, effective decisions. These leaders face decisions on three levels: ones they translate to their teams, ones they make themselves, and ones they influence. But in a quickly changing, highly regulated market, risk aversion can lead to slow and ineffective decisions. How can senior leaders practice in a safe environment the quick, yet informed, decision-making necessary for the job while simultaneously learning new models and techniques — and without the learning experience burdening their precious time?

The Effective Decision-Making program was artfully designed to immerse senior leaders in 16 hours of hands-on experience, including reflection and feedback activities, applicable exercises, supporting content, and participation in a business simulation to practice the core content of the program. Participants work together in small groups to complete these activities within a limited time frame, replicating the work environment in which these leaders must succeed. Continuous reflection and group discussion around results create real-time learning for leaders. Application exercises then facilitate the simulation experience and their work back on the job. The program employs a variety of learning methodologies, including:

• Individual assignments that incorporate content and frameworks designed to develop effective decision-making skills.
• Guided reflection activities to encourage self-awareness and commitments for action.
• Large group conversations — live discussions focused on peer input around key learning points.
• Small group activities, including virtual role plays designed to build critical interpersonal and leadership skills.
• A dynamic business simulation in which participants are charged with translating, making, and influencing difficult decisions.
• Facilitator-led discussions and presentations.

Learning Objectives

Participants develop and improve skills to:

• Cultivate a leadership mindset that empowers, inspires, and challenges others.
• Translate decisions for stronger team alignment and performance.
• Make better decisions under pressure.
• Influence individuals across the organization.
• Better understand how one’s leadership actions impact business results

Design Highlights

Program agenda.

As a result of the COVID-19 pandemic and the need for social distancing, this program was delivered virtually. However, this didn't preclude the need to give leaders an opportunity to connect with, and learn from, one another. In response to those needs, Insight Experience developed a fully remote, yet highly interactive, offering delivered over four half-day sessions.

Interactive Virtual Learning Format

Effective Decision-Making was designed to promote both individual and group activities and reflection. Participants access the program via a video-conferencing platform that allows them to work together both in large and small groups. Learning content and group discussions are done as one large group, enabling consistency in learning and opportunities to hear from all participants. The business simulation decision-making and reflection activities are conducted in small groups, allowing teams to develop deeper connections and conversations.

Simulation Overview

Participants assume the role of a General Manager for InfoMaster, a message management provider. Their leadership challenge as the GM is to translate the broader IIC organizational goals into strategy for their business, support that strategy though the development of organizational capabilities and product offerings, manage multiple divisions and stakeholders, and consider their contribution and responsibility to the broader organization of which they are a part. 

Success in the simulation is based on how well teams:

• Understand and translate organizational strategy into goals and plans for their business unit.
• Align organizational initiatives and product development with broader strategies.
• Develop employee capabilities required to execute strategic goals.
• Hold stakeholders accountable to commitments and results.
• Communicate with stakeholders and involve others in plans and decision-making.
• Develop their network and their influence within IIC to help support initiatives for the organization

History and Results

Effective Decision-Making was developed in 2020 as an experience for senior-level leaders. After a successful pilot, the program was then rolled out to two more cohorts in 2021 and 2022. The senior-level leaders who participated in the program then requested we offer the same program to their direct reports. After some small adjustments to make the program more appropriate for director-level leaders, the program was launched in 2022 for approximately 100 directors.

Here is what some participants have said about this program:

• “ One of the better programs we've done here at [our organization]. Pace was very quick but content was excellent and approach made it fun .”
• “ Loved the content and the flow. Very nicely organized and managed. Thank you! ”
• “ Really enjoyed the collaborative nature of the simulation.”
• “ It was wonderful and I felt it is a great opportunity. Learnt and reinforced leadership training and what it would take to be successful.”
• “One of the best I've experienced — especially appreciated how the reality of [our organization] was incorporated and it was with similarly situated peers.”
• “This program was great! It gave good insight into how to enhance my skills as leader by adopting the leadership mindset.”
• “Loved the fast pace, having a sim group that had various backgrounds in the company and seeing the results of our decisions at the corporate level.”
• “Great program — I love the concepts highlighted during these sessions.”

Looking for results like these?

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The case for behavioral strategy

Once heretical, behavioral economics is now mainstream. Money managers employ its insights about the limits of rationality in understanding investor behavior and exploiting stock-pricing anomalies. Policy makers use behavioral principles to boost participation in retirement-savings plans. Marketers now understand why some promotions entice consumers and others don’t.

Yet very few corporate strategists making important decisions consciously take into account the cognitive biases—systematic tendencies to deviate from rational calculations—revealed by behavioral economics. It’s easy to see why: unlike in fields such as finance and marketing, where executives can use psychology to make the most of the biases residing in others , in strategic decision making leaders need to recognize their own biases. So despite growing awareness of behavioral economics and numerous efforts by management writers, including ourselves, to make the case for its application, most executives have a justifiably difficult time knowing how to harness its power. 1 1. See Charles Roxburgh, “ Hidden flaws in strategy ,” McKinsey Quarterly , May 2003; and Dan P. Lovallo and Olivier Sibony, “ Distortions and deceptions in strategic decisions ,” McKinsey Quarterly , February 2006.

This is not to say that executives think their strategic decisions are perfect. In a recent McKinsey Quarterly survey of 2,207 executives, only 28 percent said that the quality of strategic decisions in their companies was generally good, 60 percent thought that bad decisions were about as frequent as good ones, and the remaining 12 percent thought good decisions were altogether infrequent. 2 2. See “ Flaws in strategic decision making: McKinsey Global Survey Results ,” January 2009. Our candid conversations with senior executives behind closed doors reveal a similar unease with the quality of decision making and confirm the significant body of research indicating that cognitive biases affect the most important strategic decisions made by the smartest managers in the best companies. Mergers routinely fail to deliver the expected synergies. 3 3. See Dan Lovallo, Patrick Viguerie, Robert Uhlaner, and John Horn, “Deals without delusions,” Harvard Business Review , December 2007, Volume 85, Number 12, pp. 92–99. Strategic plans often ignore competitive responses. 4 4. See John T. Horn, Dan P. Lovallo, and S. Patrick Viguerie, “ Beating the odds in market entry ,” McKinsey Quarterly , November 2005. And large investment projects are over budget and over time—over and over again. 5 5. See Bent Flyvbjerg, Dan Lovallo, and Massimo Garbuio, “Delusion and deception in large infrastructure projects,” California Management Review , 2009, Volume 52, Number 1, pp. 170–93.

In this article, we share the results of new research quantifying the financial benefits of processes that “debias” strategic decisions. The size of this prize makes a strong case for practicing behavioral strategy—a style of strategic decision making that incorporates the lessons of psychology. It starts with the recognition that even if we try, like Baron Münchhausen, to escape the swamp of biases by pulling ourselves up by our own hair, we are unlikely to succeed. Instead, we need new norms for activities such as managing meetings (for more on running unbiased meetings, see “ Taking the bias out of meetings ”), gathering data, discussing analogies, and stimulating debate that together can diminish the impact of cognitive biases on critical decisions. To support those new norms, we also need a simple language for recognizing and discussing biases, one that is grounded in the reality of corporate life, as opposed to the sometimes-arcane language of academia. All this represents a significant commitment and, in some organizations, a profound cultural change.

The value of good decision processes

Think of a large business decision your company made recently: a major acquisition, a large capital expenditure, a key technological choice, or a new-product launch. Three things went into it. The decision almost certainly involved some fact gathering and analysis. It relied on the insights and judgment of a number of executives (a number sometimes as small as one). And it was reached after a process—sometimes very formal, sometimes completely informal—turned the data and judgment into a decision.

Our research indicates that, contrary to what one might assume, good analysis in the hands of managers who have good judgment won’t naturally yield good decisions. The third ingredient—the process—is also crucial. We discovered this by asking managers to report on both the nature of an important decision and the process through which it was reached. In all, we studied 1,048 major decisions made over the past five years, including investments in new products, M&A decisions, and large capital expenditures (Exhibit 1).

The research analyzed a variety of decisions.

We asked managers to report on the extent to which they had applied 17 practices in making that decision. Eight of these practices had to do with the quantity and detail of the analysis: did you, for example, build a detailed financial model or run sensitivity analyses? The others described the decision-making process: for instance, did you explicitly explore and discuss major uncertainties or discuss viewpoints that contradicted the senior leader’s? We chose these process characteristics because in academic research and in our experience, they have proved effective at overcoming biases. 6 6. Research like this is challenging because of what International Institute for Management Development (IMD) professor Phil Rosenzweig calls the “halo effect”: the tendency of people to believe that when their companies are successful or a decision turns out well, their actions were important contributors (see Phil Rosenzweig, “ The halo effect, and other managerial delusions ,” McKinsey Quarterly , February 2007). We sought to mitigate the halo effect by asking respondents to focus on a typical decision process in their companies and to list several decisions before landing on one for detailed questioning. Next, we asked analytical and process questions about the specific decision for the bulk of the survey. Finally, at the very end of it, we asked about performance metrics.

After controlling for factors like industry, geography, and company size, we used regression analysis to calculate how much of the variance in decision outcomes 7 7. We asked respondents to assess outcomes along four dimensions: revenue, profitability, market share, and productivity. was explained by the quality of the process and how much by the quantity and detail of the analysis. The answer: process mattered more than analysis—by a factor of six (Exhibit 2). This finding does not mean that analysis is unimportant, as a closer look at the data reveals: almost no decisions in our sample made through a very strong process were backed by very poor analysis. Why? Because one of the things an unbiased decision-making process will do is ferret out poor analysis. The reverse is not true; superb analysis is useless unless the decision process gives it a fair hearing.

Process, analysis, and industry variables explain decision-making effectiveness.

To get a sense of the value at stake, we also assessed the return on investment (ROI) of decisions characterized by a superior process. 8 8. This analysis covers the subset of 673 (out of all 1,048) decisions for which ROI data were available. The analysis revealed that raising a company’s game from the bottom to the top quartile on the decision-making process improved its ROI by 6.9 percentage points. The ROI advantage for top-quartile versus bottom-quartile analytics was 5.3 percentage points, further underscoring the tight relationship between process and analysis. Good process, in short, isn’t just good hygiene; it’s good business.

The building blocks of behavioral strategy

Any seasoned executive will of course recognize some biases and take them into account. That is what we do when we apply a discount factor to a plan from a direct report (correcting for that person’s overoptimism). That is also what we do when we fear that one person’s recommendation may be colored by self-interest and ask a neutral third party for an independent opinion.

However, academic research and empirical observation suggest that these corrections are too inexact and limited to be helpful. The prevalence of biases in corporate decisions is partly a function of habit, training, executive selection, and corporate culture. But most fundamentally, biases are pervasive because they are a product of human nature—hardwired and highly resistant to feedback, however brutal. For example, drivers laid up in hospitals for traffic accidents they themselves caused overestimate their driving abilities just as much as the rest of us do. 9 9. Caroline E. Preston and Stanley Harris, “Psychology of drivers in traffic accidents,” Journal of Applied Psychology , 1965, Volume 49, Number 4, pp. 284–88.

Improving strategic decision making therefore requires not only trying to limit our own (and others’) biases but also orchestrating a decision-making process that will confront different biases and limit their impact. To use a judicial analogy, we cannot trust the judges or the jurors to be infallible; they are, after all, human. But as citizens, we can expect verdicts to be rendered by juries and trials to follow the rules of due process. It is through teamwork, and the process that organizes it, that we seek a high-quality outcome.

Building such a process for strategic decision making requires an understanding of the biases the process needs to address. In the discussion that follows, we focus on the subset of biases we have found to be most relevant for executives and classify those biases into five simple, business-oriented groupings. (You can download a PDF of the groupings of biases that occur most frequently in business.) A familiarity with this classification is useful in itself because, as the psychologist and Nobel laureate in economics Daniel Kahneman has pointed out, the odds of defeating biases in a group setting rise when discussion of them is widespread. But familiarity alone isn’t enough to ensure unbiased decision making, so as we discuss each family of bias, we also provide some general principles and specific examples of practices that can help counteract it.

Counter pattern-recognition biases by changing the angle of vision

The ability to identify patterns helps set humans apart but also carries with it a risk of misinterpreting conceptual relationships. Common pattern-recognition biases include saliency biases (which lead us to overweight recent or highly memorable events) and the confirmation bias (the tendency, once a hypothesis has been formed, to ignore evidence that would disprove it). Particularly imperiled are senior executives, whose deep experience boosts the odds that they will rely on analogies, from their own experience, that may turn out to be misleading. 10 10. For more on misleading experiences, see Sydney Finkelstein, Jo Whitehead, and Andrew Campbell, Think Again: Why Good Leaders Make Bad Decisions and How to Keep It from Happening to You , Boston: Harvard Business Press, 2008. Whenever analogies, comparisons, or salient examples are used to justify a decision, and whenever convincing champions use their powers of persuasion to tell a compelling story, pattern-recognition biases may be at work.

Pattern recognition is second nature to all of us—and often quite valuable—so fighting biases associated with it is challenging. The best we can do is to change the angle of vision by encouraging participants to see facts in a different light and to test alternative hypotheses to explain those facts. This practice starts with things as simple as field and customer visits. It continues with meeting-management techniques such as reframing or role reversal, which encourage participants to formulate alternative explanations for the evidence with which they are presented. It can also leverage tools, such as competitive war games, that promote out-of-the-box thinking.

Sometimes, simply coaxing managers to articulate the experiences influencing them is valuable. According to Kleiner Perkins partner Randy Komisar, for example, a contentious discussion over manufacturing strategy at the start-up WebTV 11 11. WebTV is now MSN TV. suddenly became much more manageable once it was clear that the preferences of executives about which strategy to pursue stemmed from their previous career experience. When that realization came, he told us, there was immediately a “sense of exhaling in the room.” Managers with software experience were frightened about building hardware; managers with hardware experience were afraid of ceding control to contract manufacturers.

Getting these experiences into the open helped WebTV’s management team become aware of the pattern recognition they triggered and see more clearly the pros and cons of both options. Ultimately, WebTV’s executives decided both to outsource hardware production to large electronics makers and, heeding the worries of executives with hardware experience, to establish a manufacturing line in Mexico as a backup, in case the contractors did not deliver in time for the Christmas season. That in fact happened, and the backup plan, which would not have existed without a decision process that changed the angle of vision, “saved the company.”

Another useful means of changing the angle of vision is to make it wider by creating a reasonably large—in our experience at least six—set of similar endeavors for comparative analysis. For example, in an effort to improve US military effectiveness in Iraq in 2004, Colonel Kalev Sepp—by himself, in 36 hours—developed a reference class of 53 similar counterinsurgency conflicts, complete with strategies and outcomes. This effort informed subsequent policy changes. 12 12. Thomas E. Ricks, Fiasco: The American Military Adventure in Iraq , New York: Penguin Press, 2006, pp. 393–94.

Counter action-oriented biases by recognizing uncertainty

Most executives rightly feel a need to take action. However, the actions we take are often prompted by excessive optimism about the future and especially about our own ability to influence it. Ask yourself how many plans you have reviewed that turned out to be based on overly optimistic forecasts of market potential or underestimated competitive responses. When you or your people feel—especially under pressure—an urge to take action and an attractive plan presents itself, chances are good that some elements of overconfidence have tainted it.

To make matters worse, the culture of many organizations suppresses uncertainty and rewards behavior that ignores it. For instance, in most organizations, an executive who projects great confidence in a plan is more likely to get it approved than one who lays out all the risks and uncertainties surrounding it. Seldom do we see confidence as a warning sign—a hint that overconfidence, overoptimism, and other action-oriented biases may be at work.

Superior decision-making processes counteract action-oriented biases by promoting the recognition of uncertainty. For example, it often helps to make a clear and explicit distinction between decision meetings, where leaders should embrace uncertainty while encouraging dissent, and implementation meetings, where it’s time for executives to move forward together. Also valuable are tools—such as scenario planning, decision trees, and the “premortem” championed by research psychologist Gary Klein (for more on the premortem, see “ Strategic decisions: When can you trust your gut? ”)—that force consideration of many potential outcomes. And at the time of a major decision, it’s critical to discuss which metrics need to be monitored to highlight necessary course corrections quickly.

Counter stability biases by shaking things up

In contrast to action biases, stability biases make us less prone to depart from the status quo than we should be. This category includes anchoring—the powerful impact an initial idea or number has on the subsequent strategic conversation. (For instance, last year’s numbers are an implicit but extremely powerful anchor in any budget review.) Stability biases also include loss aversion—the well-documented tendency to feel losses more acutely than equivalent gains—and the sunk-cost fallacy, which can lead companies to hold on to businesses they should divest. 13 13. See John T. Horn, Dan P. Lovallo, and S. Patrick Viguerie, “ Learning to let go: Making better exit decisions ,” McKinsey Quarterly , May 2006.

One way of diagnosing your company’s susceptibility to stability biases is to compare decisions over time. For example, try mapping the percentage of total new investment each division of the company receives year after year. If that percentage is stable but the divisions’ growth opportunities are not, this finding is cause for concern—and quite a common one. Our research indicates, for example, that in multibusiness corporations over a 15-year time horizon, there is a near-perfect correlation between a business unit’s current share of the capital expenditure budget and its budget share in the previous year. A similar inertia often bedevils advertising budgets and R&D project pipelines.

One way to help managers shake things up is to establish stretch targets that are impossible to achieve through “business as usual.” Zero-based (or clean-sheet) budgeting sounds promising, but in our experience companies use this approach only when they are in dire straits. An alternative is to start by reducing each reporting unit’s budget by a fixed percentage (for instance, 10 percent). The resulting tough choices facilitate the redeployment of resources to more valuable opportunities. Finally, challenging budget allocations at a more granular level can help companies reprioritize their investments. 14 14. For more on reviewing the growth opportunities available across different micromarkets ranging in size from $50 million to $200 million, rather than across business units as a whole, see Mehrdad Baghai, Sven Smit, and Patrick Viguerie, “Is your growth strategy flying blind?” Harvard Business Review , May 2009, Volume 87, Number 5, pp. 86–96.

Counter interest biases by making them explicit

Misaligned incentives are a major source of bias. “Silo thinking,” in which organizational units defend their own interests, is its most easily detectable manifestation. Furthermore, senior executives sometimes honestly view the goals of a company differently because of their different roles or functional expertise. Heated discussions in which participants seem to see issues from completely different perspectives often reflect the presence of different (and generally unspoken) interest biases.

The truth is that adopting a sufficiently broad (and realistic) definition of “interests,” including reputation, career options, and individual preferences, leads to the inescapable conclusion that there will always be conflicts between one manager and another and between individual managers and the company as a whole. Strong decision-making processes explicitly account for diverging interests. For example, if before the time of a decision, strategists formulate precisely the criteria that will and won’t be used to evaluate it, they make it more difficult for individual managers to change the terms of the debate to make their preferred actions seem more attractive. Similarly, populating meetings or teams with participants whose interests clash can reduce the likelihood that one set of interests will undermine thoughtful decision making.

Counter social biases by depersonalizing debate

Social biases are sometimes interpreted as corporate politics but in fact are deep-rooted human tendencies. Even when nothing is at stake, we tend to conform to the dominant views of the group we belong to (and of its leader). 15 15. The Asch conformity experiments, conducted during the 1950s, are a classic example of this dynamic. In the experiments, individuals gave clearly incorrect answers to simple questions after confederates of the experimenter gave the same incorrect answers aloud. See Solomon E. Asch, “Opinions and social pressure,” Scientific American , 1955, Volume 193, Number 5, pp. 31–35. Many organizations compound these tendencies because of both strong corporate cultures and incentives to conform. An absence of dissent is a strong warning sign. Social biases also are likely to prevail in discussions where everyone in the room knows the views of the ultimate decision maker (and assumes that the leader is unlikely to change her mind).

Countless techniques exist to stimulate debate among executive teams, and many are simple to learn and practice. (For more on promoting debate, see suggestions from Kleiner Perkins’ Randy Komisar and Xerox’s Anne Mulcahy in “ How we do it: Three executives reflect on strategic decision making .”) But tools per se won’t create debate: that is a matter of behavior. Genuine debate requires diversity in the backgrounds and personalities of the decision makers, a climate of trust, and a culture in which discussions are depersonalized.

Most crucially, debate calls for senior leaders who genuinely believe in the collective intelligence of a high-caliber management team. Such executives see themselves serving not only as the ultimate decision makers but also as the orchestrators of disciplined decision processes. They shape management teams with the humility to encourage dissent and the self-confidence and mutual trust to practice vigorous debate without damaging personal relationships. We do not suggest that CEOs should become humble listeners who rely solely on the consensus of their teams—that would substitute one simplistic stereotype for another. But we do believe that behavioral strategy will founder without their leadership and role modeling.

Four steps to adopting behavioral strategy

Our readers will probably recognize some of these ideas and tools as techniques they have used in the past. But techniques by themselves will not improve the quality of decisions. Nothing is easier, after all, than orchestrating a perfunctory debate to justify a decision already made (or thought to be made) by the CEO. Leaders who want to shape the decision-making style of their companies must commit themselves to a new path.

1. Decide which decisions warrant the effort

Some executives fear that applying the principles we describe here could be divisive, counterproductive, or simply too time consuming (for more on the dangers of decision paralysis, see the commentary by WPP’s Sir Martin Sorrell in “ How we do it: Three executives reflect on strategic decision making ”). We share this concern and do not suggest applying these principles to all decisions. Here again, the judicial analogy is instructive. Just as higher standards of process apply in a capital case than in a proceeding before a small-claims court, companies can and should pay special attention to two types of decisions.

The first set consists of rare, one-of-a-kind strategic decisions. Major mergers and acquisitions, “bet the company” investments, and crucial technological choices fall in this category. In most companies, these decisions are made by a small subgroup of the executive team, using an ad hoc, informal, and often iterative process. The second set includes repetitive but high-stakes decisions that shape a company’s strategy over time. In most companies, there are generally no more than one or two such crucial processes, such as R&D allocations in a pharmaceutical company, investment decisions in a private-equity firm, or capital expenditure decisions in a utility. Formal processes—often affected by biases—are typically in place to make these decisions.

2. Identify the biases most likely to affect critical decisions

Open discussion of the biases that may be undermining decision making is invaluable. It can be stimulated both by conducting postmortems of past decisions and by observing current decision processes. Are we at risk, in this meeting, of being too action oriented? Do I see someone who thinks he recognizes a pattern but whose choice of analogies seems misleading to me? Are we seeing biases combine to create dysfunctional patterns that, when repeated in an organization, can become cultural traits? For example, is the combination of social and status quo biases creating a culture of consensus-based inertia? This discussion will help surface the biases to which the decision process under review is particularly prone.

3. Select practices and tools to counter the most relevant biases

Companies should select mechanisms that are appropriate to the type of decision at hand, to their culture, and to the decision-making styles of their leaders. For instance, one company we know counters social biases by organizing, as part of its annual planning cycle, a systematic challenge by outsiders to its business units’ plans. Another fights pattern-recognition biases by asking managers who present a recommendation to share the raw data supporting it, so other executives in this analytically minded company can try to discern alternative patterns.

If, as you read these lines, you have already thought of three reasons these techniques won’t work in your own company’s culture, you are probably right. The question is which ones will. Adopting behavioral strategy means not only embracing the broad principles set forth above but also selecting and tailoring specific debiasing practices to turn the principles into action.

4. Embed practices in formal processes

By embedding these practices in formal corporate operating procedures (such as capital-investment approval processes or R&D reviews), executives can ensure that such techniques are used with some regularity and not just when the ultimate decision maker feels unusually uncertain about which call to make. One reason it’s important to embed these practices in recurring procedures is that everything we know about the tendency toward overconfidence suggests that it is unwise to rely on one’s instincts to decide when to rely on one’s instincts! Another is that good decision making requires practice as a management team: without regular opportunities, the team will agree in principle on the techniques it should use but lack the experience (and the mutual trust) to use them effectively.

The behavioral-strategy journey requires effort and the commitment of senior leadership, but the payoff—better decisions, not to mention more engaged managers—makes it one of the most valuable strategic investments organizations can make.

Dan Lovallo is a professor at the University of Sydney, a senior research fellow at the Institute for Business Innovation at the University of California, Berkeley, and an adviser to McKinsey; Olivier Sibony is a director in McKinsey’s Brussels office.

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Strategic decision-making in business.

• Bill Wooldridge Bill Wooldridge Eugene M. Isenberg School of Management, University of Massachusetts, Amherst
•  and  Birton Cowden Birton Cowden Department of Management, Kennesaw State University
• https://doi.org/10.1093/acrefore/9780190224851.013.1
• Published online: 30 January 2020

Scholarly interest in how managers make strategic decisions dates from the inception of the strategic management field and continues in the present. Although such decision-making was originally conceived as a completely rational, top-management process, contemporary thinking recognizes that strategies from across multiple organizational levels change within social and political contexts. Within this broad domain, multiple research streams address a wide variety of topics and issues. Prominent among these are, (1) the extent to which strategic decisions are formed through comprehensive analysis versus piecemeal decision-making, (2) how characteristics of top managers and the composition of top management teams affect strategic decision-making, (3) the role of politics, conflict, and consensus in strategy making, (4) how cognitive biases and heuristics influence the process, (5) when and how intuitive judgments can form the basis for effective decision-making, and (6) how managers at various organizational levels participate in the process. Research across these streams is both descriptive and normative, with a focus on contextual contingencies and relationships to firm performance. Taken as a whole this literature has significantly enhanced understanding of how strategies form within organizations. Contemporary work continues to provide new insights and demonstrates the continued value of this productive area of study.

• strategic decision-making
• strategy process
• comprehensiveness
• decision speed
• incrementalism
• intended versus emergent strategy
• induced and autonomous strategic behavior
• consensus and conflict
• cognitive biases
• top- and middle-level roles

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Leading Strategic Decision Making, Google Case Study

In the following presentation, I’ll attempt to analyze Google’s corporate level strategy, approaching the SM process and the strategic decisions taken within the organization, identifying how the following four stages are applied: setting the long term direction, conducting a strategic position analysis, selecting strategic choices and implementing these strategy choices through strategic actions. The Ashrigde mission context / definition, is the model which will be used to evaluate Google’s current mission: “To Organize the world’s information, and make it universally accessible and useful.”

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Understanding the interplay of artificial intelligence and strategic management: four decades of research in review

• Published: 24 February 2020
• Volume 71 , pages 91–134, ( 2021 )

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• Christoph Keding   ORCID: orcid.org/0000-0002-7831-1904 1  

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As artificial intelligence (AI) is enabling the automation of many facets of management and is increasingly used in a wide range of strategic tasks, it is necessary to better understand its relevance for strategic management. However, research on the interplay of AI and strategic management is unbalanced and lacks a coherent structure due to its multidisciplinarity. This article contributes to the emerging academic discussion by systematically reviewing and categorizing the substantial amount of research that has been conducted since the first article in the field was published in 1979. Furthermore, it introduces a comprehensive framework that integrates and synthesizes existing concepts. The framework displays the structure of the research field by classifying 58 relevant articles into two research scopes: condition-oriented research, which explores antecedents for leveraging the use of AI in strategic management, and outcome-oriented research, which studies the consequences of AI in strategic management at both the individual and the organizational level. Given the exponential potential of AI to reshape the field in its current form and the need for a realistic assessment of its impact, this review proposes promising research avenues for studying the quantifiable effects of the interplay of AI and strategic management based on the developed framework.

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Acknowledgements

I am particularly thankful to the editor and the two anonymous reviewers for their constructive comments, which were very helpful for the revision of the manuscript. I would also like to thank Philip Meissner (ESCP Business School) for his valuable feedback on earlier versions of this paper.

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Keding, C. Understanding the interplay of artificial intelligence and strategic management: four decades of research in review. Manag Rev Q 71 , 91–134 (2021). https://doi.org/10.1007/s11301-020-00181-x

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Received : 23 August 2019

Accepted : 01 February 2020

Published : 24 February 2020

Issue Date : February 2021

DOI : https://doi.org/10.1007/s11301-020-00181-x

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